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"MADE IN AFRICA - FOR AFRICA"
"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
PRESENTS
HIV AIDS: A STRATEGIC BUSINESS IMPERATIVE
COURTESY
FIRST PUBLISHED OCTOBER 2004
Monique METCALFE
MONIQUE
(SOUTH AFRICA)
HIV AIDS: A Strategic Business Imperative
It has been estimated that 40%-50% of the current South African workforce will die of Aids within the next ten years. Every sector of the economy, including the steel and engineering industry is vulnerable to the HIV AIDS threat.
According to the 2003 UNAIDS report, more than 5 million South Africans are estimated to be HIV infected, representing almost 25% of South Africans of working age.
This makes South Africa the worst affected country in the world and it is estimated that the South African GDP could be reduced by more than 17% by 2010 as a result of the disease.
These estimates are corroborated by the International Labour Organisation’s (ILO) recently released international research results, which estimates that HIV AIDS has already cost the South African economy more than $70 billion in the 10 years between 1992 and 2002.
This translates into 2% of GDP or more than $7 billion per year, for the 10 years up to 2002, and income per capita has dropped by 1.3%.
The ILO places South Africa’s HIV prevalence rate at 21.5% and states that the costs to the economy were mainly due to workforce deaths and labour absenteeism. These are only two ways in which companies will be affected in by the HIV AIDS epidemic and many companies are realising that not taking action will affect their bottom line.
Anglo American PLC, for example, estimates that 24% of its 125,000 employees in South Africa are infected with HIV and started its own AIDS treatment and prevention program 10 years ago, which includes administering anti-retroviral drugs. The company reports that decline in employee mortality and absenteeism offset the treatment costs.
The problem however, is not confined to human resource costs in individual companies. UN Secretary-General Kofi Annan recently called on businesses to think globally about AIDS and said that the micro-economic effects in the developing world (absenteeism, decline in a skilled workforce, higher payments for sickness and death benefits) will lead to macro-economic effects worldwide.
In addition, HIV poses a huge threat to companies’ markets, both in terms of future customers and the societies in which companies operate, source labour and seek investors and shareholders.
The sheer scale of the pandemic will affect entire nations and economic systems, as the effects filter through to economic growth, income levels and poverty levels worldwide. These effects include pressures on governments’ social and healthcare systems, decreased industrial productivity and an overall decrease in consumer demand. All these factors will reverberate in all sectors, including foreign investment and tourism.
In June 2004, the Global Economic Initiative of the World Economic Forum, released the results of a survey, which found that almost two thirds of African businesses believe that AIDS will affect their bottom line. Of the1,620 African businesses surveyed, most reported that they were already seeing the negative effects of HIV AIDS, including higher costs relating to increasing absenteeism, rising healthcare costs, higher operating costs and in some instances, even a reduction in revenue.
Recent research conducted by the Bureau for Economic Research on behalf of the South African Business Coalition on HIV AIDS showed that almost 33% of the 1006 companies surveyed said that their profitability have been negatively affected. The surveyed companies were operating in the manufacturing, construction, motor, wholesale and retail sectors. A further 43% of the companies expected a "significant adverse impact" on their operations and profits within five years.
The research further showed that HIV AIDS has had the most impact on the manufacturing sector, while the retail sector has seen less of an impact, as did the construction sector, which relied more on part-time semi-skilled or unskilled workers.
Small businesses are also at risk and perhaps even more so, as they lack the resources to respond comprehensively to the issue. Yet, strategic planning for the future and collaborations with other companies may result in less costly but still effective steps taken to minimise the impact of HIV AIDS in smaller companies.
The South African Business Coalition on HIV AIDS research further revealed that over 45% of medium and large companies reported an adverse effect on profits, while 30% of small companies said they had lower profits due to HIV AIDS.
In excess of 40% of companies in Gauteng and KwaZulu Natal, the worst affected provinces, reported lower labour productivity and increased absenteeism due to HIV AIDS.
The Impact on Human Resources
The research report from the South African Business Coalition on HIV AIDS revealed that over 33% of companies experienced reduced productivity or more absenteeism. Nearly 40% reported that their demand for labour had increased, as they required replacements for employees that were sick. Less than 15% of the companies said they were reducing their dependence on labour through investments in machinery or equipment.
According to Journ Aids, a study of six large enterprises in the retail, agricultural, media, mining and heavy industry sectors in South Africa and Botswana, found that the direct costs associated with HIV AIDS varied considerably. The cost per HIV infection of an unskilled worker ranged from $2094 to $15 000 (2001 prices), while the cost of a manager ranged from $8 736 to $65 000.
