Chile Enables Your Future by Alexander Holmes

PORTADA EXTENDIDA

enables your future

Ahumada 11, 12th Floor, Santiago - Chile Tel: (56 - 2) 6984254 Fax: (56 - 2) 6989476 www.foreigninvestment.cl

www.foreigninvestment.cl

Chile enables your future

CHILE

enables your future

FOREIGN INVESTMENT COMMITTEE The Foreign Investment Committee is the agency that represents the State of Chile in its dealings with those investors who choose to use the Foreign Investment Statute (DL 600) as the legal mechanism for bringing foreign direct investment (FDI) into Chile. The Foreign Investment Committee is formed by the Ministers of Economy (who acts as president of the Committee), Finance, Foreign Relations and Planning as well as the president of the Central Bank. Other ministers responsible for specific economic sectors are also invited to participate in meetings whenever deemed necessary. Mission To help position Chile as a highly attractive destination for foreign investment and international business through its role in matters related to the administration and communication of the corresponding legal norms, the development of promotional activities of different types and the preparation of information concerning foreign investment for investors and potential investors. Strategic objectives To ensure the correct application of the Foreign Investment Statute in order to safeguard the rights of both the State and foreign investors by communicating the law's terms and administering related legal procedures: the analysis of investment applications, the signing of investment contracts and the authorization of remittances. To develop all types of initiatives to communicate, promote, coordinate and implement measures to foster the entry of foreign investment. To maintain an up-to-date and accurate statistical register of foreign investment under the Foreign Investment Statute by compiling information about contracts and flows under these contracts in order both to safeguard investors' interests and to prepare statistical reports for public use. The Executive Vice-Presidency The Foreign Investment Committee is headed and managed by an Executive VicePresident who is appointed by the President of the Republic. The Executive Vice-Presidency provides general information and guidance to any investor about Chile, its economic and social environment, legal framework and policies on FDI. When requested, it provides information on how to begin the process of setting up a businesses in Chile as well as the procedures and regulations to which any investor must adhere, whether signing a DL 600 contract or not, at the national, regional and sector-specific levels. In order to promote Chile as an attractive place to invest, the Executive Vice-Presidency coordinates business missions abroad, organizes seminars and conferences and publishes regular reports about Chile's business climate and about investment opportunities, both in print and electronic form. In developing these promotional activities, it works with other ministries and State agencies as well as with the local and foreign private sector.

CHILE enables your future

PORTADA EXTENDIDA

enables your future

Ahumada 11, 12th Floor, Santiago - Chile Tel: (56 - 2) 6984254 Fax: (56 - 2) 6989476 www.foreigninvestment.cl

www.foreigninvestment.cl

Chile enables your future

CHILE

enables your future

CHILE enables your future

enables your future

www.foreigninvestment.cl

Chile enables your future

CHILE

CHILE ENABLES YOUR FUTURE Foreign Investment Committee. All rights reserved. Requests to reproduce part or all of this publication should be sent to chileinvestment@cinver.cl Third edition, 2,000 copies. May 2010 Printed by Maval Designed by www.vox.cl Printed in Chile

CONTENTS

Editorial

Sustained growth

Competitiveness

Chile, a reliable partner

Globally connected

A guarantee of transparency

Proven legal confidentiality

Foreign investment in Chile

The experience of investors

CHILE IN SOUTH AMERICA Regions Arica

ARICA Y PARINACOTA VENEZUELA

Iquique

GU YA SU NA RI NA M E

TARAPACÁ

F GU REN IA CH NA

COLOMBIA ECUADOR

Antofagasta

PERU

ANTOFAGASTA R

BOLIVIA

Copiapó

ATACAMA

PARAGUAY

La Serena

CHILE

URUGUAY

COQUIMBO O

ARGENTINA

VALPARAÍSO

Valparaíso

Santiago

LIBERTADOR GENERAL BERNARDO O'HIGGINS

METROPOLITANA

Rancagua

Talca

MAULE

Concepción

ARAUCANÍA

Valdivia

Temuco

LOS RÍOS Pto. Montt

LOS LAGOS

BÍO - BÍO

Coihaique

AYSÉN DEL GENERAL CARLOS IBÁ EZ DEL CAMPO CHILEAN ANTARTIC TERRITORY A U S T R A L O C E A N

MAGALLANES Y LA ANTÁRTICA CHILENA

Pta. Arenas

*Acuerdo de 1998

CHILE Geography Chile is located in the extreme southwestern part of South America and stretches through the Antarctic to the South Pole. Its most western territory is Easter Island in Oceania. Chile's varied topography ranges from the Atacama Desert in the north, with its great mineral wealth - principally copper and nitrates - to the agricultural and wine-growing Central Valley, where the capital Santiago is located, and to the woods, mountains, lakes, glaciers and fjords of the south.

Area Mainland & islands Antarctic Total

: 756,096 km2 : 1,250,000 km2 : 2,006,096 km2

Mainland length

: 4,200 km

Administrative divisions

: 15 regions, 53 provinces and 346 municipal districts

Government

: The President of the Republic serves as head of state and head of government. Since March 2010, this post has been held by SebastiĂĄn PiĂąera.

Social Population Population density Official language Currency Literacy Life expectancy

: : : : : :

16.9 million 20.4 inhabitants/km2 Spanish Peso 97% 78 years

: : : : : : : : :

US$164,615 million US$9,525 (IMF) US$14,341 (IMF) 9.7% -1.5% 4.5% 5.5% US$53,735 million US$39,754 million

Economy GDP 2009 GDP per capita (nominal, 2009) GDP per capita (PPP, 2009) Unemployment rate (2009) GDP growth (2009) GDP growth (2010*) GDP growth (2011*) Exports (2009) Imports (2009) * Forecast as of April 2010.

SUSTAINED GROWTH

The Chilean economy is widely renowned

temporarily interrupted in 1999 when activity contracted by 0.7%, following the Asian financial crisis and a sharp drop in the price of copper, Chile's main export. However, the contraction was short-lived and, in 2000, GDP expanded by 4.5%.

for its track record of sustained growth. Between 2000 and 2009, it expanded at an average annual rate of 3.7%, according to the International Monetary Fund (IMF). The Central Bank of Chile estimates that, in 2009, GDP reached US$164.6 billion, over double its level of US$74.0 billion in 2000. Between 2000 and 2009, per capita income measured in terms of purchasing power parity (PPP) increased by 63.5% to US$14,341.

The economy then went on to expand at an average annual rate of 4.3% between 2001 and 2007 before dropping to 3.2% in 2008. The international crisis, which meant a drop in the copper price and weaker demand in Chile's export markets, affected the economy in 2009 when it contracted by 1.5%. However, forecasts suggest a rapid recovery, thanks to its recognized resilience during the international crisis and the country's stability. According to IMF forecasts in April 2010, Chile will grow by 4.7% in 2010 and 6.0% in 2011, despite the earthquake that hit central-southern Chile in February 2010 and caused damaged estimated at US$30 billion.

The IMF's forecasts for Chile are positive and indicate that, in 2010, GDP per capita will reach US$14,940, the highest in Latin America and 54th among the 182 countries monitored by the IMF. It would then maintain this position through to at least 2015 when GDP per capita would reach US$19,633, close to the US$20,000 of the most developed economies. Annual average growth reached 7.2% between 1990 and 1998. This strong performance was

Chile: Annual GDP Growth, 2000-2011 (%) 6.0

6.0 5.6

4.6

4.5

4.7

4.0 3.7 3.3

2.2

-1.5

2000

2001

2002

2003

2004

2005

2006

Source: Central Bank of Chile (www.bcentral.cl) *IMF forecasts, April 2010 (www.imf.org)

2007

2008

2009

2010*

2011*

Annual Average GDP Growth, 2000-2009 (Selected economies, %) China

9.92

India

7.03

Peru

6.28

Israel

5.04

Korea

4.87

Singapore

4.87

Slovakia

4.64

Hong Kong

4.58

Argentina

4.45

Ireland

3.80

Brazil

3.72

Taiwan

3.72

Chile

3.70

Australia

3.08

Holland

1.89

Sweden Japan Italy

2.17 0.87 0.60

Source: International Monetary Fund (IMF) (www.imf.org)

recession from which no country was immune. In October 2009, the IMF highlighted its economic management, noting in one of its reports that the economy was able "to enter the crisis with a fundamentally robust position". It added that, "large fiscal savings accumulated in past years have been critical to preserve stability and cover financing needs, while the imbalances in the financial and corporate sectors witnessed elsewhere have been absent".

In 2009, financial and business services comprised Chile's most important economic sector, accounting for 16.3% of GDP, followed by manufacturing (15.0%), personal services (11.3%), retail, restaurants and hotels (10.4%), transport and communications (10.3%), construction (7.1%) and mining (6.7%). Chile proved itself to be on a strong footing to address the impact of the international

GDP by Economic Sector, 2009 (Total = US$164,615 million) Personal services 11.3%

Financial & business services 16.3%

Others 5.9% Public administration 4.0%

Home ownership 5.7%

Agriculture & forestry 3.9%

Fishing 1.1% Mining 6.7%

Retail, restaurants & hotels 10.4%

Manufacturing 15.0%

Transport & communications 10.3% Electricity, gas & water 2.1%

Construction 7.1%

Source: Central Bank of Chile (www.bcentral.cl)

implementation of a US$4 billion stimulus plan that, according to the IMF, was one of the five largest in the world relative to GDP.

In 2010, amid the turbulence caused by the European crisis, the Chilean government urged calm and confidence in the county's economic strength. In May, the Finance Minister assured that Chile "is very well prepared to face a complex external situation".

In 2000, the gover nment introduced a new f i s c a l p o l i c y r u l e t o m a i n t a i n a s t r u c t u ra l budget sur plus equivalent to 1% of GDP. In 2008, this was reduced to 0.5% of GDP and, in 2009, to 0% in order to permit greater fiscal s t i m u l u s i n t h e fa c e o f t h e i n t e r n a t i o n a l economic crisis. This policy has the advantage of ensuring medium-term fiscal restraint while permitting counter-cyclical measures in periods of slower economic growth. In 2007, the fiscal sur plus reached 8.8% of GDP, its highest level in twenty years, and, in 2008, represented 5.2% of GDP.

Balanced fiscal accounts Fiscal discipline is one of the pillars of Chile's solid international image. The government has run a sustained budget sur plus interrupted only by the economic contraction of 1999, when the fiscal deficit represented 2.1% of GDP, and in 2009 when it ran a deficit of 4.5% of GDP that reflected the drop in revenues caused by the international economic crisis and the

Fiscal Balance (% of GDP)

7.7

8.8

5.2

4.6 3.1

2.2

2.1

2.0 0.4

-0.7

-0.5

-2.1

-1.2

-0.5

-4.5

1995

1996

1997

1998

1999

2000

2001

2002

Source: Finance Ministry (www.minhda.cl)

2003

2004

2005

2006

2007

2008

2009

ava i l a b i l i t y o f t h i s i n fo r m a t i o n t o d e c i s i o n makers. Since the end of 2007, the gover nment has also been under the o bl i g a t i o n t o s u b m i t 5 0 % o f t h e p r o g r a m s included in the Budget Law to independent eva lu a t io n .

I n a d d i t i o n , t h e C h i l e a n g o ve r n m e n t h a s taken impor tant steps to improve the quality and frequency of repor ting on fiscal revenue c o l l e c t i o n a n d ex p e n d i t u r e a s w e l l a s o n p u bl i c d e b t . I t h a s, m o r e ove r, p l a c e d growing emphasis on assessing the results of public sector programs and on the

Main Items of Central Government Expenditure, 2009* (% of GDP)

Main Sources of Central Government Revenues, 2009* (% of GDP) Net tax revenue Copper Social security contributions Donations Real estate income Operational income Others

15.0 1.8 1.5 0.1 0.7 0.6 0.7

Benefits & donations Social security Personnel Goods & services Interest payments

* Forecast by Finance Ministry's Budget Office, January 2010 (www.dipres.cl).

7.3 5.1 4.7 2.3 0.5

* Forecast by Finance Ministry's Budget Office, January 2010 (www.dipres.cl).

Tax collection The burden of central government taxes in Chile is the lowest in Latin America and is also below than in the majority of European countries.

In 2009, tax collection reached US$22,563 million.

Tax Collection (% of GDP)

16.3

16.7

16.9

16.6 15.9

18.8

18.5

17.0

15.6 14.6

2000

2001

2002

2003

2004

2005

Source: Internal Revenue Service (www.sii.cl)

2006

2007

2008

2009

Tax Rates, 2010 (Selected economies, %) Income tax Corporate

Country Argentina Australia Brazil Canada Chile China Estonia India Ireland Latvia Mexico N. Zealand Singapore Slovakia Great Britain United States

35 30 34 19.5(**) 17 (***) 25 21 30-40 12.5 15 28 30 18 19 28 15-35

Personal

VAT

9-35 17-45 7.5-27.5 15-29 (**) 0-40 5-45 20 10-30 20-41 23 0-28 0-39 3.5-20 19 0-40 15-35

21 10 (*) 17-25 5(*) 19 17 20 12.5 21 21 15 12.5 (*) 7(*) 19 17.5 -

(*) GST, goods and services (**), Federal, (***) An additional tax of 18% is levied (35%-17%) if companies distribute or remit earnings. Sources: Internal Revenue Service (www.sii.cl) and WorldWide Tax (www.worldwide-tax.com)

Control of inflation meant higher inflation around the world, including Chile. However, in 2008, this began to drop in response to the international financial crisis and, in 2009, Chile's Consumer Price Index fell by 1.4%, its first negative reading in 74 years.

Inflation dropped from 27.3% in 1990 to 2.3% in 1999. This reflected the strict monetary policy applied by the Central Bank and the fiscal discipline in addressing a phenomenon that afflicted Chile -along with other Latin American economies- in the second half of the twentieth century.

The IMF anticipates that inflation in Chile will reach 3.7% in 2010 before dropping to 3.0% in 2011. These would be among the lowest rates in Latin America.

The Central Bank aims to keep annual consumer-price inflation within a target range of 2%-4%. In 2007, higher international prices for raw materials, such as oil and foodstuffs,

Annual Inflation, 2000-2009 (%) 7.8

4.5 2.6

3.7

2.8

2.4

7.1

2.6

1.1

-1.4

2000

2001

2002

2003

2004

2005

2006

Sources: National Statistics Institute (www.ine.cl) and Central Bank of Chile (www.bcentral.cl)

2007

2008

2009

Low levels of foreign borrowing T h i s i n d i c a t e s t h a t b o r r ow i n g i s u s e d t o finance long-term projects related to productive activities with an impor tant economic impact, such as investments, and does not reflect contingent liabilities that are merely palliative and do not have an impact on output.

Chile has a relatively low foreign debt. This rose from US$34.8 billion in 1999 to US$74.0 billion in 2009 but, over the same per iod, international reserves increased from US$14.9 billion to US$25.4 billion. The structure of Chile's foreign debt has also c h a n g e d , s h i f t i n g a w ay f r o m s h o r t - t e r m borrowing. Gross short-term foreign borrowing increased from US$4.3 billion in 1999 to US$17.5 billion in 2009 while medium and long-term debt, which reached US$30.4 billion in 1999, reached US$56.6 billion in 2009.

Solvency indicators, such as the ratio of foreign debt to GDP and expor ts, have also shown a sustained drop since 2002 w h i l e c e n t r a l g ove r n m e n t fo r e i g n d e b t fe l l from US$3.2 billion in 1995 to US$2.6 billion in 2009.

The sectors with the highest levels of long-term foreign debt are non-financial companies (65.6%), the public sector (20.0%) and banks (14.1%).

Chile's Foreign Debt, 1999-2009 (US$ billion) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1999

2000

2001

2002

Foreign debt II. Long-term foreign debt

2003

2004

2005

2. Private sector III. Short-term foreign debt

Source: Central Bank of Chile (www.bcentral.cl)

2006

2007

2008

1. Public sector

2009

Wages and employment ex p a n s i o n o f e m p l oy m e n t o ve r t h e p a s t decade, the mean real wage increased steadily in a trend that became more marked l a s t ye a r. A c c o r d i n g t o t h e U N E c o n o m i c Commission for Latin Amer ica and the Caribbean (ECLAC), real wages in Chile rose by 19% between 2000 and 2009.

