Will Ethiopia’s Proposed Dam Crush Egypt's Economy?

As Ethiopia’s planned Grand Renaissance Dam reduces Egypt’s share of Nile waters, repercussions will inevitably hit Egypt's cash-strapped economy.

Rational use of water reserves at Nasser Lake, estimated at 70 billion cubic meters, may help ease the situation for a while. The government may also have groundwater resources that may add four billion cubic meters. But according to government estimates, Egypt will need an extra 32 billion cubic meters of water  by 2050 as its population grows.

Egypt gets more than 95 percent of its water from the Nile, and already suffers from water scarcity -- supplies have fallen to 750 cubic meters per capita a year. (The international average is 1,000.) Egypt’s current share of Nile water totals 55.5 billion cubic meters -- experts say the share may be halved over the coming three years until a lake is created in front of the Ethiopian dam, and supplies may fall below 400 cubic meters per capita in the interim period.

The most populous Arab country with 90 million inhabitants, Egypt has 8 million cultivated acres of land. Roughly 6.5 million people work in agriculture, accounting for 25 percent of the country’s labor force. Any shrinking of the agricultural sector will ultimately affect labor. Unemployment in Egypt is currently reported at 13 percent, but unofficial reports put the actual rate over 20 percent.

Egypt consumes around 18 million tons of wheat and 4 million tons of rice annually, according to the Supply Ministry. It imports roughly 10 million tons of grain a year to meet growing demand. As the country’s population grows by 1.2 million annually, the water-supply gap may jump to 20 million tons as local grain harvest declines. Total cultivated land may plummet by half due to falling water resources.

Urbanization in the Nile Delta and scarcity of water will reduce the country’s crop output. Consequently, the country’s bill of food imports will be on the rise. Egypt is expected to consume more than 19 million tons of wheat in the fiscal year 2012-2013 that ends on June 30, according to the U.S. Department of Agriculture (USDA). The gap between grain imports and exports may widen in the future.

Most of the wheat imports are allocated for subsidized bread, which is expected to total around $2.3 billion of the country's budget in the fiscal year 2012-2013 according to the Finance Ministry. More than 40 percent of Egypt’s population lives on less than $2 a day, according to the World Bank. With a deteriorating macroeconomic outlook, future governments would not be able to sustain subsidy schemes.