Supply shocks during the COVID-19 pandemic might have led to inflation and price increases for consumers, but they also revealed the vulnerability of the global chip supply, highlighting how disruptions in the global semiconductor chain could impact nearly every sector of the digitized economy. Almost 169 sectors were affected by the global chip disruption, according to an analysis by Goldman Sachs, resulting in a surge in prices of electronic products and delayed orders. This realization of insecurity served as a wakeup call for states to reduce their dependency on chips from other nations and strive for self-reliance.
In addition to pandemic-induced vulnerabilities, the US curb on chip exports to China signaled to states the potential for blackmailing and through control of key technologies. This dependency, and possibility of disruption underscored the need for states to develop backup plans. In response, many states have begun pouring investments into the semiconductor industry, with over 500 billion dollars expected to be invested globally during 2024 alone.
Major players in the industry have started expanding their semiconductor facilities within their homelands to reduce reliance on foreign states, welcoming offshoring investments and extending support to willing contenders to build resilient and diversified supply chains. The push for self-reliance is not the only factor that has prompted states to enter the chip industry.
The global semiconductor industry, however, remains dominated by a few countries, all of them reliant on each other in some capacity. Efforts are underway worldwide to increase self-reliance and expand national shares in the global supply chain.
Indigenous chip manufacturing would not only decrease import burdens, but also contribute to GDP through exports. The growth of the global chip industry is projected to surpass $1 trillion dollars by 2030, with a promising 12% growth rate. Chips are considered enablers across various industries, from medical care to aerospace, from automated weapons to automotive vehicles, and notably in AI, advanced semiconductors allow for greater productivity and efficiency. The chip industry requires substantial investments however, in highly skilled labor, experts, and advanced equipment, making it a symbol of scientific and industrial advancement, enhancing states' soft power.
The global semiconductor industry, however, remains dominated by a few countries, all of them reliant on each other in some capacity. Major contributors such as America, Taiwan, South Korea, China, Japan, and the Netherlands lack complete autonomy in all sectors necessary for chip production. The semiconductor manufacturing process is divided into design, manufacturing, assembly, and testing, with each state currently reliant on only a handful of firms that specialize in each stage of the manufacturing process.
Efforts are underway worldwide to increase self-reliance and expand national shares in the global supply chain. The European Union, America, China, and South Korea have announced plans to invest $46 billion, $52 billion, $143 billion, and $471 billion dollars respectively in semiconductor factory construction. Even regions with no substantial share in the global supply chain, such as South Asia, are striving to join this elite club. The ongoing struggle between the US and China regarding semiconductors presents both opportunities and challenges for South Asia.
Chipmaking in India
India is exerting considerable efforts to find an entry into the semiconductor ecosystem. As of 2022, the Indian semiconductor industry was valued at US$27 billion, with over 90% of its components being imported. However, semiconductor consumption is projected to surge to $271.9 billion by 2032. India boasts strong political will, a thriving technology industry, which contributed 7.4% to India's GDP in FY 2022, and a vast talent pool, with nearly 20% of the world's chip design engineers being Indian nationals.
US chip giant Qualcomm opened a design center in Chennai, focusing on wireless technology design and creating 1,600 jobs. There are strong indications that India will produce its first indigenous chip by December 2024, marking a significant milestone and the first fruit of its efforts.
With ambitions to become the fifth-largest semiconductor industry globally by 2030, India has launched initiatives like the "Make in India" program and the "India Semiconductor Mission (ISM)" in 2019, offering a $10 billion incentive plan to attract investments to build an indigenous semiconductor environment. Although initial ventures like the Vendetta and Foxconn mutual venture worth $19 billion were withdrawn, American companies like Micron and AMD have shown interest. Micron is investing $825 million in an assembly and testing facility in Gujarat, while AMD announced $400 million for an R&D facility in Bengaluru. Foxconn also plans to invest $1.5 billion to expand its operations in India.
Recently, India approved a $15 billion investment to establish three new plants, including a fab in Dholera and two Packaging and Assembly sites in Assam and Gujarat. Additionally, US chip giant Qualcomm opened a design center in Chennai, focusing on wireless technology design and creating 1,600 jobs. There are strong indications that India will produce its first indigenous chip by December 2024, marking a significant milestone and the first fruit of its efforts.
Geopolitics also seem to be on India’s side, as America wants to build a resilient supply chain, choosing trusted allies, outside of China’s influence. Despite satisfactory progress, India's long-term strategy, patience, and consistency will ultimately determine its fate in the semiconductor industry.
Pakistan’s chips
Pakistan’s semiconductor industry is in its nascent phase, as it lags far behind India in the chip industry. The projected revenue for Pakistan's semiconductor market in 2024 is $705.70 million, with all equipment being imported. Although experts believe Pakistan could generate $4 billion annually, progress has been painfully slow.
Interest in building a chip industry began during Imran Khan's government, when Pakistan turned to China to start its industry, and provincial governments approved Rs41.75 million in funding for establishing chip design centers in eight universities in Punjab. A roadmap, the Pakistan National Semiconductor Plan (PNSP), was launched, preparing the country's talent and human capital and starting with the designing, assembly, and testing of chips in the first phase before moving towards more advanced and expensive manufacturing phases.
Plans were to build an indigenous Designing and Manufacturing semiconductor industry with a resilient supply line until 2047. While some Chinese companies had shown interest, instability and economic crises created hurdles for smooth progress. The new government has allocated Rs. 190 million to create the NUST Chip Design Center. However, this level of dedication is not enough to build a sophisticated technology base, which needs huge investment, the government’s consistent focus and strong political will.
Pakistan can establish a semiconductor specific set of policies in the Specific Facilitation Investment Council (SFIC), attracting investment in this strategic sector. Strategic relations with China could also facilitate progress.
Limited government interest and investments hinder progress in Pakistan’s semiconductor industry. Despite these obstacles, private companies and the startup surge in the semiconductor industry show promise. With 100,000 STEM graduates entering the workforce annually and support from its industry-related diaspora, Pakistan possesses significant potential.
Pakistan can establish a semiconductor specific set of policies in the Specific Facilitation Investment Council (SFIC), attracting investment in this strategic sector. Strategic relations with China could also facilitate progress. However, there is a need for greater focus on education and training to ensure that Pakistan generates skilled labor not only for its own industry, but also to export to other nations that face a shortage of skilled labor. Policy continuity and prioritization at the state level would be imperative if Pakistan aims to capitalize on this opportunity.
Pakistan and India, in South Asia, have made some breakthroughs in the semiconductor industry. However, other states like Bangladesh, Sri Lanka, Nepal, and Afghanistan have very little to no industry presence. Afghanistan presents an interesting case and a competitive ground for India and China due to its overwhelming lithium resources, crucial for battery manufacturing and energy storage, used in electric vehicles, alongside chips. This could potentially position Afghanistan as a significant player in the semiconductor supply chain.
The competition between America and China in South Asia's semiconductor race is expected to intensify in the years to come, with both countries vying for dominance in this critical industry. The ubiquitous use of semiconductors, spanning from civilian to military applications, will inevitably make chipmaking a strategic industry in the future with the potential to shape our world and, consequently, South Asia, with its two nuclear-armed rival states.