Kenya: Impact of a 0.39% rise in construction prices on project overruns

Kenya's construction industry is facing a potential budget crunch as the cost of key materials surges, with the Construction Input Price Index (CIPI) rising by 0.39 per cent in the first quarter of 2024 compared to the previous quarter. This increase has been primarily driven by spikes in the prices of cement, quarry products, and roofing materials, posing challenges for ongoing and upcoming construction projects. CNBC Africa's Tabitha Muthoni spoke to Edwin Were Okal, Project Manager of Pazuri at Vipingo, to shed light on the impact of the rising CIPI on project budgets and explore potential mitigation strategies. Discussing the availability of viable and cost-effective substitute materials for the surging construction costs, Edwin expressed concerns over the lack of alternative options due to economic and political constraints in the country. He highlighted that while some cost-saving measures can be implemented for smaller construction items, major materials like cement and quarry products have limited substitutes, with steel being one of the few options which remains expensive to import due to the lack of local production. When delving into the factors contributing to the price hikes in construction materials, Edwin pointed towards a ripple effect of the COVID-19 pandemic. He attributed the escalation in costs to disruptions in the supply chain and market dynamics post the pandemic era, noting that this trend poses challenges for contractors in managing project budgets and profitability. To address the fluctuating costs and enhance project profitability, Edwin emphasized the importance of investing in analytical departments and conducting thorough research to identify areas where costs can be reduced. He suggested focusing on labor optimization, minimizing wastage, and cutting down on labor expenses to mitigate the impact of price increases on construction projects. Moreover, regional disparities in raw material availability were highlighted as a factor influencing construction costs across different parts of the country. Areas with limited access to essential construction materials are likely to experience higher cost implications compared to regions where these materials are readily available, thus emphasizing the need for localized strategies to manage construction expenses. Despite the challenges posed by rising construction costs, Edwin acknowledged the resilience and innovation within the industry, citing trends such as 3D printing of houses and development in unconventional construction sites. He expressed optimism that amidst the economic and political uncertainties, the construction sector in Kenya continues to forge ahead with development projects, showcasing a determination to overcome the current obstacles and return to normalcy.