Chile's Economy

This is Chile - the most competitive economy in Latin America known for its openness to international cooperation, neoliberal policy in history and copper reserves.

Chile boasts some of the most stunning landscapes, from the driest desert in the world to the picturesque Patagonian fjords. These unique natural conditions define Chile as one of the best places to develop solar and wind energy, build astronomy observatories and grow vineyards.

The World Bank classifies Chile as a high-income economy. One of the reasons for this success are natural resources. This country is the world's largest producer of copper, contributing over a third of global production. It holds the largest lithium reserves worldwide, being the second exporter after Australia.

Chile ranks as the 4th largest wine exporter globally, and is a leading adventure tourism destination.

Welcome to Market Puzzle, where we piece together the intricate patterns of global economies and innovative business models. Today we provide you with key figures about Chile's economy to give you a clear snapshot of whether it’s an attractive destination for business, investment, or living.

In this video, we’ll start with an overview of Chile’s key macroeconomic metrics and economy structure. Then, we’ll discuss Chile’s trade and investment landscape, followed by an examination of the business environment. Finally, we’ll wrap up with opportunities and challenges facing the Chilean economy.

Chile's GDP for 2023 stands at approximately 335 billion US dollars. This is comparable to Portugal’s economy. The growth rate around 5-6% during the first decade of the 21st century allowed Chile to overtake some European economies like Portugal. In the second decade the growth of the GDP slowed down to 2%.

Historically the growth rate of Chile is a little higher than in Latin America in general.
Chile ranks 45th in terms of GDP globally and holds the 5th position in Latin America. With a GDP per capita of about 17 000 US Dollars, Chile takes the 4th rank in Latam after Uruguay, Gayana and Panama and is classified as a high-income country by the World Bank.

The structure of Chile's GDP is pretty diverse but still dependent on natural resources. Mining alone accounts for approximately 13% of the GDP, driven largely by copper production. Agriculture is significant with exports like fruits, wine, and seafood.

Manufacturing input in GDP is less than 10% but such industries like food processing, chemicals, and textiles are quite developed. The services make up 57% of the GDP with strong finance, transport, retail and tourism sectors.

Chile is a major player in global trade. It exports mostly minerals, metals, chemicals and agricultural products. Copper is the number one export commodity with a share around 50%. This metal is used in electrical equipment, construction, and industrial machinery. The growth of these industries has been driving copper global consumption and prices for the last decades. Lithium is another important part of Chile’s export. Lithium production and export volume is expected to grow following years and the decision of Chile's government to open lithium salt flats to private investment supports this trend.

Wine, fruits and seafood dominate in agricultural exports. Chile’s location in the Southern Hemisphere allows the country to offer out-of-season fruits to countries of the Northern Hemisphere. Chile is a leading exporter of cranberries, cherry, avocado, kiwi and a lot of other fruits. In 2022, agriculture and related sectors represented around 27% of total Chilean exports.

Unlike its neighbors in Latin America Chile is integrated a lot with Asia Pacific supply chains. Major export destinations include China, Japan, South Korea in Asia, the United States in Northern America, and a number of European countries. Chile has established numerous free trade agreements, making it one of the most open economies in the world. Key agreements include those with the European Union, the United States, and the Pacific Alliance. Additionally, Chile has strategic logistics hubs, such as the ports of Valparaíso and San Antonio, which facilitate efficient international trade through the Pacific.

The Central Bank of Chile structures its monetary policy employing a framework of inflation targets, which is complemented by a floating exchange rate regime. The target annual consumer prices inflation is 3%.

Last decade Chile mostly was able to keep the inflation near this target. But in 2022, Russian invasion in Ukraine and disruptions in global supply chains led inflation to peaks all over the world and Chile had the annual rate of almost 12% that year.
However, a combination of tightened monetary policy by the Central Bank and a reduction in commodity prices has made a significant difference. The inflation is slowing down with the rate of 4.6% in July 2024 and forecast to come back to the target level next year.

Chile’s Central Bank was one of the world’s first to introduce monetary rate increases when economic conditions worsened across the world in 2022, taking aggressive action with the peak of interest rate of 11.25% in the mid 2023. After taking inflation under control and stabilizing the economy, the Central Bank started to decrease the monetary interest rate and in August 2024 it is 5.75%.

The national currency of Chile is the Chilean Peso, with an exchange rate in August 2024 of roughly 950 pesos to 1 US dollars. The Chilean Peso lost around 24% to the US dollar in the last 5 years, but is still one of the most stable currencies in Latin America with Uruguayan and Colombian pesos.

The Santiago Stock Exchange is the main stock market in Chile, with indices like the IGPA tracking the performance of listed companies. Additionally, several Chilean companies have ADR to be presented on the New York Stock Exchange, further integrating Chile into the global financial system.

In July 2024 Chile had two public companies with a market capitalization more than 10 billion US dollars: Banco de Chile and Sociedad Química y Minera. The second one is the largest producer of Lithium worldwide.

Foreign Direct Investment in Chile is robust, particularly in the mining, renewable energy, and infrastructure sectors. The government promotes FDI through favorable policies and trade agreements. After the significant decrease in 2017 and following pandemic slow down of business activity, Chile is coming back to the highest levels in 2023 and 2024. Chile attracted more than 20 billion US dollars in inward FDI in 2023, reflecting its strong appeal to international investors. Chile has a public agency InvestChile, that promotes foreign investment in Chile. It provides investors with a lot of information about opportunities in the Chilean market and business services.

