Sri Lanka looking at high construction costs discouraging investors : BOI Chief

ECONOMYNEXT – Investors who want to build hotels in Sri Lanka are discouraged by high construction costs as well as energy prices, which is reducing yields, Board of Investment Chairman Arjuna Herath said.

“One of the problems that the investors are facing at this moment on, on the hospitality side, is the yields,” Herath said.

“The investments may not be very lucrative, given that the cost of construction is high. Energy cost is high and that is a limiting factor.

“Despite that, there are fair amounts of investments that are flowing into the hospitality sector.”

Sri Lanka has very high building material costs due to import protection afforded to steel, tiles and other building materials.

Import protection dramatically expanded during the two Rajapaksa regimes as free trade was discouraged and rent seeking import substitution was promoted.

Studies have shown that due to exorbitant duty protection given to few businesses Sri Lanka has excessive construction costs not just for businesses but also for ordinary wage earners.

RELATED : Most Sri Lankans cannot afford a house amid state-protected building material oligopolies: study

Some luxury housing is made tax free but ordinary people have to bear the brunt of the import protection.

“Representations have been made by various stakeholder groups,” Herath said.

“We also have channeled them to the Ministry of Finance to look at the tax structures across these industries. The government is actively looking at that.”

The government is committed to reducing energy costs and by encouraging lower cost generation, he said.

“On energy cost, the President has been very clear on this,” Herath said. “We want to reduce the energy cost.”

Renewable energy investments are likely to be a top investment category in the near future, Herath said.

The Ceylon Electricity Board has been advertising for new generation plants on competitive tenders and has got attractive offers.

The Board of Investment is looking into several problems that are affecting investments and is trying to help address them. The government is already looking into clearing snags facing mining investors. (Colombo/Oct30/2025)