The European defense industry faces a funding gap of up 2 billion euros ($2.1 billion), which threatens innovation in the arms sector.
According to a Reuters article, small and medium-sized European defense companies are facing significant financial challenges as global military spending reaches a record high of $2.44 trillion by 2023.
The ongoing Russian war on Ukraine has increased geopolitical pressures and military expenditures, but created a complex financial environment for European defense SMEs.
Traditional financial institutions are still cautious about investing in the defense sector due to ESG concerns.
The Stockholm International Peace Research Institute reported that military expenditures increased by 6.8% over the previous year. This is the highest level since 2009.
Reuters reported that European defense sector companies are struggling to get the funding they need for innovation and production expansion.
A report by the European Commission for 2024 reveals a funding gap. It estimates that small and medium-sized businesses (SMEs) in EU defense face a debt finance barrier between 1 billion to 2 billion euros ($2.1 bn).
The funding shortage is caused by a number of factors, including the banks’ hesitancy to comply with environmental, social and governance (ESG), regulations.
Jiri Hnek, Managing Director of the Defence and Security Industry Association of the Czech Republic (DSIAC), said that the majority of problems in the industry have either continued or intensified in recent years.
The United States dominates the venture capital funding for defense, with 83% of all investments made by NATO allies in 2018.
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