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| The White Nile |
Late September the US
Government announced an additional $450 million of aid to Egypt. The USA already provides about $1 billion of total aid of which just under $400 million (2010) was economic
assistance, making Egypt the 4th largest recipient of such aid. If you set
aside the special cases of Af-Pak and Iraq, then Egypt tops the economic
assistance chart. So the $450 million proposed to Congress was more than
doubling the amount of economic assistance to be received.
Clearly someone
understands the critical importance Egypt has in the MENA region. Egypt is
facing an acute budget crisis with a shortfall of $12 billion and an urgent
need to line up an IMF loan of which the US assistance will form part of the
overall assistance package.
Kay Graham (R- Texas)
doesn’t agree with any of this saying, “I am not convinced of the urgent need for this
assistance and I cannot support it at this time.” She will apparently use
her position on the House Appropriations Committee to block the assistance.
While we are always
sceptical of foreign aid the case of Egypt needs looking at very carefully.
Leave Syria, Israel-Iran and Af-Pak aside for a moment, these will be sideshows
compared to an implosion of the Egyptian economy that for so long has depended
on foreign assistance to maintain a social welfare net for its massive and youthful population.
Egypt’s population will
have topped 84 million people by the end of this year and will double in 40
years at current growth rates. It tops
the next largest country in the region, Iran, by 10 million people but with a
tiny cultivable land area in comparison.
The population is one of the world’s most densely concentrated with 1,500
people per square kilometer; 20% of these are below the below the poverty line and there is a massive
youth population of whom 25% are
unemployed.
Whatever the Mubarak
government did or did not do for human rights, it aggressively pursued economic
reforms to attract foreign direct investment (FDI) and facilitate GDP growth. But living conditions for the average Egyptian
remained poor and contributed to public discontent and hence the events
culminating in Mubarak’s ouster and a win for the Muslim Brotherhood. Great for democracy, perhaps, but unfortunately not
so great for the economy. Tourism, manufacturing, and construction are among
the hardest hit sectors, and economic growth has dropped from around 5% to near
1% - not enough to even begin to create jobs. Public debt runs at 85% of GDP
and inflation is over 13%.
Bottom line: Egypt is
broke with no foreseeable way of changing that situation. Can it get worse?
Read on Dear Reader, read on and be afraid, be very afraid.
A great article by Andrew Natsios (US News) says
that Egypt faces four challenges (we always use the word “challenge” now
instead of “mess” or “disaster” – part of the inexorable move towards unwillingness
to face real problems, but that’s another rant). These are: economic rapidly rising food
prices and budget deficits, a precipitous economic slowdown driving high
unemployment even higher, and a long-term crisis over the water resources of
the Nile River.
We want to look at what
we consider as the most pressing and fundamental issues: water and food supply. As we showed in our last post, there is a close and not surprising connection between rising food prices and political
unrest. If Egypt cannot manage its food
supply (and more than many places that depends on the waters of the Nile), then
expect to see the world’s greatest political crisis unfold right in the world’s
most explosive area and on the doorstep of Europe.
Taking the water supply
first: without the Nile there is no Egypt, without its water and the fertile
soil it brings with it on a yearly basis Egypt’s people, all 84 million of them
– 168 million by the middle of this century - will live in a desert. Unlike
countries where extra land can be brought into cultivation by irrigation, Egypt
has pretty well exhausted its potential for extensive agriculture. By the time
they reach the sea the waters of the Nile have been used to their maximum
possible capacity. So there is no extra water or land to be gained. And Egypt
is projected to have a per capita water availability by 2025 of just half what it
had in 1990.
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| The Nile River Basin - the main population center in Egypt (red) has no control over the water sources (blue) |
The danger is that the
water supply may be even further reduced.
The waters of the Nile originate in Ethiopia (the Blue Nile and the Atbara River) and
in Uganda (the White Nile). The Blue Nile is vital. Though shorter than the
White Nile, 59% of the water that reaches Egypt originates from the Blue Nile
branch; when combined with the Atbara River which also has its source in Ethiopia
the figure rises to 90% of the water in the later part of the year from June
onwards and 96% of transported fertile soil. The White Nile has a more steady
flow of water which keeps the Nile proper from running dry in April and May,
supplying about eighty percent of the Nile's water during these months. Both of
these water sources are threatened (Note 2).
