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Country Commercial Guides for FY 2000:
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CHAPTER V: LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENTS
Some of this year's best prospects show declines in sales, but this is because economic growth will be sharply reduced in 1999. Expectations are considerably higher for 2000 and beyond. The selected sectors are largely capital goods, where the U.S. is the acknowledged leader and has a comparative advantage conferred by its technology and manufacturing prowess for these categories of products. Investment is down sharply this year in Chile due to the economic uncertainty, but recovery will unleash pent up demand that will spur increased purchasing.
Best Prospects for Non-Agricultural Goods and Services (ranked by growth rate) (millions of dollars)
Sector Total Total U.S. Imports Est. Inc. Market Imports (1999) sales(%) (1999) (1999) in 1999 1. Pollution Control 1,400 1,393 542 44 2. Telecom Equipment 1,400 1,330 465 40 3. Travel & Tourism N/A N/A N/A 10* 4. Medical Equipment 231 231 116 10 5. Security Equipment 52 42 18 8 6. Computer Equipment 1,300 710 355 8 7. Electrical Power Equip. 535 190 47 2 8. Air Cond. & 204 204 67 2 Refrigeration 9. Plastics Mach. 490 333 85 1 and Resins 10. Mining 750 450 250 0 Equipment 11. Port Equipment 380 386 215 -1 12. Building Materials 4,400 300 80 -2 13. Food Processing 152 160 91 -2 Equipment 14. Construction 560 345 145 -3 Equipment* Based on the increase in the number of travellers. All figures in this table are dollars, but no dollar figures exist for expenditures by Chilean visitors to the U.S.
1. Pollution Control Equipment (POL)
Chile has many environmental problems and is moving in efforts to overcome them. There is a great opportunity for U.S. companies to get involved in this process. The most important areas are sewage treatment, treatment of industrial effluents, and transportation.
The government has ambitious goals to provide all the population with potable water and adequate sewage treatment. The Chilean Congress approved privatization of the sanitary companies in November 1997. The two largest, ESVAL (Region V, includes Valparaiso and Vina del Mar) and EMOS (Santiago) have already been awarded to private operators and are drawing up plans.
The privatization of the sanitary companies will increase business opportunities dramatically. It is estimated that about US$ 7 billion might be invested in the next five years in this subsector, depending on the privatization process, the regulations imposed on the industry for wastewater reduction, and enforcement of the standards.
Until recently, water supply and sewage were in hands of 13 sanitary companies owned by the state agency, the Chilean Development Corporation (CORFO), which owned 92 percent. Private parties owned only 8 percent. The Sistema Administrador de Empresas (SAE), the organization that manages all of CORFO's companies, administers the sanitary companies. SAE has 2.6 million customers representing 92 percent of the urban population. The companies are organized as corporations to produce and supply drinking water, and to collect, treat and dispose of wastewater. Only 18 percent of Chile's water (and only 3 percent in Santiago) receives treatment of any kind.
The Chilean government decided that ownership by independent investor companies could exceed 35 percent. The employees of the companies will own 10 percent, pension funds will be able to own another 10 percent, and 45 percent will remain in government hands. To make the privatization process more attractive for the investors, the government decided to give administrative control of the company to the new owner of the company by allowing them to name four of the seven board members. On June 11, 1999, Emos was sold for $ 984 million to a foreign consortium formed by Aguas Barcelona (Spain) and Suez Lyonnaise des Eaux (France). The foreign investors will control 42 percent of Emos' shares.
The main short-to-medium term opportunities are in the construction of wastewater collection and treatment infrastructure in Santiago and the rehabilitation and expansion of the water supply in several regions of the country. However, regardless of privatization, most of the sanitary companies have plans that call for action within the next two years.
In another area, the Chilean Government recently approved $1.5 million to include compressed natural gas (CNG) buses in the Natural Gas Bus Program for the Metropolitan Region, as part of the Clean Cities Program in Santiago. The plan is to provide funding to transportation entrepreneurs to cover the cost difference between a regular diesel bus and a CNG bus. The National Environmental Commission for the Metropolitan Region is developing an operational procedure.
Projects in the private sector are another important source of potential business for U.S. companies in Chile. These projects typically involve pollution control through remediation of existing facilities and the permit approval for expansion or the construction of additional capacity. However, these projects are not public information since private companies are more sensitive about environmental issues and compliance with regulatory framework. There are many kinds of water contamination, depending on the nature of each industry.
The best prospects for the short-medium term include the following areas:
- Sanitary services: U.S. consulting, design and engineering companies should form teams with other international and local companies to offer a full range of services and bring in sufficient financial resources.
- Municipal wastewater treatment. The largest investments in wastewater treatment will be in the Metropolitan Region.
- Drinking water supply systems. Smaller scale systems for municipalities, industrial developments, and tourist areas.
- Innovative water reuse and recirculation systems for municipal and industrial applications (especially mining).
- Pollution prevention and control equipment for key industrial sectors such as mining fish processing, pulp and paper, and food processing.
- Sludge-processing equipment for mining operations.
- Pre-treatment technology for wastewater discharged into municipal systems.
- Water quality-monitoring equipment.
DATA TABLE (millions of dollars) 1998 1999 2000 A. Total market size 750 975 1,400 B. Total local production 5 6 7 C. Total exports 0 0 0 D. Total imports 745 969 1,393 E. Imports from the U.S. 377 452 542The above statistics are unofficial estimates.
2. Telecommunications (TEL)
The Chilean telecommunications sector is completely privatized, very open and deregulated. This generates fierce competition between telecommunication companies and benefits the end users. Wireless communications are expected to develop most in the coming years. Total investments for 1999 are estimated at about $1 billion dollars. Many of the investments will be in the wireless communications sector, CATV network and basic telephone services.
