Sri Lanka aims to attract $2.7 billion in investments to upgrade its post-war tourism capacity, with the goal of growing revenue by more than 700 percent by 2016, the state-run tourism board chief said on Friday.

Since the end of a 25-year war in May 2009, the Indian Ocean island nation’s tourism industry has been surging with arrivals in the first 10 months climbing near a new peak and revenue reaching a record of $437.9 million.

The teardrop-shaped island off India’s southern tip still attracted tourists during the war with the Tamil Tiger separatists, which ended in May 2009, but the long conflict cut investment into a sector that even now is straining its capacity.

“We need about 50,000 rooms to cater to 2.5 million tourists. Right now, Sri Lanka has only 14,000,” Nalaka Godahewa, the head of Sri Lanka Tourism Authority, told Reuters in an interview.

Godahewa said the country needs investment of up to 300 billion rupees ($2.7 billion) to construct around 30,000 high-quality rooms in the next five years. The size of investment will determine the tax concession on offer, he said.

The government’s goal is to attract 2.5 million tourists and $2.5 billion in revenue from them annually by 2016.

“The main bottleneck is the capacity. At the moment, the focus is on infrastructure, which is happening and will happen quite aggressively in 2011,” Godahewa said.

The Colombo Stock Exchange’s .CSE hotel and travel index .CSEHT has outperformed the overall market, gaining 290 percent since the end of the war against the 243 percent rise in the wider bourse, which is Asia’s best performer this year and last.

‘VIRGIN TERRITORY’

President Mahinda Rajapaksa’s government has made tourism’s revival a core of his plans to renew Sri Lanka, which for decades was a prime destination because of its abundant beaches, wildlife, ancient temples and misty green hills.

But its hotels and quality of service, neither what they once were before the war, now have to compete with the nearby Maldives, where remote atolls attract people to $1,000-a-night rooms, and other Asian destinations like Thailand and India.

Godahewa forecasts 700,000 arrivals and $1 billion in revenue in 2011 against the expected 600,000 and $590 million this year. The key will be raising the average daily spend of tourists to $125 from the current $80, Reuters.