Chile: The New Land of Opportunity?

(DiegoSaurius Rex)

Long known as a hotbed of corruption and secrecy, Chile has emerged from the shadows as a legitimate player in the world economy. On January 11, 2010, Chile became the first South American country to join the Organization for Economic Cooperation and Development. OCED’s press release cites Chile’s “…nearly two decades of democratic reform and sound economic policies” as justification for its historic membership. To put it in perspective, Chile is only the seventh country to be admitted to OCED in the last thirty years. It was the culmination of a years-long effort by Chile to demonstrate to the world that it was serious about becoming fairer and more transparent. Since talks between OCED and Chile began in May 2007, Chile has aggressively enacted, “…new laws to end the banking secrecy that provides a shield for possible tax evasion”, while simultaneously allowing prosecutors to investigate and punish companies suspected of bribing foreign officials (a notorious problem in Chile.) Going back even further, the Chilean economy has quietly produced 5% annual growth for the last twenty years, and its, “…groundbreaking pension reforms in the early 1980s have served as a model for many other countries.” OCED also reported the passage of new legislation establishing, “…a clear separation” between the national government and copper mining giant Codelco. No longer do Chilean government ministers sit on Codelco’s board or interfere with its day to day affairs. Consumer protection and competition laws, likewise, “…have been strengthened.” Furthermore, the BBC reports that poverty in Chile has dropped faster than any other nation in the region – 39% of the population twenty years ago to just 14% today. In terms of per-capita income, Chileans enjoy one of the highest standards of living in Latin America. Clearly, Chile has taken the next step in forging an economic identity for itself.

Today, we’ll continue in our series on growing economies by analyzing Chile’s economic landscape – the opportunities, government incentives to producers, fastest-growing industries, and what the future holds.

The Opportunities

In its video covering Chile’s admission into OCED, the BBC confirms that roughly half of Chile’s revenues come from the sale of copper. In fact, Chile alone is responsible for producing one-third of all the copper in the world. So long as China and India continue buying copper to under gird their own expansions, Chile will continue to prosper from specializing in copper production. However, relying so heavily on the sales of a single commodity is dangerous to the economic vitality of a growing country. Fortunately, several other Chilean industries are reporting growth in recent years. At the forefront of these has been tourism. MicroPress.com reported on January 28th the signing of a new law designed to, “…change the face of Chile’s tourist industry by setting standards for operators and guides.” Recognizing tourism as, “…one of the biggest growth industries”, Chilean Economy Minister Hugo Lavados promised that, “…the new law will make 2010 an important year for tourism in Chile.” In 2009, Chile’s tourism industry “…generated nearly 10 billion USD (about 3.5% of Chile’s GDP) and employed an estimated 200,000 people.” ReportLinker.com adds that “…Chile is, along with Mexico, the country with the best tourism outlook for this year, according to the Association of Asian Pacific Travel (PATA).” Following the passage of the new law, Chilean tour operators will be classified and certified by the government as offering safe services to their customers.

(Andrew®)

Chile has also emerged as a major supplier of fruit to the world market. ChinaDaily.com reported in 2009 that Chilean fruit exports to China, “…grew by 68 percent in 2008 compared with 2007, to US$96 million.” Grapes comprised 46% of these exports, while apples accounted for 21%, cherries for 20% and plums for 10%, according to Chilean Agriculture Minister Marigen Hornkohl. While it has historically been difficult for Chile to enter the Asian markets, “…due to cultural differences and geographical distance”, a Free Trade Agreement signed in 2005 has, “…significantly promoted bilateral commercial exchanges” between the two countries ever since. Hornkohl adds that Chile has strive to, “…innovate packing and maritime transportation technologies” to ensure that its fruit exports arrive in good, edible condition. Blueberry production, specifically, is a major growth center in Chile. LatinAmerica-Markets.com writes that Chile is, “…the world’s third largest blueberry producer and is by far the biggest grower in the southern hemisphere”, with the United States importing the most Chilean blueberries per year.

The Incentives to Producers

Economic opportunity in general has been widely expanded in Chile during the last several decades. ReportLinker.com states that Chile’s business environment, “…is the most accommodating in the region, and the government continues to place attracting foreign investment high on its priority list.” The Legatum Prosperity Index reveals that barriers to entry (that is, the number of procedures necessary to start a new business) are “…near the global average with nine formal procedures in place.” Nevertheless, “…more than 25,000 new businesses registered in 2007”, indicating an increasingly frictionless startup climate despite the average number of procedures required.

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Chile has also begun an aggressive campaign to attract technology entrepreneurs. TechCrunch’s Vivek Wadhwa remarked in 2009 that he was, “…impressed with [Chile’s] ability to grow outsourcing from nothing to close to $1 billion in revenue over a mere seven years.” The incentives being offered to tech entrepreneurs are considerable. In exchange for agreeing to invest $500,000 over five years, the Chilean government will grant you a visa allowing you to stay for as long as you’d like – even permanently. Entrepreneurs are required to submit a business plan, but the range of acceptable businesses is wide, spanning medical or biotech products, “green” and “cleantech” products and even, “…online gaming or social network software.” Essentially, anyone who convinces the Chilean government that their venture is somehow technology-driven can qualify. Upon qualification, the government, “…will give you 60% of your due diligence costs, or up to $30,000” to visit and explore the country. Should you decide to re-locate there, another $30,000 will be provided to you for start-up costs. In fact, if a business is willing to locate at one of their designated technology centers, “…the government will pay for 5 years of rent (up to $1 million) or split the costs if you want to locate elsewhere.” Beyond that, $25,000 will be provided for training local employees. Furthermore, if your business decides it needs to import talent from other nations, all you need to do is demonstrate the creation of “a legitimate tech job and they’ll give you a visa, no questions asked.” Such immigration flexibility is unheard of in most developed countries, including the United States.

These and other producer incentives are discussed at length on InvestChile, a website established by the Chilean government for prospective entrepreneurs.

The Future

Chile’s economic future has brightened considerably merely by being admitted to OCED. From now on, Chile will have a seat at the table when free trade agreements and other economic covenants between major economies are up for discussion. The country’s economic fundamentals also appear strong. ReportLinker expects, “…real GDP growth to average a solid 3.4% beyond 2010 through to the end” of a 10 year growth horizon. Unemployment stands at a modest (given the recession) 9%, while inflation has held steady at 4%. Additionally, Chile remains and is becoming an even more attractive foreign direct investment choice. Perhaps most encouraging, however, is Vivek Wadhwa’s characterization of Chile as ,”…a thriving democracy with one of the most open economies in South America” – and his promise that ,”…if I was starting a new tech company and didn’t need to be in any particular area, I’d start it in Chile in a heartbeat.” Thirty years ago, nothing close to that could be truthfully said of Chile. Today, majority opinion mirrors Mr. Wadhwa’s and the numbers are proving it.