05 June 2013

Economic Incentives on Grand Ethiopian Renaissance Dam

I spoke with an Egyptian journalist yesterday and she asked about the benefits of the Renaissance Dam for Ethiopia, for Egypt, for the region. I put forward the idea that a water professional named Kai from Germany who worked in Uzbekistan on the complex transboundary water issues of the Amu Darya and Syr Darya. He was looking at an complex water infrastructure system that is a legacy from the Soviet Union. There is a controversial dam project proposed in Tajikistan, upstream from Uzbekistan. It has caused political uproar in Uzbekistan including threats and the blowing up of a railroad line. But that is another story. The important part I want to write about here is this: He suggested the idea that Uzbekistan invest in the Tajik project. Through investment, they could have some level of control, some say in how the dam operates. It could also help to dispel the fears in Uzbekistan of losing control of the river and the water it so desperately depends on for cotton production. Uzbekistan is the third biggest cotton producer/exporter in the world. There is also controversy about the human rights around this, I realize, but again, that is not for this blog post.

So, remembering this conversation from last year, I think the same could happen in Ethiopia with Egyptian and Sudanese investment in GERD. Kai's idea may not have resolved Central Asian problems, but it could provide a part of the answer in the Nile. If Egypt, Sudan, and Ethiopia are bound by economic ties, such as dam investment, this could solidify peace and stability - it would give the countries more inclination not to go to war with one another. There is that theory about countries bound by economic trade are less likely to blow each other up. I am paraphrasing..

This is not only to create the bond between the 3 countries in question - but also could save Ethiopia their current situation with money. Although at the time of my interviews (fall 2012), EEPCO reportedly had 40% of the funding it needed for the $4 something billion USD project, the other 60% would most likely have to come from outside investment. Ethiopia shows the good will of being able to pull off the project, invest the money raised domestically and from the diaspora, and then an outside bank could come match the investment in the second half of the construction. This is my opinion of how things would go. Now with all of this bad press, who is going to want to touch GERD? The regional countries who have a vested interest: Egypt and Sudan, but also Kenya, Djibouti, South Sudan...these countries have signed agreements to buy electricity from Ethiopia. There are contracts. So, why not also invest in the dam and then the ownership is not only vested in the hands of the Ethiopian people, but in the hands of the East African people. Could Egyptian people buy bonds? Sudanese? Would they want to if they saw an incentive? Are we running economic models to show the reduction in silt into Rosaries dam and showing what the cost reduction will be for dredging each year or having to raise the height of the dam? Are we running economic models to show the cost savings in flooding? 

I am not an economist, otherwise I'd try to dig up the numbers to run the models. I also think there are things that we are not considering about the dam in the current discourse that should be considered. But as far as recommendations for diplomacy between the governments - this could be a successful route. Economic interdependence through the dam and the related electricity generated. Open the bonds up for the entire region. Find ways to alleviate the stress by joint ownership.