A key to Chile’s success throughout the economic downturn has been disciplined adherence to its regulatory standards and laws that have successfully promoted economic stability since their establishment over the last few decades. This conservative approach is evident in the organisation of fiscal accounts, the integrity of the central bank, a monetary policy with a flexible exchange rate, and well-regulated markets.
During the commodities boom in the early part of this decade, Minister of Finance Andrés Velasco anticipated the economic downturn and insisted that the surplus of copper revenues be put into savings rather than immediately recycled. This strategy has minimised the effects of the global recession on the Chilean economy, and has not forced the government to spend any money on bank bailouts. During the high grossing copper production years, Chile settled the majority of its foreign debt and has continued to increase exports, turning its balance of payments positive, which in turn made it a net creditor nation. Because of this financial success, Moody’s Investors Service upgraded the country’s debt rating in March 2009.
Having accumulated over $20 billion in copper savings, Chile has designed an economic stimulus plan to promote growth, create jobs, provide tax breaks and incentives for businesses and invest in public-works projects. In relation to the size of its economy, Chile’s stimulus package is one of the largest in the world, equaling 2.8 percent of the GDP compared with two percent in the US.
The nation’s firm commitment to regulation ensures a stable economic environment for foreign investors. Moreover, investors have unfettered access to major world markets due to favourable foreign trade policies instituted in the 1990s and free trade agreements with countries that constitute 90 percent of the world’s GDP.
Chile has implemented sound economic policies and promoted comprehensive investment strategies across multiple industries, significantly reducing risk through sector diversification. Even though copper remains the primary export, Chile has focused on growing a number of industries, including aquaculture, agribusiness and global services. Additionally, Chile, to support long-term, sustainable economic development, has structured related industries into clusters, in order to better integrate the public and private sectors and enhance growth.
Within Latin America
Chile is the sixth largest economy in Latin America in terms of GDP ($169.5bn EIU 2008). With a population of just 16 million people, Chile’s population is 1/10th the size of Brazil and less than half of Argentina. Despite this, it has the largest GDP per capita in Latin America ($14,493, EIU 2008), easily surpassing giants in the region. Chile also boasts the most advanced and well-developed high tech infrastructure and educational institutions in Latin America. Additionally, 50 percent of the population has access to the Internet and cell phone penetration is in excess of 90 percent.
In terms of regional cost of living, the Economist Intelligence Unit’s 2008 Latin America cost of living index ranked Santiago fifth out of fourteen cities in Latin America behind Rio de Janeiro, São Paulo, Bogotá and Mexico City.
Stability
Chile’s economic behaviour has been consistent for the past twenty years; foreign exchange, inflation, tax and growth rates have all, on average, trended favorably. Furthermore, employment and production rates show the country’s advancement.
Foreign exchange rates are highly correlated to the price of copper and have remained steady because of the central bank’s commitment to keeping the exchange rates sound. The bank maintains a conservative monetary policy based on a fixed inflationary goal.
Over the past two decades, the average inflation rate has been 4.5 percent.
Chile has one of the lowest tax burdens in the region, and has special regulations for financial services, which permit foreign companies to use Chile as a hub to access other regional markets, taking advantage of the free trade agreements that the country has with the key players in the financial services industry.
In order to enhance the stability of the economic system the government and regulatory authorities continue to review and strengthen the standards and implement additional regulations to support the development and expansion of the capital markets.
Chile is attracting financial services corporations like Citibank, JP Morgan and Equifax with its highly capable talent pool. Citibank sold its banking operations in Latin America but kept its Chilean IT shared services office because of its notable efficiency. Despite being hard hit by the crisis in the US, JP Morgan increased the size of its Chilean IT shared services division because of its impressive productivity.
Having found that Chile is home to exceptionally talented programmers and engineers, Equifax opened an R&D facility focusing on credit risk analysis development. Every year, Chilean universities graduate more than 17,000 students with business and economics degrees, who are then placed with leading financial services firms.
Foreign investors
One of the biggest differences between Chile and many other Latin American countries is its mature, stable, free-market economy.
Historically, Chile has sought out FDI to supplement its organic economic growth. As a result, Chile understands the benefits of partnerships with foreign investors and strategically pursue opportunities.
In this regard, the Chilean Economic Development Agency (CORFO), through the InvestChile program, has played a critical role in supporting investment essential to the country’s economic growth. Established nine years ago, InvestChile has been instrumental in providing support to companies establishing a variety of KPO, ITO, and BPO centers of excellence in Chile and is fully equipped to introduce foreign investors to the local market, and will assist with any administrative needs, in addition to providing financial assistance through its generous incentive program.
To further encourage FDI, InvestChile developed the National Registry of Individuals with Advanced English Language Skills, which was the first of its kind in the world, and includes over 37,000 English speakers accredited to international standards (TOEIC-Test of English for International Communication).
This registry is available to foreign companies setting up in Chile who wish to hire workers in various fields with a particular level of English. Additionally, a scholarship program has been established to further improve and promote English skills to increase the capabilities of the highly skilled talent pool.
According to IDC, Chile had over $840 million in global services exports in 2008, a number expected to increase to $1 billion by 2010. With tertiary education a national priority, the labor force is highly capable and is prepared to provide world-class support for new foreign investment projects and initiatives.
Companies like Citibank, JP Morgan, Capgemini and Shell have had success in Chile, taking advantage of government support, a stable economy and capabilities that are an integral part of the country’s business framework.
Cost effective
There are a number of reasons that investment in Chile is highly cost effective:
Chile’s economic stability offers predictability and greatly enhances investors potential RoC.
Chile’s low risk, stable economy and transparent business environment mitigates a number of the traditional risk factors and costs, often intangible, inherent to most of Latin American and other countries. As a result, companies and investors benefit from a lower total cost of investment in Chile.
Chile enjoys incredibly low workforce turnover in most sectors and boasts a well-educated and highly skilled talent pool. Due to the strength of Chile’s academic institutions and strong partnerships with the private sector, overall training costs tend to be low and Chilean businesses benefit from the increased operational productivity that accompanies employment continuity.
Chile boasts the most developed and scalable infrastructure in Latin America, with comprehensive fiber optic networks that meet and exceed global standards. As a result, companies can begin operations in significantly less time, with substantially lower costs.
Chile has signed Free Trade Agreements with most of the developed world, allowing for companies to easily export goods and services to all major markets.
Financial incentives
CORFO created the InvestChile program in 2000 to proactively seek out and support foreign direct investment across a number of sectors in Chile through incentives and services, as well as comprehensive information and assistance. InvestChile serves as a liaison between business and government institutions, arranging meetings for service providers and suppliers and connecting investors and key government members. Tax exemptions for services are available throughout the country (if the services are being exported to other markets) while tax exemptions for goods are available in designated free trade zones.
Additionally, InvestChile offers a series of grants to aid foreign investors, ranging from funding project launch assistance to training new employees to supporting the acquisition of equipment, infrastructure and property assets.
Prospective investors who would like to research specific industries and the related business environment in Chile are eligible to apply for a pre-investment grant, which covers up to 50 percent of their research costs (up to $30,000). InvestChile can also facilitate meetings with executives in similar industries and assist in finding optimal locations for specific business operations.
In Chile, foreign and domestic companies have the same rights and are required to follow the same regulations. There are certain rules pertaining to the hiring and firing of an employee, but these rules apply to all companies, regardless of nationality.
In summary, Chile is one of the most developed economies in the region, with a strong commitment to democratic governance, a stable, free market economy and well-developed, high-tech infrastructure and institutions, making it one of the most attractive up-and-coming offshore destinations in the world.
For further information www.investchile.com
