The impact of HIV/Aids on the South African economy

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Ostheimer, Andrea E., Deputy Representative of the Konrad-Adenauer-Stiftung in South Africa
2004/06/02

With plus minus 5.3 Million people living with HIV/AIDS, South Africa is ranking top globally considering its high infection rate and the size of its population (approximately 43,6 Mio.). Considering its impact on the economy HIV/AIDS has become one of the critical priorities for the South African government as well as for the business community.

Found mainly among adults between 20 and 40 years old, it has a direct impact on the workforce and the most productive years of a person’s life. Considering that the epidemic in South Africa might still be at an early stage of development, the high tide of related illnesses and deaths is yet to be felt. With stigma labeled to it and an inhibiting cultural environment, statistics on the prevalence of HIV/AIDS in South African society are still rather vague. According to the Antenatal Survey Data, prevalence rates rank around 26.5% (SABCOHA/BER, 2003), or 15.6% amongst 15-49 year old adult population if we take the Human Science Research Council (HSRC) / Nelson Mandela Foundation (NMF) survey on prevalence, behavioral risks and mass media (2002).

However, particularly the latter survey has shown that non-participation of interviewees remains high. Only 65% of the sample participated and only 62.5% gave specimen for anonymous HIV-Testing. Considering that non-participation might be related to a person’s HIV-Status this could implicate a substantial bias in survey results.

Although the impact of the HIV/Aids pandemic remains the most devastating on household level - where it is mainly poor households which carry the greatest burden whilst having least resources – Konrad-Adenauer-Stiftung brought the impact of HIV/Aids on South Africa’s economy to public attention in its May Political Forum. Program information >>

A bleak picture – HIV/AIDS prevalence rates in South Africa

Surveys support the finding that HIV/AIDS is a general epidemic in South Africa. Estimated national prevalence rate remains at 11.4%. However, and contrary to earlier surveys, the highest prevalence seems to be amongst those with high school education (14.9%) or matric (15.3%). So the image of the disease of the poor and uneducated might need to be reversed. Contrary to the prevalent stigma that AIDS is the disease of black heterosexual Africans, HIV/AIDS prevalence of 5.3% amongst whites has proven, when compared with infection rates in Europe (0.3%) or North America (0.6%), that HIV/AIDS constitutes also a general disease within the White community.
According to data from the Medical Research Council by 2010, approximately 6 Mio. South African will have died due to Aids related illnesses. Data of the Bureau of Economic Research suggests that HIV prevalence will peak in 2006 at 16.7% for the total population and 25.5% amongst the labour force. As the NMF/HSRC survey shows, there is currently no significant difference of those working or not working (14.2% vs. 12.1%). Particular sectors of the economy are the most vulnerable ones such as mining where HIV/AIDS prevalence is already at 35%. Equally high infection rates are known from the transport and educational sector.

The macro-economic impact

Already now, HIV/AIDS is reducing the economic growth rate by 0.3-0,4% p.a. (BER 2000).
In general, HIV/AIDS will reverse the progress in economic development particularly through the decline of life expectancy. Life expectancy for South Africans could even decline from 68.2 in 2003 to 48 years in 2010.

However, in general it is difficult to assess the macro-economic impact as a variety of factors are at interplay. In the context of current HIV/AIDS trends it depends on

  • the capacity to replace the lost manpower
  • the response by management
  • the effectiveness of government interventions
  • the availability of effective

Nevertheless, it seems predictable that direct and indirect costs related to HIV/AIDS might cause a shift from savings to current expenditure and from productive spending to potentially unproductive. This in turn will limit fixed investments and economic growth.

Also the reduction of high skilled labour might not be replaceable in the short run. A less experienced and particularly young workforce might result in declining productivity.

The economic impact on South African Business Considering that people at the peak of their productivity are most affected the crucial question in the economic context is,

  • what are firms doing,
  • how holistic is their approach towards HIV/AIDS prevention and mitigation and
  • what constraints are companies facing???

On company level HIV/AIDS poses a serious threat to profitability as well as to competitiveness.

