In violation of IMF’s EFF: Ministry drafts incentive plan for semiconductor industry

ISLAMABAD: In violation of the International Monetary Fund (IMF) ongoing Extended Fund Facility (EFF) program, Ministry of Information Technology and Telecommunication drafted “Semiconductor Policy and Action Plan” envisaging grants and subsidies to semiconductor industry including extending special technology zone (STZ) incentives, exemption of import duties on equipment, soft loans at 25 percent rebated interest rates as well as providing 25 percent tax rebates.

The Fund’s documents upload in early October 2024 relating to the ongoing EFF loan programme, unambiguously maintains that subsidies have taken the form of low-cost financing and other concessions, which, although varied across industries, left financing and taxes net of subsidies more favourable than in peer economies and less-favoured sectors.

The ministry also proposed to establish national semiconductor fund of Rs10 billion to provide soft loans, grants, startup support, incentives to retain local talent, attract major international firms and foreign diaspora for next decade. Business Recorder sought Minister of State for IT and Telecommunications Shaza Fatima Khawaja’s viewpoint on the proposed incentives; however, till the filing of this report no response was received.

SIFC unveils plan to give a boost to semiconductor industry

The worldwide semiconductor market has surpassed $600 billion in 2023 and is poised to cross $1 trillion by 2030, of which, 70 per cent is driven by rapid growth in computing and data storage, automotive electronics, wireless connectivity and power management.

The draft policy noted that given the dependence of national economy and security on semiconductors, it has become imperative to formulate the Pakistan Semiconductor Policy.

The draft policy envisaged to transform Pakistan into a major hub of semiconductor design, manufacturing and Assembly, Test and Packaging (ATP), and achieve indigenous design, testing/packaging and fabrication capability for critical semiconductor integrated circuits (ICs) by 2047.

The five main elements of strategy will be utilized to establish semiconductor ecosystem in Pakistan. These elements include; policy support and incentives, infrastructure development, human resource development, industry ecosystem building and collaborations, research and development (R&D) and innovation.

The three major components of semiconductor devices include design, fabrication and ATP. While fabrication of ICs gets most attention, it is not a starting point for developing countries owing to its extremely high CAPEX & OPEX. Design element, on the other hand, involves least cost, and yields high return on investment (ROI) but requires highly skilled human resource. Hence developing nations invariably target design segment first before proceeding to ATP and fabrication elements, the ministry added.

Pakistan has not been able to secure its rightful place in any of the three segments and still relies on imported chips for all of its domestic market. With the adoption of Digital Pakistan policy, there is an increasing need to develop an independent semiconductor policy framework for achieving some degree of sovereignty in this critical domain.

Semiconductor supply chain disruptions during Covid-19 pandemic and ongoing tech wars have forced rebalancing of global semiconductor market structure. This coupled with transformative technologies like AI and electric vehicles (EVs) has created an opportunity for many nations to provide skilled workforce and become alternate destination for semiconductor supply chain relocations.

The draft policy noted that the last five years have witnessed major disruption in the semiconductor value chain due to the US-China trade war, famously known as the “Chip Wars”. It has not only exposed the World’s dependence on the USA for advanced technologies and on Taiwan for chip manufacturing but has also triggered a chain reaction in many countries to attain self-reliance in this critical technology.

To counter the potential restrictions and export controls, governments have introduced new strategies and increased investments to grow and strengthen semiconductor capabilities, with an eye toward safeguarding their interests.

China is aiming for 70 percent self-reliance till 2025 by pumping in $155 billion in the semiconductor industry, South Korea committing $450 billion for chip foundries and the USA is re-focusing on chip manufacturing by investing more than $52 billion.

The EU has committed more than €11 billion and India announced a $10 billion package to focus on the local semiconductor ecosystem. Saudi Arabia announced formation of a Public Investment Fund (PIF) backed company Alat announcing a $100 billion in investments until 2030, semiconductors being one its main thrust areas.

Semiconductor market can be divided into three segments, (i) chip design, (ii) fabrication and (iii) ATP.

The electronic design automation (EDA) tools and chip design market is mostly dominated by USA whereas Taiwan is leading the chip fabrication segment.

In ATP (also known as OSAT), major market share is held with China. Different segments of semiconductor industry have varying requirements of investment, HR and ROI. The fabrication and ATP does not guarantee an immediate profit or self-sustenance, the policy noted.

The Ministry of IT and Telecom (MoIT) claimed that this policy document was formulated based on a multi-stakeholder consultations and took a holistic approach to cover all segments of semiconductor market.

This policy will also serve as the foundation for the creation of a sustainable semiconductor ecosystem that builds on the potential of large youth bulge and serves the needs of both local as well as international market. It also affords an opportunity for semiconductor startups and entrepreneurs to employ skilled workforce for expanding their businesses and become internationally competitive. It is envisaged that the policy will provide a much needed boost to Pakistan’s economy, national security, critical infrastructure, and ensuring global competitiveness, the ministry added.

Copyright Business Recorder, 2024