3 Priority focus areas

3.1 Procurement of defence materiel

Public procurement processes are time-consuming. On average, it takes a minimum of four to five years from the time a project is initiated to the signing of a contract. Payments and deliveries do not begin until after this. To address Norwegian, Allied and Ukrainian needs for more rapid access to defence materiel, the Government will work to accelerate procurement processes for defence-related products. In light of the changed security situation in Europe, it is important to take advantage of the flexibility provided in the procurement rules that apply to acquisition of defence materiel.

Under the rules, it is possible to simplify and adapt procurement processes in order to promote more rapid implementation. Before time-consuming reviews are initiated, the need and grounds for potential simplification and adaptation in the procurement processes are to be assessed. The advantages of an accelerated process must be weighed against the risk of unsound investment. In most major investment decisions, the projects are generally quality assured by external experts. This is an important step that provides the Government with an independent assessment, thus further strengthening the basis for its decision-making. For projects where it is clear there is only one option, there may be grounds for an exemption from the requirement to carry out preliminary project assessments or quality assurance of choice of concept. Such exemptions have been granted previously, for example, in connection with major upgrades of existing infrastructure and procurement to replace donated military equipment.

To expedite the implementation of procurement processes in the defence sector, the Storting has set a higher threshold for procurements requiring the Storting’s approval. The threshold for large-scale defence materiel projects has now been raised from NOK 500 million to NOK 1 billion. The aim is to ensure more effective implementation of priority measures in order to rapidly strengthen national defence capability. International defence materiel cooperation on key weapons systems such as missile and air defence systems can help to increase production capacity in Norwegian industry. Cooperation on procurement projects can give rise to a need for larger production volumes and thus lead to expanded production capacity. International industrial cooperation agreements improve market access for Norwegian suppliers, and the requirement to enter into contracts with Norwegian suppliers helps to ensure that some of the outlay for procurement is returned to Norway. Such agreements are targeted towards the priority technology areas set out in Norway’s national defence industrial strategy. The Government uses industrial cooperation agreements to maintain and strengthen capacity in the Norwegian defence industry.

Experience shows that defence materiel and components developed and produced in Norway make up roughly a third of the procurements delivered to the Norwegian Armed Forces. An increase in orders from the Armed Forces can create more predictable parameters and yield returns that can also be invested in expanding profitable production capacity. In connection with procurement of defence materiel from foreign suppliers, the Government assesses the need to enter into industrial cooperation agreements in accordance with established practice on an ongoing basis.

In line with its political platform, the Government will make use of the opportunities available to Norway under the EEA Agreement, including in the field of defence procurement, where the exemption provisions in place allow for direct procurement of defence materiel and services. The Government will use the exemptions available under the EEA Agreement in order to ensure national security of supply and preparedness in cases where this is necessary to protect essential national security interests. This may entail direct procurement from national suppliers or a requirement that industrial cooperation agreements with foreign suppliers must be signed. The Ministry of Defence is in the process of revising the current defence sector procurement rules in order to further improve procurement processes. Under the existing rules, there are various mechanisms, for example relating to sanctions provisions and advance payments, that make it possible to impose less stringent requirements on suppliers in connection with contracts. The Ministry of Defence will also begin drafting a new act relating to procurements in the defence and security sectors. The new act will be adapted to the changed security situation in Europe, including the need for accelerated procurement processes and stricter requirements regarding security of supply and preparedness. The Government will also continue to use the flexibility provided in the procurement rules to speed up procurement processes.

The Government will give priority to:

• entering into a contract as soon as possible with KDA on delivery of Norwegian-produced air defence systems in line with the new Long-term Defence Plan (Ministry of Defence);
• entering into a contract with Nammo as soon as possible on delivery of battle-decisive munitions as rapidly as possible in accordance with the new Long-term Defence Plan (Ministry of Defence);
• making use of the opportunities available in state and defence-sector project models to accelerate progress in priority projects (Ministry of Defence, Ministry of Finance);
• employing contract strategies and contract types in the defence sector that will promote a longer-term perspective and enhance predictability and flexibility, including making wider use of advance payments when this can facilitate expanded production capacity, encourage suppliers to give projects greater priority or expedite deliveries (Ministry of Defence);
• utilising the fact that the threshold for large-scale defence materiel projects requiring the Storting’s approval has now been raised from NOK 500 million to NOK 1 billion (Ministry of Defence);
• making greater use of accelerated procurement processes in areas identified by the Government as key to expanding production capacity, particularly in connection with procurement of ground-breaking technologies (Ministry of Defence);
• rapidly entering into long-term supply contracts, in line with current rules, for defence materiel defined in the new Long-term Defence Plan as essential for strengthening the Norwegian Armed Forces, and designing a payment profile that ensures rapid, stable deliveries of high-priority defence materiel (Ministry of Defence).

