Thrust 1: The Role of Water in Economic Development

The ever-mounting scarcity of freshwater in South Africa within the context of an expanding economy and, thus, increasing demand will need informed choices on water allocation between competing needs.  In general, there are two general choices to address this problem; either increase supply or reduce demand.   
·  With a renewed focus on public infrastructure development in South Africa the question needs to be answered what the best possible economic allocation of scarce resources to, or costs and benefits of alternative shorter and longer term water management options are, including enhancing supply and managing demand.  Such analysis must also assist decision-makers to determine and communicate the trade-offs resulting from water allocation decisions.
·  A second and related question is whether South Africa’s water resources are sufficient to support planned economic developments (such as those proposed in the ASGISA document), and what the sensitivity of such economic development plans are to changing assurances of supply, changing water prices and implementation of water conservation regulations and technologies.  This would need an analysis whether water, as a specific resource, is a constraining factor in economic development in the first place. 
·  A third question is the role of water specifically in the alleviation of poverty.  Although the WRC has a separate research programme on Water and Society, specific issues remain that are relevant to this Impact Area.  One example is what the impacts of water redistribution are on economic growth as well as on broad-based black economic empowerment, two key objectives of Government policy. Another example is an evaluation of the economic viability of emerging and small business in the water sector, such as small farmers and contractors. 
· A fourth question in this key strategic focus area is to evaluate the economics of water service delivery, including water supply and sanitation, and to identify institutional bottlenecks hampering service delivery.

Thrust 2: Using Economic Instruments in the Management of Water

The next key element of the strategic framework is the question of how to apply economic instruments in the management of water. 
·  The first question is at what (volumetric) levels water prices should be set and how sensitive water demand is to changes in water prices, moving beyond single-point estimates on water valuation (elasticity).  Prices and demand will have to be studied at various stages of the water supply chain and to different users, and need to test the affordability to water users throughout the chain. 
· The second question is that non-market valuation techniques need to be applied to estimate the demand for those water-related ecosystems goods and services not traded in markets.  Estimating the benefits of healthy water-related ecosystems and applying these to estimate the economics of the ecological Reserve are two topics in need of further research. 
·  A third question is what the benefits of clean water and the cost of addressing polluted water are.  To achieve levels of water pollution that do not cause long-term damage, while leaving space for development; research on the damage costs and unit control costs for key pollutants and key polluting sectors is needed. 
· The fourth question is focused on the prerequisites for efficient water allocation, specifically the accurate and cost-effective measurement of water use as well as the institutional economics of water rights and licences.  
·  The fifth question revolves around an economic evaluation of water policies and the application of economic policy instruments to water management.  A regulatory impact assessment on the National Water Act is proposed, as well as practically focused research on the feasibility of water markets and (waste) water charges.  
·  Finally, the question of how the results of economic analysis can better be integrated in the policy making process, needs specific research.

Thrust 3: Dealing with Complex Water-Economy Systems

The causal relationships within complex water-economy systems need to be explicitly recognised and their sensitivity to biophysical and socio-economic change tested.    Cause-effect relationships on larger-scale complex systems such as catchments are not necessarily obvious.  Water needs to be managed for multiple uses in a sustainable manner.  Integrated assessment and multidisciplinary modelling approaches are needed to provide a systems-wide perspective on the management of water resources.  The sensitivity of socio-economic activities and the value associated with these activities need to be tested for the impacts of extreme events and gradual changes.  Integrated water-economic modelling on a catchment level is needed to inform appropriate catchment management strategies.