1. Economic Impact of
HIV/AIDS
Stakeholder Workshop
March 2, 2007
Structure of Presentation
Review of Terms of Reference
Assessment of BIDPA (2000) Model
Macroeconomic Models
Firm/industry review
Fiscal impact
Household/poverty impact
Conclusions
1
2. Terms of Reference
Terms of Reference
Review and update the BIDPA
(2000)macroeconomic impact
study, in particular:
the methodology, assumptions and
choice of models;
evaluate the findings of the study vis a
vis subsequent trends, and ascertain
the predictive capabilities and
suitability of the models chosen
2
3. Terms of Reference
Analyse the likely impact of HIV/AIDS on
the Botswana economy to 2021 using
quantitative models; contrast the findings
with those of BIDPA (2000)
Estimate the trend paths of key economic
variables under alternative HIV/AIDS
scenarios, including the without-AIDS
scenario, specifically:
economic growth, savings, investment, human
resource capacity, labour supply, productivity,
competitiveness and poverty
Terms of Reference
Estimate the disaggregated current and
future costs, direct and indirect, to the
Government and the economy, of
HIV/AIDS, with implications for the
Government budget.
Reconcile model predictions of the micro
and macro level impacts of HIV/AIDS.
This will involve estimating the household
and sectoral impacts of HIV/AIDS.
3
4. Terms of Reference
Determine what policy levers the
Government has at its disposal to
mitigate the economic impact of
HIV/AIDS, the extent to which such levers
have been used and to what effect.
Investigate the strategies that firms have
employed to protect their businesses from
HIV/AIDS and the extent to which they
have been successful in this regard.
Review of BIDPA
Study (2000)
4
5. Review of BIDPA Study
Macro Model Structure
BIDPA model – aggregated growth function,
formal & informal sectors, skilled & unskilled
labour
Accommodates “with” & “without” AIDS
scenarios
Relevant parameters (infection rates,
productivity, labour force growth) can vary
Calibrated to 1995/96 actual data, simulations
to 2021 based on demographic projections
Projections of real GDP growth; per capita
incomes; wages; employment
Household (poverty) impact using HIES data
Diagram of Model Structure
Formal Skilled
Sector Labour
Population
Capital
& AIDS
Informal Unskilled
Sector Labour
OUTPUT
5
6. Survey of HIV & AIDS Economic
Impact Studies – Model Types
Type of Model No.
Econometric estimation 2
Aggregate growth model 5
Macro-econometric model 3
Computable general equilibrium 3
Review of BIDPA Study
Methodology was sound – aggregate growth model is
most widely used; notably IMF studies on Botswana,
2001 & 2004, also Malawi & Tanzania
Model is transparent, data requirements modest,
maths & programming tractable
Assumptions used were based on best available data at
the time, although subsequent developments not
always as assumed
BIDPA study has been widely referenced and quoted
Household impact analysis (simulation based on HIES
data):
BIDPA study was first of its kind
Used in other studies subsequently
6
7. Review of BIDPA Study
Other methodologies also useful
where data is available
Disaggregated approach can be
useful – more detailed simulation of
economic changes
CGE models used for SA, Tanzania,
Zambia
Macro-econometric models in SA
Actual Outturn vs BIDPA (2000) Projections & Assumptions
(period averages)
1995/6 - 2000/01 -
2000/01 2005/06
Economic Growth
BIDPA 3.1% 2.9%
Actual (non-mining) 5.9% 4.7%
Actual (non-mining private sector) 5.4% 3.7%
GDP per capita (growth)
BIDPA 1.3% 1.1%
Actual 2.8% 3.8%
Population Growth
BIDPA 2.5% 0.8%
Actual (CSO) 2.4% 0.9%
Actual (CARe) 2.5% 1.7%
Labour Force Participation Rate
BIDPA 48.5% 48.3%
Actual 49.8% 56.5%*
Investment (% GDP)
BIDPA 25% 25%
Actual 30% 21%
Productivity (TFP) Growth
BIDPA 0.25% 0.25%
Actual 1.3%*
HIV prevalence (15-64 yrs, %)
BIDPA 31% 30%
Actual 24%*
* different time period
7
8. Summary of Model vs Outcomes
Average GDP 9
growth over 2001- 8
2005 higher than 7
6
predicted 5
%
However, recent 4
growth of non- 3
2
mining private 1
sector close to 0
predicted rates
98
00
02
04
06
7/
9/
1/
3/
5/
'9
'9
'0
'0
'0
Summary of Model vs Outcomes
Population growth higher than
predicted (+)
Higher labour force participation (+)
Investment close to predicted value
HIV prevalence lower than forecast
(+)
Productivity (TFP) higher (+)
ART available
8
9. Choice of
Macroeconomic
Modelling
