Chile Update: The Proposals for Reactivating the Economy.
Covid-19 has been difficult for Chile. The Chilean government began implementing in March sanitary measures to help combat the spread of the virus. Infection growth rates were initially low but started rising apace in April and May. Capital Santiago has been in lockdown since May 15. Unemployment in Chile in March-May was 11.2%, up 4.0 percentage points compared with the same period of 2019. The reading is the highest since the current data series was started, in 2010, statistics agency INE said in a report.
With the average numbers of new cases decreasing, there is a renewed focus by government and industry to develop a plan forward that will help Chile reactivate the country’s economy. Below we have provided an overview of various stakeholder proposals:
Metallurgical association Asimet and investment consultancy Econsult have proposed a reactivation plan for Chile to attract investments over US$6.5bn and generate 350,000 jobs in the industrial sector.
Small to Medium Size Businesses
One proposal is to classify businesses with annual sales of up to 200,000UF (inflation-linked units, US$7.27mn) as SMEs. The current limit is 100,000UF. This will increase the workforce represented in SMEs from 44% to 55%.
The reactivation plan aims to boost public and private infrastructure through the improvement of the government concessions pipeline, putting on fast-track private projects with the biggest impact on employment.According to Econsult, the sustainable projects government office already identified projects over US$70bn linked to 300,000 new jobs. Permit approvals remain pending for all of them.
To increase the adoption of new technologies based on big data, Internet of Things, and artificial intelligence, Asimet and Econsult propose a 150% depreciation of the investment required for machinery renovation.
Due to the pandemic, Chile’s unemployment rate skyrocketed to 20% and according to Asimet could rise to 25% by the end of the year, as the metallurgical sector could contract 5. The proposal involves a 20% subsidy for the minimum wage (around US$400) for companies that offer a three-month contract to people that were unemployed for at least two months.
The reactivation plan also includes the creation of an industry department in the economy ministry. The department would manage industry requirements related to public policies.
Chile’s Construction Chamber (CChC)
Chile’s construction chamber has proposed a US$22.6bn investment plan to reactivate the country’s infrastructure sector amidst the COVID-19 pandemic, underlining that the post-pandemic recovery will last likely until 2022 and will require great public-private cooperation.
“We have to develop an intense investment plan with a significant contribution from the public sector, but also promoting private investment. What we are presenting here is a plan that is in line with that concern. Of the US$22.6bn, US$12.3bn are private investments,” CChC head Patricio Donoso said while presenting the proposal.
The overall plan is divided into US$9.6bn for housing development and US$13bn for infrastructure projects.
With respect to the infrastructure projects, CChC proposed executing 665 projects that are in the government’s portfolio but have yet to start works. Of these, 331 are road projects, 224 are water projects, five are energy and mining initiatives and 105 are hospital infrastructure works.
Export of IT Services and Products.
Along with value-added products, an under-tapped seam the nation can mine with a bigger pickaxe is the export of IT services and products. As part of efforts to ride the digital wave, Chile signed an accord on trade rules this year with New Zealand and Singapore called the Digital Economy Partnership Agreement (DEPA). The first deal of its kind globally – and one that could be expanded to other nations – DEPA supports digital trade and strengthens cooperation in this sphere while promoting online consumer protection.
Citing research from Universidad de Chile, opposition senator Felipe Harboe said that if the requisite cybersecurity and data protection frameworks were in place, “this figure could triple.”
“It could mean that the export of global services, which we must adopt as a development strategy in this new digital era, could reach around US$5bn…” Harboe said during an online conference hosted by Fundación Chilena del Pacífico, an organization tasked with supporting Chile’s economic insertion into the Pacific basin.
Infrastructure and Mining
We have outlined previously the Chileans government’s proposals for reactivating the economy through Infrastructure spending and mining. See here for details.
There is a lot of discussion from industry and government stakeholders on what the country should do in order to reactivate the economy as the Covid-19 pandemic resides. The government has already taken steps by putting forward a new tax reform that will benefit companies not only now with conserving cashflow but also other measures that will help the private sector over the next 2 years. Measures such as reducing taxation for SME´s and instant deprecation on capital spending. See here for details.
The country still has a way to go dealing with Covid-19 but expect there to be increasing focus on the steps the country will need to take as it emerges from this period of uncertainty.
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