The need for increased agricultural production to meet the growing demand for food, coupled with concerns
for environmental sustainability, economic growth and poverty reduction has increased demand on the already
scarce water in South Africa. At the same time, because of agriculture’s minimal contribution, compared to the
industrial and mining sectors, to South Africa’s GDP and employment, the call to reallocate water from agriculture
to non-agricultural use has been intensified.
This study updates the 1998 Social Accounting Matrix (SAM) for South Africa and uses the computable
general equilibrium model to analyze the impact of water reallocation from agriculture to the non-agricultural
sectors on output growth, value added at factor cost, which captures the payments from the production sectors
to the factors of production, and households’ welfare.
Using different water reallocation scenarios, the simulation results indicate that water reallocation from agriculture
to non-agricultural sectors beyond the level of a market allocation scenario will lead to a decline in sectoral
output and a significant deterioration in the welfare of poor households. It thus undermines development
efforts aimed at reducing the existing level of poverty in the country.