Chile: Eyes on the $5bn prize

With 10 infrastructure initiatives in the pipeline for 2016-2018, the country offers an abundance of PPP opportunities for companies across the world, says Mauricio Munguia, Latin America desk head at Santander.

Last year, Chile attracted more foreign direct investment than Mexico, a country with seven times its population. Certainly, the country is considered an attractive destination in terms of FDI, having been ranked 35th among 140 economies in the World Economic Forum’s Global Competitiveness Report 2015-16. Of course, Chile’s appeal is further helped by its steady growth rate, strong legal framework and willingness to embrace international trade.

Yet with the majority of FDI having been ploughed into its mining sector, the Chilean government is keen to diversify and promote investment in another of its key sectors – infrastructure. Indeed, the country is offering an ambitious concessions portfolio, with a multitude of investment opportunities for both international companies and consortiums.

As such, infrastructure companies around the world looking to sponsor projects, become involved in contracting opportunities or export goods or services should take a good look at Chile.

Long-term objectives

With strong institutional frameworks, high investor confidence and a complex geography, Chile has long relied on large-scale infrastructure investment to advance the country’s economic development and prosperity. In fact, its average growth rate – 5 percent over the past 30 years – has largely been sustained through infrastructure investment.

Indeed, its vision for future growth – detailed in the Infrastructure Agenda for Development and Inclusion, a brochure published in 2014 by President Michelle Bachelet – hopes to achieve a per capita income of over $30,000, with a development level similar to that of Spain, Italy and New Zealand, among others.

What’s more, Chile has teamed up with the OECD to identify key gaps and challenges the nation’s infrastructure.

Infrastructure opportunities

Having generated $19.0 billion in private sector investment over the past 21 years, Chile has demonstrated a strong appetite for the use of PPPs – establishing a robust regulatory framework to support such initiatives. Indeed, the 2014 Infrascope Index, published by The Economist Intelligence Unit, ranks Chile as the regional leader in terms of PPP-readiness and capacity.

And there are plenty of opportunities for infrastructure investment. Over the next two years, the Chilean government has plans to tender 10 initiatives – worth approximately $4.8 billion – in various public infrastructure sectors across the country. These include projects to improve the country’s connectivity, water and drought system, as well as the public infrastructure of its main cities.

One such initiative is the Lao Route, located in the north of the country, which is set to be extended by a further 136km. The project aims to increase the development and competitiveness of Antofagasta, a port city closely linked to Chile’s mining activity.

Meanwhile, in Southern Chile, the government has plans to renovate and expand the El Tepual and Mocopulli airports. An investment of $60 million will enable both to transport, in total, an extra 1.8 million passengers per year – helping to improve connectivity with the rest of Latin America.

Finally, with an estimated investment of $80 million, the Bicentennial Cable Car seeks to enhance the provision of public transport in the country’s capital city, Santiago, by connecting two central communes – serving more than 6,000 people per hour.

Of course, these are just a few of the many opportunities for those companies seeking to branch out into Chile. Other notable projects include the Costanera Central Highway ($1.0 billion), the Eastern Vespucio Urban Highway ($800 million) and the Nahuelbuta Route ($254 million), to name a few.

While the opportunities are clear, it is crucial that infrastructure firms know how best to take advantage of them, and how to navigate business in an unfamiliar market. Fortunately, banks such as Santander, as well as organisations and governmental departments such as UK Trade and Investment in the UK, are able to assist in the process.

Chile’s infrastructure plans are ambitious – and its well-developed PPP scheme and strong regulatory and legal framework certainly make the country an attractive prospect for investors.