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Infrastructure sectors in Chile - Ready to do much more?

Actualizado: 5 ago 2020

Tomás Saieg (PhD Student, SPRU - Sussex)

One persuasive argument about economic development is that in order to develop, countries must diversify their productive structure towards new sectors with more value-added. Empirical research such as that of Imbs and Wacziarg (2003) backs this view, though it also warns us that countries may reach a point beyond which more diversification hinders, rather than encourages, developmental goals. But most developing countries are below that point. But such a conclusion only begs the question: how should one go about fostering diversification, i.e. about encouraging the emergence and development of economic sectors which are new to a country? One approach to this problem is to attempt to identify barriers to such a process. There are many such possible barriers, but some are more widely believed to be relevant. Among the most popular suspects we encounter lack of awareness about the business opportunity that those potential new sectors may represent to potential first-movers, low profitability of investment projects in these would-be sectors, lack of the technological and managerial capabilities to engage in the activities that the development of the sector requires, lack of access to capital and input assets, lack of infrastructure, lack of finance, bad regulations, and an unfavorable macroeconomic situation.

Faced with such a long list of suspects, one may wish to know which are the most important and should therefore be given priority. Although for obvious reasons the issue seems one of those which is not amenable to easy generalizations such as “finance is always more important than lack of awareness”, it may nevertheless be instructive to look at how these factors play out for specific cases of emergence and development of new sectors in the eyes of those most involved in the process. Table 2 below presents the results of such an exercise for the emergence and development of the wind sector in Chile – the ‘wind sector’ understood here as the sector which develops, builds and operates renewable energy projects based on wind technology, not the sector which manufactures hardware for such projects, which is non-existent in Chile. This sector, which is an infrastructure sector with dynamics which may be very different from other kinds of sectors such as manufacturing sectors, started to emerge in the mid-2000s, with the first large-scale project – the Canela project built by Endesa – starting its operations in about 2006. The table shows the averaged results of a questionnaire where respondents – all people which had been directly involved in the emergent sector – were asked to rate from 5 to 1 the degree to which each factor was a barrier to the development of the sector back in 2006 when the first projects were being developed, and the degree to which each factor is today still a barrier for the further development of the sector. 5 meant the factor was a big barrier, and 1 meant the factor was not at all an important barrier.

Table 1: Barriers to the past and present development of the Chilean wind (project development) sector in Chile

Source: Own elaboration.

The results show that, in the eyes of respondents, lack of knowledge, lack of finance, and bad regulations were the most important barriers for the emergence and development of the sector. Interestingly, lack of capabilities – one of the most popular explanations – was not felt to be such a big issue. As we said, these results are not at all generalizable, but that doesn’t mean they don’t mean anything. One may make hypothetical generalizations about the relative importance of these barriers based on these results, and the results will support some of these hypotheses and not others – though they will prove none. So let us try our hand at this, and speculate a bit. Let’s first remember that Chile does not rank so bad among those countries which are usually labeled as developing countries. And second, let’s remember that developing and building wind energy projects is not as hard as developing and building nuclear plants or fighter jets. With these two considerations in mind, we may hypothesize that there are many potential sectors waiting to make their debut in the country – if only people were more aware of them, finance was les shy, and regulations more adequate. We may also speculate that, same as the wind case, people in Chile – managers, engineers – are quite well prepared to contribute to the emergence and development of these sectors, many of which may well be quite profitable. If this hypothesis were true, how would one go about encouraging the development of these new sectors? Keeping our focus on infrastructure sectors, perhaps a good idea would be to prioritize those which seem to be the infrastructure sectors of the future, i.e. those engaged in developing and building sustainable infrastructure for the XXI century. Sanitation infrastructure, residues treatment infrastructure, other renewable energy generation infrastructure, infrastructure to support smart grids, and many more such infrastructure assets are yet to spread widely, and are all badly needed. And the spread of every one of them in Chile and in countries in similar situations may just be around the corner. If only…

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