Ethiopia: GERD Timely Completion Maximizes Gains, Minimizes the Costs

Ethiopia still has the second-largest energy access deficit in Sub-Saharan Africa (after Nigeria), and the third in the world. About 56 percent of Ethiopia's population still does not have access to modern electricity (Ministry of Water Irrigation and Energy, 2020).

The completion of the Grand Ethiopian Renaissance Dam (GERD) is expected to improve access to electricity for the vast majority of the population as well as stimulate the economy and hence result in improved socioeconomic outcomes.

Employing a multi-region multi-sector computable general equilibrium (CGE) modeling framework, this study estimates the direct and indirect economic and social impacts of GERD on the Eastern Nile economies - Ethiopia, the Sudan and Egypt. In doing so, two scenarios are considered. The first scenario considers the economic significance of the GERD operation to the Eastern Nile economies if the dam is filled and becomes operational in four years. In the second scenario, the economic costs of delaying GERD filling and hence its operation beyond four years is estimated. The results of the two scenarios are presented for each country as well as for the three countries combined (i.e. Eastern Nile basin countries).

The simulation results reveal that GERD operation does stimulate real GDP growth in the Eastern Nile basin if it goes operational in 2024 following a four - year filling period (2020 - 2024). The basin-wide annual gain in real GDP due to GERD operation stands at USD 8.07 billion in 2024 relative to the baseline (2020). Ethiopia benefits a staggering USD 6.79 billion in real GDP due to GERD operation while Sudan and Egypt gain USD 1.11 billion and USD 0.17 billion in real GDP, respectively. Thus, all the Eastern Nile countries benefit from the GERD operation, indicating a win-win outcome.

The study also reveals that Ethiopia's economic growth is expected to increase by about 1.5 percent due to GERD operation. The economic growth in Ethiopia is anchored mainly on a tremendous increase in energy supply and capital stock from the GERD which are expected to improve efficiency and productivity in the economy. The economy of Sudan expands by 1.2 percent due to GERD operation, mainly due to enhanced capital stock resulting from GERD induced flood damage reduction. Reduced sediment load and hence enhanced power generation in Sudan's power plants from the GERD operation also stimulates economic growth in Sudan. With higher benefits in terms of improved water use efficiency, the GERD further improves economic growth in Sudan.

GERD operation also offers Egypt's economy significant benefits in terms of increased water supply due to reduced evaporation loss from the High Aswan Dam (HAD), as well as the opportunity for improving water use efficiency as a result of more regulated flow of water throughout the year. GERD operation overall enhances Egypt's economy to a certain extent. Thus, accounting for engineering estimates of GERD's potential impact on HAD, the net economy-wide effects, in terms of economic and welfare benefits, are positive for all the Eastern Nile countries, including Egypt. This underscores the fact that the benefits of the GERD shall be seen in the wider economic perspective that takes into account both direct and induced effects of the energy generated from the dam.

However, delaying the operation of the GERD involves large economic costs for the three Eastern Nile countries. The total basin-wide loss of delaying the GERD operation from 2024 to 2030 is estimated at USD 29,944 billion, with Ethiopia bearing the overwhelming proportion (82.4 percent) of the loss. In particular, Ethiopia's real GDP gain from the GERD operation would decline successively from USD 6.79 billion to USD 3.1 billion if GERD operation is delayed from 2024 to 2030. The total loss to Ethiopia in terms of foregone real GDP gain is in the order of USD 24.7 billion if the GERD operation is delayed from 2024 to 2030.

Sudan's economic loss is estimated at USD 1.96 billion and USD 4.47 billion, respectively, if GERD operation is extended by three and six years. Similarly, Egypt faces an economic cost that amounts to USD 297 million and USD 790 million if GERD operation is delayed by three and six years, respectively. Thus, the simulation results indicate that delaying the operation of the GERD has significant economic costs to all the Eastern Nile countries so that extending the filling (and hence operation) period of the dam defies economic rationality.

The findings of this study point to the following recommendations. First, although all Eastern Nile countries incur costs due to delays in GERD operation, Ethiopia's economic cost appears to be significant. Therefore, it is imperative that Ethiopia ensures timely completion of the dam to maximize the gains and minimize the costs. Second, given the mutual benefits of the GERD for the Eastern Nile countries, there is a strong economic rationale for basin - wide cooperation to finalize the dam without delays.

Ed.'s note: The piece is A Snap of Policy Working Paper 05/2020 of the Ethiopian Economics Association (EEA) titled: 'The economic significance of the Grand Ethiopian Renaissance Dam (GERD) to the Eastern Nile Economies: A CGE modeling approach.'

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