Additional costs to the company occur through

1. absenteeism from work due to care giving needs in the family or funeral attendances,
loss of labour & productivity due to

  • associated illness
  • emotional & work stress
  • lower morale of infected and affected workers

2. increased costs of medical schemes of employees and pension benefits

3. loss of skilled manpower leading to
*disruption of production

  • lower company performance
  • increase of market wages for people with scarce skills

4. increase in training, recruitment and personnel turnover costs

Although shifts in demand for products due to changes in consumer spending have not been as noticeable as expected, those shifts or reductions can be expected when overall market demand will face a decreasing GDP growth rate. Particularly the consumer goods industry is likely to be the most affected due to the impact on demography of their markets and changing household spending patterns.

Analyzing the situation on company level it is encouraging to see that a number of companies have workplace policies in place (26%) or are at least aware of the need to respond. Nevertheless, the private sector could still do more.

Encouraging remains the initiative of certain companies to even extend programs to communities. Best practices have, inter alia been established by German car manufacturers such as BMW and Daimler Chrysler. With comprehensive tailor made programs designed to the needs of employees BMW, for example, motivated so far 89% of its employees for voluntary testing and managed to reduce STD/TB treatments from 15.6% to 7% within two years.

However, looking at the sector of small and medium sized enterprises (SMEs) it has to be noted that so far SMEs have not sufficiently shown a better understanding of businesses role and responsibility to prevent HIV/AIDS and to mitigate the impact of the disease (Fraser et al, 2002). A lack of leadership and funds corresponds with a lack of action. Surveys have shown that SMEs are not prepared to dedicate limited time for HIV mitigation activities unless they start to see tangible effects of the pandemic on their business. Most mitigation activities tend to be once of, informal attempts at education or awareness training. Few firms are implementing comprehensive activities starting with education and awareness building, leading to peer counseling or voluntary counseling and testing. Few firms equally have workplace policies in place that protect employees by confidentiality and non-discrimination.

The main constraints for SMEs to deal with the impact of HIV/AIDS seem to be

  • a lack of time by management which quite often prioritizes operational activities
  • a lack of information on how to address the issue
  • financial constraints to outsource

Therefore the challenge for NGOs, trade unions, bigger companies, government relies in finding means and methods

  • to reach out to SMEs
  • to get the latest cost-effective methodologies for developing workplace programmes
  • to disseminate those to SMEs

The South African Business Coalition on HIV/AIDS and German InWent have already started to reach out to SMEs with specific toolkits and capacity building programs for the formulation and implementation of an adequate workplace policy for SMEs.

However, considering the difficulties to reach out to and to change the mind-set of SME entrepreneurs the situation becomes even more challenging when one looks at the informal sector which according to 2001 estimates might currently employ 3.2 to 3.7 Mio people (Altmann, 2003).

But HIV/Aids infections also do not stop in front of state portals. According to survey results of a 2000 study conducted by the Centre for the Study of Aids, University of Pretoria, approximately 100.000 (10%) of all government servants are infected and deaths from the disease might rise to 250.000 by 2012 (Southern Africa Report, 2004).

Governments own casualties significantly highlight the need to think beyond common approaches. The fight against HIV/AIDS cannot be ascribed exclusively to a Department of Health. Each governmental department on national, provincial as well as on local level will have to manage to work with the impact in its own sphere and on its own public service delivery. New ways of teaching adapting to a rising number of orphans or children engaged in care giving need to be found. New schemes of housing supporting home based caretakers need to be developed and shifts within state bureaucracy will have to be accompanied by the necessary new political frameworks contributing towards a de-stigmatization of the disease. Only a holistic approach will make it possible to change towards a non-racial and socially inclusive mind-set within South African population and will create the necessary awareness so desperately needed.

Literature:

  • SABCOHA/BER: The economic impact of HIV/AIDS on Business in South Africa, 2003.
  • Nelson Mandela Foundation / Human Science Research Council: South African National HIV Prevalence, Behavioral Risks and Mass Media Household Survey, 2002.
  • Bureau for Economic Research: HIV/AIDS and the South African Economy, No. 8. 2000.
  • Medical Research Council: The Impact of HIV/AIDS on Adult Mortality in South Africa, 2001.
  • FK Fraser, WJ Grant, P Mwanza, V Naidoo: The impact of HIV/AIDS on small and medium enterprises in South Africa, in: The South African Journal of Economics, Vol. 70:7, December 2002.
  • “Shock AIDS disclosures”, in: Southern Africa Report, Vol. 22, N0 13, 2004.
  • M Altmann: The state of employment and unemployment in South Africa, in: HSRC (ed.), The State of the Nation 2003-2004, 2003.