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Why local manufacturing of semiconductors is a big deal for the Middle East’s smart economy

Developing the technical expertise and infrastructure required for semiconductor manufacturing is complex. It involves extensive research, investment, and skill development.

Why local manufacturing of semiconductors is a big deal for the Middle East’s smart economy
[Source photo: Krishna Prasad/Fast Company Middle East]

There’s a race for semiconductor production. These critical chips—the heart of every AI software, electric vehicle, smartphone, and other electronics—are the most sought-after commodity.

However, there’s a worldwide reliance on just a handful of companies, like Nvidia, ARM, Samsung, and TSMC. As of 2023, Taiwan holds about 46% of global semiconductor foundry capacity, followed by China (26%), South Korea (12%), the US (6%) and Japan (2%), according to market intelligence firm TrendForce.

And so, the tech industry and countries are eager to diversify their chipset sources and are pouring billions into efforts to build their chips and lessen their reliance on imports.

Not surprisingly, the UAE and Saudi Arabia, the participant nations of the global AI competition, smart economy, and futuristic cities, aim to become major chip hubs like the US, Taiwan, and South Korea by leveraging their resources to bolster chip development efforts. 


Both countries are vying for regional leadership in advanced technology, hoping to create data centers, AI companies, and semiconductor manufacturing.

Regional economies are doubling down on local manufacturing capabilities. A prime example is the UAE’s Operation 300bn, which aims to raise the industrial sector’s contribution to the GDP by over $80 billion by 203. It’s a potential game-changer.

“These economic powerhouses aim to enhance productivity and promote localization in key sectors, with industrialization and digitization as one of the priorities,” says Dr. Anil Khurana, the founding Executive Director of the Baratta Center for Global Business and Research Professor at Georgetown University’s McDonough School of Business. “A recent study indicates that the region is primed to play a substantial role in high-technology manufacturing products, with a potential worth of $125 billion, with semiconductor manufacturing emerging as a key driver.”

They are courting foreign firms to set up operations in the country and strategically investing in computational power and talent to reduce dependency on other global powers. The two big economic powerhouses of the Middle East manage some of the world’s most powerful sovereign investment funds, which help them further their chips ambition.

Earlier this year, speaking at the World Economic Forum in Davos, Saudi Minister of Communications and Information Technology Abdullah Alswaha said that the state-owned Public Investment Fund (PIF) is eyeing a “sizable investment” in the semiconductor industry.

“Semiconductors are the building blocks of our tech world. And this is a major opportunity for the Middle East to step up and take the lead… It’s a chance to be at the forefront of shaping the future,” says Vibhu Kapoor, Regional Vice President – Middle East, Africa & India, Epicor. 

Semiconductor technology is the foundation of the fourth Industrial Revolution, which both countries are pursuing. It is crucial for numerous applications, including energy, computing, data storage, sensors, communication, lighting, and photovoltaics.

Saudi Arabia aims to develop an auto manufacturing hub in the kingdom and plans to develop downstream industries that include the production of semiconductors and batteries.

In March, to boost semiconductor manufacturing, the $100 billion PIF-owned company Alat signed a partnership with the King Abdulaziz City for Science and Technology (KACST) to build the semiconductor talent needed to power the local industry in the future while positioning the kingdom as a global hub for the strategic semiconductor industry.   

The agreement with KACST is spearheaded by Alat’s Semiconductor Business Unit, overseeing the development and manufacturing of chips in three pivotal technology segments: power, perception, and processing. 

“Alat aims to enable the establishment of next-generation industry in Saudi Arabia, and by partnering with a renowned institution such as KACST, with its deep expertise in advanced technologies and talent development, we will play an essential role in the creation of Saudi Arabia’s semiconductor industry,” said Amit Midha, CEO of Alat, in a press statement.  

Meanwhile, the UAE, which has made substantial investments in AI infrastructure, including the development of the world’s largest supercomputer for AI training by Abu Dhabi-based G42 (and others), is collaborating with US-based Global Foundries, partially owned by the UAE’s Mubadala Investment Company. 

Mubadala’s GlobalFoundries is a leading $8 billion contract manufacturing fab run from Abu Dhabi, with over a dozen design and manufacturing centers worldwide. 

According to a Financial Times report, even OpenAI’s plans to develop its semiconductor chips for powering advanced AI models could receive a boost from the UAE.

The report states that MGX — a state-backed group in Abu Dhabi — is in discussions to support OpenAI’s in-house venture in building AI chips. 

