AIDS paralyses Zambian Economy

Posted: August 21, 2009 in AIDS
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By Sanday Chongo Kabange in LUSAKA, Zambia

AIDS like many other factors has the ability to create severe impacts on developing and buoyant economies across the globe. AIDS is different from other diseases because it strikes people in the most productive age bracket that is 15 to 49 years.

Zambia is among the African countries severely hit by AIDS. It is estimated that out of a population of 12.5 million people, 1.1 million are HIV positive, of which one million are adults.

UNAIDS has conducted studies into the impact of AIDS on the Zambian economy. PHOTO: un.ik

The Joint United Nations Programme on HIV and AIDS (UNAIDS) ranks Zambia as one of nine countries in the sub-Saharan Africa region that is highly affected by the AIDS pandemic. The epidemic is having a devastating impact on various sectors of the economy.

Zambia is one of the most urbanised countries in Africa, with urban migration characterised by movement from smaller towns to bigger cities. As part of Zambia’s 2007 Demographic and Health Survey, women and men ages 15-59 were tested to determine their HIV status. The results revealed that the national HIV prevalence had declined from 15.6% in 2001-02 to 14.3% in 2007 (a drop of only 1.3% over a period 5 to 6 years). However, the current HIV prevalence rate stands at slightly above 13.5%.

The recent decline in the prevalence rate has been attributed to a series of mitigation measures by the government driven National AIDS Council.

The economic effects of HIV and AIDS vary according to the severity of the epidemic and the structure of the national economies. For an economy such as Zambia’s whose main driver is human capital, The monetised economy of Zambia which has over the years been heavily depended on the mining of copper, cobalt and zinc until recently when the global economic crisis emerged, compelling Zambian authorities to consider diversifying the economy to other sectors such as agriculture and tourism.

About 20% of total wage employment in Zambia has been in the mining sector industry, which in turn accounts for about 15% of GDP in 2008 and 80% of the country’s annual export earnings. Manufacturing industries and agriculture are the next two major sources of paid employment in Zambia. The sectors contributed 30.7% and 18.8% to GDP in 2008, respectively. The services sector contributed 38.2% of GDP and provided employment for 60% of wage-earning employees. Agriculture remains underdeveloped, and accounts for the largest proportion of the labour force, consisting of about 73.5% of the economically active population.

The economic effects of AIDS will be felt first by individuals and their families, then ripple outwards to firms and businesses and the macro-economy.

A research finding by a USAID funded Policy Project states that the loss of young adults in their most productive years is affecting Zambia’s overall economic output because AIDS is more prevalent among the economic elite. The findings indicate that the direct costs of AIDS include expenditures for medical care, drugs and funeral expenses, which have to borne by households, employers and sometimes government. Indirect costs include lost time due to illness, recruitment and training costs to replace workers and care of orphans. If costs are financed out of savings, then the reduction in investment leads to a significant reduction in economic growth.

The macroeconomic impact of AIDS is difficult to assess. Most studies have found that estimates of the macroeconomic impacts are sensitive to assumptions about how AIDS affects savings and investment rates and whether AIDS affects the best-educated employees more than others. Few studies have been able to incorporate the impacts at the household and firm level in macroeconomic projections. Some studies have found that the impacts may be small, especially if there is a plentiful supply of excess labour and worker benefits are small. There are several mechanisms by which AIDS affects macroeconomic performance.

Policy Project study states that AIDS deaths lead directly to a reduction in the number of workers available. The deaths occur to workers in their most productive years. As younger, less experienced workers replace these experienced workers, worker productivity is reduced. A shortage of workers leads to higher wages, which leads to higher domestic production costs. Higher production costs lead to a loss of international competitiveness which can cause foreign exchange shortages.

Lower government revenues and reduced private savings because of greater health care expenditures and a loss of worker income can cause a significant drop in savings and capital accumulation. This leads to slower employment creation in the formal sector, which is particularly capital intensive. Reduced worker productivity and investment leads to fewer jobs in the formal sector. As a result some workers would be pushed from high paying jobs in the formal sector to lower paying jobs in the informal sector. The overall impact of AIDS on the macro-economy is small at first but increases significantly over time.

