HIV/AIDS and Economic Development

The negative effects of infectious diseases on economic productivity include a decrease of the GDP, government expenditure per capita, and in the productivity. It will result in labor shortages and increased absenteeism, higher living costs,

particularly for the poor, dwindling per capita incomes, reduced savings, and an increase in income inequality within a society that may in turn increase governance problems.

In the worst-hit countries with adult infection rates of 20% or more, the epidemic will have far-reaching effects. By 2020, HIV/AIDS is expected to have caused a 10% to 30% reduction in the labor force in high prevalence countries. (Franklyn 2002: 2) A major adverse impact on GNP is expected from the HIV/AIDS pandemic. If the HIV prevalence in a country reaches 5%, this may be enough to cause an annual decrease of the GDP of 0.4%. If it reaches 15%, a country can expect to lose more than 1% of its GDP per annum. (Andersen et al. 2002:6) AIDS consumes more than 50% of health budgets of the hardest-hit countries. (CIA 2000) With an infection rate of 20%, in fifteen years’ time, countries in Sub-Saharan Africa will have suffered a slump in their national incomes of 67%. (UN 2005:63)

John Cuddington has projected that HIV/AIDS alone will have reduced the Tanzanian GDP until 2010 by 15 to 25 percent and he expects the per capita income to have fallen up to 10 percent by the year 2010. (Cuddington 1993:186) If many states within a region (like Sub-Saharan Africa) are similarly affected, the net effect will be the underdevelopment of the region as a whole, which in turn imposes a net drag on global economic productivity and trade. The cumulative impact of HIV on the total size of economies is even greater. It is estimated that by the beginning of the next decade, South Africa, which represents 40 percent of Sub-Saharan Africa’s economic output, is facing a real gross domestic product 17 percent lower than it would have been without AIDS. Because South Africa is the largest and most dynamic economy on that continent, this will have important knock-on implications for the region as a whole. For other very badly-hit countries, such as Zimbabwe and Botswana, the impact will be comparable. In Ethiopia, the pandemic will worsen rural food insecurity. The private sector will be hit hard, and international investments will be deterred. Return on investment will decline while its risks increase (Andersen et al. 2002:6).

It is certain that HIV/AIDS contributes to corruption. Individuals who know they are HIV positive tend to seek illegal sources of income, to finance their treatment, and to ensure that their families are catered. People may be ready to tolerate extreme abuses of power, or engage in high-level corruption themselves, leading to

the effective dismantling of entire institutions, to serve their own or their families’

interests (Waal 2001:2) .

AIDS mortality will have major negative implications for the workforce, and will entail a sharp decline in education, health care, government capacity, and industrial skills. The reduced working-life expectancy of skilled workers and professionals implies a major increase in training costs and a loss of skilled workforce at a time when higher educational levels are most needed for integration into the global economy. An assessment of six companies in Kenya and Botswana in 1994, early in the epidemic, shows that absenteeism accounted for between 1% and 9% of lost profits. (ILO 2004: 18) The ILO estimates that in 2005, 2 million workers globally were unable to work due to HIV/AIDS. By 2015, the number will double to 4 million. According to ILO, it has been noted that other economically active workers will be forced to shoulder an increased economic burden as a result of their colleagues dying of HIV/AIDS. Their workload is estimated globally to be 1%

greater in 2015 than it would have been without HIV (5% greater in Sub-Saharan Africa). (Girma et al. 2004: 20) Soldiers are one of the occupational categories most afflicted by the HIV/AIDS pandemic. Spending on health care for soldiers and their families, and on their pensions, will consume an ever larger proportion of the defense budget. (Waal 2001:2)

Improving public health contributes to the economic productivity of a society. This growing “economic capacity” may in turn be channeled back into public health infrastructure to create a positive feedback loop. (Smith 2001: 80) A strong health system is a vital component in any country’s response to AIDS and a key stepping stone to development. Yet, in the hardest-hit countries, the epidemic undermines health services in a different ways. The epidemic places unprecedented burdens on the scarce healthcare resources that currently exist. For example, Botswana lost approximately 17% of its health-care workforce due to AIDS between 1999 and 2005. In Zambia, an estimated 40% of midwives in Lusaka are believed to be HIV-positive (ILO 2004). 16% of a sample of public and private health-sector workers in four South African provinces lived with HIV in 2002, among younger health workers between 18 and 35 the estimated prevalence rate was 20% (Shisana et al.

