Sweden's National Security Reforms and the Shifting Landscape of Nordic Investment

Sweden's evolving national security governance has become a pivotal factor in shaping foreign capital allocation across defense, technology, and diplomatic sectors. As the Nordic nation navigates a complex geopolitical landscape—marked by Russia's ongoing invasion of Ukraine, NATO's eastward expansion, and rising hybrid threats—its strategic priorities are reshaping investment dynamics. For foreign investors, understanding these shifts is critical to mitigating risk and identifying opportunities in a market that balances openness with growing security vigilance.

National Security Governance: A Strategic Pivot

Since 2024, Sweden has implemented a sweeping national security strategy anchored in five guiding principles, emphasizing resilience against hybrid threats and the integration of internal and external security. The Total Defence Bill (2025–2030), allocating SEK 170 billion for military defense and SEK 37.5 billion for civil defense, underscores a historic commitment to aligning with NATO's 2% GDP defense spending benchmark. By 2028, Sweden's defense expenditures are projected to reach 2.6% of GDP, a stark departure from its traditionally low-profile security posture.

This pivot has been accompanied by strategic military procurement, including joint ventures for 205 CV9035 MKIIIC infantry fighting vehicles with Denmark and four C-390 tactical transport aircraft with the Netherlands and Austria. These investments not only bolster Sweden's deterrence capabilities but also create a robust domestic defense industry, attracting capital to firms like Bae Systems Bofors and Saab AB.

Defense Sector: Attracting Capital Amid Heightened Scrutiny

Sweden's defense sector has emerged as a magnet for foreign investment, driven by its strategic partnerships and technological edge. The FDI Act (2023), however, introduces a layer of complexity. While the country remains open to foreign capital, the Act grants the government authority to screen investments in sensitive sectors, including defense and emerging technologies. This has led to a dual dynamic: increased inflows into defense-related ventures, coupled with heightened due diligence requirements for foreign investors.

For instance, Sweden's Strategic Direction for Defence Innovation—focusing on AI, cyber defense, and unmanned systems—has spurred collaboration with global tech firms. However, the FDI Act's emphasis on national security risks means that foreign ownership in critical defense firms may face restrictions. Investors must now weigh the potential for high-growth opportunities against the risk of regulatory intervention.

Technology and Cybersecurity: A Double-Edged Sword

Sweden's tech sector, long a cornerstone of its economy, is now under renewed scrutiny. The National Cybersecurity Strategy, set to be finalized in 2025, aims to fortify digital infrastructure against state-sponsored cyberattacks and disinformation campaigns. This has spurred demand for cybersecurity firms like Civis Analytics and HexaCorp, which specialize in threat intelligence and secure communications.

However, the FDI Act's focus on “emerging technologies” and “strategic protected technologies” has introduced uncertainty. Foreign investors in AI, quantum computing, or 5G infrastructure must navigate a regulatory environment that prioritizes sovereignty over unfettered capital flows. For example, the Swedish Post and Telecom Authority now requires mobile network providers to undergo rigorous security assessments, a move that could deter foreign telecom giants seeking to expand into the Nordic market.

Diplomatic Sector: Geopolitical Alliances as Investment Catalysts

Sweden's diplomatic strategy has shifted from neutrality to active alignment with NATO and EU security frameworks. Bilateral agreements with Poland, the Czech Republic, and the U.S. state of New York under the State Partnership Program (SPP) have created new corridors for defense and tech collaboration. These partnerships not only enhance Sweden's strategic position but also open avenues for foreign investors seeking to leverage Nordic-EU-NATO synergies.

For example, Sweden's Memorandum of Understanding (MoU) with Baltic Sea nations to protect undersea infrastructure has spurred interest in maritime security firms. Similarly, its Joint Declaration with Germany on defense cooperation has attracted capital to logistics and supply chain firms operating in the region.

Financial System Vulnerabilities: A Cautionary Note

While Sweden's political stability and policy coherence remain strong, structural vulnerabilities persist. The Swedish financial system's reliance on international capital markets, coupled with high leverage in property companies, poses risks. The FDI Act's liquidity management requirements for corporate bond funds aim to mitigate these risks, but investors must remain vigilant about asset volatility in sectors like real estate and fintech.

Investment Implications and Strategic Recommendations

For foreign investors, Sweden's national security reforms present both opportunities and challenges:
1. Defense and Tech Sectors: Prioritize partnerships with Swedish firms that align with the Total Defence Bill and innovation strategy. Focus on niche areas like cyber defense, AI, and dual-use technologies, where Sweden's expertise is unmatched.
2. Diplomatic Alliances: Leverage Sweden's NATO and EU partnerships to access regional markets. Consider investments in firms benefiting from cross-border security agreements.
3. Risk Mitigation: Conduct thorough due diligence under the FDI Act. Avoid overexposure to sectors with high regulatory scrutiny, such as 5G infrastructure or critical raw materials.
4. Diversification: Balance high-risk, high-reward sectors with stable, long-term investments in Sweden's renewable energy and green tech industries, which remain insulated from geopolitical volatility.

Sweden's national security governance is a double-edged sword: it enhances the country's strategic resilience while introducing regulatory friction for foreign capital. For investors, the key lies in aligning with Sweden's strategic priorities while navigating its evolving risk landscape. As the Nordic market continues to recalibrate, those who adapt to its security-driven paradigm will find fertile ground for growth.