business chileissue - amcham chile€¦ · k & d comunicaciones ltda. olga kliwadenko, general...

The voice of The chilean-american chamber of commerce n°277, December 2011

business chile

Special RepoRtDiversifying chile’s exports

Made in chileexporting innovation

coveR StoRyavoiding the china Trap

The Challenge of Export Diversification

Special Issue

nextel.cl

tus exportaciones unidaspor un sólo botón

December 2011 3business chile

Contents

The United States: A Diversified Marketeach of the 50 states offers a unique market for chilean exporters with its own characteristics and opportunities.

Trade Profile

12Avoiding the China Trapchile is rich in natural resources but reducing its dependence on copper exports means improving productivity and building bridges.

Cover STory

6

8 SeCondary STory

Exporting Innovationchile needs more entrepreneurs like fernando fischmann to diversify its exports, but that means spending more on innovation and r&D.

20Diversifying Chile’s Exportschilean companies need to raise quality standards, invest in training and form partnerships to make the most of free trade agreements.

SPeCial rePorT

EDITORIAL BOARD 2011CHAIR, Kathleen Barclay, Asesorías KCB; VICE CHAIR, Karen Poniachik, British American Tobacco Chile; VICE CHAIR, Manuel José Vial, Grupo Vial Abogados; PAST CHAIR, Michael Combes, Marco Chilena; GENERAL EDITOR, Julian Dowling, AmCham Chile; ASSISTANT EDITOR, Mariana Ossa, AmCham Chile.

MEMBERSJaime Bazán, AmCham Chile; Ruth Bradley, The Economist; John Byrne, Boyden Consultores Chile; Richard Diego, Royal Bank of Canada; John P. Dill, Project Management; Francisco Garcés, Banco de Chile; Claudio Hohmann, Walmart; Javier Irarrázaval, The Walt Disney Company Chile; Charles Kimber, Celulosa Arauco y Constitución; Olga Kliwadenko, K&D Comunicaciones; Gideon Long, BBC; Vincent McCord, Asesorías e Inversiones CarCon; James Newbold, Tanager Investments; Patricia O'Shea, AmCham Chile; Roberto Ossandón, Ossandón Abogados; Rodrigo Silva, Silva & Asociados; Mitch Larsen, U.S. Embassy; Paulina Dellafiori, AmCham Chile.

PRODucTIOnK & D Comunicaciones Ltda. Olga Kliwadenko, General Manager, 11 de Septiembre 1945 - Of. 213, Providencia. Phone: 481-6940 / 481-6941, Cell: (09) 874-0619; e-mail: [email protected]; [email protected];www.kyd.cl

Special RepoRt

Diversifying chile’s exportschile offers important comparative advantages but exporters need skilled professionals, modern infrastructure and international partnerships to compete abroad.

Bull, Bear or Bust these days it is difficult to know where to put your cash, but Santiago eneldo has some tips on how to play the market.

© 2011 AMchAM chILEReproduction in whole or in part is strictly forbidden without permission from the publisher. Opinions expressed in bUSiness CHILE are those of the authors and do not necessarily reflect those of AmCham or bUSiness CHILE. We accept no responsibility for the accuracy of the articles and any unforeseen errors. bUSiness CHILE is published monthly, 10 months a year and mailed free of charge to AmCham members. Letters are welcome. They should be accompanied by the author's name and daytime telephone and sent to [email protected] For reasons of space limitation, AmCham reserves the right to edit letters published.Advertising inquiries should be addressed to AmCham's Sales Department: Paulina Dellafiori: E-mail: [email protected]; Phone:2909741. Fax 2120515 Av. Presidente Kennedy 5735, Torre Poniente, Of.201, Las Condes, Santiago de Chile; E-mail: [email protected]; www.amchamchile.cl; www.businesschile.cl

life in the Slow lane

12

20

THE VOICE OF THE CHILEAN-AMERICAN CHAMBER OF COMMERCE N°277, DECEMBER 2011

bUSiness CHILE

SPECIAL REPORTDiversifying Chile’s Exports

MADE IN CHILEExporting Innovation

COVER STORYAvoiding the China Trap


Special Issue


Faced with rising world demand for copper and a volatile exchange rate, diversifying Chile’s exports requires innovation and global thinking.

BreakfaST38Chile’s Ivy League PartnerDuring his visit to chile, massachusetts Governor Deval Patrick highlighted opportunities for cooperation in education, innovation and science.

36Riding the Dragonchile’s increasing dependence on chinese demand for raw materials is not necessarily a bad thing, as long as china continues to grow.

26Attracting Foreign Investment To attract more investment in value-added exports, chile needs to offer tax incentives and improve protection for intellectual property.

SPoTlighT

eConomiC SnaPShoT

42

inTerview40Export Diversification and Growthharvard economist ricardo hausmann warns that chile’s apparent disregard for export diversification could be costly in the future.

nextel.cl

tus exportaciones unidaspor un sólo botón

December 20114 business chile

AmChAm GlobAl SponSorS 2011


What headline would amcham like to see on the cover of bUSiness chile in 2015? this is the question the chamber’s board of directors asked itself at its annual offsite planning session held in late november.

the consensus was that amcham’s mission would best be achieved if the chamber focuses on working to reassert the US leadership position in chile with respect to trade and investment.

Most recently, china has overtaken the United States as chile’s top trading partner principally due to its purchases of raw materials – particularly copper. the impact has been magnified by the recent increase in prices for these commodities.

however, as discussed in this Special issue of bUSiness chile, avoiding the china trap means chile must focus on export diversification. in this regard, the US-chile relationship has been hugely successful. Moreover, bilateral trade has recovered its momentum since the 2008/09 global financial crisis and has returned to growth.

So what is needed to take the US-chile commercial relationship to the next level?

the simple answer is more and better companies exporting more goods and services from chile to the United States and vice versa. But a series of forward thinking policy strategies are required in order to make that vision a reality.

clearly, the task calls for more value-added products and services involving significant innovation supported by high quality research and development. this means more and better education and training for chile to provide the human capital necessary to innovate.

it means more smart capital to fund entrepreneurs developing innovative ideas. this requires the development of the whole financing chain for new businesses including

angel investors, venture capital and private equity. it means having world-class intellectual property

laws that ensure inventors receive compensation for their ideas in order to stimulate the development of software and technology exports – an exciting area of growth for chilean services.

the government should continue to strengthen its policies to promote innovation. as discussed by dr. haussmann in this month’s interview, policymakers need to put ideology aside while they focus on a vision of the industries and clusters where chile is seeking to position itself.

on the investment side, new opportunities for growth in chile and the United States should spur further development. as discussed in this month’s Spotlight, both governments should vigorously pursue the ratification of the chile-US double taxation avoidance agreement which will greatly facilitate investment between the two countries.

as amcham plans ahead, we are encouraged by the strength and success of the chile-US relationship – particularly by the fact that bilateral trade is not only growing but is also highly diversified. We believe this relationship offers an important opportunity for both countries to benefit and improve the wellbeing of their peoples.

We at amcham are committed to developing even stronger programs to support the initiatives needed to create a more favorable business environment in chile. We will also be working to develop services that help companies to better access the US and chilean markets.

as we look to the future, we are confident that the cover of this magazine in 2015 will highlight the renewed leadership position of the US-chile commercial relationship. there is much work to be done in the meantime but, with the right policies and commitment to innovation, this relationship will emerge stronger than ever.

Trading Up: The Future of Chile-US Commercial Relations

Editorial

boArD oF DIrECTorS eXecUtiVe coMMitteePRESIDENTJavier Irarrázaval, The Walt Disney Company Chile

VICEPRESINDENT; CHAIR CORPORATE AFFAIRS AND SUSTAINABILITY COMMITEECharles Kimber, Celulosa Arauco y Constitución S. A.

TREASURER; Felipe Cerón, AES Gener

SECRETARY; CHAIR LEGAL COMMITEEMichael Grasty, Grasty Quintana Majlis & Cía.

PAST PRESIDENTRicardo García, Compañía Pesquera Camanchaca

GENERAL MANAGERJaime Bazán, AmCham Chile

DIRECTORSFernando Concha, Citigroup Andean – Caribbean and Central America Region CHAIR FINANCE AND ADR COMMITTEE

Gonzalo Iglesias, Coca-Cola de Chile S.A.VICE CHAIR LABOR AND HUMAN CAPITAL COMMITTEE

Mitch Larsen, Embajada de los E.E.U.U. EX OFFICIO

Luis Marcelo Moncau, Microsoft Chile

Enrique Ostalé, Walmart ChileKaren Poniachik, Enterprises directorVICE CHAIR EDITORIAL COMMITEE

Luis H. Siles, IBM de Chile

Carolina Valdivieso, Kimberly Clark CHAIR LABOR AND HUMAN CAPITAL COMMITTEE

ADVISORY COUNCILRubén Covarrubias, Rector, Universidad MayorCHAIR TRADE & INTERNATIONAL BUSINESS COMMITTEE

Alfredo Ergas, EnersisVICE CHAIR FINANCE AND ADR COMMITTEE

Mauricio Ramos, VTR Global ComVICE CHAIR CORPORATE AFFAIRS AND SUSTAINABILITY COMMITEE

Ramon Vergara, SCIP Group

Kathleen Barclay, Asesorías KCBCHAIR EDITORIAL COMMITEE

AmCham Mision Statement“Promote free trade and business between Chile and the United States"


Trade profile

The United States: A Diversified Market

ince chile’s Free trade agreement with the United States came into force in 2004, exports have grown

significantly. exports reached US$7.5 billion in the period January-october 2011, up 40% from the same period of 2010, as exports have largely recovered from the 2008/09 global economic crisis.

