Abstract
This article utilizes a political system framework to trace the political sources of business risk stemming from the unfolding HIV/AIDS generalized epidemic in South Africa. The article integrates relevant dimensions of the fields of international business and political science to facilitate the assessment of such risks for firms. Risk formation and updating is a sequential process. The conditions from which business risk emerges, the politicization of the generalized (i.e., widespread) epidemic through boundary-crossing activities, and “inputs” are explored. The transformation of HIV/AIDS from an epidemic to a business threat is underscored by the South African government’s tendency to view the issue as part of the public agenda rather than part of its formal agenda. Governmental inaction, as well as action, led to an array of risks for firms operating in South Africa (e.g., operations, asset impairment, competitive, franchise). Mitigating strategies for managers are discussed, including avoidance, offsetting, transference, sharing, remedy, and anticipation.
The study of business risk in South Africa has received little attention in the literature. Simon (1984) analyzed political risk in South Africa during the Apartheid era. However, the regime change in 1994, when racial oligarchy was replaced by representative democracy, relegated this particular work to historical status. More recently, Van Wyk, Dahmer, and Custy (2004) identified a variety of business risks in South Africa—political, economic, operational, and financial—and suggested appropriate managerial policies for risk management. One such risk analyzed by these authors was HIV/AIDS. This study endeavors to focus on HIV/AIDS and to investigate more fully this epidemic (a terrible human tragedy) as a business risk.
The primary goal of this article is to investigate the nature and the impact of HIV/AIDS as a business risk in South Africa. 1 HIV/AIDS in South Africa has reached generalized epidemic proportions (by which it is meant simply that the epidemic is widespread within the country). 2 Based on a wide range of data, including household and antenatal studies, UNAIDS and WHO (2007) estimated the HIV prevalence rate in South Africa at 18.8% for adults (15 to 49 years old). According to this estimate, 5.5 million South Africans were living with HIV, including 240,000 children younger than the age of 15 years. In mid-2007, following the latest antenatal survey, the South African Department of Health, in collaboration with UNAIDS, WHO, and other groups, published an updated estimate of 18.34% prevalence among adults. This percentage equates to around 5.41 million people living with HIV in mid-2006. Predictions are that the number will exceed 6 million by 2015, by which time approximately 5.4 million South Africans will have died of AIDS (South African Medical Research Council and Actuarial Society of South Africa, 2006). Such alarming statistics render South Africa the country with one of the highest HIV-positive prevalence rates in the world (UNAIDS & WHO, 2007; also see Table 2 below). Despite the widespread impact of the disease on South Africa and other countries, the literature on the epidemic as a business risk remains in its infancy (Bloom, Mahal, & River Path Associates, 2002). The South African Business Coalition on HIV and AIDS (SABCOHA) clearly stated the business risk of the pandemic: “As in the case of any business related risk, HIV/AIDS must be proactively managed. In order to assess and to manage risk effectively, it is essential to have adequate information regarding both the nature and extent of the risk” (SABCOHA, 2003, p. 1)
This article utilizes a framework, that is, the basic ideas and narrative structures, of dynamic risk formation (Van Wyk, 2006) to investigate the following dimensions of the business situation in South Africa:
The sociocultural system and regional environment of South Africa are the conditions that drive the origins and growth of HIV/AIDS.
The politicization of HIV/AIDS as a public policy issue is because of the actions of domestic, international, and global actors.
The threats posed by HIV/AIDS to business interests occur directly in the depletion of human capital and indirectly through environmental factors such as deficits in governmental political will and institutional incapacity to manage the epidemic.
HIV/AIDS poses current and future risks to the profitability of domestic and foreign firms operating in the South African business environment.
The risk management policies that firms may pursue to mitigate and to monitor the course of such an epidemic is a business risk.
Framework of Analysis
The framework of analysis, outlined above in Figure 1, deals with two matters: describing the workings of the political system and linking risk, as a sequential process of formation and updating, to the functioning of the political system.
Framework for Dynamic Risk Formation
Common to most definitions of the political system is its association with the use of legitimate coercion in societies. A political system refers to the institutions that make binding decisions for a society. Easton (1953) spoke of the authoritative allocation of values, Lasswell and Kaplan (1950) of severe deprivations, and Dahl (1963) of power, rule, and authority. Almond (1965) argued that legitimate force is the thread that runs through the inputs and outputs of the political system, giving it its distinctive quality and salience and its coherence as a system. The political system’s rules and enforcement of such rules compel obedience of performance.
Almond and Powell (1966) distinguished three levels on which the political system functions. The first function is internal to the system: Conversion processes occur where inputs are transformed into outputs. Easton (1965) distinguished two classes of inputs into the political system, namely demands and supports. Demand inputs may be for goods and services (e.g., health care), regulation of behavior (e.g., public safety), participation (e.g., to petition governmental decision makers), and symbolic inputs (e.g., display of the political system’s commitment in periods of threat). Support inputs are essential resources needed to convert demand inputs into outputs. Support inputs include material support (e.g., the allocation of public funds), participation (e.g., political activism such as joining organizations, communicating about politics), and obedience to laws and regulations. Input demands and supports may come from political elites, societal groups (e.g., NGOs), or the international system (e.g., NGOs, international organizations, foreign governments).
In every political system there is a set of political structures or institutions that initiates and processes inputs and converts them into outputs. The demands entering the political system are articulated, aggregated, or combined; converted into policies, rules, and regulations; and applied, enforced, and adjudicated. The articulation of interests or demands is performed by NGOs and lobbies. Interest aggregation is the function of political parties. The conversion of policy proposals into authoritative or binding rules is the function of government legislatures and government executives. The application of general rules to particular cases is the function of the state’s bureaucratic agencies. The adjudication of rules in individual cases is the task of the judiciary. Through the process of political communication, information about inputs and outputs is disseminated throughout the political system (Almond, 1965).
The second level of functioning involves the political system as a whole interacting with its environment. The boundary between the political system and its environment is flexible and may expand or contract as levels of political participation shift. At this level, performance and capabilities may be judged based on system outputs. Lasswell (1959) depicts it as “who gets what, when and how” (p. 1). Parson (1960) described capabilities as the mobilization of societal resources and their commitment for the attainment of collective goods and for the formulation and implementation of public policy. Almond and Powell (1966) distinguished among five categories of capabilities or outputs. The extractive capability refers to the ability in drawing material and human resources from the domestic and international environment. The regulative capability refers to control over individual or group relations. The distributive capability refers to the allocation of goods, services, honors, statuses, and opportunities. The symbolic capability indicates the ability of the political system to affirm the values of society and elites. The responsive capability is a measure of a political system’s success in converting legitimate demands into appropriate policies.
The third function of the political system entails maintenance and adaption. In a political system, the incumbents of various roles (e.g., legislator, judge, bureaucrat) must be recruited to these roles and socialized to perform them. System maintenance and adaptation are imbedded in the political culture of a society. According to Pennock (1966), political culture comprises a complex set of attitudes, sentiments, myths, and ideologies related to matters such as the place of politics in society, national and individual identity, the transparency of information, and elite–mass relationships.
