does HIV/AIDS affect African businesses?
Monthly - Vol. 8, No. 4, April 2002
For African businesses to attract new
investors, they must demonstrate a competitive advantage. In
much of Africa, businesses already have a competitive
advantage because labor is abundant, affordable, and
productive. Countries inevitably compete against one another
to attract investors. In turn, investors seek to locate their
businesses in a country that has the most productive,
There are several mechanisms by which HIV/AIDS
affects the international competitiveness of African
AIDS deaths lead directly to a reduction in the number of
available workers. These deaths occur predominantly among
workers in their most productive years. As younger, less
experienced workers replace experienced workers, worker
productivity is reduced, which in turn results in a
decline in international competitiveness.
AIDS reduces the profitability of African businesses by
both increasing the cost of production and decreasing the
productivity of African workers. The loss of profitability
clearly will reduce Africa’s competitive advantage.
AIDS can also affect African businesses in many ways that
are difficult to quantify but that nonetheless can
significantly affect competitiveness. For example, AIDS
affects worker morale, labor relations, demand for output,
and so forth. Each of these impacts is discussed in
greater detail on the following pages.
How does HIV/AIDS affect the labor supply?
As already indicated, the objectives of
promoting trade and increasing investment in Africa can be
reached only if African businesses have an adequate supply of
Figure 1 shows the percent of adults in Africa
infected with HIV. It is currently estimated that at least one
in 12 workers in sub-Saharan Africa is infected; for some
African businesses, the ratio is as high as one in three. Most
infected workers will become ill and die within seven to 10
years of becoming infected. The impact from losing so many
workers will vary greatly as will the response of companies
with several infected workers.
Most African businesses that have more than 10
employees have already seen at least one employee die of HIV/
AIDS or currently employ infected workers. In some countries,
the number of HIV infected employees has been devastating.
a sugar mill in South Africa, 26 percent of all tested
workers were infected with HIV. Infected workers incurred,
on average, 55 additional days of sick leave during the
last two years of their life.
Botswana, it has been estimated that 35 to 40 percent of
all teachers are infected with HIV
study in Kenya on a sugar estate found that 25 percent of
the estate’s workforce was infected with HIV.
in countries such as Ghana, which has a more moderate
prevalence of HIV, businesses report significant numbers
of both AIDS deaths and known HIV infections.
If businesses are to succeed financially, they
require a steady supply of adequately skilled labor. For
companies requiring skilled workers, it is likely that
HIV/AIDS will present a particularly significant problem.
Professionals are in short supply, and the costs required to
train a new worker are often significant. One study
demonstrated that firms took, on average, eight times longer
to replace a deceased professional than a skilled worker
Figure 2 illustrates the average age and sex of persons
infected with HIV in Rwanda. This shows that the bulk of
infections are occurring among young people who are just
entering the workforce. This should be particularly worrisome
to African businesses, as it demonstrates that the future
supply of laborers and managers are likely to be the ones most
affected by HIV/ AIDS. At the same time, this figure shows the
critical importance of spending money on HIV/AIDS prevention
among young people. In order to safeguard the future labor
supply, it is necessary to stress prevention programs for
How does HIV/AIDS affect profitability?
HIV/AIDS can affect a company’s profitability
by either increasing expenditures or decreasing revenues.
During the early stages of infection, managers may observe an
unexplained increase in the number of sick days taken. The
employee, his or her spouse, and children may incur higher
healthcare costs, many of which are reimbursed by the
employer. The productivity of the worker may decline,
particularly when opportunistic infections such as
tuberculosis (TB) become more common.
As the epidemic progresses, managers may
observe within their workforce an increase of diseases, such
as TB, sexually transmitted infections (STIs), skin rashes,
diarrhea, and possibly even malaria. (Some evidence suggests
that HIV-infected individuals are much more susceptible to
serious bouts of malaria as a consequence of their suppressed
immune system.) There is likely to be a corresponding increase
in healthcare costs and sick days. Employees who are
identified as being infected may be retained, moved to a less
demanding position in the company, or fired outright (with or
without compensation) depending on corporate policy.
“NamWater, the largest water purification
company in Namibia, announced recently that HIV/AIDS is
‘crippling’ its operations. They report high staff
turnover due to AIDS-related deaths, increasing absenteeism,
and a general loss of productive hours. The firm plans on
examining the impact of the epidemic through a survey, and
then designing further policies to mitigate the impact. The
company already distributes condoms to their workforce and has
trained 60 peer educators.”
A loss in revenues attributable to HIV/ AIDS
can occur when infected workers take leave due to illness, the
need to care for other infected family members, or the need to
attend the funerals of coworkers or loved ones—in north
central Namibia, for example, it has been estimated that
extension staff spend at least 10 percent of their time
can also decline when workers in poor health come to work but
are unable to produce at their normal levels.
The extent to which people living with HIV/AIDS
will continue to be employed depends on the type of work
performed and the existing policies of the relevant company.