With bilateral trade of US$20 billion in the first ten months of 2011, the United

States was chile's third largest trading partner after china and the european Union. Behind the numbers, however, the diversity of the US market and the strong commercial relationship between the two countries represents an important opportunity for chile to diversify exports.

over 2,000 chilean companies exported 1,834 products to the United States in January-october 2011 with copper at the top of the list. But

exports of other products like salmon, wine and fruit are growing. By January 2015, 100% of chilean products will be tariff exempt, up from 97.1% currently.

of course, each state’s economy is the size of a small country with its own internal demand and comparative advantages. this map shows chile’s top five imports and exports by state for the first ten months of 2011 in order of decreasing trade.

S

1 TexasimPorTs:-oil (not crude)-light oils and prep.-propane, liquefied-acyclic ethers-polyethyleneexPorTs:-Refined copper cathodes and sections of cathode-light oils and prep. -pneumatic tires for motor cars-imports of articles exported and returned-Wine

2 floridaimPorTs:-civilian aircraft, engines and parts-port digital automatic data process machinery-phones for cellular network or other wireless network

With a population of over 300 million spread over 50 states, the united

states is a large and growing market for chilean exporters. however, each

state represents a separate market with its own characteristics and needs.

-parts and accessories for automatic data processing machines-parts and accessories of printers, copiers and fax machinesexPorTs:-Fish fillets and meats-Refined copper cathodes and sections of cathode-cranberries, blueberries -Fish fillets, frozen-potassium nitrate

3 californiaimPorTs:-oil (not crude)-digital automatic data process machinery-lights oils and prep.-phones for cellular network or other wireless network-Filtration/purification equipment for liquidsexPorTs:-Grapes-cranberries, blueberries

-vegetable seeds for sowing-avocados-Fish fillets and other meats

4 GeorgiaimPorTs-parts and accessories of printers, copiers and fax machines-Generators with compression-ignition -Mechanized shovels and excavators-chicken cuts and edible offal-acrylic polymers exPorTs-Refined copper cathodes and sections of cathode-iodine-coniferous sawn wood-Wood products-pneumatic tires for motor cars

5 louisiana imPorTs-oil (not crude)-Urea-Bituminous coal-polyvinyl chloride-Brewing or distilling dregs and wasteexPorTs-Refined copper cathodes and sections of cathode-iron ore-light oils and prep. -Sodium nitrate-plywood

6 new YorkimPorTs-parts of airplanes or helicopters-parts and accessories of printers, copiers and fax machines-Unwrought aluminum alloys-perfumes and eau de


toilette-digital automatic data processing machineryexPorTs-Refined copper cathodes and sections of cathode-Gold non-monetary-Silver-Wine-paints, drawings and pastels by hand

7 llinoisimPorTs-dumpers for off-highway use-Front-end shovel loaders-track-laying tractors-passenger vehicles -Graders and levelersexPorTs-pneumatic tires for motor cars-Wood-Fish meal and pellets -Wine-Fungicides

8 Pennsylvania imPorTs-trucks-derricks -trucks and forklifts-precious metals-platinumexPorTs-Grapes-Molybdenum ores-pneumatic tires for motor cars-corn (maize)-apples

9 WashingtonimPorTs-oil (not crude)-Wheat-tv receivers -Filtration/purification equipment -voice/image/data recognition equipment exPorTs-Fish fillets

-vessels-apples-Methanol-Salmon

10 connecticutimPorTs-Gas turbines-Military weapons-parts of electric motors-Filter paper and paperboard-Burglar or fire alarms and similar apparatus exPorTs-Refined copper cathodes and sections of cathode-Unwrought refined copper -chemicals and waste products-Salt-Wine

11 Wisconsin imPorTs-parts and attachments for trucks-Mechanized shovels and

excavators-parts for vehicles-Mining machinery-Machinery and mechanical appliancesexPorTs-cherries-chemicals and waste products-Wine-apples -imports of articles exported and returned

12 new JerseyimPorTs-chemical products-perfumes and eau de toilette-passenger vehicles -asphalt-clothing itemsexPorTs-Grapes-insulin-Wine-cranberries, blueberries -avocados

1

2

3

4

5

6

7

8

9

1011

12

Source: USa trade online

For more information, contact Sam andrus in amcham’s Research department, tel: +56 2 290 9733, [email protected]


ernando Fischmann never set out to become an innovator - he had no choice. a biochemist by training, Fischmann was working as a real estate developer in

1997 when he found beachfront property on chile’s central coast with one major drawback: the water was so treacherous that swimming was prohibited. So Fischmann teamed up with a local tech firm to create a three-hectare lagoon that would double as the caribbean for chilean second-home buyers.

Fifteen days after the lagoon was filled, however, the water turned murky and fetid with algae, the tech partner wasn’t returning calls, and the buyers were furious. Fischmann sought help in australia, Germany and the United States, but was told that the technology to filter and treat such a large body of water did not exist anywhere in the world.

Fischmann returned to chile and embarked on a five-year research project that led to the invention of a patented filtering system that can maintain a limitless body of water in a crystal clear state while using less chemicals and energy than a traditional pool.

San alfonso del Mar, in the seaside town of algarrobo, became the most successful second-home development in chile, and the eight-hectare lagoon won a Guinness record in 2007 as the world’s largest swimming pool. Soon,

offers from international developers were pouring in.

“Fernando’s nature is to always move forward and solve problems along the way,” says eduardo Klein, business manager of crystal lagoons, the company founded by Fischmann to export the technology, which has been patented in 160 countries. “he wasn’t looking for an invention - he was looking for a solution.”

crystal clear lagoons will not solve chile’s dependency on exports of non-renewable natural resources such as copper, but more out-of-the-box thinkers like Fischmann could help the country to diversify its exports. First, however, a clear definition of innovation is needed.

What’s in a word?

While there seems to be consensus in the public sector that innovation is urgently needed, the meaning of the word itself has grown abstract and stale since many chilean businesses do little more than pay lip service to it.

For example, innovation might be referenced in a car commercial without explaining what, if anything, is revolutionary about the vehicle, or used to sing the praises of a company that has simply slapped a “premium” label on some of its products.

“it’s been overplayed,” says ari Bermann, development manager of 3M chile, a US-based manufacturing company that has made its name by constantly introducing new products. “innovation means creating something to meet the needs of the market. When that creativity turns into a new product or process, and that invention has commercial value - that’s innovation.”

and how innovative is chile? the country ranks 38 out of 125 economies in the 2011 Global innovation index (Gii) compiled by the international business school inSead, leading all latin american and caribbean nations, with high marks for its institutions. But it ranked a lowly 71st in research and human capital.

that’s not surprising considering that in 2008 the country spent a paltry 0.4% of its Gdp on research and development - a key precursor to innovation -

F

Innovation

chile’s non-renewable natural resources such as copper won’t last forever, and sooner or later the country will need to export more value-added products and processes using proprietary technology. but is it ready to begin the transition?

Exporting Innovation

By sebastian Pérez-ferreiro


Exporting Innovation

compared to an average of 2.3% in the organization for economic co-operation and development (oecd).

the piñera administration hopes a new bill, which will allow small- and medium-sized businesses to reap tax benefits by investing in R&d, will help investment reach 0.8% of Gdp by 2014. But research alone is not enough to diversify exports; chile also needs more venture capital to get start-ups on their feet.

calling all risk-takers

Some companies are investing in innovation but not enough, says Bermann, who oversees the new 3M innovation center in antofagasta that is working to improve processes used by the mining industry, among other sectors.

“in the last 20 years, commodities in chile have turned such a huge profit that people don’t want anything to do with risk,” says Bermann. “Why, when you can invest in commodities and make money like crazy?”

the reality is that too many companies would rather let others do the legwork needed to create new processes, products and technology. instead of taking a gamble and investing in research with no guarantees of success, much of the private sector has a wait-

and-see approach to innovation.“if Steve Jobs had been born here,

we’re not sure he would have created apple,” says Katherine villarroel, executive secretary of chile's national innovation council for competitiveness (cnic), a public-private organization created in 2005 by the lagos administration and entrusted with the mission of proposing guidelines for a long-term national innovation strategy.

the United States, which nurtured apple, has a history of successfully promoting innovation but similar natural resource-based economies, such as new Zealand and Finland, have also diversified their exports through innovation, points out villaroel.

“So why can’t we?” part of the problem is chile’s

school system. “We are not educating people to become innovators; we are teaching them to become employees,” she says.

chilean engineers, suggests villaroel, should also study the arts and social sciences to come up with new and creative solutions to persistent problems. “innovation is the best answer for an ever-changing world. We better prepare for it, because we have no choice,” she adds.

Paying for innovation

But well-educated graduates will not innovate without a financial incentive. in 2005, former president Ricardo lagos introduced a specific mining tax and created the innovation Fund for competitiveness to increase public resources for innovation. But according to the cnic, funding is not growing as fast as it needs to in order to have an

Katherine villarroel, national innovation council for competitiveness (cnic)

“We need entrepreneurs and innovators because one day we’re going to run out of copper.”


impact on productivity growth.public spending on science,

technology and innovation, most of which is divided between the innovation Fund, the commission for Scientific and technological Research (conicyt), and chile’s economic development agency (coRFo), totaled around US$650 million in 2011, a fraction of what countries like new Zealand and Finland spend.

and, while the government says funding will grow 10% in the 2012 budget from the amount spent in 2011, the cnic counters that the increase from the previous year’s budget is a meager 3.1% - well short of its recommended 12% yearly growth for the next 15 years.

this does not bode well ahead of chile’s official year of innovation in 2013.