Dysfunctionality may affect a political system’s ability to address input demands. Political elites may react in different ways to dysfunctionality: adapt their behavior and acquiesce to such demands; reject demands, display indifference, or even deny the seriousness of the demands; and/or react in a substitutive manner (i.e., outputs are directed at addressing other, more pressing demands; Almond, 1965). The literature on agenda building pays particular attention to such dysfunctionality (see Cobb & Elder, 1971; Cobb, Ross, & Ross, 1976; Grindle & Thomas, 1991; B. D. Jones, 2001). A distinction may be made between a public agenda and a formal agenda. A public agenda entails issues that have achieved a high level of public interest and visibility. A formal agenda is a list of issues that decision makers have formally accepted for serious consideration. Agendas are manifest in three patterns: outside initiatives, mobilization, and inside access. The outside initiative pattern involves demands by groups outside the formal governmental structures. For such groups to move demands from the public to the formal agenda requires crossing major obstacles: formulating grievances into specific demands, expanding their support base to other influential groups and the general public, and, in so doing, attracting serious attention from decision makers. The greater the discrepancy between public and formal agendas, the harder it is for outside initiatives to succeed. In the mobilization pattern, demands are initiated by political elites but the general public is mobilized to shift the issue from the public to the formal agenda. In the inside access pattern, decision makers initiate demands. Because of the power of such elites, expansion to the public agenda is not required, and the issue automatically ends up on the formal agenda.
The second part of the framework entails the notion that risk is the result of a sequential process. Such a process is well established in management literature streams such as business continuity planning and scenario planning. According to Zsidisin, Ragatz, and Melnyk (2005), business continuity planning focuses on multiple drivers of threats and vulnerabilities, the impact of such threats in the form of firm risk exposure, and managerial policies to mitigate risk. Scenario planning creates plots exploring possible futures. By combining factual data, experience, and creativity, managers may identify the emergence of risks and opportunities within scenarios (Shoemaker, 1993). Miller and Waller (2003), by combining scenario planning with real options, argued that scenario planning may help managers identify, categorize, and track uncertainties such as risk through the scanning of a continuum of environmental contingencies.
In summary, dynamic risk formation develops in a sequential process that is closely associated with the input–output model of the political system (see Figure 1). Risk formation entails the following sequential processes: the conditions from which risks emerge, the politicization of events because of the transformation of events into threats, and business risks based on actions that harm a firm’s profitability. From a managerial perspective, firms need to develop mitigating policies for risk management.
Conditions Fomenting HIV/AIDS Risks
HIV/AIDS risks originated from the environmental setting in which the South African political system is embedded. The generalized epidemic emerged in South Africa’s regional environment and then spread to the country’s sociocultural system. Starting in the late 1970s and early 1980s, the HIV virus spread in a band from West Africa across the African continent to the Indian Ocean before moving to the states in Southern Africa (BBC News, 2004a). Although South Africa was an internationally isolated pariah at the time, the country nonetheless dominated the regional economic system of Southern Africa (Geldenhuys, 1984). The virus was initially spread to the South African population by truck drivers and migrant workers. Truck drivers operated with logistics providers in the long supply chains stretching to and from the country. Migrant workers moved south from neighboring countries for employment in South African mines and factories. These displaced workers initially spread the HIV virus through their contact with sex workers in South Africa (Wren, 1990). As a result, the first cases of HIV/AIDS were diagnosed in South Africa in the early 1980s. At this stage, the virus spread swiftly in the South African socioeconomic environment, which was highly conducive to the acceleration of the disease for a number of pertinent reasons (Department of Labour, 2001).
Legacy of Apartheid
The spread of HIV/AIDS was hastened by Apartheid’s migrant labor system that compelled Blacks, for economic reasons, to leave their families in rural and tribal areas to seek employment mostly in the mining and manufacturing sectors in urban areas. The migrant labor force was highly mobile because of the demand for unskilled and semiskilled labor and the sophistication of the South African infrastructure. Migrants left their families behind because of the labor influx legislation of the Apartheid system, which strictly controlled their freedom of movement. Such restrictions caused the breakdown of the traditional family and encouraged prostitution and other forms of promiscuity. The combined effect of labor mobility and disrupted family life was a potent driver of the rapid spread of sexually transmitted diseases (STDs), which in turn escalated the risk of acquiring HIV.
Status of Women
The low social status of women in the South African sociocultural milieu made them especially vulnerable to HIV infection, thereby furthering the spread of the disease. 3 The protection of gender equality in the South African Constitution largely reflects the ideals to which the country’s political elites aspire rather than the values of society at large and the gritty realities of parochialism. According to Bentley (2004), women in South Africa are most vulnerable to the effects of HIV/AIDS, violence, and poverty because they compose the majority of the most marginalized, most impoverished, and least empowered section of South African society. The marginalized status of women in South Africa is starkly illustrated by the high incidence of rape. According to the International Criminal Police Organization, South Africa had the highest rape rate in the world. 4 The South African Law Commission reported that fear of reprisals meant that many cases went unreported and that social sanctions against such violations of women were weak, as reflected in only a 5% conviction rate in rape cases. 5
Parochialism
The attitudes, beliefs, and values associated with parochialism in South Africa tend to undermine the secular response required to combat and to turn back the spread of the generalized epidemic. In such a political-cultural context, the social stigmatization of HIV/AIDS is critical in understanding the formation of the disease as a business risk. An UNAIDS (2003) fact sheet on stigma and discrimination describes HIV/AIDS-related stigma as a “process of devaluation of people living with or associated with HIV/AIDS.” To a large extent, ignorance and fear form the basis of HIV/AIDS-related stigma. Discrimination is usually the action that results from stigma and is the unfair treatment of a person based on his or her actual or perceived HIV status. Fear of discrimination often stops people from getting tested or seeking treatment (Maughan-Brown, 2006). According to Kane-Berman of the South African Institute of Race Relations (SAIRR), a political-economic think tank, taboos about condom use constitute a social barrier in South Africa and inhibit the fight against the disease (SAIRR, 2001a). Furthermore, in African society it is often taboo to discuss either sex or death, which is, unfortunately, the cause and likely consequence of the disease. Likewise, myths about the cure for HIV/AIDS and fear about disclosing HIV-positive status are serious hindrances. 6
According to Connelly and Rosen (2004), where stigma exists within the workplace in South Africa, the uptakes of voluntary counseling and testing are usually low, which in turn renders prevention and care very difficult. Companies offering HIV/AIDS services cited that stigma rather than costs has been the main limitation in the implementation of HIV/AIDS programs among workers. Gold Fields, a South African mining company, delayed the implementation of a comprehensive HIV/AIDS intervention program to allay the distrust of organized labor. Labor felt that testing for the presence of HIV was a method of separating the healthy workers from the unhealthy and would lead to discrimination against the latter. This view was held despite the presence of considerable legal protections against unfair dismissals based on HIV-positive workers (see http://www.hivan.org.za).
The Politicization of HIV/AIDS Events in the South African Political System
The politicization of the epidemic may be illustrated by three short cases: events occurring during the Apartheid regime, legislation by the African National Congress (ANC) government to license generic HIV/AIDS drugs circumventing patent rights, and the emergence of Treatment Action Campaign (TAC) in challenging the failure of South African government policy on HIV/AIDS.
Resistance to Apartheid Programs
The early politicization of the HIV/AIDS issue occurred as an input for the political elite when the Apartheid administration introduced an educational and condom-distribution program as a preventative measure against the early spread of HIV/AIDS. This program largely failed because of ideological reasons. The disenfranchised Black majority was suspicious of the minority Apartheid government’s motives, which seriously undercut the credibility and effectiveness of even such a basic intervention program (e.g., condom use; Wren, 1990). The ANC, while still an exiled political party, supported programs and strategies that would alleviate the suffering of HIV/AIDS victims. However, after the negotiated political settlement and the democratic transformation of the political system in South Africa, the ANC government lowered the priority of the epidemic. In terms of agenda building, the epidemic became part of the public not formal agenda. Such focus on regime change and policies to democratize the country set in motion a process of official lassitude regarding HIV/AIDS that, in turn, delayed proper intervention programs for a decade.
