the economic impact of hiv/aid

HIV and AIDS affects economic growth by
reducing the availability of human capital. [1]
Without proper prevention , nutrition, health care
and medicine that is available in developing
countries, large numbers of people are falling
victim to AIDS.
People living with HIV/AIDS will not only be
unable to work, but will also require significant
medical care. The forecast is that this will
probably cause a collapse of babies and
societies in countries with a significant AIDS
population. In some heavily infected areas, the
epidemic has left behind many orphans cared
for by elderly grandparents. [2]
The increased mortality in this region will result
in a smaller skilled population and labor
force. [2] This smaller labor force will be
predominantly young people, with reduced
knowledge and work experience leading to
reduced productivity. An increase in workers’
time off to look after sick family members or for
sick leave will also lower productivity.
Increased mortality will also weaken the
mechanisms that generate human capital and
investment in people, through loss of income
and the death of parents. [2] As the epidemic
progresses, the age profile of those infected will
increase, though the peak is expected to stay
within the working age population. HIV
disproportionately infects and impacts on
women, so those sectors employing large
numbers of women e.g. education, may be
disproportionately economically impacted by
HIV [3]
Effect on taxable
population
By killing off mainly young adults, AIDS
seriously weakens the taxable population,
reducing the resources available for public
expenditures such as education and health
services not related to AIDS resulting in
increasing pressure for the state’s finances and
slower growth of the economy. This results in a
slower growth of the tax base, an effect that will
be reinforced if there are growing expenditures
on treating the sick, training (to replace sick
workers), sick pay and caring for AIDS orphans.
This is especially true if the sharp increase in
adult mortality shifts the responsibility and
blame from the family to the government in
caring for these orphans. [2]
On the level of the household, AIDS results in
both the loss of income and increased spending
on healthcare by the household. The income
effects of this led to spending reduction as well
as a substitution effect away from education
and towards healthcare and funeral spending. A
study in Côte d’Ivoire showed that households
with an HIV/AIDS patient spent twice as much
on medical expenses as other households. [4]
With economic stimulus from the government,
however, HIV/AIDS can be fought through the
economy. With some money, HIV/AIDS patients
will have to worry less about getting enough
food and shelter and more about fighting their
disease. However, if economic conditions aren’t
good, a person with HIV/AIDS may decide to
become a sex trade worker to earn more
money. As a result, more people become
infected with HIV/AIDS.
Relationship to GDP
UNAIDS, WHO and the United Nations
Development Programme have documented a
correlation between the decreasing life
expectancies and the lowering of gross national
product in many African countries with
prevalence rates of 10% or more. Indeed, since
1992 predictions that AIDS would slow
economic growth in these countries have been
published. The degree of impact depended on
assumptions about the extent to which illness
would be funded by savings and who would be
infected. [4]
Conclusions reached from models of the growth
trajectories of 30 sub-Saharan economies over
the period 1990–2025 were that the economic
growth rates of these countries would be
between 0.56 and 1.47% lower. The impact on
gross domestic product (GDP) per capita was
less conclusive. However, in 2000, the rate of
growth of Africa’s per capita GDP was in fact
reduced by 0.7% per year from 1990–1997 with
a further 0.3% per year lower in countries also
affected by malaria.
The macroeconomic effects of HIV/AIDS in
Africa are substantial, and policies for
dealing with them may be controversial—
one is whether expensive antiretroviral
drugs should be targeted at economically
productive groups of people. The authors
review the evidence and consider how
economic theory can contribute to our
response to the pandemic
Three million people died from AIDS in
2001, making it the world’s fourth biggest
cause of death, after heart disease, stroke,
and acute lower respiratory infection.
Over 70% of the world’s 40 million people
living with HIV/AIDS are in Africa (table
1 ). Besides the human cost, HIV/AIDS is
having profound effects on Africa’s
economic development and hence its
ability to cope with the pandemic. While
the impact of HIV/AIDS on people has
been well documented, it has been much
more difficult to observe the pandemic’s
effects on the African economy as a whole
or to assess how it might affect Africa’s
future development. Nevertheless we
need to understand these broader
economic effects to form effective policy
responses.
Summary points
Economic research helps to estimate the
effects of HIV/AIDS on the African
economy and the cost effectiveness of
prevention and treatment programmes
Economic theory predicts that HIV/AIDS
reduces labour supply and productivity,
reduces exports, and increases imports
The pandemic has already reduced
average national economic growth rates
by 2-4% a year across Africa
Prevention and treatment programmes
and economic measures such as targeted
training in skills needed in key industries
will limit the economic effects of HIV/
AIDS
Table 1
Numbers of people (millions) worldwide
living with HIV or AIDS in 2001
Methods
We used economic theory to predict what
happens to economies faced with rapidly
increasing mortality and morbidity. We
reviewed empirical studies that have
attempted to quantify the macroeconomic
effects of the HIV/AIDS pandemic. We
found these studies by searching EconLit,
Medline, PubMed, Embase, science and
social science citation indexes, and key
websites (International AIDS Economic
Network, UNAIDS, the World Bank, and
the World Health Organization). We also
contacted key researchers, and we did a
secondary search of the bibliographies of
all the studies we found. Unfortunately
there have been few studies of the
macroeconomic implications of the HIV
pandemic and few economic evaluations
of interventions to combat the disease.
Economic effects
Reduced labour supply
The HIV/AIDS pandemic has an impact on
labour supply, through increased
mortality and morbidity. This is
compounded by loss of skills in key
sectors of the labour market. In South
Africa, for example, around 60% of the
mining workforce is aged between 30 and
44 years; in 15 years this is predicted to
fall to 10% (R Elias, University of
Botswana, personal communication, 2000)
(figure). In the South African healthcare
sector 20% of student nurses are HIV
positive.
Reduced labour productivity
The long period of illness associated with
AIDS reduces labour productivity. One
review reported that the annual costs
associated with sickness and reduced
productivity as a result of HIV/AIDS
ranged from $17 (£12; €19) per employee
in a Kenyan car manufacturing firm to
$300 in the Ugandan Railway
Corporation. These costs reduce
competitiveness and profits. Government
incomes also decline, as tax revenues fall,
and governments are pressured to
increase their spending, to deal with the
rising prevalence of AIDS, thereby
creating the potential for fiscal crises.
Reduced exports and increased imports
Lower domestic productivity reduces
exports, while imports of expensive
healthcare goods may increase. The
decline in export earnings will be severe
if strategic sectors of the economy are
affected, such as mining in South Africa.
Consequently the balance of payments
(between export earnings and import
expenditure) will come under pressure at
the same time that government budgets
come under pressure.