We attempted to answer the question by applying a Computable General Equilibrium (CGE) model using an integrated database comprising South Africa’s Social Accounting Matrix (SAM) as well as sectoral water use balances. The research was done when AsgiSA dominated the main economic policy plans of the government. They planned to stimulate nine strategic industries by government aid. In the paper we argued that the stimulation of any industry would increase the demand for water as input into the production process. We modelled hypothetical injections into the economy of R1 billion into each of the nine targeted industries and concluded that it would lead to a deficit in the total available amount of water in South Africa. It would be physically impossible to stimulate the nine industries as planned, unless the necessary water supplies were re-allocated from other sectors.
By increasing the price of water some users would volunteer to consume less water, so we simulated higher water prices by implementing a 1 cent/m3 surcharge on all water demanded in the economy. The water tax decreased the total water demand sufficiently to provide for the AsgiSA initiatives, and had some water savings left over. Moreover, we recycled the water tax revenues towards the nine AsgiSA industries and managed to significantly decrease the negative impacts of the water tax in terms of GDP and employment effects, while a large net saving of water remained.
This analysis showed that macro-economic planning and the design of economic development strategies could not be done in isolation from considering natural resource constraints. Natural capital is increasingly the limiting factor to development and any economic investment should take serious cognisance of these limitations. In this research we did not even consider the impacts of climate change or the prevalence and spread of invasive alien plants, both of which are likely to have detrimental impacts on the availability of existing water resources.
So, is water shedding next? The answer would be positive if macro-economic decision-making was not conducted in such a way as to acknowledge and plan with implicit resource constraints and bio-physical and hydrological patterns and features. The government should certainly continue to search for optimal ways to invest in economic development but should take cognisance of resource constraints in an integrative manner. Opportunities should be explored that, through investing in natural capital, would stimulate economic development, create jobs and augment the dwindling supply of natural resources.