• Friday, March 29, 2024
businessday logo

BusinessDay

Nigeria needs two kids per woman to replicate Morocco’s low-interest rate

Nigeria needs two kids per woman to replicate Morocco’s low-interest rate

If Nigeria is to achieve Morocco’s low-interest-rate of less than 2 percent, Africa’s most populous nation would need to reduce its high fertility rate that has remained higher than the economic growth rate in the past five years, according to Charles Robertson, global chief economist and head of the Firm’s Macro-strategy, Renaissance Capital.

Acknowledging that the recent crude oil boom may help Nigeria achieve a much lower interest rate, Robertson said a lower fertility rate coupled with a higher literacy rate will yield the desired result.

“In the short term-run, a current account surplus which can be helped by the oil price boom will some sort help to reduce interstate rate but to get to the Morocco level of around 2percent, Nigeria would need to have a fertility rate of two kids per woman,” Robertson said.

A much lower interest rate in Nigeria would mean more companies and households will have access to cheap credit, a boost for economic growth and development, according to investment analysts.

But, at Nigeria’s current interest rate of double digits, small companies, which make up the bulk of the country’s economy and individuals, of which many are in the informal sector, find it hard to access cheap funding for business expansion.

Morocco’s central bank held its benchmark interest rate at an all-time low of 1.5 percent in December 2021, saying its monetary policy was accommodative and consistent with the economic outlook.

Read also: Seplat, Conoil, others drive stock market’s positive start to new month

The country’s inflation forecast was revised upwards to 1.4 percent last year and 2.1percent in 2022, the bank said in a statement following its quarterly meeting, citing the impact of imported inflation on foodstuff and fuel prices.

Growth will rebound to 6.7 percent in 2021 from a contraction of 6.3 percent the previous year, on the back of a vaccination push, fiscal and monetary stimulus and an improved harvest, the bank said.

According to Robertson, Lagos is close to Morocco in terms of fertility and literacy rate. The state’s fertility rate is much lower than the rest of the country and it also has a high literacy rate, he said.

“For the country level, you need to start educating everyone, especially in the north, to have a small family, increase savings and that is going to take 20 years at best.”

The Central Bank of Nigeria’s Monetary Policy Rate (MPR), the benchmark against which other lending rates in the economy are pegged, is currently at 11.5 percent. The apex bank has consistently retained the same rate since September 2020.

While the Nigerian government and large corporates raise capital at cheaper rates compared to bank loans, micro and small businesses are left out.

Lack of proper documentation and inability to meet listing requirements are some of the reasons Nigerian small businesses are unable to tap the low-interest rate opportunity.

Analysis of the FMDQ data showed that 16 Nigerian large companies issued commercial papers in 2021 and they did so at an average of 10.03 percent, 6.97 percentage points less than the average inflation rate of 17 percent reported in 2021.

If the companies were to go to banks to borrow the kind of funds they raise through CP, they would have paid at least 15 percent interest. That is even because they are big institutions. If it were smaller companies, they probably would have obtained the funds at an interest rate of between 18 to 20 percent or more.