The Economic Impact of HIV and AIDS

1. The Economic Impact ofHIV and AIDS Cosmas Musumali EAZ Discussion 6th May, 2010

2. 1. Some Estimates • GDP growth decreases by over 1% for every 10% HIV prevalence. • Southern Africa: GDP losses estimated between 0.9-2.8% • Southern Africa: GDP losses over 25 years equate to 35% current GDP

3. 2. Economic Transmission Channels • The production channel • The allocation channel • The distribution channel • The regeneration channel

4. The Production Channel HIV/AIDS affects the main factors of production - labourand capital - causing the production process to be less fruitful than it would have been in the absence of HIV/AIDS.

5. The Allocation Channel • One of the most important functions of the economic system is to ensure an efficient allocation of resources. • HIV/AIDS reroutes some of those resources to medical expenses and away from other productive uses.

6. The Distribution Channel • HIV increases health expenditures and weakens the income base. • The lowest income groups fare the worst. Often the only productive asset is own labour, which HIV attacks • The upper income groups are better placed to protect themselves and afford treatment. • Thus, HIV widens the gap between different social strata.

7. The Regeneration Channel • This refers to investments in human capital, physical capital and new technology that are needed to keep the economy growing • HIV compromises the saving capacity and the human capital of the economy • Therefore, HIV undercuts the process of economic development

8. So what??? • Productivity enhancement (HIV mainstreaming) • Efficiency: HIV funding (cost-effectiveness, technical and cost-efficiency, creating future industries) • Distribution: Social support (e.g. conditional transfers for health and education) • Regeneration: Incentives for savings and human capital formation

9. Endnote For each 1 year increase in life expectancy The per capita income grows by 4%