3.2 Access to capital and international cooperation

Increasing production capacity requires investments on the part of the companies. The question of how long the demand will remain high is one of the uncertainties that companies face. The financial risk associated with investments is closely linked to the developments in the security situation. Such uncertainty will prevent many companies from making investments that do not provide an adequate guarantee of profitability. Thus, investments of potential benefit to society may not be realised.

Some parts of the Norwegian defence industry have limited access to the capital they need to quickly scale up profitable production capacity. Here, the challenges will vary from company to company. The central government administration’s most important means of supporting an expansion in production capacity is to enter into long-term, binding contracts with the industry. The new Long-term Defence Plan calls for an increase in allocations to the Norwegian Armed Forces of about NOK 632 billion over 12 years (at 2025 prices). A large proportion of this funding is to be used for procurement of new defence materiel. Some of this new materiel will be provided by Norwegian companies, either as primary suppliers or as subcontractors.

Companies that produce defence-related products and services are also entitled to use Norwegian state industry-oriented funding instruments – including instruments under the export credit agency Export Finance Norway (Eksfin). Eksfin can finance both export transactions and investments in Norway that facilitate exports, for example investments in the production of goods for export. One such defence industry contract financed by Eksfin is the 2023 export contract between KDA and Poland on the sale of a coastal defence system valued at approximately NOK 16 billion.

Another option is for the state to issue guarantees for the construction of new production facilities for the purpose of increasing production capacity. This has been done previously in connection with the procurement of combat aircraft, where the state issued a guarantee for the construction of a composites production facility for KDA. The guarantee served to reduce the investment risk for KDA related to the building of the plant.

The Government and Nammo are working together to expand production of rocket motor parts and artillery ammunition. By entering into a long-term agreement on guaranteed production capacity, the Government is making it possible for Nammo to establish new production sites and obtain new production equipment. The result is a significant increase in Nammo’s capacity to produce artillery ammunition and rocket motors in the Nordic region.

• Russia’s full-scale invasion of Ukraine has made it imperative for the Government to take rapid steps to ensure greater predictability for Nammo. In light of this, the Norwegian Armed Forces have signed an agreement with the company to provide NOK 1.95 billion for the production of artillery ammunition to meet Norway’s national needs. The procurement has an overall framework of approximately NOK 5.23 billion. The agreement has also enabled Nammo to free up its own investment funds, which it can then use to invest in its own production capacity.

The Government has agreed to allow both direct sales of Norwegian defence materiel and transfer of Norwegian defence-related technology to Ukraine. To support the Ukrainian defence industry, the Government has also provided funds to facilitate production of Norwegian artillery ammunition in Ukraine. These are among the steps the Government is taking to promote the development of the Ukrainian defence industry. Moving forward, the Government will consider providing funding to expand production capacity in Norwegian industry regardless of whether this takes place in Norway, Ukraine or Allied countries.

The Government will give priority to:

• pursuing a dialogue with Chemring Nobel to explore opportunities for expanding production capacity for military explosives (Ministry of Trade, Industries and Fisheries, Ministry of Defence);
• pursuing a dialogue with Nammo to explore opportunities for the company to expand production capacity for rocket motors beyond the framework that has already been decided (Ministry of Trade, Industries and Fisheries, Ministry of Defence);
• assessing the need to provide capital to facilitate investments in profitable projects that further the achievement of state ownership objectives (Ministry of Trade, Industry and Fisheries);
• consider the use of risk-reducing measures and any other measures relating to investments that are not likely to be commercially viable, but that will establish new capacity of importance for Norway (Ministry of Defence);
• considering investment in expanded production capacity in connection with Norwegian production of critical defence materiel (Ministry of Defence);
• seeking Norwegian participation in the EU’s new European Defence Industry Programme (EDIP) (Ministry of Defence);
• establishing an application-based scheme to fund expanded production capacity in the defence industry that is based on existing industry-oriented funding instruments, and that, when relevant, is aligned with potential Norwegian participation in EDIP (Ministry of Defence, Ministry of Trade, Industry and Fisheries);
• assessing the need for measures to expand production capacity through the establishment of Norwegian defence industrial capacity in Allied countries and/or in Ukraine (Ministry of Trade, Industry and Fisheries, Ministry of Defence);
• facilitating increased international defence materiel cooperation (Ministry of Defence);
• working to encourage the Nordic Investment Bank (NIB) to finance defence-related projects (Ministry of Finance).