WIRELESS
Calling Party Pays, recently approved by SUBTEL, was implemented in Chile in January 1999. This system is expected to provide incentives for the development of cellular communications, so wireless subscribers will reach 1,600,000 by the end of 1999. According to statistics from different local companies, wireless subscribers totaled 802,744 as of November 1998, of which 58 percent were with CTC, 23 percent with BellSouth, and 19 percent with Entel.
BellSouth purchased from Entel its cellular license for $90 million. Until now, BellSouth had a license to operate in the Metropolitan and Fifth Regions only. This new license will allow it to cover the entire country. BellSouth will invest another $100 million in a digital network to operate throughout Chile.
CTC announced that it will add $100 million to its originally planned $90 million investment plan for its subsidiary Startel (cellular, paging, trunking), due to the impressive growth the Chilean telecommunications sector is experiencing in wireless communications. Total investment plans for CTC reach $500 million. According to its General Manager, the implementation of Calling Party Pays has increased its subscribers to 765,000. CTC estimates that they will reach 1,000,000 by the end of 1999.
In addition, the introduction of personal communications services (PCS) has doubled the existing wireless market, which has reached a penetration of 6 percent compared to 2.7 percent in 1997. Entel has two PCS licenses; a joint venture of Telex Chile and Leap Wireless (a subsidiary of Qualcomm) owns the other.
Entel, with the sale of its cellular license for $190 million, will be able to improve its results for 1999 and continue to invest in its networks. The Luksic group purchased 6.6 percent of Entel for $27 million. Entel will be able to invest without requesting high interest loans. Entel estimates it will have 500,000 subscribers by the end of 1999. Entel PCS launched its Iridium project in Chile, a satellite network with worldwide coverage.
CABLE TV
United International Holding (UIH) became the sole owner of VTR Hipercable by purchasing the 66 percent of the company that was owned by VTR S.A. VTR Hipercable, the largest cable TV supplier, also provides basic telephone service in some areas of Santiago. UIH plans to invest $250 million in a three-year period to increase the 400,000 CATV subscribers it has today.
LONG DISTANCE SERVICES
In Chile, ten long distance carriers operate. Recent changes in Chile's telecom regulatory provisions have resulted in a reduction in the international access fee. Long distance carriers are optimistic that these measures will make their business more profitable and reduce alleged cross subsidies between the dominant local operator, CTC, and its long distance operator, CTC World.
BASIC TELEPHONE SERVICES
All the companies that provide basic telephone services have their own expansion plans for this year. Their interest is to increase the amount of subscribers and compete by providing value-added services.
CTC plans to invest $500 million by the end of 1999. CMET will invest $50 million to increase its subscribers to 160,000 by the end of 1999. Telefonica del Sur plans expansion to other regions of the country. It already has SUBTEL's authorization to operate in the cities of Los Angeles, Chillan and Concepcion in the VIII Region. In 1999, Telefonica del Sur plans to invest $20 million to install new lines and anticipates growth of 15 percent.
VTR, wholly owned by UIH since April 1999, will concentrate on expanding through its cable network. It hopes to increase the 35,000 basic telephone subscribers that they have today to 400,000 by year 2002.
NEW TECHNOLOGIES
SUBTEL announced that it will call for public bidding to award licenses for Local Multi Distribution System (LMDS). It is estimated that five companies are interested in providing services through this wireless technology for fixed telephony, also known as wireless fiber optic.
Internet telephony is expected to generate a revolution in the telecommunications market. Entel, VTR, CTC and FirstCom are getting ready to launch their projects during this year.
DATA TABLE (millions of dollars) 1998 1999 2000 A. Total market size 842 1,000 1,400 B. Local production 55 62 70 C. Total exports 0 0 0 D. Total imports 787 938 1,330 E. Imports from the U.S. 257 328 465The above statistics are unofficial estimates. Figure were provided by Comex On Line
3. Travel and Tourism Services (TRA)
The U.S. continues to be the most popular destination for Chilean tourists. The excellent tourism infrastructure, shopping and recreational activities, including beaches and resorts, make the U.S. the most attractive destination for Chileans.
Chile's high economic growth has stimulated Chileans to travel abroad for business, professional training, studying, and also for tourism, entertainment and shopping. Although 1998 was a difficult year from an economic point of view, 164,400 Chilean tourists visited the U.S., up 10 percent from the previous year.
Currently, European airlines are using the low-season months to offer incredible promotions to travel to Paris, London, Rome, Amsterdam, and others. The Caribbean is a popular attraction with Chileans, who like the white sand beaches and clear waters. It is difficult to compete with Caribbean all-inclusive packages. Airlines flying to the U.S. are also offering "ever seen" rates to different cities of the U.S. to compete with other packages.
The U.S. tourism industry should be present in the Chilean market by assigning representatives, advertising locally, participating in promotional events, organizing familiarization trips for press people and wholesale operators. It should be kept in mind that selling a new destination requires a lot more visits and trips than just coming once a year to participate in a tourism show.
DATA TABLE (thousands of travellers) 1998 1999 2000 A. Total market size 1,361 1,490 1,640 (total outbound travelers) E. Total U.S. imports 164 185 205The above statistics are estimates based on 1998 statistics provided by Servicio Nacional De Turismo.
4. Medical Equipment (MED)
Chile has one of the most developed and open economies in Latin America and is among the best-rated emerging economies. Chile currently spends 7 percent of its GDP on health care and has doubled its health budget since 1990. This year, health care will demand US$2 billion from the fiscal budget, making it one of the largest government expenditures. Although the Chilean government has assigned priority to the improvement of the national public health care sector again this year, the Asian crisis has forced the government to cut back part (approximately one percent) of the already assigned budget. This budget cut will delay infrastructure projects that the 1999-2000 fiscal year budget will consider. All other health care purchases will remain untouched.
The Chilean government guarantees health care coverage as a constitutional right and is committed to improving the national public health system that provides health care for approximately 70 percent of the 14.6 million population. Although the market is not large, it is dynamic and healthy. Several programs for large-scale purchases of modern equipment as part of an effort to upgrade the public and private health sectors have received government approval.
