By Anita Dennis
Borrowing has become increasingly expensive for governments, banks, and companies in Africa’s largest economies, with Nigeria, South Africa, and Kenya grappling with a financing squeeze that threatens growth and development.
A new report by Moody’s Ratings, released recently, warns that policy weaknesses, stubbornly high inflation, and shallow financial markets are driving up funding costs, leaving these economies paying significantly higher rates than their advanced-market peers.
“Borrowing costs are high across the board,” said Lucie Villa, Moody’s Senior Vice President, who noted that debt-servicing expenses have soared in tandem with elevated policy rates.
The Price of Capital
Moody’s highlighted that although foreign-currency loans from development partners have helped ease some pressure, local and international borrowing costs remain steep.
Nigeria and Kenya, for example, still pay spreads of about 500 basis points above U.S. Treasuries, despite some improvement since 2022. South Africa fares slightly better thanks to deeper domestic capital markets and a more credible monetary policy framework, but fiscal constraints and weak growth continue to weigh heavily.
The ratings agency cautioned that without structural reforms, South Africa could slip into a negative cycle where high interest rates discourage investment, further undermining economic expansion.
Country-Specific Pressures
- Kenya: Heavy government borrowing and shallow local markets are crowding out private businesses, making credit scarce and costly.
- Nigeria: Persistent inflation, exchange-rate volatility, and weak domestic savings are stifling access to affordable financing for companies.
- South Africa: Despite stronger institutions, fiscal imbalances are keeping borrowing costs higher than those of comparable emerging markets.
The Reform Imperative
The outlook, Moody’s warned, is not one of quick fixes. Tackling these challenges will require time, fiscal discipline, deeper capital markets, and stronger inflation control.
“Redressing the imbalances that keep financing costs high… will take time,” the report concluded, underscoring the urgent need for reforms that can restore investor confidence and lower the cost of capital across Africa’s most systemically important economies.
