The implementation of a large-scale anti-retroviral treatment (ART) programme will not only extend the lives of HIV-positive South Africans, but will also significantly reduce the adverse economic consequences of the HIV/Aids epidemic.
This is according to an in-depth study of the macro-economic impact of HIV and Aids in South Africa under alternative treatment scenarios. The research has been conducted by the Bureau for Economic Research (BER). The study was commissioned by the Joint Economics, Aids and Poverty Programme (JEAPP) with funding from the Department for International Development (DFID) and the United States Agency for International Development (USAid).
Demographic projections show that the introduction of ART (with 50% uptake) could reduce the number of HIV/Aids deaths by around 100Â 000 per year between 2008 and 2010. However, since ART is ultimately not a cure for the virus, this “saving” could narrow to 35Â 000 per year by 2020.
The simulation results from different scenarios indicate that the HIV/Aids epidemic will have a negative impact on overall economic growth in South Africa. In the absence of ART, the rate of GDP growth could fall from a projected average of 4,4% over the period 2000-2020 to 4% per year due to the HIV and Aids. BER’s simulation results suggest that the South African economy will be 8,8% smaller by the year 2020 than it would have been without HIV/Aids.
In contrast, the level of per capita GDP is projected to be about 8% higher (in real terms) by 2020, as the adverse impact of the epidemic on the size of the population will outweigh the negative impact on real GDP.
These projections are notably less alarming compared to the 2003 study by Bell, Devarajan and Gersbach from the World Bank. According to their study, assuming full employment and that no remedial action is taken by society, the impact on economic growth in South Africa would be devastating.
However, according to Professor Ben Smit, director of the BER, the assumption of full employment is not realistic for the South African economy, which is characterised by high unemployment levels.
“Given that HIV/Aids is more concentrated among the semi- and unskilled sections of the labour force in South Africa and the fact that these workers can be replaced comparatively easily from the large pool of unemployed workers in these skill categories, the economic impact of HIV and Aids could be less pronounced than suggested by studies that assume full employment,” said Smit.
Furthermore, according to Smit, previous studies on the economic impact of HIV and Aids around the globe have often ignored the fact that expenditure on health care products and services (by the government and the private sector) also contribute towards a country’s gross GDP, resulting in overly pessimistic projections of the impact of HIV and Aids on overall economic growth in South Africa.
In November 2003, the South African Cabinet approved the Operational Plan for Comprehensive HIV and Aids Care, Management and Treatment for South Africa — the largest and most ambitious project of its kind in the world, which included the roll-out of a large scale ART programme to patients with low CD4 counts.
Although a number of company studies have concluded that the benefits of providing ART outweigh the cost of treatment, particularly for large firms, previous studies on the macroeconomic impact of HIV/Aids in South Africa did not consider the economic implications of a large scale ART programme.
The results of the BER study suggest that the provision of ART with a 50% uptake could reduce the impact of HIV and Aids on economic growth by, on average, 17% between 2000 and 2020, or from a projected impact of -0,46% to -0,38%. Their results also show that, on a macroeconomic level, the benefits of providing ART (in terms of economic growth “saved”) far outweigh the costs.
According to Smit, “The positive GDP impact follows primarily from the impact of the ART programme on the size and the health of the total population and the labour force — a larger and healthier labour force relative to the Aids no-ART scenario implies higher labour productivity, lower HIV and Aids related indirect costs and higher potential output, which translates into lower pressure on capacity utilisation and hence, lower inflation and interest rates.” Relatively lower interest rates, in turn, stimulate consumer spending and fixed investment, while population sensitive variables like residential investment also benefit from the relatively higher population.
The BER’s results suggest that while the magnitude of the impact on overall economic growth does not appear to be alarming, the macroeconomic projections may conceal more negative impacts on certain sectors of the economy. The analysis shows that the general government, water and electricity, mining, metals and machinery and electrical machinery sectors are relatively seriously exposed to both supply side risk (ie. high HIV prevalence and relatively high skills intensity) and demand side risk (stemming from the impact of HIV and Aids on intermediate and final demand and exports).
In contrast, sectors with low overall risk include community, social and personal services, clothing and textiles, agriculture and construction.
In conclusion, the results from the BER’s macroeconomic impact analysis indicate that HIV/Aids will undoubtedly have a negative impact on economic growth in South Africa. However, the provision of ART will ameliorate this impact and it is important to note that the country is not faced with a doomsday scenario.
The economic impact of the epidemic will manifest gradually — the brunt of the impact of the epidemic will most likely only be felt during the period 2010 to 2020 and even then, GDP growth will remain positive. The level of GDP will be significantly higher than it is now, while the size of the population could be similar to the current level.
This implies that real per capita income will continue to improve over the next 15 years. However, it should be noted that the simulation results make no reference to the human suffering caused by the disease, the BER said. ‒ I-Net Bridge