The cement and steel tariffs that had Guru singing Kanu’s a hundred years

Written by Mtaa Skika and Otiato Guguyu

Anyone in the position of steel magnate Narendra Raval would have wished for President William Ruto’s term to be extended beyond the constitutional 10-year limit.

Within a year since Dr Ruto’s Kenya Kwanza administration rose to power in September 2022 after defeating former Prime Minister Raila Odinga, retired President Uhuru Kenyatta’s preferred candidate, Narendra was at the cusp of weaponizing the country’s fiscal policy.

Narendra’s competitors knew that they were just about to be hit, they just didn’t know with what. A few months to the tabling of the Finance Bill 2023, representatives of five leading cement manufacturers invited one of our reporters for an urgent meeting in a high-end hotel in Nairobi. It was cold, but one you could detect a streak of sweat on some of their faces.

They were from Rai Cement, Bamburi Cement, Savannah, Ndovu Cement and Riftcot Limited. They had earlier thwarted Narendra’s second attempt to have import duty on clinker increased, arguing that it would result into unfair competition. But Narendra was determined to have his way, even it meant tinkering the East African Community’s external common tariff (ECT) on clinker from 10 to 25 percent.

“We don’t know what he (Narendra) is planning, but he is up to no good,” said one of them, visibly worried as if Narendra’s latest move would be death knell to their business. “He has been making several trips to Treasury. I think there is something he is working,” added the source.

Indeed, Narendra was working on a knock-out punch, and it would shortly dim the lights out of the flailing players like Savannah, push Bamburi, once a giant cement manufacturer, deeper into the red even as consumers paid exorbitant prices for this crucial building material.

The implementation of the Finance Act 2023/2024 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 would, in the end, kill small cement businesses.

“I wish that we had this President (William Ruto) for at least 25 years. If we have [him for at least 25 years], this country will change,” said Narendra in West Pokot during the launch of his clinker plant a year ago.

Within one year that Dr Ruto had been president, everything in Narendra’s wish list was going to plan.

In one of the most egregious versions of state capture— one that could put that of South Africa’s Guptas to shame— Raval, helped by Dr Ruto, was able to cut major deals in Kenya and Uganda by influencing changes in these country’s fiscal policies to lock out competition in cement and steel industries.

It is not just tax measures in the Finance Bill that were introduced to favour Raval’s businesses, the country’s long term development strategy, the fourth medium term development plan (MTP IV) was going to be crafted to help him expand his sprawling commercial empire in iron and steel, cement, aviation and fertilizer.

His helicopter business was also a major beneficiary after the Finance Act 2023 exempted imports of aircraft and parts from paying 16 percent value-added tax (VAT), undoing changes that had been made by retired President Kenyatta’s administration. The law also scrapped 3.5 percent import declaration fees on imported aircraft and parts and two percent Railway Development Levy (RDL).

Capturing East Africa

Narendra, through his company Devki Group, acquired Cimerwa Plc, a cement manufacturer in Rwanda, in a deal valued at $85 million (Sh11 billion). This acquisition, completed on January 25, 2024, involved Devki Group acquiring 99.94 percent of Cimerwa's shares.

Narendra has also set his eyes on being the first one to produce virgin steel in the region. For this, he needed high-grade iron ore that could only be found in Uganda. However, President Yoweri Museveni had banned the export of iron ore from Uganda.

Earlier in 2022, Guru had pushed for the introduction of an export levy of $175 per tonne of the raw and semi-processed iron ores, which he hoped he would use in the virgin production of steel. This levy left a British mining company stuck with iron ores valued at $60 million (Sh7.8 billion) at the port of Mombasa, which it could not sell in the global market after the national government imposed this tax.

But it turned out that there was not much he would do with the deposits of iron ore in Kenya. He needed the premium iron in Uganda. Dr Ruto, who at some point even campaigned for Museveni, was going to be the miracle worker.

Mr Raval known as Guru, has set his sights on being the first one to produce virgin steel in East Africa region.

With the help of President Ruto, Narendra was able to secure an exclusive deal in Uganda to export iron ore worth Sh15 billion every year. Uganda had to change the law to accommodate Mr Raval and end a five-year freeze on exports of raw and semi-processed iron ore.

