$9 billion is the estimated cost of the high-tech multi-purpose factory that Foxconn, the maker of Apple’s iPhones, could build in Saudi Arabia. the wall street journal revealed the existence of negotiations between the Taiwanese company, whose real name is Hon Hai Precision Industry, and the kingdom since at least 2021.
Converging objectives
Diversification, that’s the key word in this case. On the one hand, Saudi Arabia, under the rule of its all-powerful Crown Prince Mohammed bin Salman or MBS, wants to get out of its dependence on black gold. The prince seeks to attract foreign investors to develop an advanced industrial sector on his land.
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On the other, Foxconn wants to get out of its dependence on China and its main customer, Apple. With the rise of trade tensions between the United States and the Middle Empire, the apple brand advises its supplier to look to Vietnam or Taiwan to set up its factories. This will thus compensate for unpleasant surprises such as the closure of Foxconn lines in Shenzhen due to Beijing’s 0 covid policy.
Foxconn is also looking to expand its business. The supplier has turned in particular to electric vehicles. He has signed several contracts with manufacturers, Jeep, Chrysler Stellantis, to supply parts such as semiconductors. The factory, which was worth 9 billion, should precisely manufacture chips, components for electric cars, screens and other electronic products.
Saudi Arabia in competition with its neighbors
According to information from wall street journal, the content of the negotiations between Saudi Arabia and Foxconn is fairly standard. The company is asking for funding, tax exemptions and electricity and water subsidies. Its discussions to set up another factory in the region, in the United Arab Emirates, represent a strong argument for obtaining satisfaction.
For the moment, Riyadh is ready to offer direct co-investment, industrial development loans, debt with a low interest rate from local banks, export credits…
The kingdom also has its requirements. He asks that the future factory devote two-thirds of its production to Foxconn’s supply chain. A way to ensure outlets for the success of the project and its profitability.
Will Foxconn settle in the future smart city of Neom?
One of Mohammed bin Salman’s expectations is also likely to become central: in a word, Neo. Neom is the name of the smart city wanted by the crown prince, on the shores of the Red Sea, at the entrance to the Gulf of Aqaba. He hopes that Foxconn will establish itself there.
A few administrative buildings, an airport and an experimentation centre, that’s Neom today. Credit: Google Earth
Symbol of the reforms, of the modernity desired by MBS for Saudi Arabia, the disproportionate project of a city emerging from the desert is estimated at nearly 500 billion dollars. To succeed, the prince needs foreign investment, for example that of Foxconn whose products could be partly intended for the future city.
Saudi Arabia struggles, despite its means, to attract. Beyond its very negative image, vis-à-vis women’s rights, autocratic power, the assassination of journalist Jamal Khashoggi in 2018, the country suffers from a limited internal market, a expensive work and a complicated environment.
Attracting Foxconn seems particularly interesting for the regime and its long-term plans. The Taiwanese company is probably well aware of this and will play its advantage to obtain the best possible terms. From there to convince her to settle on the Neom site?