Challenges to Patent Rights
The passage of the South African Medicines and Related Substances Control Amendment Act of 1997 (Medicines Act), an input by the South African government, further politicized the HIV/AIDS issue. The act focused sharply on the intellectual property rights (IPRs) of the pharmaceutical companies that manufactured antiretroviral (ARV) drugs to fight the HIV/AIDS disease. According to the Medicines Act, the South African Minister of Health could use discretionary power to prescribe conditions (e.g., the HIV/AIDS epidemic) for the supply of more affordable medicine— that is, to permit compulsory licensing at will, to violate any South African patent right, and to provide for parallel imports of generic drugs to compete with patented drugs in the South African market. The passage of the Medicines Act unleashed a flood of boundary-crossing activities emanating from the environments of the host country and home country as well as from the international business environment. Table 1 outlines the various political players and their positions on the disregard for IPRs for patented ARV drugs.
Politicization of Antiretroviral Patent Rights
Note: The table and its discussions rely heavily on the comprehensive analyses of Sherman and Oakley (2004) and Halbert (2002).
Those actors opposing the Medicines Act regarded it as a contravention of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the WTO’s code for protecting IPRs, including drug patents. This group engaged in various boundary-crossing activities to oppose any deviation of drug patent rights. The Pharmaceutical Manufacturers Association of South Africa and 41 national and multinational pharmaceutical firms filed a court motion in South Africa that Section 15 of the Medicines Act was unconstitutional. In support, the U.S. government, through official interaction, placed considerable pressure on the South African government to rescind its position. 7
Likewise, supporters of the Medicines Act engaged in various boundary-crossing inputs into the political system. In South Africa, AIDS activists and various NGOs through anomic behavior (e.g., protests and marches) agitated for lower prices of ARV drugs. In the United States, NGOs demanded during the 2000 presidential election that the U.S. government (and presidential candidates) support the lowering of ARV drug prices and the reduction of standards for IPRs. The WTO acted in a contradictory manner: It supported TRIPS on one hand but also issued the Doha Declaration, which diluted patent rights protection.
Eventually, the drug companies dropped their lawsuit partly because of lobbying by the WTO and the U.S. government but largely because of counter intense and negative publicity that portrayed the pharmaceuticals as uncaring about the HIV/AIDS pandemic. This retreat by business was a victory for antipatent activists. Sherman and Oakley (2004) stated,
In exchange for providing humanitarian aid (in the form of free or low-cost drugs) to help fight the epidemic in the least-developed nations, the pharmaceutical industry is hoping to improve its public image in the developed nations (where its profit potential is much greater). This strategy preserves the status quo of patent protection in profitable international markets while joining the world health community in its fight against the spread of AIDS. (p. 398)
The Domestic Challenge by Activists
Another significant event was the boundary-crossing activity of the interest group TAC. Starting in 1998, TAC initiated an interest aggregation process as a reaction to the unwillingness or claim of inability of the South African government to provide ARV treatment for people who were HIV positive. TAC followed a strategy of protest and civil disobedience to publicly shame decision makers into action (Berry, 2004). TAC also had considerable success in pursuing legal action against the South African government. TAC successfully sued the government in the High Court in Pretoria to provide ARV drugs to pregnant women in public antenatal clinics. The government’s appeal was rejected by the Constitutional Court (see http://www.tac.org.za). The interest aggregation of TAC highlighted a new political dimension in the HIV/AIDS crisis. TAC, as a core group, made specific demands for action and expanded its support base. However, the government’s indifference meant the epidemic remained on the public agenda and was not elevated to the formal agenda. This circumstance resulted in a shift in the public discourse for responsibility for interventionist strategies from the government to other social organizations in South Africa. The epidemic as a pattern of agenda building remained an outside initiative rather than one of inside access. This development pointed to emerging threats to businesses, with more extensive resources, to increasingly undertake social responsibilities and to provide public goods such as extended health care to their employees and also the communities that they served.
The Threat of HIV/AIDS to Business Interests
The third stage in the risk formation process is the emergence of threats to business interests. In this stage, the unfolding of the HIV/AIDS epidemic, and the government’s poor response to it, provides sufficient early-warning signals over time that the disease is exposing the business community to vulnerabilities and would continue to do so. If such uncertainties persist, firms’ operational costs and profitability come under pressure (see the discussion in Van Wyk, 2006, chap. 1). The sources of the threats that are foremost in challenging business interests are twofold: (a) the escalation of the generalized epidemic, particularly at the workplace, and (b) the poor response of rule makers (government) of the South African political system to curb or at least to blunt the disease.
Magnitude of the Epidemic as a Threat to Business Interests
Tracking the devastation of the generalized epidemic over the past decade provides ample forewarning to the business community that HIV/ AIDS will expose firms to risks such as increased illness and mortality among its workforce with its associated business risks. Table 2 also illustrates that these negative trends will not only continue but also worsen in their impact on businesses.
Estimated Effects of HIV/AIDS on Total South African Population
Source: Actuarial Society of South Africa (ASSA, 2004, 2005); South African Institute of Race Relations (2007); UNAIDS and WHO (2007).
Human Sciences Research Council.
In 1999, 11% of the workforce was HIV positive and 1% had full-blown AIDS. The International Labor Organization (ILO) estimated that 20% of South African mineworkers were HIV positive and 7% had AIDS. The workforce of Eskom, the utility leader, was 11% HIV positive in the same year (Mophuthing, 1999). In 2000, Deloitte and Touche’s health care consultancy, Human Capital Corporation, warned that the HIV/AIDS epidemic may cause firms to lose 20% of their employees, over and above normal attrition, during the next 7 years. The most vulnerable group is the 20- to 40-year cohort, from which most middle managers and future senior managers are recruited (Business Times reporter, 2000). Figures published by the South African Department of Labour (2001) estimated that 18.02% of the South African workforce between the ages of 16 and 59 were HIV positive. ASSA, the Actuarial Society of South Africa (2005), estimated the workforce prevalence rate at 18.8%. If no intervention program is introduced, the prevalence rate will increase to 22.35% in 2005 and 24.08% in 2010. 8 Other future projections for 2015 paint a similarly bleak picture. HIV prevalence rates for skilled workers will increase to between 19.0%, according to ING Barings, and 25.4%, according to Abt Associates. For unskilled workers, the infection rate will increase to between 27.6% (Abt Associates) and 32.0% (ING Barings). The shrinkage of labor because of HIV/AIDS by 2015 will be between 23.5% (IRIN-UN News Services) and 25.3% (ILO). 9
For individual firms, the warnings emanating from the epidemic have, over time, become a reality. Stevens, Apostolellis, Napier, Scott, and Gresak (2006) tested workers at Anglo Platinum, a large multinational enterprise (MNE) operating in South Africa, and found an HIV prevalence rate of 24.6%, or approximately 15,167 HIV-positive workers employed at the company. For sectors of the economy, infection rates of workers are consistently high: 59% for trucking, 45% for agriculture, 30% for gold mining, 19% in the corporate sector, and 10% to 20% in coal mining (SAIRR, 2007, p. 333).
Political System Dysfunctionality as a Threat to Business Interests
In dealing with the HIV/AIDS crisis, the South African political system displays the structural and attitudinal limitations of a new political regime challenged by inexorable systemwide transformations (Vircoulon, 2004). The conversion functions of the political system reflect the struggle to consolidate regime power, but often at the cost of contradictory responses to input demands. The system maintenance and adaptation functions expose the institutional capacity constraints and the political diffusion of public–private demarcation, both of which are common transformation problems of new and unconsolidated democracies in developing countries. These same barriers, clouded by the contradictions of secular and parochial values, weakened elite political will and leadership to accommodate outside initiatives within the formal agenda. This circumstance, in turn, produced system outputs that fell short of civil society’s needs and expectations for alleviating the individual and community suffering caused by HIV/AIDS (see Table 3).
