The Chilean government is positioning the country as a business platform into South America. Partnering with Chilean companies could be a good option for New Zealand companies wishing to expand further into South America. The country's political and economic stability, coupled with sound legislation, continue to provide a secure investment climate.
Chile is New Zealand's 57th most significant export destination and 49th largest source of imports. In 2011, New Zealand companies' exports to Chile were valued at NZ$62 million, mainly agriculture and food processing machinery, dairy products, seeds, fruit and spores.
In November 2006, New Zealand, Singapore, Brunei and Chile ratified a strategic partnership agreement, known as the Trans-Pacific Partnership (TPP), to improve market access and encourage the development of partnerships and joint ventures.
Chile is the only South American country New Zealand has a double taxation agreement with which, combined with low in-country tax rates, makes Chile a highly appealing investment base from a tax perspective.
Chile is a founding member of the Pacific Alliance, signed in June 2012, along with Mexico, Colombia, and Peru. The Pacific Alliance is an economic integration initiative between the four countries. New Zealand is an observer which is one of the mechanisms in which New Zealand can engage with those countries and as a result it can open doors for New Zealand by being part of one of the world's most dynamic economic blocs.
Facts about Chile's economy
- Chile has the highest foreign business presence in Latin America due to its investment friendly environment, coupled with opportunities in the natural resource sectors.
- FDI is greatly encouraged in Chile. Money invested in Chile can be repatriated after one year with no restrictions on exchange rates. In 2012, foreign investment in Chile reached US$30.3 billion, a record level. The inflow in 2012 was 30% percent higher than the previous year.
- Chile claims to have more bilateral and regional trade agreements than any other country. It has 58 such agreements (not all of them full free trade agreements (FTA)), including with the European Union, United States, the Mercosur group of countries, China, India, South Korea, Mexico and Australia.
- Chile is a mining country, mostly copper. Mining and the wider industrial sector contributed 52.7 percent to Chile's GDP, followed by services at 43 percent and agriculture at 4.3 percent.
- Chile is becoming an aging society - with fertility below replacement level, low mortality rates, and life expectancy on par with developed countries. Most of Chile's small but growing foreign-born population consists of immigrants from other Latin American countries, especially Peru.
Opportunities for New Zealand business
New Zealand's pastoral-based farming systems are relevant to Chile, especially in the central regions focused on dairy and beef farming. Chile also has a sheep industry, located in the extreme southern region of Patagonia, the Magallanes region, although there is interest in intensifying production further north. Other significant agricultural activities in Chile include horticulture and viticulture. As New Zealand is seen as best practice in agriculture, there are opportunities for New Zealand products and services.
The dairying regions in central Chile are an excellent climatic match for New Zealand-style farms, with the main difference being wetter winters and more variable temperatures. Soil fertility is also much poorer than in New Zealand. The Chilean dairy industry is characterised by a mix of high-tech and low-tech farms using a mix of confinement and pastoral systems. Most production is based on dual-purpose animals, grazed very extensively on low productivity pastures in the south.Chile's milk production has more than doubled over the last 20 years to 2.35 million tons (40th in the world).
There are opportunities for New Zealand companies in animal health, farm equipment/machinery, animal management, seeds, genetics, effluent management, food processing technology, training and consultancy.
There are no restrictions on foreign land ownership, and property rights are considered to be the most secure in South America.
Unlike its regional neighbours, Chile has limited indigenous fossil fuel resources and imports approximately 75 percent of all the energy it consumes. This places Chile in a vulnerable position, especially as demand continues to increase due to economic growth and the expansion of high consumption sectors like mining.
Chile has abundant renewable energy resources (hydro, geothermal, solar, wind and biomass) and is interested in developing these to improve energy independence and have a cleaner electricity matrix. In Chile there is a special distinction for "Non-Conventional Renewable Energy" (NCRE), which includes all renewable energies apart from hydro larger than 20MW in scale.
In order to incentivise the development of NCRE the Chilean government passed a law in 2007 which established that NCRE had to make up at least 5% of generation, with penalties to the generators for non-compliance. Under this current law the rate will gradually increase to 10% by 2024, although there is currently a project in congress which aims to increase the rate to 20% by 2020.
