Dr Tasos Kounoudes: Cyprus' defence cluster is growing; but challenges persist

Dr Tasos Kounoudes, President of the Cyprus Association of Research and Innovation Enterprises (CARIE) and the Cyprus Defence Industry Cluster (CYDIC), talks about the local cluster’s growth amid a flurry of enthusiasm for defence technologies and the challenges it faces to cement itself as a key player on the European stage.

Across Europe, we’ve seen a marked rise in enthusiasm for dual-use technologies and a growing willingness among investors to back defence companies. What do you think is driving this change in attitudes?

The growing enthusiasm for dual-use technologies and defence investments across Europe is driven by heightened geopolitical tensions, such as the war in Ukraine, increasing defence budgets and the demand for technologies with both civilian and military applications. EU funding programmes like the European Defence Fund (EDF) and advancements in AI, cybersecurity, autonomous systems and microelectronics have made these technologies more commercially viable while shifting public perception to position defence as essential for sovereignty, stability and economic growth. For Cyprus, the rise of dual-use technologies represents a transformative opportunity to open a new horizontal market for the economy. By enabling local companies to adapt their civilian products for defence and security applications, dual-use innovation provides a pathway for diversification and growth. Sectors such as maritime technology, energy infrastructure, cybersecurity and unmanned systems, where Cyprus already has emerging expertise, can find new applications in both civilian and defence domains. This not only expands the market potential for Cypriot businesses but also strengthens the country’s position as a strategic hub for innovation in the Southern Eastern Mediterranean, aligning with EU priorities for defence and security while enhancing national resilience.

Speaking of Cyprus’ emerging expertise, does the local cluster aim to build know-how in specific niche areas or is it geared toward developing broader capabilities across various fields? What drives these strategic choices, and how do they align with both local and international opportunities?

The Cypriot defence industry is highly innovative and this is our competitive advantage as a country. The Cyprus Defence Industry Cluster (CYDIC), which includes companies active in the dual-use defence domain, has grown through the Cyprus Association of Research and Innovation Enterprises (CARIE). Our members realised that their innovations, technologies and products could be successfully transformed to have applications in the security and defence domain, opening new business opportunities in a huge and rapidly growing international market. Even though we are not concentrating on a specific niche area, we are proud that Cypriot companies are now developing, among others, cutting-edge technologies such as intelligent unmanned ground, maritime and aerial vehicles, smart radars capable of detecting targets beyond the horizon, integrated anti-aircraft systems for neutralising drones, electronic warfare systems, cybersecurity platforms, early target detection systems, communication protection technologies against interference, maritime surveillance systems, smart materials for defence and advanced military communication systems.

Tell us more about CARIE. How many companies are members of the Association and in what ways does it assist the cluster?

Cyprus is home to a dynamic and rapidly growing defence ecosystem, driven by innovation, advanced infrastructure and strategic international partnerships. CARIE members have made significant investments in high-tech defence-related infrastructure, gained essential expertise in defence product development and established critical collaborations. Approximately 30 innovative Cypriot technology companies operate in the defence sector, focusing on the design, production and export of dual-use products and technologies with both military and civilian applications. These companies are part of CARIE, which actively supports and promotes the Cypriot defence industry. CARIE’s initiatives include, among others, raising national and international awareness of Cyprus’ defence sector, advocating for legislative and policy frameworks that support industry growth and fostering close cooperation with the European Defence Agency and the European Commission’s DG-DEFIS. Additionally, CARIE enhances industry visibility by organising national pavilions at major international defence exhibitions such as DEFEA (Greece) and EUROSATORY (France). It also promotes bilateral industrial collaborations with key partners, including Greece, France, the Czech Republic, Italy and Israel, while hosting business-to-business brokerage events in Cyprus to strengthen ties between local and other European defence industries. Through these efforts, CARIE actively fosters synergies and collaboration among its members, further solidifying Cyprus’ presence in the global defence sector.

The Government is not the typical enterprise client – defence procurement processes are often slow and cumbersome, which can discourage innovative companies from engaging. Do companies in Cyprus face similar challenges?

