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Chile: A Reliable Partner for U.S. Business
by the U.S. Commercial Service, Santiago
U.S. Department of Commerce
An
Anchor of Stability in Latin America
Chile's GDP will expand 3.1 percent in 2003, according
to forecasts by the International Monetary Fund in its
latest World Economic Outlook. The same report
scales Latin America's growth rate down to 1.5 percent
from 3 percent. In a context in which "Latin America,
as a whole, experienced in 2001–2002 its worst
downturn in two decades, and prospects are still uncertain,"
the IMF estimates that Chilean GDP will grow 4.8 percent
in 2004, thanks to an economic performance "underpinned
by generally sound policies and high degrees of integration
with the world economy."
From deserts in the north, through the majestic Cordillera
with the tallest peak in the Western Hemisphere at 22,000
feet, to the arctic conditions of Tierra del Fuego, Chile
is one of Latin America's most dynamic and promising markets.
Its strength and attractiveness lie not in its size (population
of 15 million people) but in the energy and professionalism
of its entrepreneurs, the transparency of its regulation,
and the predictability of its decision-makers. Market-led
reforms adopted close to 30 years ago and an increasingly
diversified economy with strong ties to buyers and suppliers
in the Americas, Europe, and Asia have given Chile a wide
range of options for sustained growth. Prudent economic policy-making
has secured long-term stability unknown elsewhere in Latin
America.
This article presents 12 of the most promising industrial
and service sectors of this diverse economy. The latest Country
Commercial Guide for Chile provides detailed information
on how to do business in Chile and is available at www.buyusa.gov/chile/en.
SSA
to Operate at Chilean Port
With over 3,000 miles of coastline, Chile is a "seaport
country." Stevedoring Services of America (SSA)
saw an opportunity in May 2002 to provide cargo container
services in Chile and found a local partner to bid on
and win a concession for the rights to operate in the
Port of San Antonio and San Vincente in Chile. Thanks
to SSA's efforts and the assistance provided by the
U.S. Commercial Service in Santiago, SSA now operates
the largest volume container port in Chile—surpassing
older and better-known neighboring ports.
On
top of SSA's new $6-million crane, left to right: Commercial
Service staffers Mary Lou Lathrop, Americo Tadeu, and
Jim Rigassio with Peter McGivern, general manager of
SSA Chile.
Photo
courtesy of U.S. Commercial Service, Santiago.
BILATERAL
TRADE
U.S. exporters have over the past 10 years shipped as much
merchandise to Chile as they have to India (a nation of 1
billion people). Chileans, on a per-capita basis, buy two
and three times more U.S. products as the average Argentinean
and Brazilian, respectively.
The United States has enjoyed a $500-million surplus in services
trade with Chile over the last two years. U.S. private services
exports to Chile in 2001 and 2002 totaled approximately $1.3
billion, whereas U.S. services imports from Chile were about
$800 million. Business opportunities are available within
the following service sectors: finance, insurance, telecommunications,
education, law, accounting, advertising, engineering, express
delivery, and investment.
SUSTAINED
ECONOMIC GROWTH
Chile is the only investment-grade economy in South America.
In January 2003, Standard & Poor's gave Chile an "A-"
rating. Over the last 15 years, Chile has witnessed the most
impressive real growth rates in its history. From 1987 to
1997, the country's GDP grew an average of 7.9 percent. While
the world economy entered recession, the Chilean economy managed
to grow at an average of 2.6 percent from 1998 to 2002. The
government of Chile and several independent economists estimate
the economy will grow 2.5 to 3.5 percent in 2003.
The domestic savings and investment rate has hovered at 20
percent of GDP and is fueled by private pension funds created
in 1981. International reserves remain constant at just above
$15 billion, which enables the government of Chile to maintain
its policy of a structural budget surplus of 1 percent.
A strong, independent central bank maintains prudent fiscal
management that keeps the country's inflation within a target
range of 2 to 4 percent. The 2002 rate of inflation was 2.8
percent. The latest unemployment figures for April 2003 came
in at 8.2 percent, lower than the same period for last year.
Single-digit employment rates in Chile are the envy of Latin
America—a region that struggles with unemployment double
or triple the Chilean rate.
Lenel Markets via U.S. Commercial Service
In
March 2003, the Commercial Service in Santiago organized
a single company promotion for Lenel Systems International,
Inc., of Rochester, N.Y. The event, held over breakfast
at a Santiago hotel, included more than 30 guests invited
for their interest in Lenel's state-of-the-art automatic
identification and access control integration software.
Todd Smith, Lenel's vice president of international
sales, and Victor Merino, Lenel's sales director for
Latin America, were very impressed with the event. Todd
Smith wrote in a follow-up e-mail: "Yes, the promotion
was a great success. We had about 30 prospects in attendance.
