Sri Lanka has a total of 12,290 km of national highways, 1561 km of rail tracks, two international airports and four seaports. As part of the efforts to boost the local economy and quality of life, the cultivation of an effective, reliable and cost-efficient transport system has been a priority for successive governments, albeit with varying degrees of success. Improvement plans in the pipeline include light rail transit (LRT) and bus rapid transit (BRT) systems in Colombo; the new transport system and port within Port City Colombo; the expansion of the Port of Colombo through the East Container Terminal (ECT); and the update of road, railway, and improved airport infrastructure and technology.

Sri Lanka is encouraging public-private partnerships (PPPs) in infrastructure development and created a new government body focused on facilitating more private sector involvement in public projects. In terms of foreign direct investment (FDI), Sri Lanka is trying to counterbalance its reliance on its principle investors in infrastructure projects by focusing on partnerships with other countries in the region.

Structure & Oversight

The main regulatory institution for the transport sector is the Ministry of Transport and Civil Aviation. A number of state institutions operate under the ministry with the purpose of regulating and administering the transport sector. These include the Sri Lanka Railways, the Sri Lanka Transport Board (SLTB), the National Transport Commission, the Civial Aviation Authority, the Department of Motor Traffic and the provincial transport authorities.

According to the World Bank, Sri Lanka has South Asia’s highest road density, with more than 173.9 km of roads per 100 sq km of land as of 2016. At the end of 2017 Sri Lanka had 12,210 km of class-A and class-B roads and 169 km of expressways. While the main roads are in good condition, the network has trouble dealing with congestion. This is especially true in Colombo, due to a high number of single-lane roads. The railway network, on the other hand, only handles a small fraction of the country’s transport requirements: it is slow and has limited capacity for transporting goods.

There are two international airports: Bandaranaike International Airport and Mattala Rajapaksa International Airport in Hambantota.

Infrastructure Development

Poor infrastructure has been identified as one of the main causes of unemployment and sluggish economic growth in Sri Lanka. Rapid urbanisation of the Colombo metropolitan region, traffic congestion and poor connectivity continue to weigh on productivity and public services.

In 2016 Sri Lanka’s spending on infrastructure equalled 4.6% of GDP, but the country continues to retain a large infrastructure deficit. Infrastructure financing has typically been dominated by public funding and supported by loans from development partners such as China and Japan, as well as multilateral development banks and financing institutions. Moving forward, the government is increasingly focused on PPPs, especially following the 2017 creation of a PPP Unit in the Ministry of Finance. Infrastructure development plans include the expansion of the land transport sector, the development of Port City Colombo and the ongoing expansion of the Port of Colombo.

Transport Strategies

In 2017 there were 7.3m registered vehicles in Sri Lanka, with traffic congestion impacting productivity as public transport remains fairly unpopular. Buses are typically slow, uncomfortable and unpredictable, while taxis and motorised tricycles are prone to accidents and are often unavailable at peak times. A large number of cars with low occupancy are in circulation, which results in both heavy traffic jams and an increase in pollution levels. Therefore, it is increasingly essential for the country to develop solutions that encourage people to choose public transport, such as the Colombo LRT (see analysis).

Public and private bus transport services also require improvement. The SLTB has 6300 buses in operational condition, of which 2467 are older than 10 years and prone to breakdowns. In order to fulfil timetable obligations, the country needs 7257 functioning buses. The network itself also requires restructuring through a BRT system that will implement priority bus lanes in order to help decongest Colombo. The government has pledged to buy 50 electric buses for the BRT system so as to reduce air pollution, although the timeline for the full rollout of the BRT is unclear.

The Central Bank of Sri Lanka (CBSL) has identified driving culture as an important contributor to traffic congestion, and has pushed for the establishment of a CCTV network and educational campaigns that will discourage the violation of road rules.

Investment Opportunities

As part of Vision 2025, the government’s blueprint for obtaining upper-middle-income status, transport infrastructure is positioned as one of the central areas requiring investment. In 2016 the Ministry of Foreign Affairs published a briefing on the key infrastructure projects and opportunities for foreign investment in Sri Lanka.

One of the main projects is the Western Region Megapolis Master Plan (WRMPP), which aims to make the Western Province, with Colombo at its centre, the next “Asian Global City”. In total, an estimated $83bn in investment is needed to realise the Megapolis vision, encompassing a wide variety of projects such as power plants, motorways, ports, airports, railways and industrial estates. The plan is overseen by the Ministry of Megapolis and Western Development and guided by a master plan created by Singapore infrastructure firm Surbana Jurong. The ambitious plan is expected to be developed primarily through PPPs.

