Building costs rise as import levy shrinks cement output

Import of clinker, a critical raw material used in the manufacture of cement, has dropped significantly due to a new levy introduced by the government in the Finance Act 2023, latest data shows.

The introduction of export and investment promotion levy in the Act also led to reduced imports of iron and steel, which leaves Kenyans with the possibility of increased cost of houses.

This is against the backdrop of the government’s affordable housing agenda, which seeks the participation of the private sector in delivering 200,000 units to fill a deficit of two million houses.

However, it appears that the State’s desire to collect more revenue is now affecting this goal, with data from the latest Kenya National Bureau of Statistics (KNBS) 2024 Economic Survey showing reduced production of cement due to manufacturers importing less clinker.

The report shows imports of cement clinker, which has been increasing over the years due to demand from affordable housing and other infrastructure projects dropped significantly by 77 per cent in 2023.

This explains why the cost of cement is nearing an average of Sh800, with some brands hitting Sh900 in the last few months, up from an average of Sh600 in the previous years.

The KNBS data shows Kenya imported just 148,018 metric tonnes of cement clinker, compared to 656,499 tonnes in 2022.

This figure stood at 1.07 million in 2021 and more than two million metric tonnes in 2020.Cement clinker is among the products that were slapped with a 17.5 per cent export and investment promotion levy in President William Ruto’s first budget that also affected steel products.

The levy is envisioned to improve the country’s manufacturing capability because his administration seeks to increase the contribution of the sector to the Gross Domestic Product (GDP) from 7.2 per cent to 20 per cent by 2030.

“The volume of imported cement clinkers declined from 656,500 metric tonnes in 2022 to 148,000 in 2023, while iron and steel declined from 1.41 million tonnes to 1.21 million tonnes in the same review period,” reads the KNBS Economic Survey report.

The drop in these items, which in the report has been lumped together with petroleum products whose imports declined from 5,618.3 million litres in 2022 to 4,992.4 million litres in 2023, has been linked to the financial meltdown of 2023 that saw the US Dollar, the major trading currency for export-import businesses, being scarce.

However, Kenya Association of Manufacturers (KAM) Chief Executive Anthony Mwangi attributes the levy to rising costs.

“Someone would argue that the US dollar went up, but significantly, that levy of 17.5 per cent is the one that caused all those problems,” said Mr Mwangi. “You (the government) introduced an unnecessary chokehold so people cannot access raw materials.”

The reduced imports of clinker consequently led to reduced production of cement in the country which also negatively affected utilisation.

The production of cement decreased from 9.79 million tonnes in 2022 to 9.62 million tonnes in 2023. This is as consumption also went down from 9.49 million tonnes in 2022 to 9.2 million tonnes in 2023. This reduction could be the explanation behind the 1.1 per cent drop in the growth of the construction sector registered in 2023. 

The report, however, describes this as steady growth that has been necessitated by increased demand for better housing, urbanisation, and continued infrastructure development

“With the implementation of the Bottom-up Economic Transformation Agenda (BETA) and the focus on Affordable Housing Programme, there were not able milestones in the construction of residential buildings in the year under review,” the report says. The report says while cement production and consumption reduced, exports to Uganda and Tanzania increased to 190,800 tonnes in 2023 compared to 58,700 tonnes in 2022.

“On the other hand, export of cement to other countries dropped to 263,800 tonnes in 2023 despite recording growth in the last three years. In addition, there was an increase in cement imports to 34,200 tonnes in 2023 from 29,800 tonnes in 2022,” the report says.

The KAM chief executive said the same challenges with clinker have affected manufacturers of steel who have the levy imposed on the billets they import to create various steel specifications for construction. We used to be exporters of steel now we are importers. You cannot get access to billets because of the 17.5 per cent levy on imports,” he said.

Mr Mwangi said the levy in the country will push manufacturers to invest in the production of cement in the neighbouring East African Community (EAC) markets which will turn the country into a net importer of the product.

He said the same manufacturers operating in Kenya have entities as well in the rest of the EAC markets. “We operate within EAC. If you make it difficult to import through the port of Mombasa and I can do it through the port of Dar-es-Salaam, what do you do? You depress your investment decisions here (Kenya), you invest more in Tanzania and bring the final product,” he said.

“You cannot make a decision as if you are the only child in the house.”