The Macroeconomics of HIV/AIDS

05.06.2002 Africa Economic Summit 2002 Any discussion of the macroeconomic impact of HIV/AIDS has to deal with two key facts - the disease will take 11.7% off gross national product (GNP) growth in Africa over the next few years, and 20% of the adult population in the Southern African Development Community (SADC) region are HIV infected, said Alan W. Whiteside, Director, Health Economics and HIV/AIDS Research Division (HEARD), University of Natal, South Africa. Introducing the dinner discussion, he said HIV/AIDS has two major effects - on society in terms of the demands it makes on health and welfare services, and on humans in terms of manpower. All countries in southern Africa need more doctors, nurses and teachers, but the effects of AIDS mean there is now a decrease in supply. Another important macroeconomic effect of AIDS is the decrease in the number of taxpayers, said Whiteside. To start to tackle HIV/AIDS, countries need to put out the simple message of prevention, he added, but the reality is that they have failed to do this. Whiteside went on the say that governments face HIV/AIDS problems both internally and externally. Internally they have to find ways of handling their own staff who might be exposed to HIV/AIDS risks. Externally they need to look at measures such as tax breaks for companies providing HIV/AIDS education. Trevor Manuel, Minister of Finance of South Africa, said part of the problem in tackling HIV/AIDS is that "we are dealing with the great unknown" as reliable information on the issue is in short supply. He said the University of Stellenboschs Bureau for Economic Research (BER) has deduced that while the HIV/AIDS situation constitutes a negative situation, it is "far from being a doomsday scenario". Studies have shown that between the years 2002 and 2010, a quarter of a percent will be shaved off GDP each year, while between 2010 and 2015 this will be only half a percent. "We need to engage with that, but also remember we are not dealing with a doomsday scenario," said Manuel.

HIV/AIDS is not a notifiable disease and experts have recently confirmed that it shouldnt be, so the only real statistics are from ante-natal clinics, said Manuel. Extrapolating these is an unreliable exercise, he added. As policy-makers, government ministers have to deal with the situation as realistically as possible, and the South African government will not allow itself to be stampeded into policy. Even the BER research was based on two actuarial models that were designed primarily to inform risk assurers, rather than policy-makers, said Manuel. Most people agree that education is the most effective HIV/AIDS prevention method available and the South African government is spending most of its HIV/AIDS budget on education, said Manuel. He stated that if South Africas "ABC" campaign - abstain, be faithful, condomise - takes root among the population, the country will "see the HIV/AIDS curve begin to flatten and turn down". The availability of skills plays a role in the choices capital makes in deciding where it goes, and shortages aggravate the difficulties of attracting foreign direct investment, said Manuel. And if capital decides to move towards greater technology it has a further negative impact.

HIV/AIDS also has an effect on fiscal choices, with expenditure on health being forced up. In South Africa, provincial health budgets - which bear the brunt of the treatment and prevention burden - will be pushed up from R5.1 billion this year to R16.4 billion in 2005. Speaking on behalf of one of the discussion groups, Sakumzi Macozoma, Chief Executive Officer, New Africa Investments Limited (NAIL), South Africa, and a Global Leader for Tomorrow 1997, said it is clear the information available on HIV/AIDS is nowhere near sufficient for proper planning. The group felt that while prevention is important, it is also essential to resolve the "treatment debate" that has raged in South Africa. The group felt incentives are needed to encourage people to be tested and also suggested tax incentives to reward "responsible" behaviour. The discussion group headed by Elsa M. Tshatedi, Group Executive, Strategic

Resourcing, Transnet, South Africa, and including Luisa Dias Diogo, Minister of Planning and Finance of Mozambique, believed a very early start should be made in education, which would have an effect on both children and teachers. It was also reported that perceptions about AIDS are often worse than the facts when it comes to attracting foreign investment to a country. Partnerships with the media might be a good idea to disseminate correct information. The group headed by Manto E. Tshabalala-Msimang, Minister of Health of South Africa, and including Baledzi Gaolathe, Minister of Finance and Development Planning of Botswana, said that whatever the statistics are on AIDS, the effects are too great and need to be taken seriously. Nonetheless, the focus on AIDS should not make people forget about diseases such as malaria and TB which are also having a major impact on the economies of African countries. In terms of AIDS education, participants in the group suggested that the household should be the "entry point" for education intervention. The discussion group which included Nicholas K. Biwott, Minister of Trade and Industry of Kenya, said the AIDS issue demands unambiguous leadership and needs to be accorded the highest priority by governments. It said private companies have a role to play, particularly in helping to prolong the lives of AIDS sufferers in their employ.

The Macroeconomics of HIV/AIDS

Author: Publication Date: Shanta Devarajan 1 Dec 2004

Description: Press Release, WASHINGTON, December 1, 2004Policymakers and analysts looking to address the economic issues facing countries severely affected by HIV/AIDS must take into account the numerous social, economic and fiscal effects of the epidemic, warns a new research report released today. In the absence of any government intervention, the report cautions that an otherwise growing economy

severely affected by HIV/AIDS could contract to about one-third its size in three generations. Public intervention could prevent this, but it will have to be a substantial effort to the tune of 3 to 4 percent of GDP over and above what is currently being spent. The economic and social consequences of the increased mortality and morbidity associated with HIV/AIDS are serious and diverse, says Markus Haacker, primary author of the report and Economist at the International Monetary Fund.Economic growth slows for many reasons, most directly because the working-age population expands more slowly or contracts. But there is considerable uncertainty regarding the size of this effect, especially in the longer run. At the same time, the economic effects, from the individual and household perspective, are very diverse, with profound policy implications

The new report, The Macroeconomics of HIV/AIDS, analyses how HIV/AIDS adversely affects not only the accumulation human capital that is, peoples life skills, knowledge and experience built up over a period of years but also negatively affects physical capital, exacerbates poverty and inequality, debilitates welfare programs and impacts government finance and public services.

AIDS, like all causes of premature adult mortality, is also a potentially powerful generator of poverty and inequality, says Shanta Devarajan, co-author of the new research findings, and Chief Economist of the World Banks South Asia Region. AIDS does much more than destroy the existing ability and capabilitiesthe human capitalembodied in its victims; it also weakens the mechanism through which human capital is formed in the next generation and beyond.

The report notes the direct welfare effects of HIV/AIDS through increased mortality substantially outweigh even the worst projections of the impact on GDP per capita. HIV/AIDS also poses a tremendous challenge to governments facing severe epidemics