The value of water in the South African economy: Some implications

The South African Water Research Commission (WRC) initiated a number of research projects aimed at determining the value of water in different sectors of the economy and in different parts of the country. This research is reviewed. Water values were found to differ significantly between sectors, between geographic areas and within geographic areas. As agriculture is a large consumer of water several studies along different rivers were undertaken, including studies on water quality. Average ratios indicate that agriculture is an inefficient user of water in terms of gross income generated per unit of water and also in terms of jobs created per unit of water. Irrigation farming is, however, an important employer of labour while it contributes 30% to the value of farm output. A marginal approach and water demand elasticities also indicate that non-agriculture generally places a high value on water assurance but little value on more than what it already uses. This may indicate that although water is expected to transfer out of agriculture in the longer run, in the short run agriculture may be its best use. Water efficiency could be significantly enhanced if transfers within and between river reaches are promoted, as water shadow prices differ. Inputs from the Department of Water Affairs and Forestry (DWAF) are important in water allocation due to socio-economic and environmental externalities of water allocation.