3.3 Regulatory changes

As in other industries, defence companies have to deal with a range of public bodies when seeking to modify production infrastructure or build new facilities in order to increase production capacity. This presents challenges in particular for small and medium-sized companies, and it is important to put in place effective measures targeted to their needs.

To make it easier to produce and sell Norwegian defence materiel for use in Ukraine, the Government has agreed to permit both direct sales to Ukraine and licensed production of Norwegian-developed defence materiel in Ukraine. This makes it possible for Norwegian suppliers to sell defence materiel directly to Ukraine as well as to produce materiel under Norwegian licences in Ukraine.

The Norwegian defence industry has reported that it is essential to ensure sufficient access to electricity in order to increase production capacity. Grid companies have an obligation to connect entities to the grid and may not under current rules differentiate between commercial actors seeking grid access. The Government has decided to introduce a set of maturity criteria designed to ensure that priority is given to projects that are viable and implementable and to prevent immature projects from taking up grid capacity that could be used for more realistic projects. As set out in the Ministry of Energy’s action plan for accelerating grid expansion and improving grid utilisation, essential societal functions and critical infrastructure do not have to queue for grid access in the event of insufficient capacity in the regional and transmission grids. Energy-intensive defence companies are well positioned to score well on the maturity criteria, for example by pointing to long-term supply contracts. It is crucial that entities seeking access to grid capacity contact the relevant grid company at an early stage to facilitate grid connection as rapidly as possible. The Government is also working to determine how much weight to give to defence and security considerations in the grid connection process.

Achieving rapid expansion of production capacity in the defence industry may require action on the part of the municipalities concerned, for instance to expand public services such as schools, health care, housing and infrastructure.

The Government will give priority to:

• identifying any unnecessary regulatory obstacles to establishing new production capacity for priority products such as air defence systems, missiles and explosives, with a view to simplifying the process for the companies concerned (Ministry of Defence, Ministry of Trade, Industry and Fisheries, Ministry of Local Government and Regional Development, Ministry of Climate and Environment);
• engaging in dialogue at an early stage with the industry and with relevant municipal, county and central government authorities to facilitate effective planning in connection with new industrial areas for the defence industry (Ministry of Defence, Ministry of Local Government and Regional Development);
• entering into dialogue with relevant municipal and county authorities on the impacts of planned capacity expansions on land use and local communities, for example the need for labour, housing, services and infrastructure (Ministry of Defence);
• working to determine how much weight to give to defence and security considerations, including the needs of the defence industry, when establishing priorities for grid access (Ministry of Energy, Ministry of Justice and Public Security, Ministry of Defence);
• making use of the provisions set out in Article 123 of the EEA Agreement that allow for exemptions from the Agreement in cases where this is necessary to safeguard essential national security interests (Ministry of Defence).

3.4 Value chains

Investing in the Norwegian Armed Forces is tantamount to paying a higher insurance premium to safeguard our national security. However, there is no guarantee that the insurance provided by our efforts to strengthen Norway’s defence capabilities will be enough to cover every eventuality. It is essential that the defence industry is also capable of adapting to new demands in the future, should it become necessary to expand stocks of defence materiel beyond the levels currently planned. The Government is investing in production capacity in the defence industry as part of the effort to strengthen Norway’s overall preparedness.

Norwegian defence companies are dependent on subcontractors in their value chains to manufacture their products. These value chains are international and highly complex. It is the defence companies themselves that are primarily responsible for ensuring the viability of their value chains. The authorities for their part will take steps to enhance the resilience of value chains more generally.

For three decades, the Norwegian defence industry has been dimensioned to meet the needs of peacetime and a stable security situation. As a result, Norway has not maintained the systems previously in place for mapping value chains of strategic importance to the defence industry.

The central government administration already makes advance purchases of components needed in connection with major procurements. This model could be expanded and used to better meet the need for emergency production capacity. The procurement of long lead items is already an integral part of KDA’s cooperation with US defence supplier Raytheon on NASAMS. The Storting has approved a project that allows KDA to invest in long lead items used to produce NASAMS. Under the contract KDA is able to purchase a certain number of these components before orders for NASAMS have been received. This is a way of ensuring that Norwegian procurements are given priority in the order queue and shortening delivery times. A similar approach could be applied for other products as well.

