It is now 20 years since the first cases of acquired immune deficiency syndrome (AIDS) were discovered in sub-Saharan Africa. At the beginning of the third decade of the global pandemic, AIDS has reversed gains in life expectancy and improvements in child mortality in many countries; mortality among the population aged 15–49 has increased manyfold, even in countries with modest epidemics.1 AIDS is the leading cause of mortality among adults (WHO, 2004). According to estimates by the Joint United Nations Programme on AIDS (UNAIDS), as of the end of 2003, over 20 million people had died of AIDS. Some 38 million people are estimated to be living with the human immunodeficiency virus (HIV), the virus that causes AIDS, the overwhelming majority of whom—over 90 percent—are in the developing world.
Any discussion of the impact of acquired immune deficiency syndrome (AIDS) on health care systems must distinguish between treatment of the opportunistic illnesses associated with AIDS and treatment directed at the underlying cause, namely, the human immunodeficiency virus (HIV). Treatment of opportunistic illnesses can alleviate suffering but typically extends life by only months. Treatment that controls the HIV in the patient’s body, called antiretroviral therapy or ART, can be much more successful, adding years to life expectancy.
In many countries, the HIV/AIDS epidemic has attained a scale at which the impact on the economy and, even more broadly, on societies, is both evident and very serious. Through its broad economic impact, HIV/AIDS thus becomes an issue for macroeconomic analysis, and policies to prevent the spread of the virus have direct implications for key economic indicators such as economic growth and income per capita,1 and for economic development more generally. However, because the impact is very uneven across individuals or households, an analysis that captures only the main aggregate economic variables would miss many of the microeconomic effects of HIV/AIDS on living standards, which also matter for public policy and which, in turn, affect the main aggregate economic variables, for example through the accumulation of physical and human capital.
In his book Plagues and Peoples, McNeill (1976) views history as the interplay between an array of parasites and their human hosts—a struggle in which communicable diseases and human responses to them have profound social, economic, and cultural effects. Following the outbreak of the AIDS epidemic in the 1980s, humanity must now contend with a new great plague, the scale and character of which will surely put McNeill’s thesis to the test. One vital lesson to be drawn from his account is that any attempt to understand the effects of the AIDS epidemic must take a long-term perspective. That is a salient feature of the approach we adopt here: we will argue that, from modest beginnings, the economic damage caused by AIDS can assume catastrophic proportions over the long run, and thereby threaten the social fabric itself.
Among the great challenges of development, education continues to take pride of place. In this chapter we highlight some of the channels by which the AIDS pandemic in Africa may affect the continent’s ability to produce education and to use it effectively for growth and poverty reduction. Our assessment is preliminary; we hope here to sketch a larger research agenda rather than to dispose of it.
Most studies on the economic impact of HIV/AIDS focus on such variables as GDP growth or income per capita. Early studies, incorporating the impact of HIV/AIDS in a one-sector neoclassical growth model, found that although the impact of HIV/AIDS on GDP growth is substantial, the impact on GDP per capita may well be small. Later studies refined this approach, for example by considering a larger number of sectors, including some demand-side effects, or allowing for an impact of changes in life expectancy on individuals’ decisions.1
The HIV/AIDS epidemic has resulted in significant increases in mortality rates in the affected countries, and it is now the leading cause of death in southern Africa. In Botswana, one of the worst-affected countries, with an adult HIV prevalence rate of 37.3 percent, mortality among the working-age population had increased to 3.8 percent a year (of which 3.7 percentage points, or 96 percent, is HIV/AIDS related) by 2004. Correspondingly, life expectancy has decreased substantially, frequently wiping out gains achieved over several decades. For example, life expectancy at birth is now estimated at less than 40 years for Botswana and Zambia (declines of 41 and 17 years, respectively, compared with a no-AIDS scenario).1
HIV/AIDS is a serious challenge to economic development. Increasing mortality and morbidity reduce living standards directly and have repercussions that affect all areas of the economy. Individuals and households face increasing risks, both directly through the risk of infection, and indirectly as formal and informal social insurance mechanisms are eroded. Companies face productivity losses and increasing costs of medical and death-related benefits. At the macroeconomic level, economic growth declines as the population grows more slowly and as reduced national saving, rising costs, and declining economic prospects deter investment.1
Through its demographic and economic effects, the HIV/AIDS pandemic poses a huge challenge to the financial management of national social protection systems. For example, increased mortality owing to HIV/AIDS may reduce the number of contributors to pension schemes. And although the share of contributors reaching retirement age declines, the number of surviving dependents entitled to benefits increases. At the same time, the demand for health services increases. Using a simplified social budget model, this chapter tries to assess the potential financial effects of HIV/AIDS on national social protection schemes.
Botswana’s economic transformation during the past 30 years is one of the most highly regarded success stories of the African continent. Real GDP grew at an average annual rate of 13.9 percent between 1965 and 1980, and 11.3 percent between 1980 and 1989, making Botswana the world’s fastest-growing economy during the period. Between 1990 and 1998, however, GDP growth averaged only 4.75 percent a year. Real GDP per capita increased by an average of 5 percent a year, reaching $3,417 in 1997/98 and $3,170 in 2003. Botswana made major strides in terms of standard development indices as well. The under-5 mortality rate, which had been 151 per 1,000 live births in 1971, declined to 48 per 1,000 by 1991. By 1996 net primary enrollment was 95 percent, more than double the 1971 rate. In 1993, 47 percent of Batswana (the name for the people of Botswana) lived below the official poverty threshold, compared with 59 percent in 1985. These substantial economic gains resulted in part from the discovery of large mineral deposits in 1968, and mining value added now accounts for about a third of GDP. But in addition to the discovery of diamonds, the pursuit of prudent and consistent macroeconomic policies has resulted in a stable macroeconomic environment.