Construction revival

Chile has suffered some devastating blows recently, including the 2009 financial crisis and the 2010 earthquake. Like many sectors of the economy the construction industry is coming back strong.

The February 27, 2010, earthquake that struck Chile caused an estimated $20 to $30 billion in damage to the country’s infrastructure, including 400,000 homes that were either damaged or destroyed, not to mention dozens of schools, hospitals and other public facilities.

The total cost to the insurance industry from the earthquake was estimated at up to $7 billion, which could increase insurance premiums for companies with assets in Chile.

Nevertheless, the task of reconstruction has given private construction companies a boost and the sector is projected to grow 11.3% in 2011, according to the Chilean Construction Chamber (CChC), an association of Chile’s biggest construction companies.

Part of the impetus to grow is coming from the Chilean government, which plans to spend $14 billion on infrastructure development by 2014, with $6 billion coming from the state budget and $8 billion sought from the private sector.

Much of the investment will be spent on public infrastructure, including eight new hospitals with a total value of $1.4 billion. Homes are another priority. In 2010 the government replaced 30,000 homes and repaired another 70,000. In 2011 it will deliver 220,000 grants that are expected to deliver more than 160,000 new homes. In 2010, 1,000 schools were repaired and in 2011 and 2012 another 1,000 will be repaired and 40 rebuilt.

construction1Beyond earthquake reconstruction, the government has several development projects coming up. One of these is expanding the passenger terminal at the Santiago International Airport, the sixth busiest airport in Latin America by passenger traffic. The airport has operated in excess of its 9.5 million passengers/year maximum capacity since 2008 and is projected to need to be able to handle 50 million passengers/year by 2045.

Furthermore, the government has also announced plans to improve the country’s roads, including five new urban highways with an estimated total investment of $2 billion. Several new prisons will be built as well to relieve the overcrowding and poor conditions of existing facilities.

Private sector

Construction is one of the main drivers of the Chilean economy. In 2010 the sector represented 7.3% of Chile’s GDP and employed 8% of the country’s workforce of 7.3 million people.

construction2Private construction employment is likely to peak in 2012 due to increased mining activity. Mining construction could account for more than 35% of all private construction jobs (about 39,000) by December 2012, according to a report by the Corporation of Technology Development and Capital Goods (Corporación de Desarrollo Tecnologico de Bienes de Capital or CBC).

The copper mining regions Atacama and Antofagasta are expected to attract half of the country’s private construction workforce, while Santiago will get more than 22 percent, the most of any single region.

According to the estimates of the CChC, 70% of the investment in construction is associated with infrastructure projects particularly mining and energy. By 2020 mining construction projects should amount to almost $70 billion.

“As long as China wants our copper we will continue to have investments in mining,” says Javier Hurtado, CChC Research Manager. “Moreover, 30% of Chile’s energy is consumed by mining.”

In other sectors, tourism-related construction includes 31 hotels, resorts and similar lodgings scheduled for construction by 2013, most (58%) of which will be in the central Valparaíso and metropolitan regions.

The real estate market is also helping consolidate the recovery in construction. During the second half of 2010, low long-term interest rates, improvements in employment levels and higher incomes contributed to the recovery.

While the abundance of offices created by the excessive production in 2007 led to a decline in production 2008-2009, the improvement of market conditions beginning in 2010 allowed production of offices to return to normal levels.

Accordingly, during the first half of 2011, the number of building permits approved for offices increased twice in comparison with 2010, indicating the emergence of new projects in the center of Santiago after four years of inactivity.

For more information:
Chilean Chamber of Construction (Cámara Chilena de la Construcción)

Success Story
Built to last

Sacyr Vallehermoso is a leading Spanish construction company based in Madrid. In 1997, Sacyr won its first concession contract in Chile, which was for the Los Vilos-La Serena section of Route 5 (the Pan-American Highway) north of Santiago.

Since then, its subsidiary Sacyr Chile has completed civil works and infrastructure projects worth $2.7 billion. It has won nine major highway concessions either directly or with consortia, including a 227-kilometre section of Route 5 between Vallenar and Caldera that opened in November 2011.

That same month, Sacyr Chile and Agua Santa, one of Chile’s largest construction firms, was awarded a $68 million contract for a 66-kilometer access road to the El Morro mine in the Atacama Region.

“Chile was, is and will be absolutely strategic for the company’s future,” says Sergio Gritti Bravo, General Manager for Sacyr Concessions Chile. “Chile was Sacyr Vallehermoso’s first international project and so started a process of internationalization that opened Sacyr to the world.”

Gritti praised Chile’s positive business environment, its deep financial markets and well functioning institutions. “We have encountered a serious country, with clear rules, established macroeconomic indicators and a legal system that protects businesses,” he says.

For the moment, Sacyr Chile is focused on completing two new highway concessions now under construction, bidding on new public works contracts and participating in new business opportunities in the private sector, especially in the growing mining sector. But it has bigger ambitions.

“In the shortest time possible, we want to replicate in Chile the diversified business areas that the Sacyr Vallehermoso group has in Spain,” Gritti says.