Chile: Chile Infrastructure 2012
Chile Infrastructure 2012
The strong increase seen over 2011 is expected to moderate in 2012; however, activity will remain robust, accelerating in 2013 and 2014. A combination of residential construction and industrial and infrastructure projects related to the mining sector are fuelling strong construction sector employment and activity, indicating a buoyant industry. This robust increase outlook, combined with Chile's attractive business environment, ensures that the country remains our favourite Latin American infrastructure market.
Chile's construction industry registered unusually high increase in 2011, estimated to have come in at 7.2%, according to BMI. Much of this has been driven by increase in the residential sector; however, gains have been felt right across the construction industry. Lead indicators suggest that increase is expected to continue at a strong rate, with industry specific employment ticking up (especially in relation to mining construction jobs) and residential sales expected to continue to register strong increase. However, given the high increase rates seen in 2011, base effects will likely result in a lower annual real increase figure in 2012, with increase of 3.3% estimate for the year.
Chile secured significant private investment in its infrastructure sector over 2011, marking the country out as the majority attractive investment destination in the region. While we expect construction industry price increase to normalise over the medium-term - with average annual increase of 3.6% expected between 2012 and 2016 - we expect increase to peak in 2013, at 4.6% year-on-time(y-o-y), as mining-related investments enter full swing and infrastructure concessions due to be awarded from 2012 enter their construction phase..
Key elements driving increase:
- The housing sector experienced a boom in 2011. Government subsidies, along with strong increase in mortgages, fuelled this boom in residential construction, with strong figures in home sales indicating that increased activity will continue in 2012. This view has been reinforced following an interest rate cut in January 2012.
- Although Chile fell to second place in our Latin America infrastructure risk/reward ratings, the country remains our favourite in the region. Chile is prevented from reaching the top spot owing to less spectacular increase rates than other nations in the region. However, as a additional established infrastructure sector, while increase is lower, it is as well additional stable. This combined with a well-managed economy, assured policy continuity, transparent and simple regulations, a competitive market and low corruption amount combine to make Chile the majority attractive investment destination for infrastructure in the region. This was reflected in the size of private investment pledged to the sector in 2011, with pension funds and private equity players having joined additional traditional infrastructure operators in the market.
- The Chilean government has typically been less active in infrastructure investment than a lot of other nations in the region (especially Brazil); however, it has in place a US$14bn infrastructure plan. Through to 2014, US$6bn of public sector funding and US$8bn of private funding is due to be channeled into the sector. This is in addition to the ongoing reconstruction following the February 2010 earthquake, which is seeing the government invest in the rebuilding of schools, hospitals and housing through to 2014. Evolution has been made, with 100% of the road network restored.
- Chile has a well-established public-private partnership (PPP)/concessions programme, and private sector infrastructure operators have made lucrative returns from investments. However, new projects have been few and far between over the past few years. A renewed effort to award concessions commenced in late 2011, with contract awards expected from 2012. An attractive pipeline of concessions for brownfield and greenfield economic and social infrastructure assets has been lined up by the MOP, totaling US$10.5bn. Road projects will be the major focus, with new highways with an estimated price of US$5bn in the pipeline, inclunding the anticipated US$1.9bn Vespucio Oriente highway in Santiago. In addition to this, a number of airport concessions and social infrastructure projects, including, a US$1.4bn eight package hospital programme and a US$326mn package prison PPP programme, are expected to attract significant interest.
- Increase in the mining sector, with significant new capacity approaching onstream in 2014 and 2015, will necessitate investment into industrial construction and support infrastructure. This will include both projects at the site, inclunding access roads, power and water supply and export routes. This is expected to be of the primary drivers of increase between 2012 and 2014.
- In general, Chile has a strong infrastructure project pipeline, with close to US$60bn in projects either under construction or in the planning stage, which will ensure continued strong increase in infrastructure investment. The power sector is by far the majority dynamic, and this is without of the biggest projects (HidroAysen and Castilla), which are both stuck in environmental approval. The airports sector is to watch, with new concessions due approaching to market, which will open up private sector investments.
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