With talks between Egypt, Ethiopia, and Sudan back on the table concerning the Grand Ethiopian Renaissance Dam (or GERD for short); it is now a great time to really investigate the impact of such a macro project on the Egyptian economy. The GERD is the centerpiece of Ethiopia’s Growth and Transformation Plan (GTP), in which aims to significantly reduce the country’s energy constraints through supplying 15.1 TW h/year once completed (Nagash, 2015). The construction of the GERD has prompted various concerns for downstream countries (especially Egypt) amidst Ethiopia’s arguments that the project will create a flood of economic benefits for them. 

THE BAD: IMPOUNDING PHASE

The GERD would cause a lot of negative economic effects for Egypt, particularly within the impounding phase of the dam. As Ethiopia fills the water reservoir behind the dam, Egypt would be deprived of its legal share of water; an undesirable outcome since Egypt already suffers from severe water shortages. Egypt’s per capita water resources have fallen to 700m3/year in 2013, significantly less than the 1,000m3/year threshold deemed necessary by the UN to provide enough water for drinking, agriculture and nutrition. Sherine El Baradei, assistant professor of construction engineering within the American University in Cairo commented on the matter, stating that ‘If Ethiopia fills the reservoir between five and seven- year intervals, then the water share of Egypt will be decreased by somewhere from 12 to 25 percent during the filling period. So, it would be a good idea that the reservoir be filled over a more extended period of time.’.  Additionally, the construction of the dam would hold back key inputs for agricultural and fishing industries in Egypt; a significant amount of silt (طمي) and select types of fish. This would further add on to the negative economic impact of the dam for Egypt. According to a study led by T.N Kahsay estimating the transboundary economic effects of the GRED, Egypt is expected to witness negative GDP growth during the impounding phase as it reduces the hydropower generation of the Aswan High Dam and reduces irrigation water supply, or, water supply meant for growing and maintaining crops, between 0.1-0.3% depending on whether the year is average, dry, or wet (Kahsay, 2015).   

THE GOOD: OPERATIONAL PHASE

         Positive economic impacts of the GERD would mainly occur when the dam is operational through the institution of a basin-wide power trading scheme, whereby energy is exported from Ethiopia to Egypt at noticeably cheaper prices.

Energy supply in Egypt is more elastic, meaning that the Egyptian economy is more responsive to changes in energy supply than water supply. With this in mind, the institution of a basin-wide power trade scheme would significantly boost economic growth within Egypt (Kahsay, 2015)…

… as it increases its total supply through increases in its energy supplies. Increases in energy supplies constitute an increase in the quantity of factors of production, and this falls back to increases in total supply. The operation of the dam would also provide larger supply of water because of reduced water evaporation loss from the High Dam as well as an increase in the regulated flow of water throughout the year. This will improve irrigated agriculture, thus increasing agricultural output.  During operation, the GERD will enhance the Egyptian economy by around 0.3% (Kahsay, 2015). 

THE BOTTOM LINE

The negative effects of the dam arise during the short-term impounding period, while positive effects during the more long-term operational phase. However, it is worth to note that while Egypt’s economy may be more responsive to changes in energy supply than in water supply, Egypt does not currently face deficiencies in electricity. In fact, Egypt is currently on track to generate an exportable surplus of electricity as it increases power generation to 266 terawatt hours (TWh) by 2023 from 231.5 TWh this year. Contrasting this with Egypt’s current significant water shortages, one can clearly  observe that the short-term negatives need to be significantly taken into consideration during negotiations.  The operational phase of the GERD provides aid to Egypt’s water shortages, but until we get there; Egypt, Sudan, and Ethiopia need to come to favorable compromises for the short-term. 

Citations and sources for further reading:

“Egypt and the Ethiopian Renaissance Dam.” Egypt and the Ethiopian Renaissance Dam | The American University in Cairo, www.aucegypt.edu/news/stories/egypt-and-ethiopian-renaissance-dam.

Kahsay, Tewodros Negash, et al. “Estimation of the Transboundary Economic Impacts of the Grand Ethiopia Renaissance Dam: A Computable General Equilibrium Analysis.” Water Resources and Economics, vol. 10, 2015, pp. 14–30., doi:10.1016/j.wre.2015.02.003.

“Security Implications of Growing Water Scarcity in Egypt: ECC Factbook.” ECC Library, 16 Jan. 2018, library.ecc-platform.org/conflicts/security-implications-water-scarcity-egypt.

“Why Egypt Looks Set to Be a Regional Leader in Electricity for the next Nine Years.” Enterprise, 11 Mar. 2020, enterprise.press/stories/2020/03/11/why-egypt-looks-set-to-be-a-regional-leader-in-electricity-for-the-next-nine-years-13358/.