To protect economy, rethink clinker levy

Wednesday, June 5th, 2024 06:00 | By
Budget briefcase. PHOTO/ Print

A new levy on clinker, a critical raw material used in cement manufacturing, is hurting local manufacturers and could have significant repercussions for Kenya’s economy, particularly in the housing sector. Introduced in 2023, the export and investment promotion levy has led to a marked reduction in clinker imports and other essential materials like iron and steel, which could result in higher construction costs for Kenyans.

This policy shift directly contradicts the government’s affordable housing agenda, which aims to deliver 200,000 housing units annually to address a deficit of two million housing units. The latest data from the Kenya National Bureau of Statistics’ (KNBS) 2024 Economic Survey highlights the negative impact of this levy: lower cement production due to reduced clinker imports. This downturn is concerning, as it threatens to derail the affordable housing goals by making construction materials more expensive and less accessible.

Imports of cement clinker dropped by a staggering 77 percent in 2023, from 656,499 metric tonnes in 2022 to just 148,018, the KNBS report says. This decline follows previous years when imports exceeded one million metric tonnes annually, driven by demand from housing and infrastructure projects. Cement clinker, now subject to a 17.5 percent export and investment promotion levy, has seen a sharp price increase. The cost of cement has risen to new highs.

The levy not only affects clinker but also steel products, essential for construction. The financial constraints brought by the levy have led to a decline in cement production from 9.79 million tonnes in 2022 to 9.62 million in 2023, with consumption also dropping from 9.49 million tonnes to 9.2 million. This reduction is likely a contributing factor to the 1.1 percent drop in the growth of the construction sector in 2023, per the KNBS.

While this is seen as steady growth driven by greater demand for better housing, urbanisation, and infrastructure development, the reality is that the levy is pushing manufacturers to reconsider their investment strategies.

While the government’s goal of increasing revenue through the levy is understandable, it is important to balance fiscal policies with economic realities. Policymakers must reconsider the levy and explore alternative revenue-raising strategies that do not compromise essential sectors.

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