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3.1 An Overview of the Chilean Economy

Major Macroeconomic Indicators

 

2005

2006

2007

Population (million of inhabitants)

16.3

16.4

16.6

Gross domestic product (US$ billion)

119

146

163

Real GDP growth (%)

5.7

4.3

5.1

Consumer prices (year-on-year % change)

3.7

2.6

7.8

Exports of goods, FOB (US$ billion)

41.3

58.5

67.6

Imports of goods, FOB (US$ billion)

30.5

35.9

44.0

Average exchange rate (Chilean peso per US dollar)

560

530

523

Source: Central Bank of Chile, National Statistics Institute (INE)

Having grown at a year-average of over 5% between 1990 and 2007, Chile, the freest economy in Latin America, offers not only a stable macroeconomic environment – the highest per-capita GDP[1] and the lowest average inflation rate among major Latin American countries – but also steadfast business prospects for foreign traders and investors. Inhabited by a population of only some 16 million, the Chilean market itself, however, is small relative to neighbouring countries such as Argentina and Peru. But thanks to its open economy and liberal trade regime, Chile has established an extensive network of FTAs and preferential trading arrangements, affording it preferential market access to nearly 90% of the world’s GDP and four billion potential consumers. Being a natural resource-rich country, staples of Chile include minerals, fresh fruits and vegetables, seafood and wine. On the other hand, unlike other emerging markets in Latin America, market informality is relatively low in Chile. It is estimated that the “grey” or “underground” economy accounts for only some 15% of the country’s official GDP, compared to 30% in Brazil and over 25% in Argentina. This level of informality is considered to be one of the lowest in the Latin American region, thanks to Chile’s liberal and open trade policy.

Accounting for about 60% of its total exports, copper has always been Chile’s most important export category. Other major export categories include food, basic metals and chemicals, forestry products, furniture, wood pulp and fruit. Regarding imports, aside from oil and other combustibles, transport machinery and equipment (mainly used for agriculture, fishing and forestry production) tops Chile’s import list. Also noteworthy is that an evolving wealth-induced and credit-fuelled consumption spree in Chile has pushed up Chile’s imports of consumer goods. Accounting for over one-fifth of the total imports, consumer goods surged by 132%, or a compound annual growth rate (CAGR) of 23% from US$3,899 million in 2003 to US$9,060 million in 2007.

 

Important Industries in Chile

Mining

Recognised as the mining capital of Latin America and the world’s leading producer of copper, lithium, iodine, rhenium, potassium nitrate, sodium nitrate, molybdenum, borate and silver, Chile’s economic development depends largely on its mining sector. As a consequence, Chile’s overall trade profile has traditionally been dependent upon copper exports. The state-owned firm Codelco is the world’s largest copper-producing company, with recorded copper reserves of 200 years.

Agriculture and Mariculture

Apart from mining, Chile has made efforts to expand non-traditional exports and diversify its export product mix. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood and wine. Thanks to its unrivalled geography, agricultural products are protected from potential pests and diseases, making Chile a world leader in the production of processed fresh fruit and vegetables. Besides, Chile has successfully developed itself into a leading supplier of salmon[2] and trout. According to the Chilean fishing industry, Chilean salmon can reach full size and be ready for harvest six months earlier than other salmon in the world, due mainly to the favourable temperature and acidity of the Chilean waters as well as its inimitable expertise in mariculture. Other most exported products include fish meal, mackerel (canned or frozen) and sea urchins.

Wine-growing

Moreover, one cannot talk about Chile without mentioning its mellow wine. In fact, Chilean wine is no stranger to wine consumers worldwide. Nowadays, Chile is not only the leader among wine producers in the “new world”, but also the most powerful challenger to those producers in the “old world” such as France and Italy. In Chile, most vineyards are located in the Mediterranean valleys of central Chile, and extend from the IVth through VIIIth regions to include metropolitan Santiago. These vast valleys offer an ideal combination of the soil, sunshine, temperature and humidity that make it possible to grow grapes to produce world-class wine. Currently, Chile is estimated to have more than 275,000 acres of wine grapes planted, 76% corresponding to production of red wine and 24% to white wine. Product-wise, major vineyards in Chile are used for the production of red wines such as Cabernet Sauvignon and Merlot. In fact, although Cabernet Sauvignon remains Chile’s most important wine product, Chilean Chardonnay and Sauvignon blanc are gaining recognition and awareness in the international wine market.

