Chile’s Foreign Investment Success
Chile has recorded an impressive economic expansion during the last three decades. Foreign direct investment (FDI) has been an important part of that growth with large investments in mining, infrastructure, agriculture, financial services, renewables, and technology.
Chile has taken advantage of foreign investment to grow its domestic industry and there are some very interesting real-world examples.
- Chile tripled its copper output between 1990-2016, reaching 5.5 million tons in 2016, making the country the world’s leading producer, accounting for 30% of total production.
- Chile has over 388,350 hectares of fruit orchards compared to 308,445 ha in 2007. It has become the largest fruit exporter in the world to China.
- Chile took first place out of 108 emerging economies and 29 developed countries in the Climatescope 2020 report of Bloomberg New Energy Finance making it the most attractive market to invest in renewables.
- Chile transformed its infrastructure with USD$11.5 billion in PPP investment in the country between 1995 and 2008. The country boasts some of the region’s best infrastructure as a result.
Foreign companies investing in Chile bring some important benefits to the country such as the transfer of technology, employee training, and corporate tax revenue. This in turn has led to the growth of new industries. Some great examples include –
- The Chilean mining technology sector which was small 10 years ago but has seen incredible growth over the last few years. This new sector is now starting to export on a global scale. Many of these new companies have been started by founders that previously worked for the international mining companies or mining suppliers that had been active in Chile.
- Start-Up Chile (SUP), a public startup accelerator launched by the Chilean government in 2010 has been a huge success. As of 2018, Start-Up Chile has accelerated more than 1,600 companies from 85 countries—notably around 3x more foreign companies than Chilean companies have participated. The program has changed the technology scene and today it is safe to say that there are some tremendously successful companies that are coming out of Chile.
What are the statistics regarding the benefits that foreign direct investment has had on the country?
InvestChile recently releases a report called “Caracterización y efectos en la Economía de la Inversión Extranjera en Chile” (The Nature and Impact of Foreign Direct Investment in Chile). The Spanish Version can be found here. The report outlines seven key ways in which foreign investment has impacted the growth of Chile’s economy:
- Tax Contribution – Foreign companies pay 51.4% of the total tax collected in Chile, despite representing only 10% of taxpaying entities in the country.
- Promoting Investment – Foreign companies represent 40% of annual production investment in Chile. On average, 71% of international investments is allocated to production investment.
- Jobs and Income – Foreign companies are responsible for more than 1.3 million formal jobs, which represents 30% of the workforce. The average salary is CLP$1,044,259, which is almost CLP$300,000 more than the salary average for domestic companies.
- Project Building – Around 54% of the large foreign capital companies in Chile have entered the country by creating projects from scratch (i.e., greenfield investments).
- Boosting International Trade – Foreign investment companies account for 65% of the total exports of Chilean goods and 85% of services.
- Promoting R&D Investment – Foreign companies greatly exceed domestic companies in R&D activities (35.5% foreign companies vs. 27.1% domestic). Additionally, about 57% of the companies indicate that there is an explicit transfer of R&D from the parent company to its Chilean subsidiary.
- Training – Large international companies allocate an average of 10.4% of their investments to worker training.
There is no doubt that foreign investment has helped Chile grow signifcantly over the last 30 years. The country boasts a wide network of free trade and double taxation agreements that make it very attractive to investors.
The various governments over the years deserve credit for creating favorible conditions for foreign investment. The Chilean citizens deserve an applause for taking advantage of the opportunties and creating a skilled workforce. Foreign companies deserve a standing ovation for investing in the country.
Chile is still building a more inclusive country but there is no doubt that the country will continoue to grow and adapt. The country has a great foundation. More importantly, the country is built for the future with favourible outlooks for sectors such as copper, lithium, renewables, and hydrogen.
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