The Economic &

Demographic Impact of HIV/AIDS

in South Africa

HEARDThe Health Economics & HIV/AIDS

Research Division

University of Natal, Durbanwww.und.ac.za/und/heard

Presentation Structure

• HIV/AIDS in South Africa

• The Demographic Impact

• Economic Impact

• Social Impact

• The Impact on Democratic Governance

• Summary and Conclusions

• An action agenda

HIV/AIDS in

South Africa

Provincial HIV prevalence:Antenatal clinic attendees

0

5

10

15

20

25

30

35

40

94 95 96 97 98 99 '00

year

poi

nt

pre

vale

nce

rat

e (%

)

KwaZulu-Natal

Mpumalanga

Free State

North-West Province

Gauteng

South Africa

Eastern Cape

Northern Cape

Northern Province

Western Cape

Source:National HIV and Syphilis Sero-Prevalence Survey of women attending Public Antenatal Clinics in South Africa 2000.

HIV prevalence by age groupANC attendees, South Africa

0

10

20

30

40

<20 20-24 25-29 30-34 35-39 40-44 45-49

age group (years)

HIV

pre

vale

nce

rate

(%)

1996

1997

1998

1999

2000

Source:National HIV and Syphilis Sero-Prevalence Survey of women attending Public Antenatal Clinics in South Africa 2000.

HIV Positive South AfricansA projection

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

1995 2000 2005 2010

years

popu

latio

n

Source: Metropolitan Life

Demographic Impact

A model of futureAIDS and non-AIDS Deaths

0

200000

400000

600000

800000

1000000

1200000

1995 2000 2005 2010 2015

year

num

ber

of d

eath

s

Other deaths AIDS Deaths

Forecast Mortality

0.00

0.01

0.02

0.03

0.04

0.05

0.06

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

age group (years)

prop

ortio

n of

age

coh

ort No AIDS AIDS 1995

AIDS 2000 AIDS 2010

Source: Metropolitan Life

Projected AIDS Orphans

Source: Metropolitan Life

Economic Impact

Pathways to Economic Impact

MORTALITY

MORBIDITY

Smaller population

Change in age structure

INDIVIDUAL

FIRM/SECTOR

GOVERNMENT

MA

CR

O-E

CO

NO

MY

HOUSEHOLD

LABOURMARKET

AIDSAIDS

HIVHIV

Productivity

Individual level

• Incubation period – 5-8 years from infection until the onset of

AIDS– very little economic impact during this time

• AIDS– Period of escalating illness – Ability to work is reduced– The cost of care increases

Household level

• Due to the sexual nature of transmission often more than one household member is infected.

• Infections are concentrated among the primary carers and earners

• Double impact of reduced income and increased costs of care

Household level cont.….

• Less money available for other consumption

• Increased need for care diverts time and effort from other tasks – children, often girls, may be removed from school

to provide care or generate income

• Death(s), often multiple, lead to funeral costs which are usually large

• Disaving may result

Impact of HIV/AIDS in urban households, Côte d’Ivoire

Impact of HIV/AIDS in urban households, Côte d’Ivoire

General populationGeneral population Families living with AIDSFamilies living with AIDS

Source: Source: Simulation-based on data from Bechu, Delcroix and Guillaume, 1997Simulation-based on data from Bechu, Delcroix and Guillaume, 1997

Monthly income per capitaMonthly income per capita

Monthly consumptionper capitaMonthly consumptionper capita

00

5 0005 000

10 00010 000

15 00015 000

20 00020 000

25 00025 000

– 5 000– 5 000

30 000 Francs CFA30 000 Francs CFA

Savings/DisavingsSavings/Disavings

Labour Market

• AIDS impacts on sexually / economically active population

• AIDS related illness leads to:– reduced productivity due to absenteeism, high

turnover etc

• AIDS related death leads to:– change in labour force and labour participation

– change in age structure of labour force

– change in available skills and experience

Company costs

Negative effect on production costs, production process, demand for capital/labour, output prices and competitiveness

Progression of HIV/AIDSin the Workforce

Economic Impact on the Company

Morbidity begins

Employee becomes infected

Employee leaves workforce (resigns or dies)

Company hires replacement employee

No costs to company at this stage

Morbidity-related costs are incurred(e.g. absenteeism, individual & workforce productivity, management resources, medical care & insurance)

