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While water supply sources are dwindling in South Africa, the demand for the scarce water resource is increasing. This situation requires a switch from supply to demand management of water in the country. The study updates the 1999 social accounting matrix for South Africa, using the Trade and Industrial Policy Strategies (TIPS) time series data, STATSA's 2001 census report and 2000 water accounts, the 2002 national income accounts, published by the South African Reserve Bank (SARB) and the Water Resource Management Strategy (WRMS) registration data. Using the updated SAM, the contribution of water to economic development in South Africa is estimated through the traditional SAM multiplier analysis. The paper then investigates the impact of reallocating water among the production sectors, on the basis of economic efficiency, on output growth, factor remuneration and households' income generation. The computational and simulation results show that, though agriculture is among the sectors that have the least marginal value of water, water reallocation based on marginal values will reduce the incomes of the poorest households, and put at stake the livelihoods of the most vulnerable population. Scenario analyses suggest that this effect will be minimal if marginal productivity consideration for inter-sectoral water reallocation is reduced to 30%, while intra-sectoral water reallocation on the basis of efficiency is currently viewed as the most viable option.


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