Chile’s bid to encourage investment
The business professional is leading the process of change to establish the new investment promotion agency, which is expected to be operational by the first quarter of 2016. He warns that it would be more profitable for established companies to reinvest, rather than to seek new entrants.
By Alejandra Aguirre
In September 2015, Vicente Mira was appointed executive vice president of the Foreign Investment Committee (CIEChile), having been promoted from his previous role as head of investment attraction at the same organization.
Having assumed his new position, Mira’s mission was to lead the CIE in its transformation into the new Foreign Investment Promotion Agency. This process comes in response to advice received from the Organisation for Economic Co-operation and Development (OECD) in 2014, which stressed the need for such institutions to follow best international practice and experience. In the case of Chile, this meant the national investment agency incorporating the areas of human capital, structure, tasks, products and services into its new wider outlook.
The agency’s creation formed part of the new Law 20.848, promulgated in June 2015, which outlines a period of 12 months in which to establish the new agency. The process itself consists of widespread administrative work, such as devising new regulations, facilities and worker salaries, as well as announcing the start date of the new institution. Accordingly, Mira expects the agency to begin operations in the first quarter of 2016.
– What are the strategic priorities of the new agency?
Its legal framework is different to that of CIEChile. It has a new mandate and powers with which to promote foreign direct investment, with the aim of facilitating the arrival of international investors while strengthening invested earnings of companies already established in Chile.
– Which countries are you using as an example?
We have been in direct contact with multiple agencies from around the world. A particularly noteworthy example is that of the Republic of Ireland, where the flow of foreign direct investment in terms of reinvestment is between 65% and 70%, compared to 35% to 40% in Chile. We would like to move closer to the figure from Ireland. From the promotional point of view, it is easier, more ideal and probably more worthwhile to ensure that already-established companies reinvest, rather than seek out new entrants.
In this sense, we have a double challenge because we also want to increase competition in certain markets, reinvigorate others that are more concentrated, and foster economic conditions that make Chile attractive to newly interested parties. We have already conducted promotion activities in collaboration with the Ministry of Energy and National Energy Commission (CNE), which led to the entrance of two or three relevant players. This development allowed electricity costs to be lowered, meaning cheaper prices for customers, while simultaneously bringing more dynamism and competitiveness to the sector. We are also looking at the examples of Hong Kong, Switzerland, France, the United Kingdom, Norway and Singapore.
– Which sectors are you looking to boost in the coming years?
We have defined four sectors within our approach towards promotion, attraction, facilitation and reinvestment in which the agency will proactively seek investments. These sectors also represent areas in which Chile needs to narrow the technology gap, increase competition and develop more human capital.
The first of these is energy, with particular emphasis on generation and transmission. Second is infrastructure, implemented via a concessions portfolio for the next six years, and worth more than US$13 billion. This portfolio includes the development of roads, airports and dams, as well as casinos and filmmaking studios. Third is mining, geared towards suppliers, with whom we are working within the National Strategic Program for Large-scale Mining. This industry is worth almost US$15 billion in services in Chile, of which national companies only export between US$500 million and US$1 billion. Growth potential here is around 10 to 15 times that number. In this sense, the idea is not only to respond to the needs of the local industry, but also to the exportation of mining services to neighboring countries specializing in mining. Finally, agrifood, which is an area in which Chile has comparatively unique advantages, thanks to the counter-cyclical nature of consumption patterns in the Northern Hemisphere, whereby we harvest during their winter. We have free trade agreements with countries that cover more than 85% of the world’s Gross Domestic Product (GDP), as well as numerous double taxation avoidance agreements. In addition, Corfo, Chile’s economic development agency, leads a national strategic plan, which we will be joining in order to promote these opportunities at the international level.
What are the priority markets?
It is a combination of those which have historically generated the most foreign investment, as well as others with development potential. The main investor in Chile over the last five years has been the United States, accounting for almost 20% of investment flow. Moreover, in 2014, this figure increased by more than 30% compared to 2013. At the accumulated stock level, the largest investor is the European Union, accounting for approximately 25%. Therefore, the list of priority markets includes these two examples, as well as the United Kingdom, Europe (in terms of Spain, Germany and France), Asia (Japan, China and South Korea), and Australia.
– What impact do you think the Trans-Pacific Partnership (TPP) will have?
Chile is the only country of the 14 nations signed up to the TPP that already has a free trade agreement in place with all other signatories on an individual basis. As such, strictly speaking, it does not represent a qualitative jump in terms of the country’s strategy from the point of view of benefits. Rather, it is essentially a reaffirmation and confirmation of the desire to open up trade with our partners and to submit Chile to even stricter standards, in terms of both trade and investment. It is a policy that we have been developing since the 1990s, which has been highly successful and a fundamental pillar in the country’s development.
The TPP is an agreement that covers approximately 40% of global GDP and 25% of international export volume. We believe that many commercial relationships subsequently translate into long-term links and investment. We see it as the first step towards internationalizing companies. For example, we signed a free trade agreement with South Korea in 2004, and by 2014 the export volume between the two had increased tenfold.
– What amount has been allocated to the agency by the 2016 budget?
Our budget for 2016 will increase and, although it is not a substantial rise, it will allow us to launch the agency with the strategic priorities that were defined during the transformation process. It represents an increase of 21.3% compared to CIEChile; about US$3.939 billion. It is primarily allocated to the additional human capital required, as well as the four offices that we will establish abroad in the medium term. We expect two of these offices to be opened during the first year of operations. The specific locations are still being assessed, although they will be located in North America, Europe and Asia.
– What are the short- and medium-term goals of the agency?
To make the market more dynamic, introduce more technology, reduce the gaps in terms of human capital, decentralize, increase skills and achieve productive chains, which do not only represent attractive investment opportunities, but also good products, and improved prices and rates for the Chilean people.
As part of the launch, we have set certain important milestones. The first of these is the Committee of Ministers that will be held to determine the promotion strategy regarding foreign direct investment. This will provide us with the necessary guidelines to conduct our work with a view to the next three to five years. We expect this to take place in the first half of 2016. Law 20.848 also outlines the creation of a Public-Private Advisory Committee. The idea behind this body is to reinforce the notion that the private sector is responsible for the country’s economic dynamism and for providing the largest investments, while in the public sector, we, the agency, have related entities within and beyond the Ministry of Economy. These include the likes of Fundación Imagen de Chile, ProChile, and Corfo, with whom we will launch a plan in 2016 to increase opportunities in the national Regions that have been lagging behind in terms of flow until now.