Approaches
Channels of Potential Economic Impact
Morbidity
Productivity (sickness, time off)
Expenditure (health care, training)
Savings (diversion of incomes)
Investment (uncertainty, profits, savings)
Mortality
Smaller population and labour force
Changed age structure (experience)
Loss of skills
9
10. Macro Modelling Approaches
Updating of BIDPA model
Calibrate to 2001 (from 1996) with new economic
data
Incorporate 2006 demographic projections
Incorporate “with ART” & “no ART” scenarios along
with “No AIDS” counterfactual
Pay more attention to costs of HIV/AIDS treatment,
impact on savings, investment & growth
Impact of ART on labour force, productivity
Improve modelling of productivity growth
Use 2002/03 HIES data, but no new labour force
data (since 1996)
Macro Modelling Approaches
Other macro modelling approaches
Macro-econometric model
needs pre-existing model – not available
in Botswana
model building a long and complex
process
CGE model
feasible to build CGE for this project
well-suited to analysis of HIV/AIDS
impact
10
11. Basis of CGE Model
As with aggregate growth model, also
works by simulating behaviour of
economy
More detailed economic structure –
disaggregated by sector, labour category,
household income group
Can model many interaction channels
simultaneously
Based on Social Accounting Matrix (SAM)
Very demanding data requirements
Can be linked with HIES for simulations
Key Findings
Macroeconomic
Impact
11
12. Simulated GDP Growth Rates, 2002-
2021 (Fig. 5-8)
6%
5%
4%
3%
2%
1%
0%
02
04
06
08
10
12
14
16
18
20
20
20
20
20
20
20
20
20
20
20
No AIDS AIDS-ART AIDS - No ART
Simulated Real GDP per capita 2002-
2021 (Fig. 5-7)
19,000
18,000
17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
01
03
05
07
09
11
13
15
17
19
21
20
20
20
20
20
20
20
20
20
20
20
No AIDS AIDS-ART AIDS - No ART
12
13. Simulated Underemployment, 2002-
2021 (Fig. 5-9)
36%
34%
32%
30%
28%
26%
24%
22%
20%
01
03
05
07
09
11
13
15
17
19
21
20
20
20
20
20
20
20
20
20
20
20
No AIDS AIDS-ART AIDS - No ART
Contributions to GDP Growth
No-AIDS vs AIDS with ART
TFP, 22%
Capital,
48%
Skilled,
21%
Unskilled,
9%
13
14. Sectoral Impact
Avg. growth 2003-21 (%) 8
7
6
5
4
3
2
1
0
dm
gr
Tr r
Fi sp
C E
H
fg
Tr R
e
e
O e rv
B er v
Pu erv
st
in
ad
&
&
M
A
&
an
on
A
W
H
M
s
s
s
E
th
n
b
us
Labour intensive sectors
dependent on less-skilled NO AIDS AIDS ART
workers most affected
Key Findings
Household Impact
14
15. Household (Poverty) Impact
Wide range of possible impacts on HH
Income and Expenditure
Direct and Indirect Channels
Temporary and Permanent Effects
Possible channels
Costs of medical provision
Funeral costs
Changed household composition (fewer or more
members; income-earners vs dependents)
Loss of income as breadwinners fall sick or die
Changed employment opportunities
Impact on general wage levels
Government orphan support
Household (Poverty) Impact
Modelled through:
Simulating impacts on HIES source
data over 10 years (as per BIDPA
study)
CGE modelling to 2021 (new)
15
16. Simulated Poverty Impact (HIES)
Poverty Headcount (HH PDL)
60%
50%
40%
30%
20%
10%
0%
Gab FT Oth R SE R NE R NW R SW Nat
urb
Without AIDS AIDS with ART
Simulated Poverty Impact to 2021
(CGE)
Poverty Headcount ($ a day, %)
25
24
23
22 With AIDS
21 NOAIDS
20
19
18
03
5
7
9
1
3
5
7
9
1
'0
'0
'0
'1
'1
'1
'1
'1
'2
20
16
17. Household (Poverty) Impact
HIV & AIDS has clear negative
impact on poverty
Poverty headcount up to 3% higher
due to HIV/AIDS
ART provision offsets this by 1/3 to
1/2.
Orphan welfare provision also has
significant poverty benefits
Key Findings
Firm-level
Survey
17
18. Firm-level Survey - Introduction
25 firms were interviewed in different
sectors
Survey was not intended to be
nationally representative but was
sufficient to bring out the salient
issues about HIV/AIDS
General Results
Generally a bigger loss of unskilled workers due to
illness and death than skilled workers
75% of firms reported negative impact of HIV &
AIDS on output and productivity
Most firms (56%) responded that HIV/AIDS has no
significant impact on investment:
other factors affecting profitability more important
some firms reported delays in expansion and diversion
of spending
Difference in impact across sectors – level of skills a
major factor
Sectoral impact similar to SA
Firms reported a reduced effect of the disease due
to the availability of ARV since 2001/2002, esp. for
skilled workers.
