5. The Economic Impact of HIV/AIDS

Du Guerney has argued that recent attempts to consider HIV/AIDS as a macro-economic question have been disappointing, as impacts only appear when specific sectors are considered (2001a: 3). The World Bank has argued that it is particularly difficult to assess the macro-economic impact of HIV/AIDS since many other factors affect economic performance (du Guerney, 2001a). Economies tend to react more dramatically to economic restructuring than to long, slow corrosions as those wrought by AIDS. However, it is clear that the epidemic has profound implications for economies in affected regions as primary wage earners and caretakers fall sick, require care, and eventually die, usually consisting of individuals of prime working age (Lewis, 2001: 59).

5.1 The impact on the Macro-Economy

The impact of HIV/AIDS on the macro economic environment takes two dimensions, namely the direct and indirect costs (Balyamujura et al, 2000: 14). The former refers to the cost of treatment associated with HIV related illness, which has serious implications for health care budgets around the region. Those segments of the population that are poverty-stricken stand to lose the most as pressures on the health budgets increases resulting in higher medical costs. Indirect costs are more difficult to measure as the refer to loss of value of production, the loss of current wages, the loss of the present value of future earnings, training cost of new staff, high staff turn-over, cost of absenteeism, higher recruitment costs, the drainage of savings, amongst others.

In the South African context, at least two macroeconomic modelling exercises have been conducted seeking to illustrate the potential impact of HIV/AIDS on the South African economy (Aliber, 2001). In the one, ING Barings identified seven “key impact channels” that link the demographic effects of AIDS to the South African economy (2000):

1. A lower labour force;
2. Lower labour productivity through absenteeism and illness;
3. Cost pressures for companies through benefit payments and replacement costs;
4. Lower labour income, as employees bear some of the AIDS-related costs;
5. Lower population translating into lower expenditure;
6. Increased private sector demand for health services;
7. Higher government expenditure on health services.

The economic consequences of HIV suggests that that the sector that will be hardest hit will be mining, followed closely by transportation and storage, and that about 27 percent of current mine workers and 22 percent of all transport and storage workers will die of AIDS by 2005 (ING, 2000). Economic growth will be hit badly as the diversion of funds away from savings to pay for the costs of the illness decreases the country’s investment potential (SAMP, 2002: 9). Arndt and Lewis’ simulation study examines similar “channels” and arrives at similar conclusions. All of these “impacts” may result in changes in the broader economies in Southern and Eastern Africa as a direct result of the high prevalence rates in these countries.

Thus it is clear that HIV/AIDS will have a major adverse impact on Gross Domestic Product (GDP) of various countries. It is estimated that by 2010, the South African economy will be 22 percent smaller than it would have been without HIV/AIDS, amounting to a total of about US$17 billion (De Waal, 2001). This will have an important knock-on implication for the region as a whole as South Africa is the largest and most dynamic economy in the continent. It should be emphasised that the impact on human and social development will be much more profound than reflected in limited indicators such as GDP or per capita GDP. These impacts would be felt throughout the economy, from the macro-level to the household, particularly as wage opportunities become scarcer.

The impact of HIV/AIDS at the household level also negatively impacts on the macro-economic context. The repercussions of HIV/AIDS is felt most acutely at the household level, with the burden weighing most heavily on the poorest households, those with the fewest resources with which to cushion the economic impact (Barnett et al, 2001: 158). One study estimated that households experience a decline in income of between 48 percent and 78 percent when a household member dies from HIV/AIDS, excluding the costs of funerals (cited in Walker, 2002: 7). This burden readily translates into an overall cost on national development and the macro economies of individual countries, a situation aggravated by the fact that the portion of the population most affected by HIV/AIDS is the most economically active.

