Africa Region Working Paper Series No. 9 The Macro Implications of HIV/AIDS in South Africa: A Preliminary Assessment Jeffrey D. Lewis and Channing Arndt December 2000 Abstract   In this paper, we report on the preliminary results from an analysis of the impact of HIV/AIDS on South Africa. Using an economywide simulation (CGE) model of South Africa that includes major impact channels of the HIV/AIDS epidemic, combined with available demographic estimates for labor supply, death rates, and HIV prevalence, we generate two scenarios: a hypothetical “no-AIDS” scenario, and an “AIDS” scenario in which the key AIDS-related factors affect economic performance. We find that the impact of the epidemic could be substantial: GDP growth rates over the 1997-2010 period diverge steadily, reaching a maximum differential of 2.6 percentage points. GDP in 2010 is 17 percent lower in the “AIDS” scenario; while lower population growth accounts for some of the decline, per capita GDP does drop by around 8 percent. In fact, our simulations suggest that, despite the fact that AIDS impacts the high-unemployment unskilled labor category more than others, the net effect of higher AIDS-related mortality and slower growth is to leave South Africa’s high unemployment rate (nearly 40 percent) largely unchanged. We also use the model to “decompose” the overall decline in growth performance. Given our current assumptions, the largest share (close to half) of the deterioration in growth is attributable to the shift in government current spending towards health expenses (which increases the budget deficit and reduces total investment), while an additional third stems from slower growth in total factor productivity (TFP).   Full text of paper. (In Adobe Acrobat format. Requires Acrobat PDF viewer)

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