The articles published in this Special Issue of the South African Journal of Economics address one of the most pressing challenges facing the world today: the global HIV/AIDS epidemic.   They were selected from some 25 papers presented at a unique symposium in Durban, South Africa, on the eve of the XIII International AIDS Conference in July 2000.   More than 80 researchers from around the world participated in the two-day symposium where the primary focus was the economics of the HIV/AIDS crisis in developing countries.

Some papers focused on the impact of AIDS-related illnesses at the macro, sectoral and household levels.  Others examined the differing costs of treatment and care at home and in district and national health facilities.  Still others presented new evidence on the cost-effectiveness of various approaches to prevention and treatment.  Both the written papers and the general discussions emphasised the enormity of the problem and the need to shape an effective public policy response to it.

The symposium was organised by the International AIDS Economic Network (IAEN) as part of its ongoing effort to help foster compassionate, cost-effective public responses to the HIV/AIDS epidemic through the creation and dissemination of relevant data, tools, and analysis.  The network focuses its efforts on low and middle-income countries, which face much more difficult choices than higher income countries in deciding how to allocate scarce resources in response to the epidemic.

The symposium and this volume were made possible through the co-operation of many organisations and individuals who support the goals of IAEN.   The network’s main sponsors, UNAIDS and the World Bank (through the Bank-Netherlands Partnership Program), provided crucial financial and logistical assistance.  In addition, staff at both institutions volunteered their time to select the most promising work from among more than 80 submissions sent in response to the IAEN’s call for papers.  Merck & Co. Inc. provided a crucial seed grant that served as a catalyst to mobilise support from other organisations.  The symposium itself was hosted by the staff of the Health Economics and HIV/AIDS Research Division of the University of Natal, at Durban.

This volume is the combined product of inputs made by presenters, discussants and participants at the IAEN symposium and extensive feedback given by a most diligent rapporteur, Amar Hamoudi.  Unfortunately it was not possible to publish all papers presented at the symposium due to space and deadline constraints.  The final selection was made on the basis of feedback received through the SAJE peer review process.   Selections do not necessarily reflect the views of the symposium sponsors. Additional information about the symposium is available through the IAEN web site: http://www.iaen.org

Of the eight papers published here, the first four examine the macroeconomic impacts of HIV/AIDS, with the first one focusing on the effects more generally, and the next three looking at the impacts in South Africa, Botswana and the Caribbean region.  A further two papers investigate, respectively, the productivity effects of AIDS among sugar workers in South Africa, and the sources of financial assistance for households suffering AIDS-related adult deaths in Tanzania.  The next paper studies the changing nature of HIV/AIDS transmission in Latin America, where the epidemic is spreading rapidly amongst the poor and policy responses need to be reviewed.   The final paper considers the cost effects of scaling up AIDS prevention and treatment activities in Sub-Saharan Africa.

Among the many individuals who contributed to the success of the symposium and publication of this special issue of the SAJE, a handful require special recognition.  The editors wish to thank Anita Alban, Martha Ainsworth, Julia Dayton, Lorna Guinness, Robert Hecht, Lawrence MacDonald, Jeffrey Sturchio and Alan Whiteside, for the efforts they made towards making the symposium and this volume a reality.

It is hoped that the papers presented here will contribute to increased awareness about the enormity of the socio-economic and human costs of the HIV/AIDS pandemic, and spur public and private initiatives aimed at preventing the spread of the disease and mitigating its impact, especially in Sub-Saharan Africa where it has reached alarming proportions.

Professor G. Mwabu,
Guest Editor,
University of Nairobi.

Dr D. Mahadea,
Guest Editor,
University of Natal.

Professor P. Black,
Managing Editor.