One of the key projects under the WRMPP is Port City Colombo, a new financial centre that aims to make Colombo a regional business hub and special financial district, with its own laws and regulations in place to attract international corporations. The project began in 2014 and is scheduled to be completed by state-owned Chinese engineering firm China Communications Construction Company (CCCC) by 2040. CCCC plans to lease or sell 173 ha of the 269 ha of land to thirdparty developers for the construction of roads, parks, beaches, and residential and commercial buildings. CCCC is also expected to invest $800m in building an underground road network. Port City falls under the umbrella of the transnational Belt and Road Initiative (BRI): along with Hambantota Port, it gives China a key access point to the Indian Ocean, helping to link China’s western provinces to safe supply routes in South Asia and reducing sea travel by thousands of km.

According to the CBSL, China, India, Hong Kong, Malaysia and Sweden were the top-five external sources of FDI in Sri Lanka in the first half of 2018. China has, by far, been the largest source of external investment for infrastructure and transport projects over the last decade. Port terminals – mainly the Hambantota Port – brought in $898.2m of investment from China in the first half of 2018, up from $700,000 during the same period in 2017. Chinese investment promises to transform Hambantota Port and the surrounding area into a major hub for industry and trade, but the project remains controversial. Critics see it as evidence that China’s flagship BRI, which focuses on the development of land and marine transport corridors linking Asia with Europe, Africa and the Pacific, is a form of debt diplomacy that saddles developing economies with unsustainable financial burdens. The $1.5bn port was financed through Chinese loans and operated under capacity following its opening in 2010.

Foreign Direct Investment

Meanwhile, Port City Colombo represents the largest single FDI in the country’s history. Fully owned by CCCC, which invested $1.4bn to kick-start the project, it will include a new port, logistics channels, 1.5m sq metres of office space, residential areas, parks, a marina and more. The project was briefly put on hold from 2015 to 2016 over concerns about its impact on the environment, but it is now back on track, and land-reclamation work was completed as of January 2019.

In recent years, efforts have been made to forge closer commercial ties with neighbouring East and South-east Asian countries, which offer the potential to generate increased FDI. A notable example of this is a $1.7bn loan from the Japan International Cooperation Agency, which is being used to finance the first phase of the LRT project in Colombo.

Sri Lanka signed a free trade agreement (FTA) with Singapore in early 2018 and is now also officially linked to ASEAN. This trade agreement includes goods, services and investments. In this vein, Sri Lanka has been in talks regarding a potential FTA with Thailand, which was the 2019 ASEAN chair. By getting closer to ASEAN, Sri Lanka could attract more FDI, import new technology and diversify exports, which would potentially attract more activity to the country’s ports.

Public-Private Partnerships

According to Thilan Wijesinghe, chairman of the National Agency for PPPs (NAPPP), Sri Lanka closed over $5bn worth of PPP projects in the 20 years to 2018. PPP projects currently in the pipeline include the Pettah multi-modal transport hub in Colombo and the Colombo Port cruise terminal. In June 2018 the Cabinet approved a call for an international tender to develop an $800m railway project in Hambantota district, on a build-operate-transfer (BOT) basis. The planned project would connect Beliatta, Hambantota, Kataragama and Mattala Rajapaksa International Airport through approximately 100 km of track; the winning bidder would be expected to both operate services and construct the railway system. However, the plans have faced opposition from politicians who are opposed to rail privatisation in the southern region of the country, and no formal tender had been issued as of January 2019.

Transport Network Upgrades

According to a 2018 Asian Development Bank (ADB) study on trade costs, time and supply chain reliability, improving international transport times could have considerable economic advantages. While Sri Lanka maintains its position ahead of other South Asian countries in terms of connectivity, according to the World Bank’s Logistics Performance Index (LPI) – a benchmarking tool designed to help nations identify challenges and opportunities in trade logistics – it lags behind most South-east Asian countries including Thailand, Malaysia and Indonesia, which play larger roles in the supply chains of multinational corporations.

According to the ADB, an additional day of international transport typically reduces bilateral trade by approximately 1%. A number of air, maritime and land transport projects in the pipeline could help improve Sri Lanka’s performance in this regard.

Air Transport

Operating from its hub in Colombo, national carrier SriLankan Airlines carried a record 5.3m passengers in 2018. Sri Lanka is currently served by its two international airports. In September 2018 the Cabinet approved the installation of 10 automated e-gates at Bandaranaike International Airport in order to reduce congestion and improve service delivery. The project was expected to cost LKR260m ($1.6m) and be completed within six months. However, following two months of political instability, a new minister of transport and civil aviation was appointed in December 2018, and it is unclear if the projects spearheaded by the former minister will still go ahead as planned.