Government Behavior as a Threat to Business Interests
Regime Values
The fact that the new government took 10 years to roll out ARV drugs (indeed, still at only a limited level) points to regime values and norms that, according to Suttner (2004), unified the people against Apartheid and discrimination but tended to suppress differences and be intolerant to pluralism. Despite the rapid spread of the epidemic and widespread public demand for government intervention, the ANC government’s inaction points to a political system in which rule-making and rule-application functions have increasingly become centralized and less accountable, which in turn has diluted responsive capability or system outputs, undermined the proper functioning of separation of powers, and facilitated the emergence of a one-party system without viable opposition parties (Botha, 2004; Hamill, 2004; K. Johnson, 2005; Labuchagne, 2004; Lemon, 2005). 10 In terms of agenda building, the dominant pattern remains that of inside access, where the political executive determines the formal agenda. Items on the formal agenda include Black economic empowerment, removal of race-based legislation, and expansion of public utilities. Outside initiatives, such as the campaign to fight the HIV/AIDS epidemic, remained part of the public rather than the formal agenda. 11
Despite Venter’s (2005) criticism that the Constitutional Court is subject to politically warped adjudications in the form of majoritarian subservience, rule-adjudication structures in South Africa have been responsive to demands for public treatment of HIV/AIDS. In August 2001, a ruling by the High Court in Pretoria ordered the government to provide the ARV drug Nevirapine to pregnant women in public hospitals. The High Court ruled that the government’s refusal to provide the drug was a breach of its constitutional duties to ensure access to health care (see http://www.aegis.com/news/ar/2001/REO11009). The ANC government also lost on appeal to the Constitutional Court of South Africa (2002). In another case, the Department of Correctional Services did not provide ARV drugs to inmates despite a court order to the effect and a defeat of the appeal (Tolsi, 2006). Although the judiciary in South Africa does not set the formal agenda, it does contribute to the support base that demands action regarding the epidemic.
System Maintenance and Adaptation
The system maintenance and adaptation functions of the South African political system also fell short of stemming the impact of the epidemic. In Uganda, government-led socialization and communication resulted in behavioral changes and a significant reduction in HIV infections (Berry, 2006). 12 In South Africa, despite the lower- and middle-income status of the country, socialization and communication efforts largely failed to change behavior and to reduce HIV infection rates. The government launched numerous programs to disseminate information and to distribute condoms, but in balance these programs had no significant impact on changes in sexual behavior. 13
The recruitment function of the system has also been inadequate in dealing with this health care epidemic. South Africa lacks sufficient health care personnel to turn the tide on the HIV/AIDS epidemic. 14 Health coverage is stretched thinly, with one doctor for 4,974 people and one nurse for 1,075 people in the public sector (SAIRR, 2007). The ratio of physicians per 1,000 people is 0.8 in South Africa, which is comparable to the situation in Pakistan (0.6) and Malaysia (0.7) and is resource poor in comparison with Brazil (1.3), the United Kingdom (1.8), and the United States (2.8) (World Bank, 2006).
A study by the Human Sciences Research Council (HSRC) revealed serious organizational capacity shortcomings in the public health care system (Bisseker, 2004). The HSRC study highlights multiple threats: Patients with HIV-related illnesses have overwhelmed the public health care system, hospitals lack resources such as HIV test kits and adequate health care professionals, and there has been poor communication of the Department of Health’s policies. 15
All system functions, including system maintenance and adaptation, suffer from a problematic political culture that, in relationship to the HIV/ AIDS epidemic, excessively promotes parochial values and norms at the cost of secular epidemiology. The support for parochial or dissident views of HIV/AIDS, mostly by political decision makers, caused denial of the epidemic, delayed timely intervention, alienated stakeholders, and partially transferred responsibility for intervention therapy to the business community and NGOs. Major players in the formal agenda-building process, such as President Mbeki and various incumbents of the Minister of Health portfolio, have on numerous occasions supported a political culture of parochialism by denying or diminishing the sex–HIV/AIDS causality. These political elites have also publicly supported dissident and unfounded causes for the disease such as poverty, racism, and Western conspiracy. Unverified alternative therapies, such as traditional medicine, diets, and untested drugs, have been promoted, whereas proven treatments, such as ARV drugs, have been publicly questioned and even dismissed. 16 The system’s dysfunctionality is similar to Almond’s (1965) demand rejection or indifference to or denial of the seriousness of the demand.
Outputs of the Political System
The outputs of the political system in terms of the epidemic are characterized by (a) inadequate support to convert demand inputs into outputs and (b) the status of the epidemic as an issue of the public rather than the formal political agenda. The political system’s extractive capability (i.e., budget) has proven insufficient to reverse the impact of the disease. In the government’s health budget for 2005-2006, R1.56 billion, out of a total of R47.1 billion, was earmarked for HIV/AIDS programs. With more than 5 million HIV-positive citizens, such resource allocations will fall far short of stemming the tide of the epidemic. Only US$62 million was earmarked for ARV drug rollouts. Even with the free provision of ARV drugs by manufacturers, this budget will be insufficient to provide treatment to the approximately 700,000 people with AIDS in need of immediate care. 17 According to the Global Fund, foreign aid for the fight against AIDS, malaria, and tuberculosis amounted to US$116.5 million for the period of 2003 to 2007. Medical expenditure per capita in South Africa was only US$295 in 1996. Given the extent of the epidemic, the available resources are inadequate to halt its devastating impact (SAIRR, 2007; http://www.theglobalfund.org/en/files/disburementdetails.pdf). In defense of the South African government, it may be stated that the deficient institutional capacity of the health care system, especially in rural areas, is an Apartheid legacy. Furthermore, the government is faced with a full array of transformation and social needs that fiercely compete for scarce public resources. Government priorities, however, are sometimes questionable. For example, hospital-building programs have been postponed to provide funds for new and renovated stadiums for the football World Cup that the country is hosting in 2010. 18 Stadium budgets are already hundreds of millions of dollars over budget.
It has been outlined above that centralized and unchallenged rule-making values and norms have hindered responsive capability, that is, civil society’s demand for government intervention to address the epidemic. To date, civil society’s demand for government intervention, notably the provision of ARV drugs, has not been met appropriately. As long as the epidemic is not within the formal agenda of the government, dysfunctionality of the system’s responsive capability will persist. The system’s symbolic capacity reveals contradictory commitment to solving the causes and impact of the disease. This contradictory commitment reflects the conflict between parochial and secular values in the political culture over how to handle the generalized epidemic. The symbolic values, as reflected in the South African Constitution, state that every citizen has the right of access to health care and that basic health care is guaranteed for all children. Unfortunately, the gap between symbolism and action is vast. The public health system is in such a crisis that the Minister of Health publicly declared that she would not personally go for treatment in one of the state hospitals for which she is responsible (SAIRR, 2007). 19
The system’s regulative capability provides widespread legal protection against unfair dismissal or discrimination and protection against the risk of workplace exposure to HIV infection. 20 Protection against unfair dismissal has been upheld in the courts via two cases: Hoffman v. South African Airways (2000) and NS v. Old Mutual (2001). 21 The Medical Schemes Act (1998) outlines ministerial discretionary power to issue a proclamation regarding the scope, level, and minimum benefits for HIV treatment. Ironically, however, ARV therapy is excluded from this act.
