What Innovation and R&D Strategy for Portugal’s Defense Economy?

Portugal has a long tradition of bold, visionary ideas in science and technology. Yet, history shows that many of these ideas failed to take root for lack of consistent institutional support. A striking example is Father Bartolomeu de Gusmão and his famous “passarola”, an experimental hot-air balloon presented in Lisbon in 1709. It was a remarkable vision for its time, but without sustained funding or a scientific ecosystem able to develop it further, the project remained an experiment. Nearly eighty years later, it was the Montgolfier brothers in France, backed by the Academy of Sciences, who succeeded in producing the first manned balloons.

The lesson is clear: imagination and creativity can emerge in Portugal, but without institutions designed to take risks and channel resources into disruptive innovation, these visions remain unrealized. Today, in the field of defense and security, Portugal faces a similar challenge.

The recent reform of the Ministry of Education, Science and Innovation (MECI), which merges the Foundation for Science and Technology (FCT) and the National Innovation Agency (ANI) into the new Agency for Research and Innovation (AI2), is a structural opportunity. While conceived primarily for the broader scientific and industrial ecosystem, the AI2 will also have competences touching on defense. This creates a critical opening to rethink the link between technological innovation and national security.

This article argues that Portugal should seize this moment to create a specialized institution — a Defense Research and Innovation Agency (AI4D) — under the aegis of the Ministry of Defense. Inspired by the DARPA model, such an agency could ensure that defense innovation in Portugal is not left behind, fragmented, or dependent on external actors.

The DARPA Model and Its Lessons

The Defense Advanced Research Projects Agency (DARPA) was founded in 1958, a direct response to the shock of the Soviet Union’s launch of Sputnik the year before. The United States realized that it risked losing its technological edge, and President Eisenhower moved quickly to establish an agency capable of anticipating and driving breakthroughs in defense technology.

DARPA’s distinctive features are well known. It was given a clear mission: to prevent technological surprise by identifying and filling critical capability gaps. It deliberately sought high-risk, high-potential projects — betting on disruption rather than incremental progress. And it was allowed to operate outside of traditional military bureaucracy, reducing red tape and enabling a culture of prototyping and experimentation.

The results have been transformative. The early ARPANET laid the foundations of the internet. DARPA-funded research produced GPS, stealth technologies, and advances in artificial intelligence. These innovations reshaped not only the military balance but also the global economy.

DARPA, of course, is not without criticisms. Its projects have a high failure rate, it depends heavily on federal funding, and it sometimes struggles to maintain long-term continuity across administrations. Moreover, replicating the DARPA model outside the United States raises questions of scale: few countries have the budget, industrial base, or research ecosystem to sustain such an approach. Yet the core lesson remains relevant. Innovation in defense requires institutions that are mission-driven, agile, and willing to take risks. The question for Portugal is whether it needs its own “Sputnik moment” to act, or whether recognizing the strategic necessity of keeping pace with allies is reason enough.

Why Portugal Needs an AI4D

Portugal’s Defense Technological and Industrial Base (DTIB) is diverse but fragile. While it includes capable companies and research centers, it lacks scale, consistent financing, and integration into global value chains. Participation in European programs such as the European Defence Fund (EDF), the European Defence Agency (EDA), NATO’s DIANA network, and the EU Defence Innovation Scheme (EUDIS) has been important, but Portugal has tended to participate more as a recipient than as a shaper of agendas.

Creating a dedicated AI4D would address these gaps. Positioned under the Ministry of Defense but working in coordination with AI2 and with European initiatives, the agency could focus resources on areas of strategic importance such as artificial intelligence, cybersecurity, autonomous systems, advanced energy solutions, and quantum-secure communications.

Crucially, an AI4D would not only provide funding but also create the institutional framework to attract top international talent and encourage startups to develop dual-use technologies in Portugal. The ambition should be to turn Portugal into a hub of defense innovation, small but globally relevant, much like its historical role in navigation and cartography centuries ago.

An annual budget of €400-500 million — roughly 0.15 percent of GDP and about half of AI2’s budget — would be sufficient to establish this agency. While modest compared to the billions spent by major powers, if managed with agility and focus, it could position Portugal as a credible player in Europe’s defense innovation ecosystem.

How an AI4D Could Operate

The success of an AI4D would depend less on its size than on the way it operates. It should embrace a portfolio of funding instruments designed to cover the spectrum from basic research to deployment:

• Competitive grants for high-risk scientific projects, such as the DISCRETION project, which developed software-defined networking with quantum key distribution for secure defense communications, funded with over €5 million by the EU.

• Direct contracts with national and international companies, enabling rapid prototyping and military-grade productization, as in the case of Adyta’s cybersecurity solutions.

• Challenge prizes to incentivize solutions to specific problems — for instance, competitions for ethical hackers to stress-test critical systems.

• Hackathons and open innovation events to attract young talent and generate fresh ideas in fields like quantum communications or autonomous systems.