But it’s not just the government that needs to do more to encourage innovation; the private sector also has an important role to play. “We all need to do a lot more to get this to really grow,” admits René Brahm, head of the innovation division at the economy Ministry, which manages the innovation Fund.

With venture capital still green in chile, getting financed can be a tremendous challenge, says Brahm. “there are many start-ups that need

financing but can’t get it from banks and, if you go bankrupt, you’re dead.”

meet the innovators

While chile has yet to nurture an innovator as famous as the co-founder of apple, it does have its share of entrepreneurs who are pioneering new industries and looking beyond their borders.

one of them is conicyt’s president, José Miguel aguilera, a food engineer working to turn chile into a leader in the field of molecular gastronomy, the culinary science popularized by Spanish chef Ferran adrià. Given the richness and variety of the chilean food supply, aguilera believes that the nation could export processed food that is physically and chemically re-engineered to make it sustainable, healthy and delicious.

“our future is as an exporter of high-quality products with built-in technology,” aguilera, who does consulting for nestlé, told the magazine ingenieros.

another innovator is Juan carlos de la llera, an engineer and professor at the catholic University whose work on cutting-edge seismic protection systems has been sought after in other earthquake-prone countries. the interest peaked after the seismic isolation and energy dissipators that de la llera and

his team designed for the titanium skyscraper and other buildings around chile withstood the major earthquake of February 27, 2010.

and, of course, there is Fischmann, who continues to innovate. last april, at Babson college’s latin entrepreneur Forum in Boston, he announced his latest breakthrough: a new system for cooling large power plants using the same technology employed by crystal lagoons.

the lagoon side of the business, meanwhile, has expanded to 180 projects in 45 countries thanks to its creative licensing model. “in exchange for the technology, know-how and maintenance, we get a percentage of the project’s sales,” explains crystal lagoons’ Klein.

next up, the company will help break its own Guinness record. it is currently building 10 lagoons covering 100 hectares for a US$5.5 billion development at the Sharm el Sheikh resort in the egyptian desert.

Fischmann’s invention has found a global market, but it remains to be seen whether chile can develop a culture of innovation to nurture more people like him. the answer could decide whether chile’s economy remains healthy for future generations.

sebastian Pérez-ferreiro is a freelance journalist based in Santiago

chilebUSiness

Innovation

eduardo Klein, crystal lagoons

“our technology is changing people’s lives.”

rené brahm, innovation division, economy Ministry

ari bermann, 3M chile

“There are many start-ups that need financing but can’t get it.”

“innovation means creating something to meet the needs of the market.”


COVER STorY

Avoiding the China Trap

hile is blessed with an abundance of natural resources. From its fertile agricultural land to its extensive pacific coastline and,

especially, its vast mineral deposits in the north, this long sliver of South america produces raw materials that countries not so well endowed need to build new cities and feed their populations.

and chile’s exports are growing. Between 2003 and 2010 exports grew at an average annual rate of 19% and have quadrupled over the last decade

to around US$80 billion in 2011. But much of the growth in recent years has been due to rising demand for a single commodity – copper.

chile’s economy has always leaned heavily on exports of minerals. in the 19th century, nitrates – used in fertilizer and explosives – bankrolled chile’s emergence as an independent nation. in the 20th century, copper gradually replaced nitrates as chile's main export and today it accounts for more than half of the country’s total exports.

But exports of non-mining products

like fruit, salmon, wine and furniture have grown thanks to a web of free trade agreements. Since 2000, chile has signed agreements with key partners including the United States, the european Union, Korea, china and Japan. today, it has 21 free trade agreements with 58 countries, giving exporters preferential access to nearly two thirds of the world’s population.

this openness is reflected in the diversification of exports and the number of companies exporting to these markets. in 2010, a total 7,447 chilean

cBy Julian Dowling

chile’s export basket, dominated by copper exports, is still typical

of a poor country, not a rich one. Diversifying exports, while chinese

demand continues to drive up copper prices, requires policies that

promote innovation and help chilean companies to reach further.


COVER STorY

firms exported 4,929 products, up from 5,496 firms and 3,503 products in 1993. of course, not all companies export to all countries, but the United States, which signed a deal in 2003, has been a key market for non-copper products.

this is no accident. the government’s export promotion agency, prochile, has worked hard to diversify chile’s exports to the United States and elsewhere, says prochile’s director, Felix de vicente.

through its network of 55 trade offices in 41 countries – including five in the United States – prochile monitors international markets and identifies opportunities and threats for exporters.

“this allows our exporters to make the best decisions at the right time and not make mistakes that could be avoidable,” says de vicente.

and the strategy has worked. From the mid-1990s to 2008, non-copper exports showed steady growth, reaching over US$30 billion. chile’s exports fell steeply in 2009 due to the global financial crisis but they have recovered strongly in the last year.

“you can see the trade agreements we have signed have had a positive impact on export diversification,” says de vicente.

yet, despite chile’s integration with

foreign markets, its export basket has actually become more – not less – concentrated in the last five years, while copper exports have taken off.

this is mainly due to chinese demand. china’s booming construction industry needs enough copper to build a new city every three or four months. as a result, the asian dragon has become chile’s top trading partner – total exports reached US$12.9 billion in the first nine months of 2011, up 7% from the same period of 2010 – with the metal representing nearly 90% of exports.

“chile is one of the countries in latin america with the most diversification of markets and the least diversification of products,” says osvaldo Rosales, director of the trade and integration division at eclac. “We’re talking about a re-primarization of the economy.”

indeed, after a growth spurt in the early 1990s, chile’s export diversification, as measured by the herfindahl-hirschman index, is virtually unchanged since 1994 when chile scored 0.27 (1.0 represents maximum concentration) compared to 0.26 in 2008. this compares to an average of 0.1 in the G-7 countries and 0.15 in Korea.

today, chile’s exports are less diversified than the exports of many asian countries at a similar level of development and per capita Gdp.

“We improved in the 1990s but we have stalled in the last decade,” says Ricardo Ffrench-davis, an economics professor at the University of chile.

in his book, Economic Reforms in Chile: From Dictatorship to Democracy, Ffrench-davis argues that the main reason for this stagnation is exchange rate volatility.

squeezed by the peso

exporters live and die by the exchange rate. it determines how much they receive for every peso spent producing a product or service. But over the last decade predicting the real exchange rate has been a lottery.

“is it going to be 450 or 650 pesos?

What do i base my investment decisions on for the future? it’s very difficult,” says Ffrench-davis.

Without a stable exchange rate, investors will not risk investing in innovation which is key to developing new products and services. although the dollar has strengthened in recent months due to the european debt crisis, the chilean peso’s appreciation has made it difficult for exporters in non-mining sectors to compete abroad.

chile is not the only emerging economy in this bind. the experiences of Korea and Brazil since 1999 have shown that currency volatility can be a disincentive to export diversification. “you end up sticking to what you know, which is traditional exports,” points out Ffrench-davis.

however a strong currency is not necessarily a death knell for exporters. countries with rapidly expanding economies and high productivity growth – like chile in the mid-1990s - tend to have a more rapidly appreciating exchange rate which is compensated by the higher competitiveness of their exports.

“thanks to higher productivity, exporters can compete abroad while domestic producers that compete with

osvaldo rosales, eclac

“chile needs a proactive trade policy that does not exist today.”

felix de vicente, prochile

“We are helping our businesspeople find more and better export opportunities.”

COVER STorY

cheaper imports are protected,” says Ffrench-davis.

But chile’s productivity has declined in the last decade. although productivity was expected to edge up around 0.4% in 2011, it is still nowhere near the average annual growth rate of 2.3% reached in the mid-1990s when chile’s economy was booming. and sluggish productivity growth, combined with a strong peso, makes it difficult for chilean exporters to compete with other developing economies, especially in asia.

the future outlook is not much brighter. the current commodities super-cycle, driven by asian demand for raw materials, could last for another 15 years or more. in addition, interest rates are expected to remain low in the United States and europe which means capital should continue flowing into emerging markets, putting additional pressure on the exchange rate.

all this sends a depressing message

to exporters.“it means the exchange rate

will remain low unless there is a temporary crisis such as the one we are experiencing now,” says eclac’s Rosales. “obviously, this is not the best situation to encourage an entrepreneurial climate in chile.”

incentives for innovation

new Zealand, australia and canada – all countries with natural resource-based economies – have shown that incentives for innovation, better education and training, world-class infrastructure and technology clusters are needed to create successful export industries.

“these incentives have not been present in chile’s policies, which explains the stagnation in export diversification,” says Rosales.

the innovation for competitiveness Fund (Fic), created in 2005 by former president Ricardo lagos on the basis of a royalty tax on mining, has increased funding for R&d projects, but more needs to be done to support innovators, says Rosales.

in this regard, chile’s close commercial relationship with the United States is an

ricardo ffrench-Davis, University of chile

“an unstable exchange rate is very unfriendly to the diversification of exports.”

important advantage, notes prochile’s Felix de vicente.

“We have much to learn from the United States in this area if we want chile to become a pole of innovation in latin america,” he says. “the experiences obtained from successful cases like Silicon valley are very beneficial for us.”

taking a good idea to market can be painstakingly slow in chile, but US experience in this area can help chilean innovators to take the next step.

For example, the Go to Market competition, developed by chile’s economic development agency coRFo, gives chilean researchers the chance to apply for a four-week training course at the Stanford Research institute in Silicon valley.

coRFo is also working to bring international scientific expertise and financing to chile. in September, the German biotechnology firm Fraunhofer opened its first South american

office in Santiago with funding from coRFo. australia's national science agency, cSiRo, also has an agreement with state mining company codelco to establish joint research and development projects.

“if we can do this in the mining sector, why not other sectors?” says Rosales.

