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Kenya’s construction sector faced a significant setback last year due to the surge of cheap imports, which hampered the growth of the local manufacturing industry. 

The impact was particularly felt in the cement production sector, which experienced a 1.79 per cent decline in production, dropping to 9.62 million tonnes from 9.79 million tonnes in 2022, according to the latest figures from the Economic Survey 2024 report.

During the year in review, imports surged to 34.2 thousand tonnes, up from 29.8 thousand tonnes in 2022, negating the government’s efforts to spur growth in the construction industry through the introduction of the Exports and Investment Levy by the Finance Act 2023.

The levy proved to be a double-edged sword. While on the one hand, the government aimed to protect local industries from cheap imports by imposing a 17.5 per cent tax on imported clinker and metal products and a 10 per cent tax on packaging paper products, on the other hand, it inadvertently stifled the growth of the local cement industry.

Kenya Association of Manufacturers Chief executive Anthony Mwangi issued a warning that the levy might not serve its intended purpose of protecting local clinker producers.  Instead, he cautioned, it could result in the importation of cheaper finished cement from the East Africa Community partner states.

Clicker producers

This situation could potentially lead to the loss of over 100,000 jobs, Mwangi cautioned. “This levy will do less to protect the local clicker producers and instead, it will lead to the importation of cheaper finished cement from EAC partner states which may lead to the loss of over 100,000 jobs,” he warned.

The levy, which came into effect on September 1, 2023, led to a significant increase in the cost of cement production.

The price of cement in Kenya skyrocketed from around Sh520 per 50kgs to over Sh800, marking a 60 per cent increase. This price hike contradicted the Affordable Housing policy, one of President William Ruto’s key initiatives. Industry players argued that the tax on clinker and steel billets essentially forced them to purchase these materials from a competitor. This situation created a potential loophole for a monopoly, further threatening the health of the industry.

On the flip side, there was a notable increase in exports to Uganda and Tanzania, which rose by 225.04 per cent from 58.7 thousand tonnes in 2022 to 190.8 thousand tonnes in 2023.

Both Uganda and Tanzania have been witnessing steady economic growth, particularly in sectors like agriculture and construction. This growth has spurred an increased demand for construction materials, including cement.

Additionally, the ongoing mega projects in these countries have necessitated substantial amounts of cement, which Kenya, with its mature cement industry, is well-positioned to supply.

Furthermore, Kenya’s trade policies have played a significant role. Exports to Uganda are tariff-free, making Kenyan goods, including cement, more affordable in Uganda. This could have stimulated more imports of Kenyan cement.

Currency fluctuations have also contributed to the surge. In 2023, the value of Kenya’s exports to Uganda crossed the Sh100 billion mark for the first time, primarily due to a weak currency that made local goods cheaper in the neighboring country.  This, even as the construction sector registered a growth of 3 per cent in 2023 compared to a growth of 4.1 per cent in 2022.

Construction sector

According to the report, the growth was mainly driven by the government expenditure on the Affordable Housing Programme across the country, maintenance of roads by the Kenya Roads Board as well as loans advanced by commercial banks to the construction sector.

“The number of dwelling units completed by the State Department for Housing and Urban Development (SDHUD) almost doubled to 3,357 housing units in 2023. The value of building plans approved by the Nairobi City County (NCC) increased from Sh162.5 billion in 2022 to Sh220.0 billion in 2023,” the Economic Survey 2024 report notes.