Chile: Study reveals contrast between metal-mechanic industry stagnation and national economic growth

alaceroAlacero-Santiago, Chile. September 04th, 2013. Last August 27th, Alacero participated of the Annual Industrial Forum in Santiago, Chile. The event, organized by Asimet (Association of Metallurgic and Metal-mechanic industries of Chile), focused on the presentation of the study “Proposals for the Development of the Metallurgic and Metal-mechanic industries in Chile” prepared by the consultancy firm Econsult RS. After the presentation, well-known economists and the economic coordinators of the presidential candidates discussed the role of the industry today and in the future of Chile.

The study is aimed at making a diagnosis of the challenges of the metallurgic and metal-mechanic industries in Chile and presenting proposals for its development as they make a contribution to Chile´s growth. It begins by acknowledging the great economic advances of Chile during the last decade, as it also expresses concern about the “excessive dependence of Chile on commodities, and on copper in particular”. Also, it points that international experience demonstrates that the manufacturing industry is a necessary condition for development.

When it describes the sector, Econsult says that “in 2012, metallurgic metal-mechanic industry GDP represented 2.4% of national GDP and 23% of manufacturing industry GDP. Its exports, meanwhile, reached 5.3% of the total national exports and 11.5% of national non-copper exports. Also, the metallurgic metalmechanic industry generated 175 thousand Jobs, 20% of the the manufacturing industry jobs and 2.3% of the country´s.”

“The supply of the metallurgic metal-mechanic industry surpassed 52,300 million dollars, 11% of the national supply, where national products represented just 32%, suggesting a great growth potential for national supply.” This affirmation, the study points out, is reinforced when compared to the international experience. In Chile, metallurgic metal-mechanic industries represent 2.4% on national GDP, compared to 7% in developed countries.

The study indicates that since 1990, Chilean economic growth has been better and more stable than that of the manufacturing industry in general, which suffer the most from the Asiatic crisis in 1998 and the global crisis in 2008. Also, it mentions that this gap deepened even more during the last 5 years (3.2% average national annual growth vs 1.6% average manufacturing industry growth). In this way, Econsults highlights, the manufacturing industry is no longer “one of the drivers of economic growth”. The boom of the manufacturing industry in Chile took place during the 70s, when it represented 17% of the economy. Currently, its share is around 10%, having lost share to the mining and tertiary sectors.

Even when the study also reveals that the metal-mechanic industry growth within the manufacturing sector has been better and more stable, this trend is not sufficient enough to reach the performance of the national economy during the last decade (4.3% national annual average growth vs 3.9% of the metallurgic metal- mechanic sector). Econsult considers that these results “are far away from being positive when compared to industrialized countries, or even to emerging countries. The metallurgic metal-mechanic industries is much more important in the rest of the economies (…) It represents more than 50% of the manufacturing industry in the industrialized countries.”

Econsult makes some proposals to make the sector grow.

Currently, 68% of the local supply of metallurgic and metal-mechanic products is imported and just 7% of local production is exported. The real exchange rate is crucial to make this industry competitive, both locally and internationally. Given the dependency of the exchange rate to copper price, Econsult proposes that “estimating in an adequate manner the long-term price of copper is key to correctly stimulate national growth.”

High cost of energy (that for some companies represents 50% of direct costs of production) is another of the great concerns of the sector. “Currently, the price (…) around 175 dollars per megawatt/hour, more than duplicates that of Canada, USA, New Zealand and China and erodes the competitiveness of national products (…) up to 30%”, says the study that after that proposes: “it is urgent to unlock the processing of those projects that improve the energy transmission system (…) At the same time, it is imperative a meaningful expansion of the energy supply”.

Finally, it declares that it is necessary to improve labor productivity by improving education and training, initiatives that require both private and public efforts working together.

About Alacero

Alacero –Latin American Steel Association- is the organization that brings together the Steel Value Chain of Latin America to promote the values of regional integration, technological innovation, corporate responsibility and social and environmental sustainability. Founded in 1959, Alacero is formed by 47 companies of 25 countries, whose production –of about 70 million annual tons- represents 95% of the steel manufactured in Latin America. Alacero is a Special Consulting Organization to the United Nations and is recognized as International Non-Government Organization by the Republic of Chile, host country of Alacero´s headquarters.