After peaking at 10.1% in 1999, due to the Asian crisis, unemployment gradually dropped to 7.8% in 2008. However, in 2009, it rose again to 9.7%, reflecting the impact of the international economic situation. In Chile, jobs are provided almost exclusively by the private sector. As a result of the rapid

Unemployment, 1999-2009 (% of workforce)

12 10

10.1

9.7

9.9

9.8

9.5

10.0

9.7 9.3 7.8

7.8

7.1

6 4 2 0 1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: National Statistics Institute (www.ine.cl)

Employment by Sector, March 2010 (% of total of 6.9 million people) Financial services 9.5% Community, social &, personal services 27.9%

Transport, warehousing & communications 8.0%

Retail 20.2%

Agriculture & fishing 11.4%

Construction 8.3% Electricity, gas & water 0.5%

Mining 1.6% Manufacturing 12.6%

Source: National Statistics Institute (www.ine.cl)

2008

2009

Earthquake reconstruction On 27 February 2010, Chile was hit by an earthquake that, at 8.8 on the Richter scale, was the fifth largest recorded in the world and was, moreover, followed by a tsunami. The area affected is home to 80% of the country's population and some US$30 billion in damage was caused, including US$21 billion in infrastructure. According to government estimates, just over half of this latter amount corresponded to public infrastructure. In response, the government of President SebastiĂĄn PiĂąera launched a four-year reconstruction plan under which it will spend US$8.4 billion, principally on housing, hospitals, schools, bridges, roads and ports. The plan is divided into four areas: Housing, Public Works, Healthcare and Education. Housing: US$2.3 billion Over the next two years, 135,000 state subsidies will be provided for the reconstruction of homes and 65,000 subsidies for the repair of damaged housing. Education: US$1.5 billion Over 1,000 state schools and hundreds of child daycare centers will be rebuilt or repaired, including equipment and technology, and, in some cases, prefabricated schools will be installed. Healthcare: US$ 2.1 billion Thirteen hospitals and over 50 primary healthcare centers will be rebuilt and 66 hospitals and over 100 healthcare centers will be repaired. In addition, 16 prefabricated, field or emergency hospitals will be installed and medical equipment will be replaced. Infrastructure and Public Works: US$1.2 billion In this area, 422 rural drinking water systems, 27 fishing quays, 6 rainwater drainage systems, 5 reservoirs, 8 riverbank defense systems, roads and bridges, ports and airports, public buildings and national monuments will be rebuilt or repaired.

The first South American member of the OECD In 2010, Chile formally became the 31st member of the Organisation for Economic Co-operation and Development (OECD) and its first South American member. It was, moreover, the first country to join the organization in ten years. The OECD was founded in 1961 and brings together the world's most developed economies to promote democracy and the free market and to seek common policies in areas such as sustainable development, employment, quality of life, financial stability and international trade. Chile's accession to the OECD involved a series of evaluations of its capacity to meet the organization's standards across many areas of public policy. This process also served as a tool for increasing convergence between Chile's policies and those of the OECD member states. Chile's membership of the organization is, therefore, a recognition of the standards of its policies and its progress in recent years. OECD member countries and year of accession North America:

Luxembourg (1961)

Canada (1961)

Norway (1961)

United States (1961)

Netherlands (1961)

Mexico (1994)

Poland (1996) Portugal (1961)

South America:

Slovenia (2010)

Chile (2010)

United Kingdom (1961) Czech Republic (1995)

Europe:

Slovak Republic (2000)

Germany (1961)

Sweden (1961)

Austria (1961)

Switzerland (1961)

Belgium (1961)

Turkey (1961)

Denmark (1961) Estonia (2010)

Pacific:

Spain (1961)

Australia (1971)

Finland (1969)

Japan (1964)

France (1961)

New Zealand (1973)

Greece (1961)

South Korea (1996)

Hungary (1996) Ireland (1961)

Middle East:

Iceland (1961)

Israel (2010)

Italy (1961)

Low country risk one of the world's lowest-risk countries. The EIU's countr y-risk ratings, which cover 120 e c o n o m i e s, t a ke a c c o u n t o f i n d i c a t o r s o f p o l i t i c a l , r e g u l a t o r y, t a x , l a b o r a n d macroeconomic stability and other measures of creditwor thiness.

Chile's low level of public debt, its sound macroeconomic policies, the integrity of its institutions and the health of its financial system have given it high foreign-currency s ove r e i g n r a t i n g s. A c c o r d i n g t o t h e R i s k Ranking, published by the Economist Intelligence Unit (EIU) in May 2010, Chile is

Risk Ranking (0 = minimum risk, 100 = maximum risk) Norway

10 16

Switzerland United States

Canada

20 21

Germany

Holland

Chile

France

Spain Peru

New Zealand

China

33 36

Australia United Kingdom

Japan

Italy

Mexico

India

Brazil

Uruguay

Colombia

Bolivia

Paraguay

Argentina

61 76

Irak

Zimbabwe 0

Source: Economist Intelligence Unit (www.eiu.com), May 2010.

Chile's Sovereign Ratings (As of May 2010) Fitch Ratings Standard & Poors MoodyÂ´s

A A+ A1

Source: Ratings agencies

100

In the eyes of country-risk ratings agencies framework as giving the country resilience in the face of the global financial crisis. "Chile's favorable credit profile also benefits form an economic policy framework designed to mitigate macroeconomic volatility, a condition particularly relevant given current global conditions," said the agency. It added that the positive outlook assigned to Chile's ratings reflected the view that it was better positioned than similarly-rated sovereigns to withstand the external crisis and improve its credit profile further once the world economy recovered.

Fitch Ratings (www.fitchratings.com), May 2010 In May 2010, Fitch held Chile's foreign-currency sovereign rating at A, with a stable outlook, basing this decision on the country's prudent macroeconomic policies. Similarly, it confirmed its A+ rating for local-currency debt, maintaining it within the investment-grade category, and held the country ceiling at AA. "Chile's comparatively strong institutions and solid macroeconomic policy framework have done well to shore up the economy and suppor t financial stability without endangering debt dynamics," said the agency.

Standard & Poor's (www.standardandpoors.com), March 2010

It also found evidence that credit supply in Chile is evolving well as the recovery of the world economy strengthened and, at home, the reconstruction process got underway, with a likely positive impact on credit.

In March 2010, Standard & Poor's reported that it expected Chile's risk rating to remain relatively stable in the short term, despite the earthquake. "While we expect a significant hit to growth -and to the recovery already underway- in the first half of the year, extensive reconstruction efforts are likely to bolster economic activity thereafter", stated the agency, adding that it had not, therefore, modified its projection of 5% GDP growth for Chile in 2010.

In March 2010, Fitch had confirmed Chile's A foreign-currency Issuer Default Rating (IDR) with a stable outlook. It then indicated that a pr udent macroeconomic policy framewor k, comparatively stronger institutions, sizeable fiscal stabilization assets and very low public and external debt ratios relative to similarly rated peers should allow it to address the economic and fiscal impact of the earthquake without affecting its risk rating. As a result, the agency did not anticipate short-term pressures on Chile's sovereign ratings.

It noted that Chile's very low debt, which was running at 3.2% of GDP in 2009, would enable it to increase expenditure in order to finance reconstruction. "We believe this will also allow the country to absorb any potential financial losses without affecting its creditwor thinessÂ&#x201D; it stated, adding that, "The Chilean government's policy track record affords it ample fiscal and monetary flexibility to respond to this domestic crisis, as it did in 2009 amid the global recession".

Moody's Investors Service (www.moodys.com), March 2010 After the February 2010 earthquake, Moody's maintained Chile's local and foreign-currency sovereign ratings at A1. "Chile's strong institutions and financial flexibility position it well to deal with the significant and regrettable human and economic toll", stated the agency. It added that, "Chile has over $11 billion in financial assets and its very low debt burden, less than 7% of GDP and one of the lowest among rating peers, allow it to ramp up borrowing, if needed".

Coface (www.coface.com), April 2010 Despite the earthquake, Coface also held its risk rating for Chile at A2, the highest in the region. It noted that, "the payment pattern of the private sector is improving progressively" and that, in 2010, the country should show a recovery in line with the rebound in the world economy and sustained demand from Asian countries. In addition, it anticipated a boost to economic activity from investment in the private sector, especially in mining and energy.

In March 2009, Moody's had raised Chile's longterm foreign-currency sovereign rating from A2 to A1, citing its solid institutional and public policy

COMPETITIVENESS

Free-market policies and openness to trade have

shaped Chile into a highly competitive economy.

In the 2010 World Competitiveness Yearbook, p u bl i s h e d by t h e I n s t i t u t e fo r M a n a g e m e n t Development (IMD) in May 2010, Chile took 28th place out of 58 economies. In the ranking led by Singapore, Hong Kong and the United States, it was placed just behind Japan (27 th), France (24 th) and the United Kingdom (21 st ) and ahead of the Czech Republic (29 th ), India (31 st ) and Spain (39 th ). As a result, it continued to lead Latin America where it was followed by Brazil (38 th ) and Peru (41 st ). The Yearbook analyzes 246 variables grouped into four areas: economic performance, business e f f i c i e n c y, g o v e r n m e n t e f f i c i e n c y, a n d infrastructure and knowledge. Chile obtained its best score for government efficiency where it ranked 14 th , including a 2 nd position for public finances. On business efficiency, it took 21 st place while on economic perfor mance and infrastructure, it ranked 26 th and 44 th, respectively. According to the IMD, Chile's strengths include the resilience of its economy to cyclical swings, its good management of public finances, its low gover nment debt, the low level of r isk of its financial system and the availability of competent executives and qualified engineers as well as improvements in the maintenance and development of infrastructure. The repor t also highlights the challenges that Chile faces in its bid to become ever more competitive. These include increasing employment e s p e c i a l l y a m o n g yo u n g p e o p l e, fo s t e r i n g e n t r e p r e n e u r s h i p, r a i s i n g p r o d u c t i v i t y a n d encouraging investment in R&D.

Chile in the IMD 2010 World Competitiveness Yearbook

IMD Competitiveness Ranking 2010 (selected economies, position*) 1

Singapore

Economic performance

Hong Kong

Selected criteria United States

Sweden

Domestic economy International trade International investment Employment Prices

Canada 16

Germany

Selected criteria

France

Public finances Fiscal policy Institutional framework Business legislation Societal framework

Japan

Chile

Czech Republic

India

Portugal

Brazil

Selected criteria Productivity Labor market Finance Management practices Attitudes and values

Italy

Position* 2 20 18 31 32

Business efficiency

Spain

32 38 8 39 6

Government efficiency

New Zealand

Position*

Position* 36 19 15 17 17

Peru

Infrastructure 45

Colombia

Selected criteria

Mexico

Basic infrastructure Technological infrastructure Scientific infrastructure Health and environment Education

Turkey

Argentina

Croatia

*Out of 58 countries considered in the IMD 2010 Ranking.

* Out of 58 economies. Source: Institute for Management Development (www.imd.ch)

Source: Institute for Management Development (www.imd.ch)

Position* 32 55 49 37 48

economy in the current slowdown with a comprehensive stimulus package".

In the 2009-2010 Global Competitiveness Index (GCI), published by the World Economic Forum, Chile took 30 th position out of 134 economies, ranking ahead of countries that included the Czech Republic (31 st ) and Spain (33 rd ).

The report also added that, "Chile's performance in the GCI is especially boosted by efficient and transparent institutions (35 th); highly developed infrastructure (30 th); and well-functioning goods (26 th), labor (41 st), and financial (32 nd) markets - the latter displaying the largest pension industry in the region. Completing the picture, Chile also boasts a sophisticated business sector (39 th ), effectively absorbing technology and knowledge coming from abroad, notably through FDI".

The GCI, which has been published since 1979, evaluates a country's potential for sustained economic growth and, in its 2009-2010 version, was led by Switzerland, the United States and Singapore. As in previous years, Chile ranked ahead of all other countr ies in Latin Amer ica and the Caribbean. Analyzing Chile's position, the WEF noted that, "the country's successful early and timely market liberalization and trade opening, as well as consistent macroeconomic management have resulted in extremely high growth rates over the last two decades or so. Notably, thanks to the countercyclical policies followed in recent times of high commodity prices, Chile is now, more than any other economy in the region, able to stimulate the

The GCI notes that Chile's challenges continue to lie in the quality of its educational system. Although it rose from 105th on primary education to 95th and from 50 th to 45 th on higher education, the report noted "the need for further upgrading if Chile is to catch up with best practice countries and establish an innovation-conducive environment".

WEF 2009-2010 Global Competitiveness Index (Selected economies, position*) Switzerland

United States

2 3

Singapore 7

Germany

Canada 15

Australia France

Ireland

25 30

Chile Czech Republic

Spain

Italy

Brazil

56 60

Mexico Uruguay

Colombia

69 78

Peru Argentina Ecuador

85 105

*Out of 134 economies. Source: World Economic Forum (www.weforum.org)

Competitive business costs Office Premises: In ter ms of the cost of office premises, Chile is attractive. A survey of office rentals published by CB Richard Ellis Global Research & Consulting in November 2009 compared total occupancy costs ("gross rents"), rather than just rental rates, for a typical 10,000 square-foot office in a Class A building in a prime location within a city. It found that Santiago was the 5th cheapest city (US$33 per year per square foot) out of 15 cities in Latin Amer ica, with lower costs than cities that included Bogotá, Mexico City, Rio de Janeiro, Buenos Aires and São Paulo. Referring to the impact of the financial crisis, the report noted that, "the Santiago office market for Class A and B space has proved remarkably stable through 2009, with only slight variations in vacancies and prices over the year Despite new buildings coming online, pent-up demand for quality space is not yet satisfied, so new product is quickly absorbed".

Research by the World Economic Forum, UBS and US-based CB Richard Ellis Global Research & Consulting identifies the city of Santiago in particular, and Chile in general, as one of the most competitive locations for international companies in terms of business costs, including taxation, office premises, labor, telecommunications and expatr iate costs. The UBS investment bank ranks Santiago as one of the least expensive cities in the world in its 2009 Prices and Earnings Report, putting it in 62nd position out of 73 cities in a ranking where first place indicates the most expensive city. Taking New York as the basis of comparison (New York = 100), Santiago scored 50 points excluding rents, and 36.9 points including rents. The study considers the cost of a basket of 122 products and services, including three rent categories, weighted in favor of Western European consumer habits. According to the report, Oslo, Zurich and C o p e n h a g e n a r e t h e wo r l d ' s t h r e e m o s t expensive cities.

Cost of office space (US$ per year per square foot)

Quito, Ecuador Lima, Peru Panama City, Panama Santiago, Chile San Juan, Puerto Rico Mexico City, Mexico Bogotá, Colombia Buenos Aires, Argentina São Paulo, Brazil Rio de Janeiro, Brazil

2004

2005

2006

2008

2009

14.83 18.95 16.72 21.15 39.44 35.20 16.72 23.53 21.66 24.85

14.83 17.84 16.72 21.81 39.44 35.20 16.72 23.53 26.40 28.92

14.00 14.50 13.50 19.50 26.50 27.00 19.00 20.00 31.00 39.00

24.53 21.96 29.77 34.87 31.76 41.66 35.50 53.20 75.13 68.77

17.84 22.25 32.05 33.00 34.71 39.36 41.34 49.86 81.81 87.47

Source: CB Richard Ellis Global Research & Consulting (www.cbre.com)

will not alter all market prices. They added that the earthquake occurred at a time when vacancy was running at around 4% and prices were stable. They also anticipated an increase in vacancy due to the large number of projects under construction. In 2010-2011, 200,000 m2 of Class A offices are expected to enter the market and this upward trend should persist through to 2013.

Experts from CB Richard Ellis Global Research indicated that the earthquake of 27 February 2010 will not have a long-term effect on office rentals since the increase in demand will be offset by the large number of new projects coming onto the market. In addition, they pointed out that, although earthquake-related requirements are short-term (six months to a year) and companies in this situation are prepared to pay more, the resulting distortion 24

The ease or difficulty of enforcing commercial contracts is measured using three indicators: the number of procedures involved from the moment a plaintiff files a lawsuit until actual payment and the associated time and cost (in court and a t t o r n ey fe e s ) ex p r e s s e d a s a p e r c e n t a g e of the value of the debt. In Chile, this requires 36 procedures as compared to 39.7 for Latin Amer ica and 30.6 for OECD countr ies while the time taken reaches 480 days (707 for Latin Amer ica and 462.4 for the OECD) at a cost equivalent to 28.6% of the debt's value (31.3% for the region and 19.2% for the OECD).

Business star t-up costs: According to Doing Business 2010, a repor t published by the World Bank, Chile is very competitive as regards busines s s t a r t - u p c o s t s. T h e s t u d y provides a snapshot of the business climate in 183 different economies, identifying r e g u l a t i o n s, p r o c e d u r e s a n d p o l i c i e s t h a t encourage or discourage investment, productivity and growth. The indicators p r e s e n t e d i n t h e r e p o r t c o ve r t e n t o p i c s : s t a r t i n g a b u s i n e s s , e m p l oy i n g w o r k e r s , enforcing contracts, getting credit, closing a business, register ing proper ty, protecting investors, dealing with licenses, paying t a xe s a n d t r a d i n g a c r o s s b o r d e r s. I n t h i s repor t, Chile took 49th position out of the 183 c ountr i es a nal yze d.

The Wor ld Bank also evaluates the degree to which investors are protected through disclosure of ownership and financial i n fo r m a t i o n a s r e f l e c t e d i n fo u r i n d i c a t o r s : the transparency of transactions ( D i s c l o s u r e I n d ex ) , d i r e c t o r s ' l i a b i l i t y, t h e ease with which shareholders can present l aw s u i t s a g a i n s t d i r e c t o r s ' a c t i o n s a n d t h e strength of investor protection. Scores range from 0 to 10, with higher values i n d i c a t i n g gr e a t e r p r o t e c t i o n fo r i nve s t o r s. On the Disclosure Index, Chile obtained a score of 7 as compared to a Latin American average of 4.0 and an OECD a ve r a g e o f 5 . 9 .

According to the repor t, entrepreneurs in Chile can expect to go through nine steps to launch a business, taking an average of 27 days at a cost equivalent to 6.9% of gross national income (GNI) per capita. In Latin America, an average of 9.5 steps is required as compared to 5.7 in OECD countr ies and the process takes 61.7 days (13 in the OECD) while the cost reaches 36.6% of GNI (4.7% in the OECD). In the repor t, the World Bank also calculated a Rigidity of Employment Index, a composite of three sub-indexes that measure how difficult it is to hire a new w o r ke r, h ow r e s t r i c t i ve r e g u l a t i o n s o n wor king hours are and how difficult it is to dismiss a worker. Each index assigns values between 0 and 100, with higher values representing greater r igidity. For Chile, the ove r a l l i n d ex s t a n d s a t 1 8 c o m p a r e d t o a regional average of 26.6 and an OECD average of 2 6. 4 .

