This was to be an extension of the national agreement already in place. I admired their economic discipline and ability to develop their economy while avoiding many of the problems that have plagued other countries in the region over the past twenty years or so. In the past few months, Cobia Global Commerce has seen a number of potential opportunities in Chile and its neighbors from exporters in the U.S. and the Southern Cone due to their increasing level of export-ready output and expanding middle class with disposable income.
[Disclaimer: the following is by no means a thorough analysis of the country of Chile, but merely some personal observations and perspectives given by interview candidates and may not be representative of the country as a whole.]
On my impressions of the country in general, I first have to mention that the large handful of Chileans that I met were some of the friendliest and most welcoming people with whom I've had the pleasure of spending time. This made the trip an extremely pleasant, enjoyable, and low-stress. The atmosphere on the ground is without a doubt one of optimism. While this word does not apply to everyone, it is the best one I can use to describe the overall picture. I was able to meet with a number of people from many different walks of life to get their take on the current situation, how they see it moving forward economically, and any up-an-coming opportunities or pitfalls they foresaw. These included a recent college graduate, college students, a number of business people and entrepreneurs, a business attorney, members of the old upper and new middle classes, and even a few artisans and laborers.
The economy is strong, having bounced back from the 2008 downturn and showing a 4.7% GDP growth in 2011. While anyone can look up the figures, there were a few things that I noticed on the ground and through my interviews that I took as indicators. The progress is evident in downtown Santiago due to the amount of new construction, new cars, advertisements that were visible, and just the demeanor of the people. First, the city is packed with cars. While many developing cities in Latin America and Asia are dominated by efficiency motorcycles, Santiago is a car city for better or worse. According to some people I spoke with, financing for things like cars only recently became available to many people and they are taking advantage of it. According to ANAC, an automobile association, new car sales rebounded 66% in 2010 and were up 21% in 2011. This is true even though, according to my sources, the cost is about twice the U.S. sticker price while wages are typically lower. This credit availability seems to be a good thing at the moment for the expanding consumer market.
The real estate market in Santiago is also in a good position as of late. Having avoided the subprime mortgage lending fiasco and other shenanigans that led the U.S. housing bubble to expand and pop, it did not take an extremely significant hit in the wake of the global financial crisis. There is some urban gentrification taking place, in contrast with the sprawling expansion that characterized the previous period. I met a few people who are involved in some real estate investments, but it seems to be a different flavor than the U.S. version that ended so badly. First and most importantly, people take out mortgages with the intention of paying them off, not to get the lowest payment possible and make a quick buck off the inflated equity upon resale. For this reason mortgages are more customizable with terms of varying lengths to suit people's needs. Short terms are available and popular. The focus I saw is more on generating revenue from renting than from resale.
Another less intuitive characteristic that I found encouraging from spending time in the city is that the government doesn't seem to be getting "too big for its britches," so to speak. There are still some broken tiles on the sidewalks, some trash on the street, and some less visually appealing parts of the city. I noticed this in contrast with Madrid, a city very close to my heart where I spent a year in 2009-10. There, despite deep economic and budgetary problems, the sidewalks are power washed weekly and one brick out of place will be met by four city employees the very next day. While public service is obviously a good thing, this says to me that Chileans are moving forward conservatively and remember when things were more difficult.
Chile's consumer price index has gone up somewhat and inflation is close to 4%, the upper limit of the central bank's tolerance range. The class gap and amount of new money was apparent in the prices of different things compared with other places where I've spent time recently. It seemed like things that everyone or the lower-income population use, such as basic foods and modest housing were priced low when compared with products targeting the middle and upper classes such as nightlife, entertainment, personal electronics, and higher education. These types of goods and services were mostly at U.S. or Western European levels. I'm sure everyone has heard about the destructive student protests in Santiago. I got a variety of perspectives on this issue and saw the protesting in person. A number of young people told me that many students from the new lower-middle class felt that they would not be able to move up in society because university education is becoming more necessary and it is still outside their budget. Another topic of controversy is that, apparently, many of the schools in Santiago make a profit and receive significantly less subsidy than other OECD countries. I'll admit, I don't know who is more right or wrong, but the protests have definitely taken their toll on the city due to widespread vandalism. That isn't good for anything.
Chile's current government, led by President Sebastián Piñera, a businessman himself, seems in tune with the business climate in the country and that entrepreneurship and export-oriented businesses are key to the economic growth the country has been experiencing. A surprisingly large portion of the businesses I saw accepted credit cards, in contrast with other developed parts of the world, namely Europe, which I take to signify progress in shrinking the informal market. I have never started a business in Chile, but from the experiences I have had with them and the perspectives I gleaned from various people during this trip, it seems that the government is ready and willing to help promote growth, not impede it with unnecessary formalities and expenses. Chile has a good track record for promoting free trade and has gained a lot of ground in recent years, especially in forming trade agreements with developing Asian countries. In contrast with my perception of the U.S. system of regulations and requirements for businesses, Chile's appear to be easy to follow but difficult to cheat.
Like all countries, Chile is not without flaws. It is still second in Latin America for separation of wealth. The economy also relies heavily on extracted commodities, namely copper, which is vulnerable to price shocks, and agriculture which I feel is more stable but still vulnerable to natural disasters. There is unrest regarding education as well as proposed hydroelectric dams, especially in Patagonia, commercial fishing, and other environmental issues. Things seem to be moving in the right direction, though, and if the economy continues to develop sustainably through value-added industry, I would expect the situation on the ground to continue to improve significantly. I see tremendous opportunities for industrious and entrepreneurial people in Chile and those looking to distribute there. We are currently working to develop various projects in Chile and are extremely optimistic about them. If you are interested in exporting or importing to or from, or any other arrangement involving Chile or South America and would like to see what we think, please do not hesitate to contact us.