Sri Lanka’s construction industry, which currently contributes circa 6.5% to the national Gross Domestic Product (GDP), is on a path of recovery and is expected to grow to at least 9% by the end of the year.
This momentum is supported by a number of initiatives aimed at addressing the industry’s historical challenges.
In an interview with The Sunday Morning Business, Construction Industry Development Authority (CIDA) Chairman Prof. Chandana Jayalath highlighted that the industry’s growth was supported by a comprehensive strategy that included revamping the existing CIDA Act No.33 of 2014, formulating a new national policy, creating a digital construction database, and formalising the workforce.
Following are excerpts:
With construction costs going down, what’s progress like at this point for the construction industry?
Construction, by its very nature, is both transformative and complex, with each project carrying its own distinct challenges. Over the past few years, the industry slowed down largely due to the economic crisis and its contribution to the GDP dropped to around 6%. But we are now witnessing a positive turnaround.
Momentum is building, procurement is picking up pace, and we are optimistic about pushing the sector’s GDP contribution closer to 9% by the end of this year. Several major projects are already in the pipeline and more mega projects are set to take off in the coming year.
At the same time, transparency and fairness in competitive bidding remain our top priority. Every Government entity is working within their budget allocations, but the public may not yet see extensive physical activity on the ground. That is because procurement is a rigorous process that involves detailed planning, documentation, and evaluations.
Above all, it should ensure that only the right companies chosen through fair competition are entrusted with public projects. Unlike in the past, we do not encourage unsolicited proposals unless they are backed by genuine innovation and scientific merit. Thus, CIDA’s approach remains disciplined, transparent, and accountable to the people.
What are the mega development projects currently underway?
Mega projects are usually those that cost around Rs. 6,000 million and are large-scale with a duration of more than three years, approximately. In the local context, skyscrapers, towers, or highways that take more than two years would be considered large-scale projects. Only high-level categories of contractors can bid on these scales.
Sri Lanka currently has a national grading system that classifies contractors based on their financial and technical capabilities. However, we plan to reintroduce a clustering system. Currently, our public clients simply consider any prospective bidder who is registered with CIDA as legally mandated. For example, if a project is classified as ‘C6’ and above, everyone from ‘C6’ up to ‘C1’ is allowed to participate in bidding. However, this isn’t fair to lower-level contractors, as larger firms can also grab smaller jobs.
A gazette that came out recently, though not under the incumbent Government, ultimately created an open classification. It’s not a classification at all, but more of a floodgate for anyone to come and compete.
In order to ensure a fair distribution of opportunities in the construction sector and to create space for both large and small companies to grow together, we are reintroducing the clustering system. Under this framework, companies will compete within their designated clusters, preventing larger firms from overwhelming smaller players.
We have already engaged in discussions with the National Procurement Commission to review the existing criteria and to propose a new, balanced system that is fair to all stakeholders. This revised framework is expected to be implemented by the beginning of next year.
The Purchasing Managers’ Index (PMI) for construction stood at 52.9 in January, which signals expansion. Can you elaborate on the Key Performance Indicators (KPIs) in the sector and do you expect the current momentum to continue for the rest of the year?
The PMI for construction standing at 52.9 in January is a positive sign of expansion. This indicates that confidence is returning to the sector.
If opportunities for contractors continue to grow, the benefits will ripple across the entire supply chain, from manufacturers and logistics providers to the insurance industry. These are all vital sub-sectors that sustain the construction ecosystem.
Once the planned projects, especially the upcoming mega projects, are rolled out, the PMI is expected to strengthen further and the momentum is expected to continue throughout the year.
What are the key infrastructural requirements of CIDA at present, as well as the key challenges?
Although the CIDA Act No.33 of 2014 gives us the authority to establish an information secretariat, such a system does not exist yet, nor is there a national construction database.
Developing a strong digital platform takes time, and while Rs. 100 million was allocated over a four-year period, two years have already passed with little spending. One key limitation in this regard is the shortage of skilled staff, especially IT specialists, to build the required digital infrastructure, software systems, cloud platforms, and cybersecurity safeguards.