Among the challenges that Chile faces, the Wor ld Bank mentions the time and cost required to resolve bankruptcies including cour t costs and the fees of insolvency practitioners, lawyers and a c c o u n t a n t s. T h i s t a ke s 4 . 5 ye a r s i n C h i l e a s c o m p a r e d t o a r e g i o n a l ave r a g e o f 3 . 3 ye a r s a n d a n O E C D ave ra g e o f 1 . 7 ye a r s. S i m i l a r l y, t h e R e c o v e r y R a t e , w h i c h m e a s u r e s t h e e f f i c i e n c y o f fo r e c l o s u r e o r bankruptcy procedures, expressed in terms of how many cents per dollar c l a i m a n t s r e c ove r f r o m t h e i n s o l ve n t f i r m , reaches 21.3 in Chile as compared to a Latin Amer ican average of 26.8 and an O E C D a ve r a g e o f 6 8 . 6 .

Chile is also very well positioned as regards R e g i s t e r i n g P r o p e r t y, w h i c h i s m e a s u r e d using indicators that include the number of procedures necessar y to transfer proper ty ownership, the time involved and the cost as a percentage of the property's value. In Chile, a transfer takes 31 days as compared to a regional average of 70.4 days and an OECD average of 25 days while the cost of transfer amounts to 1.3% of the proper ty's value as compared to an average of 5.9% for Latin A m e r i c a a n d 4 . 6 % fo r O E C D c o u n t r i e s . 25

Starting a Business Indicator Procedures (number) Time (days) Cost (% of income per capita) Minimum capital (% of income per capita)

Chile

Region

OECD

9.0 27.0 6.9 0.0

9.5 61.7 36.6 2.9

5.7 13.0 4.7 15.5

Region

OECD

16.7 225.0 210.8

15.1 157.0 56.1

Dealing with licences Indicator

Chile

Procedures (number) Time (days) Cost (% of income per capita)

18.0 155.0 97.8

Employing workers Indicator (*)

Chile

Region

OECD

Difficulty of hiring index Rigidity of hours index Difficulty of firing index Rigidity of employment index (**) Firing cost (weeks of salary)

33.0 20.0 20.0 18.0 52.0

34.4 21.2 24.1 26.6 53.0

26.5 30.1 22.6 26.4 26.6

(*) Index between 0 and 100 where 100 represents the most rigid regulation. (**) Average of the previous three indexes.

Registering a property Indicator

Chile

Region

OECD

Procedures (number) Time (days) Cost (% of property value)

6.0 31.0 1.3

6.8 70.4 5.9

4.7 25.0 4.6

Source: World Bank, Doing Business 2010 (www.doingbusiness.org)

Protecting investors Indicator (*) Extent of disclosure index Extent of director liability index Ease of shareholder suits index Strength of investor protection index

Chile

Region

OECD

7.0 6.0 5.0 6.0

4.0 5.3 6.0 5.1

5.9 5.0 6.6 5.8

Region

OECD

(*) Index between 0 and 7 where higher values represent greater protection.

Trading across borders Indicator

Chile

Documents to export (number) Time to export (days) Cost to export (US$ per container) Documents to import (number ) Time to import (days) Cost to import (US$ per container)

6.0 21.0 745.0 7.0 21.0 795.0

6.8 18.6 1,243.6 7.3 20.9 1,481.0

4.3 10.5 1,089.7 4.9 11.0 1,145.9

Enforcing contracts Indicator

Chile

Procedures (number) Time (days) Cost (% of claim)

36.0 480.0 28.6

Region 39.7 707.0 31.3

OECD 30.6 462.4 19.2

Closing a business Indicator

Chile

Region

Time (years) Cost (% of estate) Recovery rate (cents on the dollar)

4.5 15.0 21.3

3.3 15.9 26.8

Source: World Bank, Doing Business 2010 (www.doingbusiness.org)

OECD 1.7 8.4 68.6

Competitive business environment economic liberalization which, it argued, is unlikely to be called into question. The report also suggested that Chile will maintain an important advantage as compared to other Latin American countries and that, in 2014, its closest competitors will continue to be Mexico, in 35th position, and Brazil, which will also rise by one position.

Thanks to its political and economic stability, openness to trade and the legal security and stability it offers, Chile has maintained an attractive and dynamic business climate for investors. According to the 2010 Business E nv i r o n m e n t R a n k i n g s p u bl i s h e d by t h e Economist Intelligence Unit (EIU), Chile is the 15th most attractive place in which to do business and invest over the next five years. It achieved a score of 7.43 points out of a maximum of 10.

The ranking, which includes 82 of the world's largest economies, is based on over 90 factors that affect business development. It assesses a country's performance across ten key areas: political and institutional environment, macroeconomic stability, market opportunities, policy towards free enterprise, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labor market and infrastructure.

According to the EIU, Chile continues to lead Latin America and will remain an attractive place to invest among emerging markets in the period 2010-2014. The EIU anticipated that Chile will continue to progress, improving its global position, and noted that its score in the ranking is anchored in its long-standing commitment to

Best Places to Do Business 2010-2014 (*) 1

Singapore

Switzerland

Finland

Canada New Zealand

United States

Germany

Chile

Ireland

France

Mexico

Brazil

Peru Colombia

45 51 Source: Economist Intelligence Unit (www.eiu.org) * Out of 82 economies.

place, ahead of countries such as the United Kingdom, Japan and Germany and ratifying its position as the freest countr y in Latin A m e r i c a a n d t h e C a r i b b e a n . T h e I n d ex measures components of freedom that include bu s i n e s s, t r a d e, f i s c a l , m o n e t a r y, l a b o r, investment and financial freedom as well as the size of government, proper ty rights and freedom from corruption.

This positive business environment is based on a competitive free-market economy that has been highlighted by different Inter national rankings. In the Index of Economic Freedom 2010, published by the US-based Heritage Foundation and The Wall Street Jour nal, it obtained a score of 77.2 points, taking 10th

Index of Economic Freedom 2010 (*) Hong Kong

Singapore

2 3

Australia

Switzerland United States

Chile

United Kingdom

Luxembourg

Japan

Germany

23 34

Czech Republic Spain

36 41

Mexico

Peru Italy

74 113

Brazil China

140 Source: Heritage Foundation (www.heritage.org) * Selected economies out of total of 179.

Similarly, in the 2009 Economic Freedom of the World Report, published by Canada's Fraser Institute, Chile ranked 5 th in the world, up from 6th in the previous version of the Report which is based on objective data about 42 public policies and includes 141 countries that represent 95% of the world's population. In the ranking, Chile followed Hong Kong, Singapore, New Zealand and Switzerland and was ranked just above the United States. This achievement reflects a profound economic and social transformation anchored in the values of a free society and rigor in creating the institutional infrastructure of a democracy.

In a survey of the Best Cities for Doing Business in Latin Amer ica 2010, published by the AmĂŠricaEconomĂa magazine in May 2010, Santiago took second place, with a score of 90.94 points on the Urban Competitiveness Index (ICUR) after Miami (ICUR 100). The report drew attention to Santiago's "quality of life, political and economic framework, great facilities for doing business and good infrastructure as well as its simple and predictable tax system". In addition, the survey noted Santiago's low costs and identified it as the cheapest among the bestranked cities as regards human resources and real estate.

Solid Institutions For investors, one of Chile's main assets is its high level of political and economic stability and respect for public liberties, accompanied by state institutions that work well. The agenda of the government of President SebastiĂĄn PiĂąera, who took office in March 2010 for the next four years, includes the following key goals: 1. To increase GDP growth to an average annual rate of 6% in 2010-2014 and to create 1 million new jobs during this period; 2. To eliminate extreme poverty by implementing measures that include an Ethical Family Income, increasing that currently received by the country's poorest families; 3. To increase the quality and equity of education through measures that include a reform of the labor laws applying to teachers and improvements in their training; 4. To increase the quality and coverage of healthcare by building more hospitals and primary health centers; 5. To implement a state policy for small and mid-sized businesses that enables them to grow, develop and penetrate new markets by strengthening training and access to technology, fostering innovation and entrepreneurship, increasing their access to credit and simplifying official bureaucracy. These measures will also be accompanied by an effort to strengthen social policies to increase their coverage and quality, offering the country's citizens a comprehensive social protection network that satisfies their principal needs. In Chile, the judicial system has total independence and autonomy. It has, moreover, been modernized through a series of reforms that ensure ever easier access to justice.

CHILE, A RELIABLE PARTNER

In 2009, Chile exported goods worth US$53,024

table grapes, unrefined gold, fishmeal, apples, sawn wood, iron, pork and plywood. Together, these products accounted for 71% of total exports.

million, down by 21.7% on the previous year. This drop reflected the contraction of inter national economic activity, which was particularly marked in the first half of the year, and was explained by weaker demand for Chile's exports in its main markets, except for China, as well as by lower prices.

Sales of copper, Chile's most important export, showed a drop of 17% while exports of other mining products fell by almost 42%. Similarly, manufactured and non-traditional expor ts, which had shown a sustained increase in previous years, were down by around 20% and 15%, respectively.

Towards the end of the year, however, external conditions improved and expor ts showed a r e c ove r y, ex p a n d i n g a t a n a n nu a l ra t e o f almost 22% in the last quar ter and providing grounds for optimism about their performance in 2010.

Imports, which had been growing at an average annual rate of more than 20% since 2003, were also affected by the international situation and fell by 31.1% to US$39,707.9 million. As a result, the trade account showed a surplus of US$13,316 million, up by US$3,137 million on 2008.

In 2009, Chile's most important exports were copper, salmon, wood pulp, wine, molybdenum,

Foreign trade in goods, 2000-2009 (US$ billion) 80

67.7

66.5

58.7

53.0

53.7

50 44.0 41.3

39.7

35.9 32.5 30.5

30 22.9

21.7

19.2

17.1

18.3

16.4

18.2 15.8

17.9

0 2000

2001

2002

Exports

2003

2004

2005

Imports

Source: Central Bank of Chile (www.bcentral.cl)

2006

2007

2008

2009

Exports of goods, 2009 Total: US$53,024 million (% of total) Others 0.6%

Transport machinery & equipment 2.0%

Foodstuffs & live animals 18.5%

Beverages & tobacco 2.8%

Manufactures 41.7%

Non-food raw materials except fuels 29.3%

Chemicals & related products 4.2% Source: Central Bank of Chile (www.bcentral.cl)

Fuels & lubricants, minerals & related products 0.8%

A service-oriented economy interrupted by the international crisis and, in 2009, they dropped by 21.2% to US$8,507 million of which 57.3% corresponded to transpor t services.

In recent years, service industries have generated over half of Chile's GDP and around 70% of jobs. Through to 2008, service exports had been growing at more than 6% a year, but this trend was

Foreign trade in services, 2000-2009 (US$ billion)

11.4 10.8

11 9.9

10 9

8.5

7.8

7 5.7

5 4

4.1

5.1

5.0

4.8

8.5

7.8

7.1

6.8

9.6

9.0

6.0

5.1

4.4

3 2 1 0 2000

2001

2002

Exports

2003

2004

2005

Imports

Source: Central Bank of Chile (www.bcentral.cl)

2006

2007

2008

2009

International integration Vietnam: In November 2009, Chile and Vietnam held the fifth round of trade talks that began in October 2008. A study to determine the feasibility of an FTA between the two countries began in 2006.

Chile's open economy, combined with an active policy of bilateral, regional and multilateral trade agreements, has underpinned a steady increase in foreign trade in goods and services and in the country's international competitiveness. For imports from countries with which it does not have a trade agreement, Chile applies a flat-rate tariff which dropped to 6% in 2003 concluding a five-year program of annual onepercentage unilateral reductions. This program, along with Chile's Free Trade Agreements (FTAs) and its low level of non-tariff barriers, makes it one of the world's most open economies with an effective tariff of 1.2 % in 2009.

Analysis of some FTAs

Free Trade Agreements: Panama, China, United States, Canada, Mexico, South Korea, Central America, EFTA (Norway, Switzerland, Iceland and Liechtenstein), Australia, Colombia and Peru.

The Chile-European Union Association A gr e e m e n t , s i g n e d o n 1 8 N ove m b e r 2 0 0 2 and in force since 1 Febr uar y 2003, established the complete elimination of tariffs and non-tariff barriers on trade in g o o d s ( ex c l u d i n g o n l y s o m e f i s h i n g a n d agricultural products), divided into six categories depending on the period for this p r o c e s s w h i c h r e a c h e s a m a x i mu m o f t e n years. The Agreement's full implementation began on 1 March 2005 once the parliaments of the EU member states had approved the commitments to which they are par ty along with the EU (political dialogue, trade in services, investment, intellectual property and other aspects of cooperation).

Association Agreements: European Union (EU), Japan and P4 (New Zealand, Singapore and Brunei Darussalam as well as Chile).

In 2009, EU countries accounted for 18.5% of Chile's total exports. Its main euro zone markets were Holland, Italy, France, Spain and Germany.

Economic Complementation Agreements: Bolivia, Ecuador, Mercosur and Venezuela.

Since the Agreement came into force, tariffs have been totally lifted on 7,299 products, representing 92.4% of those negotiated (calculated on the basis of Chilean tariffs under the 2002 Harmonized Tariff Schedule). Export growth has been boosted by factors that include the increased competitiveness of Chilean products in the EU as a result of this tariff liberalization.

Chile has consolidated its position as an active international partner by building an extensive network of FTAs. These include:

Partial Scope Agreements: Cuba and India. Agreements under negotiation (as of May 2010): Turkey: In March 2009, Chile and Tur key successfully completed FTA negotiations. The agreement was signed by their respective authorities in July 2009 and is currently before Congress for ratification.

The Chile-US Free Trade Agreement, signed on 6 June 2003 and in force since 1 January 2004, consolidated and increased the access of Chilean products to the vast US mar ket, establishing clear long-ter m r ules for trade in ser vices and investment as well as trade in goods. Under the FTA, 97.1% of Chile's expor ts to the US have obtained tar iff-free access and, as from 1 January 2015, all trade between the two countries will be tariff-free.

Malaysia: In September 2009, a seventh round of trade talks took place between representatives of Kuala Lumpur and Santiago. Negotiations began in June 2007 following an agreement in December 2005 to undertake a study of the feasibility of a bilateral FTA.

garden produce, fish oil, pork and other p r o c e s s e d fo o d w h i l e t a r i f f s o n f r e s h a n d f r o ze n s a l m o n , a p p l e s a n d gra p e s w i l l b e eliminated over a per iod of ten years.

The United States accounts for 22% of global GDP and 19% of world impor ts and its mar ket is 148 times the size of the Chilean m a r k e t . T h e F TA i s s e e n a s p a r t i c u l a r l y impor tant in opening new oppor tunities for Chile's textile, clothing and footwear manufacturers, the agr icultural sector and service industries such as air and sea transport and telecommunications.

T h e C h i l e - S o u t h Ko r e a F TA , s i g n e d o n 1 5 Fe b r u a r y 2 0 0 3 a n d i n fo r c e s i n c e 1 A p r i l 2004, has led to an approximately three-fold increase in bilateral trade. By 2010, 6,938 Chilean products had obtained tariff-free a c c e s s t o t h e S o u t h Ko r e a n m a r ke t a n d a fur ther 59 products will be added in 2011, representing in total 93% of Chile's expor ts to this mar ket.

T h e C h i l e - C h i n a Fr e e Tr a d e A g r e e m e n t , signed on 18 November 2005 and in force since 1 October 2006, seeks to expand and diversify bilateral trade, eliminate barr iers to trade in goods, facilitate their movement a c r o s s b o r d e r s a n d fo s t e r c o n d i t i o n s fo r healthy competition in the free trade area. In addition, it seeks to create effective procedures for the Agreement's implementation and administration and for dispute settlement as well as to establish a framewor k for future bilateral, regional and multilateral cooperation in order to expand a n d r e i n f o r c e t h e F TA ' s b e n e f i t s .

This FTA has proved impor tant in expanding the range of Chile's expor ts to South Korea. This is reflected not only in the number of products but also in the number of expor ters, which rose from 288 in 2003 to 454 in 2009. The twenty trade agreements that Chile has in force with a total of 56 countries have, in practice, expanded its domestic mar ket of 16.9 million inhabitants to one of over 4.0 b i l l i o n p o t e n t i a l c l i e n t s a r o u n d t h e wo r l d . This approach has helped Chilean producers t o ex p a n d t o n e w m a r k e t s a n d i n 2 0 0 9 , despite the complex inter national situation, 7,517 companies expor ted 4,981 products to 191 countr ies.

