Silicon prowess has become the new normal, and the Covid-19 issue has demonstrated how a computer chip supply shock may disrupt various downstream value chains around the world.
Member states of the Nuclear Club are now prepared to invest billions in chip fabrication plants, but semiconductor technology, which is concentrated in a few wealthy Asia-Pacific countries, is becoming increasingly difficult to obtain.
Last year, India’s Narendra Modi government approved a new semiconductor manufacturing policy, prompting the Ministry of Electronics and Information Technology to issue an Expression of Interest (EOI) for the establishment of new fabrication facilities.
It’s worth noting that tender materials were published in four additional languages, including Korean, Japanese, and Chinese, with the goal of strategically attracting expert enterprises from the Asia-Pacific region.
If possible, the government is also considering purchasing a foreign fabrication plant and progressively transferring technologies over time.
Delhi is eager to provide a large amount of grant-in-aid, Viability Gap Funding, and long-term interest-free loans, as well as comprehensive infrastructure support and significant tax breaks.
Despite this, the deadline for submitting a response to the EOI was repeatedly extended as the government urged big names like Texas Instruments, Intel, and TSMC to apply, but to no avail.
Surprisingly, Foxconn, a Taiwanese firm, has expressed interest, and this is likely to be the break that Delhi has been yearning for.
Foxconn employs roughly 1.3 million people in plants around Asia, as well as in Mexico and the United States. Foxconn relocated some iPhone manufacture to Chennai, India, earlier in 2020 after pledging more than $1 billion in investment, but the facility was forced to close after several of its employees contracted coronavirus.
Similarly, the Indian government has issued an EOI for the establishment of fabrication facilities to make display panels and is providing significant policy benefits for the transfer of technology such as OLED, AMOLED, QLED, LCD, and other similar technologies.
Under the Manufacturing Licence Agreement, Original Equipment Manufacturers (OEMs) possessing the required IP are encouraged to make TV screens domestically (MLA).
Both EOIs are also tied to the EMC 2.0 scheme, which aims to improve the ecosystem for electronic manufacturers in southern India.
Over the five years of the first EMC scheme, India’s electronics production increased from $29 billion to $70 billion. However, a look at India’s production inventory demonstrates that the country’s reliance on foreign chip technology is still a weakness.
In the instance of a mobile phone, India can produce the PCB, charger, microphone, USB cable, ringer, vibrator, and other components, but not the CPU, memory, or display.
In the grand scheme of things, Pakistan isn’t even mentioned in relation to the chip industry. Smuggling and used device imports, according to the Pakistan Electronics Manufacturers Association (PEMA), are preventing the electronics industry from growing.
A main stumbling block is the free trade agreement with China, and the import duty structure for parts needs to be altered. In fact, electric motors account for the majority of production, while semiconductor manufacturing is not even mentioned in the Vision 2025 materials.
Pakistan did, however, pass the Mobile Device Manufacturing Policy (MDMP) in 2020, which allows Pakistani manufacturers to produce smartphones, with imports expected to reach $2 billion by 2022.
Samsung Electronics is considering establishing a plant in Pakistan to manufacture its smart products under the MDMP framework and the “Made in Pakistan” brand.
If that goes well, Pakistan should follow India’s lead and implement a comprehensive semiconductor manufacturing programme, as Samsung is not only a phone maker but also a major player in the worldwide chip fabrication market.
In a similar vein to India, where Foxconn has entered as a licenced iPhone producer and is now considering constructing a semiconductor foundry, Pakistan can expect for a similar outcome with Samsung.
To attract foreign investors, Pakistan should devise a well-thought-out strategy that includes policy instruments such as production-linked incentive schemes and tax breaks. This isn’t an easy assignment, but it’s not impossible either.
The author is a strategy consultant who graduated from Cambridge University.