Chilean Industrial Project Development & Economic Outlook (2009-2012)
World Economic Crisis and Chile
The global financial crisis, estimated to have begun in 2007, reached a critical point in March 2009. World economic growth declined, and many powerful economies, including Chile, experienced contractions. While many countries entered recession, Chile, according to economists, had not yet entered one by November 2023.
Global economic recovery was anticipated for the second half of 2009 or early 2010, with a new economic era beginning in 2011. Economic crises are cyclical, inherent to market economies. The Great Depression, starting in the U.S. in 1929, impacted the world due to international trade. The stock market crash triggered financial panic, impacting the U.S. and global economies. The effects included decreased stock and real estate values, scarcity of financing, and halted industrial activity. Commodity prices fell, leading to paradoxical situations like food producers discarding products due to low prices. Recovery from the Great Depression took several years.
Economists meticulously studied the Great Depression, leading to a better understanding of market economies and the development of economic tools and policies. Subsequent global crises include the Yankee War, the 1970s oil crisis, the 1981-83 crisis, the 1997 Asian crisis, and the 2008 financial crisis. These crises demonstrate the need for improved economic management to mitigate their intensity and duration.
The current economic situation requires learning and improvement. Economic science should serve human needs, focusing on both economic development and personal growth. Given the limitations of our world, political systems like socialism and neoliberalism tend to converge over time, influenced by each country’s characteristics. Harmonic human coexistence and coordinated development are crucial.
The experience gained from the current crisis should lead to a new world order with international cooperation to mitigate future crises. This requires revisiting political and economic philosophies and correcting the errors of free markets in a globalized world.
Regardless of internal policies (free market or planned economy), international trade operates within a free market system. Speculative operations by limited groups can create inequalities. The goal is a system with fair opportunities for all, acknowledging that total equality is not naturally occurring.
Chile’s Economic Panorama and Infrastructure Projects
Chile’s economy relies heavily on copper mining, which constitutes around 50% of its exports, making it vulnerable to price fluctuations. However, Chile has successfully diversified its economy through free trade agreements with countries like the U.S., European Union, Japan, Korea, China, and India. Chile also has agreements with NAFTA countries (U.S., Mexico, Canada), New Zealand, Singapore, Central American countries, and Peru. Chile acts as an observer in Mercosur.
Chile’s free trade approach is recognized globally, and other Latin American countries are attempting similar models, although it requires significant sacrifice for their national industries. Mexico follows prudent policies. Chile’s diversification has reduced its dependence on copper from 70-80% in previous years to around 50% currently. New economic areas include fishing, aquaculture, and agriculture. These areas require supporting infrastructure projects, particularly in energy and general infrastructure.
Chile’s electricity generation is divided into two main interconnected systems: Central and Norte Grande. Energy projects have seen limited development in the past decade. Chile’s position as a copper exporter and oil importer makes it vulnerable to commodity price fluctuations during crises. The drop in oil prices from $140/barrel to $45/barrel and copper from $4.5/pound to $1.35/pound is significant. Copper prices are expected to recover faster than oil, reaching a better level of sustainability.
Fossil fuels, especially oil, require replacement. Copper, a noble metal, does not have a direct substitute. Chile is rich in copper, while other countries have less abundant or higher-cost reserves. Biofuels like biodiesel and ethanol are being developed as alternatives to oil, with an estimated equivalent price of $70-80/barrel.
Chile can continue its copper mining projects, focusing on cost reduction. Chilean mines are efficient and can withstand low prices, unlike other mines globally that opened during high prices and are now closing.
Aquaculture
Chile’s aquaculture industry, particularly salmon farming, grew significantly in the 1990s, making Chile the second-largest producer after Norway. However, the industry has recently faced challenges due to the ISA virus and algae blooms. Executives are working on solutions, and a strong recovery is expected.
Agriculture and Forestry
Chile’s agricultural and forestry industries benefit from the lower dollar and oil prices. The forestry sector, while affected, has long-term financial solidity due to companies like Arauco and CMPC.
Electricity Generation Infrastructure
Chile’s economic development in the past 20 years is due to its open economic policy and integration into global trade. This has led to expansion in various sectors, requiring development in infrastructure, including electricity generation and civil works. Chile’s electricity generation is divided into the Central and Norte Grande interconnected systems.
In the last 20 years, natural gas-based combined cycle power plants have replaced older coal-fired plants due to their efficiency and lower cost. However, a natural gas import treaty with Argentina was unsuccessful due to miscalculations in Argentine gas production. This led to delays in combined cycle projects and increased reliance on more expensive diesel fuel.
Extensive droughts and environmental campaigns against hydroelectric projects further hampered electricity development. Modifications to electricity laws also contributed to delays. Fortunately, Chilean energy companies are resuming hydroelectric, coal-fired, and combined cycle projects, along with wind farms and geothermal plants.
Wind farm technology is mature and successfully implemented in other countries. With government support, Chile can recover lost time and improve its energy situation.
Infrastructure Projects
Chile has a long list of infrastructure projects managed by the Ministry of Public Works and the Ministry of Transport and Communications, including ports, airports, and roads. Available resources from past copper exports are being used to fund these projects, which also aim to reduce unemployment as a counter-cyclical measure.
Regarding public transport in Santiago, a long-term plan is needed to create an efficient and affordable system.
Industrial Project Development
An industry is an enterprise producing tangible goods. Industries are a subset of enterprises, which are a subset of organizations. A system is a set of interconnected elements whose operation produces a predetermined result. Synergy is a characteristic of a system where the total value is greater than the sum of its parts. An organization is a system of human and material resources performing activities to achieve a predetermined objective. An enterprise is an organization producing goods or services to generate profit for its operators and indirectly benefit society.
Banks, AFPs, clinics, and churches are examples of enterprises that are not industries. Industries can be considered the basic economic units of a system. The physical elements of an industry include real estate (land, buildings, civil works), machinery, equipment, instrumentation, control elements, industrial materials, and office furniture. These elements form physical systems where materials or energy flow, such as pipelines, electrical circuits, and material handling equipment. Synergy is a key concept in these systems.
Industrial development involves several stages: economic feasibility study, environmental impact study, basic engineering, executive project detail, supply, civil works construction, mechanical/electrical/instrumentation installation, manufacturing inspection, work inspection, startup assistance, commissioning, and initial operation.
Entities involved in industrial project development include the project-owning company (epp), service suppliers, engineering consultancies, manufacturers, construction contractors, and assembly contractors. The epp is responsible for recruiting service companies, acquiring land, obtaining permits, conducting geotechnical studies, managing patents and royalties, and designing the preliminary organization. Planning and control involve defining activities, durations, resources, and logical dependencies. The level of detail depends on the project stage. Data for activity lists include name, duration, responsible person, resources, predecessors, successors, importance, and cost.
Logical networks can be represented graphically or as a list. Project duration depends on activity durations and network structure. Activities in series delay the project if any activity is delayed. Activities in parallel are delayed by the most delayed activity. Gantt charts are useful tools for visualizing project schedules. Any project can be considered a large activity, and any component activity can be considered a sub-project.
In summary, Chile’s economic outlook is positive, with opportunities in diverse sectors. Careful planning and execution of industrial projects, along with strategic infrastructure development, are crucial for navigating the post-crisis period and achieving sustainable growth.