Mattala Rajakpaksa International Airport has struggled to attract flights since it opened its doors in 2013. Designed to accommodate 1m passengers per year, it handled 4700 passengers in all of 2016 and has been generating heavy losses. The airport was another project financed by Chinese loans under then-President Mahinda Rajapaksa, and is widely viewed as a white elephant located in the former head of state’s home district. Consequentially, the government has been trying to turn the airport into a profit-sharing joint venture, and India has expressed interest in operating it as it tries to counteract Chinese influence on its southern neighbour. However, the final terms of the joint venture had yet to be announced as of early 2019.

In the meantime, a plan has been drawn up for a third international airport in Hingurakgoda, with a vision to develop Trincomalee as the eastern gateway to Sri Lanka by the year 2050. There are also plans to develop the Ratmalana air base into an international airport by 2030. The Sri Lanka Air Force initiated the process of handing over the facility to the Civil Aviation Authority of Sri Lanka in January 2019, and the government is planning to spend LKR1.5bn ($9.5m) develop it into a modern domestic and international terminal, although questions remain over whether the country needs another international gateway.


In 2017, 4319 vessels arrived in the Port of Colombo, a decline from the 4405 that berthed in 2016. In comparison, in 2017 Trincomalee Port welcomed 233 vessels and Hambantota received 230. The Port of Colombo handled approximately 7m twenty-foot equivalent units (TEUs) in 2018. International shipping knowledge base Alphaliner ranked it the world’s fastest-growing major port in terms of container handling, with 15.6% growth in the first half of 2018. Furthermore, the port handled 2.7m TEUs of trans-shipment containers in the first half of 2018, a 19.8% over the 2.3m handled over the corresponding period in 2017.

While the Port of Colombo holds a regional competitive advantage due to its deep draught and geographic location, in is nearing full capacity. Siddharth Iyer, Sri Lanka country manager for international shipping company Maersk Line, told OBG that it needs to increase capacity promptly to avoid the loss of business.

In a recent move that should minimise wait times at the port, the three terminal operators – the Jaye Container Terminal, the South Asia Gateway Terminal and the Colombo International Container Terminal – reached an agreement in March 2018 to operate collectively and allow vessels to be accommodated at the first available terminal.

In an effort to meet rising demand over the longer term, the ECT is slated for upgrades and expansion, although there have been delays in its progress. In November 2018 the minister of ports and shipping, Mahinda Samarasinghe, said that the ECT will be the deepest container terminal at the Port of Colombo, capable of berthing massive ships, container vessels and oil tankers. While an agreement was initially signed to develop the ECT with funding from India, the Indian government backed out because of Sri Lanka’s insistence that the terminal remain under the purview of the Sri Lanka Ports Authority. In January 2019 it remained unclear how the plan would proceed, as various changes in the management of the relevant state bodies left questions regarding the direction of port policy.

The country’s second major port, Hambantota, is located in the south and was opened in 2010. Sri Lanka borrowed heavily from China in order to build the infrastructure, but was unable to repay the loans due to low shipping activity. As a result, the Sri Lankan government agreed a sale in December 2017 whereby 70% of the port’s ownership passed to the China Merchants Port Holdings Company on a 99-year lease.

Hambantota Port is modelled on the Chinese port of Shenzhen and will complement the Port of Colombo in attracting international shipping, and its location should be supportive of export growth.

If the relevant players can resolve these funding challenges and address the ports handling limitations, they will create a considerable opportunity for shipping to drive growth in logistics and the broader economy. “With Sri Lanka’s strategic position along the eastwest and north-south Indian Ocean shipping corridors, logistics and transportation will carry the country forward if we continue to develop port capacity ahead of demand,” Romesh David, CEO of South Asian Gateway Terminals, told OBG.


In June 2018 the Cabinet approved tenders for the construction of new railways in the Hambantota district via BOTs. It is estimated that the project will cost $800m, connecting Beliatta to Hambantota over a distance of 100 km, including locomotives and carriages for passengers and cargo transportation. The winning bidder will receive a 40-year concession. The goal is to enhance strategic transport links to Hambantota.

In 2017 Sri Lanka Railways posted a loss of LKR7.6bn ($47.9m), and labour strikes were blamed for service disruptions. A continued lack of investment has stymied upgrades allowed mechanical problems in ageing fleets to persist, leading to frequent delays and overcrowding.

In an effort to improve service delivery, in 2018 the government signed an $82m contract agreement with India for the supply of 160 passenger coaches, 10 locomotives, 20 container carrier wagons, six diesel multiple units and 30 fuel tank wagons to Sri Lanka Railways, under a concessional financing agreement. The deal is covered by a $318m line of credit established in 2017 between the Ministry of Transport and Civil Aviation and the Export-Import Bank of India for the modernisation of rail tracks and supply of rolling stock .


