THE SRUCTURE OF ECONOMIC INDUSTRY

The real estate and construction sectors continue to be key drivers of economic growth in Kenya,
as they have been for the last five years, and the Kenyan construction industry contributes 7
percent of GDP,”

BMI Research shows that the local industry will grow by 8.7 percent this year and remain steady
up to until 2026 with an annual growth of 6.2 percent which will see Kenya outperforming all
sub-Saharan countries

Overall expenditure on roads is expected to increase by 38.3 per cent from KSh 113.2 billion in
2015/16 to KSh 156.5 billion in 2016/17. Total development expenditure is also expected to
grow by 31.7 per cent from KSh 87.8 billion in 2015/16 to KSh 115.6 billion in 2016/17.
Development expenditure on trunk and primary roads is expected to grow by 36.2 per cent from
KSh 51.6 billion in 2015/16 to KSh 70.3 billion in 2016/17,” according to the KNBS 2017
Economic Survey.

PRIMARY PRODUCERS AND CONSUMERS

PRIMARY PRODUCERS.
Primary producers mean original
This can be divided mainly into;

1. Consultants
2. Contractors.

Consultants.
Are mainly involved in the design process. They include;

ARCHITECTS
Design in conformity with the consumers budget and provides detailed plans of the size of the
rooms, purpose, design of the rooms etc., and the general aesthetics of the project.

Fee charged depends on the extent of the project. total sum normally charged by Architects for
their services is approximately 6% of the value of the job.
Quantity surveyors
A quantity surveyor is trained in construction methods and measures the cost of the construction
work to implement the architects design. A quantity surveyors fee is approximately three percent
of the value of the job

Structural engineers

deal with design of structures by calculating loads and stresses. Engineers consultation fee is
approximately 1 % of the total project cost

Contractors.
These are the implementers of the project. They liaise with the professionals involved to
actualize what has been agreed to. The contractors are in charge of the construction workers.

Construction Workers
Construction workers on site normally fall into three categories: Skilled, semi-skilled and
unskilled workers. The skilled workers, or trades people, are employees who have training in
specific areas of construction like plumbing, electrical, concrete and carpentry work. The semi-
skilled workers, often referred to as apprentices, work alongside the skilled workers to learn a
specific trade and provide a helping hand. The unskilled workers, or laborers, perform a lot of
the grunt work on a job site. These workers do tasks such as keeping the site clean and moving
equipment and supplies to where the skilled workers have easy access to the materials they need
to perform their jobs.

Electricians who install electrical and connections type wiring in buldings.

Operation engineers who operate muscle machine vital for building projects.

Carpenters who mainly deal with woodwork as well as concrete, dry wall, plastic, fiber cork,
and composition materials.

Metal workers.
All these professions have been and in recent years contributed massively to improving the
Kenyan economy. Through first hand and further on, these professionals have impacted
positively and continue to be a critical pillar of the Kenyan economy.

Secondary producers.
They mainly facilitate the primary producers. Examples of primary producers in the construction
industry include; Mining companies, Quarrying companies as well as Cement producing
companies Cement is a fundamental building material used in construction in Kenya. In East Africa,
Kenya is leading in both cement production and consumption. As of August 2013, there were 6
companies in Kenya that were producing cement. Three of these companies are listed at the Nairobi
Securities Exchange. Currently, there are ongoing talks to introduce two more cement producers in the
growing market. Let’s take a look on how they each impacted our economy.

Bamburi Cement It was listed at the NSE in 1970. It is the leading cement producer in Kenya
in terms of production. In terms of shareholding, Lafarge Group takes the lion’s share at 58.6
percent (2012, Dyer & Blair). Bamburi Cement owns the Bamburi Special Products Ltd which
produces precast concrete products and ready-mix concrete. Bamburi controls 40.5 percent of the
market share. Commercial banks and micro-finance lenders were also among the major
beneficiaries of the rapid expansion of the sector.

According to the Economic Survey 2016, loans to building and construction activities grew by
32.3 per cent to Sh106.3 billion from 80.4 billion advanced the previous year.

This is despite lending rates rising by as much as seven percentage points in July last year after
the Central Bank of Kenya raised its base lending rate by 150 percentage points to 11.5 per cent,
up from 10 per cent to cushion the shilling against rapid weakening to the US dollar.

