Term Paper, 2005
10 Pages, Grade: 1,3 (=75%)
2. The economic impact of the HIV/AIDS epidemic in South Africa
2.1. The impact on households
2.2. The impact on firms and business
2.3. The impact on the macro economy
The association of the slow economic growth and development of a country on the one side, and the poor health of its people on the other side, is quite obvious. Formerly, the common sense was that low income in developing countries causes their bad condition concerning healthiness, but recent economic research increasingly considers the causal link between this two phenomena running the other way round. That is, poor health has a negative effect on per capita income, as it leads to lower labour productivity, lower investments in human capital and, by affecting the people's saving behaviour, in physical capital, and furthermore has an influence on the country's demography (Bloom & Canning, 2000:1).
In sub-Saharan Africa, it is nowadays undoubtedly the HIV/AIDS epidemic, which poses the major threat to economic development, even more destructive than the "traditional epidemic killer" malaria (Bloom & Sachs, 1998:234). End of 2003, of the estimated 37.800.000 adults and children living with HIV worldwide, 25.000.000 – that is roughly two thirds – were living in sub-Saharan Africa. Among those countries, the Republic of South Africa is one of the hardest-hit: with 5.300.000 adults and children living with HIV, the HIV-rate is only topped by Botswana, Lesotho, Swaziland and Zimbabwe. In 2003 alone, more than 370.000 people died from AIDS, and approximately 1.100.000 AIDS-orphans were living in South Africa. Moreover, as "heterosexual transmission is by far the predominant mode of HIV transmission" (UNAIDS, 2004:31) in sub-Saharan Africa, AIDS tends disproportionately to afflict the adult working-age population, which is sexual active. In South Africa, statistics report that 21,5% of this adult population, from 15 to 49 years old, are HIV positive (UNAIDS, 2004:190-193).
As stated above, poor health in general, and HIV/AIDS – due to its high prevalence and the structure of the endemic – in specific, put a heavy burden on economic growth and development. The purpose of this paper is to identify the impact of the HIV/AIDS crisis on the South African economy and how this impact affects South Africa's economic growth and therefore its prospects for development. Economic impact "can be defined as that which causes the diversion of resources too uses that would not have been necessary in the absence of HIV/AIDS, and decreased production due to the disease" (Barnett & Whiteside, 2000:44). As this economic impact occurs through various channels, on different levels, it seems reasonable to approach the problem on these different levels, namely households, firms and business, and the macro economy (Bollinger & Stover, 1999:4).
Individuals, and therefore the households they live in, are the first to experience the economic impact of HIV, as soon as they, or one of the members of the household begins to suffer from HIV-related disease. The loss of the labour force of the sick person leads to a decrease in the household's income, even more when the HIV patient has been the main breadwinner. This impact often is catastrophic, also because poor people are most likely to be infected with HIV, and those are primarily dependent on their labour force. Studies in South Africa and Zambia discovered that the average household, which is afflicted by AIDS, experiences a decline of 66-80% of monthly income (UNAIDS, 2004:44-45). The falling of income is necessarily accompanied by a grave reduction of the household's consumption and savings (Nabila et al, 2000:2).
The financial situation of the affected family becomes even worse because of expenditures for medical care are usually rising enormously. The AIDS patient also needs an extraordinary amount of individual care, which is often provided by family members, often forcing women to give up their work, what causes another decrease in household income, or girls to drop out of school (UNAIDS, 2004:45). Education is furthermore decreased by the HIV crisis because of its negative effect on the supply of teachers, additionally, the growing poverty of the household drives the family to take their children out of school to save tuition fees, resulting in a serious loss of their future economic potential (Nabila et al, 2000:4).
Finally, the death of the AIDS patient results in the permanent loss of income. Also funeral and mourning costs are not to underestimate in traditional African societies. As projected by a study for KwaZulu-Natal, there will be an increase in burials from 224 per day to 634 per day because of AIDS deaths. This means another increase in families expenditures, namely for burial costs, lost wages and transport costs due to attending funerals (Bollinger & Stover, 1999:5). The children of the AIDS victims are left behind as orphans, with all the negative consequences this brings with it.
All the effects mentioned above, more or less have an impact on firms and enterprises as well. The 2004 report on the global AIDS epidemic summarizes that "AIDS reduces output by squeezing productivity, adding costs, diverting productive resources, depleting skills and distorting the labour market. For employers, employee health expenses and funeral costs are rising as productivity and profits decline. The epidemic increases absenteeism, organizational disruption, and the loss of skills and organizational memory" (UNAIDS, 2004:56).
To bring this various factors, through which HIV/AIDS affects a business, into a conceptual framework, a distinction can be made between 'direct' and 'indirect' costs that an enterprise has to face. Basically, direct costs are all the factors that are leading to increased expenditure, such as health care costs, burial fees, training and recruitment or decline of demand due to AIDS, whereas indirect costs are those factors that are leading to decreased revenue, above all absenteeism due to illness or time off to attend funerals, as well as reduced productivity and moral or time spent on training, also due to the change of employees (Fraser et al, 2002:1221-1222).
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