Despite these positive outputs, other regulative outputs often hinder intervention programs by the private medical sector. The Employment of Equity Act (1998) prohibits medical testing to determine the HIV status of an employee. Testing may be done only with the consent of the Labour Courts. Rabinowitz (1999), a parliamentarian and physician, pointed out that if a doctor failed to officially notify patients of their tuberculosis status, they would be liable and open to prosecution. However, patients have a right to refuse an HIV test or refuse to know the results of an HIV test. 22 In general, fewer legal and bureaucratic barriers to HIV testing will greatly contribute to earlier intervention in the disease process. The rights-based approach, in contrast, favors protection of the privacy rights of HIV-positive individuals as a safeguard against discrimination despite the wide legislative protection against unfair dismissals based on HIV status. Proponents of the rights-based approach argue that the past history of racial discrimination in South Africa will be perpetuated by compulsory testing (P. S. Jones, 2005). The rights-based approach, by guaranteeing privacy, also protects individuals from discrimination and even harm, particularly in rural villages where infection may be viewed as a stigma or taboo. In such a crisis situation, political decision makers are always challenged to find the appropriate balance between protecting individual privacy and mitigating the harm posed by an epidemic to the society at large (see Policy Options below).
Dr. Kgosi Letlape, Chairman of the South African Medical Association, argued that that the National Health Act hurts the health care system in many ways:
The removal of the ability of general practitioners (GPs) to dispense medicines undermines the private health sector and adds costs to patients
The prescription of practice location for GPs, via certification, leads to many professionals leaving the country
Other regulations and governmental behavior have also been detrimental: promotion freeze in the public health sector leads to attrition of health care professionals and a coercive atmosphere exists in the Department of Health, which discourages criticism from health care professionals
Government resistance to ARV rollouts harms public–private partnerships
Price controls hurt drug manufacturers by denying them a profit despite the high costs for developing drugs (SAIRR, 2004a)
The system’s distribution capability, until the 2004 partial rollout of ARV drugs, was one of underperformance. In 1998, the government refused to make AZT drugs available to treat patient mother-to-child transmission (PMTCT), citing cost of treatment and testing and unwillingness to target individuals already infected. However, GlaxoSmithKline, the manufacturer of AZT, had already reduced the price of AZT by 70% and was prepared to make deeper price cuts, but the government would not accept the company’s offer. The government also refused the distribution of Nevirapine (at R2 per dose) for PMTCT treatment, citing the additional costs of the administration of drugs and the training of staff. This refusal arguably represents a cynical view: The government was prepared to spend R600 per month for pediatric care for HIV-positive babies with an expected short lifespan, but the care for a healthy orphan was regarded as too much of a drain on state resources (McFarlane, 2004).
HIV/AIDS as Business Risk in South Africa
The essential component that changes a threat into a risk is that risk becomes an action emanating from political structures and environmental conditions that will negatively affect a firm’s profitability (Howell, 1992; Kobrin, 1979). Table 4 outlines the risks posed by the epidemic to the business community in South Africa.
Classification of Business Risks
Note: Table based on ideas of Simons (2000).
A survey conducted by the Bureau of Economic Research at the University of Stellenbosch for SABCOHA showed that HIV/AIDS has already had a negative impact on the profits of companies surveyed in South Africa. Industry, firm size, and location are all indicators of lower profits. For example, in the mining, transport, and manufacturing sectors, declining profits because of the epidemic are the most pronounced. The survey also revealed that the profits of large companies have suffered most and that those of smaller companies have suffered the least. From a location viewpoint, firms based in the Kwazulu-Natal Province of South Africa reported the most profit reduction and those in the Western Cape Province the least. The locational impact is closely linked to the levels of infection and prevalence. Furthermore, the survey powerfully conveyed that businesses operating in South Africa perceived that HIV/AIDS will expose profits to even deeper reductions during the next 5 years (SABCOHA, 2005).
Operations Risks
The high HIV/AIDS infection rate of the workforce in South Africa places a heavy burden on the human resources of firms and, as a consequence, heightens operations risk. Firms that create value via manufacturing, services, or resource extraction will face a debilitating effect on their workforce and, ultimately, on the their outputs. According to Yacobovsky (2004), absenteeism has been costly to businesses in South Africa. Companies with high levels of absenteeism because of the epidemic will likely have 4 times the cost burden of those with low absenteeism rates. Absenteeism is projected to sharply increase over the short term (up to 2010), at which point it will continue to grow at a lower rate until at least 2024. In a survey of more than 1,500 Africa-based companies, the majority of South African respondents (58%) indicated that HIV/AIDS had a negative impact on productivity and absenteeism and increased the costs of recruitment and training (World Economic Forum, 2004). According to a survey commissioned by SABCOHA (2005), operations risk exposure for firms in South Africa has increased because of a number of epidemic-related problems including lower labor productivity, increased absenteeism, higher labor turnover rates, and a loss of experience and vital skills. According to this survey, some industries, notably mining, manufacturing, and transport, have experienced more elevated operations risk, whereas others (automotive, retail, wholesale) have had less exposure. 23
The survey indicated three other ramifications of HIV/AIDS on oper- ations risk. First, companies that employ predominantly semi-and unskilled workers have been much harder hit than companies that employ largely skilled workers. 24 Second, company size is related to operations risk. More than three fourths of large companies indicated that HIV/AIDS has led to lower productivity, increased absenteeism, and higher employee benefit costs. In sharp contrast, less than one third of small companies reported such cost increases. Third, location matters because the largest concentration of business activities in South Africa is related to higher operations risk. Firms based in Kwazulu-Natal Province, the location of Durban, which is the country’s largest port facility, and Gauteng Province, the location of Johannesburg, which is the industrial and financial heart of the country, have been exposed to higher levels of operations risk. However, in the Western Cape Province, the location of the Cape Town metropolitan center and port, HIV/AIDS has generated much lower operations risk exposure. It is notable that the HIV/AIDS prevalence rate is much higher in Kwazulu-Natal and Gauteng than in the Western Cape. 25 The intangible impact of HIV/AIDS on operations is important but much harder to gauge or monitor (e.g., employee morale and other unintended shifts in a company’s organization and operational structure; Aventin & Huard, 1997; Dorrington, Bradshaw, Johnson, & Budlender, 2004).
Asset Impairment Risks
HIV/AIDS, as a source of asset impairment risk, has financial and IPR consequences for firms operating in South Africa. HIV/AIDS financially induced impairment is not related to major concerns identified by Simons (2000), such as credit sovereign or counterparty risks. Instead, the epidemic has imposed higher financial expenditures because of recruitment and training and employee benefits (health and life insurance). 26 For example, Harmony Gold, a South African mining company, estimated that HIV/AIDS-related expenditures will cost the company an additional US$2 to US$5 for each ounce of gold produced (BBC News, 2004).
Empirical evidence supports the idea that the epidemic will cause financial risk impairment. Projections made by British Petroleum (BP), the oil MNE, show that if the company’s involvement increases to provide health care coverage to infected workers, costs will skyrocket (Kramer, 2001). BP envisioned four scenarios for South Africa:
No intervention scenario, that is, no program of prevention of HIV or treatment of AIDS in place. In this scenario, BP’s costs will increase from R6.27 million in 2001 to R9.44 million in 2014.
Mild scenario, that is, no provision of ARV drugs but provision of employee programs (e.g., education, treatment of STDs, and supply of condoms). In this scenario, costs will increase from R6.19 million in 2001 to R8.49 million in 2014.
Mild prevention scenario with ARV treatment. This scenario will result in a substantial drop in mortality, but the pool of infected employees will be larger and the life expectancy will be longer. In this scenario, costs will escalate from R17.35 million in 2001 to R62.25 million in 2014.
Strong intervention scenario with ARV treatment, greater efforts with preventative strategies, and compulsory counseling for employees. Such a scenario will likely show a drop in mortality while still showing an increase in HIV prevalence rates because of increased infection, but at a lower rate. In this scenario, costs will escalate from R17.13 million in 2001 to R58.08 million in 2014. BP has made a commitment to this scenario strategy in South Africa.
