For a long time, water resources in SA have been overused, inefficiently allocated and over polluted as a result of wrong policy regimes. Under-pricing, weakly defined or absent property and use rights, lack of environmental standards and effective policy measures to manage effluent discharge, biased political and economic systems that subsidise overinvestment in large-scale commercial white irrigation systems and discriminated against the African population leading to serious pressures on and consequently degradation of the severely limited marginal resources left at their disposal, are some of the features of the previous order in SA. However, a new policy environment is emerging in new SA with increased emphasis on correcting environmental externalities and internalising their social costs. Among other environmental resources, water management is receiving special attention in recognition of its evident scarcity and over use. Of special importance are the prospects of increased regional competition from neighbouring countries as the demand for water begins to rise with economic development.

The new policy environment spans a wide range of economic reforms and environmental policy measures from trade liberalisation to more adequate definition of water rights and creation of water markets. such policy change is bound to cause major adjustments in the present patterns of water use and allocation. This work intends to analyse such shifts and study the nature and direction of these responses. A multi-sector input-output framework will be employed to conduct the intended analysis. An environmental module will be constructed and integrated with the I-O model to account for environmental impacts, with special emphasis on water resources.