With a population of 1.3 billion and sustained g r ow t h o f b e t w e e n 8 % a n d 1 0 % ove r t h e past decade, China is an ever more important player in the world economy. Under the FTA, tar iffs were immediately lifted on 92% of Chilean products and on 50% of China's expor ts. The Chilean products included copper and other minerals, market

Exports and imports: Main trade agreement partners, 2009 (US$ million)

China European Union United States Japan Mercosur South Korea Mexico Canada India EFTA Singapore New Zealand

Exports

Imports

12,292.0 9,564.5 5,940.3 4,840.3 3,633.3 3,084.2 1,426.3 1,190.8 1,030.2 437.7 111.7 21.8

23.2 18.0 11.2 9.1 6.9 5.8 2.7 2.2 1.9 0.82 0.2 0.04

5,135.5 6,631.7 7,250.3 1,346.3 7,984.5 2,163.8 1,183.9 726.9 278.9 279.4 63.0 33.8

12.1 15.7 17.1 3.2 18.8 5.1 2.2 1.7 0.7 0.7 0.1 0.08

Trade balance 7,156.5 2,932.8 -1,310 3,494.0 -4,351.2 920.4 242.4 463.9 751.3 158.3 48.7 -12.0

Source: Central Bank of Chile (www.bcentral.cl)

Foreign trade by region, 2009 (US$ million) Exports Asia Americas Europe Oceania Africa Total

24,084.5 15,950.2 10,463.6 459.6 223.2 53,024.1

Imports

45.4 30.0 19.7 0.9 0.4 100.0

10,111.8 20,626.5 7,031.9 259.6 289.6 42,377.5

% 23.9 48.7 16.6 0.6 0.5 100.0

Trade balance 8,421.5 -5,666.6 9,053.4 197.1 -1,459.0 8,845.9

Source: Central Bank of Chile (www.bcentral.cl)

Exports: Products, markets and companies, 1987-2009

1987 1990 1995 2000 2007 2008 2009

Products

Markets

Companies

1,400 2,300 3,647 3,749 5,264 5,161 4,981

120 122 157 175 194 190 191

3,666 4,100 5,817 5,666 7,917 8,240 7,517

Source: Prochile (www.prochile.cl)

GLOBALLY CONNECTED hile's por ts are an emblem of the C quantitative and qualitative progress

performance in seven areas that range from customs procedures, logistics costs (such as freight rates) and infrastr ucture quality to the ability to track and trace shipments, timeliness in reaching a destination and the competence of local operators.

achieved in many sectors of its economy as a result of economic liberalization and privatizations. Almost 90% of Chile's foreign trade is handled by its por ts and many p r o d u c t s, i n c l u d i n g c o p p e r c a t h o d e s a n d wood pulp as well as fr uit and vegetables, are increasingly container ized.

The World Bank also pointed out that highs t a n d a r d t r a d e l o g i s t i c s, o r t h e a b i l i t y t o connect with inter national mar kets, are cr ucial if developing countr ies are to increase their competitiveness, benefit from globalization and reduce pover ty in an ever more integrated wor ld.

In recent years, thanks to productivity gains, the capacity of Chile's por ts has tripled without a significant increase in their physical size, but with new equipment and logistics development. In this process, more than US$230 million has been invested in infrastructure, cranes and equipment i n c o r p o r a t i n g t h e l a t e s t t e c h n o l o g y.

C h i l e ' s o p e n n e s s t o t ra d e, b o o s t e d by i t s trade agreements with the world's main markets, is key for its economic growth. The maintenance of good transpor t links is, therefore, crucial and, over the next decade, w i l l c a l l fo r i m p o r t a n t i nve s t m e n t s i n i t s p o r t s. A c c o r d i n g t o t h e M i n i s t r y o f P u bl i c Wo r k ' s D i r e c t o r a t e o f Po r t s, t h e n ew resources envisaged between 2010 and 2020 will involve the development of m o o r i n g s i t e s w i t h a l e n g t h o f o ve r 3 0 0 meters and a depth of more than 14 meters for the ships of the future, including cr uise ships. This has been identified as a priority for state por ts, along with other improvements including, in the case of some por ts, better access roads. It is estimated that the total investment required will reach just over US$1 billion.

Chile's por ts are a mixed system comprising s t a t e - r u n fa c i l i t i e s fo r p u bl i c u s e, p r i va t e p o r t s t h a t a r e o p e n fo r p u b l i c u s e , a n d private por ts exclusively for the use of their ow n e r s. I n C h i l e, t h e r e a r e t e n s t a t e p o r t companies and 23 private por ts. Pr ivate fir ms act as mono-operators of concessioned mooring sites in six of the t e n s t a t e p o r t s a n d , i n t h e o t h e r s, d o s o under a multi-operator system in place since 1981. According to the Chilean Maritime and Por t Chamber, the countr y's por ts handled 79.1 million tonnes of cargo in 2009, led by Quintero in the Valparaíso Region with 12 million tonnes. It was followed by San Antonio (8.9 million tonnes) and Valparaíso (6.3 million tonnes). Container traffic d r o p p e d by 1 1 . 2 % i n 2 0 0 9 t o 2 , 7 5 1 , 1 5 9 T E U s ( L o a d c a p a c i t y o f a s t a n d a r d 2 0 ft container) of which the San Antonio Te r m i n a l I n t e r n a c i o n a l a c c o u n t e d f o r 23.37%, followed by the Valparaíso Terminal Pacífico Sur with 22.92%.

A shor ter-term challenge has, however, also b e e n p o s e d i n t h e fo r m o f r e p a i r o f t h e damage caused by the Febr uar y 2010 e a r t h q u a ke. T h i s a f fe c t e d m a i n l y p o r t s i n t h e Va l p a ra í s o a n d B í o - B í o R e g i o n s a n d , according to the Chilean Maritime and Por t Chamber, repair and reconstruction of those that suffered most damage, such as Talcahuano in the Bío-Bío Region, will cost around US$300 million. This will, however, be totally covered by insurance and it should be noted that most Chilean por ts withstood the ear thquake or suffered only minor damage that has, or is being, repaired and d o e s n o t a f fe c t t h e i r o ve r a l l o p e r a t i o n a l capacity. It is estimated that, within a year at the latest, the por ts in the worst hit areas will have recovered 100% of their capacity.

According to Connecting to Compete: Trade L o g i s t i c s i n t h e G l o b a l E c o n o my, a s t u d y p u bl i s h e d by t h e Wo r l d B a n k , C h i l e l e a d s Latin America on logistics infrastructure. In t h e s t u d y ' s L o g i s t i c s Pe r fo r m a n c e I n d ex ( L P I ) , C h i l e ra n ke d 3 2 n d o u t o f a t o t a l o f 150 countries. The Index reflects a country's 36

World container ship capacity Capacity

2010

2012*

2013*

Up to 2.000 2.000 a 4.000 Over 4.000 Total

2.534 1.084 1.331 4.949

2.653 1.167 1.709 5.529

2.658 1.172 1.813 5.643

* Forecast Source: Un Economic Commission for America and the Caribbean (ECLAC)

Containerized throughput, Latin America & Caribbean, 2009 (TEUs) Port 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Santos Colon Balboa Kingston Freeport Buenos Aires Cartagena Manzanillo Callao Caucedo Guayaquil Puerto Cabello Puerto Lim贸n-Moin San Antonio Valpara铆so S.P.R. Buenaventura Paranagua Rio Grande Itajai Montevideo

Country

TEU 2009

Brazil Panama Panama Jamaica Bahamas Argentina Colombia Mexico Peru Dominican Republic Ecuador Venezuela Costa Rica Chile Chile Colombia Brazil Brazil Brazil Uruguay

2,255,862 2,210,720 2,011,778 1,700,000 1,680,000 1,412,462 1,237,873 1,110,350 1,089,838 906,279 884,100 790,000 748,029 729,033 677,432 647,323 630,597 629,586 600,522 588,410

Source: Un Economic Commission for America and the Caribbean (ECLAC)

Road and airport infrastructure: new challenges benefits. These projects have not only reduced journey times but have also meant compliance with the highest international safety standards. Some of the most important projects implemented through the concessions system are:

In 2010, Chile's infrastructure concessions system celebrates the 17th anniversary of the award of its first contract. This model of public-private par tnerships is at the root of an impor tant transformation of Chile's road, port and airport infrastructure and of services in general and has, at the same time, proved a magnet for investments by different international operators. Indeed, according to the Association of Public Infrastructure Concession Companies (COPSA), seven of the world's ten largest developers of transport projects are present in Chile.

Panamerican Highway: Under the Public Works Concessions Program and its Build-OperateTransfer (BOT) system, over 1,500 km. of the Panamerican Highway - the backbone of Chile's road system - have been upgraded, bringing them up to high international standards. These contracts represented a total investment of more than US$3.7 billion.

In this process, private companies have invested over US$10 billion, representing a saving of at least US$6 billion in fiscal resources.

As a result, the Panamerican Highway is now a four-lane highway from La Serena in the north (Coquimbo Region) to Puerto Montt (Los Lagos Region) in the south. New high-speed highways also connect Santiago to nearby cities, including the main ports and beach resorts.

In 2009, Chile's public works concessions industry reported a 6% increase in operating income. As a result, the real return on concessioned assets reached 8.4%, almost a percentage point higher than in 2008, with a particularly marked increase in urban and inter-city roads and in infrastructure for the Transantiago public transport system in the capital, Santiago.

Urban highways: Under the Concessions Program, five urban highways were also built in Santiago, making Chile the first country in the world to have five interconnected highways using the same electronic tolling device (TAG). In April 2005, the first stages of the Costanera Norte and Autopista Central highways started operation.

In view of the positive results of these contracts, under which companies recover their investment in a period of up to 30 years, the system has also been extended to new areas such as agricultural irrigation and the construction of new prisons and hospitals.

Two highways built under this system - Costanera Norte and Vespucio Express - link Santiago to the city's airport and have significantly reduced journey times between the latter and the main business and residential neighborhoods of the eastern part of the city.

The modernization of road infrastructure in Santiago and of Chile's inter-city highways is perhaps the most evident sign of the system's impact and

The challenge now is to extend the concessions system to roads outside the capital that are currently managed by the state. Through longterm contracts, this program seeks to transfer the maintenance of paved roads to private companies. Contracts would be for 15 or more years and establish ser vice standards for a s p e c t s t h a t i n c l u d e s a f e t y, a e s t h e t i c appearance and the conser vation of state property.

A total of 18 international airlines operate in Chile, offering 80,000 flights a year. In 2009, 9.7 million passengers passed through Santiago's Arturo Merino BenĂtez (AMB) air por t, making it the 9th busiest in Latin America and one of the 50 busiest in the world. It was also selected as the second best South American terminal i n t h e 2 0 1 0 ve r s i o n o f t h e Wo r l d A i r p o r t s Awards, which identified Singapore's Changi air por t as the best in the world.

T h e e a r t h q u a ke o f Fe b r u a r y 2 0 1 0 m e a n t new challenges for both the public and pr ivate sector in ter ms of restor ing full c o n n e c t i v i t y. T h i s w a s p r o v i s i o n a l l y reestablished within hours of the ear thquake and, in April 2010, the Public Works Ministry announced a four-year reconstr uction plan wo r t h c l o s e t o U S $ 1 . 6 b i l l i o n . T h e l a r g e s t i nve s t m e n t , U S $ 9 6 7 m i l l i o n , c o r r e s p o n d s to its roads d i v i s i o n , fo l l ow e d by i t s p o r t s division (US$158 million) and water infrastructure (US$122 million). The gover nment anticipates that 100% of concessioned infrastructure will be operational by the end of 2010, with the BĂoBĂo and Maule Regions, the hardest hit by the ear thquake, requiring the largest investment.

This recognition can be attributed partly to the airport's expansion and modernization under the concessions system. Since the concession contract was awarded in 1997, investment in the airport has reached over US$190 million. It should be noted that Santiago's air por t resumed operations only 48 hours after the Februar y 2010 ear thquake and that, despite the ear thquake's magnitude, its installations suffered only minor damage Prisons: One of the main characteristics of the concessions system is the flexibility it offers for the incor poration of new types of projects. Examples of this include its use for the constr uction of new pr isons, public buildings, irrigation reservoirs and infrastructure for public transpor t. The first prison developed under the system opened in Rancagua in November 2005 and has been followed by pr isons in Iquique, La Serena, S a n t i a g o , Va l d i v i a a n d P u e r t o M o n t t . These projects represented an investment of US$175 million.

Airports: Over the past two years, Chileans have increasingly used air travel. In 2009, domestic traffic increased by 6% to 5 million passengers while international traffic reached 4.6 million passengers after three consecutive monthly increases in the last quar ter of the year.

Telecommunications Another sector in which Chile has achieved impor tant progress is telecommunications. Between 1987 and 1989, the state telephone c o m p a n i e s - C o m p a ñ í a d e Te l é fo n o s d e Chile (CTC), now Telefónica Chile, and the Empresa Nacional de Telecomunicaciones (Entel) - were privatized and the industr y is now entirely pr ivately-owned.

(SUBTEL), the number of connections increased four-fold, r ising from 165,676 in J a n u a r y t o 6 3 0 , 4 9 2 i n D e c e m b e r. T h i s represented an increase of 380.5% from 10% of total Internet connections in January to 27.5% in December when, as a result, fixed and mobile connections totaled 2,295,551.

The sector's contribution to GDP has shown a sustained increase and currently reaches 3.1%. In 2009, its activity was up by 6.9% on 2008, due pr incipally to an increase in p r e - p a i d m o b i l e t e l e p h o n y. T h e s e c t o r ' s development explains why many companies such as Delta Air Lines, Air France, BBVA, General Electric and McAfee have installed call centers and software development centers in Chile.

The industr y's development is explained by factors that include a high level of computer penetration, a sustained drop in access charges, the development of local content a n d a n i n c r e a s e i n bu s i n e s s c o n n e c t i v i t y. The main trends in Internet use include more widespread broadband access even among lower-middle sectors of the population, an i n c r e a s e i n ave r a g e c o n n e c t i o n t i m e, t h e m a s s i f i c a t i o n o f s o c i a l n e t wo r k s, a n d t h e g r e a t e r u s e o f I n t e r n e t fo r t r a n s a c t i o n a l activities. Internet will become progressively more impor tant as a source of infor mation and enter tainment and as a tool for consumer decisions.

Fixed-line telephony: Telecommunications p e n e t r a t i o n r a t e s i n C h i l e h ave m i r r o r e d trends in industrialized countries, with fixedline telephony showing a loss of impor tance as the population's main telecommunications vehicle. Internationally, fixed-line penetration has reached 17.8 per 100 inhabitants whereas, in Chile, it was r unning at 21.02 per 100 inhabitants in 2009 when there were a total of 3.5 million lines in operation.

T h e c h a lle n g e in t h e c o m in g ye a r s w i l l b e to increase broadband capacity and to provide wireless ser vices. To this end, the g ove r n m e n t ' s 2 0 0 7 - 2 0 1 2 S t ra t e g i c D i g i t a l Plan seeks to promote intensive use of information and communications t e c h n o l o g i e s ( I C T s ) i n C h i l e , fa c i l i t a t i n g e n t r e p r e n e u r s h i p a n d t h e d eve l o p m e n t o f the ICT industry while also increasing equity and social inclusion. Its goals include two million broadband connections, doubling the p r e s e n t nu m b e r, w i t h p a r t i c u l a r e m p h a s i s on rural and remote areas where the aim is t o p r o v i d e 9 5 % c o ve r a g e . I n a d d i t i o n , i t seeks to expand the ICT industry, to position Chile as the main Latin American center for the offshoring of technology services and to strengthen the role of the state in the acquisition of ICTs in order to improve the range of ser vices offered, promote the development of the ICT industry and improve e-gover nment.

M o b i l e t e l e p h o n y : Pe n e t ra t i o n o f m o b i l e telephony in Chile is almost twice the world average and on a par with rates in industrialized countries. In the early par t of this decade, its growth rate reached 50% and the number of subscribers rose from 5 million to 16.5 million in 2009 when, in December, penetration reached 96.7 per 100 inhabitants. I n t e r n e t : Chile also has a high level of Internet penetration and, in 2009, there were 1 . 6 m i l l i o n f i xe d - l i n e c o n n e c t i o n s , u p by 16.11% on 2008, with a household penetration rate of 36.72%. Broadband mobile access showed explosive growth in 2009 when, according to the U n d e r s e c r e t a r i a t fo r Te l e c o m m u n i c a t i o n s

Mobile Telephony in Chile

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Nยบ of subscribers

Annual growth

3,401,525 5,100,783 6,244,310 7,268,281 9,261,385 10,569,572 12,450,801 13,955,202 14,796,593 16,450,223

49.96% 22.42% 16.40% 27.42% 14.13% 17.80% 12.08% 6.03% 11.18%

Penetration Penetration (per 100 inhabs.) (% of households) 21.97 32.57 39.44 45.41 57.24 64.65 75.39 83.66 87.83 96.70

87.18% 129.28% 156.51% 175.97% 210.64% 250.43% 287.08% 316.70% 330.53% 361.72%

Source: Undersecretariat for Telecommunications (SUBTEL) (www.subtel.cl)

Penetration Rates 2009 (%) Fixed-line

Mobile

64.1 45.6 49.6 54.9 62.5 54.2 56.4 44.3 44.5 35.6 38.0 41.4 45.4 28.6 21.0 21.4 24.4 18.4

118.0 125.7 86.8 66.4 128.3 126.3 93.4 94.7 105.0 151.6 86.7 109.2 111.7 104.7 96.7 78.5 116.6 59.7

Switzerland Denmark United States Canada Germay United Kingdon France South Korea Australia Italy Japan New Zealand Spain Uruguay Chile Brazil Argentina World

Sources: International Telecommunication Union (ITU), Undersecretariat for Telecommunications (SUBTEL)

Information technologies 30th position out of 70 countries, up by two places on 2008. It obtained the best score in Latin Amer ica in five of the six categor ies a n a l y z e d : C o n n e c t i v i t y a n d Te c h n o l o g y Infrastructure (4.95), Business Environment (7.71), Cultural Environment (6.83), Legal Environment (7.40) and Consumer and Business Adoption (6.43). On Gover nment Po l i c y, i t t o o k s e c o n d p l a c e t o M e x i c o.

