Construction growth slows as new railway nears completion

Railway line
Construction of the SGR’s corridor at the Nairobi National Park on Dec 1, 2016. PHOTO | COURTESY
Growth in the Kenyan construction sector slowed down in the third quarter of 2016, weighed down by a general slowdown in private real estate development, official statistics show.

The Kenya National Bureau of Statistics says in its quarterly gross domestic report that construction, which comprises buildings, roads and railway, grew by 9.3 per cent in the quarter ending September compared to 15.6 per cent in the same quarter of 2015.

“The construction sector grew by 9.3 per cent in the third quarter of 2016 compared to 15.6 per cent growth in the same quarter of 2015.

The slowed growth was mirrored in the consumption of cement that decelerated from 11.0 per cent in the third quarter of 2015 to 5.3 per cent in the review quarter,” KNBS said in its third quarter GDP report.

The report noted that there was a considerable decline in imports of key construction materials, especially steel and bitumen.

According to the KNBS, the slowdown was mainly on account of a sizeable reduction in civil works of the Mombasa-Nairobi standard gauge railway that is now nearing its final completion, as well as a general decline in the number of ongoing works in the private real estate market.

Based on the figures of the first three quarters of 2016, it is likely that the local construction sector recorded a significant decline last year – a deceleration that was totally unexpected considering that the sector has been on an upward growth trend since 2012.

During the first quarter of 2016, construction grew by 9.9 per cent compared to an expansion of 12.6 per cent in a similar period of 2015.

The deceleration in the growth of the construction sector was reflected in the production and consumption of cement whose expansions slowed to 5.2 per cent and 8.3 per cent during the quarter compared to growths of 11.0 and 17.0 per cent, respectively over a similar quarter of 2015.

The sector posted a growth of 8.2 per cent in the second quarter of 2016, a slowdown from a growth of 11.2 per cent in the second quarter of 2015.

This is a complete departure from growth levels reported in recent years.

For example, in its 2016 edition of the Economic Survey, KNBS said that construction grew by 13.6 per cent in 2015 compared to 13.1 per cent in 2014 driven by the ongoing civil works of the Sh327 billion railway project.

“The growth was to a large extent buoyed by the development of transport infrastructure such as the continued implementation of the first phase of the standard gauge railway, development of roads, expansion and rehabilitation of facilities at the airports and improvement of port facilities,” read the Economic Survey 2016.

The rapid growth was mirrored in the local cement production, which crossed the six million metric tonnes mark for the first time in Kenya’s history as manufacturers raised their output to meet rising demand from a construction boom driven by public infrastructure projects and private sector developments.

The 2016 slowdown in construction growth is likely to persist this year due to the level of uncertainty around the August 8 General Election.

The focus for the first eight months of the year will mostly be on completion of ongoing developments – with very few projects coming online during the political campaigns period.

The wait-and-see approach is informed by past incidents, both locally and globally during national elections, especially when a government is seeking re-election for a second term.

The disputed 2007 polls and the subsequent post-election violence early 2008 created a sharp decline in the growths of most sectors of the Kenyan economy, with construction being among the industries that were hardest hit by the mayhem.

However, during the first half of 2017, the sector may get some reprieve from the public construction sector as the national and county governments rush to complete dozens of major infrastructure projects that they hope to use to campaign for their re-election.