Measuring residential water affordability and basic water needs in South Africa

Abstract: Designing a desirable increasing block tariff for residential users is a challenging task for regulated utilities, especially in developing countries such as South Africa. Studies that assist in understanding the pros and cons of such designs are scant. In this study, we investigate whether the household water block tariff design addresses the issue of affordability, especially for lower income groups. This is particularly important in a highly unequal society, which is the case in South Africa. Because South Africa is one of the most unequal countries in the world, affordability problems for basic services such as water provision remain high on the agenda, as the increasing financial costs of such basic services can impede the realisation of equal access to safe and clean potable water. A key objective of highly unequal countries such as South Africa and Brazil is to provide affordable access to basic services such as water, in order to support economic and social development. Water policymakers are faced with the situation that they need to set costreflective tariffs, address equity, meet increasing demand, and manage water supply in the face of climate change, which is putting pressure on available water resources. More than ever, water decision-makers responsible for setting tariffs face the challenge of reconciling equity, economic efficiency, and conservation objectives. Indicators of water affordability and a basic minimum amount of water needed for necessities, that is the ‘lifeline’ can be helpful in this regard. Commonly, water affordability is measured as the ratio of a household’s income spent on water supply. This is problematic in developing countries for several reasons, including that some households – especially in rural areas – may be sourcing water from free sources, there may be insufficient billing data or billing inaccuracies, and the use of communal taps. These problems may lead to inaccurate affordability estimations. The challenge with our affordability measure in this study is that some households are already getting free basic water, which is a complication. We address this by excluding households that reported water expenditure to be zero per month; hence, affordability problems were largely underestimated. We investigate both the ‘revealed’ and this ‘hidden’ water affordability problem in South Africa...M.Com. (Economics