Chile Tourism Report Q4 2009

Chile’s tourism industry is very much a work in progress. It has very considerable potential to grow off a smaller base than the more mature sectors in Brazil, Mexico and Argentina. Chile is, along with Mexico, the country with the best tourism outlook for this year, according to the Association of Asian Pacific Travel (PATA).

In a pattern that is becoming familiar worldwide, while the number of Chileans travelling overseas decreased, domestic tourism improved in January. The number of Chilean tourists travelling inside the country reached 3,559,000, representing an increase of 8% over the same period last year.

The 2007-2008 Southern Hemisphere summer has been exceptionally good for tourism in Chile. There was both a lift in Argentinean tourists, in particular, plus the decision by many Chileans to holiday in the country. The three main Chilean tourist destinations – Viña del Mar, La Serena and Pucón – reported a 15% increase in the number of their visitors this season. High inflation in neighbouring Argentina drove many Argentines to holiday in Chile. Quite a few came by car to save money.

In 2008, 71% of tourists to Chile came from other countries in Latin America. This year we expect this will increase to 74%, before settling back to 69% by 2013. While tourists from within the region are helping to bolster numbers in these difficult times the longer term growth potential for the industry needs to be seen as drawing tourists from North America, Europe and the Asia-Pacific region.

In its ‘plan de acción de turismo’ the government – in conjunction with SERNATUR – announced a series of plans to improve the sector and to promote its development on a nationwide level. To this end, the campaign intends to increase the number of tourists in Chile from 2.5mn in 2007 to 3mn in 2010.

Under the new plans the government intends to promote the country’s profile overseas and in particular in Europe, to increase special interest tourism, develop a system of certification and quality and as well to implement a new law of tourism.

In recent years, investment has been targeted towards adding new destinations to the portfolio of attractions that the country offers to long haul tourists. Spas and resorts have started to appear nationwide and traditional thermal water centres lead the modernisation movement. Eco-tourism and special interest destinations have improved the overall offer. Investment in accommodation, transport and staff training are helping to transform the category, including the addition of luxury facilities.

Political Outlook Chile's conservative presidential candidate Sebastián Piñera is receiving high-profile endorsement for his promises of change in his election campaign. With the ruling Concertación coalition continuing to crumble, we see little scope for a last-minute comeback in the polls. Though Piñera is almost tied with the ruling coalition's candidate Eduardo Frei in case of a run-off, the emergence of a younger and more dynamic candidate from Frei's camp may yet put any hopes for a miracle to waste come December.

The Chilean political landscape is clearly shifting into a higher gear in the run-up to December's general election. With President Michelle Bachelet constitutionally barred from another consecutive presidential term, the desire for change is ringing loudly among the electorate. Long-standing divisions in the ruling Concertación de Partidos Por la Democracia (CPD) are reaching boiling point as Bachelet's administration comes to an end.

Economic Outlook Chile continues to enjoy some of Latin America's most impressive fundamentals, such as a highly attractive investment climate, stable government institutions and a high degree of transparency. Although the importance of the country's mining sector and the integration of the country's financial services sector with global markets will keep the economy exposed to external business cycles, Chile will remain a bellwether for the region in terms of consumer affluence and a favourable business environment. We expect real GDP growth to average a solid 3.4% beyond 2010 through to the end of our 10-year forecast horizon.

Currency Outlook Despite risks of resurgent financial market volatility and government interventions in the foreign exchange market, we remain generally upbeat on the Chilean peso. Indeed, we are targeting CLP535.00/US$ by the end of 2009. Sound macroeconomic fundamentals provide a strong case for early recovery, a factor which should keep investor confidence in the peso anchored. Notwithstanding downside risks to our current economic growth forecast of 0.1% in 2009, ample room available to both fiscal and monetary policymakers should make the country a Latin outperformer this year. Moreover, we continue to regard the peso as a regional safe haven at times of heightened economic uncertainty, which should support the unit in the event of a rapid EM sell-off.

Business Environment Anchored by a strong and efficient legal framework, the Chilean business environment is the most accommodative in the region, and the government continues to place attracting foreign investment high on its priority list. A physical infrastructure network which rivals that of many in the developed world is a major asset to the Chilean business climate and, together with a very open foreign trade regime, helps to maintain the country's reputation as an attractive foreign direct investment (FDI) destination. Although low by regional standards, corruption and criminal activity remain a nuisance, and President Michelle Bachelet's government still faces significant challenges on these fronts.