Numerous studies by international institutions underline Chile's status as a "wired" country. In its 2009 e-Readiness Rankings, the Economist Intelligence Unit (EIU) identified Chile as Latin America's most e-ready mar ket. The EIU's ranking compares the ebusiness environment of different countries, using almost 100 quantitative and qualitative cr iter ia. Chile obtained an overall score of 6.49 points (on a scale of 1 to 10), taking 41

E-readiness ranking 2009 (*) 1

Denmark Sweden

Holland

3 13

United Kingdon

France

Spain Chile

Czech Republic

31 40

Mexico

Argentina

Peru Venezuela

India

58 60

Ecuador

(*) Selected economies by position; score on scale of 1 to 10. Source: Economist Intelligence Unit (www.eiu.com)

promotion of gover nment use of ICTs, the availability of public ser vices online, local competition, the vision of the government in fostering technological development and the availability of telephone lines. Chile's main weaknesses, according to the ranking, are a low level of technology expor ts, expenditure on education and private investment in R&D a n d t h e c o s t o f m o b i l e t e l e p h o n e c a l l s.

In the Networked Readiness Index 2009-2010, published by the World Economic Forum, Chile took 40 th place out of 133 economies, ahead of all other Latin American countries and of countr ies that included India (43rd) and Thailand (47 t h ). The Networ ked Readiness I n d ex , w h i c h wa s f i r s t r e l e a s e d i n 2 0 0 0 , assesses a countr y's degree of preparation to participate in, and benefit from, developments in information and c o m mu n i c a t i o n s t e c h n o l o g i e s ( I C T s ) a n d reflects their increasing influence on the economic and social development of both industrialized and emerging economies. The Index considers three main components: the environment that a country provides for ICTs, the readiness of its main stakeholders (individuals, businesses, and gover nments) for the use of ICTs, and the level of ICT usage amongst these stakeholders.

Offshoring In the latest Globalization Index, released by E r n s t & Yo u n g i n c o n j u n c t i o n w i t h t h e Economist Intelligence Unit (EIU) in January 2010, Chile ranked ahead of all other Latin American countries with a score of 4.06 out of a maximum of 10.

In the case of Chile, the study found that the countr y's main strengths lie in efficient

In the Index, led by Singapore (7.29 points), Hong Kong (6.90) and Ireland (6.87), Chile

Global Services Location Index 2009 (*) India

China

Malaysia

Chile

Mexico

Brazil

United States

Costa Rica

Argentina

Canada

28 31

United Kingdom

South Africa

Spain

New Zealand

Australia Portugal

50 *(*) Selected economies out of a total of 50. Source: A.T. Kearney (www.atkearney.com)

oppor tunity to do more and better business at lower transaction costs and through new distribution channels. According to the Santiago Chamber of Commerce (CCS), Chile's digital economy accounted for sales of over US$27.2 billion in 2009, up by 14% on the previous year.

took 27th place. The study, which classified 60 countr ies according to their level of globalization in relation to GDP, considered f i ve c r i t e r i a : o p e n n e s s t o t r a d e , c a p i t a l m ove m e n t s, ex c h a n g e o f t e c h n o l o g y a n d ideas, labor movements and cultural integration. A . T. Ke a r n e y, a U S - b a s e d m a n a g e m e n t consultant, also found that Chile scores well a s a n o f f s h o r e l o c a t i o n fo r m u l t i n a t i o n a l c o m p a n i e s. I n Ke a r n ey ' s 2 0 0 9 G l o b a l Ser vices Location Index, Chile ranked 8th out of a total of 50 destinations and as the most attractive in Latin America. The report notes that political stability and favourable business enviroment are the main attractions of the country.

The market can be divided into three d i s t i n c t s e g m e n t s : i n f ra s t r u c t u r e, s o f t wa r e and ser vices; telecommunications; and ecommerce. The latter segment was the largest, with estimated sales of US$17.0 billion in 2009, representing an increase of 17% on 2008. The majority of these o p e ra t i o n s we r e bu s i n e s s - t o - bu s i n e s s a n d business-to-government transactions. According to the CCS, which classifies b o t h t y p e s o f t r a n s a c t i o n a s bu s i n e s s - t o business, they totaled over US$16.6 billion while business-to consumer sales of goods and services reached around US$437 million.

Digital economy and e-commerce E-commerce is now an established par t of t h e i n t e r n a t i o n a l e c o n o m y, o f f e r i n g a n

E-Commerce in Chile (US$ million)

17,037

14,558

12,115

10,250

8,520

6,753

3,972

2,231 1,446 341

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: Santiago Chamber of Commerce (www.ccs.cl)

banking operations carried out online rose from 6.8 million in 2000 to 151 million in 2009 while the number of transactions through ATMs reached 333 million, three times their level in 1998.

Sales of telecommunications services totaled around US$6.8 billion in 2009, led by emerging segments of the market such as broadband and mobile ser vices, while infrastr ucture, software and services are estimated to have accounted for sales of just over US$3.4 billion.

O ve r t h e n ex t few ye a r s, e - c o m m e r c e i s expected to continue to show high growth. In the medium term, the outlook is also extremely promising as the mar ket incor porates the g e n e ra t i o n t h a t gr ew u p w i t h c o m p u t e r s, mobile telephones and online social networks.

The use of Internet has been incorporated very rapidly by Chile's banking industry where it is becoming a standard tool. According to a study by the Superintendency of Banks and Financial Institutions (SBIF), the number of low-volume

E-government

of gover nments to move forward in eg ove r n m e n t a n d t h e u s e o f I C T s a s a t o o l fo r p r o v i d i n g s e r v i c e s , a n d m o n i t o r s t h e progress of different countr ies in providing d ig it a l p u blic s e r v ic e s.

Over the past two years, Chile has achieved encouraging progress in refor m and m o d e r n i z a t i o n o f t h e s t a t e a p p a ra t u s. A n increasing number of public institutions have not only begun to use Internet as a platform for the delivery of services to the community but have also improved their capacity for carrying out online transactions. Emblematic examples of e-government include the Internal R eve nu e S e r v i c e ( S I I ) , t h e g ove r n m e n t ' s ChileCompra electronic procurement service and the Civil Registry. Through the adoption of information technologies, these government services have facilitated interaction between the state and its citizens.

In this ranking, Chile took 34th position out o f 1 9 2 c o u n t r i e s, u p by s i x p l a c e s o n t h e previous version of the repor t. The ranking was led by South Korea, the United States, Canada and the United Kingdom. Within Latin America, Chile took second place a f t e r C o lo m b ia ( 3 1 s t ) . Chile obtained its best score for government development of online ser vices on which it took 18th position while on e-par ticipation, human capital and telecommunications infrastructure, it ranked 34th, 45th and 64th, r e s p e c t ive ly.

T h e U n i t e d N a t i o n s E - G ove r n m e n t S u r vey 2010 examines the willingness and capacity

E-Government Readiness Index 2010* 1

South Korea United States

Canada

Australia

New Zealand

Japan

17 21

Ireland

Colombia

Chile Uruguay

Italy

Mexico

56 61

Brazil

China

South Africa India

119 Source: United Nations (www.un.org) *Out of 192 countries

A GUARANTEE OF TRANSPARENCY

In Transparency International's 2009 Corruption

sector that is perceived to be corruption-free). This gave Chile 25th place in the index of 180 countries, tied with Uruguay as the best-ranked Latin American country.

Perceptions Index, released in November 2009, Chile obtained a score of 6.7 on a scale from 0 (a country perceived to have a highly corrupt public sector) to 10 (a country with a public

2009 Corruption Perceptions Index* New Zealand

1 2

Denmark

Singapore Switzerland

Australia

United Kingdom

United States

Chile

Uruguay

Portugal

32 63

Costa Rica Brazil

Mexico

89 106

Argentina Ecuador

146 Source: Transparency International (www.transparency.org) *Out of 180 economies

the new law, for training in its use and, in general, for fostering transparency in the public sector.

In 2003, a public administration statute (Law NÂ° 19.882) came into force in Chile, designed to lay the foundation of a professional civil service. It introduced new performance-based incentives and increased the oppor tunities for in-service promotion on merit, rather than senior ity. It includes a selection procedure based on open competition that has gradually reduced the number of political appointees in public posts. In addition, all top-level public officials and those who are directly or indirectly responsible for the acquisition of goods or services must now provide statements of assets and interests, which are posted on both the corresponding agency's website and that of the Comptroller General's Office.

ChileCompra marketplace Chile's e-gover nment system is considered one of the most advanced in Latin America and a model of best practices, not only because o f t h e va r i e t y o f s e r v i c e s a n d r a n g e o f information it provides but also because of its high level of use, efficiency and transparency. This is par ticular ly the case of the public sector's e-marketplace, ChileCompra (www.chilecompra.cl), a centralized system for procurement of goods and services launched in 2003 to the benefit of both public services and their private suppliers.

In 2005, Law NÂ° 20.054 on campaign finance was approved. This regulates political par ty financing and, as well as introducing new disclosure requirements on the source and amount of contributions, makes some direct public financing available to political par ties and establishes caps on election spending.

Over 850 state institutions, including ministries, municipal gover nments, hospitals and the armed forces, use ChileCompra's platform for tenders (www.mercadopublico.cl) and, along w i t h s o m e 8 0 , 0 0 0 c o m p a n i e s, c a r r y o u t approximately 1.6 million transactions each year for a value of US$4.5 billion. This system can also be used for international tenders in which overseas companies par ticipate.

Since 2006, all state agencies are obliged to post on their websites details of all the g o o d s a n d s e r v i c e s t h ey a c q u i r e a n d t h e monetary transfers they make, along with all the norms, regulations, decisions and measures that affect third par ties. Similarly, they must publish and per iodically update i n fo r m a t i o n a b o u t c o n t r a c t o r s a n d o t h e r persons receiving remunerations from the state, including their tax identification number and those of their partners and main shareholders.

Governance indicators In relation to transparency and good practices, the Wor ld Bank publishes a repor t on governance indicators. According to the World Bank, governance - defined as the traditions and institutions under which authority is exercised for the common good of a country - is reflected in six dimensions or cr iter ia: Vo i c e & A c c o u n t a b i l i t y, Po l i t i c a l S t a b i l i t y, Government Effectiveness, Regulatory Quality, R u l e o f L aw a n d C o n t r o l o f C o r r u p t i o n . I n order to measure these cr iter ia, the Wor ld Bank condenses several hundred individual variables drawn from data sources c o n s t r u c t e d by 3 3 d i f fe r e n t o r g a n i z a t i o n s.

In August 2008, Law NÂş 20.285 came into effect, regulating the principle of transparency in the public sector and the right of access of the country's citizens to information held by public services. This law, which came into force on 20 April 2009, means that practically all i n fo r m a t i o n a b o u t t h e d e c i s i o n s o f s t a t e a g e n c i e s i s n ow p u bl i c . T h e C o u n c i l fo r Transparency, an autonomous body, supervises compliance with the law and is empowered to issue instructions, apply sanctions and settle disputes when a person requesting information is not satisfied with the response. The Council is also responsible for public education about

The World Bank's 2008 Gover nance Indicators, released in June 2009, cover 212 countr ies or terr itor ies and ratified Chile's 47

Spain (84.5) and close to the OECD average (90.2). This indicator reflects the extent to which public power is exercised for private gain and the capture of the state by private interests.

status as one of the world's most transparent countries. Chile obtained its best score for Regulatory Quality, the indicator used by the Wor ld Bank to measures the incidence of m a r ke t - u n f r i e n d l y p o l i c i e s, s u c h a s p r i c e controls or inadequate bank supervision, as well as perceptions of the burdens imposed by ex c e s s i ve r e g u l a t i o n i n a r e a s s u c h a s foreign trade and business development. On this indicator, Chile ranked in percentile 92.8, putting it on a par with the United States (93.2), above the OECD average (91.2) and ahead of countr ies that included Ger many (91.3), Spain (88.4), France (87.0), Japan ( 8 6 . 5 ) , Po r t u g a l ( 8 4 . 1 ) a n d I t a l y ( 7 8 . 7 ) .

Chile's position of Government Effectiveness (84.8) was also ver y similar to the OECD average (88.7) and that of countries such as South Korea (86.3), Japan (89.1) and France (90.0). Moreover, it ranked ahead of countries t h a t i n c l u d e d t h e C ze c h R e p u bl i c ( 8 2 . 5 ) , Por tugal (82.0) and Spain (80.1). In the case of Voice and Responsibility, which measures the extent to which a countr y's citizens are able to par ticipate in selecting their government and the freedom of the press to monitor the authorities and hold them accountable for their actions, Chile's position in percentile 76.9 meant that it perfor med better than Italy (76.4) and Japan (76.0).

Chile also performed very well on Rule of Law, ranking in percentile 88.0, close to the OECD average (90.2) and ahead of Spain (85.2), Portugal (83.7) and the Czech Republic (77.0). This indicator measures the extent to which agents have confidence in and abide by the r u l e s o f s o c i e t y, i n c l u d i n g t h e q u a l i t y o f contract enforcement, proper ty r ights, the police and the courts as well as the likelihood of crime and violence.

Finally, on Political Stability, or the likelihood that the gover nment will be destabilized by unconstitutional or violent means, including terror ism, Chile ranked in percentile 66.0, a h e a d o f I t a l y ( 6 0 . 3 ) , S o u t h Ko r e a ( 5 9 . 8 ) and Spain (42.6).

On Control of Corr uption, Chile ranked in percentile 87.0, ahead of Japan (85.5) and

PROVEN LEGAL CONFIDENTIALITY

The rules regulating foreign investment establish in

Investment regimes

Principles governing foreign investment in Chile

Foreign capital entering Chile must use one of two mechanisms envisaged under the country's legislation: Chapter XIV of the Chilean Central Bank's Compendium of Foreign Exchange Regulations or the Foreign Investment Statute established in Decree Law 600 (DL 600). Foreign investors can freely choose which mechanism to use and must then comply with the legal requirements of the chosen mechanism.

a harmonic and systematic manner the commitments and provisions applying to foreign capital entering Chile. This framework comprises both constitutional and legal provisions.

The principles on which regulation of foreign investment is based are enshrined in Chile's Political Constitution and include equality before the law, economic freedom and non-discrimination.

Chapter XIV of the Chilean Central Bank's Compendium of Foreign Exchange Regulations

1.- Non-discrimination: This principle derives from the constitutional guarantee of equality before the law and ensures that, in economic matters, foreign investors receive the same, or no less favorable, treatment as local investors from the state and its agencies.

This mechanism establishes the general regime for the entry of foreign capital into Chile, guaranteeing its free access to the country's formal foreign exchange market. In the case of operations of more than US$10,000, or the equivalent in other currencies, the entry of currency under Chapter XIV must be channeled through the formal foreign exchange market.

2.- Non-discretionary treatment: Procedures relating to foreign investment must be clear and transparent and administrative decisions cannot be in any way subjective, thereby providing a guarantee that foreign investors will receive fair treatment.

Capital entering Chile under Chapter XIV is subject to the corresponding general regulation regarding access to the foreign exchange market and the repatriation of capital, as well as any other right or obligation established in this regulation. Capital brought in under Chapter XIV cannot subsequently apply to be subject to the provisions of DL 600.

3.- Economic freedom: Free access to all sectors of the economy is guaranteed and only the law can, in exceptional circumstances, reserve a certain sector for domestic investment. Article 19 Nยบ 21 of Chile's Political Constitution guarantees the right to develop any economic activity within the framework of the corresponding regulation, providing it is not contrary to morality, public order or national security.

Investment Contract. This stands at US$5 million for investments in currency and US$2.5 million for investments taking other forms.

DL 600 Foreign Investment Statute The origins of DL 600 date back to the 1970s when Chile radically modified its foreign investment policy, abandoning a restrictive regime established within the framework of the Andean Pa c t i n favo r o f o n e a n c h o r e d i n n o n discrimination and limits on the discretionary powers of the administrative authorities. This new regime offered foreign investors greater guarantees and incentives through Decree Law 600, the Foreign Investment Statute, which came into force in its original form in August 1974.

Requirements for signing a DL 600 contract DL 600 can be used by: a. Foreign individuals b. Foreign legal entities including: - Companies (in all their legal forms) - Corporations and foundations - Foreign States - International organizations c. Chilean individuals and legal entities resident and domiciled abroad.

This regime is based on legal and economic p r i n c i p l e s e n s h r i n e d i n C h i l e ' s Po l i t i c a l Constitution. This has the maximum legal hierarchy and, on matters referring to economic public order, guarantees economic freedom and private property rights.

Investor rights under DL 600

The original text of DL 600 was ratified by Congress in March 1993, with only minor modifications. The ongoing existence of this law over time reflects the impor tance that Chile attaches to a stable, long-term foreign investment policy.

Signing of a foreign investment contract: Under this optional regime, foreign investors bringing capital, tangible assets or other forms of investment into Chile request to sign a Foreign Investment Contract with the State of Chile. This contract establishes rights and obligations for both parties and cannot be modified or rescinded unilaterally by either party.

