Now, after years of political struggle, Chile is rising to become the star economy in Latin America, as well as stable, socially progressive, and a ripe market for Australian exports. Tim Harcourt reports.
An improving labour market is just one of many impressive economic statistics notched up by the Chileans. According to Dr Sandra Manuelito, of the United Nations’ Economic Commission for Latin America (UN ECLAC), Chile is the standout of the economies covered by the Commission. “Chile is undoubtedly the first world economy of the region. Of course it has benefited from high commodity prices and therefore very favourable terms of trade, but its long record of economic reform and openness has helped as well. Around 30 percent of Chile’s GDP [gross domestic product] is exported and 30 percent imported,” she says.
Chile is changing. For a start, it has a woman president. Dr Michelle Bachelet is centre-left, a medical doctor who has served as both defence and health minister in the Lagos cabinet. She is also a divorcee, which is very unusual in Catholic Chile where divorce has only recently come onto the statute books. Bachelet has spent time in Australia, in exile during the Pinochet years, and has family links here with a brother in Sydney.
In fact, not only is women participating in politics a new phenomenon in Chile but participating in the labour force is also a radical change. That was a key message of the Chileans I spoke to on my recent visit to Santiago, the first in nearly eight years. According to Karen Poniachik of Chile’s Foreign Investment Commission (the equivalent of Invest Australia), “Chile has traditionally had a low female labour force participation rate, but now with falling unemployment we need to attract more women into the labour market.”
Economic Growth
In the financial markets, there is a consensus of opinion about Chile. “Our bank has a strong view of Chile’s prospects, not just because of its strong export sector but also its healthy rate of savings (at about 25 percent of GDP),” says Banco Santander’s Roberto Moreno. “Its unique pension model has raised national savings, which gives Chile a good source of investment funds and makes it less debt-reliant than its South American neighbours.”
Indeed, Chile has done very well. Strong growth, low inflation, a strong export sector and fiscal stability. But Chile wants to ensure the economic success goes hand-in-hand with democratic and social progress. According to Poniachik, “we have reduced absolute poverty in Chile and all our social indicators, such as education retention rates and literacy, have improved remarkably. Chile will continue to invest in human capital to lock in our economic success.”
Many of the country’s business leaders agree with Poniachik. For example, Francisco Tomic, vice president of human resources for Chile’s largest company, the government-owned Codelco, agrees strongly with Poniachik’s analysis. Tomic, whose father ran as a Christian Democrat presidential candidate against Salvador Allende in 1970, believes good industrial relations is the reason for Chile’s economic success as a democratic nation. “Codelco could not have had the success we have had in growth, employment, and exports, without the workers and their unions. The union representatives play a key role in devising the company’s business plan and the company believes that democratic consultation with the workforce is not only the right thing to do but also makes good business sense,” he explains.
But is Chile a Pacific or a Latin American country? Many Chileans are keen to position themselves as a Pacific nation as well as a Latin American one. Manfred Wilhelmy of the Chile Pacific Foundation, says: “We admire Australia, we like how they have managed to combine economic progress with social cohesion. It is true that they call us the Latin American jaguar to the Asian tigers, but we want to use our economic success and strategic location to improve opportunities for our people.”
Australian Companies in Chile
So, what does all this mean for Australia? According to Nigel Warren, Australia’s senior trade commissioner in Santiago, Chile is becoming a potential regional hub for Australian companies wanting to do business in Latin America. “There are 50 Australian businesses here in Santiago and 60 in Chile altogether. Many companies, like BHP Billiton, have been here for more than 20 years, attracted by mining wealth. But we also have companies like Orica and GHD.”
Why have Australian companies focused so much on Chile? According to Warren, it’s simple: “Economic success, social cohesion, political stability and rule of law of course matter, but Chile’s investment in infrastructure really helps too.”
GHD, an engineering consultancy, headed by Mike Rodd, an experienced engineer from Melbourne, has been in Chile for nearly two years. “The infrastructure is very good and we’ve found it’s a good place to base our South American operations,” he says.
Sarah Duncan, Orica’s head of regional strategy for South America, agrees. “I can travel very easily from my base in Santiago to all over the South American continent. Lan [national carrier Lan Chile which is expanding beyond its borders] has great connections and Santiago has excellent facilities. The whole Orica board met in Santiago and were very impressed with Chile,” she says.
Duncan is a rarity, an Australian woman executive in Latin America. Despite the Latin macho image there, she has found the reality quite different. “I have very supportive male colleagues in Orica’s South American operations, particularly here in Santiago.”