SABCOHA (2005) has shown that financial impairment is sector specific. Sectors such as mining and manufacturing will experience higher recruitment and training costs because of the epidemic. Higher employment benefit costs are more widespread in financial services and the transport, mining, and manufacturing sectors. Financial service companies appear to be the most vulnerable to increased employee benefit costs, which may be explained by (a) the higher percentage of mainly skilled and highly skilled employees working in this sector and (b) a higher likelihood of offering and contributing to employee benefit schemes. 27 Survey projections by MNG Consultants and Actuaries have estimated the long-term costs of replacement, recruitment, and training for firms with a high rate of HIV/AIDS risk at more than R2.5 million, for firms with medium risk at about R1.5 million, and for firms with low risk at less than R1 million (Yacobovsky, 2004). According to Markinor, a South African polling firm, higher income and better educated professionals with full-time employment are as susceptible to infection as are the poor.
Competitive Risks
Competitive risks may affect customers, suppliers, and shareholders. 28 The HIV/AIDS epidemic may have demand-side effects resulting from declining numbers of customers for a firm’s products or from shifts in expenditures away from consumer products to health care needs of employees (Bloom, Bloom, Steven, & Weston, 2003). The Joshua Door Group, a South African retailer, forecasted that HIV prevalence among its customers will increase from 15% in 2000 to 27% in 2015. The firm expects its customer base will decline by approximately 18% during this period. Remaining customers will be less credit worthy because of increased medical spending and decreased consumer spending (Whiteside & Sunter, 2000). Research conducted at the Bureau of Market Research at the University of South Africa showed that the proliferation of HIV/AIDS will reduce consumer spending on food significantly by 2012; that is, approximately R7 billion less will be spent on grain products, R4.6 billion less on bakery products, R14 billion less on meat products, and R7.8 billion less on fruits and vegetables (Kahn, 2003). Overall, very few companies, less than 10%, expect to pass some of the HIV/AIDS costs onto their customers by increasing their selling prices. If companies are not able to recover costs by increasing their selling prices, their profit margins will come under pressure (SABCOHA, 2005).
Lack of transparency regarding the impact of HIV/AIDS on a firm’s profitability may raise shareholder concerns. To this effect, the Johannesburg Securities Exchange (JSE) has adopted the Socially Responsible Index (SRI), a guideline for listed companies to voluntarily provide disclosure on nonfinancial data, especially policies to address and to manage the potential impact of the epidemic on the company’s activities (Salomon, 2004). 29 In all, 51 companies were accepted as SRI members, including industry leaders Anglo American, Gold Fields, SABMiller, and Woolworth’s Holdings as well as 17 members of the Midcap Index and 3 Smallcap members. The SRI serves as a forum of peer pressure among businesses and as a benchmark for accountability to shareholders and fund investors (JSE, 2004).
The rise in HIV/AIDS prevalence will likely have a feedback effect on the macroeconomic environment of South Africa in that GDP growth will be slower and that the country’s national competitiveness will suffer in a comparative sense. The World Economic Forum (2008) views poor health care in South Africa, particularly the business impact of high HIV prevalence rates and declining life expectancies, as an important factor that caused the country’s competitive ranking to drop from 26 in 2000 to 44 in 2008 (see http://www.weforum.org/documents/gcr0809/index.html). In addition, the epidemic adds to the risk premium of the South African market in the form of a macroeconomic risk emanating from lower consumer spending because of decreased economic output. Empirical studies reflect consensus that HIV/AIDS will slow down GDP growth, with some variance regarding the rate of the slow down. 30
Studies set the shrinkage of South Africa’s real GDP by 2015 to between 2.8% (estimated by ING Barings) and 9.6% (estimated by ABSA Bank, a South African bank). However, GDP per capita will rise slightly because the total population will decrease because of higher death rates caused by AIDS (United Nations Integrated Regional Information Network, 2004; SAIRR, 2007). According to the Bureau of Economic Research, the epidemic’s impact (2002 to 2015) will likely contribute to increased producer prices (1.9% to 3.3%), shave off 0.5% per year from final household consumption expenditures, and reduce gross domestic fixed investment by between 1.0% and 1.8% per year. 31 Any slowdown in South Africa’s GDP growth will critically inhibit its ability to reduce high unemployment rates and to uplift the large percentage of the population that exists in relative poverty. 32
Franchise and Reputational Risks
The HIV/AIDS epidemic in South Africa poses franchise and reputational risks to international pharmaceutical companies that manufacture ARVs. As argued above, the Medicines Act provides the Minister of Health with discretionary power to make affordable medication available to protect public health regardless of patent rights.
According to Keegan and Green (2005; see Case 11-1, pp. 395-396), the dilution of IPRs poses three types of risks to pharmaceutical companies:
By cutting prices in developing countries, the pharmaceutical companies have opened themselves to pressure to reduce prices in developed countries as well. Lower-priced drugs may fall in the hands of black marketers, who would then re-export them to developed countries and undercut established prices.
New entrants in the pharmaceutical market will sell low-priced generic HIV/AIDS drugs and take market share from industry leaders. 33 Poor regulatory regimes, especially in India, raise concerns (e.g., piracy for firms and toxicity and/or proper regimen protocols for patients). Under such pressures, the major pharmaceutical companies have introduced very deep price cuts in developing counties. Merck indicated that it was generating zero profits from its ARV sales in developing countries.
The IPR issue has been politicized by HIV/AIDS activists who regard ARV drugs as a public good and human rights issue rather than a commercial product that requires profit to defray large sunk costs (Halbert, 2002). Despite price cuts, pharmaceutical MNEs appear to be losing a public relations war in which HIV/AIDS activists portray the firms as both secretive and callously withholding needed drugs from millions of desperate, sick people. Many of the efforts of the pharmaceutical industry to lower prices and to support HIV/AIDS intervention programs are aimed at deflecting such reputational damage.
HIV/AIDS and Risk Management
Risk management of HIV/AIDS may be viewed from both strategic and policy perspectives.
Strategic Level
Strategically viewed, companies face the make-or-buy choice; that is, do they endeavor to manage the disease’s impact on the workforce and operations in house (make), or do they outsource (buy) risk management? As previously argued, epidemic health care in South Africa is the domain of the government, as manifested in the Constitution, other legislation, and rulings by the Constitutional Court. However, the government has neglected its health care responsibilities because of a combination of institutional incapacity and a lack of political will. Tied with a strengthening of stakeholder interests over those of shareholders in South Africa, businesses have come under pressure, both domestically and internationally, to step up and assume a larger role in combating HIV/AIDS (Van Wyk et al., 2004).
In general, the resource base of firms has been the dominant factor in the make-or-buy decision. Large firms with considerable resources tend to manage HIV/AIDS risk in house, whereas small, micro, and medium enterprises (SMMEs) with limited resources tend to buy or to outsource the management of HIV/AIDS risk. 34
For SMMEs, outsourcing health risk management provides many choices. PeopleManagement, an HIV/AIDS consultancy firm, provides actuarial risk assessment of the economic impact of HIV/AIDS on an organization and training and planning for interventionist strategies such as voluntary testing for infection. Also, SABCOHA has developed the HIV/AIDS Toolkit for SMMEs to help companies implement education and prevention programs (Gibson, 2004a). The International Organization of Employers provides the Employer’s Handbook on HIV/AIDS: Guide for Action, which facilitates the transfer of information and experience and provides a guide to mitigate the impact of HIV/AIDS on companies and business environments, notably losses of human capital, productivity, and profits. 35
Policy Level
In the HIV/AIDS literature, the presence of a written policy is regarded as a strong indicator that a firm has earnest intentions to mitigate the impact of the disease in the workplace and business environment. A survey of 500 South African companies commissioned in 2002 by Sanlam, the South African finance group, found that 75% of the companies surveyed did not know the HIV/AIDS prevalence rate in their organizations (Lundin, 2002). A later survey by the World Economic Forum (2004) found that 53% of South African firms had a written policy. However, only 35% of firms in South Africa have based their organization’s prevalence rate on quantitative data. The gap between proper assessment of prevalence rates and written policies indicated that most firms may base risk management strategies on guesswork rather than empirical data.
