Contents

Introduction

Some people have all the luck. Chilean billionaire Sebastián Piñera's first term as the country's president in 2010-14 saw economic growth rates of 4-5%, boosted by historically high copper prices. In 2015, a slump in global copper prices soured President Michelle Bachelet's second term as president with economic growth at just 1.6% as she left office, the slowest pace since 2009. Now, in 2018 as Piñera enters his second presidential term, copper prices are again on the rise, leading inevitably to a stronger economic forecast for Chile. Copper mining is a crucial aspect of Chile's economy as it represents 10% of GDP, more than 90% of mining exports and around 12% of the county's tax income.

To give him his due, it is not just the price of copper that is boosting investor confidence. Piñera's pro-business policies also make local and international mining investors feel more comfortable, a fact that has been ratified by ratings agencies such as Fitch and Moody's. Piñera's plans to reduce red tape and cut corporate taxes are positive for business confidence. Fitch forecasts Chile's GDP growth will recover to 2.7% this year and 2.9% in 2019. Research firm Capital Economics is even more upbeat and expects GDP to hit 3.5% this year, with a 15% rise in copper export revenue.

The mining sector in particular is expected to benefit from the upswing. "Mining investment had been a big drag on economy and now this is turning, and with a right wing president elected... confidence will be back and investment is likely to accelerate," EM debt analyst at European asset manager Carmignac, Joseph Mouawad, told BNamericas after the December 2017 election.

Fitch agrees. "Investments in the mining sector should increase due to the confluence of elevated copper prices plus the election of Piñera," the agency said.

The election of Piñera (center) has boosted investor confidence in Chile and its economy. Credit: Presidency of Chile

Chile is considered the Latin American country most likely to improve its mining investment climate 2018, rising from third place last year thanks to optimism around the return of President Piñera, according to BNamericas' Mining Survey 2018

All this optimism has set the stage for a period of economic growth and mining investment. "I expect investors to be less cautious under Piñera as they were under Bachelet - he will go to lengths to speak about his commitment to the [mining] sector and is much less populist in his rhetoric," Control Risks analyst Laura Sharkey says.

However, challenges remain.  Piñera's corporate tax cuts are not a done deal, especially since the center-left coalition only just raised them. "We do not expect a wholesale reversal of Bachelet-era fiscal reforms and other social reforms, as [Piñera] does not have a majority in congress and will face a relatively robust opposition that still enjoys popular support," Moody's said.

And even though investors are a strong lobby, "there is a significant proportion of the population who believes he is favouring investors over policies which improve quality of life for Chileans. This could lose him potential support in congress," says Sharkey.

Mining companies in Chile, and particularly the large-scale copper producers which characterize the sector in the country, also face technical challenges that are making it more difficult and expensive to grow, such as lower ore grades, water scarcity and impurities. In this context, productivity will remain a strong focus going forward.

Figure: Chilean Mining Exports
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