Water Research Commission Water and the economy Overview of discussion 1.Explanation of key concepts 2.Water requirements of use sectors 3.Measurement of contribution of water to the economy 4.WRC funded research on water values 5.WRC funded research on guidelines for calculation of water tariffs 6.General conclusions 7.Emphasis of ongoing research by Gerhard Backeberg May 2003

1. Explanation of key concepts Value and price of scarce water resources Charges and tariffs for management, supply and use of water Water –Consumption good –Input for production Water use in value adding chain i.e. from raw material to consumer product –Linkages between use sectors –Linkages across river catchments –Linkages across economic regions Research crosscutting domain –Water resource management –Water use in different sectors –Water-linked ecosystems

2. Water requirements of different use sectors for year 2000 Million m 3 /a % Irrigation Urban Rural Mining and industry Power generation Afforestation Total Source : NWRS 2002

3. Measurement of contribution of water to the economy Value added per use sector (R/m 3 ) –Measures gross production value in relation to water use per sector –Measures value added for water use together with all other inputs –Does not measure backward and forward linkages Example: R/m 3 (1998) Industry Mining Agriculture R 157 R 39 R 1.50

Measurement of contribution of water to the economy (Continue) Total output multiplier per water use sector –Measures forward linkages to processors and service providers –Measures contribution to national or regional economy Example: Economic sectorTotal output multiplier NationalRegional* Agriculture/Irrigation Mining Food manufacturing Construction * Southwestern Free State

4. Research funded by the WRC on the value of water since 1997 Different river catchments or water management areas Different water use sectors Different economic locations Different research approaches –Analysis of market prices –Modelling of values

Value of water for domestic, agricultural, forestry and environmental use Market analysis New irrigation: Lower Orange River Crocodile River Annual rental 3 c/m c/m 3 Modelling Existing irrigation: Berg River Great Fish & Sundays River Kat River Annual value 21 c/m c/m c/m 3 Commercial forestry: KwaZulu Natal : Eucalyptus : Pine 8 c/m c/m 3 Estuary water inflows: Southern Cape5 c/m 3 Domestic Eastern Cape74c–R2.40 /m 3

5. Research funded by the WRC on determination of water user charges and consumer tariffs Guidelines available for Catchment management agencies Local authorities –Industrial and commercial use –Urban domestic use Elasticity of demand: Alberton and Thokoza Short-term: Long-term: Port Elizabeth Long-term: % increase in tariffs leads to 1.7 % and % reduction in water use over short- and long-term respectively

6. General conclusions Gross income generated per unit of water is higher for industrial use compared to agricultural use Value of water for domestic use is higher than for agricultural use Value for agriculture differs between regions and farming types. Caution: Different methods used in different regions. Problem is not the method but reliable data. Domestic and industrial use place high value on assurance of supply, little value on more water than is currently used. In future, water transfers from agricultural to industrial and domestic use are likely.

7. Emphasis of ongoing research Value of water for industrial use Value of water for ecological functions Elasticity of demand for water and payment strategies for different income groups in urban areas Improving decision support for market transfers: –Hydrological information –Transaction costs –Third-party effects –Institutional security Regulations in terms of NWA of 1998