Bamburi expects growth to rebound after rate caps era
A slowdown in the construction industry saw a dip in cement production last year but the sector is optimistic of bouncing back after the scrapping of interest rates caps and construction of new mega projects.
Industry players, such as Bamburi Cement chief executive officer Seddiq Hassani say cancellation of major construction projects also led to the significant dip.
A report by the Kenya National Bureau of Statistics (KNBS) reveals that overall cement production in Kenya peaked at 6.7 tonnes in 2016 and has fallen since.
It fell by 2.8 per cent year-on-year to 2.9 tonnes in the first half of 2019 from three tonnes in the same period in 2018.
Consumption fell by a similar margin in the first quarter of 2019.
Building plans
Knight Frank report on the first half of 2019 shows continued decrease in cement production, consumption and the value of building plans approved, which is indicative of a slowdown in the real estate sector.
The report attributes this to the current oversupply, low transactions and the interest rate cap, which resulted in reduced lending to the private sector.
However, this scenario in Kenya’s property market could potentially improve in the near future due to the government’s Affordable Housing Programme (AHP).
In addition, the removal of rate caps is expected to boost lending to the private sector with Hassani saying this will give real estate developers the financial ability to commence new projects
The Bamburi boss says the construction sector’s performance was seriously affected because financial institutions withheld critical loans for contractors and investors.
“We are optimistic removal of caps on interest rate will unlock the potential of the construction industry,” said Hassani when he unveiled the company’s latest product, Fundi
He said Fundi, packaged in a 50 kilogramme bag, would enhance capabilities for masonry and plaster works, is affordable and stronger.
The CEO said availability of Fundi is assured through the firm networks and will also be available in South Sudan, DR Congo and Tanzania.
President Uhuru Kenyatta signed into law the Finance Bill 2019, which among other provisions, repeals section 33b of the Banking Act that provides for the capping of bank interest rates last year.
The repeal of section 33b of the Banking Act was expected to enhance access to credit by the private sector, especially the Micro, Small and Medium Enterprises (MSME’s) as well as cut out exploitative shylocks and other unregulated lenders.
Affordable credit
The repeal was seen as a big win for commercial banks, the Central Bank of Kenya and international financial institutions such as the IMF and the World Bank which had all been pushing for the removal of rates caps, arguing that the law had failed to achieve its purpose of freeing affordable credit to the private sector.
The law on interest rates came into force in September 2016, capping lending rates at four percentage points above the prevailing Central Bank Rate.
