Steel: Why prices of building materials never come down

**Milcah Aluoch, a welder, at her workshop in Kibuye market in Kisumu County, September 25, 2018.** [File, Standard)

Kenya’s competition watchdog has broken up one of the most complex criminal price-fixing rings in Kenya’s history and which threatens to derail the Ruto government’s affordable housing agenda.

The multi-billion shillings syndicate involves nine leading manufacturers of steel products in the country and schemed for years on end to keep prices of construction materials artificially high so as to benefit the wealthy manufacturers and reap maximum profits from hapless consumers.

The five companies have been fined a record Sh338.8 million for the vice by the Competition Authority of Kenya (CAK).

The landmark probe and its shocking findings come at a time, real estate project owners and Kenyans seeking to own by building or buying a home have been confronting record-high costs following a jump in local steel prices.

President William Ruto, who came to power last September, has made affordable housing a centrepiece of his government’s development agenda and announced plans to construct 250,000 houses annually for low income-earners.

But according to CAK, the leading manufacturers of steel products in the country have been colluding to fix prices of steel products by agreeing and collectively setting prices and price adjustment timelines denying Kenyans the ability to buy affordable products.

They also colluded to limit imports of certain steel components, thereby causing an artificial shortage that raised prices.

The leading rogue companies named in the probe by the watchdog include Nail and Steel Products Limited, Brollo Kenya Limited, Blue Nile Wire Products Limited, Tononoka Rolling Mills Limited and Devki Steel Mills.

Others are Doshi & Hardware Limited, Corrugated Steel Limited, Jumbo Steel Mills, and Accurate Steel Mills Limited.

Steel is a vital component in the construction industry, used to make roofing sheets, reinforcement bars, steel beams and columns, windows and doors, among other products.

Therefore, any upward change in the price of steel means a higher cost of projects.

Steel products such as bars, pipes, beams, and sheets, account for over 20 per cent of the total cost of constructing a house.

Leading manufacturers of steel products had for long alleged the local price hikes had been driven by rising demand on global supply disruptions.

But the watchdog said the firms had been artificially inflating the prices of the steel products to profiteer from hapless Kenyans.

“In execution of this role, the Authority has pursuant to an investigation, penalized nine steel manufacturers a total of Sh338,849,427.89,” said CAK.

“The companies engaged in cartel conduct whose effect was to increase the cost of construction of homes and infrastructure by artificially inflating the prices of steel products.”

Developers and hardware owners have been passing on the higher costs of construction.

Competitive markets benefit consumers through lower prices, increased choice, and quality of goods and services. Business rivals are also motivated to innovate, noted the regulator.

“Cartels are conceived, executed, and enforced by businesses to serve their commercial interests, and to the economic harm of consumers,” said CAK acting director general Adano Wario.

“In this matter, the steel firms illegally colluded on prices and margins as well as output strategies.”

Dr Wario said the penalty - the highest-ever imposed by the Authority - should send a clear message that cartel conduct is illegal under the Competition Act.

“In a liberalized market like ours, the forces of supply and demand should signal prices, free from manipulative business practices. Agreements between competitors seek to defeat this fundamental facet of a free economy.”