The government's Health in Action Program 90-2000, which has already invested over one billion dollars, has realized 19 new and re-constructed hospitals plus several modernized hospitals with new services. A large number of private and some public sector hospitals are expanding their present facilities or projecting the construction of new ones. On the other hand, most private hospitals and clinics presently have the financial resources to upgrade equipment and services but because of the country's current economic situation they are being cautious in their expenditures.
Chile is well known for the openness of both its trade practices and overall economic system. Foreign suppliers currently do not face significant trade barriers in entering the Chilean market.
The growth of the medical device market is largely the result of government reforms initiated by President Frei to deregulate the health care sector thus giving hospitals greater purchasing power. Chile's Ministry of Health amended the Sanitary code in March 1997 to authorize its Institute of Public Health (ISP) to regulate medical devices for the first time. The ISP proposed the new device regulations in March 1998. Congress is currently reviewing the new regulations for approval. Chile previously did not directly regulate devices
On January 1999, Chile's flat custom duty was reduced from 11 percent to 10 percent. This is the first stage of a tariff reduction program that targets a 6 percent tariff by 2003. This is achieved through annual reductions of one point percent. The 18 percent VAT tax remains the same.
The U.S. has been Chile's most important supplier of medical equipment for years. U.S. main competitors are Japan and Germany.
DATA TABLE (Millions of dollars) 1997 1998 1999 A. Total Market Size 170 210 231 B. Total Local Production N/A N/A N/A C. Total Exports N/A N/A N/A D. Total Imports 170 210 231 E. Imports from the U.S. 85 105 116The above statistics are unofficial estimates.
5. Security Equipment (SEC)
This market rises and falls due to various factors and can vary substantially from year to year. The construction industry is key. It declined dramatically in Chile due to the Asian crisis, but should begin to recover at least partially by the end of this year, bringing the safety and security industry with it. An energy crisis causing rolling blackouts has further hurt the economy and construction, but the rise in crime during the blackouts offsets this somewhat by increasing demand for security equipment to combat it. Also, insurance companies increasingly demand that firms have adequate security programs to reduce insurance premiums, which tends to offset the construction-related decline somewhat.
Industry and commerce have been increasing and upgrading their security systems. Products such as automated entry, unauthorized entry prevention systems, theft prevention devices and systems, and drug testing equipment are in demand in Chile.
The cultural aspects of the country should also be considered. Crime is low in Chile, but recently has increased. The media know what sells, and have played up crime stories, leading to a certain amount of paranoia. Personal security has become a much more important issue.
For this industry, an average growth of 8 percent is expected for this year. During 1998, the imports for this industry came mainly from the U.S. (43.2 percent), followed by China (10.3 percent) and Taiwan (7.5 percent).
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total market size 58 48 52 B. Total local production 10 10 11 C. Total exports 1 1 1 D. Total imports 49 39 42 E. Imports from the U.S. 19 17 18The above statistics are unofficial estimates.
6. Computers & Peripherals (CPT)
Chile continues to be a good market for U.S. computers and related equipment suppliers. It is expected that computer equipment usage will steadily growth by 6 percent this year and even more as the market recovers from the current slowdown.
Chilean imports of information technology products and related equipment totaled approximately US$1,200 million in 1998. This represents a 10% increase from 1997. Of this amount, approximately US$600 million represents computer equipment imports. Computer sector growth is estimated to reach 6 percent in 1999. Personal computers and workstations are in highest demand, followed by mid-size equipment. Internet usage is also growing.
After the Chile/Canada free trade agreement was enforced, the tariff for importing computer products into Chile was eliminated. Now U.S. suppliers can compete in equal terms with other supplying countries.
Chile's major supplier of computers and peripheral is the U.S. who accounts for about 50 percent of the market. The main competitors are Singapore, Mexico, Ireland, and Taiwan.
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total Market Size 1100 1200 1300 B. Total Local Production 8 8 9 C. Total Exports 8 8 9 D. Total Imports 593 653 710 E. Imports from the U.S. 310 323 355The above statistics are unofficial estimates.
7. Electrical Power Systems and Equipment (ELP)
The market for power generating equipment and supplies looks promising. New power plant construction, started in 1996, will continue through at least 2008. According to the most recent projections of the Comision Nacional de Energia (National Energy Commission, or CNE), electricity demand will grow over 8 percent yearly into the next century (10 percent in the Northern Grid and 8.5 percent in the Central Grid). The electricity sector has grown much faster than the overall Chilean economy. Chile has 8.4 GW of installed capacity, but projected demand to year 2008 will require 40 percent more capacity, a $4 billion investment.
The new actor in the energy sector is natural gas, which first appeared in 1997. Gas now feeds several combined-cycle power plants, which replaced existing coal-fired plants. In addition to reducing initial investments and operating costs, combined-cycle technology is expected to alleviate Santiago's severe air pollution. The Central Grid will benefit also from co-generation. For the near future, Chile will have to rely even more heavily on gas-fired plants if the current severe drought continues.
Although Chile's market is small, competition is intense. Many foreign firms are represented locally, are aggressive, and follow projects closely. Projects developed in 1998-99 allowed U.S. suppliers to capture a 45 percent market share. To enhance long-term business relationships with Chilean customers, U.S. firms should promote more, invite decision-makers to visit facilities, and train local technical staff.
Hydroelectric plants once provided about 70 percent of Chile's electricity, but not any more. In 1999 no more than 40 percent came from hydropower; the balance came from thermal generation. Only an estimated 13 percent of total hydroelectric potential is utilized, but large viable sites are far from Santiago (40 percent of demand), requiring large transmission line investments. In the Santiago-Concepcion area, several rivers are capable of generating power out of gravity (run-off river plants). This technology alters the landscape less since it does not require major alterations of river basins, but some environmental groups oppose them on other grounds.
