In Q3 2023, data released by the Kenya National Bureau of Statistics (KNBS) reveals that the Construction Costs Index surged by 2.7% to reach 116.5, compared to 113.4 in Q3 2022. Quarter-on-quarter (q/q), construction costs witnessed a notable increase of 1.3% from an overall Construction Cost Index of 115.0 in Q2 2023.
This escalation is primarily attributed to heightened costs associated with key construction inputs and building materials, including cement, steel, reinforcement bars, hardcore, metal doors, and windows, among others.
According to the Construction Input Price Indices (CIPI) Third Quarter report from KNBS, steel and cement indices rose by 0.5% and 1.6%, respectively, from the previous quarter. Similarly, hardcore, bitumen, metal doors, windows, transport, and fuel, as well as construction labor wages indices, all experienced increases of 1.6%, 1.6%, 3.0%, and 1.0%, respectively.
However, a few construction materials indices saw declines: paints, sanitary fittings, water fittings, waste water appliances, and electrical fittings dipped by 0.7%, 1.0%, 0.2%, 2.0%, and 0.8%, respectively. This growth rate marks the fastest annual increase since Q4 2022, with a rate of 7.1%.
The continuous depreciation of the Kenyan Shilling has significantly impacted the costs of essential construction materials imported by the country, including steel, cement clinker, fuel, and machinery.
The Shilling’s exchange rate against the dollar has surpassed the 150-unit threshold, depreciating by 17.7% since the year’s commencement. This depreciation is more than double the 8.3% decline observed during the same period last year. The indicative rates released by the Central Bank of Kenya (CBK) at the time of writing this article report a dollar buying price of KES 149.9 and a selling rate of KES 150.2.
As a consequence of surging construction costs, the growth rate in the construction sector decelerated to 2.6% in Q2 2023, in contrast to the 4.5% growth seen in Q2 2022. If this trend persists, it could pose a threat to the optimal performance and expansion of the construction and real estate sectors.
