Infineon’s chip plant in Dresden looks more like an international tech convention than a factory. People from India, China and the US walk around in identical white T-shirts, Crocs and dark blue sweatpants.

Infineon is typical of an expanding group of high-tech plants in the east German state of Saxony that have come to rely heavily on foreign workers to meet the soaring demand for technicians and engineers.

This dependence is set to increase as “Silicon Saxony” cements its status as Europe’s leading semiconductor hub. The latest milestone in that process will come this autumn, when Taiwanese chipmaker TSMC is widely expected to announce plans for a new fabrication plant, or fab, in the state capital.

Some are already wondering where all the workers will come from.

“We have investments that will create between 5,000 and 8,000 additional jobs,” said Martin Dulig, Saxony’s economy minister. “Yet Germany faces an acute skills shortage and demographic decline. The number of working-age people will fall by 200,000 over the next 10 years.”

The solution will probably be to recruit more workers from overseas. But Germany has had a mixed record on tapping the tech industry’s global talent pool. And the rise of the anti-immigrant Alternative for Germany (AfD) party, which is currently polling at 30 per cent in Saxony, could deter many foreigners from choosing to move there.

The state’s prime minister, Michael Kretschmer, denied it is a hostile place for foreigners. “People who come here, who want to work here and want to integrate into German society are very welcome,” he said in an interview.

But others worry about the effect the rise of AfD — and the continued activities of the xenophobic, anti-Muslim movement Pegida, which is particularly strong in Saxony — could have on the state’s image.

“There’s no question that the AfD is damaging Saxony’s attractiveness as a place to do business,” said Dulig.

Even without the populists, persuading people to work in a fab when there are better-paid jobs at tech firms such as Google and Meta is a big challenge. Workers in “cleanrooms” must spend their whole shift swathed in protective overalls, rubber boots, gloves, bonnets and masks.

“People are the dirtiest elements here, so we have to reduce the human factor to a minimum,” said Jens Fellendorf, Infineon’s production manager, on a recent tour of the company’s fab. “A single hair on a microchip is like a boulder in the normal world.”

The new investments in Saxony reflect a push throughout Europe to diversify supply chains and reduce over-dependence on chips from Taiwan, now seen as a vulnerability amid rising tensions in the Taiwan Strait.

A milestone in the EU’s efforts to achieve “technological sovereignty” came in April when agreement was reached on the European Chips Act, which aims to mobilise €43bn in public and private investments for the chip industry. This would double the EU’s share of global semiconductor output to 20 per cent by 2030.

Saxony, which was a centre of microelectronics in the former East Germany, is central to those ambitions. It produces 1mn wafers a year — one in three of the chips made in Europe come from there — and Infineon, Bosch, X-Fab and GlobalFoundries all have fabs in the state.

The companies all plan to grow their operations, often supported by large subsidies from the German government. Infineon is building a €5bn plant, Bosch is investing €250mn to expand its Dresden cleanroom, while GlobalFoundries is in the fourth year of an expansion of its wafer manufacturing capacity in the city.

The whole sector employs 76,000 people in Saxony and the number is expected to rise to 100,000 by 2030.

But the anticipated arrival of TSMC in the autumn could further strain the already tight local labour market. “Whenever new market participants come, there is more competition, especially for skilled workers,” said Frank Bösenberg, head of the Silicon Saxony trade group.

TSMC chair Mark Liu has himself expressed concern about the issue. Speaking at an investors’ meeting in June, Liu said he was worried about the shortage of available talent in Germany. “There are real gaps there,” he said.

Economists agree, and warn the situation could get much worse. A recent study by the German Economic Institute identified a shortage of 62,000 workers in the country’s semiconductor sector between June 2021 and June 2022, particularly in professions such as electrical engineering, software development and mechatronics.

The institute said 28 per cent of electrical engineers and a third of engineering supervisors in the industry would reach retirement age in the next 10 to 12 years, potentially exacerbating the industry-wide dearth of specialists.

Germany is not the only country facing this predicament. A recent report by PwC’s Strategy& identified a “talent gap” of 350,000 workers in the European semiconductor industry by 2030.

Meanwhile, labour market tightness is a problem across the Saxon economy, not just in the tech sector. “The skills shortage and the question of how to find and keep staff is absolutely our top priority,” said Dietrich Enk, head of the Saxon Trade Association. “It’s a massive problem.”

Chipmakers at least have the advantage of a steady stream of graduates from Dresden’s University of Technology, one of Germany’s top schools, as well as the universities of Freiberg and Chemnitz. They can also call on the world-renowned Fraunhofer network of research centres, which is well-represented in the state.

“We have the highest proportion of Fraunhofer scientists per head of population in Germany,” Saxon PM Kretschmer boasted.

He also pointed to the creation of a new Saxon training centre for microelectronics, or “SAM”, which will have its own model cleanroom and train up to 1,000 apprentices a year for the big chip factories and smaller tech firms.

Nonetheless, industry experts warn that immigration will have to fill a gap. “The universities provide plenty of reinforcements, but they won’t be enough for the ambitious growth plans we have,” said Bösenberg of Silicon Saxony.

The German government has acknowledged that the country will need more foreign workers. It has passed a law making it simpler for overseas talent to take up jobs even if the applicants do not have German professional qualifications and is also making it easier for foreigners to acquire German citizenship.

Bösenberg said he hoped TSMC’s arrival would be the catalyst for a big influx of foreign talent. “It would be TSMC’s first fab in Europe and would vastly increase the visibility of Europe, Germany, Saxony and especially Dresden in the whole of Asia. For the first time, a lot of people will seriously think about actually moving here.”