Risks for socioeconomic development in Egypt: Does investment in renewable energy provide an opportunity?

Introduction

Development has always been the great challenge faced by developing countries in different eras. However, the approach to achieving this goal varies from country to country and from age to age. For instance, some countries, like the Arab countries, have become rich through natural resources, such as oil; others, like China, have used human capital; others, like Japan and South Korea, have used the power of technology to achieve growth and development. This paper  investigates the impact of using an approach combining abundant natural resources and technology, namely, wind and solar energy, to foster development in the Mediterranean region. The Mediterranean economies need to make best use of their abundant natural resources:

1. by accumulating  more value added, and
2. by creating jobs associated with industries that supply intermediate goods for building retrofits or wind turbines.

In this regard, expanding economies in general and a deepening industrial sector in particular can help developing countries to create a solid technological base and sustain higher real GDP growth and per capita income.

Methodology

The model used in this research is calibrated on the Social Accounting Matrix (SAM) of Egypt for the fiscal year 2006-2007. The SAM represents flows of all economic transactions that take place within an economy. It is a statistical representation of the economic and social structure of a country, which refers to a single year and provides a static picture of the economy. SAMs comprise a square matrix such that column sums equal row sums in the sense that all institutional agents (firms, households, government and the foreign sector) are both buyers and sellers. Columns represent buyers (expenditures) and rows represent sellers (receipts). The economic multipliers are then calculated using this formula X = [I-A]^-1 Y where X the output of commodity I and Y represents the final industry demand while [I-A]^-1  refers to the matrix of multipliers. Multipliers of three scenarios were calculated in order to test their effects on the Egyptian economy; current investment, implementing the DESERTEC plan for concentrating solar-thermal power plants  in the North African desert, and securing 100% of the local demand from concentrating solar power.

Results

The results show that the DESERTEC plan is the most efficient scenario for fostering economic development in the Mediterranean region, measured by both GDP and income multipliers.   This scenario can achieve the highest possible growth for the Egyptian economy, promoting economic convergence between developed and developing countries. It is recommended that the Egyptian government work with DESERTEC to pave the way for the investments in CSP.

Please note these Proceedings have received limited or no review from supervisors and IIASA program directors, and the views and results expressed therein do not necessarily represent IIASA, its National Member Organizations, or other organizations supporting the work.

Last edited: 19 August 2015