Impact of HIV/AIDS on Microeconomics

The biggest problem facing developing countries across the globe IS unquestionably, disease. By 2006, there were as many as 40 million people living with HIV/AIDS worldwide. Interestingly, majority of these infected persons—up to 40 percent of the adult populations—are living in sub-Saharan. Undoubtedly, the disease has become a formidable force and the biggest challenge to human life and dignity. Its effects are vast and stretch from social to economic to political.

Majority of those affected hail from sub-Saharan Africa, and the disease has done more harm such as taking away the lives of people in addition to their hard-earned economy. In particular, HIV/AIDS does more economic damages by plummeting productivity and further reducing the labor supply, which in turn affect the rate of imports and exports. In Africa, just like many development countries, the main source of capital is through hard labor and international borrowing.

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Other sources of income come from business enterprises, government taxation, and internal and external investments. Undeniably, the revenue realized from these economic activities does not meet the expenditure of the people due to various reasons, AIDS being one of them. Furthermore, infected persons see their zeal and energy to work or do business diminish slowly and finally they become unproductive. Besides, affected persons have to meet new human costs to buy antiretroviral drugs and other food additives.

The economic effects of HIV/AIDS are profound especially in Africa—a continent that lacks the capacity and ability to deal with the pandemic due to economic constraints. Even though experts have managed to document the impacts of HIV/ AIDS in Africa, to some extent, they have failed to quantify the effects of the disease on Africa’s economy in entirety. Such documentations have also failed to assess how the effect of HIV/AIDS will impair Africa’s future development.

However, it is paramount to understand the expansive economic effects in order to create an effective policy that thwarts the economic effect of HIV/AIDS. Some of the economic effects of HIV/AIDS include reduced labor supply, reduced productivity, and reduced exports and increased imports. The paper will examine two effects of HIV/AIDS on the economy of developing countries such as Botswana (Bollinger & Stover, 1999, pp.3-9).

Among the very many effects of HIV/AIDS is reduced labor supply. The HIV/AIDS pandemic has caused more harm on labor supply, which in turn has affected the economies of developing countries through augmented mortality, illness and morbidity. The disease, which weakens the body’s defense mechanism, has enabled the thriving of other diseases that eventually take a person’s life.

The disease has relegated skilled persons into hospital beds thus, depriving the labor market the necessary skills to inspire economic growth. According to the recently released report, South Africa and Botswana are the most affected countries. In Botswana for example, the report says that about 60 percent of the population working in the mining industry is aged between 30 and 44 years. Clearly, these persons have the skills required in the mining industry.

However, in 15 years time, this population will fall to 10 percent due to HIV/ AIDS. The report goes on to say that in South Africa, 20 percent of the nurses working in the healthcare industry are HIV carriers. Clearly, this poses yet another challenge to the economy (Bloom, & Mahal, 1995, pp. 105-124).

Looking how the effects of HIV/AIDS affect households, labor supply and business enterprises reverse human development in Africa, the question to avert the situation stands tall. HIV/ AIDS have damaged the economic growth of developing countries thus, making it hard for these countries to counter the crisis. A section of the working population lives with HIV/AIDS. As time goes, the productivity of these people starts to beg off due to HIV-related illness.

The reduced productivity has a negative impact on the revenue generated by an organization. For instance, let us look at the civil service sector. When the productivity of persons working in the civil service sector declines, government revenue declines as well. In addition, the tax revenues collected by the government declines sharply. Consequently, this forces the government to increase its spending in order to contend with the mounting HIV pandemic.

In most cases, most developing countries engage in various economic activities such as expanding their industrial base, increasing exports, and wooing foreign investors. These activities are integral for economic growth, and most importantly, the source of income. Nevertheless, these activities are only practical if the country’s productivity is high.

Since HIV/ AIDS makes labor more expensive and reduces profits, the affected countries such as Botswana cannot attract industries that solely rely on labor. Consequently, this is a blow to investment in Africa, as investors fear business losses rather than profits. So far, the effects of HIV/AIDS in Africa are immeasurable even as millions of people continue to languish in poverty.

