B. Increased costs

Rising production costs for business not only have the effect of directly impacting on current profit margins but also on future profits by reducing the investment capacity for increasing productivity, expansion, research and development, and workforce training and support. As can be observed from Figure 4, HIV/AIDS increases costs in a number of ways:

i. Recruitment and training: demand for recruitment and training rises as a result of increased staff turnover and loss of skills. This may include employing extra labour to cope with staff fluctuations and losses, widening the skills base through multi-skilling and succession strategies and extensive human resource monitoring. In addition, within a situation of scarcity of skilled labour this not only increases training costs but also may result in demands for higher wages.

ii. Insurance cover and pensions: company life insurance premiums and pension fund commitments will rise as a result of early retirement or death. This is particularly problematic in the more advanced economies where such benefits are more comprehensive. For example, in Zimbabwe, over a two-year period, life insurance premiums quadrupled as a result of HIV/AIDS.⁵

iii. Health management: where health care is provided these costs can increase significantly with rising HIV/AIDS rates. A study of a commercial agro-estate in Kenya showed that medical expenditure as a result of AIDS rose to over 400 percent above that of projected expenditure without AIDS, as shown in Figure 4. These increasing costs may ultimately affect the level of benefits that a business is able to provide for its workforce. However, the provision of health care is not just a cost but is also an investment, preventing or limiting sickness/absenteeism and controlling workforce health risks. This is particularly relevant in countries where public health care provision is limited and private health care expensive.

iv. Funeral costs: considerable costs can be added where businesses provide for the funeral costs of employees. This practice is particularly prevalent in many parts of sub-Saharan Africa. These increased funeral costs are primarily a result of the high mortality rate of HIV/AIDS, particularly in developing countries. For example, Barclays Bank in Zambia experienced a rate of AIDS-related deaths of 36 out of 1600 employees, a rate ten times the death rate in most US companies.⁶

FIGURE 4 Medical expenditure of an agro-estate in Kenya, with and without AIDS

Source: Rugalema, G (1999), “HIV/AIDS and the commercial agricultural sector of Kenya”, The Institute of Social Studies, The Hague.

Crucially the impact on individual companies will vary depending on a number of factors, primarily: the nature of the company/sector (i.e. organisational structure/activities), the nature of the labour market, and the policies initiated by the company. For example, markets in which there is a scarcity of labour, particularly skilled labour, may incur higher costs through higher wage demands. It is worth noting that significantly high HIV/AIDS prevalence rates have been observed amongst skilled and managerial level employees. In addition, those companies which offer health services, pensions, life insurance and other benefits to their employees will incur varying levels of costs directly dependent on levels of such benefits.