📈 Policy Challenges to Sri Lanka's Construction Industry

• Overall Impact: The construction industry—historically a vital economic driver contributing 7-9% to GDP and employing ~600,000 workers by 2019—has seen its GDP contribution shrink to ~2% and its workforce nearly halved following the COVID-19 pandemic, the 2022-23 economic crisis, and recent Middle Eastern war shocks. • Key Drivers & Challenges: Near-term demand is driven by late-2025 Cyclone Ditwah relief programs (damage valued at ~4% of GDP) and the Government’s medium-term investment allocating over two-thirds of capital expenditure to priority construction. Growth is severely constrained by acute skilled and unskilled labour shortages due to worker migration, rising material costs, inefficient bureaucracy, and outdated pricing structures. • Tax & Market Concerns: Imported materials carry complex cascading border levies (20% customs duty, 18% VAT, 10% PAL, 5-10% cess, and 2.5% SSCL) exceeding 50% of the CIF value, driving up local housing and infrastructure costs. Domestic supply suffers from an oligopolistic market structure dominated by a few key firms in cement, flooring, iron, and steel manufacturing. • Strategic Outlook: The Pathfinder Foundation emphasizes that the Government must urgently reduce excessive border protection, phase out para-tariffs, and implement regulatory reforms to boost regional competitiveness and technology adoption.