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Invest in Chile: The Switzerland of South America

220px-Puerto_Varas_OsornoIf there is a country that an investor should take an interest in it should be Chile. This mountainous country is one of the most politically stable and economically prosperous nations in South America. Chile is leading Latin America in economic freedom, income per capita, competitiveness, globalization and human development.

Sound economic policies kept in place since the 1980’s have contributed to steady economic growth which has allowed the country to reduce poverty by 50%. The country also privatized its pension system so the government no longer has the liability of the retirement of its citizenry. The privatized national pension system (AFP) although compulsory, has encouraged domestic investment and contributed to an estimated domestic savings rate of 21% of Gross Domestic Product (GDP).

It was no accident that in 2010 Chile would be the first country in South America to join the Organization for Economic Cooperation and Development.

220px-Chile_(orthographic_projection).svgThe land area of Chile comprises 756,096.3 km2 (291,930.4 sq mi) making it the 38th largest nation in the world.

The population for 2014 is estimated to stand at 17,772,871. This gives it the 62nd world rank in size. There has been an increase of nearly 1.5 million in 2 years. Population density has reached 22/km2 (56/sq mi).

GDP Per Capita in Chile

GDP Per Capita in Chile

The nominal GDP for Chile in 2013 was estimated to be $277.196 billion USD (United States Dollar). This would be 38th in the world. GDP per capita is $15,791 49th in the world. The GDP (PPP) Purchasing Power Parity in 2013 was estimated to be $335,423 billion USD. This gives it the 43rd position in the world. Per capita PPP stood at $19,105 USD allowing Chile the 55th world position.

Since 2013 Chile has been considered by the World Bank as a high income economy. This makes Chile by any standard a developed country. In 2006 Chile had already become the country with the highest nominal GDP per capita in Latin America.

Santiago Capital Of Chile

Santiago Capital Of Chile

What makes the nation one of the three Jaguars of South America is the rapid expansion of the domestic economy. GDP growth in Chile was 4.2% last year and 5.5% in 2012. In the years 2011 and 2010 growth registered 5.7% for both years.

Chile’s economy at this point is being driven by domestic demand which grew by 3.9% alone last year. Inflation for 2013 was 2.6% and unemployment has now reached a historical low of 5.7%. Exports have surged forward thanks to an increase of trade with China that grew 22% last year from 2012.

As domestic demand is easing, exports for 2013 rose to $78.3 billion USD from an earlier forecast of $77.3 billion USD. It is estimated that exports will rise further in 2014 to $78.4 billion USD.

Imports are usually valued a few billion each year below the export level which allows Chile a trade surplus in normal years of trade.

Chile’s major trading partners are the United States, China, Japan, South Korea, Brazil, and Argentina.

Copper Mining In Chile

Copper Mining In Chile

Copper mining makes up 20% of Chilean GDP and 60% of its exports. Chile has the world’s largest copper mine and overall produces 1/3 of the annual production of copper in the world. Approximately 14% of the central government’s revenue was directly from copper in 2012 and 2013.

Exports account for approximately 1/3 of GDP, with commodities making up some ¾ of total exports.

Due to the recent stabilization of energy prices inflation is due to remain below 3% over the next two years. Unemployment is expected to stay around 5.5% for the foreseeable future as well. Salary increases are moderating to about 4% a year. This is down from the higher rate of 6.2% increase in 2012.

Chilean Coat Of Arms

Chilean Coat Of Arms

The government has renewed its focus on budget balance because spending has increased  5.8% which is somewhat higher than economic growth and a significant change from the previous two years when spending was lower.

The Chilean peso has remained steady in the exchange rate of 530 pesos to $1 USD.

Torres del Paine National Park in Chile

Torres del Paine National Park in Chile

What sets Chile apart from many of its neighbors is in terms of investments. Chile was named the best country in Latin America to do business with by the World Bank in 2013. This was awarded because of the open laws on starting companies and other enterprises. All the paperwork and licensing can be done in a day. Chile also has a lower perception of corruption as viewed by many business leaders.

As one of the nations with the most free trade agreements there are few obstacles to imports and exports for both individuals and businesses alike. Chile joined the United States and 9 other countries in negotiating the Trans-Pacific-Partner trade agreement.

Although less important then it once was, agriculture still employs over 10% of the labor force. Chilean foodstuffs particularly fresh fruits and vegetables are enjoyed in many countries around the world.

Vineyards In Chile

Vineyards In Chile

Tourism is another major growth industry in the country as well, generating billions of dollars domestically and from abroad.

Chile has the highest degree of economic freedom in South America (7th rank worldwide). This is due to an efficient and independent judicial system and the country’s wise management of public finance.

Standard & Poor gives Chile a credit rating of AA-. The government of Chile continues to pay down its foreign debt. The Chilean central government is a net creditor with a net asset position of 7% of GDP at the end of 2012. The current account deficit was 4% in the first quarter of 2013 financed mostly by foreign direct investment.

In 2012 alone foreign direct investment inflows reached $28.2 billion USD. It was an increase of 63% over the previous record year 2011. The Chilean government has followed the prudent fiscal policy of accumulating surpluses in sovereign wealth funds during periods of high economic growth rates and high international prices for copper. Deficit spending is generally only allowed during periods of lower economic growth as well as lower prices for copper. These wealth funds are kept mostly outside the country and are separated from the Central Bank Reserves. In 2013 these funds were worth $20.9 billion USD. These funds will allow Chile to weather most financial and budgetary difficulties that may arise.

Copper prices have declined by about 10% from last year mostly due to slower growth in China.220px-Cerro_Concepcion

As of 2013 Chile has a reserve of foreign exchange and gold valued at over 41 billion dollars. It gives them the 46th rank in the world. External debt did rise from $96 billion USD to nearly $113 billion USD from the years 2012 ans 2013 respectively.

The stock of direct foreign investment rose from $162.5 billion USD at the beginning of 2012 to $192.8 billion USD at the beginning of 2013. Such funds invested abroad were $70.21 billion USD and $91.3 billion USD respectively for the same two years.

What makes Chile especially attractive to investors can best be exemplified by an agency that the government operates there known as the Startup Chile program. It can provide up to $40,000 USD to roughly 300 qualifying entrepreneurs. It is equity free and is to be used to help defray the costs involved in setting up your business in Chile.

220px-BeagleChannelGlacierFlexible immigration laws allows the entrepreneur to import talent and expertise from just about anywhere in the world. This government policy is hard to find anywhere else in the world.

There is a sufficiently large enough domestic market with enough wealth to successfully run a new business. However, there is still less competition in Chile, as the modern economy there, has only recently arrived in the last decade or so.

There are many new relatively small companies in Chile that are looking for investors at very good terms. Most have excellent profit potential.

Chile overall is a place any foreign investor should seriously consider. If one is looking to diversify their portfolio and is interested in profitable venues, it would be hard to find a more welcoming business environment than Chile.



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