Chile: The Gateway To Latin America For Australian Business

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Chile is well known as a regional favourite for Australian businesses looking to make their first moves into the Latin American market. Though the region overall is showing signs of impressive growth and a number of regional powers are emerging, Chile remains a firm favourite for Australia’s ambitious companies.

Strong bilateral connections, close geographic proximity and similar economic strengths make Chile an ideal destination for Australian entrepreneurs.

Chile: A Top LATAM Investment Destination

Chile has experienced positive economic growth since 2009, and an average GDP annual growth of 3.8% since 1997. The country’s GDP value reached US$298.2 billion in 2018. Key trading partners such as Australia have played a big part in the country’s buoyancy.

As such, it’s now the region’s fifth-largest economy, led by a pro-business government with clear and progressive economic policies aimed at boosting investment. This includes certain tax benefits for large enterprises, the introduction of a new business structure to speed up incorporation time, and pursuing further trade agreements with international partners.

The trajectory Chile is on makes it a prime contender for foreign investment in the region. Its membership to the Pacific Alliance trade bloc encourages its exposure to global partners. Currently, Pacific Alliance members collectively represent 41.5% of all foreign direct investment in Latin America and the Caribbean.

Longstanding Trade Relations

Both countries first established diplomatic ties as early as the nineteenth century. In 2009, the countries modernized their cooperation efforts with a Chile-Australia Free Trade Agreement (FTA) – the first for Australia with a Latin American country. This agreement facilitates freer-flowing channels for exports, and removing or reducing tariffs on various goods and services. From January 2015, all tariffs on Australian goods were completely eliminated with the single exception of sugar.

Chile’s overall trade with Australia stacked up to AU$1.348 billion in the 2017-18 financial year. The country received AU$639 million worth of Australian exports, and shipped AU$709 worth of goods to the South Pacific powerhouse.

Bridging the Tyranny of Distance

Thanks to strong diplomatic and trade ties and comparatively closer geographic proximity than other nations, Chile is one of the most accessible Latin American countries for Australian businesses. Currently, over 120 Australian companies reside in Chile. That’s the greatest concentration for Australian commercial activity in the region. A double taxation agreement between the two countries ensures businesses are set up for success in each other’s markets.

Additionally, the two countries cooperate in a number of areas outside of reducing trade barriers; both countries established locks in services and investment regimes, and in securing the utmost standards for intellectual property protection.

Chile is Latin America’s second-greatest recipient for Australian foreign direct investment (FDI). FDI flows into Chile from the state-continent are valued at around AU$674 million.

Economic Symmetry

Mutual investment and cooperation are most present in mineral and fuel sectors, in which both nations are considered formidable performers. Collaborative efforts to push growth and innovation has supported strong mining and adjacent mining equipment, technology and services (METS) sectors.

Chile holds over half of the world’s lithium reserves, and produces 28% of the world’s supply of copper. As such, it has a robust regulatory framework for mining that provides Australian businesses with confidence and security they may not as easily find in other regional mining countries. 60 Australian METS businesses and 30 junior mining companies are operating in Chile.

In recent years, Australian investment in Chile has diversified, reflecting the strengthening connections between the two countries and migration of new business into Latin America. Chile has supported a growing Australian presence in agriculture and food, genetics, health, infrastructure, and transport and logistics industries.

This also reflects several strengths represented in Australia’s economy at home, and supports further symmetry between the two markets. Both are high-performers in agriculture, and their climates support various crop varieties. Agribusiness and agritech are therefore also key focuses for the two countries in their support of each other.

From Chile to Where?

Chile is the perfect platform for Australian businesses, with direct flights straight to Santiago and a comprehensive trade deal facilitating commercial engagement. Australian companies dipping their toe in the Latin American market by using Chile as a point of entry can gain a comfortable foothold while they seek out their next venture.

Now, with a free trade deal agreed upon between Australia and Peru (known as PAFTA), Australian businesses can expect to see similar mass-eliminations in tariffs on their goods and services. Specifically, Peru intends to remove 99% of its tariffs on Australian imports.

Further to that, the deal has pledged Peru to reinforce legislative frameworks for foreign businesses. Inconsistency and lack of clarity deter foreign entrepreneurs looking for viable investment destinations. Peru’s commitment to making incorporation processes and compliance procedures clear, fair and consistent set to boost business confidence and improve its attractiveness to Australian investors.

Next door to Chile, Brazil rakes in a significant amount of Australian investment, accounting for the largest FDI flow from the South Pacific island into Latin America. Of interest in Brazil is a diverse range of industries: iron-ore production, petroleum exploration, manufacturing, renewable energy, financial and online services, agriculture, and retail. Here, mining and agribusiness show again as common channels for commercial engagement. Though the regional giant poses a different set of linguistic challenges for Australian businesses than the rest of Latin America, its economic opportunities continue to entice foreign companies into its territory.

Expanding Through Chile’s Connections

Chile’s membership to various groups and trade agreements also open up the floor for Australian trade and expansion into a number of Latin American countries. Namely, Chile has a membership to the Pacific Alliance and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and associate membership to trade bloc MERCOSUR. These connections mean Chile-based Australian businesses have access to collective populations of hundreds of millions of people. Besides offering lucrative trade opportunities from within Chile, foreign businesses can tap into the country’s international ties to secure further expansion opportunities.

Chile’s relatively open business environment provides a stepping stone for Australian business into other Latin American markets through powerful trade connections and economic like-mindedness. Its proximity and market offerings support a well-established route for Australian companies as the gateway to Latin America.

Source: Nikhil Chandwani

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