So, whether it’s presidents or foreign executives, women are doing well in Chile. Perhaps this is a symbol of modern Chile itself: a mixture of economic success, social progress, and democratic stability. This is good news for Chile and for Australian exporters as well.
* Tim Harcourt is chief economist for Austrade, Sydney. Thanks to Nigel Warren and Ian Frederick of Austrade Santiago for comments and assistance with this article.
Fact file
Population: 15.4 million (2004)
Official language: Spanish
Currency: Pesos
Australian merchandise exports to Chile: $167 million
Australian services exports to Chile: $19 million
Export Opportunities: The extensive program to upgrade Chile’s infrastructure (including transport) also offers opportunities for Australian companies capable of making equity investments. Smaller companies with unique and cost-effective technologies are also in a position to take advantage of this infrastructure upgrade.
Australian interest in Chile has mainly concentrated on opportunities in Chile’s mining sector, with openings in the provision of technology, services, consumables and equipment, and there is a good range of local companies for potential local partnerships. There are also opportunities in energy and utilities, agribusiness, seafood, wine and processed food.
Export opportunities also exist in education and training, with DFAT, Austrade, and Australian Education International (which established its regional office for Latin America in Santiago in April 2004) working to promote Australia as a quality provider of educational services.
* Sourc
e: Department of Foreign Affairs and Trade (www.dfat.gov.au)
Mining Case Study
Ludowici has come a long way since it was established in 1858 in NSW. A wholly-owned subsidiary, Ludowici Mineral Processing Equipment (LMPE) was formed in the late 1990s and produces a variety of mining equipment for coal, mineral and associated industries around the globe.
By the year 2000, despite significant growth in the local market, LMPE had done little in terms of export, other than a small amount to Indonesia. It was then, according to LMPE’s international general manager, Dave Ricketts, that the business set up an international division to more strategically hit the global market. “We started to export at high levels from that point.” This included an office in the US but manufacturing entirely in Australia.
After exhaustive research, South America, specifically Santiago, Chile, was identified as a potential market for LMPE’s presence. As Ricketts says, with a quarter of the world’s investment directed to South America, it was a no-brainer for the team. The only question was, how. “Our strategy was to look for a country with a company that was, usually, privately-owned, had a route-to-market in the mining area, and was looking to expand. We eventually formed a joint venture in that market.” They also included an exit strategy, in preparation for buying the business out down the track.
Establishing a joint venture relationship with TecPromin, manufacturers and agents for mining equipment, gave LMPE this route-to-market and local offices, and established them in Santiago. This in turn helped them win contracts with one of Chile’s largest companies, Codelco, and they soon made multi-million dollar deals.
In the early days, the majority of LMPE’s jobs were exported as product from its Queensland base into the Chilean market. As the business grew, Ricketts says, LMPE set up a local manufacturing arm in Santiago, with eight or nine employees from Australia commissioning local sub-contractors to make the “easy parts”, while their intellectual property is maintained and manufactured in Australia and sent overseas.
The key to success in the market is simple, explains Ricketts: “Find a successful company to work with, and have a world class product to back it up.” Being innovative has been important, and LMPE prides itself on its generous R&D budget and continuous alliances with Australian universities. Having assistance from the government proved a big help, too, with Austrade providing much assistance on the ground to help them get settled into the market.
Ricketts recognises the barriers to entering a foreign market seem daunting at first glance, but with thorough research most problems can be solved before entering the market. He cautions that there will almost always be cultural barriers to overcome. “You can’t go to a foreign country with the same processes you go through in your own country,” he says. “They have their own culture and you’re expected to follow their rules. Commercially, there are a lot of things you wouldn’t accept in Australia.” One of the areas LMPE struggled with was getting finer details such as injury insurance sorted before business could get started, especially as a public company. “They don’t have insurance over there, so they were saying not to worry about it.” In the end they had to go out of the country to get insurance as they couldn’t get a Chilean company to insure them.
Ricketts stresses the importance of documentation when moving into such a market. Even more importantly, to have all of this in both English and the native language, and working out prices in local, US and, if necessary, Australian currency.
Looking into your export market’s legal structure may prove helpful, too. “The easiest thing would be to look at the legal system,” Ricketts advises, adding that you have to do so much more homework if the legal system is different to your own.
He also says employing local workers goes a long way to helping relationships within the industry in your chosen market, and LMPE finds the locals in Chile very loyal employees.
—Camille Howard