A growing number of gas-fired plants are operating, which is allowing Chile to phase out older coal-fired plants because of environmental concerns. The government has developed environmentally safer energy sources by enabling imports of natural gas from Argentina. This new fuel source powers several combined cycle plants in central Chile that feed the Central Interconnected Power System, the power grid that supplies most of Chile's cities and industries, except mining. Northern Chile will have two gas pipelines fully operational by the year 2000. This new energy supply has made it possible to feed thermoelectric power plants (a total of 1200 MW) to be connected to the Northern Interconnected Power System, which supplies mainly the mining industry. Due to the drought affecting central southern Chile, there is a growing likelihood that the Northern and the Central grids will be interconnected in the short to medium term.
The CNE and the Chilean Industrial Association (SOFOFA) have identified several investment projects to be completed by the year 2008 (as described later in this section). Some proposed gas plants may not be built if Chile signs a bilateral treaty with Argentina to interconnect the two power grids.
The figures above may possibly underestimate investment needs since they include only those projects already planned by the utilities. ENDESA, the leading private power generation in Chile, forecasts that between the year 2002 and 2012, an additional capacity of 21,000 MW costing some $8 billion should be invested just to meet the foreseen demand.
Best prospects in this sector are gas turbines, watertube boilers, generators, switches, insulators, electric connectors, hydraulic turbines and parts, and dielectric liquid transformers.
Data Table (millions of dollars) 1997 1998 1999 A. Total market size 440 524 535 B. Total local production 296 348 354 C. Total exports 6 7 9 D. Total imports 150 183 190 E. Imports from the U.S. 36 40 47The above statistics are unofficial estimates.
8. Air Conditioning & Refrigeration (ACR)
The Chilean market for air conditioning and refrigeration demands imported, latest generation technology. The air conditioning subsector runs from split units to sophisticated climatization systems. The residential segment is not very developed or attractive. Chile's climate is quite moderate, with warm, but not humid, days in the summer and cool nights. Few single-family homes have air conditioning. The main market is for industrial and commercial use.
In the industrial refrigeration subsector, local vendors offer what is known as refrigeration projects that present an integral solution for each case. This approach tries to satisfy the production and efficiency requirements of each firm in fishing, fresh fruit, processing of meat and dairy products, chemicals, laboratories, hotels, supermarkets and restaurants, among others. Vendors provide a selection of components for the project, such as refrigeration chambers, post harvest cooling systems, walk-in coolers and freezers, ice machines, cold storage rooms, etc., for the specific needs of each company. Chile's supermarket industry is quite developed and provides a solid market, especially since the cold and frozen chains still have some ways to go. The burgeoning fresh fruit export industry could provide additional growth. Refrigeration for trucks is an attractive niche as consumers become more discerning about freshness and acquire the income to pay for it.
The energy crisis that currently affects the country has hurt refrigeration plants in the dairy and fresh fruit business since the shutdown in the supply affects the capacity of the plants to maintain their low temperatures. The constant start-ups and shutdowns may provide an opportunity for parts and service although energy problems may prove to be temporary rather them endemic.
The average growth of this industry is projected at 2 percent, but will likely accelerate as the economy recovers. Chile produces little air conditioning or refrigeration equipment, mostly fans. During 1998, the imports for this industry were mainly from the U.S. (32.7 percent), followed by Italy (12.6 percent) and Germany (9.7 percent).
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total market size 196 200 204 B. Total local production 5 5 5 C. Total exports 4 5 5 D. Total imports 197 200 204 E. Imports from the U.S. 64 65 67The above statistics are unofficial estimates.
9. Plastics Production Machinery and Resins (PME, PMR)
As the Chilean economy expands, so does its demand for industrial equipment and supplies, particularly those sectors that reflect industrial modernization and the sophistication of consumers. The plastics industry is a good example. In 1998, the plastics industry expanded 10 percent, more than the Chilean economy as a whole. However, in 1999, the economy slowed and the industry followed.
Chile's market is small by U.S. standards, but average per capita consumption of plastics has grown 52 percent since 1992, to 65 lb/year, still less than the 132 lb/year per capita consumption in developed markets. On average, the U.S. has 25 percent of total imports. Local competition is intense, particularly among suppliers of machinery, which are mostly from Italy and Spain.
Chile is expanding local production based upon demand existing in the markets of its MERCOSUR partners, which translates into growing exports to this region.
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total market size 440 485 490 B. Total local production 160 185 190 C. Total exports 20 35 40 D. Total imports 300 335 333 E. Imports from the U.S. 76 88 85The above statistics are unofficial estimates.
10. Mining Equipment and Supplies (MIN)
Mining is the most important economic sector in Chile, comprising 8 percent of GDP and 48 percent of exports. Mining is expected to grow 5 percent annually through 2005. The mining sector, with annual production exceeding $9 billion (mostly exported), will continue to lead Chilean industry because of foreign and domestic investment in new mines and/or modernization and expansion of existing ones. Public and private investment in mining will exceed $4 billion through 2005. The parastate CODELCO is the world's largest producer of copper, but private mines will produce two-thirds of all Chilean copper. These figures may be underestimated since they include only mining projects already identified and under construction. However, current low prices for mining products are affecting investment, slowing development and postponing, maybe indefinitely, marginal projects.
It is difficult to disaggregate statistics for mining machinery and equipment as some of this equipment is also used by other industries. Nevertheless, Chilean customs data show imports of $454 million in machinery for mining in 1998, 26.6 percent less than in 1997. This sharp fall is due to the completion of large mining projects and the lowest inflation-adjusted copper prices in 52 years. Nevertheless, recent estimates indicate that imports of mining equipment will stay at current levels through 2000, to grow 5-10 percent yearly thereafter. The portfolio of new projects and expansion of existing projects can be expected to regain momentum and increase the demand for mining equipment to approximately $2.3 billion after the year 2000. (See the list of mining investment projects at the end of Chapter XX.)
