Compass Money: Ethiopian Dam Faces Challenges

Blue Nile Falls, part of the major Nile Tributary that is to be dammed. (Wikimedia Commons)

Egyptian President Abdel Fattah al-Sisi continued calls for Ethiopia to delay filling its Grand Ethiopian Renaissance Dam (GERD) on his first official visit to Sudan on March 6. He emphasized the need to wait for a new deal between Ethiopia, Sudan, and Egypt before further operations on the GERD. 

The estimated 4.5 billion dollar dam, which began construction in 2011, has raised tensions as it obstructs the Blue Nile, the main tributary of the larger Nile river. Sudan and Egypt, countries that lie downstream from the GERD, worry the dam will reduce the flow of the river. Ethiopia, for its part, is more worried about providing electricity to its rural citizens; in 2020, only around 30 percent of the rural population had access to electricity. 

The dam represents a significant risk for the developing country—but one with great reward. The GERD would be the largest hydropower facility in Africa, nearly tripling Ethiopia’s current electricity generation. This development would help facilitate a transition away from traditional fuels that can cause respiratory infections, the leading cause of death in Ethiopia as of 2016. Additionally, electrifying small agriculture could represent a four billion dollar opportunity, making the costly dam a seemingly worthwhile investment considering that approximately 33 percent of Ethiopia’s GDP and nearly 70 percent of its exports derive from agriculture. Additionally, neighboring countries have already signed agreements to purchase electricity, promising more direct, immediate returns than the expected GDP increase.

Unfortunately, the dam has faced many challenges, both before and after its completion. When construction started in 2011, Egypt was facing severe turmoil in the Arab Spring, and Egyptian-Sudanese relations were weak under the Sudanese dictator Omar al-Bashir. Now Ethiopia is in an unstable situation, due to attempts to centralize the Ethiopian state, which has been the catalyst for violence in some regions. Additionally, following the ousting of al-Bashir, Egypt and Sudan have strengthened their ties, and present much more coordinated opposition to the Ethiopian plans.

Even if Ethiopia arrives at an agreement with Egypt and Sudan regarding filling the dam’s reservoir before the next rainy season, many challenges remain. The four and a half billion USD price tag is one that the state would struggle to pay even in the best of circumstances. The majority of the cost is to be paid off through bonds sold largely to banks, citizens, and Ethiopian diaspora members, though the cost is also being supplemented with international investment. The largest of these investors are Chinese firms, who have notably provided financing for the purchase of turbines and electrical equipment for the dam.

The potential benefits of the dam could allow Ethiopia to enter a sort of titular renaissance, lifting millions in the country from poverty if all goes well. If Ethiopia’s grand plans do not come to fruition, then it would continue to face all of its current issues, but with less potential or hope for a new Ethiopia.