Turning Chile’s infrastructure challenges into opportunities

Mauricio Munguia
18 September 2016

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With US$28 billion earmarked for investment in new infrastructure projects by 2021, Chile offers numerous opportunities for investors and companies across the world, says Mauricio Munguia.

As one of Latin America’s most developed economies, Chile continues to record steady economic growth despite the decline in commodity prices, especially with respect to copper, the country’s key export. Certainly, with low levels of corruption, a high degree of legal transparency and strong institutional frameworks – providing strong financial and legal safeguards for private sector capital – Chile is one of Latin America’s most promising investment destinations. 

In terms of investment, infrastructure stands out as particularly attractive. The Chilean government has a significant focus on large-scale investment in infrastructure in order to advance the country’s economic development and prosperity. More specifically, the government hopes to reach its goal of a per capita income of over US$30,000 with development level similar to that of Italy and Spain.

Such is Chile’s appetite for growth that President Michelle Bachelet recently signed legislation for an infrastructure fund. With assets of around US$9 billion, the fund will 99% controlled by the Treasury with 1% under the control Corfo, the state development agency. 

Three key areas of opportunity

Chile’s infrastructure plans can be divided into three categories: government projects, public-private partnerships (PPP) and concession projects. 

Having announced a US$3 billion programme, Chile’s public infrastructure plan includes several government projects aimed at developing the extreme northern and southern regions. 

This includes plans to connect the Southern provinces of Aysén and Magallanes with a submarine fibre optic network allowing for greater and more reliable connectivity in one of the remotest parts of Chile. Elsewhere, in the northern region, the government aims to ease the housing shortage by 60% as well as launch 20 water projects – including desalination and wastewater treatment plants. 

Another area of focus for Chile is PPP, a funding model involving the use of private finance to facilitate the provision and delivery of public services or infrastructure assets. One such PPP project is the Costanera Norte comprised of a dual three-lane highway, two tunnels, six new bridges and 30.4km of urban highway. With a partially secured investment of US$1.98 billion, the initiative is aimed at increasing mobility and addressing congestion. Furthermore, as PPP projects were initially developed in the UK, this provides the perfect opportunity for companies such as those with expertise in construction, design, procurement, operations and maintenance. 

Finally, while concession projects are a type of PPP they tend to be more output focused. Typically lasting for a period of 25 to 30 years, a concession entails giving full responsibility for the operation, maintenance and financing of an infrastructure asset to a private concessionaire. The Punilla Reservoir, for instance, is a concession project on the Ñuble river basin requiring an investment of US$387 million. Aimed at addressing the irrigation needs of approximately 5,000 farmers, the concessionaire will be tasked with the design, construction and operation of both the reservoir and hydroelectric plant. 

New markets, new risks 

While the opportunities are clear, it is essential that investors and businesses know how best to take advantage of them, and how to navigate business in an unfamiliar market. 

For instance, one of the more important developments for foreign investors and firms in Chile this year was the new Foreign Investment Act. In order to be granted access to the rights and guarantees detailed in the act, foreign investors are required to obtain a foreign investment certificate from the Foreign Investment Promotion Agency. More specifically, the certificate must prove the execution of the foreign investment and must contain a detailed description of the said investment, including its amount, destination and nature. 

Although such requirements are to be expected when expanding to a new country, it is important that investors and businesses are aware and undertake the necessary research beforehand. Fortunately, banks such as Santander, as well as organisations and governmental departments such as Department for International Trade (DIT) in the UK, are able to assist in the process, identifying new business opportunities, strengthening partnerships and disseminating knowledge. 

With a stable economy and an established PPP system, Chile has positioned itself as an attractive and reliable destination for foreign investment. UK businesses should take advantage of the opportunities available so it can both help Chile develop its infrastructure, and reap the rewards. 

Mauricio Munguia is head of Latin America desk at Santander.