Regions and Free Trade Areas[3]

Chile is divided into 15 regions, numbered I to XII, RM and XIV to XV.  Home to nearly 40% of the total population, Santiago Metropolitan Region (Región Metropolitana de Santiago or RM) is the most densely populated zone in Chile. As far as trade is concerned, Region I and Region XII are also important, where the two free trade zones, namely the Free Zone of Iquique (ZOFRI) and the Free Zone of Punta Arenas (PARANEZON), are respectively located. Riding on the large pool of consumers and advanced logistics facilities, Bío-Bío (Region VIII) and Valparaíso (Region V) are also worth noting.

Population Distribution in Chile, by Region


Region

Name  

Capital  

Population

 

I

Tarapacá

Iquique

293,200

 

II

Antofagasta

Antofagasta

554,800

 

III

Atacama

Copiapó

274,400

 

IV

Coquimbo

La Serena

687,700

 

V

Valparaíso

Valparaíso

1,701,300

 

VI

Libertador G. B. O'Higgins

Rancagua

857,700

 

VII

Maule

Talca

983,400

 

VIII

Bío-Bío

Concepción

1,996,100

 

IX

Araucanía

Temuco

945,500

 

X

Los Lagos

Puerto Montt

805,000

 

XI

Aisén

Coihaique

101,500

 

XII

Magallanes y de la Antártica Chilena

Punta Arenas

157,000

 

RM

Región Metropolitana de Santiago

Santiago

6,676,700

 

XIV

Los Ríos

Valdivia

375,200

 

XV

Arica-Parinacota

Arica

188,500

Source: INE (estimated at mid-2007)

Remarks: The Los Ríos Region was formerly part of the Region X (Los Lagos) and started functioning on October 2, 2007, while the Arica-Parinacota Region was previously part of Region I (Tarapacá) and became operative on October 8, 2007.

Santiago

Located in a valley of the Andes, Santiago is the capital as well as business hub of Chile. With over 40% of the country’s population, the greater metropolitan area of Santiago accounts for almost half of the production activities in Chile. More importantly, it presents the largest consumer market in Chile for Hong Kong traders for its higher-income class is the biggest throughout the country. These higher-income consumers have strong demand for various kinds of consumer goods, including consumer electronics, garments, footwear, toys and watches. Aside from being a consumer base, Santiago has the most modern retail landscape in Chile, where most pricey and chic shopping malls, department stores and chain stores are clustered. It contains 17 out of a total of 43 shopping malls in Chile, reflecting the flourishing of modern mode of retailing in the area.

In addition, Santiago has the most advanced transportation and telecommunications infrastructure in Chile. It contains the country’s busiest airport, Arturo Merino Benítez (AMB) airport, which is considered one of the best airports in Latin America, and is only two hours’ drive from the country’s most advanced and important trading ports for consumer goods – the port of San Antonio and the port of Valparaíso. Furthermore, Santiago is dubbed as a “wired” city, with the highest mobile telephone, computer and internet penetration in Latin America. This looks set to oil the wheels of business communications. Riding on its strategic position and network of preferential trade agreements with other neighbouring countries like Peru, Bolivia and Argentina, Santiago has attracted many prominent companies, such as Packard Bell, IBM, HP, Panasonic, LG, Zurich, Dodge Mining Services, Procter & Gamble and Nestlé, to set up production facilities, headquarters and representative offices to serve the regional market.