Chile is the most competitive economy in Latin America with the 44th rank worldwide. Recent years Chile has shown improvements in areas such as Public Finances, infrastructure and especially technological infrastructure, having intentions to be one of the digitals hubs in Latam.

Chile is a friendly country in case of starting a business. The average time to open a company is 4 days according to World Bank stats, that is almost the same level with the USA. The process could take different time depending on the complexity of a corporate structure. For small businesses there is a program called “Company in one day” where you can open a business totally online. For corporations with a complicated ownership structure the process could take longer than 4 days.
Corporate tax rate is 27% and 25% for small and medium businesses. It had increased significantly because of the recent tax reform that started in 2014. It is still one percentage point lower than the average rate in Latam, but higher than the world rate, which decreased to 23.5% in 2023.

Dividends paid to a non-resident recipient are subject to a 35% withholding of ‘additional’ tax, with the tax paid at the corporate level being totally or partially creditable against this withholding tax.

Personal income tax has progressive rates from 4 to 40%. As for consumption taxes Chile has value-added tax with the rate 19%.

Chile’s solid macroeconomic policy framework the country boasts the strongest credit ratings in Latin America. It’s the only country in Latam with an A rating according to S&P Rating.

Chile has a sound legal framework and there is general respect for private property rights. Corruption exists in Chile but on a much smaller scale than in most Latam countries. Chile ranks 38th worldwide and second after Uruguay in Latin America in the International Property Rights Index. Such components of this Index like Rule of Law, Control of Corruption, Perception of Physical Property Protection and Patent Protection have better scores than overall result. But in general Chile's scores are falling down in recent years mostly because of Political Stability and Intellectual Property components.

In 2024 Chile ranks 39th worldwide in Global Startup Ecosystem Index after a decline of 5 spots in 2 years. The best in the region is Brazil followed by Colombia, which has been improving its position for a third year in a row. Venture capital investment took the 4th place in Latin America after huge markets of Brazil and Mexico and rapidly developing as a startup hub Colombia. Public business accelerator “Start-Up Chile” is the largest startup incubator and accelerator in Latin America by the number of startups they have accelerated to date. It did 954 investments according to crunchbase. Startup Chile welcomes founders from all over the world and provides them with equity free funding and accelerating programs.

Chile gave the world 2 unicorns: a manufacturer of plant-based products NotCo with a valuation of 1.5 billion dollars and HealthTech application BetterFly valued at 1 billion dollars.

The core of top Chilean companies by revenue is formed by public companies and is pretty diverse in terms of industries. EmpresasCopec leads the rating with annual revenues around 30 billion US dollars. This company is owned by AntarChile and controls a huge part of the energy and forestry sectors. It is followed by two retail giants - Cencosud and Falabella. The largest airline in Latin America - LATAM - closes the top-5 list with around 12 Billion dollars in revenue.

Also one state-owned company joins the top by revenue. It’s CODELCO - one of the largest copper producers worldwide with the revenue around 17 billion dollars in 2023. Chile has one stated-owned bank - Banco Estado and around 26 more stated-owned companies mostly in infrastructure, transportation and defense sectors. As an OECD member, Chile adheres to the OECD Guidelines on Corporate Governance for SOEs.

During the last decade Chile faced political instability inside the country, then the covid pandemic crisis, and finally the consequences of geopolitical issues and war in Ukraine. These events caused a decrease of foreign investment in 2016, fall in GDP in 2020, deficit and the highest inflation in 2022.

Despite some internal issues Chile is doing well in recovery from recent shocks. The country has successfully brought down high inflation and reduced the large current account deficit. The International Monetary Fund forecasts the GDP growth of 2% in 2024 and following years and the inflation to come back to target level of around 3% in 2025.

However Chile has some institutional problems that led to a slow growth of the economy even before the covid. A key challenge for Chile is to move towards higher and more inclusive growth. A significant improvement of productivity is needed, which now shows a stagnating and even declining trend. That could be done through more intensive technology adoption, reducing regulatory barriers, and promoting competition.

Chile has a potential to boost its growth and already takes some steps on this way. The key to higher growth could be the leading role in green transition. Chile has a competitive advantage in renewable energy production. Costs of electricity generation are lower for solar and wind than fossil fuels thanks to the high solar radiation in Chile’s north and strong winds in the south. Already, electricity generated from solar and wind increased from 1 to 26 percent of total electricity supply during 2010–22.
The higher global demand for lithium offers prospects to expand Chile’s lithium production and related industries along the value chain. The country expands its lithium production through public-private partnerships and attracting investments in this sphere.

One more part of the green transition and growth potential in Chile is hydrogen. The World Bank approved a 150 million dollar loan to promote investment in green hydrogen projects in Chile. This is the World Bank’s first loan to promote green hydrogen to support climate change mitigation efforts.

With the historically stable economy and institutions, investments in the green energy sector, increasing FDI in general, and developing the infrastructure for startups and innovations Chile has a good chance to change the trends in its economy to more rapid growth.

Last but not the least are natural challenges that are caused by geography and geology of Chile. Chile is one of the most seismically active countries in the world, experiencing some of the largest earthquakes ever recorded. But it has quite advanced insurance for unpredictable disasters. The International Bank for Reconstruction and Development priced a joint catastrophe bond and swap transaction that provides a total of 630 million dollars of earthquake insurance coverage to the Government of Chile. The transaction provides Chile with financial protection to mitigate the potentially disruptive economic impacts of earthquakes and resulting tsunamis. It makes funds readily available in the case of disaster, protects Chile’s fiscal budget, and reduces the potential need to mobilize debt. It is the World Bank’s largest catastrophe risk transfer transaction for a single country.