“We need to establish more technology centers, research alliances with other countries, and a critical mass of trained professionals.”

But this will not happen if left to market forces alone. another latin american country, costa Rica, has shown that state support is crucial. Since intel's decision to establish a manufacturing facility there in 1996, the country has benefitted from a surge in foreign investment and employment but it has not stopped there.

costa Rica’s government has acted as an intermediary to help small firms meet standards and become suppliers to US companies. coRFo aims to implement a similar program in chile in 2012 but it must work faster, admits hernán cheyre, coRFo’s executive vice-president.

“the main thing we can do is to build bridges for small and medium size companies to reach new markets,”

hernán cheyre, coRFo

“We must build bridges to connect entrepreneurs in chile and abroad.”

AmericanAirlines y AA.com son marcas de American Airlines Inc. oneworld es marca de oneworld Alliance, LLC.

Reserve en AA.com


COVER STorY

he says.

Distance to market

chile is in the same time zone as the eastern United States but its geographical isolation is a comparative disadvantage. the higher cost of transporting goods to key markets makes chilean products less competitive and the small size of the internal market is also a drawback.

“economies of scale matter, and we are very small,” says Rosales. “But being small allows you to be more flexible and being isolated is an incentive to improve efficiency.”

if chile is to become a gateway to the asia-pacific region – the Singapore of South america – as the government intends, it needs to invest more in infrastructure, says Rosales.

chile’s national airline lan established its regional hub in lima to be closer to key markets like the United States and Brazil, but chile could become an important regional maritime hub by improving the efficiency of its ports.

the valparaiso and San antonio ports process about 70 containers per hour, according to an eclac report, which is more efficient than all other South american ports but still less efficient than chinese ports that process double that amount.

Moreover, post-panamax vessels are currently too big for chilean ports but chile could build the first port on latin america’s pacific coast capable of

servicing these vessels. “it would be a great competitive advantage for chile,” notes Rosales.

chile also needs to improve its road and rail connections with Brazil, argentina and Uruguay, not just to give chilean exporters access to ports on the atlantic coast but also to facilitate intra-industry trade.

international connections

a great challenge for chile is how to use its network of trade agreements to strengthen the internationalization of its small and medium-size companies.

one reason for asia’s success in the last 30 years has been the growth in intra-industry trade, preceding in many cases the signing of trade agreements. this type of trade not only generates partnerships between companies, it also foments innovation, but the protectionist tendencies of some countries in South america are an obstacle to integration, says Rosales.

apart from the automobile industry in Brazil and argentina, there are few industries that use components supplied by different countries in the region.according to Rosales, this needs to change for chilean exporters to move up international value chains but it requires political will and does not depend entirely on chile.

developing partnerships with companies in countries like the United States and india that can also help

chilean companies upgrade their technological capacity and add value to exports.

india represents only about 1% of chile’s total exports, but indian companies are more globalized and better positioned than their chinese counterparts. this means they could make ideal partners for chilean companies, especially in the area of offshoring, which is a growing export industry.

But in order to communicate with indians, chileans need to speak english better. While costa Rica has promoted english-language training and reformed its education system to meet the needs of investors, only around 3% of chileans speak english fluently. “it’s a big gap,” admits coRFo’s cheyre.

there is clearly room for chile to improve but the current debt crisis in europe and north america is a window of opportunity. While other countries struggle with crippling debts, chile has its fiscal accounts in order and plenty of access to capital. crucially, it is also an attractive foreign investment destination with a stable and growing economy.

chile has done the job of opening markets but now it needs to develop its international connections so exporters can reach further and run faster. it’s not too late to escape the china trap, but diversifying exports takes innovation, bridges and partners like the United States.

Julian Dowling is the Editor of bUSiness CHILE

chilebUSiness

Despite signing a flurry of free trade agreements, chile has become

more not less dependent on exporting a small number of highly-

prized commodities over the last decade. Developing alternatives

while copper prices remain high will require new strategies and

approaches.

Diversifying Chile’s Exports

By Tom azzopardi

SpECial rEporT

hilean exports are on the rise. In 2010, the country exported US$71 billion worth of goods, up 31.5% from 2009. Exports during the first

11 months of 2011 totaled US$74 billion, up 17% from the same period of last year.

But while the value of Chilean exports is growing, the basket of products the country exports is actually shrinking. According to figures from Chile’s industrial association SOFOFA, the number of products Chile exports has fallen steadily from 5,302 in 2005 to 4,938 in 2010.

The reason is higher demand and prices for a handful of commodities which Chile produces in abundance, explains Hugo Baierlein, head of foreign trade at SOFOFA.

Copper alone has accounted for more than half of Chilean exports so far this year. Add other commodities such as wood pulp, used in paper production, and molybdenum, a byproduct of copper mining, and the figure rises to almost 60% of the country’s exports, up from 40%

a decade ago.Over the last decade and a half,

Chile has signed a flurry of free trade agreements and other commercial treaties which give its goods and services preferential access to markets representing most of the world’s economy and population.

Government and business expected that bringing down trade walls would help to diversify Chile’s foreign trade away from copper and other traditional exports to a wider range of goods and services.

This is reflected in the diversification of exports to the US market. In the first nine months of 2011, 1,962 Chilean firms exported 1,734 products to the United States – the most of any other market – and total exports grew by 34% to US$ 7.12 billion, representing Chile’s third most important export destination after China and the European Union.

But exports of minerals and agricultural products still dominate Chile’s export basket. Manufacturing was supposed to be one of the big beneficiaries of Chile’s free trade agenda but that was partly based

c

on unrealistic expectations. When Chilean manufacturers moved into new markets in Europe, North America and East Asia, they soon ran up against other barriers, especially quality standards.

“We thought, once the agreements were inked, it would be easy,” admits Baierlein. “But soon we realized the standards are very high.”

Quality standards

SOFOFA is now working closely with the government and the National Standardization Institute to develop norms for a wide range of sectors to make it easier for them to break into new markets.

Significant progress has been made and the number of Chilean manufacturers has quadrupled in the last five years bringing major benefits to some parts of the economy.

Since two quality standards were published for matches, for example, Chilean matchmakers now export to 12 countries around the world, says Baierlein.

Quality standards not only help Chilean companies compete abroad but also make it tougher for foreign firms to export shoddy products to Chile, protecting both local businesses and unsuspecting consumers.

But as fast as Chilean firms fulfill one kind of standard, new ones are appearing. European supermarkets

increasingly require products to display their carbon footprint. Several Chilean wineries have already invested in renewable energy or are planting trees to reduce or offset greenhouse gas emissions. Others have adopted fair trade labels, certifying the quality of their labor relations. Standards on water consumption could follow.

currency appreciation

Chile’s success in exporting copper and other commodities has brought in billions of dollars in tax revenues and foreign earnings but has proved a double-edged sword to the economy as a whole. As the value of Chile’s mineral exports has soared on the

SpECial rEporT

back of apparently insatiable Chinese demand, the value of the Chilean peso has climbed.

Known as the China trap, this has put terrible pressure on highly price sensitive sectors such as fruit exporters and wine producers.

“Our competitiveness has been affected, margins have fallen and the level of indebtedness in the industry has risen,” explains Ronald Bown, president of the fruit exporters association, ASOEX.

When the US dollar threatened to break through the 460-Chilean-peso barrier earlier this year, thousands of farmers from the Central Valley, Chile’s agricultural heartland, held a major protest demanding more support from the government. Prolonged weakness in the dollar could cost jobs in a sector which employs close to half a million Chileans.

Although the Central Bank has

sought to shore up the dollar, buying up US$12 billion worth in daily auctions, it is likely to remain weak given the slow projected growth of the US economy.

Meanwhile, Bown says the government could do much more to support farming by providing more resources for phytosanitary controls and the Agriculture Inspection Service (SAG), as well as investing in Chile’s image abroad.

But the real answer lies with reconverting the sector to less vulnerable products and markets.

aiming for quality

Free trade agreements have already allowed Chilean agriculture to make significant inroads into once-closed Asian markets, diversifying the markets the industry serves. The Asia Pacific region today accounts for 14% of fruit

exports, up from almost nothing at the beginning of the century.

But the sector also needs to experiment with higher end varieties and invest more in training its workers to increase competitiveness and reduce sensitivity to fluctuations in the exchange rate.

“The sector has strong growth prospects in the medium term if things are done well and we manage to pull off a major reconversion process,” says Bown.

Chile’s wine industry is adopting a similar strategy.

In order to double exports to US$3 billion annually by 2020, the industry needs to go for quality rather than quantity. As more producers specialize in premium wines, the sector hopes it can boost the average price for a box of twelve bottles to US$37, from US$27 currently.

Unable to compete on labor

costs, Chilean manufacturing will only succeed abroad by targeting high-end niche markets, argues SOFOFA’s Baierlein.

For example, the textiles industry has retreated in recent years in the face of cheap Chinese apparel, but the industry could take better advantage of rules of origin clauses in free trade agreements to import cloth and export high quality garments. Some companies, such as Trial, are already reaping the benefits, selling men’s suits in New York retailing at US$600-US$700.

Tourism promotion

Although not strictly an export, the government sees inbound tourism as another means of pulling in foreign income. The number of foreign visitors to Chile has doubled over the last decade to over 2.7 million last year,

with a sharp increase in the number of long-haul visitors from Europe and North America who tend to stay longer and spend more.

Chile’s attractions from the fjords of Aysen to the Atacama Desert are world-class and the country is well-served with tourism infrastructure such as five-star hotels, domestic flights and good roads even in remote areas, says Francois Carrere, general manager at CTS Turismo, one of the country’s largest private tour operators.