Since 1974, the majority of foreign investors have chosen to use this mechanism. By 2009, foreign investment worth almost US$74.9 billion h a d b e e n m a t e r i a l i ze d t h r o u g h D L 6 0 0 , representing 67.3% of the foreign capital effectively entering Chile during that period. One of the key reasons why foreign investors prefer DL 600 is that, as well as including the principles of non-discrimination, non-discretionary treatment and economic freedom, it also provides legal certainty and stability.

Access to the formal foreign exchange market: An investor is guaranteed access to the for mal foreign exchange mar ket, both for incoming capital and for acquiring the currency to remit capital or profits. Capital and profit remittances: In order to encourage investment in the production of goods and services, investors are entitled to remit capital one year after its entry. No tax or other levy applies to such remittances up to the amount of the investment materialized.

A Foreign Investment Contract is a for mal contract signed by a foreign investor and the State of Chile, setting out the r ights and obligations of investors using DL 600 and the commitment of the State of Chile to authorize the transfer of foreign capital under the terms of this law. Under DL 600, a foreign investment is only considered as such - and the foreign investor only acquires the status of foreign investor once the corresponding capital has been transferred to Chile.

Foreign currency for these remittances can only be acquired with the proceeds of the total or partial sale or liquidation of the shares or rights corresponding to the foreign investment. Profits can be remitted at any time, once the investor has paid the corresponding taxes as demonstrated with a payment receipt.

The Foreign Investment Committee may set a minimum amount for applications for a Foreign

For the remittance of both capital and profits, the investor can use the most favorable exchange 50

at the time of the remittance (currently 3 5 % ) , bu t c a n n o t s u b s e q u e n t l y r e t u r n t o t h e s p e c ia l r e g im e.

rate available on the formal foreign exchange market after obtaining a cer tificate from the Executive Vice-Presidency of the Foreign Investment Committee.

- Indirect taxes: Foreign investors can request that their investment contracts stipulate that, during the investment's implementation, they will not be liable for changes in taxes on sales and services and impor t tariffs on machinery and equipment not produced in Chile and included in a list complied for this purpose by the Ministry of Economy. Goods that comply with these conditions will be exempt from payment of the corresponding value-added tax (VAT).

Free access to all sectors of the economy: Within the limits established by Chilean law, investors can undertake any type of economic activity. Right of appeal in case of discrimination: Ar ticle 9 of DL 600 establishes the principle of non-discrimination, guaranteeing that, in t h e exe r c i s e o f t h e i r bu s i n e s s a c t i v i t i e s, foreign investors operating under this law will be subject to the same laws and regulation a s l o c a l i nve s t o r s i n t h e s a m e s e c t o r o f activity.

- Invariability of specific mining tax: On 1 6 Ju n e 2 0 0 5 , L aw 2 0 . 0 2 6 wa s p u bl i s h e d in the Official Gazette, establishing a specific tax on mining activities. This m o d i f i e d D L 6 0 0 by i n c o r p o r a t i n g A r t i c l e 1 1 t e r, l o c k i n g i n t h e r a t e o f t h i s t a x fo r i nve s t o r s s i g n i n g n ew Fo r e i g n I nve s t m e n t Contracts for mining projects wor th at least US$50 million. Investors with existing Contracts who wish to use this special regime cannot be making use of the invar iability regimes established in Ar ticles 7 and 11 bis of DL 600 or must cease to do s o w h e n a p p l y i n g t o u s e A r t i c l e 1 1 t e r.

I n o r d e r t o e n s u r e t h e e f fe c t i ve n e s s o f this guarantee, Ar ticles 9 and 10 of DL 600 e s t a bl i s h a n a d m i n i s t ra t i ve p r o c e d u r e t o prevent or overturn decisions that are at odds with the principle of non-discrimination. Article 10 of DL 600 regulates this procedure and requires that appeals be filed against "legal regulations" that can be "deemed discriminator y". The first condition refers to whether an appeal is admissible and the second to the grounds on which it can be accepted.

Types of capital contribution under DL 600

Tax regime: All persons domiciled in Chile must pay taxes on income wherever it is generated, while non-residents are liable to tax only on income generated in Chile. All Chilean companies must pay 17% corporate tax. Foreign investors are liable for an additional tax on profit remittances and may choose between one of two regimes:

Freely convertible foreign currency, brought in through its sale to an entity authorized to operate in the formal foreign exchange market; this can be conver ted at the most favorable rate available to the investor; Tangible assets, in all their forms or states, brought in under the general norms applying to impor ts without exchange-rate coverage and valued according to the general procedures applying to impor ts;

- Standard regime: The additional tax on profit remittances is currently 35%, against which investors can credit the 17% corporate tax. As a result, the additional tax paid by an investor cannot exceed 35%.

Te c h n o l o g y, i n i t s d i f f e r e n t f o r m s provided it may be capitalized. This will be valued by the Foreign Investment Committee on the basis of its real pr ice on t h e i n t e r n a t i o n a l m a r ke t w i t h i n a p e r i o d o f 120 days. If the valuation is not completed w i t h i n t h i s p e r i o d , t h e va l u e g i ve n by t h e investor in an affidavit will be used.

- Special regime: Foreign investors can choose to use an invariable tax regime under which the rate of additional tax on profit r e m i t t a n c e s i s 4 2 % , b u t that c a n n o t b e m o d i f i e d d u r i n g a p e r i o d o f t e n ye a r s. A n i nve s t o r c a n ex i t f r o m t h i s r e g i m e a t a n y time in favor of the standard regime in force 51

Ownership or rights to the use of technology that for ms par t of a foreign investment cannot be sold separately from the company t o w h i c h i t wa s c o n t r i bu t e d , nor can it be considered for amor tization or depreciation;

of any type, must be those currenty authorized or authorized in the future by the Central Bank of Chile. These associated loans may not exceed 75% of the total value of the authorized investment;

Loans associated to an investment. The g e n e ra l n o r m s, t e r m s, i n t e r e s t a n d o t h e r conditions applying to an overseas loan as well as the charges that may be made as part of the total cost paid by the borrower, including commission charges, taxes and expenditure

Capitalization of loans and foreign debt, in freely conver tible currency, providing these have been obtained with due authorization; Capitalization of profits, which the investor is entitled to remit overseas.

FOREIGN INVESTMENT IN CHILE

Foreign direct investment (FDI) has played a

Chile has achieved widespread international recognition for its success in attracting FDI. According to the 2009 World Investment Report, published by the United Nations Conference on Trade and Development (UNCTAD), the stock of FDI in Chile reached 59.6% of GDP in 2008 as compared to a world average of 24.5% and, in developing countries, 24.8%.

decisive role in Chile's economic growth and development. Incoming FDI has maintained an upward trend, helping to increase Chile's competitiveness not only through resources and new markets but also through technological d eve l o p m e n t a n d s p e c i a l i ze d k n ow - h ow.

Stock of FDI/GDP (selected economies, %)

Brazil Chile China Korea Czech Republic Hungary India Indonesia Ireland Malaysia Mexico South Africa Australia Canada Spain United States France New Zealand United Kingdom Developing countries World

1990

2000

2008

8.5 48.1 5.1 2.0 1.5 0.5 6.9 79.4 23.4 8.5 8.2 23.2 19.4 12.7 6.8 7.9 18.1 20.6 13.8 9.1

19.0 60.8 16.2 7.1 38.2 47.7 3.7 15.2 131.9 56.2 16.7 32.7 28.6 29.3 26.9 12.9 19.5 47.3 30.4 25.1 18.1

18.3 59.6 8.7 9.8 52.7 41.4 9.9 13.1 63.7 33.0 27.1 43.2 27.4 27.5 39.6 16.0 34.7 42.3 36.9 24.8 24.5

Source: World Investment Report 2009, UNCTAD (www.unctad.org)

UN Economic Commission for Latin America and the Caribbean (ECLAC). The study found that, relative to GDP, Chile was the region's largest FDI recipient and, in terms of net amounts, took second place after Brazil, with Mexico in third place.

In 2009, FDI in Chile reached US$12,702 million, down by 16% on the previous year. However, this occurred in a context in which global FDI contracted by 39% and inflows into South America fell by 40%, according to Foreign Direct Investment in Latin America and the Caribbean, a report by the

Materialized FDI in 2009

The second largest single project was the development of the Esperanza mine by Los Pelambres Investment and Japan's Marubeni, which is expected to star t operations in late 2010. An impor tant equity contribution was a l s o m a d e by N o r way ' s D n B N O R b a n k , which provides financing for the fish farming, f i s h i n g a n d s h i p p i n g s e c t o r s a n d fo r t h e development of renewable energies.

In 2009, FDI wor th US$11,154 million was materialized in Chile. Out of this total, US$6,072 million entered through Chapter XIV of the Central Bank's Compendium o f Fo r e i g n E x c h a n g e R e g u l a t i o n s ( C F E R ) while US$5,082 million was channeled through the DL 600 Foreign Investment Statute. This was the third largest amount to enter under this mechanism in ten years and, although marginally below the historic record of 2008, consolidated the recent trend of FDI. It w a s , m o r e o v e r, c o n s i d e r e d p a r t i c u l a r l y s i g n i f i c a n t g i ve n t h e e c o n o m i c c o n d i t i o n s p r eva i l i n g i n 2 0 0 9 .

I nve s t m e n t i n m a n u fa c t u r i n g wa s l e d by a c q u i s i t i o n s by i m p o r t a n t L a t i n A m e r i c a n companies. These included the acquisition by Peru's Grupo Brescia of Cemento Mel贸n Lafarge, one of Chile's largest producers of cement and concrete, and the sale by Chile's Aresti group of its rice, pulses and olive oil bu s i n e s s t o B r a z i l ' s C a m i l A l i m e n t o s , a leading regional food producer. In addition, US-based OPKO Health acquired Phar ma Genexx.

The ser vices sector accounted for 60.5% of FDI materialized through DL 600 in 2009, followed by mining (19.9%), manufactur ing (9.0%) and the e l e c t r i c i t y, g a s a n d w a t e r s e c t o r ( 6 . 0 % ) . A l a r g e p a r t o f i nve s t m e n t i n t h e s e r v i c e s sector was explained by the acquisition of the D&S supermarket chain by USb a s e d Wa l m a r t .

I n t h e e l e c t r i c i t y, g a s a n d w a t e r s e c t o r, I t a l y ' s A s t a l d i j o i n e d Au s t r a l i a ' s Pa c i f i c H y d r o i n Fe G ra n d e C a c h a p o a l w h i l e S N Po w e r a n d E T C H o l d i n g i n c r e a s e d t h e i r investments in Chile.

Registers and statistics: FDI under DL 600 The Foreign Investment Committee prepares its statistics on the basis of registers of the capital movements made by investors who have signed a contract with the state of Chile. Materialized investment is, therefore, the sum of all the different forms of capital entering the country under DL 600 and is defined in gross terms or, in other words, considering only inflows. The disaggregated information that is provided refers only to DL 600. It defines the country where an investor's headquarters are located as the investment's country of origin and, in the case of disaggregation by sector, considers the sector in which the project will be developed. Information about remittances is published annually on www.foreigninvestment.cl. These statistics may differ from those published by the Central Bank of Chile in the balance of payments due to methodological differences related principally to the way in which associated loans, reinvested profits and investment funds are recorded.

FDI by investment mechanism

and 2009, investments for US$74,901 million, representing 67.3% of total gross FDI inflows, used this mechanism.

Between 1974 and 2009, FDI worth US$111,353 million was materialized in Chile while, according to the Foreign Investment Committee's statistics, net FDI entering the country reached US$70,558 million.

An alternative investment mechanism, Chapter XIV of the Central Bank's Compendium of Foreign Exchange Regulations (CFER), also exists under which foreign investors must comply with registration procedures.

Since Chile's Foreign Investment Statute (DL 600) came into force in 1974, most large foreign investors have chosen to use this mechanism under which an investor signs a contract with the state of Chile for the transfer of capital or other forms of investment and receives a number of specific guarantees and rights. Between 1974

A third mechanism, Chapter XIX of the CFER, played an important role between 1985 and 1991 when it was used for investments totaling US$3,600 million, mainly in the manufacturing and services sectors.

Foreign Direct Investment by Inflow Mechanism, 1974 - 2009 (US$ million) Mechanism / Period

19742004

2005

2006

2007

2008

2009

Foreign Investment Statute (DL 600) - Equity - Associated loans Total DL 600

44,265 14,053 58,318

1,646 153 1,799

2,067 1,114 3,181

1,293 66 1,359

4,516 646 5,162

2,352 2,730 5,082

Chapter XIV (CFER) - Equity - Other capital (loans) Total Chapter XIV

9,037 3,392 12,429

1,531 599 2,130

2,465 299 2,764

5,683 379 6,062

5,448 1,547 6,995

2,757 3,315 6,072

70,747

3,929

5,945

7,421 12,157 11,154

8,525 9,448 17,973

1,996 582 2,578

1,986 1,328 3,314

594 423 1,017

597 303 900

453 694 1,147

1,368 2,376 3,744

294 619 913

94 1,354 1,448

875 442 1,317

1,507 632 2,139

2,089 2,216 4,305

21,717

3,491

4,762

2,334

3,039

5,452

Total FDI materialized (D,L, 600 + Chapter XIV) Remittances Foreign Investment Statute (DL 600) - Repatriation of capital - Loan repayments Total DL 600 Chapter XIV - Repatriation of capital - Other capital (loan repayments) Total Remittances (DL 600 + Chapter XIV)

Sources: Foreign Investment Committee (www.foreigninvestment.cl) and Central Bank of Chile (www.bcentral.cl) Provisional figures as of 31 December 2009.

Foreign Direct Investment by Inflow Mechanism: gross inflows, 1974-2009 (%) Mechanism

19742009

2005

2006

2007

2008

2009

65.2

45.8

53.5

18.3

42.5

45.6

Equity

48.9

41.9

34.8

17.4

37.2

21.1

Associated loans

16.3

3.9

18.7

0.9

5.3

24.5

31.7

54.2

46.5

81.7

57.5

54.4

23.4

39.0

41.5

76.6

44.8

24.7

8.3

15.2

3.1

0.0

Foreign Investment Statute (DL 600)

Chapter XIV Equity Other capital (loans) Chapter XIX Total

100.0

5.1

12.7

29.7

0.0

5.0

0.0

100.0

Sources: Foreign Investment Committee (www.foreigninvestment.cl) and Central Bank of Chile (www.bcentral.cl)

FDI trends

collapsed globally while a drop in share prices and weaker cor porate ear nings led many multinational companies to suspend or cut back expansion plans. To some extent, this trend represented a return to more sustainable and realistic FDI levels, after the so-called "investment bubble" of the 1990s during which global capital flows reached record levels.

Over the past decade, FDI has represented an annual average 6.5% of Chile's GDP, rising to an average of 8% in the period 2007-2009. Between 2001 and 2003, the mergers and acquisitions (M&A) market - previously the driving force of FDI around the world and in Chile -

FDI in Chile * (% of GDP)

14 12.0

10 8.7 7.5

8 6.4

6.5

6.4 5.8

6.1

7.7

7.6 5.9

5.8

5.0 3.8

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

* Includes investments through Chapter XIV, Chapter XIX and the Foreign Investment Statute (DL 600). Source: Central Bank of Chile (www.bcentral.cl)

2009

level in the previous three years. This reflected a recovery of investors' confidence in the country and, above all, a continuation of their expansion projects.

Moreover, FDI flows into Latin America were also heavily affected by instability in some of the region's countries and the heavy losses sustained by a number of investors. As a result, risk aversion - accentuated by shareholder pressure in firms that experienced difficulties - also helped to explain weak FDI in the region.

Between 2007 and 2009, average FDI again increased, rising by 88.4% on 2004-2006 and showing a balance between new projects and M&A. In the case of the former, mining and forestry projects predominated while most mergers and acquisitions took place in the services sector and manufacturing. Both types of investment were, however, seen in the electricity, gas and water sector as well as in the financial sector where this probably reflected the international economic crisis.

In the case of Chile, FDI figures were also distorted by a trend towards greater use of the local capital market by foreign investors. Encouraged by the high liquidity and dynamism of the country's financial sector and historically low interest rates, ever more overseas companies sidestepped exchange rate risk by raising finance locally, either by borrowing in local currency or placing bonds on the local market. This trend, although very positive for Chile's financial market, was reflected n e g a t i ve l y i n f i g u r e s fo r i n c o m i n g F D I .

As from 2002, there was a marked increase in reinvestment of profits by foreign investors in Chile and, according to figures published by the Central Bank, this became the single most impor tant component of FDI. By 2006, it accounted for 98.0% of FDI, up from 53.6% in 2002. In 2007, it dropped to 81% of total investment and then fell sharply to 43% in 2008, due principally to a drop in the profits of mining companies, most of which have used DL 600, as a result of lower copper prices. However, the subsequent price recovery meant that, in 2009, profit reinvestment again increased, accounting for an estimated 77.6% of total FDI.

In 2004, FDI inflows into Chile again began to show an increase that reflected a fresh surge in M&A activity as well as the development of new projects in mining, telecommunications and infrastructure. However, in 2005, these sectors were less successful in attracting new investments and saw mainly a continuation of projects that had already been initiated. In the period 2004-2006, average annual FDI reached US$7,152 million, practically doubling its

Reinvestment of Profits (US$ million)

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

1996

1997

1998

1999

2000

2001

2002

DL 600 and Chapter XIV

2003

2004

2005

2006

2007

2008

2009

Reinvestment of profits

Source: Central Bank of Chile (www.bcentral.cl)

Investment by sector

Investment in financial ser vices began to increase following the sector's deregulation while the energy sector also began to play a key role.

