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Chile Infrastructure Report Q1 2012
Business Monitor International, Jan 2012, Pages: 68
Business Monitor International's Chile Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Chile's infrastructure industry.
BMI View:
Chile's construction industry is due to record a bumper year in 2011. While BMI does not anticipate this high growth rate to be sustained, it does believe that its robust and consistent growth outlook will ensure continued investor interest, and therefore ensure Chile remains BMI's favourite Latin American infrastructure market.
Chile's construction industry has registered unusually high growth in 2011, with an anticipated full year growth rate of 7.2%. Much of this has been driven by growth in the residential sector; however, gains have been felt across the construction industry. The country has also secured significant private investment in its infrastructure sector during 2011, marking the country out as the most attractive investment destination in the region. While BMI anticipates construction industry value growth to normalise over the medium-term - with average annual growth of 3.9% expected between 2012 and 2016 - BMI does not anticipate a slowdown in infrastructure growth, which is being driven by strong private interest in the country's infrastructure operation and continued demand for new and increased capacity.
Key elements driving growth:
The housing sector has experienced a boom in 2011. In terms of area built (in square metres) residential construction has grown by 50% year-on-year (y-o-y) in the first nine months of 2011. This is one of the key areas that is expected to cool off in 2012, as rate rises filter through to the mortgage market and hit housing demand.
Chile takes the top place in BMI's Latin America infrastructure Risk/Reward Ratings. A well-managed economy, assured policy continuity, transparent and simple regulations, a competitive market and low corruption all combine to make Chile the most attractive investment destination for infrastructure in the region. This has been reflected in the size of private investment pledged to the sector in 2011, with pension funds and private equity players joining more traditional infrastructure operators in the market.
The Chilean government has typically been less active in infrastructure investment than many other countries 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 final phases of reconstruction following the February 2010 earthquake, which will see the government continue to invest in the re-building of schools, hospitals and housing.
Chile has established a conducive and successful model for private investment. It has a strong public private partnership (PPP)/concessions programme, and private sector infrastructure operators have made lucrative returns from investments. An attractive pipeline of concessions for brownfield and greenfield economic and social infrastructure assets has been lined up by the MOP. Five new highways with an estimated value of US$5bn are in the pipeline, as well as a number of airport concessions. In the social infrastructure sector, a US$1.4bn 8 package hospital programme and a US$326mn 7 package prison PPP programme are expected to attract significant interest.
Growth in the mining sector, with significant new capacity to come onstream in 2014 and 2015, will necessitate investment into support infrastructure in advance. This will include both projects at the site, as well as access roads, power and water supply and export routes.
In general, Chile has a strong infrastructure project pipeline, with close to US$50bn in projects either under construction or in the planning stage, which will ensure continued strong growth in infrastructure investment. The power sector is by far the most dynamic, and this is without two of the biggest projects (HidroAysen and Castilla), which are both stuck in environmental approval. The airports sector is one to watch, with new concessions soon to come to market, opening up private sector investments. These factors will ensure robust growth in Chile, with infrastructure anticipated to continue its strong performance. On the other hand, residential construction should slow in 2012, as interest rate increases in H2 2010 and H1 2011 (from 1% to 5.25%) filter through to the real economy and place downward pressure on mortgage growth. With Chile's housing sector contributing around half of the entire construction sector value, this will have a notable impact, with growth expected to cool to 3.3% y-o-y in 2012. Beyond this, with rates expected to be cut in 2012 as the economy slows down, BMI would expect to see a revival and a return to normal growth rates from 2013 (4.6%).
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