Chile Tourism Report Q2 2009

Chile is in the South-West of South America, bordering Argentina, Bolivia and Peru. It stretches North- South approximately 4,200km. However, Chilean territory also includes the Chilean Antarctic, Easter Island or ‘Rapa Nui’, the Archipelago of Juan Fernandez, San Felix, San Ambrosio, Sala and Gomez Islands, which considerably enlarges the country’s territory. Chile boasts a vast array of natural and cultural attractions, including the northern deserts, the spectacular mountain ranges and glaciers, the Lake District, and the mysterious statues of Easter Island.

In terms of tourism development, Chile is well on the way to becoming one of South America’s premier travel destinations, with one of the fastest growing tourism sectors in the world. In comparison to other renowned regional actors in the tourism business, Chile’s main strength is its scope to grow and develop new attractions, whereas other countries, such as Mexico, Brazil and Peru, have much more mature tourist sectors.

However, tourism’s relative contribution to the national economy remains low by both regional and world standards. Indeed, the Chilean government seems to have realised this recently, and has therefore been actively promoting the expansion and improvement of the industry. The contribution of Travel & Tourism to Gross Domestic Product (GDP) is expected to rise from 4.5% (CLP4,182.2 bn or US$8,206.4 mn) in 2008 to 4.8% (CLP8,542.3 bn or US$11,720.8 mn) by 2018. The appropriately named ‘plan de acción de turismo’, developed by the Chilean government, in conjunction with SERNATUR, includes provisions that aim to increase the number of tourists in Chile from 2.5mn in 2007 to 3mn in 2010. Tourism, it is hoped, will generate US$2bn in 2010.

Some of the more prominent recent developments are the substantial investments by: (a) hotel groups and resorts in different regions of Chile, (b) tour operators, and (c) casino resorts. New legislation has been passed allowing up to three casinos per region – for the 15 regions in Chile. The rising level of investment stems in part from a substantial measure of international confidence in the Chilean government.

Substantial investment programmes are also under way in the country’s ski resorts around the capital, Santiago, at Portillo, Valle Nevado, Farellones, La Parva and El Colorado, and in the southern resorts, particularly Termas de Chillan. In the coastal tourism destinations, Vina del Mar has been transformed by the construction of luxurious apartment buildings along its beaches, and by other resorts in the coastal area between Rocas de Santo Domingo and Algarrobo. In the North, La Serena and San Pedro de Atacama have also received huge investments in recent years. A new sector to watch is the veritable boom in special-interest tourism. Outdoors activities, wine tours, fishing, whale watching, eco-tourism and gaming are all benefiting from government encouragement and growth. Given attractive incentives for investment in tourism, and the sound financial and business environment in the country, it is expected that the future development of tourism investment projects for areas as Patagonia, Chiloe Island, Viña del Mar, La Serena and San Pedro de Atacama will continue to expand to cater to international tourists as well as internal visitors. Chile’s tourism industry has, for some time now, been concerned about the potential negative effects of the HidroAysén dam project destined for southern Chile. HidroAysén is a joint entity created by Spanish-Italian electricity giant Endesa and Colbun, a Chilean company. Together, they plan to build five massive dams in Chile's far southern Region XI, given the recent years’ energy crisis and over-dependency on neighbouring supplies. The dams are slated for the region’s two largest rivers: the Baker and the Pascua. Before moving ahead with the project, HidroAysen must first gain approval from Chile's National Environmental Commission – a commission that relies on political rather than technical considerations in determining the viability of a project. Most recently, on Nov. 19, 2008, Hidroaysén asked the regional branch of CONAMA (the government environment authority) in the southern province of Aysén to extend the Environmental Impact Assessment approval process until August 2009, and the request was immediately accepted.

Economy: The Chilean economy continues to face troubling times, with worries about lower output levels as a result of power shortages and record high global energy prices being replaced with concerns about financial stability, dwindling investor confidence and deteriorating terms of trade. Despite this, however, Chile is regarded as the first economy in the region likely to bounce back in 2010 from the current economic downturn. However, there are risks facing the economy, such as more restrictive credit conditions for businesses and consumers, and falling prices of commodities exported from Chile. We expect slowing economic activity. Inflation levels have already declined in early 2009, and monetary policy-makers have reduced dramatically the interest rate terms, by a historic 6% reduction in three months, to 2.25% – providing a more conducive climate for easing credit conditions and improving demand.

Politics: Despite winning council seat majority in Chile's municipal elections on October 26, the ruling Concertación de Partidos por la Democracia (CPD) coalition failed to avert our growing belief that the centre-left bloc, which has been at the helm of Chilean politics since the Augusto Pinochet era 18 years ago, will be replaced by a centre-right government next year. Concertación garnered 45% of the vote for councillorships against the centre-right opposition Alianza por Chile (APC)'s 36%. However, APC secured a slight majority in the race for mayoral posts in the poll (around 40% including the borough of Santiago, against 38% for Concertación, with some 95% of votes counted), suggesting that the opposition will enter next year's presidential election with an improved footing. Furthermore, with a consensus reached on the next presidential candidate for the APC, Sebastian Piñera, it has achieved a clarity and focus that was absent from the last presidential campaign. Then, the APC could not agree on a single candidate until just a few months before the general election, sowing confusion and splitting coalition votes.