The latest survey (SABCOHA, 2005) showed further improvement among businesses in the implementation and communication of HIV/AIDS policies. Policy implementation is driven by industry, firm size, and skill levels. A sectoral breakdown showed that financial services, mining, transport, and manufacturing (in that order) are the industry leaders, whereas other industries are laggards, notably retail, automobile, and building and construction. In line with the resource base argument offered above, it is the norm that virtually all large firms have HIV/AIDS policies in place, followed by two thirds of medium-sized corporations, and less than 20% of small companies. From a skills level perspective, firms performed poorly: Less than 40% of firms with a semi- or unskilled workforce had a policy in place; medium-sized firms (35%) and small firms (< 20%) fared even worse. The latter finding is in line with the view of Dr. Denis Cronson, CEO of Health Insite, which is a consultancy firm. He stated that 90% of small firms are doing very little to mitigate the HIV/AIDS risk (Lundin, 2002).
Policy Options
Firms have an array of options available to mitigate HIV/AIDS risks, as outlined in Table 5.
Risk Management Strategies
Note: CSR = corporate social responsibility.
Avoidance
Avoidance strategies may be motivated by various factors. First, international firms may avoid investing in South Africa because the HIV/AIDS epidemic may add costs to location factors such as labor and production. In comparison, South Africa may appear less attractive than other countries with similar labor skill levels but with lower HIV/AIDS infection and prevalence rates. Case studies will be difficult to unearth because it will be socially unacceptable, even a public relations disaster (reputational damage), for a firm to admit that investment in South Africa was avoided because of the presence of HIV/AIDS. 36
Firms relying on unskilled or semiskilled labor may regard such labor as expendable. The supply of semi- and unskilled workers far exceeds demand. 37 Although this reliance has the appearance of callousness, the high unemployment rate in South Africa and the short time period to train such workers ease the task for firms replacing unskilled workers (Quattek, 1999, 2000).
Firms may avoid interventionist strategies because management is unconvinced of its benefits or may believe that a “watch and wait” approach in the short term is justified pending medical breakthroughs and/or cures. According to the SABCOHA (2005) survey, small firms are “loathe to invest in HIV/AIDS interventions that may require years to show a positive return” (p. 26). Dave Strugnell, head of actuarial R&D at Momentum Collective Benefits, a South African insurance company, opines that management is often not convinced that HIV/AIDS intervention programs work or that ARV drugs may improve productivity among infected employees (Gibson, 2004a).
Anticipation
A common argument regarding the HIV/AIDS epidemic is that preventive policies are more cost-effective for firms than are remedial policies. According to Sunter (SAIRR, 2001b), a leading business expert on the disease in South Africa, the provision of treatment to eliminate STDs and to implement various other measures to prolong the lives of HIV-positive employees costs one tenth the costs of failing to do so. Estimates by Gold Fields, a mining MNE, reveal that intervention programs will cost US$3 to US$4 per ounce of gold produced. This cost could escalate to US$10 per ounce if the company did nothing to stem the epidemic (HIV/AIDS affecting industry worldwide, 2007). The data in Table 6, however, show that prevention is not necessarily cost-effective in managing the epidemic.
Total Costs of HIV/AIDS Programs for British Petroleum by 2014
Note: Table derived from ideas in Kramer (2001).
In millions of South African rand.
Employee and three dependents on ARV.
The data support the conventional view that mild or strong intervention coupled with the provision of ARV drugs will reduce most operational costs considerably over time. The high cost of medical care and the duration of the illness mean that large firms will have to absorb substantially more risk generated by the epidemic and at the cost of lower profitability to operate a business in South Africa. However, BP has committed to the strong intervention with ARV provision scenario. BP argued that dealing with the epidemic now will have a long-term economic benefit. A healthy population in a growing emerging market will increase demand for BP’s energy products. BP’s strong commitment is part of the firm’s corporate social responsibility under a new global strategy that emphasizes not just profitability but also corporate citizenship regarding human rights, environmental protection, and community service.
For MNEs, the cost of HIV/AIDS may be absorbed or offset in one market, which has been entered for strategic reasons while enhancing profits elsewhere in the firm’s global network. MNEs exposed to the HIV/AIDS epidemic in South Africa may benefit from the experience by transferring knowledge about risk management of epidemics to other emerging markets where the epidemic is gaining ground. Studies indicate that HIV/AIDS infection and prevalence are set to triple by 2010 in important emerging markets such as Russia, China, and India (Gill, Chang, & Palmer, 2002; National Intelligence Council, 2003). Issues such as institutional capacity of public health care, government attitudes toward epidemics, and public– private partnerships to deal with health crises (HIV/AIDS, SARS, avian influenza) may be considered as additional factors among other location drivers in foreign investment decisions.
Given this unfavorable condition, there are steps an organization may take to mitigate HIV/AIDS risks: (a) risk assessment, (b) policy implementation, and (c) remedial risk management.
First, risk assessment research should be undertaken to determine the impact of the epidemic on the firm. Research shows that, in the financial sector, 63% of companies have made a risk assessment of the impact of HIV/AIDS on the labor force. In other sectors, a large majority of organizations have done an adequate or proper risk assessment. Company size is closely linked to in-place risk assessments: 61% of large companies, 28% of medium-size companies, and only 12% of small companies. A major concern is that far too few companies, regardless of sector size or skills levels, have assessed the risk of HIV/AIDS for production costs. 38 According to Salomon (2004), investors in MNEs and global or international equity portfolios are increasingly insisting on greater transparency about the impact of HIV/AIDS on operations and profitability. In light of the business risk posed by HIV/AIDS in South Africa, investment banks are eager to acquire information (e.g., risk assessments and economic impact studies) regarding the financial consequences of the epidemic for their investment strategies. For example, Deutsche Bank, Dresdner Bank, and HSBC Holdings have all expressed the need to take this information into account in their “financial forecasting, asset allocation, stock selection and risk underwriting” (Schlesinger, 2003, p. 24).
Second, policy implementation to prevent new HIV infections in the workforce is a beneficial strategy for firms. Various companies may be benchmarked for their efforts to induce behavioral change as an education and prevention strategy, including Gold Fields, 39 SABMiller, Daimler Chrysler SA, Anglo American, and Johnnic Communications. These companies have introduced broad-based programs for HIV/AIDS prevention including voluntary testing, regular employee presentations, peer education, condom distribution, workshops, free ARV drugs, and health and lifestyle management (Milazi, 2004).
For companies that outsource risk prevention, the Mx Group, a health care provider, provides the Knowledge, Attitudes and Practices (KAP) program. Key indicators include the outcomes of KAP related to each of the following: increased usage of condoms, reduction of sexual partner variety, attendance of educational sessions, decreases in STDs, reduction of absenteeism, and utilization of a 24-hr counseling service (Gibson, 2004b).
Third, many large companies in South Africa have already adopted remedial risk management policies. Companies, such as Anglo American, De Beers, SABMiller (and its South African subsidiary Amalgamated Beverage Industries), BP, and Daimler Chrysler SA, provide free ARV drugs to infected employees (Milazi, 2004). The South African Ports Operations, a division of Transnet, a state-owned transport company, has set aside R80 million in 2000 for ARV rollout and a further R500 million for future voluntary testing and counseling. 40 In addition, many large companies have their own health care facilities to treat HIV/AIDS patients. For example, Anglo American’s ARV treatment program is provided at 58 treatment sites and is staffed by 60 doctors, 137 nurses, and 40 trained counselors (Milazi, 2004).
