Business Ethics

In South Africa, Poor Health Can Kill Small Businesses

Small businesses are everywhere in Durban, South Africa -- "tuck shops" that sell flour, sugar and other items; seamstresses; auto body shops; brick fabricators; bars and restaurants that seat a handful of people.

"If you knock on doors and ask [people] if they have an income-generating business, they'll say, 'Yes, I make garments in my house,'" says Li-Wei Chao, a research associate at the University of Pennsylvania's Population Studies Center, who lives in South Africa.

While it's estimated that these businesses contribute greatly to South Africa's total employment, the impact of poor health, and in particular HIV/AIDS, on these very small businesses has been largely overlooked by researchers.

But Chao, Wharton professor of health care systems Mark V. Pauly and others have worked to fill that gap with a study that examines the impact of poor health on micro and small enterprises in the Durban area. Their study, titled "Poor Health Kills Small Businesses: Illness and Microenterprises in South Africa," was published in the March/April 2007 edition of the journal Health Affairs.

Although they did not specifically focus on HIV/AIDS, the researchers write that their findings underscore the vulnerability of small businesses to the AIDS epidemic and point to the need for the government to target more health services and prevention efforts toward this informal sector of the economy. HIV/AIDS is the predominant health threat to people living in sub-Saharan Africa, and the prevalence of HIV in some urban areas of South Africa has been estimated at upwards of 30%.

"Poor health impacts the economy," Pauly says. "It seemed clear to us that the demise of many of these small businesses harmed their neighbors as well as the owners themselves."

'Lost' Services

The researchers chose to focus on Durban for their study because the area has a high prevalence of HIV/AIDS and there is a mix of income, education levels and stages of business development. They began by screening 653 households in mostly African townships around Durban to ask if residents currently or previously ran a business. Thirty-one percent of the households screened had an active business, often a store, restaurant or bar. Another 10% had operated a business in the past but it closed, and 59% had never run a business. Among the active businesses, 45% were one-person enterprises. They also rated the overall health status of the people they surveyed.

After tracking business activity for two years, the researchers found some interesting results. Of 164 businesses identified in the first year of the study, 72 (44%) survived. Owners with higher initial physical health scores were more likely to remain in business than owners who at the start of the study had lower health scores. In addition, the researchers found that owners who experienced deteriorations in health over the course of the study were also more likely to close their businesses.

"Our results convey an important message for policy: Illness is harmful to the economic health of a large economically relevant but often neglected segment of the population," they write. "We found that the poor health of the owners of small businesses led to the closure of these businesses and that these businesses were not replaced by new ones. Hence, these services can be considered 'lost' in each community in which the businesses previously existed."

The closing of a corner store, for instance, would not just hurt the owner and his family, but also neighbors who depend on the shop for their daily provisions -- perhaps because they don't have transportation to get to a more distant store.

"In a lot of the isolated neighborhoods, these enterprises provide a very useful function," Pauly says.

Battling HIV/AIDS

Though the study did not focus specifically on HIV/AIDS, Chao says the findings add to the evidence that, in addition to its horrific human toll, the disease "does impact the bottom line," or the amount of money a company is earning.

Chao notes there has been some progress in South Africa in convincing large companies that they should be concerned about the need for HIV prevention efforts and testing for their employees, since replacing sick or deceased workers is not as easy as it might seem. But developing a health care strategy to reach the more informal economy poses a bigger challenge.

"The government is able to pressure the large corporations to provide the preventive care and the treatment, but there is no such entity the government can lean on with these micro and small businesses," Pauly says.

Read an expanded version of this article at http://knowledge.wharton.upenn.edu/article.cfm?articleid=1747