mikeotechi
October 28th, 2009, 07:20 AM
By JOHNSTONE OLE TURANA Business Daily
Posted Wednesday, October 28 2009 at 00:00
The construction sector is set to emerge as an engine for growth in Kenya’s under performing economy on back of the country’s resilient real estate market and the released Sh22 billion stimulus package intended for various public projects.
The money, which Treasury said it released last week, will be used to finance construction —at the constituency level — of new schools, health centres as well as repair and maintenance of constituency roads.
This is expected to further fuel the construction sector and put money into pockets of the most vulnerable groups through employment, a move that is expected to prop up the private sector by raising the overall consumers purchasing power.
The package comes at a time when the real estate market has defied the country’s soft economy to post positive growth — helped by remittances from the diaspora and increased mortgage lending — even as key sectors such as agriculture and manufacturing are on the decline.
Property has also emerged as a hot commodity for investors looking for a safe haven following the bearish run at the stock market.
Analysts say the expected vibrancy of the construction sector will boost the economy in the fourth quarter egged on by its effect on other businesses such as cement, steel and paint makers.
“I expect the sector to play a key role in the revival of the economy in the forth quarter, and the stimulus package to drive the sector further,” said Mr Robert Bunyi, an analysts at Mavuno Capital.
Similar sentiments were expressed by Mr Edward Gitahi, a senior investment manager at AIG Investment.
The economy grew by 2.1 per cent in the second quarter compared with a 2.2 per cent growth during a similar period in 2008, making it the slowest quarter-two growth since 2003 when output expanded by a margin of 0.4 per cent.
This was attributed to poor rainfall that affected the agricultural sector productivity with figures showing that the sector contracted by 6 2.7 per cent in the second quarter compared with 1.9 per cent in a similar quarter in 2008.
Agriculture is the largest sector in Kenya’s economy, accounting for 20 per cent of the GDP and employs about 65 per cent of Kenyans, and its performance —which is linked to the increasingly erratic rainfall pattern— ties in closely with the country’s economic welfare.
The manufacturing sector declined by 0.7 per cent in quarter two compared to a growth of 4.6 per cent in similar period in 2008 on lower demand for their products.
The private sector led by local manufacturers reckon that demand for their goods and services has shrunk by at least 10 per cent.
Lower profits
The construction sector, however, posted a growth of 10 per cent in the second quarter.
This delivered lower profits and losses to corporate Kenya forcing many companies to shed jobs, freeze new employment and cut expansion plans in an effort to protect their profit margins in a difficult business environment.
The cutback on factory floors, lost wages and consumers’ clinging to their savings and cash on anxiety over job security resulted in a domino effect of sagging demand across the entire private sector, from auto dealers to mobile phone operators and beverage makers.
Now, analysts say, expect the construction projects at the constituency level, which are expected to be rolled out from next month, to put money in peoples pockets and offer demand to manufacturers fro households with higher earnings power and contractors seeking building materials.
Though the real estate accounts for about five per cent of the country’s GDP and employs an estimated 64,000 people, its impact is expected to felt heavily this quarter on account of the Sh22 billion public spending.
It is anticipated that increased income to households and businesses would spur consumer spending and boost production to offer some room for resumption of hiring by corporate Kenya.
Already, manufacturers linked with the construction sector such cement, paint and corrugated sheet makers are announcing expansion plans to take advantage of the increased activity in construction sector at a time when most firms are cut backing.
“We are expanding our plants as we anticipate the demand for cement to continue rising due to increase construction activities both in real estate and road infrastructure”, said Mr. Pradeep Paurana managing director of Athi River Mining (ARM).
Paint firm Crown Berger and Mabati Rolling Mills have also announced similar plans.
The housing market is also becoming a red-hot asset class on demand from Kenyans living abroad and locals financed by banks, which had a net lending of Sh16.2 billion in the year to June.
“The existence of a financing arrangement has addressed initial issues such as property assessment which ordinarily would be required before mortgage application is considered,” says James Kimani of Home Choice Properties.
