There is no doubt that the announcement by Ineos early today of the closure of its petrochemicals plant at Grangemouth and the possible closure of the adjacent refinery is a major blow to the Scottish and even the UK economy.
As the day drew on the scale of the closure and its wider implications began to be appreciated: some 1370 direct jobs on the site, with 800 in the petrochemicals plant and 570 in the refinery; maybe up to 2,000 sub-contractor jobs; suggestions that around 10,000 jobs in the Scottish economy as a whole - about 0.4% of employment; refined petrol and chemicals account for nearly a quarter of Scottish manufactured goods sold to the rest of the world, the loss of Grangemouth would remove most of those exports.
Some commentators saw the actual and potential closure as equalling the harmful effect on the Scottish economy of the loss of a sizable portion of the electronics industry in Scotland in the early 2000's. Others saw it as comparable to the loss of the Ravenscraig steelmaking plant in the early 1990s.
So can we stress test some of these claims? Is there a scientific or quasi-scientific way of addressing the issue?
The answer is yes!
We have the Scottish Input-Output tables which have for many years been produced by the Scottish government. Using the latest tables for 2009 and some inevitable guesstimates I have computed the following estimates of the likely impact of closure on GDP/GVA, jobs and employee income in the Scottish economy:
The monetary values and ratios to GDP and employee income are in 2009 prices, while jobs and jobs share relate to current 2013 figures.
The I-O tables have a sector 27 which comprises coke, petroleum and petrochemicals. I have assumed that Grangemouth accounts 75% of the value of output in this sector. That is the main assumption. I have also assumed that GVA is divided between the refinery and the petrochemicals plant in the same proportion as employment. This could clearly be erroneous but I hope not by much!
We can now apply the multipliers for the sector to the anticipated GVA, jobs and employee income losses for the petrochemical plant, the refinery and the whole site.
The results of this exercise suggest that closure of the petrochemicals plant will have an economy wide impact of 0.7% of GDP, 4,240 jobs - 0.2% of total employment - and 0.3% of employee income. For the refinery, the comparable numbers are 0.5% of GDP, 3,021 jobs - 0.1% of employment - and 0.2% of employee income.
Closure of the whole site would lead to a 1.2% fall in Scottish GDP, the loss of 7,261 jobs - 0.3% of employment - and a loss of 0.5% of employee income. This is a sizable impact if less than some of the more wild predictions heard earlier today.
Even if the whole site closes the loss to Scottish GDP will be less than the loss to Scottish GDP from the collapse of electronics which led to a 2.5% direct reduction in GDP as its weight fell from 4.6% of GDP in 2000 to 2.1% in 2004 and about 1% today. These figures exclude any knock on or multiplier impact on other industries.
But the impact of the closure of Grangemouth would be similar to the closure of Ravenscraig. When Ravenscraig closed we at the Fraser of Allander Institute estimated that from 1220 direct job losses at Ravenscraig and the Hunterston ore terminal, the wider impact would be 5580 jobs between 1992 and 1996. Our estimate of the impact of the loss of steel production on Scottish GDP was less than 0.5%.
The two closures are clearly comparable.
But that will be of little comfort to the vast number of workers in Scotland whose jobs are now at risk.
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