In January 2011, the government recognized the importance of tourism for the economy by launching a new Undersecretary for Tourism, dependent on the Economy Ministry. In addition, AmCham is working with the Ministry and industry associations to make labor regulations more flexible and thereby improve the competitiveness of the sector.

But Chile is still a long way behind in terms of tourism promotion. Other countries, such as Colombia, Peru and Uruguay, already run slick TV campaigns tempting foreigners with their attractions. Chile’s first campaign, on the other hand, is limited to bus and metro adverts in four key markets: Brazil, Germany, Spain and the United States.

However, the real barrier to increasing inbound tourism is insufficient air connections, says Carrere. Today the country is poorly served with just a handful of airlines controlling the key routes to Chile’s main markets, especially in Europe.

While the government is working to expand Santiago’s increasingly-clogged Pudahuel international airport with a new terminal due for completion in 2017, the industry is keenly watching to see what impact the merger of Chilean airline LAN Airlines with Brazilian rival TAM will

have. Although the creation of Latin America’s largest carrier will further concentrate the region’s aviation markets, operators hope the new company will increase connectivity especially to Brazil and Europe. Direct flights to more cities in Brazil would massively expand Chile’s reach in its largest market.

The industry has also done little to tap the huge Asian markets on the other side of the Pacific, says Carrere. Visitor numbers from Japan, India and Russia remain tiny compared to their potential but again air connections remain a bottleneck. In contrast, the industry has been able to build important markets in Australia and New Zealand thanks to direct flights to Sydney and Auckland, he says.

an iT platform?

Connections are not a problem for Chile’s surging information technology sector. Its skilled professionals, a common time zone with the US Atlantic coast, and its world class communications infrastructure – one of the best in the region – have made Chile a natural base for an increasing number of technology firms, says Raul Ciudad, president of information technology association ACTI.

So far the industry is largely focused on the domestic market – just US$500 million out of US$4 billion invested in IT last year was export-related – but by joining forces with financial, engineering and other professional services, business leaders believe Chile could become a hub for a range

ronald bown, aSoeX

“The exchange rate has affected the competitive-ness of exporters.”

hugo baierlein, SoFoFa

“higher quality standards will help chilean expor-ters.”

SpECial rEporT

9000

8000

7000

6000

5000

4000

3000

2000

1000

2005 2006 2007 2008 2009 2010

200

195

190

185

180

175

170

5.3

02

6.8

80

5.2

15

6.9

69

5.2

58

7.915

5.1

56

8.2

40

4.9

81

7.517

4.9

38

7.447

184

181

189

185

197

191

PRODUCTS COMPANIES MARKETS

Indicators of Chile's Export Performance (2005-2010)

of global services.“We reckon we can increase exports

of global services to around US$5 billion within a few years, up from US$2 billion currently,” estimates Ciudad.

The biggest barrier, however, is a lack of trained recruits. While Chilean engineers are well-respected (they are seen as more rounded than colleagues from elsewhere) and cost about 40% less than their US counterparts, there are far too few of them. Student numbers may have exploded over the last decade but the numbers opting for technical courses have lagged.

“Young people seem to prefer courses they see as easier like journalism or sociology,” laments Ciudad.

ACTI and other business groups are trying to persuade the government of the need for a campaign to convince school-leavers to opt for better-remunerated technical careers, but the issue has been lost in this year’s debate over whether students should pay for their education.

Similarly, the industry faces a massive shortfall of competent English-speakers. Roughly half of Chile’s IT workforce speaks English compared to 3% nationally. This makes it much more difficult for Chile

to fill the call-centers and helpdesks at which it could excel. Lack of language skills also hinders the development of tourism services, says Carrere.

size is everything

Another problem facing potential exporters is size. Most Chilean companies, from IT to manufacturing, are small businesses with a handful of employees dedicated to servicing a small number of clients and products.

Even an order from a small US firm would swamp their books, says SOFOFA’s Baierlein. In response, the government is trying to encourage Chilean firms to join forces in order to be able to seize opportunities in these bigger markets.

Another strategy is to take on smaller targets. Chilean businesses had hoped free trade agreements would open up a goldmine of opportunities by permitting them to participate in public purchasing tenders in the United States and Europe but this had not come to pass, partly because many Chilean firms lack the necessary scale.

So SOFOFA plans to lead missions to allow Chilean firms to participate in tenders in smaller markets in the region before trying to hook bigger fish.

“We will start with Colombia, Paraguay and Costa Rica, develop some success stories, and only then move onto the U.S.,” explains Baierlein.

Another aspect of Chile’s network of free trade agreements is the potential to turn the country into a business platform. By exploiting rules of origin included in the deals, firms from third countries could use Chile as a springboard to markets that would otherwise be closed to their products.

Several European firms have already installed operations in Chile for the access it offers to China and the United States. “We are seeing Spanish firms here at the rate of one or two a week,” says Baierlein.

Such investments, of course, may be vulnerable to the signing of other agreements. The French carmaker Peugeot used to assemble cars in Chile for the Mexican and Colombian markets, but when Mexico signed a free trade agreement with the European Union in 2000, Peugeot moved its operations to France and Chile lost out on exports worth around US$700 million a year.

But the increasingly-protectionist stance taken by Chile’s Mercosur partners Argentina and Brazil makes it highly unlikely they will sign trade deals with the United States and, as a result, firms are lining up to invest in Chile.

Attracting foreign investment and exploiting niche opportunities is vital if Chile wants to reduce its dependence on copper, molybdenum and pulp. Developing new products and services is especially difficult when high copper prices weaken their competitiveness, but when the copper boom eventually ends, as it must, it will be to these alternatives that Chile will have to turn.

francois carrere, ctS turismo

“The main barrier to tourism in chile is the lack of air connections.”

raul ciudad, acti

“chile’s iT industry needs more english-speaking graduates.”

Tom azzopardi is a freelance journalist based in Santiago

chilebUSiness


SpoTlIGhT

in 2010, chile placed for the first time amongst the 20 leading recipients of foreign direct investment (Fdi) in the world. according to the World investment Report 2011, released by the Un conference on trade

and development (Unctad), chile ranked 19th and third in latin america behind Brazil and Mexico, both much larger economies than chile.

and 2011 was another good year for Fdi. through october, Fdi inflows to chile totaled US$13.88 billion, up from US$13.73 billion in the same period of 2010, which was a record year.

“it has been a very good year for chile in terms of foreign investment,” says Matías Mori, executive vice-president of chile’s Foreign investment committee.

For the many multinational firms that have established their regional headquarters in chile, this is no surprise. according to numerous international rankings of economic freedom, transparency and business environment, chile has one of the best climates for investment in the region. crucially, it also offers a network of free trade agreements that give exporters access to 62.5% of the world's population.

Meanwhile, foreign investment has brought important benefits for chile including employment, innovation, technology transfer, training and the development of service industries.

“Foreign investment has played a decisive role in the economic development of chile and is fundamental to achieving the government’s [economic] growth objectives,” says Mori.

Since 1974, when chile’s economy started opening up, the United States has been by far its largest foreign investor, accounting for around a quarter of total inflows under the d.l. 600 Foreign investment Statute. it is followed by Spain (18.7%) and canada (17.7%).

however, with the exception of 2009 when retail giant Walmart acquired a controlling stake in chile’s d&S supermarket chain for US$2.7 billion, Fdi by US companies has fallen from an average of around US$1 billion in the 1990s to half that amount or less.

Meanwhile, asian investment in chile is rising. Japan was the origin of 48.2% of the Fdi that entered chile in the first nine months

of the year mainly due to imports of raw materials needed for reconstruction after the earthquake and tsunami in March 2011.

Korea placed fifth with 3.7% of Fdi, which is significant considering its negligible historical investment in chile. the Foreign investment committee also received, through the d.l. 600 mechanism, investment requests from two chinese firms totaling US$205 million.

“considering that from 1974 to 2010 china’s investment only reached US$85 million, we are talking about growth of 141%,” says Mori.

But chinese investment remains a pittance of US Fdi. this can be attributed to a combination of factors, says Francisco Garces, a member of Banco de chile’s board and president of chile’s asia-pacific chamber of commerce,

part of the reason is that china prefers to invest in countries like peru and Brazil with less environmental restrictions and lower labor costs than chile.

“there will be more investment from asia in the future but chile has to cut red tape and reduce costs for investors,” says Garces.

improving productivity is especially important for value-added exports. the capital-intensive mining sector continues to attract about a third of chile’s total Fdi, but other sectors including services and manufacturing are growing.

the services sector, which includes financial services and software development, represents 22% of Fdi.

“chile’s professional services are increasingly well evaluated and recognized internationally, which has contributed to the

Attracting Foreign Investmentby Julian Dowling

but for chile to generate value-added exports, it needs to

offer investors incentives and address challenges in areas like taxation

and intellectual property.

i

matías mori, Foreign investment committee

“foreign investment has played a decisive role in the economic development of chile.”

diversification of our exports,” says Mori.the manufacturing sector, which receives

11.3% of Fdi, is also expanding. investment in agro-industry has been important for diversifying chile’s food export basket by incorporating new technologies that increase efficiency.

Moreover, this sector has high potential for growth as foreign companies are becoming established in chile to supply quality food products to their own countries, says Mori.