We did write almost immediately approximately $50,000
in business (some of the orders arrived within a day
of the seminar), thanks to your efforts in conjunction
with our local partner. More importantly we have been
able to prospect some substantial projects worth approximately
$250,000, which we are actively working on. That is
in addition to the marketing goodwill the program has
provided, which is as you can appreciate difficult to
estimate in tangible terms. The professionalism and
prestige afforded by our association with the U.S. Commercial
Service has helped us in many areas of the world including
Santiago. Lenel will continue to include Commercial
Service resources as a valuable plank in our marketing
platform."
U.S.-CHILE
FREE TRADE AGREEMENT
The United States and Chile concluded a free trade agreement
(FTA) in December 2002. The FTA text is currently being prepared
for signature by both countries. Expectations of the agreement
remain positive. Although the United States remains Chile's
most important trading partner, U.S. good and services have
lost market share among other trading partners that now benefit
from trade agreements with Chile. Chile has free trade agreements
with Canada and Mexico, the United States' two NAFTA partners,
as well as with the European Union and South Korea, among
others. The government of Chile remains active in negotiating
other trade agreements around the world. Therefore, a U.S.-Chile
free trade agreement, once approved by Congress, would put
U.S. exporters on equal footing to enjoy very low import tariffs
on most products. (Currently, U.S. exporters face a 6-percent
tariff.) The full text of the FTA can be viewed at www.ustr.gov.
Read more about the U.S.-Chile FTA in the article "U.S.-Chile
Free Trade Agreement: Comprehensive Gains," published
in the February 2003 issue of Export America.
A National Association of Manufacturers study estimates that
the FTA will provide an additional 12,500 U.S. jobs annually.
The University of Michigan states that the FTA could increase
U.S. GDP by $4.2 billion annually. Chilean news agencies predict
that the FTA could increase trade between Chile and the United
States by as much as 30 percent in its first year. Other significant
gains will be in the area of investment. The U.S. Commercial
Service in Santiago is drafting a series of opportunities
for U.S. companies once the FTA takes effect. Stay tuned and
visit www.buyusa.gov/chile/en
for current news and hot topics.
Getting Closer to the United States
January
and February are summer vacation months in Chile, where
moss grows on the south side of trees and the water
spins down the drain clockwise. Does this sound like
a distant place to visit? The good news is that Chile
is in the same time zone as Washington, D.C. The bad
news is that Santiago is an eight-hour flight from Miami.
The U.S. Commercial Service in Santiago helps American
firms get to know Chile without having to embark on
an international flight.
Videoconferencing is an excellent way to explore market
potential and meet prospective business partners.
Since launching videoconferencing with the help of the
U.S. Commercial Service Western Hemisphere team, the
Santiago Commercial Service has hosted more than two
dozen videoconference market briefings to link it with
various Export Assistance Centers across the United
States. After participating in a video market briefing,
many firms choose to use matching services like the
Gold Key, which makes traveling to Chile in person very
worthwhile. Those executives not willing to add about
10,000 miles to their frequent-flier accounts can choose
to “travel” by videoconference.
OPPORTUNITIES
BY SECTOR Environmental Technologies
Opportunities exist in the privatization and upgrading of
municipal water and wastewater treatment facilities. Chile
offers excellent opportunities for suppliers of air, solid
waste, and water pollution control equipment. For example,
new regulations require that by 2010 all water in Chile must
be treated (only 20 percent of waste water is currently treated).
Specifically, a total of $2.5 billion will have to be invested
in water infrastructure, $400 million in water treatment,
$700 million in rainwater collection, and $1.4 billion in
potable water production. The two largest sanitation companies
are Aguas Andinas and ESVAL, which were privatized and control
more than 50 percent of the water supply market. Aguas Andinas
plans to invest $563 million in infrastructure and technologies
for water supply and wastewater treatment by 2010. Aguayambiente,
the largest environmental trade show in Chile, takes place
in Santiago, June 25–28, 2003. Visit www.aguayambiente.cl
for more information.
Telecommunications Equipment and Services
In 1988, Chile became the first country in Latin America to
begin privatization of the telecommunications sector. The
telecommunications sector in Chile is the most deregulated,
advanced, and transparent in Latin America. The total market
value of the telecommunications sector in 2002 was $485 million.
U.S. telecommunications products are well regarded. Total
U.S. exports for this sector reached $270 million. The lion's
share of investment was in mobile and fixed telephone services.
Competition is fierce among telecommunications operators.
The current market trend is to integrate services and to provide
state-of-the-art products and services to consumers. In June
2002, Internet connections totaled almost 800,000, an increase
of 39 percent over the previous year. Increasing telecommunications
penetration rates—especially Internet access—is
one of the highest government priorities.
