GCC economies longform
The UAE, Saudi Arabia and other GCC economies could emerge as key players in the global semiconductor space - for one, they have the funds available to build the industry to scale. Image Credit: Gulf News

There is a widespread conviction in tech and business circles that unhindered production of semiconductors and smart chips will dictate economic progress in this century.

At present, there is a bitter struggle between the world’s two largest economies to control the production of these chips. This struggle is directly manifested in the conflict over Taiwan, which is the largest producer of electronic microchips, mostly through Taiwan Semiconductor Manufacturing Co. (TSMC). It alone accounts for more than half of the production of the three other big companies in the industry, including Intel and Samsung Electronics.

In fact, the importance of these chips is growing rapidly, as nearly all aspects of living in today’s societies depends on them. This means any shortage of semiconductor chips will cause a decline in production across industries and lead to high prices, as recently happened with the auto sector.

Global carmakers have suffered from chip shortages due to the sudden rise in demand as the world overcame the repercussions of the pandemic. The shortages spread to include medical and military sectors, and even the space industry. This means any future progress will entirely depend on acquiring these chips and the means of manufacturing them in scale.

Gulf’s industrial prowess

Before touching on the elements necessary for the founding of these future-proof industries in the GCC, it must be noted that the Gulf economies have taken steps for the establishment of some vital industries in the past four decades. These include petrochemicals, aluminum, steel and those related to construction materials. However, the high-tech chip industry is completely different from these past efforts.

Petrochemicals relied on the energy sources easily available in the GCC countries, as did the steel and aluminum industry, where energy comprises 40 per cent of the input of the aluminum industry. Consequently, it is considered an energy-intensive industry. Meanwhile, the construction industry has relied on easy manpower access and the availability of primary raw materials locally.

Regarding semiconductors, the situation is completely different as the industry is capital-intensive - a requirement that hinders its development in many countries. Last year alone, the Taiwanese chip giant allotted investments of $17 billion, compared to $28 billion in 2021, while Samsung allocated $116 billion to invest in the semiconductor industry for the next 10 years. This is apart from the expertise and scientific qualifications required for the development of these industries.

Investment muscle

The question here is, why are the GCC countries among the few most qualified countries to set up and develop a semiconductor industry? First, this industry is capital-intensive and would require upfront investments in the tens of billions of dollars. The GCC countries have the investment capabilities that are not available in most other countries. Secondly, the GCC nations have key raw materials necessary for this industry, such as silicon, which is extracted from sand, as well as plastic and petroleum materials, where they already have made remarkable progress in production.

They also have copper, which is available in abundance in Saudi Arabia and Oman, as well as aluminum that is currently produced in all Gulf countries. Third, some GCC countries have been able to develop infrastructure that lays the ground for the development of the chip and semiconductor industry, such as Masdar City and Silicon Oasis in the UAE and Neom in Saudi Arabia.

Skills and knowhow on tap

The other determining factor is related to the availability of the knowledge, skills and technologies. Such knowhow is crucial issue in the development of such types of industries.

Past experience of GCC countries has proven their ability to attract knowledge and skills for heavy-duty industries. Furthermore, they succeeded in localizing these industries. This means this problem can be solved by benefiting from such experience and by entering into partnerships with those who have the knowhow and are willing to do so.

This is because they are convinced of the GCC countries’ ability to provide the necessary investments, while enjoying stability, growth and flexibility in their relations. These factors will fuel GCC’s advanced ranking in the semiconductor industry of the 21st century.