Water

      Water is precious resource for society as a whole, whether it is developed or developing nations, rich or poor, Global North or Global South. Both developed and developing nations feel the strain of dwindling water resources, and the inherent need for this resource is putting a strain on development projects around the world.

      One such project is the construction of the Grand Ethiopian Renaissance Dam (GERD) along the Blue Nile River, which has sparked dispute between Egypt and Ethiopia.

The GERD is a $4.7 billion dam project, projected to be completed by 2017. Once completed, the GERD will stretch for 1.7 kilometers along the Blue Nile, and be Africa’s largest hydroelectric dam.

       The Blue Nile River provides the main water source to the Nile River, and both Egypt and Sudan are concerned that the GERD will reduce the Nile River’s flow, some estimate by 20 percent, and put a strain on these countries’ water resources. Egypt currently imports 98 percent of its freshwater supply, so is particularly dependent on good international relations to maintain its water supply. Egypt is also concerned that the GERD will reduce the waters of Egypt’s Lake Nesser, which would in turn reduce the ability of Aswan’s hydroelectric plant to generate power by as much as 40 percent.

      Ethiopia, and recently Sudan, tout the potential benefits of the GERD. Once completed, this dam will “more than double Ethiopia’s power output” (voices.nationalgeographic.com) This is particularly important, because Ethiopia depends mainly on hydroelectric power for electricity. When droughts occur, power outages become widespread. Besides inconvenience, power outages reduce Ethiopia’s economic productivity. In 2003, loss in productivity due to power outages added up to about $200 million, which is about 3.2 percent of Ethiopia’s GNP (Gross National Product).

        The conflict over the GERD dam illustrates how precious and straining water resources are in international development. Such projects can greatly benefit one party while harming another, creating conflict between the two.

 

Cost-Benefit Analysis:

 

      Economics can also offer a way to mediate the conflict between Egypt and Ethiopia over the GERD dam. One tool in economics is cost-benefit analysis, or weighing the costs of a project against the benefits of the project for the company and/or society to determine if the project is worth it. To perform a cost-benefit analysis, economists must determine the costs of the project. In the case of the GERD dam, this may include the monetary costs to construct the dam, as well as non-market activities, or activities that do not typically come with a monetary costs.

       These costs include costs to destroy the habitats and ecosystems to build the river, and costs to Egypt for reducing the country’s water supply, and potentially power supply to the Aswan Dam.

Benefits of the dam would include a source of renewable energy, provide more reliable electricity to homes and industries, and provide a source of flood control, potentially saving lives and protecting certain environments from flooding.

      There are different ways to put a monetary value of activities or resources that don’t usually carry a monetary value. People can do surveys, asking how much people are willing to pay for additional water or electricity, or how much money they are willing to accept to replace the ability to fish in the river. These monetary estimates are placed on all the costs and benefits of a project to help determine if the project will provide more costs or more benefits.

      Another factor to consider in cost-benefit analysis is the time-value of money, or how $100 today will not be worth the same amount as $100 in five years. Additionally, costs of projects in cost-benefit analysis are often in the present, whereas benefits are in the future, making the adjustment of the time-value of money more important. The time value of money can be adjusted by taking the current value, say $100 today, and compounding 5% interest rate (the percent charged for using the money), to get $165 in 10 years. Alternatively, $165 in 10 years can be discounted at %5 interest rate to get the current value of $100 today. This process helps measure potential benefits and/or costs in the future to weigh them against the costs and benefits of today.

      Cost-Benefit analysis is controversial among economists and environmentalists, but it is a useful tool to help decide if projects such as dams are more costly in the long run or more beneficial.

      A cost-benefit analysis could help determine if the benefits of the GERD dam outweigh costs, which could help Ethiopia and Egypt decide how to proceed with the project if the cost-benefit analysis reveals great costs with little benefit or many benefits with lesser costs.