Chile: Innovation and Investment Opportunities

On October 25, 2007, the Americas Society and the Council of the Americas, in conjunction with the North American-Chilean Chamber of Commerce, hosted representatives from the private and public sectors to discuss the economic climate for investment in Chile’s information technology (IT) sector. The event brought together approximately 40 business and government officials for presentations and a panel discussion on the Chilean IT industry.

“Chile: Innovation and Investment Opportunities” featured the following speakers:

• Nicolo Gligo, Executive Director, USA, Invest Chile—CORFO
• Raul Rivera, President, The Innovation Forum
• Raul Ciudad, President, ACTI (Chilean Association of Information Technology Companies)
• Jaqueline Plass, Executive Director, The Innovation Forum
• Constanza Donoso, Investment Executive, Invest Chile—CORFO

Background

Often touted as one of the strongest economies in Latin America, Chile has successfully attracted high levels of foreign investment, kept a tight rein on unemployment, and controlled inflation. But while Chile stands out within the region, it lags behind other emerging economies, particularly India, as an investment destination for IT services. Private and public sector leaders are creating initiatives with the goal of boosting Chile’s global presence in the areas of innovation and information technology.

Summary

Representatives from the Invest Chile Program of CORFO (Chilean Economic Development Agency) and the Innovation Forum gathered to discuss Chile’s position as a competitive, nearshore destination for IT, international services, and investments. Speakers cited Chile’s relative proximity to the United States, macroeconomic stability, open market policies, and competitive wages as key factors that make Chile an attractive destination for investments and business.

Economy and Investment Climate

Chile is a regional leader in macroeconomic growth, while maintaining wages sufficiently competitive to attract foreign investment. According to Raúl Rivera, President of the Innovation Forum, Chile has the highest economic growth rates and low levels of corruption. Rivera noted that the World Economic Forum (WEF) ranked Chile as the most competitive economy in the region while the Economist Intelligence Unit ranked it as the region’s best place to do business in 2005. Scores are equally impressive for Chile’s transparency. Transparency International rated it first in Latin America, tied with the United States for the twentieth place worldwide.

Chile, Rivera said, is “positioned as a gateway to the world,” given its numerous free-trade agreements (FTAs), which include intellectual property protections. Only Chile and Singapore have signed second generation free-trade agreements on services. The large network of FTAs provides Chile with access to 90 percent of economies in the Organization for Economic Cooperation and Development (OECD). Rivera pointed out that the Economist Intelligence Unit ranks Chile first in Latin America among future leaders in global service exports.

Despite Chile’s success, the cost of living remains low and labor laws flexible. Wages are on par with those of Mexico and Brazil, yet the cost of living in Santiago is lower than in Mexico City and São Paolo, panelists said. Furthermore, Santiago ranks among the cities with the lowest crime rates in Latin America and is actually safer than Miami, according to Rivera.

Chile: A Closer Option

Panelists compared Chile’s investment climate to that of India, an emerging economy often viewed as a model for attracting IT investment dollars. While India has been a major powerhouse for IT services, wage increases in India combined with Chile’s recent technological developments have made the latter a competitive alternative, panelists said. Besides its relative proximity, Chile is in a time zone close to that of the east coast of the U.S. 

Technology, Education, and Chile’s Future

Panelists discussed Chile’s leading role in telecommuications. The country ranks eleventh in the world for mobile phone use, with 62 percent of the population connected. Chile also has the highest rate of Internet users in Latin America, with 28 subscribers per 100 inhabitants.

Raúl Ciudad, President of the Chilean Association of Information Technology Companies (ACTI), noted that Chile’s IT industry is gaining momentum. With 75,000 people employed in IT and more than 500 active IT companies in Chile, the sector already serves as a service export base for foreign companies like Citigroup, Shell, GE, and JPMorgan.

While panelists conceded that Chile faces challenges, including a smaller labor pool than other emerging economies and a large non-English-speaking population, the government has launched initiatives to train a new generation of English-speaking technical laborers. On top of that, three of the region’s top 11 universities are in Santiago. Rivera noted that there are currently 85,000 engineering students in Chile, with approximately 10,000 graduates entering the work force each year.

The Innovation Forum

Another point of discussion was the the Innovation Forum—a project proposed by a group of private sector leaders in 2005 to help the business, public, and academic sectors work together to promote growth and investment in technology. Over 100 business leaders gathered to combine goals, establish incentives for innovation and entrepreneurship, and determine continued study in IT fields. The Forum set goals to achieve an 8 percent average growth rate between 2006 and 2018, raise Chile’s median per capita income to $25,000 by 2018, and rank among the World Economic Forum’s top 15 most competitive countries.

Chile’s Investment Outlook

President Bachelet’s commitment to increasing service exports paired with Chile’s own investment in the IT service sector would pave the road to making Chile a major player in the field of information technology, according to panelists. For Rivera, key goals for 2010 are to reach $1 billion in IT services and exports as well as to employ 35,000 workers in service exports.

Citing Ireland and Norway—small economies which have achieved outstanding success in IT development—as examples Chile should follow, Ciudad and other panelists expressed confidence that Chile’s infrastructure has the capacity to respond to an increased export demand. Constanza Donoso, Investment Executive for Invest Chile, said government initiatives to attract investment and boost competitiveness include support for immigration of IT professionals, exemption from limits on hiring foreign nationals, and competitive incentive packages for foreign companies.