The Ethiopian government
is now building what may be the largest dam in Africa—the Grand Millennium or “Renaissance”
Dam—which will produce more than 5,000 megawatts of power using the waters of
the Blue Nile. The evaporation alone from the 65 million cubic meter lake
created by the dam will reduce Nile River flows, as well future irrigation for
Ethiopian agriculture (possibly – see Note 1 below this post). As for the White
Nile, it originates in the uplands of Uganda and then crosses two countries
that have been at war for the last 40 years, the recently independent South
Sudan (Christian) and Sudan (Muslim).
The main issue here is
water management within each of these countries both of which seek to attract
major investments in agriculture. Sudan (before its separation from the south)
was and remains a signatory to riparian agreements that allow Egypt its access
to water. However South Sudan is not a signatory. Critical to its approach is
the Jonglei Canal. Started in 1980, this canal (ironically then funded by
USAID) is a hydro-construction project in Upper Nile Province of southern Sudan
designed to alter the course of the White Nile as it passes through a swampy
area in southern Sudan known as the Sudd. The purpose of the canal was to
ensure the flow of water was equally distributed between Egypt and Sudan by
draining the Sudd.
But the Sudd provides
one of the main water resources for cattle in the south. Resistance to this
idea was one reason for the civil war and now the new Government of South Sudan
has raised the issue again in the context of using more Nile water in South
Sudan. With climate change changing the pattern of rainfall in a belt along the
border between south and north, rising interest in investment in agriculture
and a growing population (Juba in South Sudan may be one of the fastest growing
cities in the world), this is not an issue that is likely to be favorable for
the Egyptians, especially if economic pressures make the Muslim Brotherhood
incline towards a more fundamentalist brand of Islam.
Let’s turn now to
agriculture. Because of its water supply Egypt has historically been a bread
basket for the Middle East, even Europe; the Roman Empire depended on grain
shipments from Egypt and it was the threat of Antony’s alliance with Cleopatra and
his stranglehold on grain exports that
brought the army of Octavian, the Battle of Actium and the famous asp.
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| Egypt - all cereals - total production and imports |
Things have changed a
bit. Egypt is now the largest per capita importer and consumer of wheat in the
world and is thus particularly sensitive to world food prices. Imports were 11.5 million
tons in the 2011/12 (July/June) marketing year, a level above the average of 10
million tons of wheat imported in the previous two years.
Egypt subsidies bread to
maintain political stability, but those subsidies are now economically and
fiscally unsustainable. Surveys in 2011 by the U.S. Embassy in Cairo
showed at least 50 percent of the population felt economically insecure, a proxy
for the fears of the poorest half of the country that they may not be able to
feed themselves particularly if the bread subsidies end or are
altered. Any reforms of the Egyptian food system—however badly
needed—could destabilize a fragile political system in a precarious transition.
And yet bread and energy subsidies are bankrupting the national treasury.
This year (2012-13) wheat
imports are likely to be lower than even in the last price peak year of 2008 –
9 myn tons. FAO’s latest estimates indicate an above average production of 8.7
million tons of wheat, exceeding last year’s already high harvest by additional
4 percent. The increase in wheat production was attributed to availability
of improved varieties, favorable weather conditions and increased government
procurement prices. Similar production increases were posted for maize and
rice, bringing the estimated aggregate cereal production in 2012 to over 23
million tons (rice in paddy terms), which compares to 22.2 million tons in 2011-12.
Even with decreased
import requirements, the increase in international grain prices is likely to
add substantially to the cost of food imports. And the downturn in the overall
economy means that Egypt simply will not be able to foot the bill. Somewhat
optimistically FAO hopes that the high cost of imported wheat will not be felt
directly on account of the country’s safety net program. But for how long
can that be kept up?
Not long. Even if agricultural productivity can be increased and
the water supply maintained, Egypt faces a population crunch. Tourism is
unlikely to recover soon, and the world’s demand for Egyptian manufactures will
continue to be hit by general slow growth. FDI will
not increase with even the possibility of further civil unrest and perhaps a
move towards more fundamentalist Islam. Compounding this are the longer term
prospects for a diminished water supply.
In this situation, $450 million might seem like a small price to pay to
help keep the lid on the pot. But we very much doubt whether ten times that
amount will help.
We hope we are wrong.
Note1: The Grand Millenium Dam has not been started and may never start. Equally the Ethiopian Government has said that the water will not be used for irrigated agriculture in Ethiopia and claims that by holding back silt, the dam will actually prolong the lives of other critical dams such as Aswan. These are extremely complicated issues about which a book might be written; suffice to remember that nothing is simple in this part of the world.
Note 2: For more details on water usage in the Nile River Basin: http://www1.american.edu/ted/ice/nile-2020.htm and http://starryskies.com/articles/2007/07/egypt-nile.html
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