1. Cosmas Musumali EAZ Discussion 6 th May, 2010

2. 1. Some Estimates GDP growth decreases by over 1% for every 10% HIV prevalence. Southern Africa: GDP losses estimated between 0.9- 2.8% Southern Africa: GDP losses over 25 years equate to 35% current GDP

3. 2. Economic Transmission Channels The production channel The allocation channel The distribution channel The regeneration channel

4. The Production Channel HIV/AIDS affects the main factors of production - labour and capital - causing the production process to be less fruitful than it would have been in the absence of HIV/AIDS.

5. The Allocation Channel One of the most important functions of the economic system is to ensure an efficient allocation of resources. HIV/AIDS reroutes some of those resources to medical expenses and away from other productive uses.

6. The Distribution Channel HIV increases health expenditures and weakens the income base. The lowest income groups fare the worst. Often the only productive asset is own labour, which HIV attacks The upper income groups are better placed to protect themselves and afford treatment. Thus, HIV widens the gap between different social strata.

7. The Regeneration Channel This refers to investments in human capital, physical capital and new technology that are needed to keep the economy growing HIV compromises the saving capacity and the human capital of the economy Therefore, HIV undercuts the process of economic development

8. So what??? Productivity enhancement (HIV mainstreaming) Efficiency: HIV funding (cost-effectiveness, technical and cost-efficiency, creating future industries) Distribution: Social support (e.g. conditional transfers for health and education) Regeneration: Incentives for savings and human capital formation

9. Endnote For each 1 year increase in life expectancy The per capita income grows by 4%