But there are important legal and regulatory issues that chile must address if it aims to attract more Fdi in these sectors and accelerate the diversification of its export base.

chile has made some progress in fighting piracy but in 2011 it remained, for a fifth straight year, on the UStR priority Watch list of countries that have failed to adequately protect intellectual property.

this is mainly due to the widespread piracy of US copyrighted music and films in dvd format. “We have a weak spot in this area but

the government has taken some measures to address the problem,” says esteban elias, legal counsel for Microsoft chile and a law professor

at the central University in Santiago.a law passed in 2010 increased penalties

for intellectual property infringements

16.000

14.000

12.000

10.000

8.000

6.000

4.000

2.000

02005 2006 2007 2008 2009 2010

6.984

foreign investment in chile (million us dollars)

*January to September Source: Central Bank

*2011

7.298

12.534

15.150

12.874

15.096

11.072

SpoTlIGhT

but so far its impact has been limited and enforcement needs to improve, says elias.

another area chile should address is taxation. chile signed a double taxation avoidance agreement with the United States in 2010 that was supposed to reduce the tax burden on companies and individuals required to file returns in both countries, but the deal has yet to be ratified.

the main hold up is related to the lack of economic incentives for companies located in both countries. “US companies in chile already receive tax benefits in the U.S. and vice versa for chilean companies,” says elias.

Moreover, while the agreement has the potential to make chile more attractive to US investors, some US companies in chile may prefer it not to be ratified since it would generate more competition, adds elias.

another stumbling block is the lack of implementation of norms and regulations to allow the exchange of information between tax authorities. a law passed in 2009 as a condition of chile’s accession to the oecd granted the tax authority, Sii, access to

personal banking information to share with authorities in other countries, but other reforms are still pending.

Meanwhile, other tax incentives could

be used to attract Fdi, especially in the it sector. “Uruguay has done a great job offering tax incentives for it exporters, chile could so something similar,” says elias.

But tax incentives alone are insufficient without a pool of qualified graduates who speak english. “chile has many talented professionals but not enough of them speak english,” says elias. “it’s a big problem.”

clearly, the current economic situation in north america and europe is an opportunity for chile, which is seen by investors as a safe haven in times of uncertainty, to attract more Fdi in sectors such as it, renewable energy, tourism and agro-industry.

“We have to take this opportunity, especially to attract asian investment,” says Mori.

But the window of opportunity will not stay open forever and chile must act quickly – how well it succeeds in this endeavor could make the difference between achieving the government’s development goals and falling short.

esteban elias, Microsoft

“With the right incentives and legal framework, chi-le is the perfect country to attract iT investment.”

En todas las compañías, para potenciar el crecimiento, es vital la aceleración de la innovación empresarial y la creación de valor. La conducción de mejoras en el rendimiento de toda la empresa con el apoyo de soluciones Oracle, requieren de consultoría especializada con un fuerte foco de negocio y a su vez con experiencia en implementaciones de las soluciones que requiere su organización.

Como Partner de Oracle, PwC Chile ayuda a sus clientes a alinear las tecnologías y aplicaciones, con los objetivos empresariales estratégicos, buscando así la mejor manera de enfrentar los desafíos financieros, operativos, técnicos y de cumplimiento, que enfrentan las organizaciones. Rafael Ruano

Socio [email protected](56) (2) 940 0181

Fernando Pérez Díaz Senior Manager [email protected](56) (2) 940 0181

Juan Pedro MartínezGerente [email protected](56) (2) 940 0193

Contactos

PARTNER

Alineamos la tecnología a sus objetivos de negocios

www.pwc.com/cl/oracle

Servicios PwC Chile

Consultoría y Asesoría EmpresarialAsesoría Legal y TributariaAuditoría

© 2011, PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada. Todos los derechos reservados. Prohibida su reproducción total o parcial. “PwC” se refiere a la red de firmas miembros de PricewaterhouseCoopers International Limited, cada una de las cuales es una entidad legal separada e independiente.

Julian Dowling is the Editor of bUSiness CHILE

chilebUSiness

“Trabajamos para ser un referente mundial en el desarrollo sostenible de productos forestales”

WWW.ARAUCO.CL


AmCham Strategic Planning Meeting 2012amcham’s board of directors

held its annual strategic planning meeting on november 18-19, 2011. the meeting was attended by US ambassador alejandro Wolff and Felix de vicente, director of the chilean government’s export promotion agency prochile, who highlighted the strong recovery in bilateral trade between chile and the United States. trade between the two countries grew over 40% in 2011, recovering in large part from the decline in 2009/2010 caused by the global economic and financial crisis.

during the meeting, the board highlighted the importance of the US market for chile’s exporters: more than 1,900 chilean companies currently export more than 1,700 products to the United States compared with only 412 products exported to china.

the board agreed that amcham’s activities in 2012 and beyond should focus on strengthening the bilateral relationship by increasing trade and investment opportunities in both directions. to achieve this goal, amcham’s plan of action includes taking better advantage of information technologies that allow chilean and US businesspeople to communicate virtually, as well as improving relations with local

chambers of commerce and chilean-US chambers in the United States.

in 2012, amcham will continue to explore opportunities to maximize the benefits of the Free trade agreement for both countries. this includes taking advantage of 1,400 working visas available annually for chileans to work in the United States and a clause that allows chilean companies to participate in US government procurement tenders. it also includes making progress towards ratifying the double taxation avoidance treaty signed by both countries and working to resolve pending issues related to intellectual property.

the board also agreed on the need to improve communications between members and amcham’s management team while developing new products that are of real interest and use, not just for existing members but also to encourage other companies to join the chamber.

in this regard, it is important to highlight amcham chile’s comparative advantage over other chambers in the region. its close relationship with different entities in the United States helps open many doors and strengthening partnerships with US governmental and non-governmental organizations is one of the chamber’s

goals. the recent election of amcham’s president, Javier irarrázaval, as one of the vice-presidents of the american association of chambers of commerce in latin america (aaccla) is a positive step in this direction.

in the coming months, amcham will inform members about specific plans to further strengthen business relations between chile and the United States.

AmChAm nEwS

AMChAM COMMITTEES

on november 25, amcham’s legal committee met with Álvaro Fernández, deputy director at the newspaper el Mercurio, who gave a presentation on the new website: el Mercurio legal. the site is designed for lawyers, law students and all those interested in legal issues. Fernández noted that although the site does not aim to compete with law reviews, it has a growing online legal community. Michael Grasty, president of the Legal Committee; Álvaro Fernández,

El Mercurio and Jaime Carey, Carey & Cia

AmCham’s president, Javier Irarrázaval


nEw mEmbErSelec chile industrial lighting Manuel llanos / General Manager

Worldcompliance online licensesJose da Silva / Sales director, latin america

ssab swedish steel aceros de chileSteel productionluis aguilera / chief Financial officer

hard road tourismGuido Rojas / General Manager

on december 5, a group of members and amcham representatives visited agrosuper’s Rosario meat processing facility in the city of Rancagua as part of the chamber’s open house program.

carlos andrés vives, deputy director of corporate affairs at agrosuper, gave a presentation about the company, which produces pork, poultry and other meat products. of its total production, 60% is sold domestically and 40% is exported, mainly to Japan, china and Korea.

the visit culminated with a lunch during which vives discussed agrosuper’s vertical integration, its linkages with the local community and the charity Fundación agrosuper, which runs the los cipreses School

Agrosuper Open house

amcham has named its board of directors for 2012 following elections in december. one third of the seats on the chamber’s 12-member board are up for election every year with each member serving a three-year term. on this occasion, Michael Grasty, Gonzalo iglesias, and amcham’s current president, Javier irarrázaval, were re-elected, while charles Kimber, who was unavailable for re-election having served two consecutive terms, was replaced by pablo achurra, president of aramark South america.

amcham’s board also named carolina valdivieso, ceo of Kimberly clark chile, to replace the out-going Kimber as vice-president of the

chamber’s executive committee. irarrázaval thanked amcham members for voting in the election and all the candidates for their participation.

amcham announces 2012 board of Directors

on december 1, amcham’s legal committee and the labor and human Resources committee met to discuss chile’s law on corporate criminal liability. Guest speakers patricia Zuanic, a partner at deloitte, and Marta herrera, director of the Specialized anticorruption Unit at the national prosecutor’s office, discussed the law’s implications.

Jaime Bazán, AmCham; Patricia Zuanic, Deloitte; Patricia herrera, National Prosecutor’s Office; Fernando Arab, Morales & Besa and Carolina Valdivieso, president of the Labor and human Resources Committee

Pablo Achurra, Aramark; Michel Grasty, Grasty, Quintana, Majlis & Cia; Gonzalo Iglesias, Coca Cola Chile, and Javier Irarrázaval, Walt Disney Company Chile

AmCham members at the Agrosuper Open house

for children from low-income families.amcham’s open house program

gives members the opportunity to network and learn about the operations of fellow members. previous participants include the San antonio port terminal, Sherwin Williams, Gerdau aza, 3M and american airlines.


On November 24, the Chilean unit of the German multinational Siemens joined the UN Global Compact at a ceremony in Santiago. Members of the Compact agree to adopt ethical and sustainable development practices.

Siemens Chile CEO Edwin Chávez attended the ceremony along with the firm’s compliance officer, Pablo Miranda, and communications manager, Vivian Budinich.

Other Siemens Corporate Social Responsibility initiatives include multi-party compliance agreements and seminars on business ethics.

Two other Chilean companies - Minera Los Pelambres and Tecnasic – also joined the alliance in November. Other AmCham members in the Compact include BCi, Aramark, Arauco, Barrick, Coca Cola, Endesa, Entel, Gerdau Aza, GE and Anglo American.

Siemens Chile Joins UN Global Compact

Pablo Olivares, Tecnasic; Margarita Ducci, Global Compact Chile; Nicole Porcile, Minera Los Pelambres; Edwin Chávez, Siemens Chile and Steve Weitzman, Global Compact Chile

Chilean telecommunications firm Entel announced in November that it has signed a non-binding letter of intent with rival Grupo GTD to merge their operations. The operation will take place through a share exchange, by which current holders of Grupo GTD will hold 9.8% of Entel’s shares. The operation will take several months to complete and obtain the corresponding approvals.