The semiconductor industry is undergoing a technological and demand shift, largely driven by the increasing demand for AI processing capacity and the need to lower chip power consumption. 

“The rise of GenAI applications is fueling a rise in demand for high-performance chips, including logic chips (CPUs and GPUs), memory chips (HBM, DDR), data storage chips (NAND), and power semiconductor chips. Consequently, there’s a surge in demand for wafers, memory, and data centers due to the AI revolution,” says Dr. Anil Khurana.

All agree that establishing semiconductor manufacturing facilities in the region would create employment opportunities in high-tech sectors, including manufacturing and related services. The region will also benefit as more companies look to reduce reliance on China, as US-China tensions show no signs of ending soon.

However, developing the technical expertise and infrastructure required for semiconductor manufacturing remains complex. It involves extensive research, investment, and skill development.

According to experts, local companies’ manufacture of semiconductors requires a broader lens and an elaborate set of considerations. From a Middle East perspective, it’s about deciding which products and stages of the semiconductor value chain make sense from a strategic, economic, and trade perspective. 

“Given the exponential growth of the computing industry and semiconductors, the Middle East should certainly be—and is increasingly becoming—a part of this expanding global value chain. The question then becomes: which segments or stages make the most sense? This includes considerations such as logic, memory, analog, sensors, chip design, manufacturing, fabrication, packaging, assembly, testing, or/and enablers such as chip equipment and services,” says Dr. Khurana. 


To tackle the challenges of semiconductor manufacturing in the region, it is essential to consider the broader scope of the process, which encompasses fabs, packaging, assembly, and more. “Fabs, in particular, are heavy capital expenditure projects susceptible to the industry’s cyclicality, affecting both working capital and operational costs. Moreover, the entire value chain requires a strong technology skill set at scale, which makes attracting world-class human capital critical,” says Dr. Khurana.

Attracting top-notch talent is key, Kapoor agrees. “If the Middle East hopes to rapidly ramp up skills in its local talent pool, that will likely take convincing skilled engineers from traditional manufacturing hubs like California or Taipei to move here. This will, of course, require offering some attractive incentives – tax breaks, world-class living standards, top-tier education, and a vibrant cultural scene – to reel them in and keep them happy.”

For regional semiconductor manufacturers, access to chip equipment and a robust supply base for materials and chemicals is crucial. Dr. Khurana says having a regional cluster along the value chain would facilitate operations. 

Additionally, semiconductor manufacturing is an energy-intensive industry that will undoubtedly raise concerns about the sustainability of the entire supply chain.

“Fabs require substantial amounts of energy and water, which is a limited resource in the GCC region—a single computer chip takes 8 to 10 gallons of water, and a typical chip plant requires millions of gallons  per day.” 

Partnerships with other countries and companies across various value chain stages also remain critical. Such collaborations enable technology transfer and offtake agreements, reducing the risks associated with significant investments.

“There’s a need to promote the involvement of professionals from the local semiconductor industry in big international tech forums and conferences around the world,” says Kapoor. As the region makes more technological advancements, it must start forming partnerships with the biggest and best in the industry.”

However, given the scale of investment and the complexity of the technology and talent requirements, it is unlikely that the private sector can take the lead, even with substantial government concessions and support. 

“The likely model that may emerge for the region is akin to the GlobalFoundries approach, involving participation in a global footprint (via ownership or partnerships) with a regional center (such as a fab or other manufacturing and engineering facility). This model may, in turn, give rise to an emerging private sector supply chain, reminiscent of how Strata (an Abu Dhabi-based aerospace parts manufacturer) has fostered an emerging private sector ecosystem in UAE,” says Dr. Khurana.

Continued economic uncertainties and political challenges are promoting the need for countries to be more self-reliant. “Just as traditional resources – oil, minerals, talented workforce, and more – have accelerated the development of nations, so too will semiconductors, especially with projections of AI having the potential to deliver $320 billion in value for Middle East economies by 2030,” says Kapoor.

“The semiconductor supply chain is a big deal globally, and if the Middle East can establish itself as a key player in this game, it will be able to boost its stability and influence on the world stage,” he adds.

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Suparna Dutt D’Cunha is the Editor at Fast Company Middle East. She is interested in ideas and culture and cover stories ranging from films and food to startups and technology. She was a Forbes Asia contributor and previously worked at Gulf News and Times Of India. More