The impact of HIV/AIDS on the economy

The impact of HIV/AIDS on the economy

I talked about how formal education plays an important role in eliminating the risk of HIV infections. In this article, I take a look at the impact of HIV/AIDS on the economy.

How are they related?

The impact of HIV/AIDS on the macroeconomic environment takes two dimensions, namely the direct and indirect costs (Balyamujura et al, 2000: 14).

Direct costs are the costs of treatment associated with HIV related illness. They usually have serious implications for health care budgets, since the government has to pour out a lot of money to cover the growing population of the people infected and affected by HIV/AIDS – this may lead to the increase of taxes and/or cutting the budget of other departments to finance.

Indirect costs refer to loss of value of production, the loss of current wages, the loss of the present value of future earnings, training cost of new staff, high staff turn-over, cost of absenteeism, higher recruitment costs, the drainage of savings, amongst others. However, such indicators are very difficult to measure since they can also be affected by other factors in the economy.

ING Barings has identified seven ‘key impact channels’ that link the demographic effects of AIDS to the South African economy (2000):

  1. A lower labour force
  2. Lower labour productivity through absenteeism and illness
  3. Cost pressures for companies through benefit payments and replacement costs
  4. Lower labour income, as employees bear some of the AIDS-related costs
  5. Lower population translating into lower expenditure
  6. Increased private sector demand for health services
  7. Higher government expenditure on health services

‘The impact of HIV and AIDS on Africa’s economic development’ by Simon Dixon, Scott McDonald and Jennifer Roberts suggests that the HIV/AIDS pandemic has an impact on labour supply, through increased mortality and morbidity. It adds that this is compounded by loss of skills in key sectors of the labour market.

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 per employee in a Kenyan car manufacturing firm to $300 in the Ugandan Railway Corporation (Bollinger L, Stover J. The economic impact of AIDS. Glastonbury, CT: Futures Group International, 1999.)

An estimate increase of 3.27 million people with HIV between 2002 and 2018 in South Africa suggests that an urgent action towards prevention and treatment programmes and economic measures such as targeted training in skills needed in key industries is imperative.