Chile Infrastructure Report Q1 2008

Chile is one of the most stable economies of Latin America. Though the nation derives a majority of its revenues from copper exports, it is now making a concerted transition to other sectors. Populated by about 3,500 contractor-players, the construction industry of Chile is forecast to contribute an estimated 9% to the nation's gross domestic product (GDP) in 2007. According to BMI's newly released Chile Infrastructure Q407 Report, the Chilean construction industry is forecast to register an average growth of 3.05% during 2008-2012.

The Chilean economy has been thrown open to liberalisation with an extensive privatisation policy.

Infrastructure, especially roadways, has improved substantially since the adoption of build-operatetransfer (BOT) concessions to maintain commercially viable roads. Construction demand in the form of housing units is also expected to drive the growth in the industry where more than 500,000 units are planned to be built by 2010. Proposed free trade agreements (FTAs) with Malaysia, Thailand and Ecuador in 2007-2008 are expected to provide an additional boost to the construction industry.

In spite of the bright horizon, the Chilean construction industry is still very labour intensive. Also, building material costs are bound to be affected by any flare-up in global oil prices. Further, the industry is highly fragmented with few local contractors having the ability to handle major infrastructure projects.

On the macro front, much of the economic activism also hinges on the cross-border energy equation with Argentina as well as China's unquenchable thirst for Chilean copper.

On a positive note, Chile's government envisages US$3.5bn worth of infrastructural development over 2006-2008 under the BOT framework. The construction industry is also expected to gain from a spurt in mining-related construction, as well as developments in the retail domain. According to BMI, the Chilean construction industry is forecast to be valued at US$16.89bn by 2012, contributing around 9% to Chilean GDP.