Socio-economic valuation of water reallocation: framework development and application in South Africa

ABSTRACT This paper introduces a socio-economic valuation framework for water reallocation that integrates considerations of equity, efficiency, and sustainability into decision-making. Designed to inform the development and implementation of policy in contexts of water scarcity and historical inequality, the framework systematically incorporates both direct economic benefits and externalities, such as poverty alleviation, food security, and inequality reduction, across different user groups. Applying the framework to South Africa's Inkomati-Usuthu Water Management Area (IUWMA), we demonstrate how it aligns with the country's third National Water Resource Strategy (NWRS-3) and compulsory licensing processes under the National Water Act. Despite data limitations, empirical findings from the case study reveal that reallocating water from large-scale commercial agriculture to historically disadvantaged smallholder farmers could yield welfare gains. The proposed framework offers a practical tool to support inclusive and evidence-based water governance by moving beyond conventional equity-efficiency trade-offs and incorporating non-market benefits.