Long seen as a cornerstone of Swiss foreign policy and national identity, neutrality has increasingly become a point of contention in public debate against the backdrop of a new, polarized world order. In its 2025 analysis of Swiss foreign, security and defense policy, ETH Zurich reports that more Swiss citizens are questioning whether armed neutrality can be credibly upheld by military means, and a growing segment of the population supports taking a clearer stance in military conflicts.
The war in Ukraine has exposed the tension between political neutrality and economic reality. A record 40% of voters now believe that the political and economic integration with other countries makes neutrality untenable. This friction became evident when Swiss arms exports to Germany could not be passed on to Ukraine, leading to diplomatic pressure from Berlin and Brussels. For the Swiss arms industry, the result was reputational damage, export blockades and lost business.
This rigid regulation is now being relaxed. Some 85% of military exports may in future no longer be subject to direct Swiss control, provided they go to countries with functioning end-use controls such as Germany. The shift reflects Switzerland’s alignment with international pressure on Russia. In May 2025, the country reaffirmed EU sanctions, with 64% of the public supporting the stance as compatible with neutrality (ETH Zurich 2025). For the defense industry, this is a liberating move and marks a new beginning.
However, Switzerland’s excessive focus on tailor-made systems and small procurement volumes hampers participation in multinational programs. In contrast, the EU has committed EUR 800 billion – or six times the sales revenue of its defense companies – to ensure 60% of future needs are sourced in Europe and 40% through cooperation arrangements (European Defense Industry Strategy 2025).
Security transformation – from political discourse to economic reality
The war in Ukraine has also changed public attitudes around security. Whereas skepticism toward the military once dominated public discourse, large sections of the population are now in favor of increasing defense spending. Meanwhile, the Federal Council and the Federal Department of Defense have begun modernizing the country’s overall defense capabilities and proposals for a security fund or public-private partnerships to finance procurement are gaining traction. In 2025, Switzerland is investing around 7 billion Swiss francs in its armed forces, or between 0.8 and 0.9% of its GDP. This budget is set to grow to 1% by 2030. While still modest by international standards, the increase signals a clear shift in policy.
That said, higher spending alone will do little to close the widening timing gap. Few additional systems will be operational before 2027 to 2028, as major programs such as the F-35 or ground-based air defense take years to deliver. This underscores the need for stable planning over a long-term horizon of five to eight years, enabling Parliament to approve larger procurement programs and larger, longer-term spending commitments (“Verpflichtungskredite”). Without sustained annual budget increases to match, no major procurements will be feasible.
In addition, public confidence in the Swiss Armed Forces is slipping, which is part of a broader decline in trust in institutions. For companies, this heightens risks around ESG (environment, social, governance). Defense contracts can attract scrutiny, but managing that reputational exposure is critical.
Opportunities for industry – but no sure-fire success
European rearmament is effectively functioning as an economic stimulus for dual-use technologies, in other words products that can be used for both civilian and military purposes. Swiss companies such as RUAG and the local subsidiaries of Rheinmetall and Elbit are already participating in multinational programs. Many SMEs in the MEM industry (machinery, electrical engineering, metal) are also seeing increased demand – partly directly from the defense sector, partly through spillover effects of military-focused R&D that is simultaneously boosting non-military innovation.
But defense industry opportunities also involve addressing the risks inherent in the defense sector: defense projects are complex, take a long time and involve political risk. There is no shortage of examples of troubled procurement projects – consider investigations into the F-35 jet deal in response to cost overruns, capability gaps and doubts about the fairness of the 2021 contract award process. To avoid wasting money, the surge in spending must be backed by clear governance, transparent processes and firm strategic priorities.
Adding to these challenge, Switzerland’s defense industry has been shrinking. In 2019, it generated CHF 1.7 billion in domestic value creation, supported 9,900 jobs and paid out CHF 949 million in wages. In the interim, however, a growing number of companies such as GDELS-Mowag are moving production abroad to bypass Swiss export restrictions (BAK Economics 2023). To reverse this trend, the Federal Council’s armaments policy strategy of 20 June 2025 explicitly aims to strengthen domestic industrial capacity, rebuild supply resilience and enable Swiss firms to participate more in European procurement frameworks (Swiss Federal Council 2025).
Switzerland cannot rely on global arms manufacturing markets cooling down any time soon. With the order books of major suppliers already stretching several years ahead, deliveries will remain slow in the foreseeable future. According to its 2025 annual report, Rheinmetall alone has EUR 55 billion in order backlog, equivalent to five years of production. Switzerland will need to simplify its requirements, accelerate parliamentary approvals and rebuild domestic capacities or risk being permanently disadvantaged.
Critical dependency issues also need to be carefully considered
Critical dependency on foreign suppliers remains a central challenge for Switzerland. Many key technologies – such as radar, drones and avionics – are dependent on imports, in many cases from the United States and Israel. In times of geopolitical uncertainty – think Trumpism, think supply chain disruptions – this is an Achilles heel. Closer cooperation with the European defense industry would help shift dependencies closer to home.
Moreover, contracts signed today will generally not deliver before 2027–2028, leaving projects dependent on commercial off-the-shelf products. In a global market dominated by US suppliers (55% of European imports), Switzerland’s defense budget of CHF 5.9 billion in 2024 (up a mere 10% on 2020) is modest and relatively unattractive compared to countries with far greater market power such as Germany (defense budget up 75% to EUR 82 billion in the same period).
Looking further afield, suppliers from South Korea, India and Turkey are expanding aggressively, offering drones, loitering munitions, rocket artillery and satellite communication systems (SIPRI 2025; Defence News 2025). Such market opportunities could reduce lead times, although they also carry substantial strategic and political risks. For Switzerland, the challenge will be to pursue selective procurements outside Europe where politically acceptable, while maintaining trusted partnerships that safeguard long-term security.
Investors discover security – but are wary of moral implications
The inflection point in security policy is also evident on financial markets. Pension funds, family offices and institutional investors are showing growing interest in the defense market and security-related investments – from satellite infrastructure and cybersecurity to selected defense stocks. Companies with dual-use portfolios and high innovative strength are particularly attractive.
But the issue is a sensitive one: defense and ESG, as already mentioned, are not exactly a match made in heaven. Anyone investing in weapons production must be prepared for critical questions – from clients, activists and the wider public. Swiss investors are therefore faced with the challenge of reconciling security-related investments with their responsibility for sustainability and ethics.
Resilience as a new business imperative
Cyberattacks, hybrid threats, disrupted supply chains: security is no longer thought of in purely military terms, but comprehensively – as resilience to all kinds of disruptions, whether climate-, technology- or power-related. This also presents an opportunity for Swiss companies active in a wide range of fields, from IT security and mobile technology to critical infrastructure, civil protection and emergency technologies. Those who invest early stand to secure a strong first-mover position in a fast-growing market.
At the same time, companies must also arm themselves against cyberattacks, geopolitically motivated sanctions and market risks caused by political instability. Highly sophisticated risk analysis and strategic diversification are becoming a must for export-oriented Swiss companies.
Switzerland between adherence to principles and pragmatism
