| For more than a quarter century, December 1 is observed as World AIDS Day - an international campaign by the World Health Organization (WHO) to raise awareness on the AIDS pandemic that has since the early 1980s accounted for the death of at least 36 million people globally. According to the WHO, approximately 1.6 million people died of AIDS alone in 2012. Africa's more than 50 countries accounted for a disproportionate 75 percent of these deaths. They also hold about 65 percent of those living with HIV/AIDS, although home to only 15 percent of the world's population. With the world's fifth-highest HIV/AIDS prevalence rate, South Africa alone accounted for about 15 percent of deaths that year.
As the second-largest, and arguably the most developed economy in Africa, the country has been plagued by various internal and structural factors, hampering its growth outlook. This includes protracted industrial actions, an ongoing power crisis, an excessively high unemployment rate and wasteful public spending. With lethargic growth (less than 1.4 percent GDP growth) expected for South Africa in 2014, how will the country's HIV/AIDS rankings affect its growth trajectory?
By 2012, HIV/AIDS-related illnesses had caused about 6 million premature deaths in South Africa. In 2013, 31 percent of all deaths were AIDS-related. The good news is that since the country started implementing anti-retroviral treatment (ART) in 2004 the number of newly infected people annually has decreased by over 50 percent. In 1999, approximately 1,772 people were infected with HIV daily. In 2013, this decreased to 880.
This is largely due to an increase in the number of people receiving ART. The decrease in the number of daily infections can also be attributed to awareness campaigns urging people to "know your status" and to "get tested," and a corresponding increase in AIDS education in the hope of creating an informed citizenry. The HIV Counselling and Testing campaign launched in 2010 has resulted in 27 million South Africans being tested.
The UN has estimated that in 2013, over 6.4 million South Africans were living with HIV/AIDS. This means that approximately one in every eight South Africans is infected with the virus. The HIV/AIDS prevalence rate among adults is 17.9 percent. Individuals between the ages of 15 and 49 are the most at risk with an infection prevalence rate of 16.6 percent. This is also the country's most socio-economically productive age group which has direct implications on economic activity. As South Africa has one of the largest HIV treatment programs globally - keeping more HIV-positive people alive than any other country - the impact of HIV/AIDS on the economy is substantial.
Cost to economy
The cost of HIV/AIDS on South Africa's economy is difficult to quantify as the disease affects all aspects of life. In 2000 the World Bank estimated that South Africa's GDP in 2010 in a "no AIDS" scenario would be approximately 17 percent higher than in an "AIDS" scenario. It also estimated that the annual macro-economic cost of AIDS would reduce South Africa's GDP growth rate by around 0.4 percentage point. The country's 2013 growth rate of 1.89 percent was arguably significantly affected by HIV/AIDS.
Although South Africa has approximately 15.9 million registered taxpayers, the South African Revenue Service has released statistics showing that approximately only 10 percent of taxpayers pay up to 56.9 percent of the country's taxes, while 75.6 percent of the working population contribute 4.9 percent of personal income tax. As AIDS claims more lives, especially those of the economically active and working population, government income declines as tax revenues decrease. While there is an adverse impact on tax revenues, the HIV/AIDS pandemic also forces the state to increase its health expenditure.
The 2014-15 South African national budget allocates $13.02 billion toward healthcare (approximately 14 percent of the budget). Of this, $1.13 billion goes toward HIV. If South Africa is to keep the HIV-positive population stable at 5 million people in the period leading up to 2030, $102 billion will need to be spent - over $6 billion per annum - as estimated by the WHO. This will largely need to be spent on ART and other prevention campaigns. Research suggests that for every 1 percent increase in ART coverage, the risk of acquiring HIV declines by 1.4 percent. Without ART, the effects of HIV/AIDS are likely to completely cripple South Africa's economy within 100 years.
Healthcare expenses
In 2013, the cost of caring for South Africa's HIV-positive population equaled $1.4 billion. Of South Africa's HIV-positive population, 40 percent (2.4 million people) receive ART in the public sector. Private-sector figures are unknown. Hospitalization, primary healthcare and treatment cost approximately $568 per patient on ART per year. The cost for HIV-positive patients not on ART is significantly higher at $883 per patient annually. HIV-positive patients generally stay in hospital four times longer than other patients. It is estimated that HIV-positive patients will account for approximately 65 percent of South Africa's hospital expenditure.
Businesses and labor
The direct effect of HIV/AIDS on South Africa's GDP is difficult to measure due to the relationship between demand and supply. While South Africa has a labor surplus (the official unemployment rate is 25 percent), workers who die due to AIDS can be replaced, as cold as that may seem. However, South Africa's supply of human capital is not infinite. HIV/AIDS may decrease future labor supply through death and illness. The World Bank has reported that although not quantifiable, the accumulated loss of GDP per capita will be significant. Highly skilled labor may not be easily replaced in the short run, which will translate to declining levels of productivity. HIV/AIDS destroys human capital. By causing the death of young adults, the mechanism through which knowledge and skills are transferred across generations is severely weakened. Furthermore, the productivity of HIV-positive people is lower than those not infected due to heightened absenteeism, either because of illness or treatment.
The World Economic Forum's (WEF) Global Competitiveness Report 2014-15 ranks the business impact of HIV/AIDS in South Africa at 136 out of 144 countries, a slight improvement from 2013 where it was ranked 143 out of 148 countries. The only countries to score worse are Namibia, Chad, Botswana, Bolivia, Uganda, Malawi, Angola and Swaziland, in that order. In 2005, the WEF reported that HIV infection among employees may contribute as much as 6 percent to the annual wage and salary costs of firms.
Research has shown that South Africa's hardest-hit sectors are mining, transport, financial services and manufacturing. Approximately 35 percent of miners are HIV-positive. Mining and associated industries contribute about 20 percent of South Africa's GDP while metals and minerals make up about 60 percent of the export revenue. An estimated 60 percent of the mining force is between the ages of 40 and 60. By 2030, this is expected to decrease to 10 percent, resulting in the bulk of the mining force being very young and inexperienced or too old to be working. This is yet another challenge for the sector that has been riddled by industrial action in recent years.
Wellbeing of families
The World Bank has calculated that if South Africa's current infection rate remains stable, per-capita income could halve by 2100. It is estimated that each income earner in South Africa is likely to acquire an additional dependent within the next decade due to AIDS.
Children in child-headed households, where one or both of the parents have died due to AIDS, may be forced to drop out of school either due to a lack of funds or in order to care for their siblings. This has long-term ramifications for the level of skills in the country and undermines the basis for long-term economic growth. Poor households that care for a member with HIV/AIDS are often forced to decrease spending on other goods and necessities such as food and education in order to meet the health costs. Households are often pushed further into poverty, with HIV-related care absorbing approximately 30 percent of household income.
Looking ahead, while HIV/AIDS continues to have a significant impact on the South African economy, the adverse implications of the pandemic will require policymakers to juggle yet another ball in the quest for steering South Africa onto a more dynamic economic growth path going forward.
(Kira McDonald is an analyst at Frontier Advisory.) | 