The Construction sector, jobs and the economy in Kenya

10 December 2024 - An old adage goes, ‘to see if a nation’s economy is doing well, check its cement consumption.’ The adage relies on the logic that if a country is developing, then it is building more roads, bridges, pavements, and buildings. Hence, cement consumption can be an indicator of a nation’s GDP and development. In similar lines to this, studies show that there is a direct relationship between the growth of a nation’s construction sector and that nation’s economy. 

The issue here is that Kenya’s construction sector has been in steady decline for the past decade. From a growth rate of 13.9% in 2015 to a rate of 3.0% in 2023, the construction sector has seen a decline in growth by 10.9%, with indications that the decline may increase in 2025.

Causes

There are two main causes for this decline. Firstly, the costs of construction have increased rapidly. Secondly, the tax laws are not favourable for this sector.

Policies in the Uhuru administration, from 2013 to 2022, were not favourable for construction. These policies allowed for increasing costs in the sector, despite a scheme for affordable housing in 2017. Afterwards, the Ruto administration was also indifferent to the rising costs in the construction sector, with some policies worsening the problem. 

Supporting the increasing costs are the unfavourable tax laws which impose 10% import taxes. This is especially burdensome on the construction industry, which is heavily reliant on imports. The sector imports 70% of its materials as local produce is either unavailable or too expensive.

A supporting cause is also a lack of investment in construction. This is due to a wide variety of reasons. Private or public clients do not invest out of concern. The high costs of construction, combined with high land prices and a closed buyers market indicate that investors will not receive a favourable return on investment. 

Solutions

The sector requires reforms which can help aid the above issues. This may seem difficult due to the increased fragmentation of the industry and due to the aforementioned government issues. There needs to be a creation of incentives to attract investment from private and public parties. This needs to be combined with the decrease of causes for concern for investors, making the situation incentivised and less risky.

Implications for workers

A steady decline in a sector as large and important as construction not only has impacts on its workers but also on other sectors (such as the property sector), as well as an impact on the nation's economy. Following such a decline, workers can be put at certain risks, namely job security, infringement of rights, reduction of hours, stagnation or even reduction in wages, losses of benefits, etc. These risks can encourage the migration of workers to other industries, further fuelling the industry’s decline. 

The central solution, which should be looked into in order to increase growth, is to further incentives for investment while removing the policies that are burdening the sector. What are salaries in the construction sector?