18
19. Firms’ Responses
Firms have been innovative in their
responses, especially those that have
been impacted most by the disease:
training more workers than needed;
keeping additional workers on standby.
over-employ for critical positions
multi-skilling
mechanisation
more overtime
temporary staff
Although output could be maintained,
training costs increased significantly
Response in training by skill level
80
70
60
% of skilled workers
50
40
30
20
10
0
No training response Train more multi-skilling Total
19
20. Response in hiring by skill level
80
70
60
% of skilled workers
50
40
30
20
10
0
No response Hire more Hiring temporary Total
workers
Severity of Impact by Sector
Construction
(Least) - Severity - (Most)
Manufacturing
Mining
Service
Financial
Retail
0 20 40 60 80 100
% of skilled workers
20
21. Fiscal Impact of
HIV/AIDS
Cost Implications
ART
Hospital in-patient
Ambulatory
Orphan care
Home-based care
Prevention
Programme management
Old age pension
21
22. Projected Total Number of adults and children on ART
160
140
120
100
th u a d
osn
80
60
40
20
0
01
03
05
07
09
11
13
15
17
19
21
20
20
20
20
20
20
20
20
20
20
20
ART Best estimate ART 10%lower ART 10%higher
Hospital bed needs for HIV and AIDS per year
2,500
2,000
1,500
1,000
500
0
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
No ART ART Best estimate ART 10% lower ART 10% higher
22
23. Projected Number of Total deaths per year
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
91
93
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
No AIDS No ART ART Best estimate ART Best estimate less 10%
Projected Costs – with ART
1,800
1,600
P million (real, 2004/05 prices)
1,400 OAP
OVC
1,200 Other
Prevention
1,000
HBC
800 ART
Amb exc ART
600 In-patient
400
200
0
97
99
01
03
05
07
09
11
13
15
17
19
21
19
19
20
20
20
20
20
20
20
20
20
20
20
23
24. Projected ART costs
P million (real, 2004/05 prices)
700
600
500
400
300
200
100
0
01
03
05
07
09
11
13
15
17
19
21
20
20
20
20
20
20
20
20
20
20
20
ART Best estimate ART 10% lower
ART 10% higher Actual from Dev expenditure
Projected Costs – selected interventions No ART
1,800
OVC
1,600
P million (real, 2004/05 prices)
Prog. mgt.
1,400
1,200 Prev
1,000 HBC
800
ART
600
400 Amb exc.
ART
200 In-patient
0
97
99
01
03
05
07
09
11
13
15
17
19
21
19
19
20
20
20
20
20
20
20
20
20
20
20
24
25. Total costs by scenario (P million)
1,800
1,600
1,400
P million (2004/05 prices)
1,200
1,000
800
600
400
200
0
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
No ART ART best estimate
Total costs by scenario (% of GDP and Gov Exp)
9%
8%
7%
6%
5%
%
4%
3%
2%
1%
0%
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
No ART (% GDP) ART (% GDP) No ART (% Gov Exp) ART (% Gov Exp)
25
26. Conclusions, Policy
Implications and
Recommendations
Macroeconomic Implications
Real GDP growth reduced by 1.5% -
2% a year without ART
Economy will be up to one-third
smaller by 2021 due to HIV & AIDS
Result of reduced labour force
growth, younger LF, reduced
productivity & investment
GDP/capita growth 0.5%-1% lower
26
27. Macroeconomic Implications
ART provision adds 0.4% - 0.8% to
average GDP growth (cf. no-ART)
Eliminates apprx one-third of negative
growth impact
Economy still 20%-25% smaller by 2021
Avg. incomes growth higher with ART
In both scenarios investment channel is
most important
Labour Force & Employment
Reduced labour supply and labour
demand – so overall effect
uncertain
Models suggest that demand effects
dominate
Leading to lower emloyment and
lower wages with HIV & AIDS
27
28. Macroeconomic Recommendations
Efforts to improve economic efficiency
and reduce costs crucial to offset negative
HIV & AIDS impacts
Implement measures supportive of
private sector investment & economic
diversification
Skills development, shared training costs
Make it easier for firms to recruit citizens
and non-citizens
Poverty reduction and social welfare
policies crucial to minimise poverty
impact
Fiscal Implications
HIV & AIDS is having a major impact on govt
budget – approx 6% of govt spending
Cost will rise by 60% in real terms by 2021,
peaking at 8% of spending/3% of GDP
ART drugs largest single component (40% of
total)
No-ART scenario costs are lower, but ART savings
offset by higher other costs (health, OVC, HBC
etc.)
Economic growth and govt revenues would be
lower in No-ART scenario
Hence incremental ART (as % of GDP and govt
spending) costs are small
28
29. Fiscal Recommendations
Costs are manageable but large & imply fiscal
adjustments if budget is to be sustainable
Fully funding HIV & AIDS costs from budget
deficits not feasible – needs trade-offs & cuts in
spending elsewhere
Prioritising of expenditures crucial to make cuts in
lower priority areas
Focus on cutting costs of HIV & AIDS programmes
e.g. generics, lower cost services
Work with donors to secure resources to maintain
programme
Fiscal Recommendations
Consistent data a problem – spread
across many spending departments
Need for NASA/NAA
NSF costings rough and ready
Need for more accurate and better
documented NSF costings to:
Allow more accurate assessment of resource
needs
Enable updating using consistent methods
Facilitate consensus approach
Engage meaningfully with donors
29