The road network is currently the most popular method of transport, responsible for 95% of all passenger traffic and 98% of freight nationally. However, a decade after the end of the civil war, much of the road network in the north and east is still in disarray.

Looking to extend its influence beyond the south, China has expressed a willingness to rebuild, extend and modernise the northern road network and connect it to the south of the island. In 2018 state-owned company China Railway Beijing Engineering Group won a $300m contract to build 40,000 houses in the northern region of Jaffna, financed by the Export-Import Bank of China. However, protests from residents over the housing design opened a door for India, which has already financed the construction of 44,000 homes in the north through a grant, and has planned to reconstruct Jaffna airport and Kankesanthurai Port .

Under the government’s new Transport Connectivity and Asset Management Project, in 2017 the road network benefitted from a low-interest loan of $125m from the World Bank that helped modernise and extend the road section between Ja-Ela and Chilaw on National Road A003. The project will help make transportation easier and safer, and also enable the Road Development Authority to provide infrastructure and service.

Other projects include the construction of a 17.3-km, four-lane elevated highway from New Kelani Bridge to Athurugiriya, to be completed by March 2020. The elevated highway projects from Kelani Bridge to Port City and the Orugodawatta Junction to Pore are estimated to cost $261m and $860m, respectively, and will be implemented within five years. These projects are designed to reduce congestion in busy areas of the city.

Government Revenue & Expenditure

The Ministry of Transport and Civil Aviation’s total revenue in 2017 was LKR23.5bn ($148m) and its expenditure was LKR12.8bn ($80.6m). The highest revenue earner was from rental and concessions, with LKR9bn ($56.7m). On the other hand, significant expenses in 2017 included LKR6.4bn ($40.3m) in personal expenses, LKR2.2bn ($13.9m) in depreciation costs and about LKR1.5bn ($9.5m) in loss on account conversion.

The 2019 budget was originally expected to be presented in November 2018, but it was delayed due to the constitutional crisis. As a result, it is expected to get its first reading in the Parliament in February 2019, with a budget speech to be delivered by the minister of finance around a month later.

According to recent estimates, the Ministry of Transport and Civil Aviation expects to be allocated LKR69bn ($434.6m) in the budget, an increase from about LKR42bn ($264.5m) the previous year.

Urban Transit Planning

A new urban planning transport hub is in the pipeline for Colombo. An LKR160m ($1m) French government-funded feasibility study, commissioned by the Ministry of Megapolis and Western Development, was officially launched in June 2018 and is being carried out in the neighbourhood of Pettah, which is known for its open-air bazaar. French companies AREP, Egis and SNCF are working together to identify roughly 8 ha of land on which to establish a project for a multi-modal transport network.

If the project comes to fruition, it will include an elevated highway, buses, trains and monorails. The project is estimated to cost about $7bn, and the time period for implementation is expected to be no fewer than seven years, including around two years for the feasibility study and the devising of engineering designs. The Pettah multi-modal transport hub will be an important gateway to Colombo, and provide coordinated access to the city through a comfortable and efficient public transport system. By 2025 it is expected to bring 280,000 travellers to Pettah daily. As the project advances, bids will be called for PPPs, offering investment opportunities for private companies.

In 2017 the SLTB successfully made a profit of LKR1.5bn ($9.5m), ending a trend of loss that lasted several years. The minister of transport and civil aviation, Nimal Siripala de Silva, declared in October 2018 that the SLTB will become a debt-free institution in 2019. Indeed, the SLTB is making more revenue with the help of plans to cut down on workforce and freeze new hires. Instead, it is employing drivers and conductors on short-term contracts and on an as-needed basis.

Furthermore, the SLTB has decided to upgrade its fleet by bringing in 500 new buses from India, 1000 buses from Hungary, as well as 750 hybrid buses and 250 electronic buses that aim to begin circulating in April 2019. Lastly, the SLTB has introduced a new system to book tickets online, which includes a mobile app.


While the government of Sri Lanka continues to be relatively limited in its capacity to finance large-scale infrastructure development, the recent focus on PPPs is helping projects materialise and progress. Whether through the renovation, expansion and construction of roads, railways, ports and airports, or the import of vehicles and new infrastructure-related technology, there is a diverse and rapidly increasing number of opportunities for foreign investors.

Though there are some major projects that have yet to reach their potential in terms of both revenue and utility, Sri Lanka has the advantage of a highly competitive geographic location. This helps attract large volumes of shipping and trade, as well as encourage strong relationships with neighbouring countries, and a welcoming environment for innovation and FDI.