Presentation on theme: "DWA CORPORATE IDENTITY Presented by: Johan Maree Deputy Director: Media Production 12 December 2012 MVOTI TO UMZIMKULU CLASSIFICATION STUDY PSC Meeting."— Presentation transcript:
DWA CORPORATE IDENTITY Presented by: Johan Maree Deputy Director: Media Production 12 December 2012 MVOTI TO UMZIMKULU CLASSIFICATION STUDY PSC Meeting 26 November 2014 Item:8.4 SOCIO ECONOMIC CONSEQUENCES WATER OUT OF THE RIVER William Mullins
2 Socio Economic evaluation in the public sector AttributesPublic SectorPrivate Sector PerspectiveThe broader communityProject shareholders/Capital providers GoalMost effective application of scarce resources Maximization of net value ScopeAll aspects necessary for a rational economic decision Limited to aspect that affect profits Benefits Additional goods, services, income and cost saving Profit and financial return on capital employed CostsOpportunity costs of goods and services foregone Financial payments and depreciation calculate according to generally accepted accounting principles
3 Why use the selected metrics We use the indicators to: Show Economic growth Indicate Poverty alleviation contribution GDP: Value added made up of three elements: I.Remuneration of employees (payments to households) II.Gross operating surplus (profit and depreciation) III.Net indirect taxes Employment: This metric indicates the number of additional jobs as a result of a change in water provision. Employment is used to indicate poverty alleviation.
4 Some explanation Gross Domestic Product (GPD): Used to measure the economic output of a region as well as relative contribution of an industrial sector. Growth size is dependent on the multiplier effect. Payment to households: One of the elements of the value added (i.e. GDP) which results from the sector where water is allocated is the remuneration of employees, which, in turn, affects household income. Multipliers: The fiscal multiplier effect occurs when an initial injection into the economy causes a bigger final increase in national income
5 Effect of multipliers In the economy, there is a circular flow of income and spending. Money that is earned flows from one source to another, and most of it gets spent again, multiple times. What this means is that small increases in spending lead to much larger increases in economic output. Multipliers are then used to measure how much spending gets multiplied. To illustrate this, let's take a look at a very simple economy:
6 Principle behind multipliers Consider a R300 million increase in capital investment, for example, if Toyota invests in a new assembly plant. This will set of a chain of increases and expenditures. Businesses who win contracts to build the new factory will see an increase in income and profits If they and their employees in turn collectively spend about ½ of that additional income, then R150 million will be added to the income of others. R300m At this point, total income has grown by R300m + R150m The sum will continue to increase as producers of additional goods and services realize an increase in their incomes, of which they in turn spend on even more goods and services. This is what is meant by the multiplier effect
7 How multipliers are applied on value of status quo If the water to the sector is reduced by 6 million m 3 The GDP is reduced by (6x4) = R24 million. Employment = number/million m 3 i.e. 350 per Mm 3 Employment is reduced by (6x 350) = jobs. The same applied for household income. Just keep in mind that if the volume of available water increase, it does not necessarily lead to an increase of economic activity!
YearGrowth Rate Population 1.08% 2.17%3.28%11.34%23.97%38.02%53.68% Water 1.436% 2.89%4.37%15.32%33.00%53.38%76.88% Economy 5%5.0%10.25%15.76%62.89%165.33%332.19%604.00% 4%4.0%8.16%12.49%48.02%119.11%224.34%380.10% Compounded Growth The total additional water volume is taken up over time. Look at the difference of1% over a very long period make. As it is always very difficult to do a forecast into the future using the current historical available data as a base, the above figures must be treated with caution. It is good practice to update the different growth values every 5 to 10 years.
9 Discounting Discounting – what is it and why do it? Discounting is the reverse of adding (or compounding) interest. It reduces the monetary value of future costs and benefits back to a common time dimension – the base year/date. Discounting satisfies the view that people prefer immediate benefits over future benefits (social time preference) and it also enables the opportunity cost to be reflected (opportunity cost of capital).
10 Methodology based on CBA principles Status quo – Volume of water Growth on status quo 1.436% on water baseline demand Growth on status quo 1.436% on water baseline demand Apply value of water on growth volume Multiply volume with R4/m 3 Apply value of water on growth volume Multiply volume with R4/m 3 Discount according to CBA principles Status quo – Value of water in GDP i.e. R4/m 3 Status quo – Value of water in GDP i.e. R4/m 3 Projected GDP growth Status quo – Employment i.e. 1000employees/Mm 3 Status quo – Employment i.e. 1000employees/Mm 3 Apply employment on growth volume Multiply volume with 1000employees/Mm 3 Apply employment on growth volume Multiply volume with 1000employees/Mm 3 Projected additional employment
11 Economic sectors used in evaluation Irrigation Industry Wet industry Dry industry Commercial business sector Urban domestic water consumption Water related services – Ex. Plumbing Municipal parks & recreation Informal businesses
12 Informal sector The informal sector has the following two components: 1) Employees working in establishments that employ less than five employees, who do not deduct income tax from their salaries/wages; and 2)Employers, own-account workers and persons helping unpaid Source: StatsSA KwaZulu-Natal has 19% ( ) of the workforce which operates in the informal economy. This number excludes agriculture and domestic workers. - Labour Force Survey October 2014 – Statistics SA
13 Water volumes ( Mm 3 /a) MvotiIsithundu Excess Firm Yield MV MV MV MV Umkhomazi ScenariosSmithfield HFY (No support to Ngwadini)Ngwadini HFY (No sup from Smithfield) No EWRWith EWRNo EWRWith EWR MK1 MK MK MK MK MK MK MK Smithfield HFY (With support to Ngwadini)Ngwadini HFY (With support from Smithfield) Mkomazi multiplier MK MK MK
14 Costs and benefits in Mvoti 1.Benefits: 1.Additional water allocated to the following sectors: 1.Industrial 2.Urban domestic 3.Irrigation 2.Costs 1.Construction costs - dam 2.Maintenance costs 3.Operational costs
15 Results – Mvoti scenarios ScenarioProjected GDP growth (R million) Projected additional labour Rank MV MV MV MV
16 Results – Mvoti scenarios ranking
17 Costs and benefits in Mkomazi 1.Benefits: 1.Additional water allocated to the following sectors: 1.Industrial 2.Urban domestic 3.Saiccor 2.Costs 1.Construction costs 1.Ngwadini construction 2.Smithfield construction 2.Maintenance costs 3.Operational costs
18 Results – Umkhomazi scenarios ScenarioProjected GDP growth (R million) Projected additional labour GDP growth rank Additional labour rank MK MK MK MK MK MK MK MK MK MK