The building and construction sector in Kenya is a significant contributor to the country's economy, accounting for approximately 4.1 percent of the Gross Domestic product (GDP) in 2023.
However, recent economic policies have created challenges for Micro, Small, and Medium Enterprises (MSMEs) operating in this sector.
This article examines the plight of MSMEs in Kenya's building and construction sector and calls for a strategic policy reconsideration in the 2025/2026 Finance Bill.
This article aims to illuminate the challenges faced by MSMEs and provide a compelling case for policy reform. It aims to contribute to a more vibrant and inclusive construction sector that supports economic growth and job creation in Kenya.
Recent statistics from the Kenya National Bureau of Statistics (KNBS) reveal an alarming trend. Cement consumption plummeted in 2024, falling below the levels experienced during the Covid-19 pandemic.
Surprisingly, this decline is not primarily attributed to large-scale commercial projects, like the Affordable Housing Project. Instead, the everyday investments by Kenyan households—individuals purchasing two or three bags of cement to improve their dwellings—drive demand.
The recent fiscal policies have stifled this grassroots demand. By imposing a tax of over 35 percent on the importation of cement clinker and steel billets, lawmakers have inadvertently choked a crucial segment of the economy.
While the East African Community Common External Tariffs had fostered a competitive market environment, the unilateral new taxes imposed by Kenya on Kenyan companies have fueled the emergence of near-monopolistic conditions, jeopardising job security, investments and livelihoods across the sector.
With affordable production machinery from nations like China, India and Pakistan, Kenyans have ample opportunities to establish local manufacturing units for these products in towns and villages.
Yet, the policy bottlenecks introduced by recent Finance Acts have rendered many MSMEs uncompetitive, driving them to extinction.
The narrative that local end-to-end production of raw materials is essential for the sector's sustainability has been strategically propagated.
This mantra has primarily favoured dominant establishments, while decimating hundreds of MSMEs and millions of Kenyans, who now struggle with unreasonably high costs for construction materials, especially steel and cement products.
A 50kg bag of cement, which had once stabilised at around Sh600, has skyrocketed to over Sh900 in less than two years—the overall cost of production has escalated by at least 40 percent in the last two years.
This steep rise highlights the uneven impact of the policies, where the supposed benefits of local production chiefly benefit a select few large enterprises, while exacerbating financial burdens on everyday Kenyans.
A case study: An SME steel fabrication company
The story of an SME (name withheld), located in the Kikuyu constituency, illustrates the devastating effects of these fiscal policies.
The proprietor, a retired engineer from one of Kenya's leading companies, invested his life savings, sold stocks, and even liquidated land to build a Sh300 million steel fabrication factory.
At its peak, the SME employed over 250 Kenyans, contributing to the local economy and providing livelihoods for hundreds of families.
The factory thrived as it could easily access steel billets and wire rods from the open market without challenges.
However, the implementation of the Finance Act 2023/2024 fundamentally altered the landscape for SMEs and hundreds of similar MSMEs across the country.
The law effectively wiped out the importation of primary raw materials, creating an opportunity for local producers to impose exorbitant and predatory pricing, and established minimum order quantities (MOQs) that were unaffordable for many MSMEs.
For the SME, locally produced raw materials became not just inaccessible but also contingent on minimum order quantities exceeding Sh100 million in US dollars. Unable to procure the necessary raw materials, the SME was forced to shut down the operations, resulting in over 250 people and their dependents losing their livelihoods. Other five MSMEs in the Kikuyu area suffered a similar fate.
This story is not unique; it mirrors the challenges faced by hundreds of MSMEs across the country. Another SME operating in cement grinding is now forced to import clinker from Tanga in Tanzania, due to the prohibitive MOQs imposed by local suppliers.
This highlights the grave impact that these unfortunate economic policies have had on local MSMEs. Unfortunately, even though they belong to established BMOs, SMEs’ voices are inaudible and are left to their own devices.
In conclusion, Kenya stands at a crucial intersection where policy choices will define the future of its building, mining, and construction sectors.
A shift in focus is necessary—one that prioritises MSME revitalisation through mini-factories and fosters an enabling environment for local production. The government must consider re-evaluating the economic policies laid out in the Finance Acts of 2023/2024 and 2024/2025 to remove burdensome taxes affecting access to essential raw materials by MSMEs.
The policy-making process must be nuanced and should focus on the greater good as opposed to sectarian interests.
Investing in infrastructural support, easing regulations, and adopting initiatives similar to those employed by China, India, and Vietnam can rejuvenate the sector. By democratising production and ensuring local players have access to competitive raw materials, Kenya can reignite the growth of its construction industry.
The writer is a Public Policy Expert and former CEO, KAM
