Macro-Economic Effects and The Implications For Government

In the study conducted to quantify the economic impact of HIV in the Ethiopian economy, Zerfu 2002, uses three approaches. The first approach uses the direct method of average productivity to estimate output lost. The second approach estimates medication cost using average cost per AIDS patient. The third approach is a counterfactual simulation analysis using a macro-econometric method. The

result shows that output loss to be in the range of 0.5% to 1% while the medication cost ranges from 3.2% to 6.4% of GDP in 1999/2000. From the counterfactual analysis it can be discerned that the prevalence of HIV/AIDS has a negative impact on the overall economy. The decline in the labor force has a direct negative impact on both the output of the agricultural and non-agricultural sectors that would lead to the fall in private consumption, investment, exports and government tax revenue.

The slow down of the economy would also be strengthened with the fall in imports due to the decline in exports and hence the shrinking down of the importing capacity( Zerfu 2002:12).

The agricultural and the non-agricultural output would decline by approximately 2%

and 1.8% on average during the forecast period as compared to the base run. As a result of the fall in output, private consumption, investment, exports and government tax revenue would decline by 1.9%, 2.4%, 3% and 8%, respectively. The decline in government revenue would in turn put a downward pressure on government expenditure and hence it would decline by 6.7% on average. Exports would decline by 3% in the simulation period. This would have a direct repercussion on imports by lowering the availability of foreign exchange. The result shows that consumer imports and capital and raw material imports would on average fall by 3.9% and 2%, respectively, in the alternative scenario. The fall in capital and raw material imports would on average diminish the capacity utilization rate by 0.6% (Zerfu 2002:12).

According to UNAIDS, if Ethiopia is to adequately care for all the AIDS patients the required health expenditure will rise by $USD 74 to 121 million. This is an additional three to five dollars in per capita income that the country does not have and need to get from foreign sources. (Nega 2001:9) UNAIDS projections show that the per capita income growth of Ethiopia will be reduced by 0.6% by the year 2010. This is a significant loss for Ethiopia because this amounts to a loss of sixty birr in per capita income by the year 2010 amounting to over 4.8 billion birr in total income. As stated above, the mean expenditure for treatment will reduce national savings. This would certainly lead to a reduced investment thus reducing economic growth. In terms of foreign exchange allocation, if the country spends the required amount of money to import drugs to treat all AIDS patients, it would severely affect the foreign exchange of the country (Nega 2001:9).

The prospect, then, for high-prevalence economies like Ethiopia is a much lower GDP, employment growth rates and declines in output per head and average earnings. Moreover, poverty is likely to increase as a result of the impact of HIV/AIDS. The epidemic creates a vicious cycle by reducing economic growth, which leads to increased absolute poverty, which, in turn, facilitates the rapid spread of AIDS as household expenditure on health and nutrition declines, thereby reducing resistance to opportunistic infections.

Taking into consideration the large number of people infected as well as those affected by the epidemic, according to the Ministry of Health, the degree of impact of the epidemic will be much higher in Ethiopia compared to other Sub-Saharan African countries due to the large population and high levels of poverty (HAPCO 2006:14). Therefore the epidemic creates a great threat to the overall development efforts of the country.

Concluding Remarks

Ethiopia is one of the poorest countries in the world. The HDI for Ethiopia is 0.371, which gives Ethiopia a rank of 170^th out of 177 countries.

In Ethiopia there are indigenous systems of governance, which constitute some component of good governance incorporating elements of accountability, transparency, participation, legal and judicial framework and coordination and control in their system of governance. However, since the state is composed of a dominant ethnic and cultural core, the dominant group will influence the potential relationship between democratization and political culture. In this respect, the values and structures of the state of Ethiopia have been closely associated with the northern highlands, particularly with the Abyssinian, or Amhara/Tigrayan, socio-political tradition, which in many ways favor not democratization, but the perpetuation of hierarchy and authoritarianism at every level of society. This provides the context for the formation of the dominant trends in the political culture of contemporary Ethiopia.

Important measures related to the promotion of good governance have been taken since 1991. The FDRE Constitution adopted a multi-party parliamentary system of

government and recognizes most of the human rights proclamations in international law. In addition, the government has further ratified a number of international human rights instruments, reforming domestic laws to harmonize with international human rights standards by emphasizing good governance in different policies and programs. Despite this fact, progress made regarding good governance is at early stage of development. The limited democratic culture and experience in the country, limited participation of citizens in governance, lack of adequate and appropriate laws and policies in some areas, capacity limitations of law enforcement and governance organs of the government and lack of adequate awareness about human rights among the public pose challenges in realizing democracy and human rights.

Ethiopian history has been marked by underdevelopment, poverty and an exploitative economic system. The Ethiopian modern sector of the economy consists of a large service sector and a small industrial base. Almost half of the population lives in absolute poverty. The economy is dependent on rain-feed agriculture. Food security is a major challenge for the Ethiopian population. The standard of living of the population measured in terms of income, nutrition level, education enrollment, access to basic facilities such as health and sanitation services, safe drinking water, physical and communitarian structure is at a very low level. In fact, in some ways, it has deteriorated because the minor improvements in the past have go down due to recurrent drought and famine, population growth and high HIV/AIDS prevalence.

Ethiopia is amongst the Sub-Sahara African countries worst affected by the prevalence of HIV/AIDS. There are many factors that promote the spread of the disease in Ethiopia including the presence of sexually transmitted infections, gender inequality, multiple sexual partners, prostitution, men with disposable incomes, alcohol, unsafe blood transfusion, and transmission from infected mothers to their fetus/child during pregnancy, delivery and breast-feeding and harmful traditional practices.

HIV/AIDS is not only a health issue but also a development challenge the country is facing today. It has impacted the population and labor force, human capital, enterprise, agriculture, health sector, and the macro-economy of the country. In general, the epidemic has had a serious impact on the efforts to reduce poverty.