East Africa Portland Cement produces Blue Triangle cement. Founded in 1933, EAPCC was
initially a cement importer before it established its first production plant in Athi River in 1956.
EAPCC shareholders include Lafarge Group (14.6 percent), the Government of Kenya’s
Treasury (25.3 percent) and NSSF (27 percent). Bamburi Cement has a 12.5 percent stake in the
company. EAPCC controls 24 percent of the cement market.

Lafarge Group is a French company. It is the world’s second largest producer of cement.
Globally, it runs 134 cement plants. In Bamburi Cement, Lafarge Group owns 58.6 percent of
the shares through two companies: Fincem Holding Limited and Kencem Holding Limited. In
EAPCC, owns 14.6 percent of the shares through a company called Cementia.

ARM Cement PLC (formerly Athi River Mining) is the third largest cement producing
company in Kenya with a 15.5 percent market share. Its flagship brand is Rhino cement.

The company has entered into an agreement with Omya (Schweiz) AG of Switzerland and
Pinner Heights limited of Mauritius for the sale of 100 percent of the shares in mavuno
Fertilizers limited and its subsidiary, ARM mineral and Chemicals Limited and ARM Energy
limited.

The proposed transaction is subject to various conditions precedent including requisite approvals
from shareholders and regulatory authorities.

ARM intends to ‘further strengthen its core activities and strategic path of enlarged focus and
strengthening of its cement business,’ reads the cautionary announcement as posted by the
Nairobi Securities Exchange.

Mombasa Cement is the fourth largest producer controlling 13 percent of the cement market.
Although it was founded in 2007, its plant was opened in 2013 in Athi River. It produces
Nyumba cement. It is a subsidiary of Uganda’s Tororo Cement Limited.

National Cement is the producer of the Simba cement. It was formed in 2008 by the Devki
Group of Companies in Athi River. It controls 7 percent of the market.

ARM Cement operates in Kenya, Rwanda and Tanzania.

ARM Cement is riding on the three countries supportive macro-economic trends- a young,
growing and increasingly urban population coupled with improving economic performance
indicators to drive its growth.

“Kenya, Tanzania and Rwanda show similar trends in key economic drivers underpinning strong
growth, such as increasing GDP, dropping inflation, rising young population.”

Besides having posted half-year net loss up by 428.53 per cent to KSh1.41 billion from
KSh266.78 million in June 2016 and a plunge in its revenue of KSh1.32 billion, to KSh5.35
billion, Dyer and Blair forecast ARM to record a PAT of KES 440.0 MN in FY17F, from an
estimated loss (after tax credit) of KES 241.3 MN in FY16E.“

Bamburi Cement has also reported falling revenue and profit in 2017. Its turnover fell by 8
percent to Ksh 17.5M billion and its profit decreased by 36 percent to ksh 2.7billion for the half
year.

Bamburi blamed it on a contracting market, low private sector investment leading to residential
sector issues, delays in some infrastructure projects and droughts.

The drought also hit the company’s operating profit via higher energy costs. On the plus side
though Bamburi’s subsidiary in neighbouring Uganda did record a good performance.
According to the Dyer & Blair Investment Bank points out that lower construction costs and
more affordable home ownership methods might be the key to driving low end housing demands
and in turn this might grow cement consumption.

Financers
Commercial banks and micro-finance lenders were also among the major beneficiaries of the
rapid expansion of the sector.

According to the Economic Survey 2016, loans to building and construction activities grew by
32.3 per cent to Sh106.3 billion from 80.4 billion advanced the previous year.

This is despite lending rates rising by as much as seven percentage points in July last year after
the Central Bank of Kenya raised its base lending rate by 150 percentage points to 11.5 per cent,
up from 10 per cent to cushion the shilling against rapid weakening to the US do

Equipments

Based on the type of construction, construction tools and machines can be categorised as:
EARTH-MOVING EQUIPMENTS
These equipments help in digging foundations and landscape areas.
CONSTRUCTION VEHICLES
These are heavy duty vehicles for conducting civil engineering tasks.
MATERIAL HANDLING EQUIPMENTS
These equipment lift or move construction materials. E.g., Crane- It is the most common
construction machine seen at the construction site. Construction activity is incomplete without
the use of cranes, and crane rigging is one of its specialties.
CONSTRUCTION EQUIPMENTS
These equipment’s are mixtures and conveyors used during construction.

