New cement levy set to push the cost of homes up

Homes for sale in Thika. The cost of building and construction is set to go up with cement makers increasing the price of th product. FILE 

By ALLAN ODHIAMBO and DAVID HERBLING

In Summary

• The cost of building houses, roads, airports and ports is expected to rise significantly under the new construction materials pricing regime that has seen ex-factory cement prices rise by at least Sh20 per bag beginning this week. 
• The latest price increase is in response to a government directive requiring cement makers to pay in Sh140 tax per tonne of cement, which translates to about Sh7 per bag.
• The new levy is expected to earn the government at least Sh659.5 million a year going by Kenya’s 2012 total cement output.

Cement makers have increased retail prices in response to the government’s recent decision to impose a new levy on key raw materials setting the construction industry on an inflationary path.

The cost of building houses, roads, airports and ports is expected to rise significantly under the new construction materials pricing regime that has seen ex-factory cement prices rise by at least Sh20 per bag beginning this week. 

The latest price increase is in response to a government directive requiring cement makers to pay in Sh140 tax per tonne of cement, which translates to about Sh7 per bag.

“We have increased prices by Sh20 effective Monday,” said a sales representative at Bamburi Cement. This has pushed Bamburi’s ex-factory prices to Sh660 from Sh640 for a 50-Kg bag of cement.

Savanah Cement said that though it had not effected price changes it was bound to pass on the levy to the consumer.

“It is a burden that is obviously over and above our usual cost of production and we shall not soak it but pass it on to the consumer,” the company’s chairman Benson Ndeta said without disclosing the details

.

Distributors expect other cement producers, including East Africa Portland Cement Company (EAPCC) and ARM Cement (ARM), to make similar moves. Kenya’s cement industry is tightly knit and players tend to act in unison while making critical decisions such as pricing.

The new levy is expected to earn the government at least Sh659.5 million a year going by Kenya’s 2012 total cement output.

In a gazette notice signed on December 18, Mining secretary Najib Balala said cement producers would be required to pay a Sh140 tax for every tonne of cement produced — repealing a previous notice that charged the levy at the rate of one per cent of turnover.

The new levy applies to both miners and importers of cement, unlike the previous proposal which only applied to local producers.

READ: New mining levy set to raise price of cement

Three-quarters of all royalty fees received will be allocated to the national government, 20 per cent to the county government, and five per cent to communities living around the cement-making factories. Mr Balala’s latest gazette notice also increased levies charged on fluorspar and soda.

The minister, however, offered reprieve to miners of fluorspar and soda by spreading out the five per cent royalty fee over a five-year period ending 2019.

The new cement prices have brought to an end the prolonged period of stable prices that was mainly attributed to market wars among the country’s seven manufacturers.

Until this week, ex-factory cement prices averaged Sh645 a bag compared to a peak of Sh740 in 2008 and 2009.