Part 2

The whole impact of HIV/AIDS can only become more visible when we are able to measure it and put a tangible figure. This will be important for planning and allocating resources to fight the pandemic. A recent report in South Africa JEAPP: Joint Economics AIDS and Poverty Programme: April 2006 concluded that “HIV and AIDS has no major effect on the economy.” This argument was based on the fact that the economic impact of HIV and AIDS is not obvious as other earlier reports had predicted that the economy would collapse before 2000 due to HIV/AIDS. “Look at us now,” it stated. “The economy is flourishing. The economic impacts of HIV and AIDS are not obvious until you study them and get good data.”

The report is at odds with other studies which recently gave a different picture. According to SA Business Coalition Against HIV and AIDS, 2005 survey, 40 percent of manufacturing and transport companies and 60 percent of mining companies surveyed reported tangible loss of experience and vital skills. It also contradicts findings that about 5.4 million people are living with HIV and AIDS in South Africa.

Another report commissioned by JEAPP and coming out around the same time concludes that HIV and AIDS is ninth among a list of 10 concerns affecting SMES. Other concerns for SMEs were productivity of workers, demand for product, cost of labour, cost of materials, impeding regulations, crime, high taxes and a shortage of skilled labour. What these contradictions reveal is that correct data analysis is required to measure the impact.

Estimate of deaths caused by or related to HIV and AIDS.

Estimating the cost of the pandemic requires knowledge on the deaths caused by or related to HIV/AIDS. In February 2005 a report was published by the SA Government and SA Statistics on Mortality and Causes of Death in South Africa 1997-2003. It listed the number of people who died, their age and causes of death. The report showed that the deaths of people in the age group 25-49 years had risen from 23 percent to 34 percent of all the deaths. Only 8.7 percent of reported cases reflected   HIV and AIDS expressly. In 2002 the total number of deaths in this category was about 200,000 out of a total of 500,000, accounting for 40 percent of all deaths. Taking the figure from SA statistics of 8.7 percent, one can conclude that only 3.5 percent (or 7,000 people) died of HIV and AIDS from the age group of economically active people.  In the records it would then be calculated that only 43,500   people died of HIV and AIDS.

Another report noted that death certificates only indicated the immediate cause of death but not the underlying cause which “initiated the chain of morbid events leading directly to death”. A person who dies from tuberculosis and dies from it because their immune system has been weakened by HIV/AIDS should be included in this category.

Estimates by Actuarial Society of South Africa called ASSA 2000, calculated that 165,859 out of 556,585 (30 percent) deaths in 2000 were due to HIV/AIDS; In 2002, 311,000 people (44 percent of all deaths) died of HIV/AIDS with 70 percent of all deaths in the 15-49 age bracket being HIV/AIDS related. In 2003 it was estimated that HIV/ AIDS claimed 370,000 lives.

Cost implications to business enterprises

A 2002 IMF working paper The Economic Consequences of HIV/AIDS in Southern Africa estimated that the combined impact of AIDS- related expenses (absenteeism, productivity declines, health care expenditures, and recruitment and training expenses) could cut profits by 6-8 percent. It observed that Namwater, Namibia’s largest water purification company’s operations were slowed down by absenteeism and declining productivity. A sugar mill in South Africa was reported to have estimated the cost per worker due to HIV/AIDS at R.9,500 ( USD 1583) per year. Another report estimated the annual costs per employee associated with the pandemic in a manufacturing firm at US$ 17 in Kenya; USD $300 in Uganda’s Railway corporation; and an additional rise on  annual salary and wages bill by 0.45-5.9 percent in South Africa and Botswana.

It is therefore generally accepted that there are additional costs to businesses, being occasioned by the HIV/AIDS. The main problem comes in quantifying the costs once identified.

Quantifying costs associated with HIV/AIDS.

Studies in the early part of this decade used economic models which predicated the effect of HIV and AIDS at the aggregate level of the economy. The models assumed that the effects of the epidemic have a linear relationship. The ING Barings model 2000 predicted a decline in economic growth of 0.4 percent per year. The fact that the impacts create other impacts militates against a linear relationship. In order to assess   how to quantify these costs it would be important to identify the direct and indirect costs.

Direct cost of HIV/AIDS can be easily measurable because they can be directly related to the cause. They include cost of condoms, medical care, medicine, caring for orphans,  extended home –based care, funerals and loss of income of the bread winner.