In order to address this, I have proposed the creation of a dedicated IT directorate within CIDA, headed by an IT director with expertise in both technology and construction processes. For now, we receive interim support from trainees of the University of Vocational Technology, but the aim is to have the national database established before the end of this year.
Human resources are another major challenge. The industry is heavily informal, ad hoc, seasonal, and scattered with about 450,000 craftsmen spread across 54 trades – from masonry and carpentry to tiling and electrical work – operating without any formal recognition.
In order to change this, I have proposed creating a national digital pool of construction craftsmen, enabling them to register on an online platform. Registration will open the door to multiple benefits, including access to an insurance scheme that is now being designed to cover half a million workers.
Over time, they will also receive toolkits, safety induction programmes, medical clearances, and even a digital safety passport recognised abroad. They will also be bound by a formal code of conduct.
The full process will take around three years, but we are preparing to officially launch the initiative early next January, with a national awards ceremony attended by the President, the Minister of Construction, and key industry stakeholders, which will be an ideal platform to showcase this national pool.
Formalising the informal sector is one of CIDA’s central mandates, and this effort will eventually extend to manufacturers, plants, and machinery as well. Discussions are underway to make plant and machinery registration under CIDA compulsory, along with continuous supervision.
At present, CIDA’s legal authority is limited. CIDA can only intervene in public projects worth over Rs. 10 million. This is a serious gap, and I intend to amend the act to remove such barriers.
The current legislation, which has been in place for 11 years, will be comprehensively reformed and expanded to better protect the public. For instance, in Sri Lanka, investment projects often focus only on the investor’s interests, neglecting public hearings. CIDA must step in as the guardian of public interest.
Unfortunately, the existing act is weak in terms of enforcement, as CIDA lacks the power to impose spot fines, and the only recourse is to pursue legal action where a magistrate may issue a fine of Rs. 100,000 or a jail term. This is outdated and insufficient, and stronger, more proactive enforcement mechanisms are essential, even though legislative reform is often a lengthy process due to the existing backlog.
Stakeholders often cite human resources as a key limitation. What is the current situation?
I am not fully satisfied with the current human resource situation in the construction sector, since the numbers are not encouraging. However, there is potential in adopting a dual strategy.
On the one hand, Sri Lanka can benefit by recruiting foreign workers at lower costs to meet immediate domestic demands. On the other hand, the country should also allow skilled workers to seek employment abroad, where they can earn higher wages. This approach not only addresses local shortages but also enables the country to secure valuable foreign exchange through worker remittances.
At the same time, Sri Lanka cannot rely solely on traditional methods. The construction industry today requires more modern frameworks.
For example, modalities such as design-and-build contracts, Public-Private Partnerships (PPP), and Build-Own-Operate-Transfer (BOOT) arrangements have already proven successful internationally. In fact, there are over 20 different contract modalities available to the industry, but Sri Lanka still tends to fall back on conventional procurement methods.
By embracing these newer models, the industry can attract foreign investment, technical expertise, and financial resources. This in turn will create more opportunities, strengthen the industry’s competitiveness, and provide a more sustainable path forward for our human resources.
Could you share the strategic directions that the national policy on construction is expected to take?
The new policy identifies several key thrust areas, including governance and institutional strengthening, public-private collaboration investment, sustainable and resilient infrastructure, Clean Sri Lanka, human capital development and safety, digitalisation and innovation, social protection, and public engagement.
Measures will be taken under these key areas. For example, under human capital development and safety, we are promoting occupational health and safety, workers’ skills and accreditation, and upholding ethical practices. Moreover, digitalising the construction systems will increase transparency and accountability.
National research capacity for innovation and evidence-based policy will also be improved. In terms of social protection and public engagement, the policy will improve access to fast and affordable dispute resolution mechanisms. Meanwhile, public awareness will be raised regarding its responsibilities and safety, in addition to promoting welfare and recognition for construction workers.