Between 1974 and 2009, the mining sector accounted for 32.8% of gross FDI materialized through DL 600. It was followed by services (21.8%), the electricity, gas and water industries (19.6%), manufacturing (11.5%), transport and communications (11.0%), construction (1.9%) and agriculture, forestry and fishing (1.4%). In the services sector, the most important segments were retail (26.1%), banks (17.9%), investment companies (17.3%), insurance (13.0%) and other financial services (8.5%).

The relative decrease in the preeminence of mining investments is attributed largely to higher investment in the electricity, gas and water sector and in transport and communications. This was mainly the result of privatizations in these sectors and of the intense competition that followed the deregulation of mobile and l o n g - d i s t a n c e t e l e p h o n e s e r v i c e s, w h i c h accounted for an average 24% of total FDI b e t we e n 2 0 0 0 a n d 2 0 0 5 . I n a d d i t i o n , a n infrastructure concessions program, launched in 1995, opened the way for the participation of private capital, mostly from abroad, in the construction and operation of highways and air por ts. Water distr ibution and treatment privatizations also captured important inflows of FDI and, more recently, foreign investors have been attracted by a number of incentives introduced for the development of alternative renewable energies.

Through to 1995, the mining sector on average accounted for over half of FDI under DL 600, reflecting the lifting of restrictions on private investment in exploration and exploitation of mining deposits. Its impor tance then showed a gradual decrease to an average of 15% in 1999-2001 but mining, nonetheless, continued t o p l ay a s i g n i f i c a n t r o l e i n t h e s e c t o r i a l s t r u c t u r e o f m a t e r i a l i ze d F D I . I n 2 0 0 2 , i t a c c o u n t e d fo r 5 9 . 2 % o f a n nu a l F D I , d u e principally to the US$1,100 million acquisition of Exxon's La Disputada mine by UK-based Anglo American. Since then, it has represented an average 28% of total FDI under DL 600, mostly in the for m of new copper and gold projects. 58

Foreign Investment Statute (DL 600) Breakdown of gross inflows by sector, 1974-2009 Transport and Communications 11.0%

Manufacturing 11.5%

Others 1.4%

Services 21.8%

Construction 1.9%

Mining 32.8%

Electricity, gas and water 19.6% Source: Foreign Investment Committee (www.foreigninvestment.cl)

Foreign Investment Statute (DL 600) Breakdown of gross inflows to services sector, 1974-2009 (Total = US$16,336 million) Cultural & entertainment services 2.7%

Retail 26.1%

Sewage & similar service 3.2% Business services 5.6%

Banks 17.9%

Others services 5.7% Other financial services 8.5%

Investment Companies 17.3%

Insurance 13.0%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

As from 2001, the trend in FDI again changed, shifting towards projects requiring smaller amounts of capital but with a high impact in terms of job creation and the transfer of technology. Projects of this type have reinforced Chile's position as a regional business center from which to export goods and services to other countries. This has, in turn, attracted new investment in services sectors such as the hotel and real estate markets.

From 1997 to 2001, in line with a worldwide trend, Chile saw a dramatic surge in M&A activity, mainly in the ser vices, electricity and telecommunications sectors. In 1999, for example, Spain's Endesa paid US$3,200 million for local electricity company Enersis, while other large M&A operations included the acquisition between 2000 and 2001 of the Gener power producer by US-based AES Corp. and, in 2001, Te l e c o m I t a l i a ' s a c q u i s i t i o n o f t h e E n t e l telecommunications company. 59

Asset Management for US$1,123 million, of Sal Lobos by Germany's K+S, of Essbio by Southern Cross, and of Concesionaria Costanera Norte by Italy's Autostrade.

These smaller, high-impact projects are numerous and diverse, ranging from software development, call centers and shared services centers to new investment in the manufactur ing and agribusiness sectors.Examples of the latter were seen in 2008 with the installation of a plant by Italy's Ritrama in Curauma in the Valparaíso Region to produce self-adhesive materials of which over 80% will be exported to other Latin American countries. Similarly, Synthon, a Netherlands-based pharmaceutical company, is building a facility in Chile to produce generic drugs of which 95% will go to export markets.

Investments in 2007 also corresponded mainly to acquisitions in different sectors of the economy. Colombia's Ter pel acquired the Repsol YPF fuel distribution chain, bringing in a total of US$189 million during 2007, while a tender share offer for Esval went to Canada's North York Global, controlled by the Ontario Teachers' Pension Plan Board, which brought in US$105 million. In addition, US-based Samsonite acquired Saxoline.

During 2004, again in line with global trends, the M&A market regained its dynamism and the C h i l e a n m a r ke t ex p e r i e n c e d a s u r g e i n acquisitions of local companies by foreign firms. However, in a new trend, Chilean companies also started to buy the assets of foreign firms operating in the country and market analysts anticipate that this trend will continue as Chilean firms, with ample financial backing, seek to extend their market and become more global.

In 2008, there were also important investments i n t h e e l e c t r i c i t y, g a s a n d wa t e r s e c t o r, including the acquisition of water companies by the Ontario Teachers' Pension Plan Board and of the Empresa de Gas de la Región de Valparaíso by GV Cayman Trust, a subsidiary of Australia's Challenger. Investments in the mining sector were led by the expansion of the operations of Canada's Barrick and the start of development of the Esperanza and El Te s o r o c o p p e r m i n e s by L o s Pe l a m b r e s Investment and Marubeni.

In 2003, the UK's Anglian Water, for example, sold its stake in the Esval water company to a local consor tium while, in 2004, Dresdner Bank sold its operations to the locally-owned Banco Security.

I n t h e w i n e i n d u s t r y, Po r t u g a l ' s S o gra p e acquired the Chateau Los Boldos and Santa Amalia vineyards while, in the forestry sector, Foralco acquired shares in Masisa through Grupo Nueva and two US-based funds, GMO Long Hor izons Forestr y Fund and Fund 7 Foreign, and Japan's Mitsubishi Corporation made new investments.

In addition, in early 2005, a local group bought Telecom Italia's stake in the Entel telecommunications company. However, the most important operation in the telecommunications sector in 2005 was the acquisition of Smar tcom by América Móvil. This mar ked the star t of the Mexican company's expansion in Chile, which has continued since 2006. In line with international trends and reflecting strong competition in the local market, investments by operators such as Spain's Telefónica and VTR showed a shift towards the integration of telephony, broadband and entertainment services (digital a n d s a t e l l i t e t e l ev i s i o n a n d I P s e r v i c e s ) .

As regards the geographic destination of FDI within Chile, 38.7% of the investment mater ialized between 1974 and 2009 was devoted to multi-region projects while 25.4% went to the Santiago Region, followed by nor thern Chile's Antofagasta, Atacama and A r i c a a n d Pa r i n a c o t a R e g i o n s, w h i c h accounted for 14.5%, 5.7% and 4.6% of the total inflow, respectively. The amounts invested in these latter regions reflects their importance in t h e m in in g in d u s t r y w h ile mu lt i- r e g i o n investments corresponded mainly to projects in the energy, telecommunications and financial services sectors.

I n 2 0 0 6 , fo r e i g n i nve s t m e n t wa s l e d by acquisitions and corresponded principally to the purchase of Transelec by Canada's Brookfield

Foreign Investment Statute (DL 600) Breakdown of gross inflows by region of Chile, 1974-2009 Magallanes 1.7% Valparaíso 2.0%

Bío-Bío 1.7% Others 3.1%

Coquimbo 2.6% Tarapacá 4.6% Atacama 5.7%

Multi-region 38.7% Antofagasta 14.5%

Metropolitan Region 25.4% Source: Foreign Investment Committee (www.foreigninvestment.cl)

Origin of FDI states of the enlarged European Union accounted for 37.8% of FDI materialized through DL 600 while the member states of the OECD, which Chile joined at the beginning of 2010, accounted for 94.5% of the total.

Between 1974 and 2009, 26.4% of DL 600 investments originated in the United States, followed by Spain (19.3%), Canada (17.4%), the United Kingdom (8.7%), Australia (4.7%) and Japan (3.7%). During this period, the member

Foreign Investment Statute (DL 600) Breakdown of gross inflows by country of origin, 1974-2009 Holland 2.2%

France Mexico 2.1% 1.8% Others 11.4%

Italy 2.3% Japan 3.7% Australia 4.7% United Kingdom 8.7%

United States 26.4%

Canada 17.4% Spain 19.3% Source: Foreign Investment Committee (www.foreigninvestment.cl)

FDI under DL 600 from the United States B e t we e n 1 9 7 4 a n d 2 0 0 9 , m a t e r i a l i ze d F D I from the United States reached US$19,803

million, accounting for 26.4% of gross i n f l ow s u n d e r D L 6 0 0 .

United States: FDI materialized under DL 600 (US$ billion) 2.9 2.3 1.8

1.5

1.4

1.3 0.9

1995

1996

1997

0.8

1998

1999

2000

0.6

2001

2002

0.4

2003

0.1

2004

0.3

2006

2007

2005

Source: Foreign Investment Committee (www.foreigninvestment.cl)

United States: FDI materialized under DL 600 Breakdown of gross inflows by sector, 1974-2009 Others 2.1%

Transport & communications 10.5%

Services 33.3% Manufacturing 12.5%

Electricity gas & water 14.0%

Mining 27.6%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

United States: FDI materialized under DL 600 Breakdown of gross inflows to services sector, 1974-2009 (Total = US$6,599 million) Retail 47.6%

Other services 7.5% Social, medical & other services 3.3% Other financial services 4.0% Investment funds 4.8% Business services 5.1%

Insurance 12.6% Banks 8.5%

Investment companies 6.6%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

0.6

0.0

2008

2009

FDI under DL 600 from the European Union US$28,319 million and accounted for 37.8% of gross inflows under DL 600.

Between 1974 and 2009, materialized FDI with its origin in the present member states of the European Union - of which 18 have made DL 600 investments - totaled

European Union: FDI materialized under DL 600 (US$ billion) 6.0

3.9 2.6

2.3

2.1

1.4

1.1

0.8

1995

1.6

1996

1997

1998

1999

2000

2001

2002

2003

1.2

0.7

0.5

2004

2005

0.5

2006

0.2

2007

Source: Foreign Investment Committee (www.foreigninvestment.cl)

European Union: FDI materialized under DL 600 Breakdown of gross inflows by sector, 1974-2009 Transport & communications 16.8%

Manufacturing 7.8% Construction 4.1% Others 0.9%

Mining 18.2%

Electricity gas & water 31.1%

Services 21.1%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

European Union: FDI materialized under DL 600 Breakdown of gross inflows by country of origin, 1974-2009 Germany 2.6% Belgium 3.6%

France 5.7%

Sweden 0.9% Others 1.2%

Holland 5.8% Italy 6.0% Spain 51.1%

United Kingdom 23.1% Source: Foreign Investment Committee (www.foreigninvestment.cl)

2008

0.7

2009

FDI under DL 600 from APEC economies Between 1974 and 2009, materialized FDI in Chile from the other twenty APEC economies

reached US$41,178 million, representing 55% of gross inflows under DL 600.

APEC Economies: FDI materialized under DL 600 (US$ billion) 3.2

3.8

4.0

3.2 2.8 2.4

2.2

2.5

2.3 1.7

1.6

1995

1996

1997

1998

1999

2000

2001

2002

0.7

0.8

2003

2004

1.0

0.8

2005

2006

2007

Source: Foreign Investment Committee (www.foreigninvestment.cl)

APEC Economies: FDI materialized under DL 600 Breakdown of gross inflows by sector, 1974-2009 Transport & communications 8.0% Forestry plantations 0.9%

Manufacturing 12.3 Electricity gas & water 13.6%

Others 0.6%

Mining 46.3%

Services 18.3%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

APEC Economies: FDI materialized under DL 600 Breakdown of gross inflows by country of origin, 1974-2009 Peru 0.9%

New Zealand 0.4%

Mexico 3.3% Japan 6.7% Australia 8.6%

Others 0.4%

United States 48.1%

Canada 31.6% Source: Foreign Investment Committee (www.foreigninvestment.cl)

2008

2009

Net accumulated DL 600 investment by mining (25.7%), electricity, gas and water (20.7%), transport and communications (11.9%) and manufacturing (10.9%).

Since 2005, the Foreign Investment Committee has published figures for net accumulated FDI in order to take account of factors that, as well as gross inflows, include remittances abroad resulting from investors' repatriation of capital and the repayment of loans associated with FDI projects as envisaged under the foreign investment contracts signed with the state of Chile.

Within the services sector, where net accumulated FDI reached US$12,815 million between 1974 and 2009, the most important segments were retail (32.7%), banks (17.0%), investment companies (16.2%), insurance (13.8%) and business services (6.4%).

Between 1974 and 2009, net accumulated FDI under DL 600 totaled US$47,972 million of which 26.7% corresponded to the services sector, followed

Foreign Investment Statute (DL 600) Breakdown of net inflows by sector, 1974-2009 Construction 2.2% Manufacturing 10.9%

Others 1.9% Services 26.7%

Transport & communications 11.9%

Electricity gas & water 20.7%

Mining 25.7%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

Foreign Investment Statute (DL 600) Breakdown of net inflows to services sector, 1974-2009 (Total = US$12,815 million) Restaurants Other services 6.5% & hotels 2.0% Other financial services 2.6%

Retail 32.7%

Cultural & entertainment services 2.8% Business services 6.4% Insurance 13.8%

Banks 17.0% Investment companies 16.2%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

followed by Spain (20.0%), Canada (16.5%) and the United Kingdom (6.2%).

In terms of country of origin, net FDI between 1974 and 2009 was led by the United States, which accounted for 26.7% of the total inflow,

Foreign Investment Statute (DL 600) Breakdown of net inflows by country of origin, 1974-2009 Mexico 2.8%

Holland 2.3% Switzerland 1.9%

France 2.8% Japan 3.9% Australia 4.5%

Others 12.4%

United States 26.7%

United Kingdom 6.2%

Canada 16.5%

Spain 20.0%

Source: Foreign Investment Committee (www.foreigninvestment.cl)

followed by the Santiago Region (23.3%), the Antofagasta Region (12.4%), the Atacama Region (6.5%) and the Arica and Parinacota Region (3.2%).

As regards the geographic distribution of net FDI within Chile, multi-region projects were worth US$20,709 million or 43.2% of the accumulated inflow between 1974 and 2009. These were

Foreign Investment Statute (DL 600) Breakdown of net inflows by region of Chile, 1974-2009

Atacama 6.5%

Tarapacá 3.2%

Coquimbo Bío-Bío 2.2% 2.0% Valparaíso Magallanes 2.2% 1.4% Others 3.6%

Antofagasta 12.4%

Multi-region 43.2% Metropolitan Region 23.3% Source: Foreign Investment Committee (www.foreigninvestment.cl)

FDI in Chile: A view from abroad In a report Investing in a Rebound - The FDI Confidence Index, A.T. Kearney, a US-based management consultant, noted the sound performance of the Chilean economy during the recent crisis, highlighting its management and the fiscal savings accumulated during previous years of high copper prices. The report stated that, "Chile's long history of sound economic policy and political stability has paid off" and drew attention to its accession to the Organisation for Economic Co-operation and Development (OECD) in 2010. According to A.T. Kearney, Chile "openly welcomes FDI and grants foreign investors access to develop new ventures and acquire existing ones", thereby maintaining its attractiveness to investors.

Chilean investment abroad projects in different countries, mainly in the Americas and Europe.

In 2009, Chile was a net exporter of capital and, relative to GDP, the largest foreign investor among Latin American and Caribbean countries. Investment abroad by Chilean companies reached US$7,983 million, principally in the United States, Brazil and Peru, and was focused in the services sector, manufacturing and the electricity, gas and water industries. At present, over 900 Chilean companies are estimated to be developing more than 2,000

In recent years, inbound and outbound foreign investment flows have shown a very similar trend, setting Chile apar t within Latin America.

Foreign Direct Investment (US$ million)

16,000

12,000

10,000

8,000

6,000

4,000

2,000

0 2003

2004

2005

Inbound

2006

2007

2008

2009

Outbound

Source: Central Bank of Chile (www.bcentral.cl)

Between 1996 and 2009, net direct investment abroad by Chilean companies reached a total of

US$38,644 million, with 41% corresponding to the last two years.

Net Chilean Direct Investment Abroad (US$ million)

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: Central Bank of Chile (www.bcentral.cl)

Between 1996 and 2009, financial establishments and related services accounted for outbound

Chilean Investment Abroad by Sector, 1996-2009

Others & nonclassified 12.9%

Mining

4.5% Financial establishments insurance real estate & services 43.1%

Transport, warehousing & Communications 5.2% Electricity, gas & water 8.7% Manufacturing 11.6%

Q1 2010

investment worth US$16,636 million, equivalent to 43.1% of the total. This sector was followed by retail (12.1%), manufacturing (11.6%), electricity, gas and water (8.7%), transport and communications (5.2%) and mining (4.5%).

Outbound investment in the first quarter of 2010, which reached close to US$2 billion, suggests that the upward trend seen in previous years will be maintained.

Agriculture, Fishing & forestry 1.9%

2009

Retail 12.1%

Source: Central Bank of Chile (www.bcentral.cl)

which accounted for US$5,240 million or 15.3% of the total, followed by the United States (14.9%), Brazil (14.5%) and Panama (12.6%).

