The Sabie River is an important river catchment in South Africa because of its ecodiversity, importance to the Kruger National Park, agricultural and afforestation potential and relatively undeveloped water resources. These resources are under stress from increasing irrigation and a burgeoning population. In the mid-eighties an intensive river basin study was undertaken to guide and promote sustained development. The studies described in this paper were undertaken in order to include economic criteria in development investment decision making. These studies were firstly, a macro-economic view which extended to sector analysis and secondly, a cost-benefit analysis of the proposals. The first found that the balance between economic growth and the demand for water takes place in an area which exhibits a dualistic and interdependent nature, between the Sabie River subregion with dynamic economic growth sectors, and the Sand River subregion with a small economic base but high population concentration. The study introduces the concept of investment absorption capacity which uses Gross Geographic Product as a proxy in a methodology that indicates the maximum capital that can, technically, be invested in water resource development in the area. The second part uses traditional cost-benefit analysis to determine the economically preferred proposals for development.

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