Presumably, employees involved in heavy manual labor will be
less likely than desk workers to maintain their jobs when they
become infected. Certain companies are required (by government
mandate or union contract) to continue offering benefits.
However, other companies are able to shift the burden to the
government or the families of the employee living with
There are various ways in which expenditures
are likely to increase when African businesses are affected by
HIV/AIDS. An increase in healthcare costs is likely to be one
sign that a company is experiencing the effects of the
epidemic. Companies with private health insurance policies may
find that their premiums are increasing. Other companies with
in-house healthcare services may find an increased need for
services that may not immediately be identified as HIV-related
Figure 3 indicates how quickly the number of AIDS-related
deaths can increase. As more workers die of AIDS, it is likely
that the private sector in Africa will observe increased costs
in terms of death benefits. When a worker dies, many larger
African companies offer a death benefit to the surviving
family. In some cases, these death benefits equate to as much
as three years of salary plus funeral-related expenses. Some
companies also pay workers a death benefit if their spouse or
children die. With the advent of the HIV/AIDS epidemic,
companies have tried to mitigate the impact of benefit costs
in various ways. For example, some African companies have
reduced the amount of their contribution to funerals. Other
companies have required funerals to be conducted on weekends
to minimize the disruption to work.
The cost of recruiting and training new workers
may also be substantial. The cost of replacing unskilled
workers may be small, particularly when the rate of
unemployment in the community that houses the business is
high. As a result, most unskilled workers can be replaced
within a week with little or no cost of recruitment. However,
many African countries have a shortage of experienced senior
managers. In this case, positions may be left unfilled for
months or even years, which represents a significant cost to
the company. Some companies even have had to resort to hiring
highly paid expatriates following the death of senior
As with recruiting, the cost of training and of
general human resource development depends on the education
and skill level required for the position as well as on the
capacity of the pool of available workers. Training of
unskilled workers often occurs over a period of a few days and
does not generally represent a high cost to the company. The
costs involved in training a director of finance, marketing,
accounting, or sales, however, can be significant,
particularly as such training is typically performed overseas.
One international company, for example, trains its African
senior managers in Europe over a period of four weeks. That
same company indicated that when a managing director is lost
due to AIDS or other reasons, the company incurs costs of
US$100,000 to recruit and train a replacement.
In the end, HIV/AIDS is likely to have a
variable impact on expenditures depending on the
- prevalence of HIV;
- cost of training and providing benefits;
- availability of prevention activities; and
- extent to which the company can shift the economic
burden of the disease from itself to workers, their
families, and the public sector.
It should be noted that the data on the extent
of the impact of HIV/AIDS on profitability remain
controversial. Studies completed in South Africa and Kenya
suggest that the economic impact of HIV/AIDS on profitability
is likely to be substantial. Studies in Zambia , Malawi , and
Botswana , however,
indicate that the impact of HIV/AIDS on profitability was not
substantial at the time those studies were carried out.
Nonetheless, the loss of profits due to HIV/AIDS may be
substantial for some African business. Therefore, it is
critical that businesses become aware of the HIV/AIDS problem
and take immediate steps to mitigate its impact. Such steps
should include workplace peer education programs, condom
distribution, voluntary counseling and testing, STI treatment,
and treatment for HIV-related opportunistic infections.
What other impacts does HIV/AIDS produce?
The indirect impacts associated with HIV/ AIDS
are much more difficult to quantify but can nonetheless be an
important factor in influencing investment decisions. The
indirect impact incurred by African businesses refers to those
outcomes that cannot be directly attributable to an increase
in revenues or a loss in expenditures over the short term, but
that still can create a significant burden for a company.
For example, HIV/AIDS can result in a substantial decline in
morale among workers. As employees watch many of their
co-workers die of AIDS, they may adopt a generally fatalistic
attitude toward life and work.
One indirect effect of absenteeism is that it
results in extra work for other healthy employees who have to
stand in for sick colleagues. In some companies, healthy
employees were increasingly working extra hours to compensate
for the time lost by their absent (sick) colleagues. In so
doing, not only did companies pay more in terms of overtime,
but interviewed workers also pointed out that they were
overworked and exhausted. According to the engineering manager
of one of the companies, working longer hours produced stress
among employees and was responsible for a decline in both the
quantity and quality of the final product (sugar). The spread
of the epidemic can also contribute to worsening labor
relations. If employees do not feel that their employers are
providing adequate prevention or care services, the
relationship may degenerate. In some cases, workers demand the
dismissal of their colleagues when learning of their
“…Knowledge or even suspicion that one of
their colleagues has HIV/AIDS is likely to trigger certain
negative attitudes and behavioural responses towards that
individual and how they perform their own tasks.”
