Why construction sector is on steady decline in Kenya

 

President William Ruto lays a foundation stone for the construction of the 2,384-unit Lumumba Estate Affordable Housing Project in Kisumu Central, Kisumu County. [PCS]

If you want to know if a nation’s economy is doing well, check the consumption of cement. This is nearly a cliché statement in training circles of the built environment practitioners.

Even so, there is consensus among scholars on a relationship between the growth of the construction sector and the growth of a country’s economy. Throughout this year, various data have consistently pointed to reduced cement consumption. Let me take you slightly back, our construction sector has been on an inexorable decline for the last near-decade, since 2015.

According to data by the Kenya National Bureau of Statistics, the construction sector growth in 2015 was 13.9%, 2016 - 9.2%, 2017 - 8.4%, 2018 - 6.9%, 2019 - 6.4%, 2020 – skip due to covid, 2021 – 6.7%, 2022 – 4.1%, and 2023 – 3.0%. That is a decline growth drop of 10.9% in the last near-decade, between 2015 (13.9%) and 2023 (3.0%). And it doesn’t end there, all indications are we likely to have further declined growth in 2024. What is happening in the construction sector? This sector is ripe for some radical reforms and regulations to avoid choppier waters. However, it is unable to reform itself. It is just too fragmented to perform a collective about-turn on how it does business and break out of a vicious circle of doing the same thing day after day.

The industry is desperately waiting for cavalry from private clients and the government but both seem to have their hands full with their own problems; private clients are more concerned with the viability of their investments and are taking extraordinary, even dangerous steps. The government is in a quandary of competing political priorities. The much-needed radical surgery remains a pipe dream as the industry decay continues.

Throughout the Uhuru administration, from 2013 to 2022, there was no effort to rein in on the ballooning cost of construction.

You’d have hoped that even with the onset of the affordable housing agenda in 2017, much-needed attention would have been put in lowering the cost of construction.

The Ruto administration hasn’t made anything better when it took over in 2022. The administration took the example of the predecessor’s indifference to the rising construction cost and not only did nothing to address it, but worsened it as well.

Our cost of construction is recklessly high, unsustainable and a chronic pain to this sector’s growth. Coupled with the blasphemous land prices and in a closed buyer’s market that our real estate currently is in, what meaningful returns can an investor make?

Next is taxation, which is closely linked to the rising cost of construction. This administration has increased our cost of construction at every opportunity.

It was foolhardy to impose the 10% import levy on an industry that probably imports 70% of its materials because locally produced ones are unavailable and expensive.

The government’s appetite for local borrowing is another reason we have this drastic decline in growth in the construction sector. Who is going to invest in construction and real estate with a government bond interest at 18%? Is there an impetus for an investor or even a bank to loan our money to the construction sector?

Closely tied to this is the trend of corruption beneficiaries to buying properties out of the country.  

The writer is a director at Beacon Africa