This archive report was first published on 18 July 2021.
As Kenya embarks on ambitious infrastructure development projects under Vision 2030, the demand for steel is increasing, driven by government-driven infrastructural development, commercial and residential buildings, and other sectors.
Steel is a key indicator of a country's economic status, investments in infrastructure, and progress. In Kenya, the steel sector is closely linked to the growth of complementary sectors such as housing, construction, energy, electronics, and chemicals.
The sector's products are primarily used in the construction industry, which accounts for approximately 13% of the manufacturing sector. However, the direct and indirect consumption of steel is projected to increase, presenting an opportunity for the sector to enhance infrastructure and create jobs and wealth.
Despite its importance, the sector faces several challenges, including the high cost of raw materials. Kenya has historically imported raw materials to produce steel products, making the sector vulnerable to global price fluctuations. The price of imported raw materials has increased by at least 4% due to exchange rate depreciation.
According to the Kenya Association of Manufacturers, external factors are driving the prices of locally produced steel. To support the sector, the government can take several steps, including reducing the cost of electricity, which is a key input in the manufacturing process.
The current electricity tariff for industrial consumers stands at an average of US cents 18kWh (CI2), which is higher compared to neighboring countries. Zero-rating Import Declaration Fee (IDF) and Railway Development Levy (RDL) for raw materials used in processing can also help reduce the cost-competitiveness disadvantage.
Lastly, the government can incentivize local industries to harvest raw materials from local deposits of iron ore and coal, which requires significant capital investments. A few local industries have already taken the lead in this area, but they need government support.
As the chairman of the Kenya Association of Manufacturers Metal and Allied Sector, the writer emphasizes the need for government support to address the challenges facing the steel sector.