Cypriot defence companies face significant challenges, including a limited local market, a strong preference for foreign suppliers, funding gaps, slow and complex procurement processes and bureaucratic hurdles. The small defence budget pushes companies to focus on exports and international collaborations, while high R&D cost and compliance requirements create additional barriers. To overcome these challenges, Cypriot firms engage in EU-funded programmes, develop dual-use technologies, collaborate with European defence primes and leverage CARIE’s support to advocate for better policies and connect with global markets. Participation in major international defence exhibitions and industry brokerage events also helps companies gain visibility and secure foreign contracts.

What policy changes or infrastructure investments can realistically transform Cyprus’ defence tech sector from a promising cluster into a key player on the European stage?

To elevate Cyprus’ defence technology sector into a key player on the European stage, President Christodoulides has announced six strategic measures aimed at strengthening and expanding the industry. These initiatives address existing challenges, highlighted by our Association through the years and, once implemented, are expected to leverage Cyprus’ growing defence ecosystem.

They include legislation to institutionalise the high-tech defence sector, the institutionalisation of Industrial Collaboration Defence Programmes, which will eventually enable the inclusion of the local industry in armament contracts, and the establishment of the Defence Research, Technology and Industry Council as an advisory body to the Presidency. Additionally, the Government will create a National Registry of Defence Industry Manufacturers, increase funding for defence R&D and fund national pavilions at major international defence exhibitions to boost global visibility. Through these measures, Cyprus aims to solidify its defence sector’s role in national strategy, foster innovation and expand its international collaborations.

Cyprus has historically relied heavily on foreign suppliers for its own defence needs. Considering the country’s current and future defence requirements, can local companies reduce this dependency and build a more self-reliant ecosystem?

Cypriot defence companies have the potential to reduce dependency on foreign suppliers and build a more self-reliant ecosystem but this will require strategic investments, policy support and industrial collaboration in armaments. While Cyprus’ defence needs are complex and have traditionally been met by foreign suppliers, local companies can increasingly play a significant role in key emerging areas such as drones, electronic warfare, surveillance systems and defence AI. Although Cyprus cannot fully replace foreign suppliers in the short term, it can substantially reduce dependency by focusing on niche high-tech solutions, fostering local innovation and securing strategic European partnerships. The six recently announced policy measures provide a strong foundation for this transformation.

The lifting of US defence trade restrictions surely presents new opportunities for the cluster. How do you see it capitalising on this development and what immediate benefits do you anticipate?

It presents significant opportunities for the local defence industry, enabling Cypriot companies to potentially access advanced American technologies, attract investment and strengthen defence cooperation. However, despite the potential and our keen interest, there is still uncertainty regarding the specific scope of what has been lifted and what remains restricted. Additionally, there has been no clear indication from the Ministry of Defence regarding its priorities and emerging needs following this development. I hope that, as the situation becomes clearer, we can strategically devise our approach to collaboration and fully capitalise on this opportunity.

From autonomous weapons and systems to cybersecurity innovations, electronic warfare, quantum computing and space-based technologies, which areas do you believe will have the most profound impact on shaping the future of defence operations, and how is Cyprus positioning itself in these fields?

The war in Ukraine has highlighted the critical role of relatively low-cost, intelligent systems in shaping the modern battlefield. Technologies such as autonomous ground, air and naval systems, electronic warfare, cybersecurity, loitering munitions and AI-based systems have become essential in modern warfare. Drones and AI-driven autonomous weapons have proven decisive in ISR and precision strikes, emphasising the need for AI-integrated defence solutions, an area where Cyprus is growing through R&D and local manufacturing. Cybersecurity and electronic warfare are crucial, reinforcing the need for AI-powered communications resilience, a sector where Cyprus has a strong technological base. Secure satellite communications have also been vital, pushing Cyprus to invest in space technologies via ESA. Meanwhile, quantum encryption is becoming key for secure military communications, an area where Cyprus can expand through EDF projects. By boosting R&D, strengthening European partnerships and focusing on dual-use technologies, Cyprus can enhance self-reliance and strengthen its role in European defence.

This interview first appeared in the February edition of GOLD magazine. Click here to view it.