During 2012, 165 MW of NCRE was connected to the grid, with total NCRE capacity at 876MW, a 23% increase compared to 2011. Installed NCRE capacity now represents 5.06% of the total electricity generation and majority coming from biomass (45%), mini-hydro (32%) and wind (23%). There is a small pilot solar project now installed (3.6MW) and significant geothermal resource potential. The Chilean Centro de Energias Renovables (CER) predicts by the end of 2013 Chile will have an installed capacity of 1,000-1,200MW NCRE.
In terms of geothermal resources, Chile is located on the Pacific Ring of Fire and has significant potential, although there is currently no installed capacity. There are a number of key global developers currently carrying out exploration in Chile however, and the government has awarded 76 exploration permits and 6 exploitation permits since the geothermal law was passed in 2000.
The most common barriers to renewable energy development include the high cost of the initial investment, the limited possibilities for financing, difficulties in the access and connection to transmission lines and in signing long-term contracts. (Source: National Energy Strategy 2012 -2030, Ministry of Energy - www.centralenergia.cl ).
Chile's agriculture and food industries are unique due to the extremely diverse environmental and climatic conditions found in the country. Chile's high quality standards have helped it to emerge as one of the main exporters of fresh fruit in the southern hemisphere. Chile also processes and exports a variety of food products including canned, dehydrated and frozen fruit and vegetables, juices, fruit pulps, seeds, olive oil, wines, seafood, beef, pork, lamb and poultry, as well as a variety of dairy products.
Chile is a mining country. Mineral exports from the northern regions, predominantly copper, represent close to 50 percent of national foreign exchange earnings. The price of copper is the third most relevant economic variable for the Chilean economy, after interest and exchange rates. The existence of vast ore deposits and reserves, along with a favourable legal framework for investment, offers stability, equality and legal protection to both domestic and international investors, which has enabled the country to attract large multinational mining companies. According to the Sociedad Nacional de Minería F.G., there are approximately US$100 billion worth of projects planned in the mining sector, between 2012 and 2020.
The retail industry in Chile in 2010 was worth US$45.5 billion which represents approximately 22 percent of Chile's total GDP of US$203 billion. The major retail groups in Chile are Cencosud, Falabella and Ripley which have expanded beyond Chile into the South American region. Today these retail chains have a presence in Peru, Argentina and Brazil and are quickly taking positions in Colombia. Walmart is also present in Chile through the chain of Lider supermarkets it acquired in 2009.
Chile currently spends approximately 7 percent of its GDP on health care. Of that total, an estimated US$1 billion finds its way annually - either directly or through a health insurance company - into the hands of a private healthcare provider, be it a clinic or an outpatient centre. In the coming years, that amount is expected to increase at a rate well ahead of GDP growth.
In 2013 the Chilean Government will invest US$620 million in the construction and equipment of hospitals, including technological renewal, infrastructure development and modernisation. This represents almost a duplication of the annual investment budget for the health sector in six years. The government healthcare reform plan aims to increase efficiency levels and to modernize infrastructure and services to reflect users' demands.
Chile is nearly 100 percent reliant on imports in the medical supplies and equipment market and has an established national agenda for IT services in the health industry. The Chilean market for medical equipment and instruments is relatively small, with imports that amounted to approximately US$260 million (CIF) in 2010.
Information, Communications and Technology
Chile has strengths in this sector within the region due to high penetration rates of telecommunication services, a favourable business environment and positive government initiatives.
Mobile telephone subscriptions have risen 76% from 2006 to 21.5 million in 2012. Internet users have risen from 34.5 per 100 inhabitants in 2006 to 47.1 in 2011, with the number of users predicted to continue growing due to rising incomes and dropping access prices.
Chile's economic strength and positive business environment encourages investment into infrastructure and technological solutions and there are opportunities within the public safety, first responder, telecommunications, utility and energy sectors, with New Zealand companies considered to have attractive products and service offerings.