Construction set to jump-start stalled economy

[mikeotechi]

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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[Kenguy]

Its a fact. Kenya's economy is based on agriculture. Though with irrigation projects in full swing and adeqate rainfall, we should be headed back to the growth we saw before 2008. Once agriculture picks up every other sector will follow suit and then construction will begin like crazy.

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IMF team gives thumbs up to Kenya

Treasury Buildings in Nairobi. A mission from the IMF endorsed Treasury and Central Bank of Kenya management of the economy. Photo/FILE
By MUNA WAHOME Posted Saturday, October 31 2009 at 17:21

Kenya appeared set to receive more loans from the International Monetary Fund (IMF) and the World Bank after a mission from the former endorsed Treasury and Central Bank of Kenya management of the economy.

IMF has so far this year loaned the country an unprecedented $550 million (Sh41 billion) in emergency aid, and its board is expected to clear the way for further funding going by the ringing endorsement of the fiscal and monetary operations.

The IMF executive board is scheduled to discuss Kenya’s funding programme in Washington early next month and will rely heavily on the mission report.

In the past two years Treasury and CBK have faced some of the toughest times since the 1990s when Kanu chiefs destroyed the economy as post-election violence, the global economic crisis and the worst drought in decades forced them into constant crisis management.

IMF says the economy is likely to grow at a paltry 2.7 per cent in 2009, a far cry from the 7 per cent of the pre-crisis 2007. Economic growth is forecast to hit 4 per cent in 2010 and creep up to 6.5 in the near future.

A statement Friday by head of mission Michael Atingi-Ego said: “The authorities’ policy response to the crisis was appropriate and timely…the Central Bank of Kenya (CBK) adhered to its monetary target, and given the weakening demand for private sector credit, short-term interest rates declined, contributing to an easing of budgetary pressures on domestic debt service.”

Among the key points IMF isolates for praise in the management of the country’s monetary policy is regulation of the banking industry. It notes supervision has been strengthened while CBK has enforced recapitalisation and adequate provisioning of loans in the sector.

And despite the liquidity (cash) crunch in the banking sector early this year - arising from the stand-off between Treasury and Parliament over the so-called Supplementary Budget errors - IMF says CBK prudent management has resulted in adequate liquidity in the system.

The Kenya banking industry has avoided a systemic crisis since 1998 with the only notable bank failures since being Trust Bank and Euro Bank, which were largely looting platforms during the Kanu era. Treasury has ordered banks to crank up capital from Sh250 million to Sh1 billion by 2012 to buttress the system’s stability.

IMF also notes the currency reserves CBK has built up over the years were used to finance the current account deficit arising from falling exports and huge food import requirements. However, the mission calls on Kenya to accelerate economic reforms to encourage investment to diversify the economy and avoid what it calls adverse shocks. It singles out several pieces of pending legislation that should be enacted in that spirit.

“Enacting several pieces of legislation that are still pending - including the banking, new deposit insurance and importantly the anti-money laundering bills - will further strengthen the functioning of the financial sector,” it states.

The Money Laundering Bill is still stuck in Parliament and has attracted a lot of attention from donors and countries that have huge stakes in controlling the international crime. Currently, money laundering is not a crime in Kenya, making the country a haven for drug dealers, pirates and even terrorists.



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[KQV208]

Now if rains could remain consistent and credit easily forthcoming, our farmers should be able to fetch good prices. Coffee reached a high of $145 late last month - that is just wow!

[KQV208]

And a thumbs up to the construction industry!

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