Weather & Natural Disasters

Plague of locusts threatens East African economies as UN sounds alarm

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Key Points
  • In recent days, locust swarms have begun to impact South Sudan, Uganda and Tanzania, having already decimated crops throughout Ethiopia, Kenya and Somalia, Eritrea and Djibouti.
  • Moody's said the infestation will "test existing food storage in fragile Horn of Africa countries and add to inflationary pressures given the relatively high proportion of food in the consumer price index basket."
  • Desert locusts can travel up to 150km (95 miles) a day, and a one-square-kilometer swarm can devour as much food as 35,000 people in a single day, according to the UN.
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Locusts infesting East Africa could inflict significant economic damage

The worst desert locust infestation in 70 years is ravaging East Africa, potentially endangering economies in a region heavily dependent on agriculture for food security.

In recent days, locust swarms have begun to impact South Sudan, Uganda and Tanzania, having already decimated crops throughout Ethiopia, Kenya and Somalia, Eritrea and Djibouti. The Food and Agriculture Organization (FAO) of the United Nations earlier this week called the situation "extremely alarming."

The UN warned of an unprecedented threat to food security in a part of the world where millions face hunger, and the FAO estimated that 70,000 hectares of crops in Kenya and around 30,000 hectares in Ethiopia had been infested. It added that locusts had attacked coffee and tea crops that account for approximately 30% of Ethiopia's exports.

The FAO also estimated that around 8.5 million Ethiopians and 3.1 million Kenyans already face food insecurity.

The locusts have now begun breeding along both sides of the Red Sea in Egypt, Sudan, Eritrea and Saudi Arabia.

Desert locusts can travel up to 150km (95 miles) a day, and a one-square-kilometer swarm can devour as much food as 35,000 people in a single day, according to the UN.

Credit danger and risk of unrest

In a recent report, Moody's said the infestation is "credit negative" for economies heavily dependent on agriculture, which contributes roughly a third of gross domestic product (GDP) across the whole of East Africa and is responsible for more than 65% of employment across the region, with the exception of Kenya, its largest economy.

Moody's said the infestation will "test existing food storage in fragile Horn of Africa countries and add to inflationary pressures given the relatively high proportion of food in the consumer price index basket."

"Rising food prices from a prolonged shortage of key crops fuels the potential for social unrest across East Africa, a region where we already assess political risks as elevated and the ingredients for potential social unrest prevalent," Moody's Vice-President and Senior Credit Officer Kelvin Dalrymple said.

"Moreover, low per-capita incomes in East Africa, coupled with high income inequality and high poverty levels, make these countries vulnerable and less able to absorb shocks," the report added.

Speaking to CNBC Africa earlier this week, Dalrymple suggested that while a dollar value of lost crops has yet to emerge, making it difficult to estimate potential damage, a continuation of the situation could see between one and two percentage points shaved from the GDP growth of affected countries this year.

A local resident tries to swot away a swarm of desert locusts in Mathiakani, Kitui County, Kenya, on Saturday, Jan. 25, 2020. The number of locusts in East Africa could expand 500 times by June, the UN's Food & Agriculture Organization said last month.
Patrick Meinhardt | Bloomberg | Getty Images

Vincent Phiri, economist at NKC African Economics, told CNBC that although harvests in some countries were above average, excessive floods in late 2019 and now the locust infestation had caused significant post-harvest losses.

"For instance, according to Famine Early Network Systems Network (FewsNet), an estimated 72,611 metric tons of 2019 cereal crops were lost from flooding in South Sudan. With less harvest to replenish food stocks, we can see them being run down at a rapid rate," Phiri said.

"Consequently, this has the potential to result in humanitarian disasters in a region all too familiar with these tragic events." In terms of the macroeconomic implications, these post-harvest losses will place upward pressure on food crop prices and reduce exports.

"Rising inflationary pressure and weak external balances — due to lower exports — would add depreciatory pressure on the region's currencies," Phiri said.

"The depreciation of currencies also poses significant risks to public debt sustainability, as most East African countries already have considerable external debt stocks and have to pay down that debt in foreign currency, meaning that depreciating currencies make debt more unsustainable."

Government spending has been a key driver behind growth across the region. The redirection of government resources to tend to the crisis could have significant fiscal implications and weigh on growth, while a straightforward increase in fiscal spending could risk a further build-up of public debt, Phiri highlighted.

Capital Economics Emerging Markets Economist Virág Fórizs also told CNBC on Thursday that the situation could "go from bad to worse" as the swarms continued to expand.

Kenyan resilience

Capital Economics analysts said that Kenya's economy was in a good position to weather the immediate macroeconomic effects of the outbreak, however, with an improving current account position and inflation in single digits.

The outbreak has so far been contained in the north of the country, which is not a big producer of Kenya's key export crops, so while there will likely be a severe on impact livelihoods and food security in the region, Fórizs suggested that damage to broader economic output should be limited.

Locusts swarm acros a highway at Lerata village, near Archers Post in Samburu county, approximately 300 kilomters (186 miles) north of Kenyan capital, Nairobi on January 22, 2020. (Photo by TONY KARUMBA / AFP) (Photo by TONY KARUMBA/AFP via Getty Images)
Tony Karumba/AFP via Getty Images

However, she added that the situation could worsen drastically if the locusts expanded into key agricultural areas in the Great Rift Valley, with worrying indications that this is more likely than initially presumed.

"If the infestation were to spread to the entire country (beyond the counties currently affected), we estimate that a fall in agricultural output similar in scale to previous outbreaks would directly hit Kenyan GDP growth by 0.8 percentage points," Fórizs told CNBC.

"This would be painful, but given that the economy expanded by about 5.5% last year, even a worst-case scenario would be unlikely to trigger a recession. Of course, knock-on effects through reduced consumption or a decline in government revenues would add to economic costs."

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