The race to dominate artificial intelligence is, at its core, a race for semiconductors, and the UAE wants to be an early mover in the globally dominating industry.
Abu Dhabi is already laying the groundwork for a domestic chip industry, a move that could reshape its economy and global role in the years to come. That only accelerated with a recent announcement that the Technology Innovation Institute and US chip maker Nvidia were teaming up to establish a joint lab dedicated to AI and robotics.
But while the ambition is clear, experts say the timeline and how to reach that goal are not as predictable.
The UAE – Abu Dhabi, in particular – has acknowledged the potential of the semiconductor industry: it considers it a growth sector, presenting an opportunity of “burgeoning success in parallel with other knowledge-based economies”, according to the Abu Dhabi Department of Economic Development.
Analysts and industry observers agree that transforming the UAE into a semiconductor hub can be done, and it is not a matter of if, but when – although a lot chips need to fall into place.
Resourcefully speaking
A little over a year ago, The Wall Street Journal reported that Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea's Samsung, two of the world's most valuable chip makers, had indicated interest in building factories in the UAE and the Middle East.
Establishing a semiconductor manufacturing vertical in the UAE would require an immense capital outlay, with industry estimates ranging from $20 billion to $40 billion just to build a single advanced fabrication centre – or fab, in this parlance – capable of producing cutting-edge chips.
“The challenges are the usual ones: specialised talent, supplier clustering and access to sensitive equipment,” Mohammed Soliman, director of the strategic technologies and cyber security programme at the Washington-based Middle East Institute think tank, told The National.
“The UAE’s edge is energy abundance, logistics, capital and regulatory agility. You can secure long-term power at scale, move goods through world-class ports and airports and get decisions made quickly.”
If the UAE aims to host several fabs and develop a full-stack ecosystem – including packaging, testing, and research and development – the total investment could easily exceed $100 billion, which aligns with the scale of interest reportedly shown by global giants like TSMC and Samsung, said Mark Feathers, product marketing manager for manufacturing at Texas-based IT firm Epicor, which has offices in Dubai.
“We're talking staggering investments here, along with a great deal of constant innovation and unwavering dedication to come out on top in the long run,” he told The National.
That being said, one plant would not constitute an entirety; a TSMC or Samsung plant in the UAE, even a mega one replicating those in Taiwan or South Korea, will not make the country a hub – because that is just part of the equation.
“To truly become a manufacturing hub, a country needs to be able to move the technology forward by constant innovation,” Jay Zagorsky, an economist and professor of markets, public policy and law at Boston University's Questrom School of Business, told The National.
“The country’s proven ability to deliver on bold economic goals suggests it’s well positioned to pursue semiconductor manufacturing as a new economic pillar,” Prof Zagorsky said.
Some of those pieces – strategic location, connectivity and human capital – are already ready to be tapped into, according to the Abu Dhabi DED.
Manufacturer's club
Global chip manufacturing, especially at the leading edge level needed for AI chips, is a highly concentrated industry. As it stands, there are currently only three companies in the world with the know-how to manufacture chips at the technology level needed for advanced AI chips: TSMC, Samsung and Intel, according to Gartner.
Even China's Semiconductor Manufacturing International Corporation, already a major player in its own right especially in the world's No 2 economy, is still two or three technology generations behind the leaders, the Connecticut-based research company said.
All these companies have well-established manufacturing centre, most of which have been in operation for decades. When new fabs are built, companies typically select locations close to existing semiconductor fabs, so that they can take advantage of the existing infrastructure.
“Over the years, other countries have tried to establish themselves as sources of chip manufacturing with little success. They have been hampered by the lack of suitable support infrastructure and have been unable to overcome the difficulties posed by this lack,” Bob Johnson, a vice president analyst at Gartner, told The National.
One notable example would be India, which had periodic announcements with established chip companies about the intent to build a fab, only to have the project fall through when the difficulties of establishing sufficient infrastructure becomes apparent.
“While becoming a hub for chip manufacturing sounds exciting at a high level, the reality is that becoming successful in this area requires obtaining agreement with not just the few established companies that are capable of manufacturing at this level, but also with the literally hundreds of companies needed to develop and support the necessary infrastructure needed surrounding a fab,” Mr Johnson said.