Companies’ human resources will be affected in several direct and indirect ways.
As HIV AIDS sufferers begin to see the effects of the disease in their lives, companies are likely to be faced with an increase in sick leave and absenteeism. According to a USAid publication, a sugar mill in South Africa reported that 26% percent of all tested workers were infected with HIV. Infected workers incurred, on average, 55 additional days of sick leave during the last two years of their life.
Additional leave days will be required even for employees who are not infected, as they attend funerals, take compassionate leave and care for family members who may be infected.
The productivity of those employees not infected may be affected as they watch their colleagues and family members die, and their fears and concerns for their own safety and health increases.
This stressful environment can damage staff morale and lead to further decrease in productivity. Indeed, the atmosphere may become fatalistic. Discrimination against employees living with HIV AIDS may further cripple company cohesion and destroy any teamwork in the company.
Companies cannot afford not to respond to the issue, as employees may construe a lack of response as an indication that management does not care - a serious threat to communication, labour relations and productivity. This implies a further cost as management resources are used to plan, respond to and manage HIV AIDS policies and problems.
As employees die or become too sick to work, new employees must be recruited. This may become increasingly difficult as the supply of skilled labour is affected by HIV AIDS, which is predominant in the working age group. This may not present an immediate problem in terms of semi- or unskilled labour, but some companies have already been forced to find expensive foreign management expertise as the disease compounds the lack of skills.
Once recruited, employees must be screened, interviewed, selected, orientated and trained. All these activities increase costs, while also placing additional strain on the employees who must assist the new employees during their training and learning curve.
The constant stream of new employees disrupts the continuity of the workflow process and destabilises the balance between new, inexperienced employees and experienced employees. A great deal of unspoken know-how is lost, as is the knowledge or institutional memory gained through years of company specific experience.
Companies must have a strategic plan in place, including detailed policies on how the issue of HIV AIDS will be handled in the company, creating a succession plan for replacing employees and looking at strategies to move ill employees to less demanding jobs. Consideration must be given to the rights of the employees in terms of various legislation and ways address the company’s liability in terms of discrimination.
Costs and profitability
Bill Lacey, an economic consultant at the SA Chamber of Business (Sacob), was recently quoted in the media saying that a crude survey, comprising 18 of Sacob's members, showed an HIV prevalence rate of between 3% and 30%. Most of the companies surveyed provide treatment for their employees at a cost varying between R100 000 and R20-million. The cost was directly related to the size of the company and how many people were being treated.
In 1995 already, research in Canada estimated that HIV AIDS had resulted in $8 billion in lost productivity and it was predicted to increase to $15 billion by 2000, while the cost to the employee benefit plans was $100,000 per HIV AIDS case.
The 2004 South African Business Coalition on HIV AIDS research found that 8% of the companies surveyed projected passing some of the costs they incurred as a result of the epidemic to their customers, to avoid profit margins coming under pressure.
The combination of increased costs and reduced productivity could result in companies seeing a decrease in their profitability and their competitiveness in the global economy.
The Market
The South African Business Coalition on HIV AIDS research indicates that the LSM 1-6 category has the highest HIV infection rate. According to the research, it can be expected that consumption of items comprising the main purchases of this group, for example, bread, flour, rice and milk will be strongly affected people became “increasingly burdened by higher healthcare costs and funeral expenses”.
Around 10% of the companies surveyed reported that their sales had been negatively affected, while 30% expected to see an adverse effect on sales in the near future.
According to a USAid publication: “HIV AIDS is known to be a disease that tends to impoverish families, particularly because infected individuals are often the main income earners in the household. As a result, families end up earning less but spending more on health care, leaving few resources available to purchase other goods. Thus, most businesses are likely to observe at least some decline in demand for their products, especially the ‘luxury’ goods that consumers can forego during difficult economic times. An article by Alan Whiteside, for example, noted that a South African furniture manufacturer (JD Group) projected an 18 percent reduction in its customer base as a result of HIV AIDS. The study went on to conclude that consumers would incur a significant decrease in demand for furniture due to HIV AIDS and its corresponding impact on household consumption.”