Infant mortality rate in Zambia will be 60% higher by 2010 due to the impact of AIDS, the child mortality rate will double, the crude death rate will triple, and life expectancy will decrease from 60.1 to 30.3 years. Overall, population growth will be reduced from 3.1% to 2.1%, because of the effect of AIDS, according to data from the United Nations.

AIDS is a huge challenge for Zambia. PHOTO: eduinreview.com

A study by the Ministry of Health used a simple macroeconomic model to examine the impact of AIDS on Zambia’s economy. The study compared scenarios: First, an economy with AIDS, but without foreign assistance and second an economy with AIDS and with foreign assistance. In the first AIDS scenario, without assistance, the study estimated that GDP would be 9% less than the baseline scenario, with per capita income equal to $494, about 4% less than the baseline.

The study says if foreign assistance pays for medical costs and training of workers, GDP would only fall by about 5%. These effects are a combination of initial effects of decreased production due to reductions in the labour force and later losses in productivity due to lower investment levels initially. The final conclusion to the study said, “Without unprecedented infusions of free foreign aid to mitigate the effects of AIDS, the economy of Zambia will suffer considerable damage.”

Hammered Sectors

It is a well established fact that AIDS and its related illnesses have cross-cutting effects on different sectors of the economy. The impacts of AIDS have ripple effects on mining, banking, agriculture, education, health, construction, manufacturing, environment, water and sanitation.

Agriculture is the largest sector in most African economies accounting for a large portion of production and a majority of employment. On agriculture, studies done in some African countries have shown that AIDS has adverse effects on agriculture, including loss of labour supply and remittance income.

The mining sector is a key source of foreign exchange for many countries including Zambia. Most mining is conducted at sites far from population centres, forcing workers to live apart from their families for extended periods of time. They often resort to commercial sex. Many become infected with HIV and spread that infection to their spouses and communities when they return home. Highly trained mining engineers can be very difficult to replace, as a result, a severe AIDS epidemic seriously threaten mine production.

On industries, AIDS have a significant impact on some firms in the sense that AIDS-related illnesses and deaths to employees affect a firm by both increasing expenditures and reducing revenues. Meanwhile, AIDS affects the health sector for two reasons, first because it increases the number of people seeking services and secondly health care for AIDS patients is more expensive than for most other conditions.

The transport sector is especially vulnerable to AIDS and important to AIDS prevention because of the nature of transporters, who mostly track from one point to the other. Building and maintaining transport infrastructure often involves sending teams of men and women away from their families for extended periods of time, increasing the likelihood of multiple sexual partners. AIDS affects the education sector in at least three ways: first, the supply of experienced teachers will be reduced by AIDS-related illness and death, secondly, children may be kept out of school if they are needed at home to care for sick family members or to work in the fields and thirdly, children may drop out of school if their families cannot afford school fees due to reduced household income as a result of an AIDS death.

Zambia is aiming to kick AIDS out of its development agenda. PHOTO: host304.evoluta.com

AIDS also affects water and sanitation sector. Developing water resources in arid areas and controlling excess water during rainy periods requires highly skilled water engineers and constant maintenance of wells, dams and embankments. The loss of even a small number of highly trained engineers can place entire the water systems and possible investment at risk.

Health Minister, Kapembwa Simbao , at one time dmitted that AIDS has the ability to weaken an economy if not properly responded to. Simbao said it was for this reason that the Zambian government was doubling its response to AIDS related programmes across the country.

The need to scale up the response to AIDS programmes, comes months after Sweden and the Netherlands temporarily suspended $33 million in aid to Zambia after reports surfaced that $2 million were embezzled, allegedly by senior health ministry officials.

The frozen donor funds are about one-fourth of the $120 million total committed to Zambia for this year by the two European nations. Industry analysts have cautioned the freeze in aid may impair HIV and AIDS services in the country.

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