Due to costs and an increasing tendency to downsize, many mining operations are currently outsourced. Mining firms, government-owned or private, are using construction, design, and engineering firms for mine development. Even equipment purchasing is left to these construction firms. CODELCO sources stated that they increasingly lease mining and/or construction equipment.
U.S.-made mining equipment enjoys great receptivity by the sector. Much of the equipment installed in new and expansion projects may be from the U.S. because of quality, after-sale service, and compliance with delivery dates. Brazilian, Canadian, Japanese, and German manufacturers, however, have become aggressive competitors in Chile.
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total market size 1000 750 750 B. Total local production 400 321 325 C. Total exports 18 25 25 D. Total imports 618 454 450 E. Imports from the U.S. 365 268 250The above statistics are unofficial estimates.
11. Port Equipment (PRT)
As Chile's economy grew steadily in recent years, ports stagnated and are inadequate to handle the ever-increasing cargo, which has tripled in the last ten years. Trade agreements signed with Canada and many Latin American countries have greatly impacted Chile's foreign trade, 95 percent of which moves by sea. Although the Asian crisis has temporarily reduced economic growth, cargo should continue growing at an average of 10 percent yearly. This requires Chile to enlarge and improve port facilities and related service systems, as well as to build new ports.
Costs at Chilean ports are high due to slow and inefficient cargo handling. Poor infrastructure and operating systems are the key problems. With the projected modernization of Puerto Callao in Peru and the already improved Port of Buenos Aires in Argentina, Chile may be left out of international circuits if port facilities are not upgraded and systems are not improved to reduce unloading time. Ships wait days for servicing, increasing costs. The average container transfer rate is 15 per hour, which could increase to 35 per hour with new technology and management systems.
Chile has 34 ports, plus other minor facilities that belong to companies in the mining, cellulose, and chemical industries. Of the 34 ports, 24 are privately owned. The remaining ten were previously managed by owned by Empresa Portuaria de Chile (Emporchi, Chilean Port Authority). The Chilean government technically and legally owns them, but new legislation has approved their privatization by authorizing the ten newly independent port companies to grant concessions for private operators and investors. This will allow private investment to upgrade existing facilities, improve operating systems, and build new sites. So far, five of the most important privatized ports are carrying out separate bid processes.
Estimated minimum private investment for state-owned ports in the next 5 years is projected at US$ 500 million, plus US$ 600 million for private ports such as Lirquen, Mejillones, and Lota. Mejillones is projected as a mega-port and could eventually require $600 million in investment. Each port could become a stand-alone business, attracting private investment and promoting competition. Bids were to have been awarded by late August. The first private concessions will begin to operate by early 2000. The ports that are currently having their bidding processes are:
Port Cargo transferred (metric tons) Port of San Antonio 5,923,500 Port of Valparaiso 3,969,700 Port of San Vicente/Talcahuano 2,462,700 Port of Arica 1,408,700 Port of Iquique 1,349,000 Total cargo transferred by these five ports: 15,113,600Per the statistics that follow, this figure represents approximately 30 percent of the total cargo transferred in Chilean ports, and almost 80 percent of the cargo transferred at state-owned ports:
Cargo transferred at private ports 31,313,400 Cargo transferred at state-owned ports 18,915,200 Total cargo transferred in Chile 50,228,600Imports mostly supply the port equipment market. The U.S. is the largest supplier, averaging 50 percent of the port equipment market. Market access for port equipment is barrier-free. Used capital goods can be imported and are exempt from the tax imposed on the importation of used equipment and products, which is 50 percent of the regular 10 percent import duty.
DATA TABLE (Millions of dollars) 1997 1998 1999 A. Total market size 488 383 380 B. Total local production 2 3 3 C. Total exports 10 9 9 D. Total imports 495 389 386 E. Imports from the U.S. 253 205 215The above statistics are unofficial estimates. Imports are based on Chilean Custom Service reports. Some distortion must be considered since harmonized codes included in these statistics are used in other industries such as construction and mining.
12. Building Materials (BLD)
The Chilean market for building materials declined during 1999 due to a recession. However, as the Chilean economy recovers, this sector remains a best prospect for the year 2000 and beyond.
Before 1999 Chile's construction sector was growing steadily through new hotels, apartment and office buildings, malls and commercial outlets, and single-family homes. The Chilean Construction Chamber foresees more than $20 billion of in private investment through the year 2002. Most will be in construction of infrastructure, housing and industrial facilities.
The private construction sector was hurt most by the steep increase in interest rates in 1998 and 1999, which reached 14 percent real (18 percent nominal). Now that consumption has stabilized, interest rates have returned to normal (around 10 percent nominal). This interest rate reduction is fueling again the active pace shown by the mortgage industry only a year ago. The inventory of new houses and apartments that was built up in 1999 should soon return to normal levels as sales reactivate.
Government/public construction programs were also hurt by budget reductions, but their decline was only half of that suffered by privately funded building projects. Public housing projects continued during the recession. Another growth factor comes from recently upgraded new construction standards which demand quality certification for every public housing project built by private constructors. This new regulation forces use of more sophisticated building products and materials.
Architects and builders also increasingly specify building materials of higher quality (similar to that of imports) to developers and other professionals. This trend has increased the awareness of good quality, an attribute of many imports. As a result, imports are becoming more visible because of their high quality, good design and attractive prices. Import prices are not substantially different from locally manufactured products.