Free Trade Areas – ZOFRI and PARANEZON

There are two free trade zones in Chile: the Free Zone of Iquique (ZOFRI), Region I, in the far north, and the Free Zone of Punta Arenas (PARANEZON), Region XII, in the far south. ZOFRI encompasses the free ports of Arica and Iquique, while PARANEZON also has a free port. Each free trade zone is equipped with manufacturing, packaging and transportation facilities. The benefits that traders and manufacturers can enjoy in the free zones include not only exemption from VAT and import duties, but also part of the corporate profits tax. For years, Chilean small- and medium-sized enterprises (SMEs) have used the free trade areas to develop their connections with foreign traders on both the import and export sides, while many foreign companies, including many from Hong Kong, have used these free trade areas to distribute goods to Chile and countries nearby.

The free trade areas offer a number of opportunities for Hong Kong companies. First of all, Chile’s free trade areas have advantages in location, linking the Pacific Ocean on one side with the rest of South America on the other. Products from Asia can reach Chile’s ports and be re-exported to other South American countries. In fact, Chile’s free trade areas are designated in the coastal areas to tap this opportunity. Besides, Hong Kong companies can use the warehouses and transportation facilities there to help reduce the delivery lead time to match up better with their market penetration strategies for and respond swifter to feedbacks from neighbouring markets.

In addition to the re-export opportunities, the Free Zone of Iquique (ZOFRI) is a major shopping place in Chile. The ZOFRI Shopping Mall is the only tax-free mall in Chile. Each year, it attracts millions of visitors to shop at its 400 stores for consumer goods including electronics, clothing, household appliances, textiles, toys and footwear. According to preliminary sales estimates, ZOFRI sales more than doubled between 2003 and 2007. Nowadays, China (including Hong Kong and Taiwan) is by far the most important supplier, accounting for over 40% of the total sales carried out there. Free trade zones are good places for gathering and responding to feedback from buyers of the countries nearby including Argentina, Bolivia and Peru.

Others

Other places to which Hong Kong companies should pay attention include Region V (Valparaíso) and Region VIII (Bío-Bío). Two hours’ drive from Santiago, Region V is considered the second most important area in Chile in terms of commercial business. It contains not only tourist beaches for people to visit in summer, but also the busiest trading ports for imports/exports, namely the port of San Antonio and the port of Valparaíso. Region VIII (Bío-Bío), on the other hand, is an industrial and forestry region which is the second most densely populated area in Chile, inhabited by nearly two million people.

Chile as a Liberal Market with an Extensive Web of FTAs

According to the Heritage Foundation, Chile was the third freest economy in the Americas in 2007, behind only the US and Canada. Embracing a liberal trade regime, Chile also tops trade freedom rankings in the region. In tandem with its openness, sustained economic growth and increased cooperation with other countries, Chile’s trading relationship with the world has strengthened in recent years. During the period 2003-2007, Chile’s external trade soared by 183% from US$40 billion to US$112 billion, demonstrating a CAGR of 29%.

Over the last 20 years, the Chilean government has strived to develop an extensive web of FTAs with a range of partner countries in the Americas, Asia, Europe and the Pacific region. Specifically, it has negotiated FTAs with the US, EU, Bolivia, China, Canada, Central America, Colombia, Ecuador, Japan, Mercosur (Argentina, Brazil, Paraguay, Uruguay and Venezuela), Mexico, Panama, Peru, South Korea, the Pacific-3 (New Zealand, Singapore and Brunei) and the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland). Meanwhile, Chile has also concluded partial trade agreements with Cuba and India, and is currently negotiating FTAs with Australia, Malaysia and Peru. Together with its accommodating trade regime, advanced logistics and close connections with neighbouring countries, Chile can serve as a superb distribution hub for Hong Kong products (most of them are “made-in-China” by Hong Kong companies) targeting various markets in South America.


[1] According to the IMF, Argentina, Brazil, Chile and Mexico were estimated to have per-capita GDPs of around US$6,300, US$6,800, US$9,700 and US$8,400, respectively, in 2007.

[2] While Norway continued to lead the world’s salmon industry with a 723,200-tonne harvest in 2007, Chile maintained its status as the world’s second-largest salmon-producer with a harvest of 358,900 tonnes.

[3] Please refer to Appendix 3-1 for a map of Chile.

Content provided by Hong Kong Trade Development Council
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