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Posted Wednesday, October 28 2009 at 00:00
The construction sector is set to emerge as an engine for growth in Kenya’s under performing economy on back of the country’s resilient real estate market and the released Sh22 billion stimulus package intended for various public projects.
The money, which Treasury said it released last week, will be used to finance construction —at the constituency level — of new schools, health centres as well as repair and maintenance of constituency roads.
This is expected to further fuel the construction sector and put money into pockets of the most vulnerable groups through employment, a move that is expected to prop up the private sector by raising the overall consumers purchasing power.
The package comes at a time when the real estate market has defied the country’s soft economy to post positive growth — helped by remittances from the diaspora and increased mortgage lending — even as key sectors such as agriculture and manufacturing are on the decline.
Property has also emerged as a hot commodity for investors looking for a safe haven following the bearish run at the stock market.
Analysts say the expected vibrancy of the construction sector will boost the economy in the fourth quarter egged on by its effect on other businesses such as cement, steel and paint makers.
“I expect the sector to play a key role in the revival of the economy in the forth quarter, and the stimulus package to drive the sector further,” said Mr Robert Bunyi, an analysts at Mavuno Capital.
Similar sentiments were expressed by Mr Edward Gitahi, a senior investment manager at AIG Investment.
The economy grew by 2.1 per cent in the second quarter compared with a 2.2 per cent growth during a similar period in 2008, making it the slowest quarter-two growth since 2003 when output expanded by a margin of 0.4 per cent.
This was attributed to poor rainfall that affected the agricultural sector productivity with figures showing that the sector contracted by 6 2.7 per cent in the second quarter compared with 1.9 per cent in a similar quarter in 2008.
Agriculture is the largest sector in Kenya’s economy, accounting for 20 per cent of the GDP and employs about 65 per cent of Kenyans, and its performance —which is linked to the increasingly erratic rainfall pattern— ties in closely with the country’s economic welfare.
The manufacturing sector declined by 0.7 per cent in quarter two compared to a growth of 4.6 per cent in similar period in 2008 on lower demand for their products.
The private sector led by local manufacturers reckon that demand for their goods and services has shrunk by at least 10 per cent.
Lower profits
The construction sector, however, posted a growth of 10 per cent in the second quarter.
This delivered lower profits and losses to corporate Kenya forcing many companies to shed jobs, freeze new employment and cut expansion plans in an effort to protect their profit margins in a difficult business environment.
The cutback on factory floors, lost wages and consumers’ clinging to their savings and cash on anxiety over job security resulted in a domino effect of sagging demand across the entire private sector, from auto dealers to mobile phone operators and beverage makers.
Now, analysts say, expect the construction projects at the constituency level, which are expected to be rolled out from next month, to put money in peoples pockets and offer demand to manufacturers fro households with higher earnings power and contractors seeking building materials.
Though the real estate accounts for about five per cent of the country’s GDP and employs an estimated 64,000 people, its impact is expected to felt heavily this quarter on account of the Sh22 billion public spending.
It is anticipated that increased income to households and businesses would spur consumer spending and boost production to offer some room for resumption of hiring by corporate Kenya.
Already, manufacturers linked with the construction sector such cement, paint and corrugated sheet makers are announcing expansion plans to take advantage of the increased activity in construction sector at a time when most firms are cut backing.
“We are expanding our plants as we anticipate the demand for cement to continue rising due to increase construction activities both in real estate and road infrastructure”, said Mr. Pradeep Paurana managing director of Athi River Mining (ARM).
Paint firm Crown Berger and Mabati Rolling Mills have also announced similar plans.
The housing market is also becoming a red-hot asset class on demand from Kenyans living abroad and locals financed by banks, which had a net lending of Sh16.2 billion in the year to June.
“The existence of a financing arrangement has addressed initial issues such as property assessment which ordinarily would be required before mortgage application is considered,” says James Kimani of Home Choice Properties.
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