Construction sector faces uncertain times ahead after three-year slump
Performance in the construction sector has been on a downward trend since 2020 because of the negative effects occasioned by the pandemic and the Russia-Ukrainian war which has become an international conflict.
The construction industry in Kenya has experienced a tough past three years with stakeholders grappling with the effects of the Covid-19 pandemic in 2020 and 2021 and the Russia-Ukraine crisis in 2022, all of which have affected the global supply chain with repercussions felt locally.
These are the findings from a ‘Status of Built Environment Report, 2022’ by the Architectural Association of Kenya (AAK) which are backed by The Kenya National Bureau of Statistics.
According to KNBS, the construction sector performance has been on a downward trend with the Q3 Gross Domestic Product (GDP) report showing the sector was at 6.4% in Q1, 5.8% in Q2 and 4.3% in Q3. The downward trend is also seen in cement consumption and importation of construction material. The real estate sector was also not spared the gloom with Q1 at 6.1%, Q2 at 5.5% and Q3 at 5.1%.
Looking at specifics, the prices and availability of essential construction materials like steel, paint, aluminum, cement and PVC continue to remain unreliable in Kenya due to global supply chain fluctuations.
According to the AAK report, the average price of a 50kg cement bag was KSh 650 in June 2022 up from KSh 550 in June 2021.
Cement prices in Kenya hit the roof in April 2022 rising up to Ksh850 for a 50kg bag due to a global surge in the cost of coal, which is used in the manufacture of clinker – a key raw material for cement production.
Locally, a kilo of steel rose by 80% from KSh 100 to KSh 180 late last year. The Russia- Ukraine war accounted for the majority increase in steel prices in Kenya and globally. In January 2023, The New York Stock exchange reported that the price of steel had increased by 29.5%.
Additionally, there has been an increase in paint prices in Kenya, this is because paint manufacturers have to pay a 10% excise tax on imported resin, in addition to 16% VAT on their petroleum-based ingredients.
Astronomical increases in fuel and transport costs have caused construction costs to rise too. The transport industry directly influences construction material prices; as fuel prices go up, so do material prices.
A report by Integrum indicated that construction costs in Kenya rose by 2.7% – 6.11% between June 2021 and June 2022. In 2022, the construction costs in Kenya averaged from KSh 34,650 – KSh 77,500 per square meter which is equivalent to KSh 3,219 – KSh 7,200 per square foot.
The 2021 cost was KSh 33,450 – KSh 72,400 per square meter, which is equivalent to KSh 3,135 -KSh6,785 per square foot.
Currently, the Kenyan construction industry is recovering and prices are stabilizing, but things still remain uncertain because the Russia-Ukraine war is still ongoing and fuel prices keep increasing.