Alcoa San Cibrao, a bauxite, alumina and aluminium enterprise located in San Cibrao, a village by the north coast of Galicia, Spain, announces its closure. In October 2018, this multinational company closed its plant located in A Coruña (Galicia) and Avilés (Asturias), and very recently, in May 2020, it announced the plan to close the San Cibrao factory. The main reason is to move the production to countries with cheaper energy, its most important input. This enterprise is located in the Mariña Lucense, being the main economic driver of this area, therefore its closure could have disastrous consequences for the economy and society of the region. In order to have a better picture of the extent of these consequences, AYeconomics in collaboration with the Group of Analysis and Modelling in Economics (GAME) from the University of Santiago de Compostela (USC) analyse the economic impact of the potential closure of this enterprise in Galicia. In the next post we will analyse their effect on a most close area: the Lugo province and in particular on the Mariña Lucense area.
In addition to the direct impact resulting from the closure of the factory (number of job losses and production), we calculate the indirect effects. These effects correspond to the production and job losses for Alcoa suppliers since if Alcoa closes it will stop buying their products. Additionally, we calculate the effect of the wage lost of those workers remaining without work on their consumption (induced effects). Although, on the one hand, all or most employees will be eligible for unemployment benefits or subsidies, alleviating the induced effect in the short term. On the other hand most of the economic effect would be located in a very specific area with few feasible work alternatives. In this situation, the loss of purchasing power suffered by worker may appear right after the job loss due to the expectative of not find a job in a short-medium term.
To calculate the 3 effects we firstly identify the weight of the company in the metallurgy sector in Galicia both in exports and production. The data sources are SABI for the companies values and the Galician Statistical Institute (IGE) for international trade and production. Once we calculate Alcoa weight in the sector we decrease the final consumption and exports for this value in the Galician input-output table of Galicia (from IGE) and we calculate the effect based on the Input-Output model.
The following table shows the results of the economic impact Alcoa closure on production, GVA and employment in Galicia. Employment will be calculated as persons employed and the equivalent full-time jobs. Even though it is important to know the number of persons affected, we will be analysing also full-time equivalent jobs since it is a more precise indicator for comparisons. This indicator takes into account the number of hours worked when compared workers taking as a reference the number of hours working by a full-time person.
Although aggregated effects on the Galician economy seems small (0.59% production and 0.41% GVA), we should take into consideration that we measure only one company over the whole region, so the local effect will be much higher. The effect seems more relevant when we consider the job lost, around 3000 and if we take into account that the Spanish Central Bank have predicted a decreases of 9.2% of the GDP due to COVID-19 pandemic.
|Direct||0.27 %||0.10 %||605||598|
|Indirect||0.21 %||0.18 %||1078||987|
|Direct + Indirect||0.48 %||0.28 %||1683||1585|
|Induced||0.11 %||0.14 %||1546||1326|
|Total||0.59 %||0.41 %||3329||2911|
The economic impact varies significantly when we take into account the sectoral dissagregation . In the terms of GVA and production the most affected sector is metallurgy as it suffers the direct impact. The associated loss for this sector is estimated at 9% of production and 17% of GVA. We can also highlight the impact on the energy sector due to the important demand for energy of this industry, with a decrease of about 2% for both production and GVA. Since the energy sector is capital-intensive it doesn’t show a significant impact on the number of jobs, and other sectors are much more affected.
In job losses terms (FTE), the affected sectors will be different considering indirect or induced effects. Indirect effects Transportation, Enterprise Auxiliary activities, Wholesale trade, Machine repair or Construction.
When we analyse the induced effects (a consequence of the loss of purchasing power of households in which someone lost his/her job), the most affected sectors are completely different, as they are related to the purchase of goods and services for households, such as Retail trade, Services from Public Administration, Health, Catering industry, etc.
The aggregated impact will be a combination of both effects. Therefore, sectors not directly related with the aluminium production may also be affected by the job loss as well as those directly related. The more concentrated the indirect effects in the area are, the stronger the induced effect and the more affected not directly-related sectors with aluminum production will be.
To conclude, solutions to this problem will be needed both in the short term (as these effects will be combined with the impacts of the COVID-19) and long term to ensure the sustainability of this area.