Risk Sharing
At the heart of risk sharing as a policy option are the stakeholder approach and the extent to which it should prescribe the responsibility of businesses to cope with the epidemic. Sunter (SAIRR, 2001b) presented the business point of view eloquently:
There are important limits to what business can do. It cannot do very much more. So, for the unemployed, for the youth, for the AIDS orphans, the onus lies with the government. The private sector should be willing to help in any way it can—with expertise, for instance, or with funds for NGOs that are engaged in action on the ground, not simply, in debate. In a war situation, the government should be able to call on business to help it win the war against the common enemy. How far business should go is, again, a matter of balance. Business should make its main priority the fight against HIV/AIDS. But it would clearly serve no purpose if managers become so totally preoccupied with this that they allow business itself to founder. (p. 2)
NGOs tend to promote broad corporate responsibility for companies in which many stakeholders shape policy-making and policy priorities. Such stakeholders may include NGOs, communities, governments (both politicians and bureaucrats), and international organizations. 41 More radical policy recommendations, which deviate from free market economics, include the triple bottom line notion and the view that firms should act as government surrogates in the provision of public goods and developmental needs. Such reduction in economic freedom will likely impede the attractiveness of the South African business environment.
Public–private collaboration among stakeholders to manage HIV/AIDS risk in South Africa will remain problematic. According to Son (1999), stakeholders do not hear the language often spoken by their critics. Health experts speak of diseases, treatment, and medicine. NGOs, corporate watchdogs, and consumer groups speak of human rights, including the right of access to medicine. Governments speak of citizens and infrastructure. Corporations speak predominantly in terms of costs, productivity, and profit. The differences in organizational culture among stakeholders are well taken. However, NGO–MNE collaboration serves to pool resources. NGOs have technical expertise, on-the-ground experience, and legitimacy in civil society. MNEs have financial resources, managerial skills, and health care facilities (Lambell, Ramia, Nyland, & Michelotti, 2008).
The examples of public–private collaboration in South Africa indicate emerging networks rather than pervasive alliances. Anglo Coal, the South African mining MNE, collaborated with trade unions, surrounding communities, and local governmental authorities in awareness and prevention programs in an effort to prevent absenteeism and opportunistic infections (Daly, 2000). Harmony Gold Mining Company, Ltd. attempted to change sexual behavior among its workers by largely targeting sex workers. The mining company collaborated with NGOs such as Family Health International and the South African Institute for Medical Research as well as local authorities, notably the Harmony Hospital. The collaboration was later expanded to include other mining companies (e.g., Gold Fields and Joel Mine) as well as their related mining communities. The program provided treatment and education to 400 women, averting HIV infection among 40 women and 195 miners. The successful execution of this prevention program saved Harmony Gold Mining Company US$540,000 in medical costs alone (Family Health International, 2000).
Good examples of risk sharing are the efforts by various stakeholders to implement interventionist HIV/AIDS policies for SMMEs. With so much focus on the intervention programs of MNEs, it is sobering to remember that SMMEs employ 38% of the workforce in South Africa. Various efforts are worth mentioning.
SABCOHA worked with the Contract Cleaning Industry Bargaining Council in the Kwazulu-Natal Province with innovative results for SMMEs in that sector; that is, conducting HIV prevalence surveys and economic impact analyses, providing of voluntary counseling and testing services, and conducting KAP surveys that provided industry bench marks, awareness trainers, and access to SABCOHA’s Employee Assistance Centre.
The BizAIDS program funded by the U.S. Agency for International Development in partnership with International Executive Service Corps provided awareness training to 230 delegates from SMMEs and furnished 22 trainers available to assist SMMEs.
The U.K. Department for International Development, in partnership with Standard Bank and Unilever, which were endorsed by the Global Business Coalition on HIV/AIDS, developed a comprehensive tool kit guiding SMMEs on how to implement an HIV/AIDS policy.
In general, the business community may also lobby the South African government to alleviate the HIV/AIDS crisis. This lobbying may occur on four fronts. First is an information campaign that clearly outlines the following: HIV is spread through sex, and the HIV virus causes AIDS. It is imperative that the business community, in collaboration with NGOs, emphasize the secular fact base of the disease to counter the persistence of parochial views of the disease. Second, through constituency building, business associations should collaborate with international donor organizations (foreign government agencies, international organizations, NGOs) to bring pressure to bear on the South African government to roll out ARV drug treatment at an accelerated pace. For example, foreign assistance may be divided between government and nongovernmental entities such as NGOs, firms, and the private medical sector to facilitate higher efficiency and to maximize institutional capacity. 42 Third, business organizations should lobby the South African government and NGOs (that support the government) to amend legislation so that HIV testing, at least at the workplace, will be compulsory on the premise that the public interest trumps personal choice in crisis situations. 43 Finally, business associations may do more to lessen the stigma attached to public knowledge of HIV-positive status by promoting a “know your status” campaign. The attitudes of politicians and those in civil society with parochial views perpetuate a culture based on opaqueness, shame, and discrimination. Former President Festus Mogae of Botswana is an excellent role model because he publicly announced his HIV status (HIV negative) while urging testing for all his fellow citizens. Such a campaign may begin with CEOs in South Africa taking the initiative to test and to announce their HIV status. That may be followed by a challenge to other leaders (political leaders, trade union leaders, civil society leaders, celebrities, and NGOs) to do likewise. A “know your status” campaign led by the business community will promote transparency, greater empathy, and action in the public arena.
The business community would obviously favor more risk transference to the government’s health care system, which, as outlined earlier, is primarily responsible for public health care. After resisting the rollout of ARV drugs for many years, the government adopted a rollout plan in November 2003. The plan stated that, by the end of March 2004, 53,000 people would be receiving ARV treatment. This deadline was missed and shifted to March 2005 because only 19,500 people had received treatment by October 2004 (McFarlane, 2004). According to estimates by TAC, 700,000 people are in immediate need of ARV treatment, but by April 2006 only 200,000 people were receiving treatment: about 110,000 from government programs and 90,000 from the private health sector (Mzolo, 2007; SAIRR, 2007). This timing is a slow start, but if the government rollout should gain momentum, firms may benefit from some risk alleviation.
Conclusion
The study of dynamic risk formation offers insights into the sequential development of business risk. Interdisciplinary approaches foster greater understanding for the analysis of environmental risk, being a generalized (i.e., widespread) epidemic in this case, as well as market risks. The politicization of events indicates that business risk may stem from a variety of sources (market as well as nonmarket). The conventional notion that politicized risk stems from political instability or government policy should be broadened to include lack of governmental institutional capacity and the constraints of formal agenda building in developing countries. In crisis situations, firms operating in emerging or transitional economies may be compelled to adopt roles as surrogate governmental institutions in the provision of public goods. Such roles may far exceed acceptable views of corporate social responsibility and may place additional burdens on a firm’s profitability.
The South African business environment remains both dynamic and challenging. According to UNAIDS (2007), about 300,000 people living with HIV have begun treatment in the public and private sectors. However, the outbreak of extensively drug-resistant tuberculosis in 2006, with high mortality among HIV-infected patients, has created additional complexity to the needed responses. Further study, especially firm-specific research, into risk formation and management in this important emerging market will inevitably add to our knowledge and understanding of HIV/AIDS as a business risk.
Footnotes
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
The author received no financial support for the research, authorship, and/or publication of this article.