Ownership or access to rural land is a key part of many African families’ well-being and livelihood. It is, however, only a small part in some contexts: small-scale agriculture in South - and southern - Africa has been shown over the past decade to have become impossible without inputs from labour migrant remittances (James, 2001: 93). However, with the decline of the mining and manufacturing industries in a number of southern and east African countries, particularly South Africa and Zimbabwe, significant changes in the rate and extent of labour migration have occurred and hence in the degree of success of such strategies. This indicates that rural livelihoods are complex and aimed at managing risk, reducing vulnerability and enhancing security and are therefore based upon environmental stability. It is therefore important to have a sense of both the role of land and the broader labour market and macro-economic environment, which often underpin the incomes within the rural economy and the diverse livelihood strategies. These all come under increasing pressure with the broad impact of HIV/AIDS.

5.2 The Impact on the Rural Economy

It is widely acknowledged within general development literature that the urban and rural economies are usually intrinsically interlinked and that incomes within the rural environment depend upon wages earned within the urban economic environment. Thus it is clear that the impact of HIV/AIDS on the formal, largely urban-based economies of Southern and Eastern Africa will increasingly have an impact in reducing the options and the cash flows between the two sectors.

Within Southern and Eastern African countries, HIV/AIDS has been acutely experienced in rural areas. A recent Fact Sheet prepared by the FAO (2000) clearly describes the threat to rural Africa:

• More than two-thirds of the population of the 25 most-affected African countries live in rural areas.

• Information and health services are less available in rural areas than in cities. Rural people are therefore less likely to know how to protect themselves from HIV and, if they fall ill, less likely to get care.

• Costs of HIV/AIDS are largely borne by rural communities as HIV-infected urban dwellers of rural origin often return to their communities when they fall ill.

• HIV/AIDS disproportionately affects the economic sectors such as agriculture, transportation and mining that have large numbers of mobile or migratory workers.

As discussed above, the extensive labour migration between and within countries, associated with annual or more frequent visits home, has facilitated the spread of HIV/AIDS to the most remote rural areas (Topouzis, 1999). The prevalence of HIV/AIDS in rural areas is not adequately documented due to poor health infrastructure, restricted access to health facilities and inadequate surveillance (HSRC, 2001a; Topouzis, 1999). This emphasises the fact that rural communities have fewer resources to prevent infection and to nurse ill people (Loewenson and Whiteside, 2001: 12). Access to treatment and other services, as well as education, are often limited in such contexts.

According to Sehgal, the effects of HIV/AIDS within a rural economy may include (1999):

• Redistribution of scarce resources with an increasing demand for expenditure on health and social services;

• A collapse of the educational system due to high morbidity and mortality rates amongst educator and learners;

• Younger and less experienced workers replacing older AIDS related casualties, causing reduction in productivity;

• Employers becoming more likely to face increased labour costs because of low productivity, absenteeism, sick leave and other benefits (attending funerals), early retirement and additional training costs.

Agricultural production is often central to the rural economy. This form of production is usefully differentiated into the commercial farming sector, where the organisation and running of a farm often approximates a business, and the subsistence sector, which is characterised by a close relationship between the general activities of a household (including child care and rearing, support relations between adult members, home maintenance and food processing) and the production of crops and care of animals (Barnett, 1999). These sectors will be further elaborated below.

5.3 The Impact on Agricultural Production

Agriculture is one of the most important sectors in many developing countries, providing a living or survival mechanism for up to 80 percent of a country’s population. However, while agriculture is extremely important to many African countries, not least of all for household survival, there are marked differences among countries in terms of current economic conditions and agricultural and economic potential (Walker, 2002: 5). Agriculture faces major challenges including unfavourable international terms of trade, mounting population pressure on land, and environmental degradation. The additional impact of HIV/AIDS is also severe in many countries. The major impact on agriculture includes serious depletion of human resources, diversions of capital from agriculture, loss of farm and non-farm income and other psycho-social impacts that affect productivity (Mutangadura, Jackson and Mukurazita, 1999).