Thus, 25 policy statements have been identified and thrust areas covered include national development alignment, institutional governance, monitoring performance, regulatory compliance, procurement reforms, stakeholder recognition, best contract practices, PPP facilitation, investment, business incubation, and technology transfer.
This policy was drafted by also studying how other countries, such as Malaysia, India, Japan, and Korea, operate. Being a developing country, their benchmarks can help us establish our own national benchmarks. We have also placed a great emphasis on circular economy principles and sustainability.
The policy is now being reviewed and will be revisited; it will be up for approval by the National Advisory Council on Construction, potentially within this year, with all the groundwork being completed.
Further discussions will also be held, which may involve diverse opinions, as the advisory council includes representatives from multidisciplinary institutions and various public sector bodies. While there is an existing policy from 5-6 years ago, this will be a renewed, forward-looking policy for the next 10-15 years.
Given the recent influx of Foreign Direct Investment (FDI) in the construction and real estate sectors, what incentives or structural reforms would you recommend to sustain this growth into 2025 and beyond?
Attracting FDI into the construction sector needs a multipronged approach. One of the most important levers is the tax structure, including import and export duties. Currently, around 65% of construction materials are imported, primarily from China, and price fluctuations, often worsened by taxes, can impact project costs heavily.
Hence, it is essential to find an optimal tax level that balances Government revenue, investor incentives, and affordability for local developers. Tax policy can be a powerful tool to encourage investment while keeping the sector competitive.
Beyond taxation, introducing innovative contract modalities such as PPPs and even Public-Private-People Partnerships can stimulate investment further. These models allow for shared risks and responsibilities that make projects more attractive to both local and foreign stakeholders. It is equally important to create a conducive environment for investors, one that guarantees legal protection, ensures financial transparency, and provides technical support.
All of this, however, is supported by political stability. Investors will only commit significant resources when they are confident that the rules of engagement are clear, consistent, and predictable. Establishing these conditions is a top priority for ensuring long-term growth in the construction sector.
As CIDA, are there any specific growth targets for this year or the next five years?
CIDA’s action plan is focused on several strategic priorities. These include establishing a national pool of construction craftsmen, revamping the existing CIDA Act, and finalising the national construction policy.
Another key focus is restructuring the organisation for greater efficiency. We have already received approval to add two new directorates, one for research and another for IT, which are critical to modernising our operations. Currently, CIDA has 182 staff members, although the sanctioned cadre requirement is 397. Thus, the immediate goal is to raise this to 262, which is believed to be the optimal level for now.
Regarding industry growth, we aim for the construction sector to contribute 9–10% to GDP in the short term, with a target of 12% over the next five years. The foundation for this development has been laid and we are working diligently to achieve it.
At the same time, it is important to acknowledge that CIDA operates at an annual loss of around Rs. 120 million, mainly due to administrative lapses of previous regimes. However, the authority is not a profit-making institution, since we do not produce or sell goods. CIDA’s mandate is regulatory, as it sets standards, facilitates development, promotes the industry, and ensures enforcement and compliance.
Despite financial pressures, audit inquiries, court cases, and staff shortages, again because of previous governance lapses, CIDA is functioning and actively driving the sector forward. I am optimistic about these initiatives and confident that with the directives given by the Minister, we will meet our targets and achieve the country’s aspirations for the construction sector.
Will there be any improvements to the building regulatory framework, as well as in the enforcement of fire regulation, particularly in high-rise buildings?
Definitely. The development of a comprehensive building code is currently under discussion, and CIDA plays an important role in this process.
It is important to note that, to date, Sri Lanka does not have a formal building code. At present, the building regulatory framework is basically the CIDA Act, and several subcommittees operate to formulate the standards required for the construction industry, including fire safety regulations for high-rise buildings.
The National Building Research Organisation (NBRO) has already initiated work in this area, and we are actively involved in the overall assignment. The subcommittee responsible for developing the building code comprises professional entities, the fire department, and even the Sri Lanka Air Force. In addition, a few subject-matter experts have volunteered to contribute to this initiative.
The process is progressing well, and we expect to produce a draft document for wider consultation by December.