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January 24, 2019

Construction sector grows, props economy

Apartments under construction at Sultan Palace located in the North Coast.The apartments will be designed based on modern Swahili-Arabic architecture.
Photo/John Chesoli
Apartments under construction at Sultan Palace located in the North Coast.The apartments will be designed based on modern Swahili-Arabic architecture. Photo/John Chesoli

The construction sector shrugged off high interest rates in 2015 as building activities increased towards the end of the year driven by rise in borrowing.

In the third quarter of last year, construction grew by 14.1 per cent compared with 8.8 per cent in the same quarter a year earlier, latest official data show.

The construction sector posted the highest growth between July and September among the key sectors of the economy, the Kenya National Bureau of Statistics said last week, but key indicators point to a slow year-on-year growth in 10 months through October.

Aggressive borrowing by the government increased volatility in the interest rate environment with the 91, 182 and 364-day Treasury bills hitting a high of 22.5 per cent, 22.3 per cent and 22.4 per cent, respectively before easing in the last quarter.

The construction sector’s growth was higher quarter-on-quarter having improved from 9.9 per cent between April and June 2015.

Its performance was a major driver in the overall expansion of the economy in the third quarter, with the gross domestic product growing by 5.8 per cent compared with 5.5 per cent in the same period in 2014.

“The accelerated growth was mirrored in the increased credit advanced to the sector and cement consumption,” KNBS said.

Loans advanced to the sector rose by Sh22.03 billion or 27.96 per cent to Sh100.83 billion in September last year, from Sh78.80 billion a year earlier. This is despite lending rates rising by as much as seven percentage points after the Central Bank raised its base lending rate by 300 basis points to 11.5 per cent from eight in January 2014.

A total of 1.44 million metric tonnes of cement were consumed in the three-month period, a 10.77 per cent jump from 1.30 trillion tonnes in a similar period in 2014.

In the 10-month period through October, uptake of cement increased by 11.27 per cent to 4.74million tonnes from 4.26 million tonnes in the same period of 2014. This is a slower pace of growth compared to 15.59 per cent in a similar period last year.

Output of the key commodity, which indicates performance in the sector, rose by 10.58 per cent over the period to 5.33 million tonnes from 4.82 million tonnes produced in the first 10 months of 2014.

Highest monthly production this year was recorded in July at 570,904 tonnes, but that has since slowed to 553,929 tonnes, 556,873 tonnes and 547,509 tonnes in August, September and October, respectively.

“The quantity of cement produced decreased from 556,873 metric tonnes in September 2015 to 547,509 metric tonnes in October 2015,” KNBS said in its latest Leading Economic Indicators’ report.

“Consumption of cement rose from 514,072 metric tonnes in September 2015 to 520,833 metric tonnes in October 2015.”

Devki Group-owned National Cement Company, an Athi River-based cement firm with a capacity of two million tonnes a year, has however said that business was slower in 2015 than it was in 2014.

The performance of the construction sector is mainly being driven by the ongoing construction of the $3.8 billion [Sh388.74 billion], 482-kilometre Mombasa-Nairobi Standard Gauge Railway line.

National Cement was not on the list of suppliers to the SGR released by lead contractor China Road and Bridge Corporation last July after accusations it was importing the commodity. The list included Bamburi Cement, East African Portland Cement, Athi River Mining Cement and Savanah Cement.

“This year [2015] is much more rocky [compared to 2014]. There are ups and downs in the economy, in exchange rates and politics,” Devki Group chief executive and founder of National Cement Narendra Raval said on phone on December 8.

“The politics are affecting the economy because people are not starting new projects.”

The KNBS data further shows output of the galvanised sheets – a widely used roofing material despite gradually-rising competition from alternative materials – declined 12.29 per cent or 26,230 metric tonnes to stand at 187,248 tonnes in the nine-month period through September.

That was a higher fall compared with last year’s 6.80 per cent or 14,700 tonnes to 213,475 tonnes from 228,177 tonnes in 2013.

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