The adverse effects of HIV/AIDS on the agricultural sector can, however, be largely invisible as what distinguishes the impact from that on other sectors is that it can be subtle enough so as to be undetectable (Topouzis, 2000). In the words of Rugalema, “even if [rural] families are selling cows to pay hospital bills, [one] will hardly see tens of thousands of cows being auctioned at the market...Unlike famine situations, buying and selling of assets in the case of AIDS is very subtle, done within villages or even among relatives, and the volume is small” (cited in Topouzis, 2000). Furthermore, the impact of HIV/AIDS on agriculture, both commercial and subsistence, are often difficult to distinguish from factors such as drought, civil war, and other shocks and crises (Topouzis, 2000). For these reasons, the developmental effect of HIV/AIDS on agriculture continues to be absent from the policy and programme agendas of many African countries. Many studies on HIV/AIDS that have focused on specific sectors of the economy such as agriculture have been limited to showing the wide variety of impacts and their intensity on issues such as cropping patterns, yields, nutrition, or on specific populations. They have not adequately touched on questions such as the effects of changes in prices of commodities, such as tea or cocoa, land tenure and the rights of women and children (du Guerney, 2001a: 4).

5.3.1 Impact on the Commercial Sector

Commercial agriculture is particularly susceptible to the epidemic and is facing a severe social and economic crisis in some locations due to its impact. Morbidity and mortality due to HIV/AIDS significantly raise the industry’s direct costs (medical and funeral expenses) as well as indirectly through the loss of valuable skills and experience (FAO, 1999). The epidemic thus adversely affects companies’ efficiency and productivity. Thus HIV/AIDS is leading to falling labour quality and supply, more frequent and longer periods of absenteeism, losses in skills and experience, resulting in shifts towards a younger, less experienced workforce and subsequent production losses (Louwenson and Whiteside, 2001: 9). These impacts intensify existing skills shortages and increase costs of training and benefits.

At the recent FAO Conference on HIV/AIDS and agriculture, an example was given of the costs to this particular sector. It was argued that in Sub-Saharan Africa’s 25 worst affected countries, seven million agricultural workers have died from the epidemic since 1985 and sixteen million more may die by 2020 (Brough, 2001; FAO, 2000). Table three clearly depicts the grim picture of the agricultural labour force decreases in the ten most heavily affected countries in Africa (Fourie and Schonteich, 2001: 31). Balyamujura et al, have argued that intensive agriculture will be severely impacted through the loss of this specialised labour (2000: viii). Areas of production such as harvesting and processing that require a high level of skill will be most severely affected.

TABLE THREE: Impact of HIV/AIDS on agricultural labour in selected African countries (projected losses in percentages)

Source: FAO, 2001, cited in Fourie and Schonteich, 2001: 32

It should also be emphasised that the impact on commercial agriculture is only one side of the story. In much of southern Africa, agriculture is not the dominant economic sector, even while access to land and its resources is important for the diverse multiple livelihood strategies of many rural denizens.

5.3.2 Impact on the Small-Scale and Subsistence Sectors

Many studies conducted on the impact of HIV/AIDS in Africa have focused on the farm-household level (du Guerney, 2001a: 9; HSRC, 2001a: 13; Mutangadura, Jackson and Mukurazita, 1999) where agricultural production at the subsistence or small-scale level is often embedded within multiple-livelihood strategies and systems. Over the past two decades there have been profound transformations in these livelihood systems in Africa, set in motion by Structural Adjustment Programmes, the removal of agricultural subsidies and the dismantling of parastatal marketing boards (Bryceson and Bank, 2000). As a result of these and other issues, many African households have shifted to non-agricultural income sources and diversified their livelihood strategies.

However, despite the evident diversification out of agriculture, rural production remains an important component of many rural livelihoods throughout Sub-Saharan Africa. ‘African rural dwellers ...deeply value the pursuit of farming...food self-provisioning is gaining in importance against a backdrop of food inflation and proliferating cash needs’ (Bryceson, 2000, cited in Cousins, 2001). Participation in “small-plot agriculture” is highly gendered, with women taking major responsibility for it as one aspect of a multiple livelihood strategy. Access to land-based natural resources remains a vital component of rural livelihoods particularly as a safety net. In this context, land tenure becomes increasingly important for the diverse livelihood strategies pursued by different households.