Hence, as mentioned above the construction industry plays a significant role in the success of the
economy. The government, and other regulatory authorities, need to consider these points
seriously in order to ensure that the industry receives the importance that it deserves
PRIMARY CONSUMER.

This is mostly the project owners who invest millions of shillings to put a project. They could be
individuals, to groups or even financers. They benefit from the profit realized after the project
completion.
secondary CONSMERS.
These are those who benefit directly from the outcome of construction.
They are mostly tenants and they mostly rent spaces they desire for their day to day activities.

They also include buyers who spend million of shillings in purchasing buildings. The housing
market, in particular, plays a crucial role in boosting the economy. When people purchase new
homes, they also tend to make other big purchases, including furniture and appliances. As home
sales increase, it creates opportunities for a range of service providers. Buyers and builders
require the services of real estate agents, roofers, accountants, bankers, landscapers, and legal
professionals.

References
Impact of Home Building and Remodeling on the U.S. Economy

1. Special Studies, May 1, 2014

By Paul Emrath, Ph.D.
Economics and Housing Policy
National Association of Home Builders

2. Standard digital

3. University of Nairobi research archive. An article Authored by Mugendi Florence K.

National government participants

Organizational structures of the national government and professionals in respect to the Construction
industry.

This research highlights majorly the relevance of organizational structures in construction

projects ,which is heavily dependent of size ,type and length. This is to maximize service to all people in
the society and promote the industry.

Organisational structures are designed to provide :

a)Functional satisfaction

b)Aesthetical value
c)Meet deadlines

d)Meet budget lines and be of approved quality

The commitment in an organizational structure is balanced when the following are upheld:

a) normative-acceptance of the set values

b) continuous-cost of staying in a project till completion vs cost of leaving a project before completion

c)effective-emotional attachment to the project

National Government

The mandate of the National government is here to actually provide a ministry that deals with land,
housing and physical planning sector that is further devolved to Land Surveying and mapping,
boundaries and fencing, housing and city planning. Actually a relevant organizational framework that
has a main role of funding and seeing to it that the projects undertaken in the required fashion.

The Government with its three arms, the executive ,judiciary and legislature provide an example for
organizational structures .

In terms of development ,population urbanization and housing the ministry is expected to provide
"Adequate and descent housing in a Sustainable environment ."

Citing from ASSESSMENT OF THE ORGANIZATION STRUCTURE AND LEADERSHIP EFFECTS ON

CONSTRUCTION PROJECTS’ PERFORMANCE IN KENYA: A CASE STUDY OF PUBLIC BUILDING PROJECTS
WITHIN NAIROBI REGION ,OKWETO A. N.

Kenya as a country has witnessed substantial increase in the number of stalled projects due to
inappropriate project Organisation structures and ineffective leadership. There is evidence that the
performance of the construction in Kenya is poor as time and cost performance of projects are to the
extent that over 70% of the projects initiated are likely to escalate in time with a magnitude of over 50%
and over 50% of the projects likely to escalate in cost with a magnitude of over 20%.

The study relied on organization theory and attempts to explain how the organizations are actually
structured and offers suggestions on how they can be constructed to improve their effectiveness in
terms of project management systems and effective leadership. The conceptual framework was
composed of all the factors which influenced the performance of public building projects .

The Ministry of Public Works has been used as a case study. The study adopted descriptive survey
techniques to examine the performance of the public building construction in Kenya with particular
focus on the project management organization structures, project management functions, effect of
leadership in terms of competency characteristics, behavioral styles and emotional stability, culture of
the organization and its influence on the internal and external environment. The study covered projects
within Nairobi Region with contract figures of Kshs. 100,000,000 and above, completed or being
implemented between the years 2000 and 2010. In addition the study assessed the risks inherent on
construction projects in Kenya and their impact on projects’ performance. Both primary and secondary
data were sought and analyzed in an attempt to predict the cause of poor performance in the building
sub-sector. The study was based on the Null Hypothesis (Ho) that ‘inappropriate project organization
structures and ineffective leadership are the root causes of poor project performance’.
8