“This is a high hurdle that nobody so far has been able to overcome.”
Near yet still far
In the Middle East, the country “closest” to being a fab hub is Israel, hosting an Intel plant since 1974, in addition to receiving a $7 billion investment from Nvidia in 2020.
The same goes for South Korea: it is the leading memory chip manufacturer in the world, and Samsung and SK Hynix have deep R&D benches, with the latter – alongside TSMC and SMIC – even supplying parts to Nvidia.
Yet, despite all those, the world does not think of either as AI chip manufacturing hubs.
“If you look at China, South Korea or, specifically, Taiwan, it took them decades to build out the ecosystem that they have today, and it is not just about building a fab – it's really more about building the infrastructure to support,” Mario Morales, a group vice president specialising in semiconductors at the International Data Corporation, told The National.
“The supply chain across the manufacturing side of things – that's what takes time.”
A variety of raw materials are used in the production of semiconductors. On average, the fabrication process can take anywhere from a few weeks to several months, depending on the specific requirements of the semiconductor device being produced, according to the UK-based recruitment firm MRL Consulting Group, which specialises in the chip market.
“It's important to note that the semiconductor fabrication process is a complex and highly technical process that requires specialised equipment, facilities and trained personnel,” it said.
Water is another key element of chip fabs, and it has to be very clean or purified for the process. Taiwan gets 10 times more rain in a year compared to the UAE; in theory, while the Emirates has a big desalination industry, using this method would surely add to costs.
“Countries should aim to dominate areas where they have an advantage … but no government wants to continuously subsidise an industry that cannot stand on its own two feet in the long term,” Prof Zagorsky said.
The other country that could potentially become a chip hub is Saudi Arabia, given its tech-focused institutions like King Abdullah University of Science and Technology and its massive investments in R&D, Mr Feathers said.
“There’s every opportunity for the benefits of the semiconductor boom to extend beyond the UAE to the broader regional innovation ecosystem,” he added.
The kingdom also has the “capital, energy and scale to build compute-adjacent manufacturing and packaging,” Mr Soliman added.
Big backing
Backing from the US, considered the world's largest AI hub, would also be crucial to the UAE's ambitions.
The UAE and US, during President Donald Trump's Gulf visit in May, signed a deal in which Nvidia will provide chips to the Emirates as part of the UAE's AI growth plans, a sign that America sees the Gulf country as a key partner in the AI race. The US reportedly approved the first exports on Thursday.
Nvidia boss Jensen Huang, during his visit to Dubai last year, said it is “imperative” for the UAE to scale up its investment in AI if it wants to become a leader in the next Industrial Revolution.
Can the UAE do it?
Yes – but not anytime soon.
The UAE already has a plethora of talent, a big reason for which is the sheer number of technology companies having set up base here. Further proof was shown in the recently-released IMD World Talent Rankings, which showed the nation breaking into the top 10 for the first time.
The Emirates also has academia and universities supporting that ecosystem as well, such as the Mohamed bin Zayed University for Artificial Intelligence.
“The main challenge I see is that semiconductor manufacturing demands highly specialised skills. So, the country will have to attract and foster top engineers, potentially luring some of these experts away from established hubs like California or Taipei,” Mr Feathers said.
“From a longer-term perspective, energy intensity could be another hurdle. Clean, sustainable power sources will be essential to meet global expectations.”
The UAE has also shown that it is able to attract investments in tech, the most notable ones being Microsoft's $1.5 billion investment into Abu Dhabi AI leader G42 and the Stargate data centre project – and that is in addition to the emergence of locally-made large language models.
“There will be opportunities for investments that will support AI … but you have to be able to show that you offer more benefit than investing in other regions,” Mr Morales said.
And just how long would this chip ambition come to fruition? That remains to be seen, given the complexities: Mr Feathers – “under optimal conditions” – and Mr Soliman see five to seven or more years.
For Mr Morales, it would take “more than a decade before you can actually establish something meaningful in the region.
And by “meaningful”, that entails something that provides tangible economic benefits and, more importantly, is sustainable in the long run.
Still, “these things, I think they can be developed – but it just takes time”, Mr Morales said.