Secretary Evans' Trade Mission to Chile
U.S.
Secretary of Commerce Donald L. Evans visited Santiago,
December 4–5, 2002, leading a delegation of 14
U.S. companies interested in starting or expanding business
in Chile. During the visit, Secretary Evans had a successful
meeting with Chilean President Ricardo Lagos, spoke
at a breakfast sponsored by the American Chamber of
Commerce, discussed investment and FTA issues with Santiago
businesspeople, and visited a children’s burn
clinic supported by ExxonMobil. While the trade mission
was not planned to coincide with the final round of
U.S.-Chile FTA negotiations, the presence of Secretary
Evans in Chile during this crucial time in negotiations
was interpreted in Chile as a sign of U.S. government
commitment to the economic welfare of the country.
U.S.
Secretary of Commerce Donald Evans meets with members
of Chile's national youth basketball league—a
league created and sponsored by the U.S.-based energy
company PSEG Global.
Photo
courtesy of U.S. Commercial Service, Santiago.
Medical Equipment and Services
An aging population, a strong private hospital sector, and
planned hospital construction make this a dynamic sector.
Chile currently spends approximately 7 percent of its GDP
on health care, making it one of the largest areas of government
expenditure. The Chilean government guarantees health care
coverage as a constitutional right and is committed to improving
the national public-health system that provides care for approximately
70 percent of the population. Several programs for large-scale
purchases of modern equipment have received government approval
as part of an effort to upgrade the public and private health
sectors. The United States has for years been Chile's most
important supplier of medical equipment. U.S. companies hold
about half of the medical equipment market.
Computer Hardware, Software, and Services
Technologically advanced U.S. computer products find a receptive
audience among IT buyers. The Chilean government has eliminated
tariffs on computer equipment imports in order to support
the development of high-tech skills and jobs.
Chile has Latin America's second-lowest software piracy rate
(51 percent), according to a recent study conducted by the
Business Software Alliance and International Data Corporation.
The report also indicates that cutting Chile's piracy rate
from 51 to 41 percent could add another $200 million to its
economy, causing the local IT industry to grow to nearly $1.6
billion by 2006. TecnoInternet-Softel is the largest IT trade
show in Chile. It takes place in October. See www.tecnointernet.cl
for more information.
Architectural, Engineering, and Construction (AEC)
Services
This is an untapped market for U.S. firms. The AEC services
market is estimated conservatively at $200 million a year.
European companies dominate this market. They provide architectural
services for high-rise buildings, construction services for
new public works, and engineering services for industries
such as mining, water treatment, and waste management. The
projected 2003 growth for construction is 4 percent—slightly
higher than Chile's estimated GDP growth for this year. Sustained
economic growth, an orientation towards U.S. construction
standards, and expanding business and infrastructure needs
provide a strong base for AEC service providers. The main
trade events where U.S. exporters may exhibit are Expohormigon
(October 2003, Santiago, www.expohormigon.cl)
and Expomin (May 2004, Santiago, www.expomin.cl).
Food Processing Equipment and Services
Natural and phytosanitary conditions, worldwide demand, entrepreneurial
experience, infrastructure, and off-season production have
enabled Chile to become a key player in the export of agricultural
and processed food products. Chile is a world leader in producing
and exporting high-quality fresh fruit ($1 billion in annual
exports), and the world's second-largest producer and exporter
of salmon and trout ($1 billion in annual exports of this
non-native species). Increasingly, Chilean wines are winning
major international competitions. Chile exports $600 million
worth of wines a year. Chile's pork, poultry, and exotic meats
industries, as well as its dairy industry, have plans for
export expansion. Chilean producers are all too aware that
to remain competitive, they must maintain and update their
processing and packaging plants. Especially given the trend
toward producing value-added goods, significant commercial
opportunities exist in the areas of cost reduction, production
standards, safety, and final product quality.
Financial Services
Chile’s domestic capital market has a value of more
than $50 billion. The privatized social security system represents
the largest institutional investor, with nearly $40 billion
in assets under management. With assets of $5 billion, the
mutual funds industry is growing more than 20 percent annually.
The factoring industry is also growing rapidly. Capital market
reform in 2001 deregulated the industry, making it the most
open and modern marketplace in the region.
DSC in Copper Mining Deal
In November 2002, Dredging Supply Co., Inc. (DSC) of
Reserve, La., reported a new-to-market contract to supply
two custom-made mining dredges with a combined value
of $2.8 million to a copper mine in Chile. To finance
the cost of their construction, DSC obtained a $1.2
million export working capital line from Bank One, secured
by an U.S. Export-Import Bank guarantee.
DSC has a reputation for reliable, state-of-the-art
equipment. Chile holds future sales opportunities with
other mine operators. "In Chile, we have seen tremendous
export activity, and we are currently negotiating several
other contracts as well," notes Robert Wetta, chief
operating officer of DSC.