Infectious diseases matter greatly for Africa. Cross-country regressions for the 1990-97 period suggest that HIV/AIDS has reduced the rate of growth of Africa’s per capita income by 0.7 percentage points per year.  For those African countries affected by malaria, growth was further lowered by 0.3 percentage points per year.  Such reduction is large when compared with the historical growth of 0.4% achieved in 1990-97.  Various factors related to poverty, inequality, gender inequality, labor mobility and ethnic fractionalization have facilitated the rapid spread of HIV.  But what has enabled HIV/AIDS to undermine economic and social development is the erosion of some of the main determinants of economic growth such as social capital, domestic savings and human capital. Through such channels the HIV epidemic was transformed from a health issue into an economic disease that impairs economic and social development.  Because it prevents an increasing share of the population from participating in economic growth, the HIV/AIDS epidemic increases poverty.  The result is a vicious circle whereby HIV/AIDS reduces economic growth and increases poverty, which in turn accelerates the spread of HIV.  Without strong and immediate action, it will prove quite difficult to overcome the cost of inaction latter on.

In this paper, we report on the preliminary results from an analysis of the macro impact of HIV/AIDS in South Africa. We have constructed an economywide simulation model that embodies the important structural features of the South African economy, into which we have added major impact channels of the HIV/AIDS epidemic. Using available demographic estimates for the impact of the epidemic (on labor supply, death rates, and HIV prevalence) along with assumptions about behavioral and policy responses (household and government spending on health, slower productivity growth), we use the model to generate and compare two scenarios: a hypothetical "no-AIDS" scenario in which the economy continues to perform as it has over the last several years, and an "AIDS" scenario in which the key AIDS-related factors affect economic performance.

Focusing on the differential between the "no-AIDS" and "AIDS" scenarios, we find that the impact of the epidemic could be substantial. Over the 1997-2010-simulation period, GDP growth rates in the two scenarios diverge steadily, reaching a maximum differential of 2.6 percentage points. The result is a GDP level in 2010 that is 17 percent lower in the "AIDS" scenario; an alternative measure of "non-health, non-food absorption" is 22 percent lower by 2010. While some of this decline is due to the lower population associated with the "AIDS" scenario, per capita GDP does drop by around 8 percent. In fact, our simulations suggest that, despite the fact that AIDS impacts the high-unemployment unskilled labor category more than others, the net effect of higher AIDS-related mortality and slower growth is to leave the unemployment rate largely unchanged.

We also use the model to "decompose" the overall decline in growth performance into the contribution of the various channels. Given our current assumptions, the largest share (close to half) of the deterioration in growth is attributable to the shift in government current spending towards health expenses (which increases the budget deficit and reduces total investment), while an additional third stems from slower growth in total factor productivity (TFP). The decomposition illustrates the importance of considering the slow moving nature and hence long duration of the epidemic. If the epidemic imposes a drag on the rate of accumulation of knowledge (reduced TFP growth) or the rate of accumulation of capital (through a switch from savings to current expenditure), these effects become amplified over time. Over the course of a decade, the implications for macroeconomic performance are substantial.

Looking forward, our analysis suggests several avenues for further investigation. First, the parameters used in specifying the various AIDS effects are based on fairly limited empirical evidence, and it will be important where feasible to supplement these with additional data. For example, we have limited the impact of AIDS on household expenditure patterns to an assumed increase in health service spending, but there may well be other shifts that will occur and that could be incorporated, based on survey results. Second, there are important dynamic effects that are not yet included in the model: for example, lower private and government spending on education (because of higher AIDS spending) will slow down skills accumulation and change labor force growth rates. Third, consideration must be given to how to capture the impact of alternative "intervention" policies - for example, at present there is no feedback between possible government policies to slow the spread of AIDS, and the demographic (and subsequent economic) trajectory of the epidemic.

Finally, interactions between the epidemic and alternative growth and development strategies should be examined. We find that interactions with key economic features, such as the unemployment rate, do not necessarily conform to the results that one might expect from a casual analysis. And, key policy decisions, such as financing for AIDS related government expenditures, are shown to be very important. These results suggest that, while the human crisis appears to be practically unavoidable, appropriate economic policy measures have the potential to significantly palliate the negative economic effects of the epidemic. For the policy-making process, the slow moving nature of the epidemic needs to be borne firmly in mind. The AIDS crisis does not require the snap policy decisions of, for example, the Asia financial crisis. Instead, deliberate speed, careful planning, and competent execution by government and other actors could substantially ameliorate the economic aspects of the AIDS crisis.

