Principles of Microeconomics
Instructor Kathryn Armstrong
March 28, 2011
Challenges Facing Developing Countries
Developing countries, also known as third and fourth world countries; face economic challenges that first world countries do not face, on a large scale. Poverty, low literacy rates, poor investments in both human capital and domestic capital, poor nutrition and devastation to populations due to the HIVAIDS pandemic contribute to developing countries moving towards development. The primary focus of this paper is to explore the impact the HIV/AIDS pandemic has had on Sub-Sahara African economies and to explore the challenges facing developing countries to stimulate domestic savings. The impact on the economies of some of the African countries is still not completely known. If we look at economic impacts, first we must look at the human cost HIV/AIDS is having on Africa’s economic development and ability to cope with the pandemic. According to an online journal, there are four variables that outline the effects on Africa’s future development: “Economic research helps to estimate the effects of HIV/AIDS on the African economy and the cost effectiveness of prevention and treatment programmes; Economic theory predicts that HIV/AIDS reduces labour supply and productivity, reduces exports, and increase imports; The pandemic has already reduced average national economic growth rates by 2-4% a year across Africa; Prevention and treatment programmes and economic measures such as targeted training in skills needed in key industries will limit the economic effects of HIV/AIDS”, (BMJ. 2002, p. 232). In examining the economic effects of HIV/AIDS, it is hard to look past the fact that over 17 million African people have lost their lives to HIV/AIDS and has 70% of all HIV/AIDS related cases in the world. These are staggering statistics. As outlined in the above journal article, the mortality rates have caused a reduced labor supply, reduced labor productivity and reduced exports and increased exports. The population of people hardest hit by the HIV/AIDS pandemic are the prime-aged adults. HIV/AIDS robs industries of both skilled workers and a generation of workers in their prime working years. The associated illnesses and sickness as a result of HIV/AIDS can lead to high absenteeism which impacts labor productivity. The effects of a reduced labor supply and reduced labor productivity, “reduces exports, while imports of expensive healthcare goods may increase. The decline in export earnings will be severe if strategic sectors of the economy are affected. The balance of payments (between export earnings and import expenditure) will come under pressure at the same time that government budgets come under pressure. This could cause defaults on debt repayments and require economic assistance from the international community”, (BMJ. 2002, p. 233). In a 1992 macroeconomics a study on the impact of HIV/AIDS in Africa, it was concluded that “reduced availability of skilled labour would reduce growth rates by about 50% and investment by 75%, that imports of food and other basic products would increase, and that exports of manufactured and other products would decline”. It was also estimated that by 2010, “South African’s GDP per capita would be some 8% low and consumption per capita would be about 12% lower than would have been the case without the HIV/AIDS pandemic”, (BMJ. 2002, p. 234). The pandemic will have lasting effects on the economic development on the Sub-Sahara African countries without international assistance. “An important step in limiting the economic effects of the pandemic is to develop comprehensive policies tailored to the needs of the economies of individual countries. These policies will inevitably include the introduction of treatment and prevention programmes but may also include economic measures, such as targeted training of skills...