South Africa Economical Parsing 2010 - Research Paper Example

Economic Analysis Table of Contents Page Number 3 Introduction 3 The Present Situation 3 The Remedial Measures 6 Conclusion 9 References 10 Abstract The purpose of this essay is to analyze an economic article that is based on issues relating to the balance of supply and demand and economic efficiency. For this purpose, the paper focuses on an article that discusses the imbalance of demand and supply of water resources in South Africa. By the means of diagrams, illustrations and statistics, the paper analyses the situation and considers certain remedial measures. Introduction In order to provide an economic analysis, the paper focuses on an article that was written by Jocelyn Newmarch on the 3rd August 20101. The article is meant to focus on the dwindling water resources present all across the globe, with special emphasis on South Africa. Additionally, the article provides on the steps that South Africa needs to focus on too cope up with the scarcity of water resources. The Present Situation At first, the article elaborates on the present situation. South Africa, like most of the countries across the world is suffering from scarce water resources. Water is an essential element for human and animal life and for some the scarcity of water has led, in the past, and may lead to many problems, including wars, in the future2. The same is the case for South Africa. Despite the rains that have been occurred so far, South Africa still has not been able to manage water resources. The reason for this is that the supply is either constant or dwindling. However the demand is increasing day by day as a consequence of increasing population. Figure 1 shows the scenario that South Africa is facing presently. The graph shows the relationship between the demand and supply of water resources and units of water resources consumed. For the purpose of simplicity, the supply line has not been altered through different time periods. Originally and ideally, the demand and supply curves should meet at point E. Point E portrays the optimal equilibrium as the entire demand is met by the total demand. Although this is not the scenario in South Africa. As discussed before, the demand for water is higher than the supply. The result is that the two curves meet at point F (the supply curve is assumed to be not shifting). It can be seen at point F that there is an imbalance of the demand and supply. Since demand is higher than the supply, there is a supply deficit as far as water resources are concerned. Figure 1 The situation is likely to deteriorate further in the future as the gap between the supply and demand widens. The following Figure 2 shows the impacts of the ever increasing demand for water resources. Here, the point E represents the optimal equilibrium point, point F represents the equilibrium point in 2013, and point G represents the equilibrium point in 2019. According to the article and the graph, the gap between the supply and demand is likely to widen and in 2013 the water resources market would face a deficit of approximately 6%. The figure would further worsen to 13% in the year 2019. Figure 2 The figures, 1 and 2, show that the efficient equilibrium point is the one where the demand and the supply meet3. Since there has been an imbalance in the supply and demand for water resources in South Africa there has not been an efficient allocation of resources. This can be deduced from the article when it says that the imbalance has been responsible for decaying infrastructure, worsening water quality and the lack of essential skills. The remedial measures At this point, there is little that South Africa can do in order to increase the supply of the water resources so that the supply deficit can be reduced. A lot of time is needed for that and unfortunately; South Africa does not have enough time. The alternative is to concentrate on the reduction of the demand for water resources. The efficiency of water can be improved by demand management in the field of water resources. This can be done by the introduction of educational programs that help acquaint the general public with the techniques and benefits of conserving water. Figure 3 shows the implications of the demand reducing strategy. Suppose the present equilibrium in South Africa is represented by point G. It is known by now, that the point E is the Pareto optimal point. If the demand reducing strategy works, the authorities would be successful in the shift from point G to point F. Ideally, point E should be the equilibrium point. However that may not be able to achieve very easily. At this point even a small decrease in the demand for the water resources would reduce the supply deficit and would help with the water efficiency. Figure 3 South Africa has been very concerned about the reduction of the demand of water. For this, it has invested in conservation programs but according to the article, it has not been able to achieve its objectives properly. People are still not well educated about the need for conservation. Also, as the article states, the already lesser amount of water creates a lesser incentive among the people to help save water. This can be deduced from the fact that around eighty percent of the water supplies were used in the country for the purpose of garden irrigation last summer. South Africa, unlike many other countries, has a primary sector that contributes to 17% of its economic sector4. Since agriculture requires a lot of water, South Africa enjoys an advantage here. It does not have to worry about the excessive amounts of water supplies needed for crops. Despite this fact, the dwindling water resources still seem to be one of the major issues faced by the country. Certain other measures have also been taken by the government to deal with the problem. For instance, the legalisation of low flow pipes and the increases in the cost of water have been two major steps taken. Since water has inelastic demand, an increase in the prices would have a great impact on the reduction of the units of water consumed as shown in Figure 4. If the original price of water is at E and the price is increased to F by the government, then there is a great change in the number of units consumed for water. Figure 4 At certain points the government of South Africa has been very strict too. An example is that of the Kelowna city. Because of the efforts of the authorities, the demand for water fell to 444l per day. However, at the same time the population in the city has also increased by 35% since the year 1996. The increasing population led to an overall increase in the demand for water although on individual basis, the demand for water has fallen considerably. Consequently, last year the government allowed two percent more water to the Kelowna city only. Conclusion To conclude, South Africa faces a very severe water shortage problem. The ever increasing demand for water has not only increased the imbalance of the demand and supply of water resources but has also affected the efficiency of water thereby reducing its quality. The South African government has been very keen to deal with the problem and so has invested in many demand reduction programs. Despite certain strict measures taken, there is a lot to be done in order to deal with this grave problem. References DEAT. Economic Pressure on the Environment. South Africa: National State of the Environment Report, 1999. Donahue, J. “Middle East Wars Are About Water.” Dwindling Resources. http://perdurabo10.tripod.com/warehouseb/id87.html. (Accessed August 7, 2010) IWMI. The New Era of Water Resources Management (Research Report). US:  International Water Management Institute, 1999.   Lloyd, C. Microeconomic Analysis. US: R. D. Irwin, 1967. Newmarch, J. “South Africa: Reduce Demand for Water, Country Warned” .Business Day. http://allafrica.com/stories/201008030093.html. (Accessed August 7, 2010) Read More