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

Decreasing subsidies has been forbidden territory for over 50 years, since the socialist era of the late president Gamal Abdel Nasser. In 1977, Egyptians took to the streets when President Anwar al-Sadat wanted to liberalize the economy by lifting food subsidies. Sadat had to shelve his plan in the wake of a popular revolt that could have toppled him. The question now: how would the Muslim Brotherhood deal with a similar situation?

The country’s bill of agri-food imports tops $10 billion annually. If local crop output takes a dive, the bill will be higher. As the Egyptian pound falls versus the U.S. dollar, the gap in the country’s balance of trade will widen. A deficit in the balance of payments will rise and the budget deficit will rise, deepening the country’s economic crisis.

Egypt’s economy has been bleeding over the past two years, with the state budget forecast to incur a deficit exceeding 200 billion Egyptian pounds for the fiscal year 2012-2013. Cairo-based EFG-Hermes expects the country’s balance of trade to post a deficit totaling $33 billion in 2013.

The growing population will add insult to injury. By 2017, Egypt’s water needs are expected to reach 86 billion cubic meters per year. The population of Egypt will hit 105 million by 2025, according to a UN report. Ethiopia’s population is expected to reach 113 million by 2025. In the past, Egypt did not object to dams like Khashm el-Girba and Gabal al-Awliya in Sudan and Owen Dam on Lake Victoria, but Egyptians say Ethiopia’s Renaissance Dam has been planned without “any consultations,” either politically or technically.

Top Egyptian political figures have been heard inciting President Mohammed Morsi to bombard the site of the dam; Morsi’s advisers have said “all options" are open. In 1979, Sadat similarly threatened Ethiopia: “The only matter that will take Egypt to war is water.” His remark was a reaction to Ethiopia’s former ruler Mengistu Haile Mariam, who had threatened to reduce the Blue Nile’s flow if Egypt transferred water to the Sinai.

Ahead of massive rallies scheduled June 30 to oust Morsi, the Muslim Brotherhood seems to care little about the dam issue, instead focusing on cementing its grip of the nation’s top institutions.