This favorable trend towards imported products is stimulated by the rapid expansion of homecenters business. Do-it-yourself is becoming widely known and rapidly incorporated into Chilean custom. Currently there are two major homecenter chains in Chile (there is a third group that is not really a chain, but a consortium of small hardware stores). The largest and oldest is a Chilean-owned chain that covers the entire country. But Home Depot (from the U.S), a new player in Chile, is expanding in Santiago. It currently has three stores, with a fourth due by early 2000. Suppliers to these home centers mostly are in countries covered by one of the Free Trade Agreements (FTA's) signed by Chile with Mexico, MERCOSUR (Brazil, Argentina, Paraguay and Uruguay) and Canada. A FTA with the European Union is under discussion. More recently, New Zealand and Korea have been added to the group of possible Chilean free trade partners. Chilean users are sophisticated and in general appreciate good quality products and the latest technology, all subject to competitive prices.
The domestic industry is vast and its products are widely used in low and middle income housing construction. Locally made products are exported mostly to neighboring countries; exports are slightly higher than total building product imports. However, imports are mostly finished products while exports are semi-processed products. Locally produced building materials are of good quality, but are not as attractive as some imported goods.
The export of building materials to other Latin American countries is also viable by using the Iquique free-trade port/zone in the North (easily reached by purchasers from Argentina, Peru, Bolivia and Paraguay).
High quality building products are imported from the U.S., followed by Brazil, Argentina, Spain, and Italy. Some of the above-mentioned building materials are increasingly made in Chile under foreign license and/or with joint-venture agreements.
U.S.-made building materials enjoy excellent acceptance due to quality, new designs, state-of-the-art technology and compliance with delivery dates. Most building materials imported are pipes and fittings, vinyl siding, elevators, insulation products, ceramic and asphalt tiles, mirrors and flat glass, aluminum window frames, anodized aluminum profiles, epoxy products, bathroom appliances, and blinds. Prefabricated houses have become more attractive to Chilean customers, but have to compete with Canadian suppliers who enjoy a zero tariff resulting from the existing Chilean-Canadian trade agreement.
Best prospects include ceramic and asphalt tiles, pipes and fittings, valves, insulation products, mirrors and flat glass, and elevators.
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total market size 4,151 4,500 4,400 B. Total local production 4,358 4,494 4,380 C. Total exports 320 300 320 D. Total imports 335 306 300 E. Imports from the U.S. 90 76 80The above statistics are unofficial estimates.
13. Food Processing and Packaging Equipment (FPP)
Chile's food processing and packaging industry is still adjusting to the impact of the Asian crisis and a severe drought. The country's exports of processed foods and agro-industrial products to Asian countries have been harmed by their financial crisis. Commercial fishing has been severely affected by climate changes, and overexploitation has greatly reduced natural resources, causing several processing plants to close. Exports of processed fruits and vegetables have dropped in the last two years. All this has accentuated a natural slowdown despite the momentum of an earlier boom. Embassy contacts expect moderate growth of 3-4 percent for 1999-2000.
Economic change in Chile starting in the late 1980's pushed the food processing and packaging industry to develop rapidly. Food processing and packaging companies had to become competitive to survive, and invested large sums for technological updating and productivity enhancement. The market expanded significantly, and Chile became a major player in the international market for agro-industrial products and an important recipient of foreign investment. Food product exports soared, with growth of 85 percent up to 1,000 percent over 10 years.
Packaging has evolved into what is called "intelligent systems for product delivery." This stresses that the packaging process has become a critical element to link the product and information about it, more so in a market as competitive as Chile's. The packaging process now includes the complete manufacturing and sales cycle, including raw materials, production processes, packaging, distribution, and product use. This synthesis provides new and important benefits to the end user and reduces manufacturing costs. Projecting the packaging industry as a key agent in this new role provides for future strategic changes in the development of new packing and packaging products. The consumer is becoming more sophisticated and mature, requiring safer and more modern packaging for food products. The end user reacts positively to new packaging and is fast in responding to novelties in material, design and package size.
The food packaging and the food processing industries are extremely competitive, and very concentrated. Companies have merged or absorbed each other, leaving fewer companies competing fiercely. New food regulations call for new technology to be used, and quality control will be emphasized in production. The growing presence of women in the work force and the fast urban pace and lifestyle promote growth in food services, prepared food and frozen goods. Trade agreements between Chile and Canada, Mexico, Peru and Colombia, plus the association agreement between Chile and Mercosur (Argentina, Brazil, Paraguay and Uruguay) have greatly impacted Chile's foreign trade. Those countries are considered future export targets. Food processing and packaging machinery is needed to improve production speed and efficiency.
The U.S. is an important supplier of machinery for this industry, but Italy, Germany and other European countries are aggressive competitors. With market globalization, European companies follow their clients throughout the world. Chilean executives state that, in general, European companies are more open to negotiation, that they respond sooner than U.S. companies, and that their general attitude is to do as much as possible to close a deal. In contrast, they claim that U.S. companies are very rigid and don't respond promptly.
DATA TABLE (Millions of dollars) 1997 1998 1999 A. Total market size 149.2 155.0 152.0 B. Total local production N/A N/A N/A C. Total exports 6.0 6.5 8.0 D. Total imports 155.2 161.5 160.0 E. Imports from the U.S. 88.9 93.0 91.0The above statistics are unofficial estimates.
14. Construction Equipment (CON)
The Chilean construction sector was one of the fastest growing sectors, fueled by the steady economic growth of the Chilean economy. However, the Camara Chilena de la Construccion (Chilean Construction Chamber), stated that in 1999 construction spending would fall 8.3 percent. Despite this contraction, over $8 billion will be invested in construction. Of the subsectors with growth potential, government-funded housing projects and the reinvigorated public concession program, especially, will lead industry expansion. Over $2 billion will be offered in public bids for build-operate-transfer (BOT) public infrastructure projects ranging from urban freeways to water and wastewater treatment systems to irrigation projects. The picture for 2000 looks more promising than 1999 because of recently reduced interest rates.
The Minister of Public Works has made clear that Chilean infrastructure must be modernized to enable future economic development and take advantage of the commercial agreements signed by Chile. The next growth area will come from the water and wastewater industry, which was recently opened to private investors. A private consortium offered close to $1 billion for 43 percent of Chile's largest water company to be offered to private investors. The second largest was partially privatized earlier this year. Estimates for this industry have identified the need for private investment in excess of $2.5 billion in the next three to five years.
