Chile — the Singapore of South America - Government Activity - International Pages - Brief Article

Business Asia, Dec, 2000 by Anthony Fernando

CHILE IS often described as the "Singapore of South America", and for good reason.

As many Australian companies are now discovering, the South American country has in recent times done much to attract the attention of the world's business communities.

Recently collated global trade factors found:

* Chile is now ranked as one of the world's most emerging economies, and is in fact currently ranked second after Singapore;

* The Index of Economic Freedom lists Chile in 13th position (Australia sits in ninth spot);

* Chile is currently ranked as the 28th most competitive global economy (Australia is ranked 12th);

* The country has received an Export Finance and Insurance Corporation (EFIC) rating of two; and

* Chile is ranked 18th on the International Corruption Perception Index (Australia is ranked 13th).

Taking all these factors into account, it quickly becomes apparent that Chile is an attractive place to do business.

Chile was the first country in South America to embark on a comprehensive program of deregulation and privatisation.

Most segments of the economy are now in the private sector, and the current Government, led by President Ricardo Lagos, is committed to maintaining the same policy settings that have been so successful for Chile over the past 15 years.

Foreign companies too have been expressing their confidence in Chile through strong flows of foreign direct investment.

In the period 1990-99, Chile received foreign direct investment flows of US$35 billion ($64.5 billion). This investment channelled mainly into the mining, agribusiness, energy, financial services and infrastructure sectors.

As the most open economy in South America, Chile has a low flat rate of import duty. However, from the beginning of next year, the rate of import duty will be eight per cent, reducing by one per cent each calendar year until it reaches six per cent by 2003.

An 18 per cent value added tax also applies to the CIF price of imported goods. Non-tariff barriers are minimal.

Following 10-15 years of sustained strong economic growth, and with a GDP per capita of about US$5,000, the population of 15 million Chileans are considered to have the highest quality of life in South America.

It will surprise many to know that total Australian direct investment in Chile is more than US$2 billion.

The Australian business presence in Chile has traditionally been concentrated in the mining sector, given the importance of mining to the Chilean economy.

There are over 40 Australian companies with registered offices in Chile, mainly based in Santiago. Most of these companies are in Chile to service the needs of the mining industry.

In addition, several other Australian companies have begun establishing themselves in Chile. These include AGL, BRL Hardy, Mildara, Hoyts, Burns Philp, Ripcurl, Sinclair Knight Merz and Mirotone.

In terms of active exporters, there are some 150 Australian companies engaged in regular exports of goods and services to Chile.

Most of these companies are small and medium enterprises servicing niche markets, such as medical and dental products, food processing equipment, veterinary supplies, sports equipment, consumer goods and agricultural equipment.

Although Australian industry capability is still relatively unknown in Chile, Australian companies are generally well received. Many Australian companies make a point of emphasising their Australian roots, as this is considered an advantage.

Chile's business culture is European-based.

The main hurdle is the Spanish language, but as the Chilean business sector becomes more and more sophisticated, so too do the majority of the business community. Many senior Chilean business people now speak fluent English.

The cost of conducting business in Chile is also significantly less than in most other major capital cities in South America. This factor, combined with excellent business infrastructure, makes Chile very competitive.

For Australian companies considering entering Chile, they should be aware there is intense local competition from world class local and international companies.

Chile has evolved into a highly discerning market, demanding the best technology, products and services.

Australian companies can participate in the growth of many market segments, particularly in such areas as ports and harbours, airports, cement, construction and gas industries, environment, specialty foods, automotive after-market, agriculture, education and tourism, outdoor lifestyle products and much more.

To be successful in Chile Australian companies must be able to provide:

* smart/differentiated products and services

* effective in-market presence

* strong personal networks

* minimal Spanish language capability

Without the above, Australian companies could well struggle, But the vast majority of Australian companies which have made the point of fully researching the market and gone on to invest have not regretted it.

ANTHONY FERNANDO, Anthony Fernando is the Trade Commissioner for Austrade Santiago.