Managers may not always be aware of the ways in
which HIV/AIDS is affecting their business. One way to address
the indirect effects of HIV/AIDS is to establish a workplace
policy that explains how the needs of infected workers should
be addressed. Such a policy should promote a positive
relationship among infected workers, their employer, and their
HIV/AIDS can also result in a significant
decline in the demand for some products. HIV/AIDS is known to
be a disease that tends to impoverish families, particularly
because infected individuals are often the main income earners
in the household. As a result, families end up earning less
but spending more on healthcare, leaving few resources
available to purchase other goods. Thus, most businesses are
likely to observe at least some decline in demand for their
products, especially the “luxury” goods that consumers can
forego during difficult economic times. An article by Alan
Whiteside, for example, noted that a South African furniture
manufacturer (JD Group) projected an 18 percent reduction in
its customer base as a result of HIV/ AIDS. The study went on
to conclude that consumers would incur a significant decrease
in demand for furniture due to HIV/AIDS and its corresponding
impact on household consumption.
How does HIV/AIDS affect African economies?
In addition to the impact of HIV/AIDS on
particular businesses, HIV/AIDS can influence national
economies. Such an impact can be particularly devastating to
the objective of increasing investment, for investors seldom
invest in countries with declining economies .
Various methodological issues and features of
developing country economies make detection of macroeconomic
impacts difficult. Initial studies regarding the potential
impact of HIV/AIDS on macroeconomic growth have generally not
been conclusive, with some studies in Botswana and
that the change in per capita income would be minor.
However, as the epidemic has progressed,
economists have tended again to raise questions about the
potential macroeconomic impacts of HIV/AIDS. A Kenyan analysis
indicated that HIV/AIDS would produce a significant impact,
with predictions that HIV/AIDS would leave the Kenyan economy
one-sixth smaller than it would have been in the absence of
A study of African countries in 2000 suggests that HIV/AIDS
has reduced the growth of per capita income by 0.7 percent per
year; in malarial countries, the rate of growth was further
lowered by 0.3 percent. For countries with HIV/AIDS prevalence
levels above 20 percent, GDP is estimated to be 2.6 percentage
points less per year. The most recent economic analyses have
therefore indicated that the epidemic may be affecting growth
to a much greater extent than earlier predicted.
A recent study found that the impact of the AIDS epidemic in
South Africa could be “substantial.” By the year 2010, the
level of GDP could be lower by 17 percent due to HIV/AIDS
while the level of per capita GDP could be lower by 7 percent.
About half of the decline is attributable to the increase in
current government spending to pay for healthcare associated
with the epidemic; another third of the decline is
attributable to lower productivity.
It appears that many African economies are
already being affected by HIV/AIDS. Decision makers must be
prepared to pursue policies at the national level that can
mitigate social and economic impacts. This may include
promoting policies that increase savings and encourage
investment in specific types of human capital that might be in
short supply (eg, teachers, doctors, and so forth).
African nations have a potential competitive
advantage over other regions of the world. Businesses and
governments must protect the vast majority of workers who are
uninfected, offer appropriate support and services to those
who are infected, and ensure that the impact of HIV/AIDS is
mitigated. Since HIV/AIDS tends to affect people in their
prime working ages, the spread of the disease can prevent some
nations from meeting their labor needs, particularly for
businesses that require workers with significant training or
work experience. The loss to HIV/AIDS of even one critical
employee can cause a business to lose its competitiveness.
The spread of HIV/AIDS has resulted in the loss
of profitability among African companies. This loss is
attributable to increased expenditures on benefits such as
healthcare, sick leave, and death benefits as well as to the
additional cost of retraining new employees. In turn, revenues
have been shown to decline when many workers become infected
and their productivity declines. African businesses have also
been affected more indirectly as a result of HIV/AIDS. For
example, as workers become ill, companies have experienced a
decline in morale, labor relations, and demand for the
company’s products. Lost profitability among African
businesses may already be thwarting efforts to encourage
foreign businesses to invest new money in the African
Strong macroeconomic prospects are particularly
important to investors who want assurance that they are
investing in a country with a stable currency and a growing
demand for their products. The most recent economic studies
indicate that HIV/AIDS can negatively affect a nation’s
overall economic growth, which in turn is likely to hinder the
success of trade and investment initiatives by limiting the
number of businesses that are willing to invest in Africa.
To conclude, it is imperative to recognize that
in most African countries, more than 90 percent of workers are
not infected with HIV. In other words, despite the potentially
dire consequences of HIV/ AIDS, in most countries there is
still time to prevent and to mitigate the impact of the
epidemic. Also, we now know what works in terms of HIV/AIDS
prevention. In countries such as Uganda and Senegal,
prevention programs have succeeded in significantly reducing
or limiting the spread of HIV infection. Finally, there are
now unprecedented levels of commitment globally to addressing
the issue of HIV/AIDS.
Editor’s Note: This paper was written by the
POLICY Project, with funding from the US Agency for
International Development. Additional copies of the paper are
available at: http://www.usaid.gov/
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