Investment in port infrastructure will demand close to $1 billion through the year 2002. Ports are slated to accept private investors to bring in not just investment capital, but new technology to augment productivity.
Chile does not manufacture many types of construction equipment, especially heavy machinery. Most equipment is imported. Even where domestic producers exist, imported construction machinery and supplies are preferred for their quality and technology. U.S.-made products, with 60 percent market share, are highly preferred by Chilean users. Caterpillar and other renowned U.S. brands dominate the market, although Japan's Komatsu enjoys good acceptance for its technology. Korea and some Eastern European countries are pushing hard to enter the market, but the unknown quality of the products makes them less attractive. Some U.S. and other non-Chilean producers now plan to supply Chile from Argentina and Brazil to take advantage of lower tariffs under Chile's free trade agreement with Mercosur.
DATA TABLE (millions of dollars) 1997 1998 1999 A. Total market size 447 580 560 B. Total local production 140 250 240 C. Total exports 23 28 25 D. Total imports 330 358 345 E. Imports from the U.S. 138 150 145The above statistics are unofficial estimates.
Best Prospects for Agricultural Products
1. Fresh Fruit
In 1997 the U.S. gained market access to Chile for apples produced on the U.S. West Coast and table grapes and citrus produced in California after the elimination of long-standing plant quarantine barriers. So far, the United States is the only country that may ship these fruits to Chile. The main window of opportunity for sales is during the months when such fruits are out of season in Chile and not available in local markets. This also coincides with the period when U.S. quality is highest.
DATA TABLE (millions of dollars) 1997 1998 1999 (Actual) (actual) (estimated) a. Total market size N/A N/A N/A b. Total local production N/A N/A N/A c. Total exports 1,261 1,310 1,350 d. Total imports 40 41 42 e. Imports from the U.S. 1/ 1/ 11/ Less than $500,000.
2. Frozen Fried Potatoes
Since 1992, the fast food industry has been expanding rapidly and the sales of frozen fried potatoes have taken off. Future industry growth is expected to be led by restaurants selling hamburgers. The United States' major competitors in the frozen potato market are Canada, the Netherlands, and Argentina. The U.S. market share is declining due to the higher price of its products. Lack of price competitiveness will become more severe as the United States' primary competitors take advantage of lower Chilean tariffs applied to their products. The Chile-Canadian free trade agreement signed in 1997 allows Canadian products to enter duty free while U.S. products face a 10 percent import duty.
1997 1998 1999 (Actual) (actual) (estimated) a. Total market size N/A N/A N/A b. Total local production N/A N/A N/A c. Total exports 0 0 0 d. Total imports 8 9 10 e. Imports from the U.S. 3 2 23. Snack Food
Imports of snack foods have been increasing rapidly as per capita incomes rise. Supermarkets reserve a high proportion of their shelf space for snack foods relative to other prepared and preserved foods. However, local production and imports from Mercosur countries have severely reduced the U.S. market share. Quality and product differentiation will be key to increasing U.S. market share in this sector as the market becomes more sophisticated.
1997 1998 1999 (Actual) (actual) (estimated) a. Total market size N/A N/A N/A b. Total local production N/A N/A N/A c. Total exports 56 50 50 d. Total imports 65 66 66 e. Imports from the U.S. 10 10 104. Pet Food
Chile's market for imported pet food has expanded rapidly in recent years as more and more families become aware of the advantages of prepared dry pet foods over table scraps. Chile's veterinarians actively promote the sale of pet food from their clinics. Pet products are also sold in pet stores and supermarkets. The United States has long dominated the market, but faces growing competition from countries that have free trade agreements with Chile. U.S. products must pay the 10 percent duty.
1997 1998 1999 (Actual) (actual) (estimated) a. Total market size N/A N/A N/A b. Total local production N/A N/A N/A c. Total exports 2 2 2 d. Total imports 15 22 25 e. Imports from the U.S. 9 10 10
1997 Agricultural Imports by Chile Trade -- Table 2 (Dollars million) 1997 Total (from world) 1,384 From the U.S. 148 U.S. Share 11% Chilean Agricultural Surplus with U.S 797 Principal 1998 U.S. Agricultural Exports to Chile Trade -- Table 3 (Dollars million) Corn 31 Corn gluten feed 14 Pet food 7 Wheat 6 Tallow, Inedible 5 Soybean meal 4 Protein isolates 4 Non-fat dry milk 3 Protein concentrates 3 Vegetable seeds 3
Principal 1998 U.S. Agricultural Imports from Chile Trade -- Table 4 (Dollars million) Table Grapes 278 Wine 116 Seed corn 63 Peaches and Nectarines 29 Apple Juice 24 Plums 18 Apples 17 Kiwis 16Other Potential Prospects
Drought during the past and current year has reduced domestic supplies of feed and fodder for Chile's livestock and poultry industry. Consequently, imports of corn and other feed ingredients are expected to increase. As vineyards continue to expand acreage, demand for oak casks for aging wine will grow, creating opportunities for U.S. coopers. Chileans are beginning to eat more cereal at breakfast due to the promotional efforts of leading cereal manufacturers. Imports are growing by more than 10 percent per year.
U.S. exporters of consumer-oriented products should focus on developing niche markets. Because of Chile's abundant agricultural resources, food exports more than double imports. Not only do multi-nationals, like Nestle, Unilever, and Evercrisp (Pepsico) have processing plants in Chile, but a number of Chilean companies such as Lucchetti and Watt's produce competitive consumer-ready food products as well. These companies, however, are potential customers for U.S. food ingredients. Among the food processing sectors that have expanded most rapidly during the past decade are fruit, poultry, pork, and dairy processing, pasta manufacturing and production of varietal wines and snack foods. Chile's unique grading and labeling requirements for beef serve to make impractical U.S. exports of beef cuts.