“This agreement will allow greater investment in networks and equipment,

which will provide additional and improved services to our enterprises and residential clients,” said Grupo GTD’s president, Juan Manuel Casanueva.

For his part, Entel’s CEO Antonio Buchi noted the potential synergies, especially in expanding Entel’s fibre optic network: “This operation is of great importance to our future development and will allow us to leverage areas such as fixed connectivity and the residential segment,” he said.

AmChAm mEmbErS nEwS

Juan Manuel Casanueva, GTD

Entel, Grupo GTD to Merge

In December, DhL’s Panama-based Disaster Response Team (DRT) signed an agreement with Chile’s National Emergency Office (ONEMI) to provide logistical support to Chile in the case of a natural disaster in any part of the country. The agreement builds on the important role played by DRT after the earthquake and tsunami that struck Chile on February 27, 2010.

“This strategic partnership with ONEMI is very important, knowing that through our volunteers and logistical experience we can provide support quickly and efficiently in a natural disaster,” said Gilberto Castro, the Americas director for DRT.

Agustín Croche, general director of DhL Supply Chain Chile; Carlos González, head of ONEMI’s National Supply Division; Gilberto Castro, Director DRT Americas; and Alberto Oltra, managing director of DhL Global Forwarding

DHL Disaster Response Team, ONEMI Sign Agreement


ExECUTIVE aPPoinTmenTs

In November, the technology charity Fundación Chilenter awarded BancoEstado second prize in the category of computer donations by the public sector. First place went to the Economy Ministry.

Fundación Chilenter’s director, Sergio Larraín, and the charity's president, First Lady Cecilia Morel, presented the prizes. The donated computers are reconditioned and distributed by the charity to schools, pre-schools and social organizations with the aim of reducing the technology gap in Chile.

“New technologies have shown to be an effective tool of integration that reduce physical and intellectual divides, opening a world of opportunities,” said BancoEstado’s vice-president, Roberto Palumbo.

BancoEstado Recognized for Tech Donations

Sergio Larraín, Fundación Chilenter, and Cecilia Morel with Roberto Palumbo, BancoEstado

Gabrielle Liberati was appointed commercial manager of global accounts at Randstad Chile, a subsidiary of the Dutch human resources firm Randstad. Liberati is a commercial engineer with a specialization in Financial Analysis and Management at the University of Chile. he has more than 10 years of professional experience in major companies including Movistar and Laborum.

Gabrielle Liberati, Randstad

Lucy Krell has been appointed partner at the Santiago office of the executive search firm CTPartners. Krell is a commercial engineer from the University of Chile and has worked in the headhunting area for 15 years. She has previously worked with heidrick & Struggles and before that with Unilever.

Chilean forestry products firm Arauco was invited to give a presentation at SOFOFA’s Science-Business Congress 2011 held on November 10. The event was attended by businesspeople as well as representatives of investment funds, angel investors, government agencies and universities.

Arauco’s corporate manager of environment, safety and occupational health, Andrés Camaño, spoke about his company’s social programs and productivity innovations in areas such as timber, native forests and processed wood products. he also referred to the Bioforest and PIMEx programs as examples of how Arauco is leading the way in forestry sciences in Chile.

Arauco Presents at SOFOFA Science-Business Congress

Andrés Camaño, Arauco

Lucy Krell, CTPartners


AmChAm pEoplE

on november 24, amcham hosted an after office event for members on the terrace of the hotel W in las condes. Sponsored by neobis, guests enjoyed cocktails and the opportunity to network in a relaxed setting.

Business After Office

1

4

2 3

1 2

3

manuel Gutiérrez, neobis corp, and francis argomaniz, coopeuch marcelo fernández, Parque arauco; laurent Devlieger, Dale carnegie chile and sergio brito, sodimac eduardo molina and Álvaro Poblete, randstad; Paulina salman and Jorge ortúzar, hilinks comunicaciones rodrigo martínez, neobis corp; consueloespinoza, unipack, and andrés cancino, neobis corp

4

Secretary’s Day Lunchamcham celebrated Secretary’s day on december 2 by inviting secretaries from its member companies to a lunch at casa piedra. the entertainment included a fashion show and a performance by the chilean singer leandro Martínez.

1st row: Paulina robertson, Walmart chile; Paulina Dellafiori, amcham, and Jimena Pérez, american airlines2nd row: marina Díaz and carolina Poblete, amcham; Gilda ahumada and irene Goic, american airlines and cecilia castro, asesorías Kcb ltda. 3rd row: cristina Órdenes, amcham, and maría Teresa vega, american airlines. marcela nuñez, cargo Park; susana matus, servicios & asesorías san Pedro and ismenia rodríguez, cargo Park andrea aguayo, evelyn martínez, caroline herrera and carolina loyola, Grand hyatt santiago verónica mesina and mónica hernández, asociación de isapres

1

2 3

4

1

2 3 4

fernando concha, citigroup; Javier irarrázaval, amcham; Diego hernández, codelco and matías Domeyko, arauco andrew ryan and suzan Gibbs, caterpillar rosa salazar and ingrid Gómez, espinoza & salazar ltda. Juan carlos bravo and Gabriel barahona, emerson electric héctor Pérez, scotiabank chile; adolf Kortge, arauco; Tatiana Gajardo, aims, and Jaime bazán, amcham

Breakfast with Diego hernándezon november 30, amcham hosted a breakfast at club Manquehue with diego hernández, ceo of state copper mining firm codelco. hernández discussed the outlook for the copper business and codelco’s plans to grow. 1

1 2 3 4

5

2 3 4 5

December 201136 business Chile www.businesschile.cl

Riding the DragonBy brian P. chase

Economic Snapshot

chilebUSiness

despite efforts to diversify its economy, chile remains highly dependent on commodities with increasing exposure to china. this may ultimately be a positive amidst the current geopolitical turbulence, especially as china appears to be heading for a soft landing in 2012.

the process of diversification in chile has been slow and not helped by strong demand for the commodities it produces. Some 40% of Gdp is represented by exports, the highest figure in the region, with commodities making up 75% of those exports. the asia region receives 45% of chile’s exports and, together with the eU (14%) and US (11%), accounts for 70% of exports. although chile’s overall exposure to these large markets hasn’t changed in the past four years, the mix has changed with 25% of exports (primarily commodities) now going to china (peaking at 29% in october), up from 14% in 2007, helped by slower demand in the developed world following the global financial crisis of 2008/9.

as a result, chile’s economic correlation to china continues to increase, especially in relation to the indirect effect of commodities prices on internal demand. this was most noticeable in 2009, when chile’s real Gdp contracted 1.7% (reaching a low of -4.8% in 2Q09). although net exports improved year-on-year due to relatively resilient volumes and a sharp decline in imports, internal demand was down by 10.1% in the second quarter of 2009, led by a sharp decline in investment (-20%).

the fact that this followed a drop in china manufacturing output in the second half of 2008 was no coincidence. a decline in china demand for commodities (as reflected in pMi data) does not necessarily result in a drop in chile’s export

volumes, but rather a drop in the price, affecting the domestic economy via investment and, to a certain extent business/consumer confidence. lower growth in chile was also impacted by currency shifts, with depreciation helping exporters but taking its toll on domestic consumer purchasing power.

although the global outlook remains uncertain, the consensus is that this 2011/12 episode will not produce shocks as severe as the 2008/9 economic and financial crisis. in addition, it appears that china is headed for a soft landing (consensus Gdp growth hovering at 8%). this is due in part to an apparent willingness on the part of chinese authorities to activate policy responses in order to stimulate economic activity, as reflected in the recently announced 50 basis points cut in reserve requirements.

Meanwhile, chile’s domestic economy is still benefitting from earthquake reconstruction tailwinds and president piñera’s pro-growth agenda with plenty of policy flexibility. this has been helped by falling inflation mainly due to lower food and fuel prices (food/fuel represented 67% of inflation in the 2008 spike). in addition, china-driven demand for copper has kept prices relatively high and counter-cyclical stocking of inventories, coupled with industry-specific supply constraints, could help continue this trend. this should also keep the ratio of the copper to oil price, to which the chilean peso is highly correlated, in check.

as long as expectations for europe do not deteriorate further from the current consensus “mild recession” outlook and lead to widespread contagion, chile should be well positioned for above-average growth relative to the region and the world in 2012.

brian P. chase is Portfolio manager, head of andean equities, at itau asset management

Chile Internal Demand (RHS)

Source: Bloomberg, Chile Central Bank and Itau Asset Management

30

3540

45

50

5560

6570

-15%

-10%-5%

-0%

5%

10%15%

20%25%

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q01

04Q

0101Q

011

3Q01

12Q

011

4Q01

1

China PMI (LHS)


he state of Massachusetts in the northeastern United States doesn’t have oil, gas, coal or corn – its main

natural resource is brain power. home to harvard University and many other universities and colleges all within a 90 minute drive of the state capital Boston, it has the highest concentration of higher education in the country.

So when president piñera, who studied at harvard on a Fulbright scholarship in the 1970s, visited Boston in September, it’s clear why education was top of his agenda. during his visit, piñera met with Massachusetts Governor deval patrick and they proposed an agreement focusing on areas of common interest including education.

on december 1, just over two months after piñera’s visit, Governor patrick came to chile to sign a Memorandum of Understanding in education, energy and biotechnology. the following day he spoke at an amcham breakfast held at casa piedra about how Massachusetts’ experience in these areas can benefit chile and vice versa.

patrick, who grew up on the rough south side of chicago, knows the value of a good education. after winning a scholarship to attend a private school he went on to graduate from harvard law. Following a distinguished legal career that included being appointed assistant attorney General for civil Rights by former president Bill clinton, he rose to senior executive positions at texaco and coca-cola. in november 2010, he was re-elected to a second term as the governor of Massachusetts.

