Freshwater and electricity are crucial for economic development and societal well-being. Water scarcity and variability significantly impact economic growth, while energy consumption and economic development exhibit complex relationships. Water and energy systems are interconnected, with hydropower playing a major role in global electricity generation. The Nile River, shared by eleven African countries, exemplifies this interdependence. The Blue Nile, originating in Ethiopia, contributes significantly to the Nile's flow, characterized by high variability. Egypt and Sudan currently consume almost all the Nile's flow at their border, with Egypt's water, energy, food, and economy heavily reliant on it. The Nile Basin Initiative (NBI) aimed for cooperation in managing the river, but disagreements, particularly concerning the Cooperative Framework Agreement (CFA), hampered progress. Ethiopia's unilateral construction of the GERD further complicated matters, despite prior attempts at joint projects. The GERD, upon completion, will be Africa's largest hydropower facility, with substantial implications for Ethiopia, Sudan, and Egypt. While promising economic growth for Ethiopia, the dam's impact on downstream countries remains a point of contention, leading to years of unresolved negotiations despite efforts involving international panels and declarations of principles. This paper aims to present a new modeling framework capturing the dynamic interplay between the Nile's hydrology and infrastructure and Egypt's macroeconomy, and use this to compare the effects of a coordinated GERD operating strategy with a strategy resembling a proposal from 2019-2020 negotiations in Washington D.C.

Previous studies have examined the impacts of GERD filling and operation on Ethiopia, Sudan, and Egypt. However, these studies often employed simplified representations of the river-economy linkages, neglecting the dynamic feedback between economic growth and water/electricity demands. This paper addresses this gap by incorporating a more comprehensive model.

This study uses a novel coevolutionary hydro-economic modeling framework. This framework integrates two key components: (1) a Computable General Equilibrium (CGE) model of Egypt's macroeconomy, and (2) a hydrological model of the Eastern Nile Basin. The CGE model is adapted from the IFPRI standard model and modified to include water, energy, and land components, allowing for dynamic simulations over multiple years. The model features a three-level production process using Leontief and CES functions, capturing substitution between inputs like value-added and energy. It also incorporates four types of capital (hydro, non-hydro, water, and general) and a nested LES/CES system for consumption allocation. The hydrological model is built using Pywr, an open-source Python library, simulating the water system and hydropower generation. Pywr's time-stepping linear programming approach and multi-scenario capabilities handle resource allocation and hydrological uncertainty. The integration of the CGE and hydrological models is achieved using the Pynsim framework, enabling iterative simulations and data exchange. The coevolutionary approach involves dynamic interactions, with the CGE model influencing water and electricity demands and the hydrological model reflecting the availability of resources and impacts on the economy. The model is calibrated to a 2019 SAM of Egypt and validated against historical data. Two scenarios are compared: a coordinated operation and a strategy similar to the Washington draft proposal. The coordinated operation emphasizes cooperation, allowing Ethiopia flexibility to optimize hydropower while ensuring downstream water needs are met under specific conditions. The Washington draft proposal is characterized by its constraints on minimum releases from GERD.

The study compares the coordinated operation strategy with the Washington draft proposal using 102 different 30-year river flow sequences. The results show that the coordinated operation strategy generally leads to improved outcomes for both Egypt and Ethiopia. In 77% of the simulated traces, coordinated operation reduces Egypt's total water deficits compared to the Washington draft proposal. This is particularly notable after 2025 when the High Aswan Dam (HAD) reservoir has sufficient storage. While Egypt's hydropower generation may decrease in some cases due to a faster initial GERD filling under the coordinated strategy, the benefits from reduced irrigation deficits outweigh this in most scenarios. The coordinated operation also results in increased GERD electricity generation in 71% of the traces simulated, with a median increase of around 1600 GWh over the 30-year period. Furthermore, the coordinated operation often decreases total water losses (from evaporation, spills, and seepage) compared to the Washington draft proposal. Regarding Egypt's economy, coordinated operation leads to increases in GDP, investment, exports, imports, and government savings in most scenarios, with the median present value change in GDP over the 30-year simulation period at around $0.24 billion (76% of scenarios show an increase). This improvement is mainly driven by the reduction in irrigation deficits. For Ethiopia, the coordinated operation leads to a median increase of $0.06 billion in the present value of GERD electricity generation (71% of scenarios show an increase). The benefits to Ethiopia are primarily from the increased total electricity generation enabled by the more flexible coordinated operation.

The findings highlight the significant impact of hydrological stochasticity on economies heavily reliant on variable river flows like Egypt. The coevolutionary modeling approach better captures the complex interactions between natural, engineered, and economic systems, providing a more nuanced understanding of the impacts of interventions like the GERD. The results demonstrate that the coordinated operation strategy, focusing on neighborly cooperation, offers substantial economic benefits and resilience to both Egypt and Ethiopia compared to a less collaborative approach. While this study provides evidence for the economic benefits of cooperation, a comprehensive assessment should also integrate environmental and social impact considerations not captured in macroeconomic indicators such as GDP.

This study demonstrates that a coordinated operating strategy for the GERD can significantly improve economic outcomes and resilience for both Egypt and Ethiopia compared to less collaborative approaches. The coevolutionary modeling framework provides a valuable tool for analyzing complex hydro-economic systems. Future research should expand on this by integrating more detailed environmental and social impact assessments, considering the effects of future irrigation expansion in the Nile Basin, and exploring governance mechanisms that facilitate effective collaboration in transboundary river management.

The study focuses primarily on economic benefits and doesn't fully incorporate detailed environmental and social impacts. The economic model for Ethiopia is limited by data availability on electricity consumption and export prices. The future expansion of irrigation in the Nile Basin is not explicitly modeled but is acknowledged as a factor influencing future water availability. The model's assumptions, such as the specific characteristics of the Washington draft proposal and the coordinated operation strategies, may influence the results. Future work could improve these assumptions based on updated information.