The other day I read this article on BBC news about the Grand Ethiopian Renaissance Dam, and since in my previous life I worked on the topic for a certain amount of time, I thought it might be interesting to add some insights that are usually not reported in the news.

Ethiopian government has been working on one of the biggest projects that Africa has ever seen: a dam on the Nile that would generate enough electricity to cover the need of the entire country plus some surplus that would be sold to neighbor states. The project is interesting for a series of reasons: First of all, it would provide a _steady_ supply of _clean_ energy to the country and its neighbors. Second, after the initial investment, the cost of production of hydroelectricity is relatively small and countries like Eritrea would be able to buy electricity at a price which is almost one half of their current production costs. Third, the dam was thought to be modular: After the construction of the dam, the turbines (which are the expensive part of a hydroelectric power plant) can be added one by one. So, one can imagine that if the funds become scarce, the authorities will only install a couple of turbines and start selling the electricity produced that way, adding the remaining turbines only in a second moment.

The construction works only started few years ago, but the dam on the Nile has been a myth every Ethiopian grew up with since the 60s. Actually, I was told by an Ethiopian lady that already her grandfather talked about this dam and that its realization is generally seen by Ethiopians as the definitive solution to every economic problem of the country. In the past years, the government has been following quite aggressive policies to raise the necessary money for the realization of the project, and mainstream media have been depicting these practices as the evil consequences of a not-very-democratic government. However, in the light of the words of the lady, it is easy to understand why some years ago all the public employees voluntarily gave up part of their stipends to finance the dam. It is also easy to understand why a big chunk of the debt is held by Ethiopians themselves. Now, one might be wondering whether it is true that this project is going to be the panacea of all their problems, and if that is what Ethiopians believe, why has the building started only recently.

The answer to the latter question is pretty easy: until 2011 Egypt still had a lot of influence on the region and was strongly supported by Western powers. For Egypt a disruption of the flow of the Nile might have major consequences on its agriculture and therefore has always opposed the project. After the 2011 Egyptian revolution, its position weakened importantly and authorities were more concerned about internal stability than about their external interests. That was the right moment to start building the dam.

The answer to the former question, on the other hand, is more complex and as it usually happens it depends on who you ask to. In the past 4 years the Ethiopian economy has been literally squeezed to fund the project. People have been highly taxed to collect funds and the National Bank, which owns about 80% of the market share and not only is in charge of the monetary policy but also engages in normal banking activities, artificially set the interest rate on loans lower than the inflation rate and the rate of return on capital. In such an environment, it is almost impossible for private banks to survive. This is usually referred to as financial repression, even though (surprisingly enough) Ethiopian authorities do not really like the term. Of course, Western organizations like the IMF have some concerns about the sustainability of this situation and would like to see more involvement of the (Western) private sector. In particular, now that the country started tapping on international markets to finance their debt, there are some major concerns on debt sustainability. On the contrary, Ethiopian authorities ensure that everything is under control and that when they will start selling energy to neighbor countries they will have enough profits to repay everyone.

I guess that at this point history will tell us who is right and who is not: The project has started and Western countries have their hands tied: Ethiopia is one of the few stable countries in the region and therefore plays a key military role there. In particular now, with the dire situation in South Sudan, it is important to keep good relations with Ethiopia and avoid to annoy the authorities.