Govt Proposes Draft Incentive Plan for Semiconductor Sector, Contravening IMF Conditions

The Ministry of Information Technology and Telecommunication has developed the “Semiconductor Policy and Action Plan,” which provides the semiconductor industry with a variety of incentives, including STZ benefits, import duty exemptions, soft loans at 25% reduced interest rates, and 25% tax rebates. These actions are in violation of the current Extended Fund Facility (EFF) agreement with the IMF.

To establish a semiconductor ecosystem in Pakistan, the five primary components of the strategy will be implemented: infrastructure development, human resource development, industry ecosystem building and collaboration, research and development (R&D) and innovation, and policy support and incentives.

The policy suggested providing grants and subsidies to organizations and firms that invest in semiconductor design, research and development, and manufacturing. This will entail the extension of STZ incentives to the semiconductor industry, the exemption of import duties on equipment and machinery for the semiconductor industry, the provision of soft loans at 25 percent rebated interest rates for the establishment of the industry, and the provision of 25 percent tax rebates for employees working in the industry and R&D organisations.

Additionally, it suggests the establishment of a national semiconductor fund with a capital of Rs. 10 billion. This fund will be responsible for providing soft loans, grants, startup support, incentives to retain local talent, attract significant international firms and foreign expatriates, and other services over the next decade.

The semiconductor market can be segmented into three categories: 1) chip design, 2) fabrication, and 3) assembly, test, and packaging (ATP). Taiwan leads semiconductor production, whereas the US leads EDA tools and chip design. China dominates the ATP (OSAT) market. Different semiconductor sectors have different investment, HR, and ROI needs. Fabrication and ATP do not guarantee profit or self-sufficiency.

In 2023, the global semiconductor industry reached $600 Billion and is expected to reach $1 Trillion by 2030, driven by 70% by computer & data storage, automotive electronics, wireless connection, and power management. The COVID-19 epidemic and geopolitical tensions have disrupted the semiconductor value chain during the last five years.

To boost economic growth and self-reliance for strategic objectives, governments have implemented new semiconductor strategy and investment plans. In the future, these electronic chips will play a larger role and semiconductor technology will represent soft power.

According to the Ministry of IT & Telecom (MoIT), the policy document was developed through a comprehensive consultation with a variety of stakeholders and encompasses all segments of the semiconductor market. This strategy will provide the framework for a sustainable semiconductor ecosystem that capitalises on our large young population and serves local and international market needs.It also allows semiconductor companies and entrepreneurs to expand and compete worldwide by hiring competent workers. The programme is expected to boost Pakistan’s economy, national security, and essential infrastructure and ensure global competitiveness.

The semiconductor value chain has been significantly disrupted over the past five years as a result of the US-China trade conflict, which is renowned as the “Chip Wars.” The world’s dependence on the US for sophisticated technologies and Taiwan for semiconductor production has been disclosed, and many nations have started a chain reaction to become self-sufficient in this essential technology.

To protect national interests from export controls and limitations, governments have implemented new tactics and boosted expenditures to build and improve semiconductor capabilities. For instance, China is aiming for 70 percent self-reliance by 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 and India have pledged about €11 billion and $10 billion, respectively, to develop the local semiconductor ecosystem. Saudi Arabia has established Alat, a PIF-backed corporation that will spend $100 billion in semiconductors until 2030.