The Ministry of Trade, Industry and Fisheries has set up emergency preparedness councils in various areas including fuel and food security. These councils could serve as a model for establishing a similar emergency preparedness council for suppliers of defence materiel. The areas identified by the Government as priorities for increasing production capacity could define the focus of this council, which should encompass the full breadth of the defence industry.

In the new Long-term Defence Plan, the Government points to the need to define increased production capacity in the defence industry as a political goal for the sector. In line with this, the Government will work along multiple tracks to achieve the necessary level of production in Norway.

The Government will give priority to:

• determining a national target for contingency stocks of ammunition and weapons systems, and assessing the need for and costs of establishing contingency stocks of raw materials and components used in defence materiel (Ministry of Defence);
• identifying vulnerabilities in the value chains of large and small suppliers that are active in areas defined as priorities by the Government, such as air defence, missiles, propulsion systems and explosives (Ministry of Defence);
• establishing an emergency preparedness council in the area of production of defence materiel (Ministry of Defence, Ministry of Trade, Industry and Fisheries);
• strengthening cooperation and clarifying the division of responsibilities relating to production capacity between the Ministry of Trade, Industry and Fisheries and the Ministry of Defence (Ministry of Trade, Industry and Fisheries, Ministry of Defence);
• facilitating national production of hexamine, a critical input factor in the production of military explosives (Ministry of Defence);
• assessing and identifying needs related to securing the supply of input factors for national production of explosives (Ministry of Defence, Ministry of Trade, Industry and Fisheries);
• assessing the need to facilitate certification of additional subcontractors to relevant producers of air defence systems, missiles, propulsion systems and explosives (Ministry of Defence, Ministry of Trade, Industry and Fisheries);
• mapping access to input factors that are crucial to the production of priority products in the Norwegian defence industry (Ministry of Defence).

3.5 Industrialisation of cutting-edge technology

For small innovation companies in particular, public financial support for R&D helps to trigger private investment funding that is crucial for the industrialisation of new technology. The industrialisation of new technology is a key factor in scaling up production of defence materiel. The Government supports R&D activities and is seeking to pave the way for new innovation by establishing a national scheme for defence-oriented R&D at the Norwegian Defence Research Establishment (FFI). In addition, support is provided through FFI’s innovation centre for the defence sector (ICE worx) and the Norwegian Armed Forces’ own Concept Development & Experimentation (CD&E) scheme for testing and developing new defence materiel to meet the needs of the Armed Forces. A collaborative effort between Innovation Norway and the defence sector is being carried out in 2024–2025 with the aim of developing a common gateway into the defence sector for civilian businesses. This will include information about funding opportunities and other measures of relevance to actors seeking to cooperate with the defence sector. The Ministry of Defence also offers support under a dedicated R&D support scheme.

NATO stakeholders are further able to participate in a number of multinational innovation activities such as the European Defence Fund (EDF), the NATO Innovation Fund and NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA). Funding for dual-use companies come in addition to this.

Strategies, weapons and support methods change quickly in modern warfare, and this in turn affects the list of items that need to be produced. Adaptability and rapid, targeted innovation are crucial in this context and must build on research, industrial cooperation and existing expertise. Optimising production capacity also requires systematically applying lessons learned. In today’s context, this includes experience gained from the war in Ukraine and the kinds of equipment being developed and used in Ukraine. The Government has launched an innovation project involving the authorities, FFI and the defence industry to support Ukrainian innovation and defence capability and transfer lessons learned. This project builds on the existing three-way collaboration in which industry, researchers and users work together to identify deficiencies to be addressed and measures that can be implemented. The project will also serve to strengthen FFI’s collaborative efforts and networks, and will provide access to experience and knowledge gained from the ongoing war in Ukraine, which can be used to improve future Norwegian defence capabilities.

In April 2023, the Norwegian Defence Materiel Agency (FMA) launched an internet portal that provides information of use to the defence industry on the procurement process in the defence sector, as well as the legal and political frameworks, and industrial and materiel cooperation. The portal is also intended to be easily accessible for small and medium-sized businesses and other actors not traditionally considered part of the Norwegian defence industry. Work is now under way to further develop the webpage on defence materiel of relevance to Ukraine.

The transition from the R&D phase to industrial production represents a crucial step that poses many challenges. The measures presented in this section are designed specifically with this in mind.

