President Luis Abinader indeed has a very expansive worldview. Much like former President Leonel Fernandez back in the late 1990s, when the latter proposed to turn Santo Domingo into “a little New York” and proceeded to build the Santo Domingo Metro system, now Luis Abinader wants the Dominican Republic to become a player in the world of semiconductors or microchips.
At the start of the computer industry, the US had 100% of the manufacturing capacity of semiconductors. Today that capacity is now 8% after the US outsourced the manufacturing of microchips used in computers and electronics to Asia. Upwards of 80% of computer chips and electronics are manufactured in South Korea, Taiwan, China, and Japan. Germany and Israel have small shares of the industry.
Enter nearshoring and friendshoring. The Dominican Republic has the potential to combine both. The DR offers the best of nearshoring with geographic proximity to optimize costs and efficiency. And it offers friendshoring values alignment in terms of values and policies, seeking security and predictability in trade relationships.
Now Abinader would like to set the foundation in his second term in government, for the Dominican Republic to take on the challenge and become a participant in computer chip manufacturing.
There is a lot going for this idea. The world leader in microchips is Taiwan with more than 60% of the global production. Yet Taiwan is under the threat of takeover or controls mandated by China. The Dominican Republic is close to the United States and just five or six hours from most of Europe.
With this in mind, President Luis Abinader has asked the Ministry of Industry & Commerce to create a National Strategy for the Promotion of the Semiconductor Industry. The President, in Decree 324-24, calls for creating “a safe, competitive and trustworthy source” for the development of semiconductors for use in all sectors of industry. This opens a new attraction for the industrial free zones, for local industry, and for universities.
Establishing a foothold in the chips manufacturing world could take decades and lots of US$. When computers and software took off, the US was the main manufacturer. Taiwan engineer, Shih Chin-Tay made the difference. He would receive a doctorate in electrical engineering from Princeton in the US in 1979, work for two years for Burroughs Corporation designing memory chips and as senior research engineer and then return to Taiwan to immerse that country into the industry. He would receive a masters in technology management from Stanford in California in 1985.
In Taiwan, Shih convinced government and private sector to set up the Industrial Technology Reearch Institute project that laid the foundation for Taiwan’s semiconductor industry.
Take note that in the 70s, the Taiwan economy was still based on sugar and textile exports. Chin Shih-Tay championed efforts in Taiwan to transform that country into an electronics powerhouse.
Taiwan’s transformation into a microchip powerhouse took several decades. The journey began in the 1970s when Taiwan started to invest heavily in the semiconductor industry. The first manufacturer of microchips in Taiwan opened in 1980, the United Microelectronics Corporation (UMC). By the 2010s, Taiwan had become the world’s leading manufacturer of semiconductor chips. Taiwan today produces roughly around 60% of the world’s semiconductors and 90% of the most advanced ones.
The Dominican Republic is a long way from being able to manufacture microchips. Significant capital investment is needed given that a semiconductor fabrication plant is extremely capital-intensive, estimated at costing US$20 billion or more. Likewise, the manufacturing processes require a skilled workforce, research and development capabilities and supporting infrastructure like reliable power supply and water treatment facilities. Moreso, a strong supply chain of raw materials, equipment and components is required for a country to manufacture the microchips.
Nevertheless, for starters, the DR could take several intermediate steps to prepare the raw material that is used in the microchips before fully manufacturing microchips.
The CHIPS Act, recently enacted in the United States has committed US$52 billion spread over five years to support investment in research and development as well as additional capital investment in the semiconductor industry. The Center for Strategic & International Studies (CSIS) says that the US$52 billion pales in the face of the amount of funding required to be competitive in the US semiconductor industry and that investment is climbing exponentially every year. TSMC in Taiwan, by far the largest and most advanced semiconductor manufacturer in the world today, spends nearly US$40 billion on capital equipment and research and development a year by themselves.
Action now is motivated by the situation in Asia. CSIS speculates China could use its coastguard to implement a legitimate defacto quarantine disrupting or cutting off air or maritime traffic to Taiwan, practically paralyzing global operations.
The Conversation says that actions are being taken to transfer some of Taiwan’s manufacturing back to the Americas to avoid the scenario of an invasion by China threatening the global economy with implosion. The intention is to build new manufacturing facilities elsewhere to reduce the world’s reliance on Taiwan for chip production. Enter “friendshoring” that would concentrate manufacturing and the sourcing of materials outside Taiwan in countries friendly to the United States, the Dominican Republic included.
The Dominican Republic split diplomatic relations with Taiwan in May 2018, when the government of Danilo Medina decided to abruptly sign on with the People’s Republic of China. Outside of the initial enthusiasm of those who convinced then President Medina to sign with China, the DR has gained little from its relations with China.
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17 June 2024