Saudi Arabia’s semiconductor revolution

At a time of rapid technological innovation and data-driven economies, semiconductors have emerged as the so-called new oil. These tiny chips that will court an estimated global investment of $1 trillion by 2030 are the cornerstone of modern societies. From computing to consumer electronics to solar panels, various everyday devices are dependent on semiconductors.

Given its technological salience and economic potential, the semiconductor industry has attracted global interest and investment. Though semiconductors are crucial components of defense systems and are exposed to global supply chain disruptions that cause domestic shortages, they have also attracted regulatory attention due to their significance to national security.

The global rise of semiconductors has aligned with the ongoing transformation in Saudi Arabia, whereby the Kingdom is more interested than ever in creating digital economics and investing in the latest technologies. Building on its stated plan, announced in March, to provide a $40 billion push for artificial intelligence in the country, Saudi Arabia this month announced the creation of a National Semiconductor Hub during the Future of Semiconductors Forum in Riyadh.

The government aims to use various financial incentives to attract 50 semiconductor companies to set up bases in Saudi Arabia and develop simple, fabless chips. The chips will initially be manufactured internationally, with the Kingdom planning to then use its strategic location, abundant natural resources, research infrastructure and local talent to build a semiconductor ecosystem worth more than $13 billion.

This comes amid increasing Saudi interest in investing in emerging technologies locally and internationally. In doing so, the Kingdom has partnered with leading international semiconductor companies like Nvidia, Qualcomm and Intel to combine their industry expertise with its financial and natural resources. However, while these American companies provide the most sophisticated semiconductor technology at present, growing geopolitical tensions between the US and China have complicated any third-party usage of this technology.

The Kingdom is more interested than ever in creating digital economics and investing in the latest technologies

Zaid M. Belbagi

Citing national security concerns, the US has banned the export of advanced AI and semiconductor technology to China, which in turn complicates the procurement of American technology by any country that also does business with China. Notably, the US last year banned the sale of Nvidia’s advanced A100 and H100 chips to Middle Eastern countries amid concerns of technology leakage to China.

In this context, Saudi Arabia’s commitment to developing a domestic semiconductor industry is also an exercise in shaping an increasingly independent and influential foreign policy. The Kingdom’s efforts toward balancing the US-China technological competition is seen in two contrasting recent statements. In early May, the Saudi AI investment fund Alat stated that it was willing to divest from Chinese companies should the US ask it to. By the end of the month, reports emerged of Saudi Aramco’s participation in a $400 million funding round for Chinese generative AI company Zhipu AI through the former’s venture capital fund Prosperity7 Ventures. While critics have questioned the feasibility of balancing both partners, it is necessary for the Kingdom to ensure uninterrupted access to the latest and most cost-effective technologies in the semiconductors and AI space.

Seeking to avoid technology transfer sanctions while preserving relations with both technological giants, Saudi Arabia has decided to look inwards to develop its own capabilities and local talent in the semiconductor sector. An initial investment of $266 million in the National Semiconductor Hub, amid ambitious multibillion dollar plans to invest in AI and technological advancement, is a sign of the ongoing technological revolution in Saudi Arabia.

The Kingdom is not only seeking to attenuate great power rivalry in the field but also use this opportunity to upskill and employ its youth, strengthen international partnerships and reduce dependency for a technology that is key to Saudi progress toward a diversified post-oil economy. Greater localization in chip manufacturing also allows Saudi Arabia to mitigate the challenges posed by natural calamities, conflicts and intellectual property rights to the globally dispersed semiconductor supply chain. The hub’s vision to attract 25 international experts and train 5,000 semiconductor engineers by 2030 indicates the Kingdom’s sustainable approach toward developing this industry.

The National Semiconductor Hub's recent statement that it does not intend to “replace Nvidia or challenge Intel” is notable, as it highlights the Kingdom’s pragmatic assessment of its capabilities and targets, which will make this technological revolution viable. Naveed Sherwani, who will head the new hub, highlighted Saudi Arabia’s focus on uncomplicated chips that are not politically sensitive.

The Kingdom’s development of low-cost and fabless chips will also be beneficial for its partners in the Global South. Saudi Arabia can offer these emerging economies a crucial technology at affordable prices to provide an initial impetus to their digitalization. These efforts are putting Saudi Arabia at the forefront of the technological revolution, not only in the region but globally as well.

• Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the Gulf Cooperation Council region. X: @Moulay_Zaid