Executive summary
For many decades, manufacturing in the Middle East has been disproportionately focused on petrochemicals. The industry contributes 24% of GDP in Saudi Arabia and 16% in the United Arab Emirates (UAE), compared to less than 1% in the US and China. On the same subject : Why ‘Minecraft’ creator’s NFT amount could be a game changer for the video game industry. In addition to light manufacturing – for clothing and processed foods, for example – Middle Eastern countries import virtually all of their manufactured goods.
This high imbalance (the ratio of non-oil imports to non-oil exports is greater than two to one) poses risks that weaken resilience and could impede future economic growth in the region. In recent years, some countries – notably those of the Gulf Cooperation Council (GCC) – have launched ambitious programs to diversify and expand their production to meet national and regional demand and position the area as an export platform for companies based in other parts of the world. world. Typically, these projects are implemented as part of a state-led master economic plan.
For governments pursuing these diversification programs, choosing which manufacturing sectors to target for development is critical. Technology is increasingly considered a high priority for localization compared to other manufacturing sectors, given its great importance to virtually every other sector, its growth potential, and the far-reaching and adverse economic effects of supply disruptions. Within the vast technological universe, governments will have to bet on which technology segments – and even which product families within the segments – to pursue large-scale projects and must provide broad support to ensure their success.
This report describes the state of manufacturing in the Middle East; the benefits of localizing technology manufacturing; and, for Middle Eastern countries with ambitions to do so, the critical success factors.
When global meets local
The technology hardware manufacturing industry is highly geographically concentrated, with companies in a few countries acting as suppliers to the world. For example, the Congressional Research Service estimated that in 2019, of the 126 semiconductor factories manufacturing 300mm silicon wafers, 36 were in Taiwan, 24 in China, 20 in the US, 19 in South Korea, and 13 in China. Japan – that is, 88. See the article : Problems in the global food supply chain require solutions: disruption of the grain trade can affect food security.9% of these factories were in just five countries. Manufacturing capacity is similarly concentrated, with 28% in South Korea, 22% in Taiwan, 16% in Japan, 12% in China and 11% in North America – five locations representing 90% of the total.
Recently, several other countries and cities have created successful digital manufacturing and technology hubs, including Vietnam with electronics assembly (see “Samsung and Intel localize in Vietnam”); Grenoble, France, with microelectronics; and Vilnius, in Lithuania, with laser technology. These regions and others increasingly recognize the value of having close access to a variety of technologies, especially those that enable industrial innovation and digital transformation, and the supporting ecosystems.
In the Middle East, the UAE has had a head start in pushing the location agenda, with prominent players like Mubadala investing in technology services including artificial intelligence (AI), cloud computing, space systems and telecommunications.
More recently, Saudi Arabia has launched ambitious programs and mega-projects,6 that could further accelerate the technology and digital localization agenda.
The COVID-19 pandemic is expected to accelerate the localization trend as governments, regional authorities and major manufacturers rethink their reliance on global supply chains and seek to bolster their resilience, especially in sectors such as semiconductors, whose components and finished products are critical for many other industries in the country.
The technology and digital cluster landscape
Governments may consider three groups of manufactured technology products – with a combined market size in the Middle East of approximately $125 billion, according to our estimates – for Middle East localization opportunities.
Conclusion
“Companies that invest significantly in R&D deserve special consideration; given the rapid pace of change in the technology industry, these companies are better able to maintain their leadership position and remain viable over the long term.”
