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High prices on materials cripple construction sector

High prices on materials cripple construction sector

The industry is not only important for its finished products but also offer direct and indirect employment to a large number of people. The state of the construction industry will affect most common measures of the national economy like the Gross Domestic Product (GDP), capital and other decisions that the government makes and even the social health of the country.

It also has significance interaction with other economic sector through its multiplier effects. The construction industry is frequently used as a tool by government to manage the national economy. In recent years, the sector has seen a good number of investments especially in roads, bridges residential and non residential blocks.

The increased activities in the sector are contributed by the growing demand for office and residential places. However, the sector’s growth has been facing obstacles due to increased costs pushed up by economic fundamentals like inflation and shilling volatility.

For example, construction industry is likely to miss its growth target this year due to increased costs of raw materials after the energy regulator had approved the electricity charges hike of over 40 per cent. The Engineers Registration Board (ERB) Chairman Mr Davis Baitan said in Dar es Salaam over the weekend that, “It’s evident that the profit margin of most construction firms undertaking public projects will be reduced due to increased prices of raw materials like cement and steel caused to power tariff hike.”

Retail price for Twiga cement from Tanzania Portland Cement Company (TPCC) has increased to between 14,500/- and 15,500/- per a 50 kilogram bag—depending on the location. This follows the factory decision to increase prices to wholesalers last Monday. The agents now sale the 50-kilograme bag of cement at 14,000/- irrespective of retailers’ vicinity in the city.

The price of water and wash-andwear paints had gone up before factoring in the recent power tariffs rise. The price of water paint went up from 28,000/- to 30,000/- for a 20-litre bucket while price for wash-and-wear paints has shot from 125,000/- to 135,000/- for the same volume.

Steel round bar prices also increased from 12,000/- to 19,000/- for 12 mm and 16,000/- to 33,000/- for 16 mm round bars. This increment was observed last April. The Tanzania energy regulator (EWURA) approved an electricity price hike of 40.29 percent for the TANESCO, a move expected to further stoke a rising inflation rate.

The latest hike comes on the back of an 18.5 percent increase in power prices in 2011 amid chronic electricity shortages. The principal motive for the power tariff increase is to enable TANESCO cover increased operating costs resulting from the use of emergency power plants and extensive use of its own thermal generating plants to address acute power shortage in the country.

The National Bureau of Statistics (NBS) Gross Domestic Product for the third 2011 show that construction sector growth declined to 8 percent compared to 13.2 percent in the corresponding period in 2010. Likewise, the real estate and business services activity recorded a growth rate of 5.8 percent in the third quarter of 2011 compared to a growth rate of 3.8 per cent in the same quarter of 2010.

The growth is attributed to the increase in the number of renters and the increase of buildings for renting. The government as major employer of contractors spends about 60 per cent of the development budget to improve the infrastructure.

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