Construction rebounds to pump Sh169b into economy

Ongoing works at the Sh300m outpatient wing at Naivasha level IV hospital which is expected to be completed by April 2021 two months ahead of the set schedule. [Antony Gitonga, Standard]

The construction sector contributed Sh169 billion to Kenya’s gross domestic product in the third quarter of 2020, the highest in any quarter since 2015. 

This is despite the onslaught on the sector and the economy in general brought about by the coronavirus pandemic following the announcement of the first case of Covid-19 in the country in mid-March. 

According to the Kenya National Bureau of Statistics’ Quarterly Gross Domestic Product Report, the sector’s performance in the third quarter of 2020 was up from the Sh135 billion it pumped into the economy in a similar quarter in 2019, a 16.2 per cent growth.

It was also more than Sh23 billion what the sector yielded in the second quarter of 2020.

The performance signals a recovery in the sector once the fourth-quarter results are in.  

The cumulative annual contribution of the construction sector to the economy has been rising gradually over the years from Sh308 billion in 2015 to Sh542 billion in 2019.

During the quarter under review, cement manufacturers reported brisk business.

“The growth (in the construction sector) was evidenced in the volume of cement consumed, which increased by 23.5 per cent from 1.6 million metric tonnes in the third quarter of 2019 to 1.9 million metric tonnes in the review period,” said the report.

“On the same note, import values of construction-related materials, such as timber, wood products, bitumen, lime, cement, plumbing materials and glass products, increased in the quarter under review.” 

Rhino Mabati Chief Executive Andrew Muriungi said the coronavirus pandemic and the arising need for social distancing could have spurred construction a boom.

“It was almost as if people suddenly realised they were living in small spaces with their whole families indoors. When restriction on movement was effected, and when the government announced a dusk to dawn curfew, a lot of time was spent indoors so much so that, especially for people living in high-rise locations, there was no longer as much privacy as they would have liked, and something had to give,” said Mr Muriungi.

“Covid-19 was a defining moment. People who had vacant spaces went ahead to develop them. Children were indoors for more than three months, and parents had a lot of time to supervise projects around,” he added.

Chairman of the Institution of Construction Project Managers of Kenya (ICPMK) Tom Oketch said he is sceptical about the Knbs data as it is based on production and sale of cement in the country and not on consumption.

“There was so little going on in the construction sector... Labour contributes more than 60 per cent of construction, and people were unable to attend these construction sites. For all we know, this cement might not be going into construction. Most of it might even be imported,” said Dr Oketch. 

He said because Kenya is not a very mechanised country, it mostly utilises manual labour in construction sites, which was not the case in 2020. 

“Looking at the sale of cement as a measure of the performance of the construction industry would be a bit misleading. We are not taking into consideration the consumer,” he said.

Head of Development Consulting and Research at HassConsult Sakina Hassanali also expressed reservations about the positive outlook by the Knbs’ report, saying private developers actually suffered last year.

“I think that quarter three was the worst nightmare for private developers. Probably the growth comes from government projects,” she said. And Oketch insisted that in a country where the government is the main driver of construction, a slowdown in activity in 2020 should have seen figures worsen.

“Private firms also sat back to replan and restructure. Little was going on. So many people who would have been doing construction jobs were at home,” he said.

He, however, noted that the lifting of restrictions to contain the spread of coronavirus could have sparked a recovery in the sector somewhat. 

The KNBS report at the same time noted an improvement in the credit extended to the sector during the quarter under review.

“Credit advanced to the sector grew by 4.9 per cent in the review period,” noted the report.

And while the third quarter posted the highest returns since 2015, the stakeholders said the fourth quarter could perform better.

This is going by the trend that shows yields in the subsequent years has kept on improving, with the highest returns always experienced between October and December. 

Falling demand

“We expect high rates of construction in 2021 as people appreciate that having space is not a luxury. It is a necessity. Personal loans and mortgages increased in the year and before layoffs in the middle of the year, many workers could still access loan facilities and start building,” said Rhino Mabati’s Muriungi.

Real estate firm Knight Frank noted rental incomes had a significant drop in the middle of the year, which might be an indicator of falling demand.

“The decline in rental rates was mainly attributed to the continued oversupply of retail space in certain locations, the current economic climate and reduced consumer spending due to a reduction in disposable income,” said Knight Frank in its half-year Kenya Market Update Report.

The report noted that landlords provided concessions and incentives on a case by case basis to retain and attract new tenants during the period.

According to Knight Frank, prime residential prices in Nairobi fell 2.9 per cent in the first half of the year compared to a decline of 1.8 per cent in the same period in 2019.