Annual Forum Papers

The Impact of HIV/AIDS on the South African Economy: A Review of Current Evidence

  • Year: 2003
  • Author(s): F Booysen; J.P Geldenhuys; M Marinkov,
  • Countries and Regions: South Africa

Even though the approaches, assumptions and results may vary greatly in the macroeconomic models employed in estimating the impact of HIV/AIDS on the South African economy, the overriding message that these models convey remains the same: the cost of HIV/AIDS to South Africa will be significant in economic, social and human terms. However, the accuracy of the models and their results can be faulted for various reasons, not least the shortcomings of current demographic projections and the empirical evidence on the microeconomic impact of the epidemic, shortcomings that can be argued to translate into both under- and overestimation of the likely macroeconomic impacts of the epidemic. More work is also required to quantify the nature of the impact of the epidemic on specific sectors in the economy. In addition, more recent, alternative methodological approaches can also be explored in further investigating the macroeconomic impacts of the epidemic. Finally, models are also constrained by a lack of clarity regarding the key question of how treatment, care and support for HIV/AIDS-affected individuals and households are to be financed in South Africa, given that government at times are unclear as to what policies will be implemented to fights HIV/AIDS.

South Africa currently faces one of the highest HIV prevalence rates in the world. The estimated adult prevalence of HIV amongst 15-49 year olds in 2001 was 20.1% (UNAIDS, 2002), while the ASSA2000 model put adult prevalence amongst 20-65 year olds (in the unchanged scenario) at 24.1% (ASSA, 2003). A recent national household survey in turn has put the 2002 estimate of adult prevalence amongst those older than 25 years at 15.5% (HSRC, 2002) . Given that HIV/AIDS primarily effects the economically and sexually active population, the epidemic poses a serious threat to economic growth, development prospects and poverty alleviation. In fact, the predicted macroeconomic impacts of the HIV/AIDS epidemic make light of the macroeconomic targets of GEAR, given the projected decline in economic growth and employment.

The main aim of this paper is to review the current literature and evidence of the impact of HIV/AIDS on the South African economy. The paper is structured as follows. Section 1 provides a brief overview of the methodology of the four macroeconomic models employed in estimating the impacts of the epidemic that are reviewed in this paper. (It should be emphasized however that this is not a methodological review of macroeconomic modeling, which is outside the scope of this paper.) Given that these models project the macroeconomic impacts of the HIV/AIDS epidemic over a 10-15 year period that ranges from 2000 to 2015 and that the HIV epidemic is yet to evolve into a full-scale AIDS epidemic, the emphasis in this paper is therefore on the future challenges that HIV/AIDS poses to the South African economy, rather than the challenges during the first 10 years of democracy . Section 2 describes the main economic impact channels of the HIV/AIDS epidemic as described in these four macroeconomic models, whilst section 3 and 4 respectively focus on an overview of the assumptions (input) and projected impacts on economic growth, investment, employment, and poverty (outputs) of these four models. The assumptions and projections of these models are critically adjudged at the hand of currently available empirical evidence on the economics of HIV/AIDS in South Africa. In section 5, the implications to the macroeconomic modelling results of recent changes in the responses of government, business, communities and other role players in South Africa to the HIV/AIDS epidemic are discussed. Section 6 concludes, summarizing the main lessons to be learned from the review and the key questions that remain unanswered by current research on the economics of HIV/AIDS in South Africa.