Following Piñera’s second-term election, the conservative billionaire said that there was “no better school for being a good president than La Moneda”, referencing his previous tenure in the role. Whilst there is no getting away from the fact that his second appointment was met with some criticism, Piñera has already made an impact since the 2017 election, and is not only leading Chile to economic growth but putting the country on the investment map.
Below, we take a closer look at his ambitions for Chile in 2019 and beyond, exploring how some of his most recent appointments and policies will impact the country’s economy.
Chile Economic Success – A Confident Start
After being given the Palacio de La Moneda for a second term, Piñera was quick to announce his plans for the Chilean economy. His key ambition is to restore economic growth in the country, something we’re already seeing following a slight dip in January 2017. Indeed, from May 2017 to November 2018, Chile has enjoyed steady levels of economic growth. Quarterly GDP rates have increased by 3.3% to 5.3% in previous years, often beating forecasts.
The President also hopes to improve the quality of the country’s democracy and promote equality of opportunity to “ensure nobody is left out” as Chile heads into new economic times. So far, voters seem to be impressed with his model of democracy, with a poll in 2018 suggesting that 70% of Chileans were better off than their parents, attributing to increasing middle-class citizenship and higher levels of disposable income which boost the economy.
A Government Debt Battle
One of Piñera’s biggest challenges will be money, with government debt doubling in each of the past two governments. The country’s debt currently stands at 24% of its GDP, which is still relatively low, although finance minister Felipe Larraín has said that he has ambitions to “stabilize” the country’s debt, and reduce its deficit from 2.8% of GDP to 1.6% in 2019.
The most obvious way for the government to raise capital without borrowing is to stimulate the economy and encourage foreign direct investment (FDI). Back in 2016, FDI inflows hit US$11 billion dollars but fell to just US$6 billion the following year. In 2019, the government will no doubt be working hard to attract foreign investors to the country with a range of policies and new marketing campaigns, as well as offering tax breaks and relief to firms in key industries.
With unemployment in the country at a respectable 6.8% of the population (December 2018), there is still room for growth in the country and a keen talent pool that can be utilized by a whole host of businesses. The government will have a fight on its hands when it comes to convincing businesses to invest, however, as the average salary currently stands at USD$795, compared with the lower USD$550 in neighboring Argentina, proving that its bilateral and multilateral trade agreements, growing economy and specialist workforce will be the key to setting Chile apart from its Latin American cousins in the years and decades to follow.
New Foreign Direct Investment Policies
Perhaps Piñera’s biggest success story so far is his FDI policy, introduced in 2018. Between January and April of 2018, foreign direct investment in Chile increased an eye-watering 655 percent on the same period last year, pumping in more than USD$8.4 billion to the economy. That is the highest level since records were first measured in the country 15 years ago, and a clear sign that by encouraging investment from companies around the world, it can thrive.
Indeed, there has been a slew of successful Chilean startups founded off the back of the new FDI policy, making it easier for both local and international companies to do business in Chile. SaferTaxi, for example, is an established Chilean brand, and thanks to new policies were able to secure funding from HSBC and Edenred, taking the business to the next level.
Ruling Out Corruption
Brasilia, Brazil, Caracas, Venezuela, and Buenos Aires, Argentina are three of the most corrupt cities in Latin American today, with headlines and bad publicity putting investors off of investing. Whilst Chile may not suffer the same levels of corruption as the aforementioned, it still does have its own problem, with the Carabineros and Chilean Army both involved in drug trafficking and money laundering scandals. Mr. Piñera has already announced plans to iron out corruption amongst officials and private businesses, telling journalists that “they have had too much autonomy” and hopes to use the scandals as part of reform in the country.
The President has already sent a bill to help modernize the police in the country and hopes to roll out the same for the army following cabinet approval. By creating a safe, democratic and sound police force and army, entrepreneurs and locals alike can rest easy and invest in the country without the threat of corruption, although more still needs to be done in 2019.
Tax-Deductible Investments Could Be Over
Something else that the Chilean President is hoping to achieve during his time in office is to reform taxation in the country and remove the option of making investment tax-deductible. In an effort to reduce corruption and ensure money poured into the country has an impact on its GDP and bottom line, this reform will no doubt cause shockwaves if it was to pass, which is why it makes sense to form a company in Chile as soon as possible and invest whilst it is tax deductible. For investors on the fence, or planning a Chilean expansion in the coming years, there has never been a better time to get started in the country before competitors get there.
Take Your Chilean Business to the Future
Whether you’re an entrepreneur in Chile or on the other side of the world and wish to utilize local services to expand your business, working under the governance of a president such as Sebastián Piñera can only be a good thing, but the right market entry strategy is critical.
At Biz Latin Hub, we offer a range of back office and market-entry services designed to help you make your mark in the Chilean marketplace. To find out more contact us now.
