Contents

• This report is based on the following case study -
• Case Anglo American PLC in South Africa: What Do You Do When Costs Reach Epidemic Proportions?
• By now it should be obvious that, regardless of where it chooses to do business, an MNE is going to face quite a variety of threats and disruptions to its plans and operations, ranging from bureaucratic corruption and political instability to terrorism and war. In 2007, Anglo American PLC, at that time one of the world’s largest gold miners, found itself facing a threat that defies most traditional categories of things that complicate business overseas—an HIV/AIDS epidemic in South Africa.46
• In 2002, Anglo American made a landmark decision to provide free antiretroviral therapy (ART) to HIV-infected employees there. Surprisingly, however, this commitment met with mixed reactions from various stakeholders and achieved only controversial results. Now the U.K.-based company is asking itself, “Where do we go from here?”
• AIDS in South Africa
• How bad must a disease be to be accorded the status of an “epidemic”? When Anglo American was first confronted with the issues of HIV/AIDS, sub-Saharan Africa was home to just over 10 percent of the world’s population and 60 percent of all people infected with HIV, the virus that causes AIDS. South Africa had the highest number of people living with HIV/AIDS and one of the world’s highest rates of HIV infection and mortality from AIDS-related diseases.
• Thus, over the past decade the spread of HIV/AIDS has had a profound impact on the people of South Africa and their economy. Life expectancy is 56.1 years compared to, say, 76.8 years in Poland, a country with a similar population size and per capita GDP. AIDS has also devastated the country’s economy. Between 1992 and 2002, South Africa lost $7 billion annually—around 2 percent of GDP—as a result of AIDS-related worker deaths. Experts were predicting that, if AIDS continued to spread throughout sub-Saharan Africa at the same pace, it would continue to reduce per capita growth by 1 to 2 percent per year and, in the worst-affected countries, cut annual GDP growth by as much as 0.6 percent by 2010. The consequences include both diminishing populations and shrinking economies, with GDPs deflating anywhere from 20 to 40 percent of the sizes they would have reached in the absence of AIDS.
• Photo shows a boy seated, holding crayons and smiling at the camera in a classroom. There are other children seated in groups working with their crayons and paper in the classroom.
• Anglo American Operations in South Africa
• Anglo American PLC is a diversified mining conglomerate operating worldwide in 45 countries and employing 133,900 employees to produce diamonds, precious metals (platinum), base metals (copper, nickel, zinc, and phosphates), and bulk metals (for ferrous metals and coal). Founded in 1917 as the Anglo American Corporation of South Africa, it was South Africa’s first home-based public limited company, but now it is a multinational firm headquartered in London.
• In spite of its global spread, the company dominates South Africa’s domestic economy through direct employment, contractors, and its supply chain.
• Anglo American and ART
• With such a huge investment in South Africa, Anglo American has been hit hard by the HIV/AIDS epidemic. Having recognized the threat as far back as the early 1990s, Anglo was one of the first corporations to develop a comprehensive, proactive strategy to combat the ravages of the disease on its workforce and the repercussions for its operations.
• Originally, the program consisted of prevention initiatives aimed at education and awareness, the distribution of condoms, financial and skill-related training to alleviate poverty, and a survey system to monitor the prevalence of the infection. Eventually, these policies were expanded to include voluntary counseling, testing, and care-and-wellness programs, and the services of all programs were extended to cover not only the families of employees but also the populations of surrounding communities. Anglo also became a member of the Global Business Council on HIV/AIDS, an organization of multinational companies that focuses on alleviating the effects of AIDS throughout the world and on protecting the rights of infected workers.
• By adopting these strategies so early, Anglo American became a de facto leader in the private-sector fight against HIV/AIDS in Africa. Many other MNEs—including Coca-Cola, Ford, Colgate-Palmolive, and Chevron Texaco—soon followed Anglo’s example and initiated prevention, education, and wellness programs of their own. Even then, however, the majority of companies operating in South Africa still hesitated, which is why Anglo’s 2002 announcement that it would provide ART to its South African workforce (at company expense) was met with a good deal of excited approval from such interested parties as the WHO, the Global Business Council on HIV/AIDS, and a host of other NGOs.
• The Costs of Operating in an Epidemic
• The incentive for Anglo American’s ART program largely came from the failure of its AIDS-prevention efforts to make much headway in stemming the spread of the disease. By 2001, the prevalence of HIV-positive workers had risen to an average of 21 percent across all operations—a figure that was climbing steadily at a rate of 2 percent annually. It was estimated that HIV/AIDS was adding as much as $5 to the cost of producing one ounce of gold, thereby tacking on $11 million a year to the company’s production costs. Then there was the $7 million it was spending annually to combat such AIDS-related illnesses as tuberculosis (which was five times as prevalent as it had been just a decade earlier).
• Finally, in addition to losses in productivity, the company had to bear the costs entailed by high levels of absenteeism, the constant retraining of replacement workers, and burgeoning payouts in health, hospitalization, and death benefits. Studies conducted at the time indicated not only that the costs of AIDS could reach as much as 7.2 percent of the company’s total wage bill but also that the costs of leaving employees untreated would be even higher than the cost of providing ART.