But what really is Narendra’s end-game? Imported iron ore from Uganda will boost Narendra’s plan to start the virgin production of steel in Kwale County.

Dr Ruto’s government has also pledged to put aside Kes60 billion annually to set up integrated iron and steel plant, a move that will largely benefit Narendra who is the only one that already has the monopoly of quality raw materials from Uganda.

The Sh60 billion will come from taxpayers.

In the end, the private payers may be thriving with KNBS noting a 98.1 percent increase in imports of aircraft and associated equipment, the rest of the economy is struggling.

The levy to create jobs

The protectionist levy, which its proponents like Narendra argued would save the country from burning its foreign exchange reserve and create jobs, was initially set at 10 percent, should be raised to 25 percent and to be implemented uninterrupted for 25 years.

Cement companies lacking local clinker production facilities—such as Bamburi Cement, Savannah Cement, Rai Cement, and Ndovu Cement—were livid, voicing strong opposition to the levy.

According to Guru, he would need a quarter a century of monopoly to recover the cost of producing steel and cement locally and for the region.

Appearing before the National Assembly’s Finance and Planning Committee, Narendra pushed for the levy to be set at 25 percent, and make it unalterable for at least 25 years, noting that this would eliminate imports and drastically reduce unemployment in Kenya.

“This is the only way that Kenya will develop industries, save jobs for Kenyans by promoting local industries and save precious foreign exchange,” Narendra told the committee, which is led by Molo MP Kimani Kuria.

Crushing competition

When the report was completed, the levy had been increased to 17.5 percent to the chagrin of the other cement players like Mr Rai who had earlier successfully rebuffed Narendra’s push for a hike on import duty on clinker, with the Uhuru administration arguing that other players had be given an opportunity to build capacity for clinker production.

An export and investment promotion levy was also slapped on imported iron and steel, a boon for Narendra’s steel industries.

With the price of imports skyrocketing, everyone had to line up and buy at a monopoly where players in the industry say he imposed minimum quotas on buyers and charged the dollars he had claimed he would save the country.

With imports out of reach for many small players, the local monopoly strangled competition.

Anthony Mwangi, the former Kenya Association of Manufacturers Ceo, recently wrote that a 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.

But when 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 Kes100 million in US dollars.

“Unable to procure the necessary raw materials, the SME was forced to shut down its operations, resulting in over 250 people and their dependents losing their livelihoods. Other five MSMEs in the Kikuyu area suffered a similar fate,” Mr Mwangi said.

Collapse of cement

This was eventually passed on to pricing which led to a contraction in the cement industry last year.

Towards the end of last year, I gave in to pressure from friends, but mostly family, to be specific, my five-year-old daughter, and joined the dead-capital bandwagon. I finally built a two-bedroomed semi-permanent simba in my shags, which is in Busia County, in some ka-village that is far removed from the mudding crowd in the border town.

I can’t say the choice to build a semi-permanent home was explicitly informed by the expense of cement but it was one of the major ones that kept haunting me. Even worse for in Busia is that you only had two not-very-good choices: Billionaire Jaswant Rai’s ‘Dumu’ and steel magnate Narendra Raval’s ‘Simba Cement.’

While President William Ruto can stand on top of cars and claim his pet project, had increased public employment in the construction sector from 9.7 thousand employees in 2023 to 9.9 thousand employees in 2024, it was not the same in the private sector.

According to the Kenya National Bureau of Statistics, KNBS, data, in 2024, Kenya’s real Gross Domestic Product (GDP) growth declined to 4.7 per cent, from a growth of 5.7 per cent in 2023 as the economy slowed down and construction contracted.

The construction sector declined by 0.7 per cent in 2024 compared to 3.0 per cent growth registered in 2023 as the average annual inflation for construction materials and other inputs rose to 2.83 per cent in 2024, up from 2.30 per cent in 2023.

“Cement consumption decreased by 7.2 per cent to 8,537.0 thousand metric tonnes, over the same period, while private employment in the sector registered a downward trend, decreasing from 226.3 thousand in 2023 to 223.4 thousand employees in 2024,” KNBS said in the Economic Survey.

The crash is spreading to the banking sector which has seen loans and advances from commercial banks to the construction sector decline from Kes602.7 billion in 2023 to Kes528.0 billion in 2024.

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