EDITORIAL: Recently, drafting of a “Semiconductor Policy and Action Plan” by the Ministry of Information Technology and Telecommunication marks a bold initiative to position Pakistan within the global semiconductor ecosystem. The policy’s proposed incentives include tax rebates, soft loans with a 25 percent interest rebate, duty exemptions, and the establishment of a Rs10 billion national semiconductor fund.
While these measures are ambitious, they stand in potential violation of Pakistan’s ongoing commitments under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) programme. It is important to note that the global semiconductor industry, valued at over $600 billion in 2023 and projected to cross $1 trillion by 2030, presents an enticing opportunity.
Pakistan’s domestic market, however, is a minuscule $600-800 million, almost entirely reliant on imports. The focus on import substitution and local capacity development is a natural response to these circumstances. However, navigating this terrain requires a calibrated approach that aligns with international obligations while fostering sustainable development.
Pakistan’s draft semiconductor policy draws inspiration from global trends. Leading economies like the USA, China, and South Korea have invested heavily in their semiconductor industries, recognizing their strategic importance. However, the capital-intensive nature of this sector - particularly in chip fabrication - demands resources far beyond Pakistan’s current financial capacity.
Unlike China’s $155 billion or South Korea’s $450 billion commitments, Pakistan’s financial and infrastructural constraints necessitate a targeted focus on less resource-intensive areas such as chip design and light manufacturing, including Assembly, Testing, and Packaging (ATP).
Experts have long emphasized that developing nations like Pakistan should prioritise high-return segments of the semiconductor value chain. Chip design, for instance, requires comparatively lower capital expenditure but demands a skilled workforce. This aligns well with Pakistan’s burgeoning youth population, which, with the right training and incentives, can become a valuable asset for attracting global firms. Be that as it may, the proposed policy’s emphasis on human resource development and public-private partnerships is a step in the right direction.
This is not Pakistan’s first foray into semiconductor policy. The Pakistan National Semiconductor Plan (PNSP), launched in January 2022 during the previous government’s tenure, outlined a comprehensive roadmap. However, the plan’s lack of follow-through underscores the need for realistic, actionable, and transparent implementation strategies.
Transparency is especially critical given the IMF’s concerns over subsidies and financial concessions that distort market dynamics. Any policy framework must, therefore, avoid unlimited protectionism and prioritize efficiency and accountability.
Globally, the semiconductor industry thrives on collaboration between governments and private enterprises. For Pakistan, this model offers a viable path forward. The government can play a facilitating role by providing policy support, seed funding, and infrastructure development, while private firms drive innovation and efficiency.
Attracting international companies to set up design centers in Pakistan is a promising avenue, especially as US firms seek alternatives to traditional outsourcing hubs like India and Vietnam. Pakistan’s competitive advantage lies in its untapped potential, strategic location, and cost-effective workforce.
However, realizing this potential requires creating an ecosystem conducive to investment. This includes ensuring political and economic stability, streamlining regulatory processes, and investing in quality education and vocational training. The draft policy’s focus on research and development, industry ecosystem building, and international collaborations reflects an understanding of these imperatives.
The global semiconductor supply chain disruptions during the COVID-19 pandemic and ongoing US-China trade tensions have highlighted the vulnerabilities of over-reliance on specific regions. This has created opportunities for emerging markets like Pakistan to position themselves as alternative hubs. Transformative technologies such as artificial intelligence, electric vehicles, and renewable energy are driving demand for semiconductors, further underscoring the sector’s strategic importance.
Pakistan’s efforts to tap into this market must be guided by pragmatism. The emphasis should be on incremental progress, starting with chip design and ATP, before venturing into more capital-intensive areas like fabrication. The proposed Rs10 billion fund should prioritise supporting startups, training programmes, and initiatives to retain local talent and attract the Pakistani diaspora with expertise in this field.
The potential conflict with IMF guidelines is a significant hurdle. The Fund has consistently flagged subsidies and financial incentives that create distortions. To mitigate this, Pakistan must ensure that its semiconductor policy is fiscally prudent and aligned with its broader economic reform agenda. Transparent mechanisms for disbursing funds and evaluating the impact of incentives will be crucial in maintaining credibility with international partners.
The proposed semiconductor policy represents a visionary step toward building Pakistan’s technological and economic resilience. However, ambition must be tempered with realism. A phased approach, leveraging public-private partnerships and focusing on high-value segments like chip design, offers the best chance of success.
By aligning its policy framework with global trends and domestic constraints, Pakistan can lay the foundation for a sustainable semiconductor ecosystem - one that contributes to economic growth without compromising fiscal discipline or international commitments. The path ahead is challenging but not insurmountable.
Copyright Business Recorder, 2024
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