Termination-related costs are incurred(e.g. payouts from pension or provident fund, funeral expenses, loss of morale, experience, & work-unit cohesion)

Turnover costs are incurred (e.g. recruiting, training, reduced productivity)

Timeline

Year 0

Year 1-5

Year 6or 7

Year 7 or 8

Different costs for companies

Medical care4%

Turnover*22% Absenteeism

34%

Productivity loss40%

Absenteeism14%

Productivity loss7%

Retirement/disability

62%

Turnover*17%

Company A Company B

Artisans, Males 35-49

*Recruitment, training, vacancy

Center for International HealthBoston University School of Public Health

Different costs for companies Company A

Defined benefit pensionfund

No cap on disability/death benefit premiums; benefits are stable

Medical aid coverage for all employees

Large investment in recruitment and training

More capital-intensive; productivity of labor and salaries are higher

Unskilled tasks done by permanent employees, not contract workers (employees receive full benefits)

Company BDefined contribution provident fund

Disability/death benefit premiums capped; benefits will fall

Most employees use company clinics

Modest investment in recruitment and training

More labor-intensive; productivity of labor and salaries are lower

More reliance on contract labor for unskilled tasks (contract workers receive fewer benefits than permanent staff)

Consumer Markets

• The absolute number of consumers will be reduced from what it would have been

• The age structure of the market will change• The structure of demand will also change

– e.g. increase in demand for medical goods and services

• Consumption in South Africa is, however, constrained more by spending power than consumer numbers. Who is infected will play a major role in determining the degree of impact

Sectoral Impact

• Impact will vary in degrees across sectors– Some sectors are susceptible to infections– Others are vulnerable to the impact– Those sectors that are both vulnerable and

susceptible will be the most seriously hit

• The impact on critical sectors in the economy will play a major role in determining the macroeconomic impact

Government Finance

• Increased demand on government services– Health– Welfare– Poverty reduction

• Although demand will increase, the level of spending on services will be determined by policy decisions

Macroeconomic impact

Impact mostly due to:

• reduced productivity and increased costs for companies

• reduction in household income due to increased AIDS-related expenditure

• increase in government budget deficit due to increased health spending

2010 2015 2010 2015ING Barings* -0.3 -0.3 -2.0 -2.8Channing & Lewis -1.6 - -17 -ABSA* -0.7 -0.8 -5.9 -9.6Abt Assoc.* -0.4 to -0.2 - -5.4 to -2.1 -

% point difference in annual GDP growth rates

% difference in real GDP level

Social Impacts

Systems • Health care

– Increased demand

– Decreased ability to offer services as a result of staff loss

– Crowding out

– Similar impact on Welfare services

• Education– Reduction in demand

– Greater reduction in ability to offer services

Socialisation • Psychological impact on children

– Parental illness and death

– Educators illness and death

– Increased death in the community

• Care of orphans– The need to care for orphans will increase

– Ability of traditional arrangements to cope will be eroded

• Most important long term impact

HIV and Poverty

• Poverty can lead to behaviour which results in increased risk of infection

• HIV increases poverty

• However, the relationship is not a simple one, as increased resources may increase access to sex

HIV/AIDS & Democratic Governance

Impact of HIV/AIDS on Democratic Governance

• Rule of Law & Human Rights affected

• Decreased citizen involvement with DG

• Decreased citizen compliance

• Decreased citizen support for DG

• Credible & competitive political processes affected

• Development of civil society hindered

Impact of Democratic Governance on HIV/AIDS

• Government legitimacy/effectiveness

• Public compliance

• Public awareness

• Social-cultural factors arising from a democratic environment

Summary and Conclusions

Conclusions

• HIV has already reached very high levels in South Africa and is set to rise for a few more years

• The resultant increase in death will change the structure of the population

• Households and individuals will feel the greatest economic impact

• The impact on companies and sectors will vary • The macroeconomic impact will be felt in the long

term

Conclusions…..• Health care, welfare and education systems will be

adversely affected • HIV/AIDS is the single greatest threat to

development in South Africa• Our greatest concern is the impact that HIV will

have on our children • Innovation in, and commitment to fighting this

problem are required to reduce the impact on this and future generations

An Action Agenda

There are no:– Simple solutions– Short term solutions– Technical/medical solutions– Imposed solutions– Money is not the answer– Drugs are only part of the answer– A multisectoral response is needed