The lack of political leadership in combating Aids, combined with high levels of infection, may be contributing to a slow down in foreign investment in SA.
This is the conclusion reached by Prof Alan Whiteside, director of the Health Economics & Aids Research Division (Heard) at the University of Natal, writing in the World Economic Forum's latest Africa Competitiveness Report.
Whiteside has no new empirical evidence to back up this claim, but he was present at a meeting called late last year by Standard Bank chief economist Iraj Abedian to review economic impact studies on Aids.
In his opening remarks, Abedian noted that for many foreign institutional, individual and group investors, their number one concern is Aids and government's response to it.
His comments echoed those made by Earth Institute director Jeffrey Sachs in 2001 that the SA government's handling of the crisis had undermined business confidence by causing bewilderment among investors over the policy judgment of the ruling party.
There is no published work on the effect of Aids on investment flows, though an exhaustive study by the Bureau for Economic Research (BER) at Stellenbosch University on the macroeconomic effect of Aids predicts a strong adverse effect on real private fixed investment as a result of lower levels of economic activity, increased interest rates, lower corporate profits and savings and a smaller national savings pool.
The Standard Bank meeting concluded that economic models, though imperfect, are correct in indicating that Aids will have an adverse effect on the economy.
The BER study estimated that SA's GDP growth will be 0,3%-0,6% lower than it would have been in the absence of Aids.
In his report, Whiteside notes that there is only one local company that has gone public with the fact that it is diversifying its investments because of Aids. This is the JD Group (JDG), which sells furniture and household appliances.
In 1998, JDG undertook an HIV/Aids risk analysis that concluded that the disease would cause its customer base to shrink after 2010.
As a result, the group diversified its product range to include personal services and expanded into Eastern Europe.
Whiteside says he is aware of other companies that have carried out or plan to carry out similar studies but none has released its findings. He also names companies he says are hedging their bets, including blue-chip SA companies now listed on the London Stock Exchange such as Anglo American, Billiton, Old Mutual, Dimension Data, SABMiller and Investec.
"Did Aids and the SA [government's] response to the epidemic influence these decisions?" he asks.
"How important were these considerations and how did they compare with other factors such as cheaper capital, better ratings, greater liquidity and a central location? We don't know the answers to these questions."
But the anecdotal evidence is that Aids is dampening investment.
A new study into the effect of Aids on worker productivity by the Centre for International Health & Development at Boston University will only worsen investor sentiment. It is the first study to prove that Aids will make workers less productive and the first to quantify their decline in output.
The research team reviewed records of the health and productivity of workers on a tea plantation in the Kericho district of Kenya over five years.
It found that during their last three years of life, tea pluckers who died because of Aids were absent from work almost twice as often as other tea pluckers.
Their productivity (measured as the amount harvested each day) began to fall as early as three years before death. During this time they averaged 91% of full productivity. This fell to 82% in the last year before death and to 77% in the last three months.
Whiteside extrapolates these findings to the public sector and predicts that Aids will cause governments to operate increasingly inefficiently, with all the attendant consequences for the business climate, competitiveness and output.
"In the absence of affordable, effective and deliverable treatment (including antiretroviral therapy), the health of Africa will deteriorate," says Whiteside. "Africa is not competitive and will not be in the near future. But this is not a message of despair. If Aids is addressed as a development crisis and issues of equity and discrimination are dealt with, then there is a chance that development and economic growth will take off. If millions of ordinary African people are given a chance to earn a living, then a virtuous cycle may begin. The choice is ours."