Chilean companies have invested in over 40 countries but, between 1996 and 2009, South America accounted for 53% of the outflow. The single most important destination was Argentina

Chilean Investment Abroad by Destination, 1996-2009 Other 37 countries 17.4%

Argentina 15.3%

Uruguay 7.4%

United States 14.9%

Peru 8.0%

Cayman Islands 9.9%

Brazil 14.5% Panama 12.6%

Source: Central Bank of Chile (www.bcentral.cl)

In the case of the United States, financial establishments account for 52.6% of the total, followed by retail (19.7%) and mining (15.3%) while, in Brazil, manufacturing (33.2%) is followed by financial establishments (27.2%), electricity gas and water (21.6%) and retail (14.0%).

The investments of Chilean companies in Argentina correspond to the electricity, gas and water sector, which represent 24.0% of their total investment in this country, followed by retail (22.6%), financial establishments and related services (20.8%) and manufacturing (20.5%).

COURTESY OF MINERA ESCONDIDA

Interview

Stephen Dowd

Senior vice-president of infrastructure, Ontario Teachers' Pension Plann

"Our investment in Chile has fulfilled our expectations" With assets under management worth more than 96 billion Canadian dollars, Ontario Teachers' Pension Plan (Teachers') is Canada's largest single-profession pension fund. It invests around the world and has a diversified portfolio that includes infrastructure and timberlarnd investments for approximately 8 billion Canadian dollars, comprising the power, water and gas industries, gas pipelines, airports and mari ne c on t a i n er f a ci l i t i e s. Selecting a country and sector in which to invest is not a task that Teachers' can take lightly; it is, after all, responsible for administering the pension fund assets for almost 300,000 active and retired teachers in the Ontario province and ensuring their pens i ons .

Stephen Dowd, senior vice-president of Ontario Teachers' Pension Plann .

of the features that, as investors, we seek: a n o p e n e c o n o my, a favo ra bl e c l i m a t e fo r fo r e i g n i nve s t m e n t , a n d a s t a bl e p o l i t i c a l environment. In addition, its regulator y systems for the sectors we're in - electricity and water - are mature, comprehensible and predictable. All those factors are extremely i m p o r t a n t w h e n d e c i d i n g w h e r e t o i nve s t .

Teachers' first invested in Chile in 2007 when it acquired a controlling stake in the Essbio water company in the Bío-Bío Region of southern Chile and in Aguas Nuevo Sur Maule (Nuevosur), another water company. It then went on to invest in two other Chilean water companies - Esval in the Valparaíso Region and its subsidiary Aguas del Valle emerging as the second largest investor in the country's water industry. In June 2008, it also added SAESA, a diversified electricity company, to its Chilean portfolio. In this interview, Stephen Dowd, Teachers' senior vice-president of infrastructure, talks about his view of Chile.

-Is it usual for Teachers' to invest abroad? A p p r ox i m a t e l y h a l f o f t h e p e n s i o n f u n d ' s investments are outside Canada. Depending o n o u r i n v e s t m e n t s t r a t e g y, w e ' r e i n emerging mar kets or developed countr ies. The strategy we adopted in the case of our investment in Chile was to focus on stable and relatively low-risk businesses. -For Teachers', how significant is the size of your investment in Chile? We ' v e i n v e s t e d 1 . 3 - 1 . 4 b i l l i o n C a n a d i a n dollars in Chile. That represents under 2% of our the fund's total por tfolio of 96.4 b i l l i o n C a n a d i a n d o l l a r s, w h i c h i s a g o o d percentage for an emerging market.

-What was your impression of Chile before Teachers' invested here? B e fo r e t a k i n g t h e d e c i s i o n t o i nve s t , w e spent quite a long time researching the countr y and concluded that it offered many

-ÂżHow would you describe the business climate in Chile? It has ever ything we look for : an open and transparent business environment that welcomes foreign investment. And, as I just said, it has a good and healthy political environment and its regulator y regimes are well-established and p r e d i c t a bl e.

-What's your assessment of your investment in Chile? Very positive. Both Chile and our investments in Chile have fulfilled our expectations, for which we are happy. -In the decision to invest in Chile, how important was the country's political and economic stability? T h e r e ' s n o q u e s t i o n t h a t i t wa s ex t r e m e l y i m p o r t a n t ; w e ' r e l o n g - t e r m i nve s t o r s w h o represent the interests of almost 300,000 active and retired teachers. We look for o p p o r t u n i t i e s i n c o u n t r i e s o f fe r i n g a s s e t s that are stable and predictable over decades.

-If a potential foreign investor asked you about Chile, what would you say? That's easy - it's a great place to invest. We're ver y happy with our experience so far and think that Chile compares well with any of the other countries and markets we look at around the world, whether in Latin America, among emerging markets in general or developed economies. In that sense, Chile has been a good country for our business.

-In general, what weight do foreign investors give to a country's political and economic stability and legal security? Fo r u s, a s l o n g - t e r m i nve s t o r s, t h o s e a r e factors to which we attach great impor tance, and the stability that a countr y o f f e r s i s k e y. B e f o r e i n v e s t i n g , w e a l s o l o o k ve r y c l o s e l y a t t h e l eve l o f r i s k t h a t exists in a sector and the countr y as a whole. Countries go through phases and cycles but, if we know that these cycles w i l l b e m o r e m o d e ra t e a n d t h a t t h e r e i s a solid legal and regulatory system and p o l i t i c a l s t a b i l i t y, t h e n w e f e e l m o r e c o m fo r t a bl e.

-Given the current international economic situation, do you see Chile as a safe place to invest? We c o n t i n u e t o s e e i t a s a s t a bl e c o u n t r y in which to invest. Inflation was a bit higher last year but our businesses are w e l l p r o t e c t e d a g a i n s t t h a t . M o r e ove r, Chile appears to be more resilient than many other countries. - Are you looking at new investments in Chile? We are in the electricity and water sectors and continue to seek good investments wherever they may be in the world.

-Did you look at other markets before choosing Chile? C e r t a i n l y, t h a t ' s p a r t o f o u r i n ve s t m e n t strategy and we also continue to look at other markets. From that perspective, our view is that Chile is doing very well.

"(Chile) has everything we look for: an open and transparent business environment that welcomes foreign investmentÂ&#x201D;, says Stephen Dowd.

Report

Alejandro Bottan

General Electric's president for Chile, Argentina, Uruguay and Paraguay.

" Greater stability means greater investment" The history of General Electric in Chile began with the sale of locomotives in 1927 and the company has since gone on to accompany the countr y in its development, expanding into sectors that include energy, healthcare, water, transport and the oil industry. Today, it has a 200-strong local workforce and among other projects it's installing a world class software technological platform in Chile, similar to that which it possesses in India. A c c o r d i n g t o G E ' s p r e s i d e n t fo r C h i l e , Argentina, Uruguay and Paraguay, Alejandro Bottan, Chile has long passed the initial threshold at which investors need to wonder whether or not it is in their interests to invest in the country. "Now's the time to promote the business oppor tunities Chile offers, identify areas of interest, and get to grips with their development and implementation," he says.

Alejandro Bottan, president of GE for Chile, Argentina, Uruguay and Paraguay.

he says. "There's a direct correlation between, on the one hand, economic, political and legal stability and, on the other, investment; the more stability, the more investment. This has been evident in Chile for a number of years in the level of foreign direct investment it has attracted."

Bottan, who has worked at GE for 25 years, first in the United States and then in Latin America, says that Chile has demonstrated its a b i l i t y t o a c h i eve p o l i t i c a l a n d e c o n o m i c stability and create high-quality transparentlymanaged institutions, and has public and private leaders who are both prepared and eager to participate and compete in the global economy. From that point of view, GE is very satisfied with its investments in the country, he says.

In its more than 130 years of history, GE has acquired vast experience in investing in many, very different economies to which it has been capable of adapting. In the case of Chile, its sales have grown at an average annual rate of 40% to US$300 million. "Chile has developed the conditions needed for global companies like GE to consider using it as a business platform, taking advantage of l o c a l s k i l l s t o a c c e s s g l o b a l m a r ke t s o n competitive terms," says Bottan. "Chile's policy of insertion into international markets through its many free trade agreements is another aspect of its attractions for the development o f o p p o r t u n i t i e s o f t h i s t y p e, " h e a d d s.

In his opinion, Chile's political and economic stability has been one of the most impor tant fa c t o r s i n G E ' s d e c i s i o n t o m a ke t h o s e investments. "It's a ver y impor tant factor because it's related to the level of risk that one's prepared to run. GE is a publicly traded company so we have a conservative policy as regards where to commit our investors' money,"

Opinion column

Ricardo Rink

Managing Director Ritrama

Chile, a platform for the Americas

Ricardo Rink, managing director of Italy's Ritrama, a manufacturer of specialty self-adhesive materials, talks about Chile's role in his company's business plan as a platform from which to export to other countries. Â&#x201C;December 12, 2008, was a ver y emotional day for me. I was once again in Chile but, this t i m e, w i t h a ve r y p a r t i c u l a r m i s s i o n - t o inaugurate Ritrama S.A. in Curauma in the ValparaĂso Region. As a family, we were not only witnessing a dream come true; we were also laying the first stone in another dream, o n e t h a t m ay p r ove fa r gr e a t e r b e c a u s e Ritrama Chile marks the star t of our roll-out to all of the Americas.

Ricardo Rink, Managing director Ritrama.

All these factors converged in our decision to install a factory in Chile not only to supply the domestic market but also to target the rest of Latin America as well as North America and other countries. Our decision was, in other words, to use Chile as our business platform. Indeed, since the plant started operations, 80% of its output has been exported to the United States, Mexico, Costa Rica, the Dominican Republic, Ecuador, Peru, Argentina and Brazil.

The Ritrama group has over 750 employees around the world and eleven factories for the production of self-adhesive materials: two in the United States, three in Italy and the others in the UK, Spain and, now, Chile. In 2009, we will also be opening our first factory in China. How did we get to Chile? And why did we choose it? We k n ew w e wa n t e d t o ex p a n d t o L a t i n America and to manufacture there at local costs. We looked at Brazil, Mexico and Chile, and finally opted for the latter because of its network of free trade agreements (20 accords with 58 countries), its political stability and its prospects for economic development. In p a r t i c u l a r, w e l i ke d i t s d y n a m i c a n d prosperous food and wine industries and the fact that it expor ts many different consumer goods and, of course, we should not forget its cultural and financial openness. There was, moreover, the advantage of the support o f fe r e d t o u s by t h e Fo r e i g n I nve s t m e n t Committee and CORFO, Chile's economic development agency.

Ritrama Chile is part of our company's project for global expansion and we are extremely proud that all our effor ts have been amply rewarded with mar ket recognition. Today, Ritrama is the largest private company in its sector. It is moving to see a dream come true, a dream that perhaps has its origins back in 1940 when my grandfather Arnold Rink arrived in Venezuela from Austr ia. From that moment on, Latin America has held a special place in the heart of the Rink family. And, thanks to its political and economic stability, Chile has now given us the oppor tunity to consolidate that dream.Â&#x201D; 75

Report

Charlie Sartain

Chief executive, Xstrata Copper.

Xstrata Copper and

sustainable development in Chile X s t ra t a C o p p e r i s o n e o f t h e c o m m o d i t y business units of Xstrata plc, a diversified mining group listed on the London and Swiss Stock Exchanges. Its mining and metallurgical operations and projects span eight countries: Argentina, Australia, Canada, Chile, the United States, the Philippines, Papua New Guinea a n d Pe r u . T h ey a r e a d m i n i s t e r e d by f i ve separate divisions based close to the mining operations - the Nor th Queensland, Minera Alumbrera, Nor th Chile, Southern Peru and Canada divisions. Xstrata Copper also has a recycling business, Xstrata Recycling, with plants in the United States and offices in Canada and Asia.

Charlie Sartain, chief executive, Xstrata Copper.

Xstrata Copper has a cor porate office in Santiago along with the headquar ters of its recently created South Amer ican Project Development Division. The offices of its North Chile Division, which manages Lomas Bayas and Altonorte, are located in Antofagasta while the offices of its Energía Austral subsidiary are in the Aysén Region.

Xstrata Copper is the world's four th copper producer with attributable mined production in 2009 of 907,000 tonnes of copper in cathodes and concentrates. The company is also one of the world's largest producers of smelter and refined copper, including from third par ty materials.

According to Charlie Sartain, who also chairs the Inter national Copper Association (ICA), the main international organization fo r t h e p r o m o t i o n o f c o p p e r u s e, a n d i s a m e m b e r o f t h e s e n a t e o f t h e S u s t a i n a bl e Minerals Institute at the University of Queensland, the company knew Chile well b e fo r e i nve s t i n g b e c a u s e o f t h e c o u n t r y ' s mining tradition and its position as the world's largest copper producer. "Chile has the world's most impor tant copper reser ves a n d , t o d ay, t h a t i s i t s p r i n c i p a l p o t e n t i a l , " h e n o t e s. " Also, the conditions it offers for developing operations and projects within a framework of sustainable development and its economic, political and institutional stability help to create a transparent and optimum business environment."

It was in 2006, after Xstrata's acquisition of Canada's Falconbridge that Xstrata Copper emerged as one of the top five copper producers internationally. In Chile, this acquisition gave it control of 100% of the Lomas Bayas mine and the Altonorte smelter in the Antofagasta Region and a 44% stake in the Doña Inés de Collahuasi mine in the Tarapacá Region. "The scale of the deal led us to review all the relevant factors in our decision, with special emphasis on Chile's potential as a platform for the organic growth of our operations and projects," recalls Charlie Sartain, chief executive of Xstrata Copper. "For that reason, a context of fiscal stability was vital as well as a very good track record in attracting foreign investment." 76

institutions and other stakeholders. "In Chile, we can work with institutions and the authorities as strategic allies, focusing on the management of sustainable development, which requires legal stability in terms of environmental, social and labor issues, and that is not a minor consideration when deciding where to invest."

Chile has become an important growth platform for Xstrata Copper and is necessary for the s u c c e s s o f i t s o p e ra t i o n s i n t h e r e g i o n . "Although we have operations around the world, Chile plays an important role for Xstrata Copper precisely because of the conditions it offers for the development of innovative and sustainable projects in which we hope to continue growing," says Sartain. "In fact, Santiago is the base of our South Amer ican Project Development Division and that allows us to create synergies with our other operations in the region, taking advantage of growth opportunities through our new copper projects and the expansions already underway at our existing operations in Chile and Peru."

- If a potential foreign investor asked you about Chile, what would you say? "After almost five years in Chile, I can say that our experience has been very positive; we have found favorable conditions for the organic growth of our business as well as professionals who are very technically competent, which is a further encouragement."

Xstrata Copper's definition of purpose is to maximize its shareholders' investment through the growth and successful management of its operations and projects. The trust they have put in Chile has been of assistance in this regard, maintains Sartain, who is convinced that this pur pose will be achieved through genuine alliances with the community, the government,

"Although we have operations around the world, Chile plays an important role for Xstrata Copper precisely because of the conditions it offers for the development of innovative and sustainable projects in which we hope to continue growing," says Charlie Sartain.

Interview

Mario Brescia Cafferata President, Grupo Brescia

"Many businesspeople in Peru, the region and the world are looking at Chile with special interest" In acquiring Lafarge Chile from the cement manufacturer's French owners, Grupo Brescia made the largest ever Peruvian investment in Chile and became the country's N° 1 cement producer.

Pedro and Mario Brescia Cafferata,Grupo Brescia.

- What opportunities do you see for your company in Chile's reconstruction after the earthquake? Melón goes back 100 years and has stood by Chileans throughout its history, providing a highquality product that is valued by the construction industry and society in general. That is a great responsibility and a recognition that, in the present circumstances, we are not going to let them down. Melón's executives have our full support in responding to the country's needs and I have no doubt they will play an important role in a reconstruction process to which everyone must contribute. In this situation, the most important opportunity - if that's the right word - is for us to demonstrate our capacity to meet the country's demands with the quality and speed that the sector requires.

With annual sales of US$1.7 billion and operations in 12 sectors - including banking, mining, tourism and agribusiness - the group is one of Peru's largest business conglomerates. In 2008, it embarked on a process of regional expansion, making its debut in Brazil, Colombia, Venezuela and Ecuador. - What prompted you to invest in Chile? We take a very positive view of the economic performance of the belt of progress formed today by Colombia, Peru and Chile. Along with Brazil - because of its size - they are the economies that offer investment opportunities with a level of stability that permits a long-term commitment such as we have made in Chile. - What's your evaluation of the results of that investment? It's still very early days. As well as the initial investment in the acquisition we made in 2009, we also have plans for further investments in Cemento Melón that are already underway and include a new mill plant in Ventanas. What I can say, however, is that, at Melón, we found a first-class professional team and are counting on them to achieve good results within a reasonable period of time.

- Would you recommend investing in Chile to other Peruvian businesspeople? Commercial relations between our two countries are at a very interesting time and we are certain that many other businesspeople in Peru, the region and the world are looking at Chile with special interest. That's fair ; it's what Chile deserves because of its economic conditions. - Are you considering other investments in Chile and, if so, in what sectors? At the moment, we're focusing on Melón and its challenges. There'll be time later to look around because we're always interested in new opportunities.

- How do you think Chile's political and economic stability will affect those results? Political stability is very important and economic stability even more so. We are long-term investors and place a high value on those conditions. However, the quality of the people we work with is also important as well as the maturity of the market in which we operate and we pay a lot of attention to these factors. 78

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