Sanlam says on its website that companies “will be challenged to minimise the effects of HIV AIDS on its profits. For example, new products will have to be developed, while at the same time ensuring that the Aids epidemic does not erode its client base (both current and future). Additionally, companies have to ensure that their succession pools are not depleted through the epidemic. Perhaps most importantly, the South African government has increasingly indicated its intent to request HIV AIDS strategies, policies and interventions for all companies wishing to tender for new government and parastatal contracts. Similarly, companies wishing to renew existing government and parastatal contracts may be asked for their HIV AIDS interventions. Finally, in an increasingly competitive market, clients' perceptions around companies' attempts at combating the HIV AIDS epidemic could be important.”
Corporate Governance and reporting
The Global Reporting Initiative is currently developing a resource document on reporting on HIV AIDS, and these HIV AIDS reports will be included with the companies’ customary annual reports.
The resource document will enable stakeholders to compare the performance of various companies using an internationally accepted and credible benchmark, and will include performance indicators such as strategic planning and risk management, evaluation, workplace conditions and the depth, quality and sustainability of HIV AIDS programmes.
This trend is echoed by the 2002 King Report on Corporate Governance for South Africa, which underscored the importance of annual corporate reporting on HIV AIDS and said that companies should detail the policies implemented to manage the effect of HIV AIDS their businesses, regularly monitor performance and report on all these issues to stakeholders.
Mervyn King, chairman of the King committee, quoted in Business Day, said that investors require forward-looking financial information from which they can draw conclusions and that the non-financial aspects of a business are critical.
Already two years ago, the media reported that the JSE was considering introducing HIV AIDS reporting as a requirement for listing. In May this year, the JSE launched a corporate social responsibility index, which will allow investors to compare companies’ performance on social responsibility. One of the Stakeholder criteria for listing is evidence of health and safety systems, including HIV AIDS measures.
Reporting on HIV AIDS issues remains voluntary, and as yet there is no enforcing legislation. Surveys by KMPG and Deloitte & Touche indicate that less than 40% of companies report on HIV AIDS.
Other organisations that are instrumental in implementation of reporting on HIV AIDS issues is the South African Institute of Chartered Accountants (SAICA), which has developed a framework to provide for effective reporting.
The ILO Code of Good Practice and the South African Code of Good Practice on Key Aspects also advocates that each company should monitor and review its HIV AIDS programme on a regular basis.
In conclusion
Yet, it is but another challenge faced by companies in South Africa and in the global economy. Strategic planning for this threat is an urgent priority for top management.
With solid planning, strong leadership, immediate action and collaboration among companies, NGO’s and government, the impact of HIV AIDS can be minimised and managed.
The HIV AIDS pandemic is real. The situation requires a strategic response from top management, intensive planning, immediate action and non-traditional strategies and collaborations to minimise the impact on companies, the sector and the economy.
The authors of the ILO report say that HIV-Aids destroys human capital built up over years and weakens the capacity of workers to produce goods and services for the economy. They add that the situation might worsen if more treatment is not provided and might lead to a 20% loss of the labour force by 2010.
This places additional pressure on the rest of the employees to fill in for and carry the workload of those not at work. The resulting overtime, exhaustion and stress could lead to reduced job satisfaction and a reduction in productivity.
But, productivity could suffer in many other ways. Employees living with HIV AIDS may be less productive when at work due to ill health. Even in good health, these employees are likely to experience stress of living with HIV AIDS, discrimination and uncertainty.
A further problem arises as the new recruits find it increasingly difficult to “fit in” as they replace friends and colleagues who have passed away.
In addition to the labour costs discussed above, companies will face increased costs in other, related areas. The costs of, for example, medical aid and health insurance, group life and disability insurance, employee benefits and pension fund contributions, funeral expenses and severance pay, will increase as the effects of HIV AIDS is felt in both the company and the economy.
Further costs relate to management and staff resources and direct costs involved in planning, implementing and participating in HIV AIDS prevention, training and treatment.
"This cost is set to increase, in some instances threefold," Lacey said in the media report. But, according to the survey, the cost of doing nothing was even more. "This varies between R1-million and R30-million," he said.
According to the ILO research report, the effects of HIV AIDS will also affect the markets in which companies operate. The report states that HIV AIDS impedes economic growth, as inactive households increase and savings decrease. “Over time reduced rates of savings lead to diminished investment, slower growth in productive output, constraints on employment and the likelihood of impoverishment.”
Companies are being pressurised by a wide range of stakeholders, including current and potential investors, their employees and the labour unions, as well as government and the community, to report on the effects of HIV AIDS in the workplace, the costs involved and the strategies implemented to manage the issue.
The HIV AIDS pandemic is real. The problem is huge and the consequences are dire.
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