High construction and energy costs discourage hotel investors, says BOI chief

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By Editor_1
A construction project in Colombo, Sri Lanka, June 2, 2018-Adam Dean/The New York Times/File

COLOMBO – Investors interested in building hotels in Sri Lanka are increasingly discouraged by high construction and energy costs, which have reduced returns and affected the attractiveness of the hospitality sector, Board of Investment (BOI) Chairman Arjuna Herath said.

“One of the problems that investors are facing at the moment, particularly in the hospitality sector, is the yield,” Herath told reporters. “The investments may not be very lucrative, given that construction costs are high and energy prices remain elevated. That has become a limiting factor. Despite that, a fair number of investments are still flowing into the sector.”

Sri Lanka’s construction costs remain among the highest in the region, largely due to heavy import protection on key building materials such as steel, tiles, and cement. Trade analysts note that import restrictions, which expanded significantly during the two Rajapaksa administrations, discouraged free trade and encouraged rent-seeking import substitution.

Economic studies have shown that the excessive duty protection granted to a few businesses has led to inflated construction costs not only for commercial projects but also for individual homebuilders. While some luxury housing developments enjoy tax exemptions, ordinary consumers continue to bear the brunt of these policies.

“Representations have been made by various stakeholder groups,” Herath said, adding that the BOI has conveyed these concerns to the Ministry of Finance. “We have channelled them to look at the tax structures across these industries. The government is actively reviewing these issues.”

Herath said the government remains committed to reducing energy costs, noting that President Anura Kumara Dissanayake has emphasized the need to promote lower-cost power generation.

“On energy cost, the President has been very clear. We want to reduce energy prices,” Herath said, noting that renewable energy investments are likely to become one of the top investment categories in the near future.

The Ceylon Electricity Board (CEB) has recently called for competitive tenders to expand power generation capacity and, according to Herath, has received several attractive offers from potential investors.

The BOI Chairman said the agency is also working closely with other government departments to remove barriers to investment, including addressing regulatory and operational challenges that have hindered mining and other industries.

“Our role is to identify problems that affect investors and help create a more enabling environment for them,” Herath said, adding, “The government is already taking steps to clear bottlenecks, including those facing mining investors.”

-ENCL

Editor_1
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