References

Brensen M..,M and Marshal,N 2000(a) Building Partnerships in Construction Management and
economics 18(7) 819-832

Thomas Telford ,Management Development in the Construction Industry

Antony Walker,Project Management in Construction

Research project : ASSESSMENT OF THE ORGANIZATION STRUCTURE AND LEADERSHIP EFFECTS ON

CONSTRUCTION PROJECTS’ PERFORMANCE IN KENYA: A CASE STUDY OF PUBLIC BUILDING PROJECTS
WITHIN NAIROBI ,OKWETO A. N.

Overall organizational structure of a construction industry showing service providers.

An Organization structure can simply be defined as a pattern of inter-relationships, authority and

responsibility that is established between the contributors to achieve the firm objectives.
An organization structure serves three basic functions;
1. It is intended to produce organizational outputs, and to achieve organizational goals.
2. It is designed to minimize or at least regulate the influence of individual, variations on the
organization. Structure is imposed to ensure that individuals conform to requirements of
organization and not vice versa.
3. It is the settings in which power is exercised (structure also set or determines which positions
have power in the first place), in which decisions are made (the flow of information which goes
into a decision is largely determined by the structure) and in which organizations activities are
carried out.
Organizational structure has impact on an individual above and beyond the determination of the
amount of discretion exercised. For example, the position of an individual in an organization, such
as clerk, supervisor and middle manager shapes that individual's reactions to the organization.
Although such demographic factors such as age or sex are also determinant, the positions of an
individual appears to be more important.

Construction companies are the main service providers in the construction industry.

Overall organizational structure of a construction company.

The construction company organizational chart is a graphical depiction of the roles and structure
of the organization. Using an org chart, staffs and stakeholders can clearly recognize the
operational relationships, so that they know how the company works.
Generally, a construction company contains basic function units/departments including:
HR, Purchasing, Project, Engineering, Financial, and Marketing department.
Below are specific roles and responsibilities of each department:

Financial Department
The financial department is responsible for management of the company’s cash flow and ensuring
there are sufficient funds available to meet the day to day payments.

Human Resources Department

The H&R department is responsible for staff recruitment and training, record keeping,
compensation and benefits, insurance, and employee relations

Purchasing Department
Purchasing department’s main role is purchasing supplies and materials used in the projects and
company daily needs. They need to compare among different suppliers and finding the items with
correct prices and qualities.

Project Department
Project department is responsible for scheduling and managing for each project. The project
manager needs to decide the budget, assign employees and their duties to complete the job, oversee
the safety of workers. They need to make sure the construction work can be well completed
according to the contract.
Engineering Department
In general, the engineering department is responsible for the planning of the construction project.
This includes conducting surveys, engaging in research, analyzing results, planning the
construction and supporting all technical issues during the project.

Marketing Department
The marketing department is responsible for market research, marketing strategy, sales,
advertising, promotion, pricing, product development, and public relations activities.

An organizational structure of a construction company.

Examples of Construction Companies in Kenya

MOHA Kenya Ltd

 MOHA Kenya Limited is a limited liability company incorporated under the Companies Act
(Chapter 486 Laws of Kenya).
The company delivers a diverse full scope of Civil Engineering works of varying sizes and forms.
We operate as the principal contractor or a partner of a joint venture for projects both in the private
and public sector with an extensive client base ranging from Government organizations,
International organization and private sectors.

PRISM Construction Ltd

Prism Construction is a dynamic, brisk company whose expertise lies in managing the construction
process for renovating or building new facilities from the Healthcare to Commercial and Industrial
markets. We commence by comprehending your project goals and budget constraints in their
entirety. We then develop ingenious solutions to exceed your expectations. Our creative approach
in consonance with our ability to bring a team of project-specific experts to your assignment whilst
keeping costs in check forms the core of our Unique Selling Proposition: “Reliable Partners”

Paveway Kenya Ltd

Paveway Kenya LTD is a company that provides high quality road marking and construction
services. Paveway Kenya offers the following:
1. Road marking
2. Road maintenance and construction
3. Road Furniture
Paveway Kenya LTD is a company leading in road marking and construction industry by offering
a wide array of services. Our vision and goal is to become a premier road marking and construction
company in East Africa.

