Companies need to assess the financial impact of HIV/AIDS beyond Africa
Warns New Report By ICCR Member

LONDON///May 19, 2005/// A report published today has highlighted the financial risks to companies operating in fast-growth emerging economies from the spread of HIV/AIDS. The 83-page report, HIV/AIDS Beyond Africa: Managing the Financial Impacts, is the result of a unique collaboration between F&C Asset Management, a leading socially responsible fund manager, and the Equity Research department of UBS Investment Bank, one of the world’s leading investment banking and securities firms.

The report notes that in 2004 estimates indicated that between 36 and 44 million people worldwide were living with HIV of which 65% were living in Sub-Saharan Africa. With infection rates as a percentage of the population hitting 39% in Swaziland, 37% in Botswana, 26% in Zimbabwe and 22% in South Africa, the report states that HIV/AIDS is still widely perceived to be an “African problem”.

“From a humanitarian perspective it is understandable that Africa, rightly, remains the focus of world attention when it comes to the HIV/AIDS pandemic,” said Kirsty Jenkinson, Senior Analyst at F&C, “but the financial impact of the disease has the potential to be more acute in other developing, and commercially important, regions. Whilst Sub-Saharan Africa accounts for 11% of the world’s population it represents just 1% of global GDP.”

The report raises concern about the impact of rising HIV/AIDS infection rates in four of the fastest-growing emerging economies: Brazil, Russia, India and China (the “BRIC” group). These countries cumulatively account for 42% of the global population and 8% of global GDP according to the World Bank.
“Furthermore,” added Julie Hudson, Managing Director, Head of Socially Responsible Investment Equity Research, UBS, “these countries are key market places for manufacturing and outsourcing and have become strategically important for many western multi-nationals. They are expected to be significant contributors to future global growth.”

The report states that whilst national HIV/AIDS prevalence rates appear low in countries such as China and India (0.2% in China and 0.4-1.3% in India), their huge populations mean that even small percentage increases represent significant numbers of infected people. Critically, seemingly low national prevalence levels mask the rising risks of severe epidemics in regional “hot spots”. The report cites the examples of then Henan, Anhui and Sandong provinces of China where HIV was already spreading a decade ago among rural people who sold blood plasma in unsanitary conditions. In India the state of Tamil Nadu has HIV prevalence of 50% amongst prostitutes, while in Andhra Pradesh, Karnataka, Maharashtra and Nagaland, HIV prevalence has crossed the 1% mark among pregnant women.

“Two key factors set HIV/AIDS apart from other diseases in terms of its implications for the financial community,” explained Hudson. “Firstly, it primarily strikes working age members of society at the peak of their economic productivity and secondly, there is a long time lag between infection and illness which means the disease can remain unidentified but contagious for many years. This latter problem is exacerbated by the secrecy and social stigma surrounding the disease in many parts of the world.”

The report highlights lessons learned from the South African experience as the basis of outlining actions which companies operating in other rapidly developing countries should take. It notes that HIV/AIDS adversely affects company profit margins (particularly in industries where wages are a significant portion of a company’s overall cost structure). A further finding is that HIV/AIDS causes a decrease in overall per capita expenditure but does not behave like a normal demand shock (spending on staple goods tends to be hit harder than discretionary spending) which puts certain sectors at greater risk. The report also notes that South African firms appear to trade more cheaply than their developed and emerging market peers, indicating some degree of South African risk premium in valuations which may factor in life expectancy.

The report concludes that as the disease spreads, the economics of prevention and treatment, as exemplified in South Africa, increasingly argue in favour of business self-help over reliance on public health authorities. In particular, the authors of the report make the following recommendations to companies operating in rapidly industrialising countries such as Brazil, Russia, India and China:

• Assess HIV/AIDS prevalence and the host government’s response to the disease in country risk assessments for new and existing investments.
• Determine actual and potential staff exposure through situation analysis, prevalence surveys and voluntary counselling and testing.
• Evaluate the costs and benefits associated with intervention programmes. The authors believe that traditional accounting frameworks fail to capture the positive effect of successful intervention and instead propose a net present value (NPV) approach to valuing the impact of HIV/AIDS.
• Implement, where relevant, prevention, education, awareness, wellness and treatment programmes.
• Publish company-wide non-discriminatory policies relating to employees’ HIV status and ensure senior management are accountable for such policies to reduce secrecy and social stigma surrounding the disease.
• Report publicly to shareholders and stakeholders how HIV/AIDS is being managed.
• Press host governments, international donors, multilateral organisations and NGOs to implement education, prevention and treatment policies, so as to boost the effectiveness of corporate efforts.

“Both investors and companies have long been aware that investing in these rapidly developing markets carries higher levels of risk. This report suggests that assessing the potential financial impact of HIV/AIDS should form part of the wider risk assessment and management process,” concluded Jenkinson.

Journalists who would like to receive a copy of “HIV/AIDS Beyond Africa: Managing the Financial Impacts” should email hayley.frain@fandc.com or call her on +44 (0) 20 7506 1402 or Gemma Piggott at gemma.piggott@ubs.com or +44 (0) 20 7568 9822

Press enquiries:
Kirsty Jenkinson
Senior Analyst, Governance & Socially Responsible Investment
F&C Asset Management plc
+44 (0) 20 7506 1116

Julie Hudson
Managing Director, Head of Socially Responsible Investment Equity Research
UBS
+44 (0) 20 7568 4632