Exactly why Foxconn might build a $9 billion manufacturing plant in Saudi Arabia

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The Wall Street Journal reported this week that Foxconn, the world’s largest contract assembler of consumer electronics, is in talks with Saudi officials about the possibility of opening a $9 billion factory in the Middle Eastern nation, which is trying to diversify its economy away from oil.

Semiconductor chips, electric vehicle parts, and other electronic components will be manufactured at the factory in Neom, According to the Journal, Saudi officials are developing a city near the Red Sea coast into a technology hub.

When asked about the Saudi Arabia plant, the Taiwanese iPhone assembler, founded by Taiwanese billionaire Terry Gou, refused to answer any questions. Nine cities in China are home to Foxconn’s 12 factories. Other operations are taking place in Europe, Indonesia, Thailand, and Vietnam.

Tu Chia-wei, an industry analyst with the Market Intelligence & Consulting Institute in Taipei, says that one of the unique advantages for Foxconn of having a factory in Saudi Arabia is that it can be closer to the Middle East market to tap local demand while diluting geopolitical risks by avoiding tariff barriers to make prices more competitive”.

Since 2018, the United States and China have been locked in a trade war. Foxconn has been expanding its operations outside of China in an effort to mitigate the negative effects of the current trade war. Chinese manufacturer Foxconn plans to invest $9 billion in building factories in Saudi Arabia, according to Tu.

A senior analyst at Counterpoint believes that Saudi officials met with Foxconn because they want to diversify their economy away from oil. Saudi Arabia’s Vision 2030 plan calls for transforming the country into an industrial powerhouse in just eight years. In order to achieve Saudi Vision 2030’s tech goals, “the country will have to become a part of the global supply chain,” he says.

Wang believes that Saudi Arabia’s sovereign public investment fund, the Public Investment Fund, will likely fund Vision 2030-related projects. A $6.4 billion investment proposal for future technology was made in February by the fund, he says, and last year it invested $1 billion in Lucid Motors, a manufacturer of electric cars planning to open its first plant outside the United States in Saudi Arabia.

The company “could be doing a bit of subsidy shopping here and trying to get the best financial incentives” from Saudi Arabia or the United Arab Emirates, says Wang.

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