A new study by Moody's Ratings shows that borrowing costs for governments, banks, and businesses in Nigeria, South Africa, and Kenya have surged over the past five years, driven by policy weaknesses, inflation, and tough market conditions.
For small and medium enterprises (SMEs), the findings highlight the growing challenge of accessing affordable credit to expand operations. While these economies need steady financing to drive growth, high interest rates—much higher than in advanced markets—are restricting business investment.
According to Moody's, although funding from development partners has helped ease the burden of foreign currency loans, it has not fully offset the high cost of borrowing in both local and international capital markets. Interest spreads for Nigeria and Kenya remain wide at about 500 basis points over US Treasuries, despite some easing since 2022.
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South Africa benefits from deeper domestic markets and a stronger monetary framework, but borrowing costs remain high relative to other emerging economies. Kenya faces limited credit access due to government overborrowing and shallow local markets, while Nigerian firms struggle with high inflation and low domestic savings that restrict access to cheaper loans.
Moody's warned that without policy reforms, these conditions could trap countries—and businesses—in a cycle of high financing costs, low investment, and sluggish growth. For SMEs, this means continued difficulty in securing affordable loans, limiting their ability to scale, hire more workers, and compete effectively in regional and global markets.