Indirect costs of HIV/AIDS can neither be immediately traced to the cause nor be easily quantifiable. They are quantified through a proxy. They include lost time due to absenteeism, effect on source of capital, reduced productivity due to long periods of sickness, impact on labour supply   through increased mortality and morbidity, loss of skilled labour and cost of replacing skilled labour after death among others.

In a study on HIV/AIDS costs on the health sector in Namibia, the direct costs identified were expenditure on condoms, public awareness campaigns and drugs. Indirect expenditures were increased demand for social security grants, higher hospital bed occupancy, and diversion of the development budget to attend to the HIV/AIDS cases and loss of tax revenues. The main problem of the indirect cost was the “extra   burden” on existing health services.

The challenges encountered in costing were problem of notifiability and identification of the disease due to lack of voluntary and constant testing, confidentiality and stigma. It was also indicated that the costs of the disease are higher and more identifiable at the latter stages because in the earlier stages it is difficult to isolate it from the general heath services cost. The other challenge identified was, the availability, quality, validity and reliability of data. Other problems included  poor cost records on expenditure, donated items, capital items, aggregation of data, where the systems give the total and not the breakdown and lumping together of activities with no separate  costing.

Financial costing of indirect costs

Most studies have dealt mainly with the direct costs which are easy to identify.  This is limiting in that it does not give the whole picture. The indirect costs are bound to be massive and have multiplier effect. UNAIDS 2000 reports that “Despite the duration of the HIV and AIDS epidemic in Sub-Saharan Africa (SSA), knowledge of the relative costs of different activities is very limited. Previous reviews of related cost data are largely drawn from existing small scale or pilot initiatives and differ in the methodologies used to calculate the costs, limiting their comparability.” Costing for public sector –interventions have been done for some countries such a Ghana and Zimbabwe. However the costing for business sector and especially for the SMEs is still limited.

Loss of future earnings

Financial costing of indirect costs would follow the methods used to estimate opportunity costs of finance. One of the major costs of HIV and AIDS is the loss in earnings when people die young and at the prime of their earning career. How do we estimate the loss? We could attempt a rather simplistic method   which can give an indication of the loss of   future earnings: Determine the age of the deceased; determine the income at the time of death; determine the life expectancy (actuarial), hence the time remaining; determine the projected income growth or earning capacity growth if self-employed during that period (from financial statistics and income projections);project the future earnings if he/she lived to the end; conduct a sensitivity analysis to determine the chances of being affected by other factors e g accident, loss of job, business bankruptcy; determine an appropriate discount rate and discount to the projected future earnings to the present value.

Measuring reduced productivity, due to absenteeism, weakness or sickness is a more difficult case which would be done by analyzing the financial data of an enterprise and comparing the days worked by all workers, days of absenteeism due to sickness or to attend funerals and production levels at various points.

A study on the human capital by Cohen in ILO/World Bank’s 2002 Human Epidemic and HIV Pandemic in Sub-Saharan Africa, concluded that economic and social losses of heterogeneous labour cannot be easily measured by standard economic costing, in part because society does not always attach formal values to these skills. This is especially true of the economic and social contributions of women. Moreso, attempts to measure these costs by economists through valuations based on average wages are likely to be significant underestimates of the  social and economic values of the losses of human capital that are being experienced. In addition, once it is accepted that labour is heterogeneous and often highly skilled, there will be no easy adjustment in formal or informal production to the losses of labour caused by the HIV epidemic. It  therefore follows that  the erosion of  human capital due to HIV and AIDS  has not only personal costs  for those affected, but also significant social costs in terms of the lost output due to morbidity and  premature mortality of those who have been educated and trained at great cost.

 Conclusions and recommendations

As has been observed there is a gap between the data collected and the data required to analyze the actual cost of  HIV and AIDS. It is also observable that most researchers are either in medicine, economists or social scientists. Finance experts and Accountants have not brought in their expertise and this explains why the accounting procedures for the extra costs on business are not being captured. Most researchers have complained of lack of well organized data in Africa which hampers good planning. It is also observed that the whole impact of HIV and AIDS cannot be determined without reliable data and indirect cost are substantially more than the direct costs even though their measurement is rather difficult.

It is therefore recommended that researchers in the fields of Finance and Accounting be encouraged to conduct research in determining the methods which should be used for costing purposes. These extra costs on business will become a major factor for business survival in Africa and the Accountants may need to formulate a standard to enable the businesses to include them in their expense accounts. A lot has still to be done.