DSC enjoys a solid working relationship with the U.S.
Export Assistance Center in Baltimore, where the firm's
international sales director is based. It is also on
good terms with the U.S. Export Assistance Center in
New Orleans, which is convenient to its shipyard and
headquarters in Reserve. The U.S. Commercial Service
office at the U.S. embassy in Santiago supported the
Export Assistance Center trade specialists with market
research, business briefings, and business referrals.
"We appreciate the help, guidance, and advocacy
we receive from the U.S. Department of Commerce in identifying
and closing new export opportunities, such as our recent
Chilean success," says company official Charles
Sinunu.
Mining Equipment and Services
Mining is Chile's largest industry. It represents a $700-million
market. Imports total approximately $450 million, of which
U.S. companies supply more than 60 percent. Chile's principal
mineral is copper, and it comprises 40 percent of all Chilean
exports. Given the relatively low price of copper on the world
market, solutions to save costs and thus increase profitability
are in high demand. As the price of copper rebounds from current
lows, investment in this sector will follow. Expomin is Latin
America's largest mining show. In 2002, more than 200 American
firms exhibited at the U.S. pavilion, which attracted buyers
from all over the region. Visit www.expomin.cl
for more information.
Power Generation
Power generation has not kept pace with demand. Supply shortages
are creating new investment and trade opportunities. The Ministry
of Economic Affairs is planning new projects to keep up with
future demand. Some examples include two new 400 MW, gas-fired,
combined-cycle power plants valued at $400 million each. Major
U.S. power companies are already in the power generation and
distribution market.
Security Equipment and Services
The total market size for 2002 was $34 million, of which imports
made up 88 percent. The United States supplies 30 percent
of all imports; China supplies 16 percent. The local market
demand for this industry extends from personal safety products
to industrial security solutions, such as access control,
alarms, detectors, perimeter protection, security equipment
for prisons, security equipment for airports and seaports,
fire-fighting equipment, and more. There is no specific local
trade event for this industry. However, Edifica (www.edifica.cl)
is an international trade fair for construction machinery
and equipment. The show is held in Santiago, September 24–27,
2003, and is a great regional show for U.S. companies.
Useful
Web Sites
U.S. Commercial Service in Santiago
Bookmark this site to monitor what we are doing for
U.S. exporters, including information on the products
and services available to meet your market entry needs. www.buyusa.gov/chile/en
U.S. Embassy in Santiago
Find out what the U.S. mission in Santiago is doing.
Read about the latest developments regarding the U.S.-Chile
Free Trade Agreement. www.usembassy.cl
U.S. Trade Representative
This site contains a full text of the U.S.-Chile Free
Trade Agreement. See if your product qualifies for immediate
tariff relief under the FTA. www.ustr.gov
Foreign Investment Committee
This is a Chilean government-sponsored, English-language
site that highlights international approval and favorable
Wall Street analysis of Chile's economy. www.foreigninvestment.cl
Chilean-American Chamber of Commerce
This is the premier U.S. business association in Chile.
The Web site provides information on how U.S. firms
will benefit from a bilateral free trade agreement. www.amchamchile.cl
Material Handling Equipment and Logistics
The development of logistics, including the material-handling
equipment industry as well as related services, is a key component
of economic activity. Logistics has grown impressively over
the last few years, covering the entire supply chain: airfreight,
ocean transportation, warehousing, inventory management, surface
transportation, management software, and more. Chilean companies
require increasingly sophisticated processes and technologies
to be cost-effective and efficient, improve economies of scale,
and provide just-in-time delivery to domestic and international
customers. The most important local trade show in this sector
is Logisti-k, which is scheduled for October 14–17, 2003.
Visit www.logistik.cl
for more information.
E-Business Services
The government of Chile sees future job growth and prosperity
tied to the digital sector. A new digital signature law is
helping business streamline operations by eliminating paper
contracts. While business-to-consumer services are limited
by a per-capita Internet penetration rate of 28 percent, business-to-business
(B2B) services provide the engine for sales in this sector.
The government is seriously looking to fulfill its modernization
commitments agreed upon in the free trade pacts with the European
Union, South Korea, and the United States. A Santiago Chamber
of Commerce study states that B2B transactions in 2002 totaled
$2.47 billion within its 22 B2B e-marketplace sites. The study
estimates that this year businesses will focus on digital
technology to make traditional processes more efficient, and
that traditional companies will augment their investment in
digital technology.
This is not an all-inclusive list of commercial opportunities
in Chile. For more information on Chile and to find out about
the products and services offered to help American firms evaluate
the market and develop successful relationships, contact the
U.S. Commercial Service in Santiago at www.buyusa.gov/chile/en.
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