Economic analysis of water allocation policies regarding Nile River water in Egypt

The Government of Egypt is currently implementing projects that expand irrigated area on the Sinai Peninsula and in the southern desert. Those projects will reduce the supply of Nile River water available to farmers in the Nile Delta, which is a heavily populated and highly productive agricultural region. The southern desert project will obtain water directly from Lake Nasser, while a mixture of Nile River water and drainage water will be delivered to the Sinai. The true costs of the projects include the opportunity costs of water and capital that could be used alternatively in the Nile Valley and Delta, or in other productive endeavors. Economic analysis generates optimizing criteria that describe the role of scarcity values (opportunity costs) in determining the allocation of Nile River water that will maximize net social benefits. Policy implications are derived by comparing those criteria with the criterion that farmers implement when maximizing profits from crop production. A small-scale simulation model demonstrates the potential impact of water allocation policies on regional net revenues. Results are discussed within the context of a broader view of national goals that include promoting economic growth, achieving food security, and enhancing the quality of life for Egyptians.