South Africa faces one of the world’s most severe HIV/AIDS pandemics according to the Bureau for Economic Research (BER, 2007:11). The disease was initially only regarded as a serious health crisis, but it is now clear that the pandemic also holds economic consequences for South Africa and also have far reaching socio-economic consequences.

It is difficult to overstate the suffering that HIV has caused in South Africa, both socially and economically. With statistics showing that one in five adults are infected, its not surprising to note that a recent survey found South Africans spent more time at funerals than they did having their hair cut, shopping or even having barbecues (Anonymous). In any economic system, human capital is fundamentally the most important resource for utilizing other factors of production effectively.

Thus, a pandemic of this nature is viewed as a direct threat to the productivity and economic efficiency of the country. This shall be portrayed using a framework that describes how the disease affects the individual economic state, and how these effects ripple outwards to businesses and eventually the macro-economy.

The framework will therefore take into account the Impact on the Individual and on Households, the Impact on the Labour Market, the Impact on Firms and General Industry, and the Impact on the Government. These sections will then follow into a discussion of the Summation of the Aforementioned Factors on the Economy, before drawing into a Conclusion.

2. Definition of Concepts

HIV: Human Immunodeficiency Virus: A sexually contracted virus that causes AIDS.

AIDS: A disease of the immune system caused by the retrovirus HIV, where individuals lose the ability to fight infections, often dying from secondary illnesses.

(Note: Hereafter, the concepts HIV and AIDS will be used interchangeably.)

CG’s: Conditional Grants: Grants afforded by the government to Organisations in order to treat and manage its members who suffer from HIV/AIDS.

3. Economic Impact of HIV/AIDS in South Africa

Figure 1 gives a graphic and structural view of how the macro-economy is affected by the HIV pandemic. This framework also represents theoretical analysis that this paper will follow to get a better understanding of the impact of the disease on the South African economy.

Figure 1: Structural channels of HIV/AIDS impact Source: Vass (2005:2)

In the sections to follow the impact of the pandemic will be analyzed from a macroeconomic point of view.

3.1. Impact on the Individual and on Households:

Individuals suffer from the disease, not the economy, and thus, Individuals will be addressed first (BER, 2007:11): The most notable economic consideration for Individuals suffering from HIV/AIDS is the fact that they often need to spend large portions of their disposable income on treatments, such as antiretroviral treatment, and not on improving their economic standing. Other notable points are absenteeism or early retirement (if employed) from employment due to illness, which hinder individual income dramatically whilst expenditure remains stable or even increases.

The Bureau for Economic Research (BER, 2007:11) also specifies that the economic impact of HIV/AIDS on households primarily stems from its impact on income and expenditure of such households. A South African study conducted by Casale (2006:11) found that on average, households spend a third of their monthly income on HIV and AIDS related medical expenses. This dramatically lowers the possibility of improving their financial and economic standing.

It is also assumed that increased AIDS deaths among the economically active population is likely to impact negatively on the dependency ratio, more specifically (Vass, 2005:16): poor households will face increasing income vulnerability as a result. Furthermore, these households may have to carry the financial burden when those employed, but infected, retire from work and return to receive care.