2010 is shaping up to be a busy year for those of us involved with foreign investment in Chile, with more and more interest coming from both large and small-scale investors across a wide-range of business areas.
However, 2009 was not an easy year: The world was recovering from a financial and banking nightmare, credit was almost impossible to come by and no one was daring to put their hands into their own pockets. But even though Chile’s economy is so interlinked with global markets, this country managed to ride out the worst of the storm. The Government’s handling of the financial crisis drew admiring glances from many developed nations and the fiscal responsibility practiced- saving almost us$30 billion from soaring copper prices- meant that Chile had a large ‘rainy day’ fund to buffer the economy from the worst of conditions. During the height of the world-wide recession, Chile’s foreign currency government bond rating was actually increased by Moody’s to A1.
There are many, obvious, reasons why Chile makes an excellent investment destination. One of the biggest is that Chile does not conform to the idea that many foreigners have of South America being an unsafe and corrupt part of the world to do business. Chile consistently ranks above France and Spain in Transparency International’s highly-regarded Corruption Perception Index, its police force is honest, trustworthy and capable and there is no everyday, petty corruption such as that which scars the country’s neighbours.
This lack of corruption makes everything easier for the foreign investor. Rules and regulations are easy to follow and will always lead to the expected outcome. Bureaucracy can be hard work to plough through at times, but at the end of the day you will always be able to achieve what you set out to do. This is a huge advantage to both small and large-scale foreign investors and is one of the aspects of Chilean society that is most widely praised by the foreigners with whom I have contact.
Highly regarded economic policy
And this lack of corruption extends to every area of personal and business investment. Chile’s financial institutions are extremely well-regarded. Bringing money into and sending money out of the country is a simple process and foreign investors are treated equally under the law with local Chileans. Chile’s tax regime is extremely efficient and easy to understand.
Chile also has a highly regarded economic policy that has reduced poverty levels over the last 20 years to far below those of its neighbours. In short, Chile is a country that makes foreign investment easy.
For larger-scale investments, I am seeing considerable interest in two distinct areas. Firstly, Chile’s strong retail sector is attracting some major players from overseas. Whether there is an “in” to the market remains to be seen- Chile’s major companies, such as Cencosud and Parque Arauco, have such a strong local presence and have spent years buying up prime real estate locations that it is difficult for new entrants into the market. There are likely to be possible partnership opportunities, but it can be hard for a foreign company to enter the retail real estate market successfully on its own.
Secondly, there are clear opportunities in agriculture. Chile is the Southern Hemisphere’s largest exporter of fruit and the largest exporter of table grapes, apples and cherries to China. Chile is actually the world’s largest exporter of table grapes and plums and is the second largest exporter of avocados. Chile’s climate makes it perfect for the cultivation of a huge range of fruit and vegetable crops and the country is taking full advantage of that by moving into new areas of fruit production in recent times, such as the highly lucrative blueberry and cranberry business.
A huge amount of foreign investment has already been seen in agriculture in Chile. Spanish companies have bought large tracts of land and have been studiously planting olive groves. Mexican avocado producers have also set up in Chile and are exporting ever more of this country’s famous Hass variety avocados.
Probably the agricultural area that has seen the most overseas investment in recent years is the wine business. Some of the world’s best known wineries have invested in Chile, lured by the promise of excellent value land, perfect vine growing conditions and few of the pests and plagues that make cultivating vines in many parts of the world so difficult. Chile now produces some incredible wines, testament to the great strides the industry has taken over the past 20 years and driven by the technical and financial power of foreign companies, coupled with the innate knowledge of the land that local winemakers have.
Corfo, Chile’s development agency, offers considerable subsidies to foreign investors in the fruit, wine and agriculture business which can help offset start-up costs. For foreign companies that introduce new technology to the country, Corfo offers even greater subsidies- a recent example was a us$2 million subsidy given to a fruit company that introduced a high-tech packing and sorting facility that had not been seen before in Chile.
Land of opportunity
And for smaller-scale investors, Chile really is the land of opportunity. In Europe, North America and other industrialised nations it is extremely difficult to have an original idea. And if you do manage to think of something new, it’s almost certainly going to leave you under so much debt that you decide that the risk to your future financial stability is simply too great.
For an individual investor, there are obvious opportunities in tourism, restaurants- particularly in ethnic cuisine- bars, cafes, hotels, residential real estate and small-scale agriculture.
Many foreigners are starting to recognise Chile’s potential in these smaller-scale areas of investment. In Santiago, new bars, hotels and restaurants have been opened by investors from the US, Britain, France and many other countries. I receive more and more enquiries from foreigners who simply don’t have the capital to start a business in their home countries but who see fantastic opportunities in Chile.
And many foreigners who wish to move to Chile don’t actually want to work. They come to Chile looking for a holiday home or somewhere to retire. Chile’s beautiful landscape, fantastic climate, excellent health care, welcoming locals and world-reknowned financial institutions are very attractive to individuals looking for their own piece of heaven on Earth.
Overall, it seems clear that Chile has successfully seen off the worst of the economic crisis of 2008 and 2009 and the country is uniquely placed in South America as an extremely attractive investment destination to both large and small-scale foreign investors.
Matt Ridgway is the founder of Chile Investments, a boutique investment consultancy based in Chile, which focuses on real estate investment in vineyards, fruit orchards and residential and commercial property. For more information, please visit www.chileinvestments.com