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 6: The Microeconomic Effects of ERSAP: 2. The Iron and Steel Industry

Gouda Abdel-Khalek

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


INTRODUCTION The iron and steel industry is an important element in the economic structure of nations – being an industry with strong forward linkage effects. In Egypt, the most important company in the iron and steel industry is the Egyptian Iron and Steel Company (known as HADISOLB). The company is an integrated enterprise: mining pig iron in the Bahariya oases, transporting the ore and producing steel. It is one of the largest companies in the industrial sector of the country, with close to 23 000 workers strong. HADISOLB is essentially an import-substituting enterprise with a current design capcity to produce 1.2 million tonnes of steel annually. It was established in 1954 in the context of Egypt’s drive to modernize and diversify its industrial structure. The industry is both capital-intensive and energy-intensive, catering basically for the domestic market. The financial position of HADISOLB is precarious; its paid-up capital less than doubled since 1982, while its long-term debt both in local and foreign currency has increased twelve-fold. Paid-up capital increased from LE 338 million in 1981/82 to LE 631 million in 1993/94. During the same period, long-term debt (both in local and foreign currencies) skyrocketed from the equivalent of LE 58.4 million to the equivalent of LE 696.4 million. ERSAP seems to have impacted more strongly on the iron and steel industry than on the aluminium industry. Parallel to the case of the aluminium industry, raising energy prices and liberalizing input prices affected the performance of HADISOLB negatively. But unlike the case of...

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