• Startup accelerators with a dual-use focus, possibly run in partnership with Startup Portugal, to integrate emerging ventures into the defense ecosystem.

• Co-investment funds with venture capital, providing matching public and private financing for deep-tech startups, on the order of €100 million over multiple years.

By combining these instruments, the AI4D would be able to support both research institutions and the private sector, nurturing a pipeline of innovations that can scale into capabilities for the armed forces and exports for the defense industry.

Expected Impacts

The potential impacts of an AI4D can be grouped into three dimensions — what innovation scholars call the triple helix of science, industry, and government.

• On the scientific side, the agency would mobilize universities and research centers in emerging fields, increasing the rate of technology transfer into defense applications. It would encourage Portuguese researchers to participate in frontier projects with practical outcomes, instead of being confined to academic publications.

• On the industrial side, it would strengthen the DTIB, create new dual-use clusters, and attract international primes to partner with Portuguese firms. The presence of a dedicated funding agency would send a strong signal that Portugal is serious about defense innovation, making it easier for companies to integrate into European and NATO supply chains.

• On the strategic and institutional side, the AI4D would enhance Portugal’s autonomy and credibility within Europe. By shaping rather than merely participating in European initiatives, Portugal could claim a seat at the table in setting priorities for defense innovation. This would not only improve national capabilities but also reinforce Portugal’s diplomatic weight among allies.

Challenges to Overcome

Creating an AI4D would not be without difficulties. Four challenges stand out.

1. Governance. The agency must be under the Ministry of Defense and closely linked to the armed forces. Only by working with the Army, Navy, and Air Force — and with institutions such as the National Security Office — can it identify capability gaps 10 to 20 years ahead.

2. Coordination. Portugal already has AI2, idD Portugal Defence, and various EU-level programs. An AI4D must carve out a distinct role to avoid duplication. Its value would lie in its agility, defense focus, and complementarity to AI2, not in replicating what already exists.

3. Critical mass. Four hundred million euros per year may seem small compared to global defense innovation budgets, especially in artificial intelligence or biotechnology. Yet if deployed strategically, it could be highly effective. The key is to open the agency to international talent and entrepreneurs, positioning Portugal as a place where top innovators can test and grow dual-use technologies.

4. Impact assessment. Success should not be measured in reports or publications but in concrete deliverables: prototypes reaching advanced readiness levels, technologies adopted by the armed forces, startups integrated into NATO supply chains, and solutions that enhance sovereignty in areas like cybersecurity, air defense, maritime surveillance, and energy resilience.

Next Steps

How could Portugal move from concept to reality? A pragmatic path would involve several steps.

First, establish a mission-oriented task force to act as a provisional installation committee. This body could define priorities, draft governance rules, and prepare the first pilot programs.

Second, launch the agency in a “hosted” format, using the existing structure of idD Portugal Defence as a temporary incubator. This would allow the AI4D to begin operations quickly, starting with low-barrier programs such as hackathons, prizes, and startup accelerators.

Third, open a consultation process with academia, industry, and the military to ensure alignment of priorities and buy-in from all stakeholders.

Fourth, secure integration with European initiatives from the outset. AI4D should be designed to plug seamlessly into EDF, EDA, DIANA, and EUDIS, leveraging European co-funding and positioning Portugal as a proactive contributor.

Finally, plan for a dedicated headquarters. Initially, the agency could operate from the idD’s facilities in Lisbon. 

The creation of a Defense Research and Innovation Agency would represent a strategic leap for Portugal. Modeled on DARPA but adapted to national scale, such an agency could overcome fragmentation, provide a clear defense-focused mission, and place Portugal at the center of European innovation networks.

Without it, defense innovation risks remaining marginal, underfunded, and disconnected from operational needs. With it, Portugal could transform its scientific talent and industrial base into strategic capabilities, reinforcing both national security and European collective defense.

The choice is not whether Portugal should innovate in defense, but whether it will do so with institutions fit for purpose. The AI4D offers a way forward: a small but agile agency, capable of turning bold ideas into real technologies, and ensuring that Portugal contributes to — and benefits from — the disruptive innovations shaping the future of defense.

Portugal has a unique opportunity to position itself at the forefront of disruptive defense innovation, building institutions like the proposed AI4D and connecting science, industry, and the armed forces. But ideas only gain momentum when they are tested in practice. That is precisely the ambition of the EUDIS DefenceTech Hackathon, taking place in Lisbon from 17 to 19 October 2025. Part of the European Union Defence Innovation Scheme, the hackathon will bring together researchers, startups, engineers, and defense practitioners to co-create and prototype dual-use solutions in areas such as cybersecurity, autonomous systems, and secure communications. By convening talent and experimentation in Portugal, the event is a practical step toward the innovation ecosystem this article envisions — a place where bold ideas are translated into prototypes, and where Portugal helps shape Europe’s technological sovereignty.

• 👉 Learn more and apply to attend the demo-day: https://taikai.network/eudisPortugal/hackathons/portugal