Water institutions, markets and decentralised resource management: prospects for innovative policy reforms in irrigated agriculture

Increasing scarcity and competition for water resources has led to international recognition that public policies must change to manage water as an economic commodity. An analysis of natural resources and markets shows that limited potential exists in a regional context for trade in 'virtual water ' through food imports. Policy options for intra- and intersectoral water reallocation must therefore receive priority attention. Based on experiences in other countries, emphasis is placed on successful innovations of markets in tradable water rights, local management, user-based performance assessment and water saving technologies in irrigated agriculture. The recently published National Water Policy for South Africa and draft National Water Bill that has been released for discussion are accordingly evaluated. With application of the theory of New Institutional Economics, a number of deficiencies in the accepted principles and policy measures become apparent. It is clear that the proposed water licences are insecure; this will not induce efficient market allocations nor will it enable effective participation of water users in water management. Further economic contributions in policy making are required for the design of unattenuated water entitlements in order to achieve correct pricing incentives