Worse still, in Africa where HIV/AIDS pandemic is dominant, various economies were struggling with economic problems, debt and moribund trade even before HIV/ AIDS became pandemic. AIDS, together with these problems, have pooled to exacerbate the already volatile situation. Due to the effects of HIV/AIDS, the gross domestic product (GDP) of affected countries loose 1.5 percent every single year; meaning, 25 years for now, the GDP these countries will be less by 31 percent (Dixon, McDonald & Roberts, 2001, pp. 411-426).

Another effect of HIV/AIDS on economy is reduced impact on workplaces and enterprises. This has indeed affected the rate of exports and imports by reducing the former and increasing the later. As highlighted above, HIV/AIDS reduces productivity and hence, exports. At the same time, the country must increase the importation of healthcare commodities to cater for the infected persons. For instance, since the number of skilled miners has reduced, it means that the country will export less and therefore, less earnings.

Accordingly, this will negatively affect the balance of payments as well as the state’s budget forcing the government to borrow from the international community. Already, this has subjected the country into debt repayments, which is not good for economic growth. Ideally, HIV/AIDS damages enterprises by wringing productivity, increasing production costs, redirecting dynamic resources, and lessening skills. The money spent on funerals, healthcare and pension funds could have been integral to economic growth.

Additionally, since many infected persons opt for resignation, the amount of money spent on household goods reduces, which in turn disrupt the market demand of goods and services. Thus, since many people cannot afford to buy as many household goods as possible, some enterprises collapse. On the other hand, workplaces begin to register increased absenteeism, which affect productivity of firms and hence the profits (Kambou, Devarajan & Over, 1992, pp. 109-130).

Capital is a paramount factor for propelling countries into economic growth. However, every country has its own source of capital. While some countries may resort to international borrowing, majority of developing countries opt for domestic saving. Nevertheless, sometimes, the government’s aim to distribute resources equally is an impediment to domestic saving.

Over years, economists and researchers have engaged in a hot debate as to whether countries can expand economically through domestic saving. Whether a country can grow faster economically through domestic saving is a two-way traffic: theoretically or empirically.

Developing countries, most of them from Africa, can spur their economic growths if only they are ready to formulate and implement the much-needed policies aimed at tackling economic predicaments, reinforcing state capacity and direct resources into fundamental areas. As the president, I will spearhead the country towards enacting policies aimed at blocking these factors. Many reports suggest that the informal sector has billions of dollars not deposited into savings accounts for domestic borrowing.

Thus, I will carry out a national campaign to woo people to deposit money in savings accounts. Banks have also been an impediment towards economic growth, as they demand too much for one to open a banks account. Thus, my government will ensure that opening a savings account is a quick and easy process in order to attract many people. Indeed, one of the basic reasons of low financial savings in Africa is inadequate financial services.

In many countries, banks are a preserve of the rich and operating from major towns and cities. Thus, most middle-income and low-income earner cannot access banks. Even if they are in close proximity to the banks, the banks charge high minimum deposits meaning, many people cannot afford banking services.

Thus, in order to mobilize domestic savings, the government through the central bank, will ensure that there is the expansion of banking service to rural areas and ensure that they are affordable. In fact, in many African families, only 20 percent households have bank accounts.

Using the theoretical model, my government will attract innovations meant to allow local sectors adopt frontier technology for economic growth. For instance, using the latest mobile phone technology, people can do mobile banking from whenever they are and at any time. However, in order to realize this, domestic savings meant is paramount. This is because domestic savings enables people to put equity into cooperative venture thus, creating a flurry of enterprises that will spur economic growth (Efam, 2008, p.12).

Reference List

Bloom, D. & Mahal, A. (1995). Does the AIDS epidemic threaten economic growth? Journal of Econometrics, 77(1), 105–124.

Bollinger, L. & Stover, J. (1999). The economic impact of AIDS. Glastonbury, CT: Futures Group International.

Dixon, S., McDonald, S. & Roberts, J. (2001). AIDS and economic growth in Africa: a panel data analysis. Journal of International Development, 13(1), 411–426.

Efam, D. (2008). Boosting domestic savings in Africa: To invest more, countries must tap assets now outside the banks. Africa Renewal, 22(3), 12. Retrieved May 10, 2011, from

Kambou, G., Devarajan, S. & Over, M. (1992). The economic impact of AIDS in an

African country: simulations with a computable general equilibrium model of Cameroon. Journal of African Economies, 1,109–130.

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