SIGNIFICANT INVESTMENT OPPORTUNITIES
List of Foreign Investments-Major Projects-Mining Sector:
SCHEDULE FOR MAJOR MINING PROJECTS
(in million dollars) Ongoing Investor Projects Country Investment Product Date El Penon Minera Meridian 58 Gold-Silver 2000 (Canada/US) Pending Investor Projects Country Investment Product Date Tesoro y Lucksic (Chile) 280 Copper TBD Leonor Equatorial (Australia) Projects Under Investor Evaluation Country Investment Product Date Escondida BHP(Australia) 1000 Expansion TBD (Phase IV) RTZ (U.K.) Copper & Gold JECO (Japan) IFC Los Bronces Exxon Minerals 550 Expansion TBD (US) Copper El Teniente Codelco (Chile) 274 Expansion TBD Copper Relincho Outokumpu (Finland)200 Copper TBD Equadorial (Australia) Santa Cia. Minera 100 Copper TBD Catalina Santa Catalina (Chile) Molybdenum Cerro Placer Dome 98 Gold TBD Casale (Canada)
Source: Comision Chilena del Cobre "COCHILCO" Agustinas 116, Piso 4 Santiago, Chile Tel: 56/2/672-6219 Fax: 56/2/672-3584 Contact: Jorge Berghammer, Executive Vice President Corporacion Nacional del Cobre (CODELCO) Huerfanos 1120 Santiago, Chile Tel: 56/2/690-3000 Fax: 56/2/690-3059 Contact: Marcos Lima, Executive President Comite de Inversiones Extranjeras (Foreign Investment Committee) Teatinos 120, Piso 9 Santiago, Chile Tel: 56/2/698-4254 Fax: 56/2/698-9476 Contact: Eduardo Moyano, Vice President Ministerio de Mineria Teatinos 120, Piso 9 Santiago, Chile Tel: 56/2/671-4373 Fax: 56/2/698-9262 Contact: Sergio Jimenez, Minister of MiningMajor Projects in the Energy Sector
The Comision Nacional de Energia (CNE, National Energy Commission) produces a working plan that contains the schedule for the required/proposed construction of electrical generation plants for the period 2000-2008 for the entire country. It includes the Central Interconnected System (SIC), the Northern Interconnected System (SING), the Aysen System and the Magallanes System. Demand for electrical power is expected to grow 12 percent annually. The investment required is estimated to exceed $2.0 billion. These plants would supply additional capacity close to 4,000 MW, and further reduce energy costs considerably for industrial end-users and consumers in general.
The CNE has endorsed the construction of gas pipelines and authorized the transport of natural gas from Argentina, currently through a total of five pipelines (including existing and proposed). The energy generating enterprises are adjusting and accommodating their construction schedules in order to realize the advantages offered by the gas pipelines and their facilities.
The competition in northern Chile to see who would build a pipeline from Argentina to bring gas to the new plants built or being built is over. Both have been built. One is being tested now, and the other will begin testing in the fourth quarter. This means that there will be gas to supply at least four combined cycle plants. Construction will depend heavily upon the level of copper prices in the international market.
SCHEDULE FOR ENERGY PLANT PROJECTS
Ongoing Investment Operation Start Projects U.S. mill. Method Date Firm Chilectra 450 Transmission 1998-2008 Chilectra Infrastructure Mampil 23 Hydroelectric 1997-2000 IBENER Rio Maipo 39 Transmission 1997-2002 Cia.Electrica Infrastructure Rio Maipo Pending Investment Operation Start Projects U.S. mill. Method Date Firm Alto 500 Hydroelectric 1999-2001 Andrade y Cachapoal Gutierrez Ralco 400 Hydroelectric 2000-2004 ENDESA Quilleco 80 Hydroelectric 2000-2001 Colbun Projects Subject Investment Operation Start EIA study U.S. mill. Method Date Firm Taltal 160 Combined Cycle TBD Cia. Electrica Taltal Rio Nuble 100 Hydroelectric TBD Cia. General Electricidad Catalina Sur 16 Gas pipe TBD ENAP Cabo Negro 12 Gas pipe TBD ENAP El Penon 6 Transmission TBD Noroeste Infrastructure Pacifico Generacion Projects Under Investment Operation Start Evaluation U.S. mill. Method Date Firm Alfalfal 500 Hydroelectric TBD ENDESA Quitraman 400 Hydroelectric TBD ENDESA Neltume 375 Hydroelectric TBD ENDESA Vallical 150 Hydroelectric TBD ENDESA Bocamina 120 Hydroelectric TBD ENDESA Guardia Vieja 80 Hydroelectric TBD ENDESAPower Generation Projects Identified by Chilean National Energy Commission (Comision Nacional de Energia) Recommended Start Method Capacity (MW) Date Combined Cycle 332 2003 Combined Cycle 332 2004 Combined Cycle 332 2005 Hydroelectric 103 2006 Combined Cycle 332 2006 Combined Cycle 332 2007 Combined Cycle 332 2008 Combined Cycle 332 2008Some of the proposed combined-cycle gas plants may not be built if Chile signs a bilateral treaty with Argentina to interconnect the electrical grids of these two countries. However, 43.3 percent of current power generation capacity is yet to be installed. This would require investment on the order $4.0 billion to provide for generation, transmission and distribution.
U.S. firms wanting additional information should contact:
Comision Nacional de Energia Teatinos 120, Piso 7, Santiago, Chile Tel.: (56-2) 365-6800; Fax: (56-2) 365-6834 Contact: Mr. Cristian Nicolai, Executive Secretary Sociedad de Fomento Fabril Av. Andres Bello 2777, Las Condes, Chile Tel.: (56-2) 203-3100; Fax: (56-2) 203-3101 Contact: Mr. Andres Concha, Executive Secretary
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