Professionals

It is every professionals mandate to oversee a project from conception to completion on behalf of a

client requiring the identification of the client's objectives in terms of utility, function, quality, time and
cost, and the establishment of relationships between resources, integrating, monitoring and controlling
the contributors to the project and their output, and evaluating and selecting alternatives in pursuit of a
client's satisfaction with the project outcome.'
The professionals aim to :

1.Enhance productiveness

2.Improve services

3.Keep existing clients

4.Attract future clients

All this is achieved through behaviour ,Which is a dictation of :

What the client wanted

As the Architect saw it

As the Qs estimated it

As the engineer saw it

As the planning department assessed it.

As the building inspector saw it

As the fire department saw it

As the environmentalist thought of it

As the makers supplied it

As the builders erected it .

The above is clearly the perspective of each player.

Techniques and technology are tools used by members of the organisation to produce the building/
construction work and include not only the hardware required to undertaking the work of the
organisation but also the skills and knowledge of the members.

Although the quality of decision making is vital for all organizations .It acquires special status on
construction projects .The complexity of projects is reflected by the large number of specialists who
contribute the decision making process.

SYSTEMS APPROACH THEORY

Adopted by Scott (1988),defined as the way of thinking about complex processes so that
interrelationships of the parts and their influence upon the effectiveness of the total process can be
better ,understood,analysed and improved .It is clearly the case that the success of the construction
process depends to a large extent upon the way the Architect,Engineer,Quantity Surveyor ,Contractors
and others work together .

Depends upon the professionals to perceive the same objectives of the projects and recognizing that
what each of them achieves depends on what the others do. They should be able to stand above
particular interests of their own contribution instead see the problem posed by the project as a
whole .The project manager anticipates chain reactions or developments that occur on the
project .Formation of flows depends on:

Contingency Fit Theory and Orgisational Design

Strategic contingency

Resource dependency

Institutional theory

Population ecology

Brensen M..,M and Marshal,N 2000(a) Building Partnerships in Construction Management and
economics 18(7) 819-832

Thomas Telford ,Management Development in the Construction Industry

Antony Walker,Project Management in Construction

Research project : ASSESSMENT OF THE ORGANIZATION STRUCTURE AND LEADERSHIP EFFECTS ON

CONSTRUCTION PROJECTS’ PERFORMANCE IN KENYA: A CASE STUDY OF PUBLIC BUILDING PROJECTS
WITHIN NAIROBI ,OKWETO A. N.

ROLE OF EACH OF THE PARTICIPANTS

PROJECT MANAGER

 Delivery of a project reaching at set targets both safely and correctly.

 Perform effectively within tight time-scales, keep within strict budget and create a
positive environment.
 Manage a set of service deliveries, to ensure everything is done in time.
 Support the development of the leadership both in site and in the office.
  Plan and arrange visits to existing and new potential clients.
ARCHITECT
Is a licenced professional trained in the art and science of building design, develop the concept
for structures and turn those concepts into images and plans. Roles are:

 Create the overall aesthetic and look of buildings and other structures.
 Provide designs, drawings and a report presenting ideas to the client based on his/her
needs.
 To consult with and advice the employer on the proposed work.
 To examine the site, sub-soil, and surroundings.
 To supply the builder with copies of the contract drawings and specifications. Supply
further instructions to the construction processes.
QUANTITY SURVEYOR

 Preliminary cost advice.

 Cost planning such as investment appraisal.
 Procurement and tendering procedures.
 Contract documentation.
 Tender evaluation.
 Cash flow forecasting, financial reporting and interim payments.
 Final accounting and settlement of contractual disputes.
 Cost advice during use by the client.
 Technical auditing.
STRUCTURAL ENGINEER

 Design – deal with design of structures by calculating loads and stresses.

 Investigation – survey the building site to determine the suitability of the soil for the
upcoming project.
 Communication – co-ordinate and consult other members including environmental
scientists, architects. Also help government in their inspection of the project.
 Management – responsible for delivery of materials and equipment for the needs of the
construction project.
MECHANICAL ENGINEER

 Planning of raw steel, fabrication of structures and checking its quality.

