Stabilization and Adjustment in Egypt

Stabilization and Adjustment in Egypt

Reform or De-Industrialization

Gouda Abdel-Khalek

This book studies the impact of Egypt’s Economic Reform and Structural Adjustment Programme (ERSAP), the effects of which have been of great interest to the international community. Organizations such as the World Bank and the IMF uphold the programme as a success story and example for other countries to follow. ERSAP also has its critics, however, who resent its tendency to downsize government and fear possible negative effects on growth and development. The author discusses these concerns along with those regarding the possible negative social effects of ERSAP.

Chapter 5: The Microeconomic Effects of ERSAP: 1. The Aluminium Industry

Gouda Abdel-Khalek

Subjects: development studies, development economics, economics and finance, development economics


INTRODUCTION The aluminium industry is by far the most energy-intensive industry in Egypt. Energy, in the form of electricity, represents about more than 25 per cent of unit cost. By comparison, the main raw material (alumina) accounts for about 30 per cent of unit cost. The Aluminium Company of Egypt (EGYPTALUM) is the largest single consumer of electricity. According to the Egypt Electricity Authority (EEA), sale of electricity to EGYPTALUM, the sole producer of aluminium in the country, amounted to kW/h 3312 million in 1997/98. Total electricity sales by EEA for that same year reached kW/h 57 106 million. The share of the aluminium smelting in total electricity consumption thus amounts to 6–7 per cent. The issue of rationalizing energy use assumes paramount micro and macro significance in this context. Its micro significance has to do with the fact that energy cost per unit output of aluminium is the single largest cost item. Barring efforts to raise energy efficiency at EGYPTALUM, any increase in electricity prices, as part of the package of structural adjustment measures under ERSAP (see Annex IV), will result in a corresponding increase in the unit production cost. Such an increase in cost, if not absorbed somehow, may actually jeopardize the competitiveness of the aluminium industry in the country. At the macro level, any substantial reduction in electricity use in the aluminium industry will factor eminently in the overall energy equation of Egypt. In addition, it will help reduce air pollution and hence...

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