Diversification out of agriculture may be compounded by the affect of HIV/AIDS in a number of ways. These include its impact on labour, the disruption of the dynamics of traditional social security mechanisms and the forced disposal of productive assets to pay for such things as medical care and funerals. In turn, local farming skills are drained and biodiversity in crop variety diminished. Indigenous knowledge systems and technology adapted by farmers to suit the particular conditions of specific areas often die with the farmers (Brough, 2001). A large number of Sub-Saharan African countries have already experienced a shift in the allocation of labour especially by subsistence households (Balyamujura et al, 2000: 24).

A study in Zimbabwe conducted by the Zimbabwe Farmers Union showed that the death of a breadwinner due to AIDS will lead to a reduction in maize production in the small-scale farming sector and communal areas of 61 percent (Bolinger and Stover, 1999 quoted in Balyamujura et al, 2000: 24). The loss of agricultural labour is likely to cause farmers to move to production of less labour intensive crops in a bid to ensure their survival. This often means a shift from cash to food crops or high value to low value crops. Haslwimmer has further developed this argument emphasising that the impact of HIV/AIDS on crop production relates to a reduction in land use, a decline in crop yields and a decline in the range of crops grown, mainly with reference to subsistence agriculture (1996). Reduction in land use occurs as a result of fewer family members being available to work in cultivated areas and due to poverty resulting in malnutrition leading to the inability of family members to perform agricultural work (Balyamujura et al, 2000: 24). This, in turn, leads to less cash income for inputs such as seeds and fertiliser. In Ethiopia, for example, labour losses reduced time spent on agriculture from 33.6 hours per week for non AIDS-affected households to between 11.6 to 16.4 hours for those affected by AIDS (Louwenson and Whiteside, 2001: 10).

At a recent workshop on HIV/AIDS and land, the FAO director in South Africa stated that the food shortages facing several Southern African countries, including Lesotho and Zimbabwe, were ‘a stark demonstration of the collective failure to recognise and act upon the deep-rooted linkages between food security and HIV/AIDS’^[5]. This reiterates the argument that the continuous interruption of labour may also impact on the type of crops grown, and hence substitution between crops may take place. This is especially true for labour intensive crops, which would likely result in the substitution for less labour intensive production and a possible decrease in the area being cultivated. Food security therefore becomes an important issue in the context of HIV/AIDS. Food security implies that every individual in a society has a sustainable food supply of adequate quality and quantity to ensure nutritional needs are satisfied and a healthy active life be maintained. At a household level, food security refers to the ability of households to meet target levels of dietary needs of their members from their own production or through purchases (FAO, 1990).

According to Louwenson and Whiteside, the impact of HIV/AIDS on agriculture directly affects food security, as it reduces:

• Food availability (through falling production, loss of family labour, land and other resources, loss of livestock assets and implements).

• Food access (through declining income for food purchases).

• The stability and quality of food supplies (through shifts to less labour intensive production) (2001: 10).

HIV/AIDS can therefore be a cause of food insecurity and a consequence thereof. For example, during times of food insecurity, such as during drought, individuals or families can be forced to engage in survival strategies that increase their vulnerability to contracting HIV (WFP, 2001).

Natural resource management has also been directly impacted on by HIV/AIDS, which has important implications for non-agriculturally based multiple livelihood systems. Conservation and resource management are also dependent on human factors such as labour, skills, expertise and finances that have been affected by the epidemic. Therefore the reduction in the number and capacity of ‘willing, qualified, capable and productive people’ who have managed natural resources has negatively impacted on sustainable utilisation of these resources (Dwasi, 2002). In addition, the epidemic can impact natural resource conservation and management by accelerating the rate of extraction of natural resources to meet increased and new HIV/AIDS demands.

These issues relating to labour, production, natural resource management and food security are elaborated in more detail in the following section describing household production.