Onome Amuge
African businesses are increasingly struggling to secure affordable credit as borrowing costs in Nigeria, Kenya and South Africa climb to multi-year highs, Moody’s Ratings has warned, reflecting the private sector’s growing vulnerability to fiscal and monetary pressures.
In a new report, the ratings agency said that financing conditions across the three economies remain among the most challenging in emerging markets, with the burden no longer confined to sovereign debt but extending across banks and non-financial corporations.
“Borrowing costs are high across the board. Debt costs for banks, non-financial companies and sovereigns have increased in all three markets alongside higher policy rates during the past five years,” said Lucie Villa, Moody’s Senior Vice President.
While external support from development partners has moderated the cost of foreign-currency borrowing, Moody’s noted that it has done little to alleviate the rise in local funding costs, which are critical for small and medium-sized enterprises. The report highlighted how persistently high inflation in Nigeria and low domestic savings have curtailed access to affordable credit, amplifying the risks for businesses reliant on working capital.
In Kenya, the picture is one of crowding out, being that elevated government borrowing has absorbed much of the available liquidity in shallow local capital markets, leaving the private sector competing with the sovereign for scarce funds. Analysts warn that this dynamic could further constrain job creation and investment in East Africa’s largest economy.
South Africa, which boasts deeper financial markets and a more credible monetary framework than its peers, still faces relatively high financing costs compared with other emerging economies. Fiscal fragility and sluggish growth mean investors demand a sizeable risk premium, trapping policymakers in what Moody’s described as a negative spiral of high rates, weak domestic investment and stagnant output.
Although spreads over U.S. Treasuries for Nigeria and Kenya have eased since the debt market turmoil of 2022, they remain elevated at roughly 500 basis points, a reflection of the enduring risk perception attached to both economies.
The report emphasised that only sustained structural reforms can alter this trajectory. For Nigeria, that means addressing policy gaps and taming inflation; for Kenya, expanding domestic capital markets; and for South Africa, restoring fiscal credibility while unlocking growth.
Moody’s concluded that, without credible reforms, sovereigns and corporates alike will remain locked into prohibitively high financing costs that threaten to erode long-term economic resilience.
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