 Inspection of civil works like drainage, road developments.
 Executes piping, ductility works.
 Involved in government dealings like clearance, inspection and audit.
  Ensure equipment is erected, pre-commissioned, tested, and commissioned in
accordance with agreed contract.
 Supervises all installations of machines and equipment at site ensuring fulfilment of
industry standards and requirements.
ELECTRICAL ENGINEER

 Plans the execution of all electrical related works.

 Coordinates with the client/consultant’s representatives for any site inspection.
 Ensures that all the works done are in accordance with the approved drawing.
 Review inspection and test plans in order to perform all required inspection and
witnessing.
 Review inspection reports and records of quality control.
 Quality assurance
 Final documentation and billing works.
CONTRACTOR

 Plan, manage, and monitor all work carried out by their workers.
 Check that all workers they appoint have skills, knowledge, training and experience to
do the work.
 Provide appropriate supervision, information and instructions to their workers.
 Make sure the client is aware of the client duties before work starts.
 Ensure suitable welfare facilities are provided from the start for workers under their
control and maintain them throughout.

Demand and supply analysis of the construction Industry in Kenya

Demand Side Determinant

 The Government policies

These are the

1. Fiscal policy
2. Monetary policy
3. Direct Policy
These are the policies which are used to deal with Problems such as stable prices, full
employment’ sustainable growth, external balance and to protect the environment. The index of
Government expenditure on roads increased from 350.3 in 2015 to 461.0 in 2016 following an
increase in road construction projects.

 Economic Condition
For the last half of last year, there were economic instability. This means that the
environment was not conducive for investment and hence the construction industry
 suffered at this time. Some of the government projects which were going on in the
country had stopped. Projects which were to be completed were delayed and those which
were supposed to be started did not start.

 Construction price/inflation
The total cost index grew by 4.1 per cent in 2016 compared to a 4.9 per cent increase in 2015.
This may be attributed to a slowed rate of increase in compensation of employees in 2016.
Stability of prices of inputs in construction occasioned by the relative stability of the Kenya
Shilling against other currencies also contributed to a lower increase in the construction cost
index. However, other material inputs such as timber, hydrated lime and structural steel recorded
increases in prices.

 Population growth/ Urbanization

The Population of Kenya is 45.4 million. With a high population the demand for public utilities
increases. Urbanisation also puts some pressure on the construction industry as some urban areas
have a high demand for construction products and services. Seen from the table below the
demand for private buildings in Nairobi is more than the demand for public buildings nationwide.
This is as a result of urbanisation.
  Foreign aids/loan and grants
Credit to the construction industry went down marginally from KSh 106.3 billion in 2015 to KSh
104.8billion in 2016.

Supply Side Determinant

 Project procurement
 Role of the contracting firms
Where the firms can easily join together in team building, with the availability of this,
they can be able to come with buildings in a quick way. This means less time is used on
the project which can mean that more projects can be easily done in less time.
 Project delivery process
This includes the quality of the ok done. With a supply of quality buildings, it ensures that more
buildings of the same standard can also be designed or made.
The value of reported new buildings completed in Nairobi registered a growth of 7.6
per cent to stand at KSh 76.2 billion in 2016.
 Technological application
 With application of new technology in the construction industry it necessitates the
change in supply. This is because with appropriate use of technology, it brings about cost
effectiveness and efficiency in the construction industry.
 Usage of construction materials
Increasing private investment coupled with favourable economic conditions will
result in importing a considerable amount of materials and using a lot of heavy
construction equipment. This will lead to technological changes in the construction
process particularly in industrial and commercial sectors. Using imported construction
materials will be boosted as a result of the global and regional economic co-operation that
advocates tariff concessions for certain items of construction materials. There will be a
shift of demand from buying fragmented engineering and construction services to
packaged services that provide a single source solution. According to the economic
survey 2017 Consumption of cement, a major input in construction of buildings and civil
works, rose further by 10.5 per cent from 5,708.8 thousand tonnes in 2015 to 6,302.0
thousand tonnes in 2016.

References
Kenya Economy survey 2017
Construction economics a new approach By Danny Meyers