Harris Gomez Group

You Are Viewing

A Blog Post

Chile: Strategy to Reactivate the Economy

Chile has had a difficult 12 months with social protests and now the coronavirus pandemic.

As investment takes a hit, the Chilean government is contemplating how to return to growth once the pandemic subsists. 

Recently, the Economy Minister Lucas Palacios told a webcast hosted by Fundación Chilena del Pacífico, that the Chilean government´s strategy will be based on a close public-private collaboration. In a presentation, Palacios outlined the main focus areas: liquidity, solvency, contagion risk management, demand, digitization, streamlining permitting, and investment.

Regarding the last of those, the ministry has drawn up a list of the most important projects advancing toward operation or construction. The projects involve US$70bn in investment over five years, with outlay of US$36bn expected this year and next, the webcast was told. Authorities are working to help ensure that, once conditions allow, investment is “triggered rapidly,” spurring job creation and growth, Palacios said. 

Infrastructure:

Investments made by Chile’s public works ministry (MOP) reached 440bn pesos (US$573mn) in January-April this year, almost unchanged from the first four months of 2019 in US dollar terms. Between January and April, the bulk of the MOP’s investments went to its road division and most of the other departments of the MOP saw lower investments than in 2019, such as the offices that handle airports and rural potable water, as well as water authority DGA.

In May, Chile’s public works ministry (MOP) has set out the schedule for US$3.6bn in infrastructure concessions for the period between April 2020 and March 2021, involving some 14 projects.

For details of these projects you can see here.

There is no doubt that the government will need to accelerate investment plans in the coming 12 months in order to bring the economy back to where it was before the pandemic. Given the governments tightening budget, private investment will be key to making this happen. We expect more concessions will be announced in the second half of the year as the government looks to reactivate the economy. Infrastructure was a key priority before the pandemic and it will be even more important now. 

Mining:

Mining will play a key role in Chile’s economic recovery after the COVID-19 pandemic and the main question is when suspended projects will be able start up again. 

Chilean copper commission Cochilco has identified five mining expansions that are supposed to go into production before 2026, all of which are facing delays due to the pandemic.

“Spence growth option [BHP], Inca Pit [Codelco], Quebrada Blanca phase II [Teck], Sulfolix phase II and El Abra concentrator project [Freeport McMoRan], will suffer important delays according to the companies themselves,” Cristián Cifuentes, coordinator of studies and public policies at Cochilco, said during a webinar about mining projects and copper forecasts on Wednesday. 

With that being said, those delays will not be significant as most of the above projects have either restarted work already or will shortly. 

To make Chile’s mining industry sustainable and overcome the health and social crises, authorities outlined four key challenges that must be met by 2022. Mining minister Baldo Prokurica said during the ministry’s public presentation on Wednesday that actors must focus on a national mining policy, attract more foreign investment, enable state companies to extract lithium, and support small and medium miners.

Lastly, copper prices have been difficult his year but there was some news last week with copper prices again climbing based on data coming from China. We expect that copper prices will stabilize in the coming months, especially if other countries start announcing their own infrastructure investments in order to kickstart their own economies. 

Conclusion: 

Most will agree that Chile has a positive future but it has been difficult 12 months that acts as a reminder that the country is not immune to an economic downturn. How Chile comes out the other side will largely depend on how well Chile can attract foreign investment to spur the economy once the pandemic subsides and how it manages domestic pressures involving reforms to the constitution and elections. 

Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. We also have legal teams in Mexico, Peru, Ecuador, Brazil, and Argentina. Over the last 19 years, we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets. 

To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at cmm@hgomezgroup.com