2004). The epidemic is placing unprecedented burdens on the scarce health-care resources that currently exist. People with HIV-related diseases occupy more than half of all hospital beds in Sub-Saharan Africa. Excessive workloads, compounded

in many cases by the fear of infection due to the absence of standard infection-control practices in many health-care workplaces, cause many to leave the health profession. (UNAIDS 2006:95) AIDS increases the requirement of health care resources. These resources have to be detracted from other uses within the health sector, or obtained from outside it, in order to be allocated to the care of AIDS patients. Preventive measures not directly involved in treating AIDS patients, include the screening of blood donations, the generalization of the use of rubber gloves by health personnel, and general preventive activities undertaken by the health sector. AIDS poses important resource requirements on the public and voluntary welfare services, especially on personal social services and income maintenance programs such as sickness subsides. Effective HIV intervention requires intensive programs of counseling, testing, public education, and supervision of treatment to ensure its effectiveness and to minimize the chances of resistance.

These interventions require technical and managerial skills and training (Schwefel et al. 1990:51-52).

HIV/AIDS generates an economic shock to the household which changes savings and consumption patterns, erodes aggregated household wealth, and necessitates significant labor substitution. (Waal 2001:3) The HIV/AIDS epidemic will have a large impact on the supply of human capital as it affects the education sector in four ways. Firstly, it reduces the supply of experienced teachers. Secondly, the rising levels of infectious disease also decrease incentives to invest in child education, as the children must spend more time working to support debilitated or bereaved family members. Thirdly, children may drop out of school if their families can no longer afford the school fees due to their reduced household income as a result of deaths. Problem number four is the rate of teenage children infected with HIV. As a result, the number of children in school is falling. (Lori et al. 1999: 9) This will affect the supply of human capital in the long run.

Life insurance is one of the economic activities that may experience the biggest impact. Tourism to areas with a high prevalence of AIDS may go down. It is apparent that AIDS is changing social values and attitudes towards some types of behavior, patients and risk groups. The degree of acceptability of homosexuality and drug addiction, sexual freedom, intimacy and individual rights may be some of the areas where AIDS can produce far reaching changes. (Schwefel et al. 1990:53) All

of these effects, taken together, demonstrate how the global resurgence of infectious disease is likely to produce negative outcomes for the prosperity of states.

Disease may magnify deprivation and accelerate the erosion of state capacity in seriously affected societies. Thus, infectious disease may in fact contribute to societal destabilization and to chronic low-intensity intra-state violence, and in extreme cases it may accelerate the processes that lead to state failure. This is, of course, consistent with the finding that states with low endogamies capacity should be more vulnerable to stressors on their economies and institutions of governance.

Thus, the proliferation of infectious disease directly threatens institutions of governance in the developing countries and raises the probability of intra-state violence in seriously affected regions. (Smith 2002:121-122)

Furthermore, the observed negative empirical association between disease and state capacity holds at the state, regional, and global levels and over time. The study conducted by Andrew Smith indicates that the disease-induced mortality tends to have a greater long-term effect on state capacity over the 15-year period. Disease will reverse development gains in seriously affected states. The prevalence of infectious diseases will destabilize countries with lower initial state capacity more than states that currently exhibit high state capacity. The resultant disease-induced poverty and general human misery may exacerbate relative and absolute deprivation. As a result, this situation may exacerbate pre-existing societal tensions, and may at the same time contribute to increased criminal activity, low intensity intra-state violence, and, in certain extreme cases, to the collapse of effective governance (Ibid: 68) .

Epidemics have contributed to the collapse of governance of regions, kingdoms and states at all times. Because of the negative association between infectious disease and state capacity, diseases are a threat to international economic development and to effective governance at the state level. In his book “The Health of Nations:

Infectious Disease, Environmental Change, and Their Effects on National Security and Development”, Andrew Smith speculates that the growing destabilization of Sub-Saharan Africa may in part be due to the exceptionally high number of epidemics in the region, particularly HIV/AIDS, tuberculosis, and malaria. Indeed, the extreme and persistent governance problems in the Great Lakes region of central Africa may be related to increasing disease-induced stress on state capacity (Smith

2002:177). Therefore, this supports the argument that the destabilization impact of HIV/AIDS on governance as well as state capacity.