Duty on steel may raise cost of building homes

Heavy steel being transported by rail to Uganda on May 22, 2014. Kenyans should brace themselves to pay more for home construction following the government’s decision to increase duty on imported steel to 25 per cent. PHOTO / LABAN WALLOGA / NATION

What you need to know:

  • Whereas plan is set to earn Sh2.6bn for the Exchequer, experts say it’s a disincentive to housing sector
  • Import tax on key product raised from between zero and 10 per cent with a view to cushioning local industries

Kenyans should brace themselves to pay more for home construction following the government’s decision to increase duty on imported steel to 25 per cent.

While reading the Budget for the 2014/15 fiscal year on Thursday, Treasury Cabinet Secretary Henry Rotich raised the import duty on steel from between zero and 10 per cent to 25 per cent on protectionist grounds.

“To protect and create more jobs for our youth in the iron and steel industries, I have increased duty rates on a wide range of iron and steel products, which are available locally,” Mr Rotich said.

This was also meant to cushion local industries from cheap imports, he added.

Whereas the move will net an additional Sh2.6 billion to the Exchequer, players in the construction industry say this move is a major disincentive to the real estate industry.

There have been calls by sector players for the government to provide incentives to the private sector to support the low-cost housing segment of the market.

'A STEP BACDKWARDS'

Mentor Group chief executive officer Daniel Ojijo said it was unfortunate that the minister had touched on something that would harm the real estate sector. He said the sector is already suffering from the high cost of land, financing and interest rates.

“This is another step backwards as it will make the cost of owning homes even higher,” Mr Ojijo said on phone.

He said the entire market, from the high end to the low end will be affected, as the cost of steel was already high. Kenya’s annual housing shortage is estimated at over 150,000 with a supply of less than 50,000 units.

Housing Finance managing director Frank Ireri said the increment in the tax is bad news for an industry that has been grappling with housing shortage and the high cost of financing.

“It will have an inflationary effect on the industry. The cost of construction will definitely go up,” Mr Ireri said.

TransCentury CEO Gachao Kiuna says that low-cost housing was just as important as jobs and balance of payments. He says it is important for Kenya to drive its own industries which in turn would trigger growth.

LOCAL MANUFACTURERS PLEASED

“Relying solely on imports and not stimulating local industries would be short-sighted. It is important to think long term,” Dr Kiuna said in an e-mail response.

He argues that sourcing steel locally may be more expensive in the short term but has long-term benefits of driving industrialisation, job creation and in turn supporting GDP growth through local manufacturers in the medium term.

Steel manufacturers have welcomed the move, saying, it was long overdue. According to Devki Steel Group chairman Narendra Rava, locally produced steel products have been lying in warehouses and hardware shelves at the expense of the cheaper imported steel products.

A lot of steel products used in Kenya and the East African region are imported from China, India and South Africa.

“China and other producers of steel and iron have more efficient and cost-effective production systems. Their products are also much cheaper as they enjoyed tax rebates and we could therefore not compete with them,” Mr Rava said by phone.