Chile Infrastructure Report Q2 2008

Chile's infrastructure is modern and reliable and continues to improve due to government concessions.

Though the industry is small and fragmented, with over 3,500 players and few local contractors that can handle major civil engineering projects, the industry has expanded rapidly over the last 10 years and has been sustained by heavy investment in infrastructure projects. The construction industry is estimated to have contributed an estimated 9.68% to the nation's GDP in 2007, at a total industry value of US$15.45bn.

BMI forecasts that Chile's construction industry value will rise by an annual average of 3.05% during 2008-2012, from US$16.40bn in 2008 to US$16.89bn in 2012. Apart from a handful of major schemes, private-sector commercial construction remains subdued, although residential construction is showing signs of picking up. Employment within the industry will grow 2.71% over the next five years to reach 540,660 by 2012. The mining industry, in particular, is expected to undertake several new investment projects. Meanwhile, the retail sector also has several new investments in the pipeline, mainly the construction of new shopping malls and supermarkets in provincial centres. 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.

One of the key problems facing the Chilean economy is lack of electricity generation. Chilean copper exports account for about one third of total world copper production, and the country has been struggling to keep up with the electricity production needed to fuel its booming mining sector. In recent months electricity supply problems have been further exacerbated by falling water levels in the nation's reservoirs and by the closure of a major generating plant in Region V. The government has recently announced a series of measures to deal with the problem, such as a two-week extension of daylight savings time, and called on electricity providers to reduce voltage by 10%, but it has also moved its focus to increasing the nation's power generating capacity, and in February 2008 announced its endorsement of the controversial HidroAysen dam project. Chile is also vulnerable to rising oil prices and depends on neighboring Argentina for gas supplies, which in recent years, have been unreliable due to the Argentine natural gas crisis.

Chile's government also envisages US$3.5bn worth of infrastructural development over 2006-2008 under the build-operate-transfer (BOT) schemes. The BOT was introduced by the government as a means of financing major infrastructure requirements and has led to an influx of foreign contractors and opportunities for international firms; most international construction players operating in Chile are from the US, Spain, Argentina and Brazil.