| 7. HIV / AIDS: The Macro Implications of HIV/AIDS in Southern Africa |
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Until recently, the impacts of the HIV/AIDS epidemic on national economies was considered to be modest. Indeed, the World Bank even has a chapter in it's book "Confronting AIDS" (1997) entitled "AIDS Has Little Net Macroeconomic Impact". However, as the epidemic has worsened and increased evidence of economic losses at the micro-level has accumulated, the implications for national economies are predicted to be more severe than previously thought.
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Two key reports (ING Barings, 2000; Arndt, 2000) have addressed the macro implications for South Africa in particular. In attempting to predict future impacts, the Barings report relied on a two stage modelling process. Firstly, the demographic changes that are likely to occur were modelled and outputs gave infection and mortality profiles by skills levels and sectors. Subsequently, this data was used in making long-term economic forecasts where the effect of the AIDS epidemic could be taken into consideration. Whilst such modelling exercises produce outputs that are only as good as the input data and robustness of the underlying assumptions, there is probably enough reliable data available to make them reasonably accurate.
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The Barings (2000) report made the following key points:
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- The average annual trend rate of GDP growth over the next 15 years is likely to be 0.3-0.4 percentage points below the rate of growth in a no-AIDS scenario.
- Domestic savings as a percentage of GDP are expected to be 2 percentage points lower than in a no-AIDS scenario. In the absence of foreign inflows to fill the gap, a savings-investment crunch will ensue which will push interest rates higher, further slowing GDP growth.
- The lower growth and higher risk profile for South Africa may well deter foreign investors with a resultant negative effect on financial markets.
- The epidemic will impact on the economy in various ways including a smaller labour force, lower labour productivity, cost pressures for companies, lower labour income and increased demand for health services from both the private and public sectors.
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The findings from Arndt et al (2000) are not too different. They constructed an economy-wide simulation model and generated two scenarios, one which was AIDS-impacted and one which was not. By 2008 their model predicts a difference in GDP growth rates of 8% between the scenarios. These differences in growth rates may seem small but they accumulate over time to bring about substantial divergences in the overall size of the economy. By 2010, they predict real GDP to be about 17% below that in the no-AIDS scenario.
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Whilst the economy will be smaller because of AIDS it is also true that the population will be smaller and so per capita GDP may be less affected or even rise as apparently occurred for survivors of the medieval bubonic plague in Europe. Arndt refers to several studies from Africa, including Botswana, which found per capita GDP largely unchanged in an AIDS and no-AIDS scenarios. However, the same authors argue that in South Africa the per capita GDP will decrease and that by 2010 the difference in per capita GDP in the two scenarios will be 8%. The survivors of the AIDS epidemic will therefore be left with a smaller economic "pie".
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Arndt et al also predict negative impacts on employment. At face value it may be assumed that relatively higher HIV levels and mortality levels among the unskilled labour force will reduce the size of it and hence cause a decline in the unemployment rate. However, their model predicts a marginal increase in unemployment because the smaller labour force size will be more than offset by the lower demand for labour caused by the slower economic growth.
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Whilst the impacts of the epidemic at the human level appear to be unavoidable it can be argued that appropriate economic policy measures could significantly mitigate the predicted economic effects.
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