This paper presents the results of a quantitative analysis of the likely impacts of HIV/AIDS on households in Botswana.   The analysis makes use of household and individual level data from a household income and expenditure survey (HIES) conducted in 1993/94.  Such an analysis is a necessary precursor to estimating the government budgetary requirements arising from HIV/AIDS.

Botswana has comparatively high levels of poverty in relation to its national per-capita income, despite a fall in national poverty rates during the last decade.  A study completed in 1996 attributed poverty in Botswana to the lack of access to formal sector jobs as a result of a narrow economic base and poor agricultural potential.  The study recommended a package of measures aimed at job creation, development of human capacity, and the provision of targeted social safety nets.

This analysis simulated the effect of imposing the 1998 HIV prevalence rates on the population and income earning structure represented in the 1993/94 HIES, and considered the income position after 10 years, when HIV infected people were assumed to have died.

One consequence of the high HIV prevalence in Botswana is that up to one half of all households are likely to have at least one infected member.  In addition, one quarter of households can expect to lose an income earner within the next 10 years.  As a result, the analysis predicted a rapid increase in the number of very poor and destitute households in the coming decade.

In aggregate terms, the analysis predicted an 8% fall in national household level per-capita income, and an increase of 5% in the number of people living in poor households.  Although overall measures of income inequality are unlikely to change significantly, the income and dependency ratios of the poorest households will significantly worsen.  Per-capita household income for the poorest quarter of households is expected to fall by 13%, while every income earner in this category can expect an extra 4 dependants as a result of HIV/AIDS.

This paper projects the impact the likely impact of HIV/AIDS on certain key macroeconomic indicators, and sectors for the economies of Trinidad and Tobago and Jamaica over the period 2000-2005, using a macro-econometric simulation model.  This model consists of five major blocks, with the behavioural equations formulated with the aid of a survey of adult sexual behaviour.   The model projects that over the period both countries will experience significant levels of decline in their macroeconomic indicators due largely to the impact of the epidemic on the effective labour force. In addition, the projected decline in the levels of production in the agricultural, manufacturing and services sectors is ultimately expected to result in reductions in overall GDP by 4.2 per cent and 6.4 per cent in Trinidad and Tobago and Jamaica, respectively.

Objective: To describe the economic impact of HIV on a cohort of male sugar mill workers from the perspective of industry.

Design: Retrospective cohort study done between 1991 and 1999 in a sugar mill employing 406 men in South Africa.

Methods: HIV prevalence was determined with a voluntary saliva based assay in January 1999.  Economic impact was determined retrospectively through clinic, insurance and employee records on those who presented to the occupational health clinic in the years 1991-1998.

Results: Between 1991-1998 97 HIV infected men were identified.   The median age at diagnosis was 40.5 years.  22 men (22.7%) died (7.5/100 person years observation) with a median age of 41.6 years.  23 (23.7%) retired through ill health and 56 remain alive and working.  This reflected 5.7% of the workforce lost due to HIV illness and 5.3% due to death caused by HIV.  Each HIV infected worker lost a mean of 55.45 days of work due to HIV in their last two years of employment.  This incurred economic costs of 8,463.73 Rand per worker. Sero-prevalence in January 1999 was 26.8% in this population.  Over the next 6 years the costs to the industry will increase 10 fold using the current prevalence of disease and cost data obtained.

Conclusion: HIV/AIDS is prevalent in this occupational setting, with a substantial burden of illness, ill health retirement and death already manifest.   In the next 6 years costs will increase at least 10 fold.  Further research on the impact of HIV in occupational settings is needed as the economic implications of HIV infection can impact decisions about prevention and therapeutic programs.