The Government will give priority to:

• targeting national defence-related R&D funding towards cutting-edge technologies such as quantum technology and artificial intelligence in order to increase national expertise and capacity (Ministry of Defence, Ministry of Trade, Industry and Fisheries);
• revising and updating Norway’s national defence industrial strategy (Ministry of Defence);
• further developing the national R&D funding scheme for the defence sector (Ministry of Defence);
• considering the use of government investment funds to invest in companies that develop and industrialise defence-related technologies (Ministry of Trade, Industry and Fisheries, Ministry of Defence);
• channelling increased funding to facilitate fast industrialisation of the most promising new technologies, to be sent to Ukraine as products and rapidly made operational, under a project at the Norwegian Defence Research Establishment (FFI) (Ministry of Defence);
• assessing the need to establish a new industry-oriented funding scheme for innovation projects that finances the development and testing of technologies and new solutions of benefit to the Norwegian Armed Forces and the defence industry (Ministry of Trade, Industry and Fisheries, Ministry of Defence).

3.6 Expertise

In order to increase production capacity, the defence industry will need to hire more people with expertise in existing technologies as well as recruit people with expertise in new technologies. A number of companies in the Norwegian defence industry have reported that they need more personnel. A wide range of personnel is needed, from skilled workers to research directors with doctoral degrees. However, the defence industry has to compete with employers in other sectors for candidates with qualifications in science, technology, engineering and mathematics.

The initial intense phase of scaling up defence production capacity will require industry-wide prioritisation and better utilisation of existing expertise. In the long term, production can be made more efficient through automation. As production processes become more efficient, individual employees will gain greater access to sensitive information, and the need for security clearance is expected to increase significantly. In order to further develop the defence industry, there will also be a need to recruit more PhD-level employees who are eligible for security clearance.

To date, companies in the defence industry have been successful in recruiting and retaining personnel. Some of the larger suppliers of defence materiel cooperate extensively with educational institutions, including vocational colleges, research institutes and universities and university colleges.

The Government has provided incentives to strengthen higher vocational education as well as continuing and further education programmes in order to expand the pool of skilled workers. The Government plans to present a white paper on higher vocational education by the end of 2025 that will include measures to address challenges associated with the need for more skilled personnel. The Government has also increased funding for new student places to at higher vocational education institutions, with a particular emphasis on technology subjects.

KDA and Nammo are affiliated with the higher vocational colleges Fagskolen in Viken and Fagskolen Innlandet, respectively. This collaboration has played a key role in providing education in fields critical to the defence industry and could be further expanded to increase the pool of skilled workers with higher vocational education available to KDA, Nammo and potentially other companies in the defence industry.

Universities and university colleges are responsible for adapting their study programme portfolios to meet student demand and labour market needs. In the white paper Outlook on the skills needs in Norway (Meld. St. 14 (2022–2023)) the Government states that these institutions are to give priority to health care, IT and areas of importance to the green transition. The Ministry of Education and Research is following up these priorities in its dialogue with subordinate agencies. It is important that educational institutions maintain close contact with relevant employer and employee organisations – in this case, in the defence industry – to adapt their study programmes to meet labour market needs. The Norwegian Directorate for Higher Education and Skills provides information about labour market needs and offers advice to companies and organisations that are in need of labour.

Personnel sought by the defence industry have similar qualifications to those needed by the Norwegian Armed Forces and the rest of society. Any opportunities to make use of the skills and expertise of reservists and former Armed Forces personnel should be fully exploited.

The Government will give priority to:

• ensuring that the Ministry of Defence is represented on the Skills Policy Council in order to align national competence-building measures more closely with the defence industry’s need for skilled labour (Ministry of Defence, Ministry of Education and Research);
• entering into dialogue with county and municipal authorities, regional skills forums, and relevant companies to explore the steps needed to educate and recruit more personnel with the necessary expertise (Ministry of Defence);
• exploring how to employ the Industrial PhD Scheme and the Public Sector PhD Scheme to address the specific needs of the Norwegian defence industry and the Norwegian Armed Forces (Ministry of Defence, Ministry of Education and Research, Ministry of Trade, Industry and Fisheries);
• encouraging the defence industry to make use of former Norwegian Armed Forces personnel to meet the demand for skilled labour (Ministry of Defence, Ministry of Education and Research);
• facilitating participation by relevant companies in defence-oriented accelerator activities, such as NATO’s DIANA (Ministry of Defence);
• determining how the Norwegian Directorate for Higher Education and Skills can help identify skills needs in the Norwegian Armed Forces and defence industry in the period up to 2036 (Ministry of Defence, Ministry of Education and Research).