• Nine years after it rolled out its ART program, Anglo now finds itself struggling to please various stakeholders and determine whether all of its efforts are making a difference in the underlying problem or merely masking its effects. By the end of 2009, for instance, although 27 percent of the HIV-infected workforce were receiving ART, the company still struggled with high rates of non-adherence and dropout from treatment regimens.
• Anglo also faces the problem of spiraling costs for the program itself. Even though the prices of most of the necessary drugs have been decreasing, the cost of distributing them remains high, and the treatment regimen costs the company an estimated $4,000 per year per employee—quite expensive, especially compared to the wages and benefits that Anglo typically offers mineworkers. (Average monthly wages in the South African mining industry are about 5,100 rand, or US$830.) Meanwhile, as Anglo officials continue to remind investors that treating workers ultimately serves the bottom line, recent estimates project a total cost to the company of $1 billion or more over 10 years.
• On the upside, cost per patient should decrease as the number of workers participating in the program increases. Unfortunately, one of the biggest challenges facing Anglo is encouraging participation among a migrant and largely uneducated workforce laboring under harsh conditions in an unstable environment. In South Africa, HIV/AIDS still carries a severe stigma, and many South Africans refuse to be tested or to admit they’ve been infected for fear of discrimination by managers, fellow employees, and even society at large. Moreover, many of those who agreed to participate have been confused by rumors and misinformation, leading them to assume that they could stop using condoms once they were on the drugs—a situation, of course, that only exacerbated the prevalence of unsafe behavior.
• In addition, harsh working conditions often make it hard for workers to take medications on time or to deal with certain side effects. Finally, migrant workers—about four-fifths of the total workforce—who come from isolated villages hundreds of miles away are 2.5 times more likely to contract the disease, which they take with them back to their villages.
• Constituencies and Critics
• Anglo American also faces the problem of pressure from various stakeholders. The National Union of Mineworkers has been hesitant to voice its support, citing the company’s limitations on health-insurance benefits and lack of cooperation with national agencies. The union has also accused the company of helping to foster working conditions that exacerbate the problem. Even Brian Gilbertson, former CEO of BHP Billiton, another large mining concern operating in South Africa, charged Anglo with merely trying to contain the problem instead of attacking its underlying causes, saying, “You don’t approach the problem by just throwing drugs at it.”
• Anglo has countered many of these criticisms, insisting that it’s beyond the resources and capacity of a single company to combat the overall problem, and it has called for more involvement on the part of the South African government. Instead of cooperation, however, the company initially encountered outright opposition from political leaders.
• In addition, dealing with pharmaceutical companies has proved a tricky proposition. On the one hand, Anglo has a deal with GlaxoSmithKline allowing it to purchase ART drugs at a tenth of the market price in the industrialized world (the same that GSK charges not-for-profit organizations). At the same time, however, other pharmaceutical companies have been hesitant and unreliable at best, promising price cuts and then reneging over fears of violating intellectual property rights. As a matter of fact, several of these companies, complaining that cheap generic drugs made available in Africa will eventually be resold by profiteers on higher-priced Western markets, have put their energies into suing the South African government for what they claim to be generally poor enforcement of their patent rights.
• Given the many challenges Anglo has faced, not to mention the opposition from unexpected quarters, some observers have gone so far as to suggest that the company would be better off simply pulling back on its HIV/AIDS treatment program rather than pouring more resources into the effort to make it work. In the long run, however, ­Anglo must consider the continued pressure it will get from ethically minded shareholders as well as its own sense of moral responsibility.
• There are also indications that the future may not be as bleak as it initially appeared. Due to an aggressive global campaign to deal with HIV/AIDs, new HIV infections dropped by 41 percent between 2000 and 2014. AIDS related deaths also fell by 48 percent. For its part, Anglo American extended its treatment program to the dependents of its employees in 2008, and by 2014, 86 percent of its employees and dependents received free ART therapy, testing, and treatment.
• Anglo American’s strategy for HIV/AIDS intervention has in some ways become a model closely followed by other companies with operations in regions heavily affected by the disease. Perhaps the criticism for such interventions is waning as companies continue to adopt responsible and effective initiatives for HIV/AIDS treatment.

Description

This report answers the following questions on the case study -
Please read the case study carefully and respond to the following:
• Research the current budget and policies of the South African government on dealing with the epidemic. How are they currently handling the issue? 
• Discuss the pros and cons to the pharmaceutical industry to assist the South African government in addressing the HIV/AIDS issue.    
• Do stakeholders have a moral responsibility to assist the South African government? Why or why not?