“our strategy has been to invest in

education, innovation and infrastructure,” he told members. “education first and foremost because it’s our calling card… we have an unprecedented level of collaboration between the higher education sector and industry.”

But Massachusetts is also a leader in primary and secondary education with a new bill, approved in 2010, that aims to close a chronic achievement gap between students of different socioeconomic backgrounds.

“today schools are asked to look after things than whole communities used to look after, so this bill creates the flexibility to tailor education to meet individual needs,” said patrick.

education is the foundation of

Massachusetts’ future growth, but innovation is also a priority to generate homegrown ideas for a handful of booming sectors including life sciences, clean energy, financial services and it.

“Because we are making more of the things we invent, precision manufacturing is also coming back,” said patrick. in the energy sector, for example, Massachusetts is producing wind turbines, solar panels and smart meters.

Recent smart-grid deployments have been delayed by privacy issues, but smart meters, which measure hourly household energy consumption, are a very effective tool to manage demand, said patrick.

brEAKFAST

Massachusetts: Chile’s ivy league partnerBy Julian Dowling

t

Finally, investment in infrastructure is important to create jobs and drive future economic growth. “infrastructure is unglamorous but it has been neglected for a long time in Massachusetts, so we’re investing in roads, rail, bridges and broadband expansion,” said the governor.

and the results so far are promising. Unemployment is falling and growth is more than twice the national average: “We are first in america in student achievement, healthcare coverage, energy efficiency and entrepreneurship,” said patrick.

chile has much to learn from Massachusetts in these areas, but it’s not all a one-way street and there are also opportunities for trade and investment in goods and services, noted the governor.

in addition, many of the state’s small and medium-sized businesses lack international experience. “chile is a great place to learn to engage internationally because it’s such a transparent and

open market,” said patrick.academics from Massachusetts’

universities could also come to do research in areas such as astronomy where chile has a competitive advantage.

“it’s not just about what we can take away, but also what we can contribute,” he concluded.

Julian Dowling is Editor of bUSiness CHILE

chilebUSiness

education:“We share many of the same challenges and there will be many opportunities for collaboration on the higher education front and in K-12.” dr. Robert caret, president of the University of Massachusetts

innovation:“one of our goals after this visit will be see what we can do to assist researchers and companies in chile to partner with us.” pamela Goldberg, ceo of the Massachusetts technology collaborative

clean energy:“chile has great renewable energy resources similar to Massachusetts, which means there is a natural alliance between us.” patrick cloney, ceo of the Massachusetts clean energy center

biotechnology:“one of things we are talking about with conicyt is how to develop internship programs and exchanges that offer hands-on experience, particularly for students in engineering.” Susan Windham-Bannister, ceo of the Massachusetts life Sciences center

areas of cooperation

Boyden 18.5x12amchamN.indd 1 07-12-11 11:11


InTErvIEw

hy do some countries sail ahead on a steady stream of economic growth while others flounder? or, in other words, why do some middle-income countries poised - like chile - on the threshold of development never quite make it?

one theory, put forward by Ricardo hausmann, the venezuelan economist who heads harvard University’s center for international development, is that this depends on the nature of their exports and the extent to which the inputs they require - technology, capital, institutions and skills - lend themselves to the development of new and more sophisticated products.

and there, he argues, chile is at an important disadvantage both because of the composition of its export basket and the policy position it has - mistakenly, he says - espoused to the detriment of its future growth prospects.

so what, in your view, is chile’s problem? it’s inefficiently specialized in natural resources because

it has been ideologically obsessed with not picking winners and not having an industrial policy. as a result, it has been very non-pragmatic in allowing its economy to remain highly concentrated in mining and agriculture.

but isn’t that just a result of an embarrassment of natural resources?

other countries, like new Zealand, australia, canada and norway, are much richer in natural resource endowment - defined as arable land and mineral and fuel exports per capita - but much more diversified in exports of non-primary goods and services.

but what about compared to other latin american countries such as, say, brazil or colombia?

colombia and Brazil are much more diversified than chile. Brazil exports shoes and airplanes while colombia exports cars and textiles. chile, in fact, ranks 18th out of the 21 latin american countries in an index i developed with other researchers to measure the diversification and complexity of their export baskets.

and, if the reason isn’t an abundance of natural resources, what is it?

it’s a legacy of the influence of the chicago school, reflected in the view that industrial policy should be narrowly targeted to

market failure. chile’s very modest use of monies from the mining royalty [to support the development of other industries] has, for example, been undone by the present government because of a picking-winners flavor it ideologically dislikes. chile has a very effective industrial policy for the mining, financial services and agricultural sectors but has had a blatant disregard for the development potential of other parts of its economy.

What do you mean by industrial policy in these three sectors?

in forestry, in the 1980s, there were very industry-specific policies with high state subsidies and, in agriculture, there have been significant R&d efforts - in the case of salmon, for example - as well as the control of phytosanitary problems, certification and cluster development. in financial services, you have the use of workers’ pension savings and the allocation of those savings to specific assets, the creation of credit bureaus to ensure that banks can share information about their customers’ credit performance and so on.

and in mining?Well, a large part of the country’s copper output corresponds

to a state-owned enterprise and there’s also been very thoughtful reflection as to the specific property rights of mines, the industry’s infrastructure and logistics needs, its use of water and energy and its environmental impact. there’s a whole area of public-sector activity that creates the ecosystem this industry requires.

chinese demand for raw materials and currency appreciation work against export diversification not only in chile but also around latin america…

yes, the region is struggling with dutch disease associated with the fact that primary exports are doing well because of demand from china. that’s making life harder for the diversification of the rest of the economy. latin america can learn from Malaysia which also has significant exports of natural resources but has been able to maintain a highly diversified non-primary export base centered around electronics and machinery.

is chile suffering from Dutch disease? i would credit chile with having one of the most conscientious

Export Diversification and Growth By ruth bradley

W

ricardo hausmann, harvard university


and, to some extent, successful policies to prevent dutch disease. it is making very significant savings out of its copper exports and, within the limits of inflation targeting, the central Bank has tried to limit the real appreciation of the peso.

There’s a view in chile that industrial policy wouldn’t

achieve much because of low educational attainment…i definitely don’t share that view; it’s a red herring. chile’s

educational attainment is well above that of, say, Malaysia and that hasn’t prevented Malaysia from developing a highly sophisticated non-primary export sector. in fact, if you had those industries in chile, the educational market would have responded to their needs. all countries would benefit from better education but i don’t think that’s where the problem lies.

so the one big constraint is a political mindset…i think the binding constraint is a blatant disregard for

diversification. one excuse offered is that chile is a far-away place but so are australia and new Zealand and they’re more diversified than chile in non-primary exports and six times more diversified in services.

They had the commonwealth… But, geographically, they still don’t have near neighbors.

are there sectors in which chile has comparative advantages? Where ought it to be diversifying?

comparative advantage is not something you have; it’s something you create. it evolves from the product you’re in to a related product. chile is a country that, because of its resource-based export basket, would have benefitted particularly from having more industry-specific policies but has had a particular disregard for those policies.

so, crystal ball, where is chile going to be in 20 years’

time? i wish the very best for chile but its medium-term growth

prospects are lousy. My sense is that, in 20 years’ time, its mineral capacity per capita will not have grown and will probably have dwindled and it will remember the present time as comparable to its nitrates boom. it’s being confused by the short-term benefits of temporary wealth and not necessarily building up the country for the future. it’s a sad story because chile has been a leader and innovator in so many policy areas but this is one area it got very wrong.

so, in a way, chile may have peaked…chile’s growth rate has been declining for some time and

the recent acceleration is just a consequence of short-term fiscal inputs and earthquake-associated reconstruction. its dynamism came from a burst of diversification in the 1980s but there haven’t been any new bursts of diversification since then. chilebUSiness

ruth bradley is a freelance journalist based in Santiago and a former editor of bUSiness CHILE.


By santiago eneldo

ou've got to know when to hold 'emKnow when to fold 'emKnow when to walk awayKnow when to run

“the Gambler” by Kenny Rogers

Kenny is, of course, referring to poker but this could equally apply to what decisions to make about your holdings in stocks, bonds, hedge funds, etc. is the bottom going to fall out of the markets? are there better options than buying gold or Swiss francs? can the euro be protected? Will the need for extreme measures of austerity in europe cause social unrest on a scale not seen for decades? i don’t know; in fact i haven't got the slightest idea!! now that is honesty for you.

What i do know is that we are in a roller-coaster market and you had better strap in or risk being tossed out. i also know how to read the sometimes simple “happenings” around the world which can lead to market movements. here are a few examples of what you should be watching for:

German chancellor angela Merkel is seen giving French president nicolas Sarkozy a kiss on the cheek at euro crisis summit: european markets rise on average 1.3% and the dollar falls 2.7% against the euro.

Greece presents a formal demand to the international court at the hague to recover the elgin Marbles from the British Museum. this is a populist move to take Greek minds off draconian public sector cost cuts. Modest reaction as european markets drop slightly. Greece threatens to leave the euro Zone and adopt the ancient drachma currency.

Silvio Berlusconi says the level of italian debt is a “non-issue” and he will personally pay the full amount. italians are ecstatic and the Borsa italiana rises by a massive 6% only to fall back 9% the next day on rumors that Berlusconi has only US$1 billion left after paying off all legal demands against him: bunga-bunga!!

the “i’m a Mama for obama” organization is registering female voters at a record rate but will this have an impact on the US General election? dow Jones is unimpressed and remains unchanged.

the tea party struggles to decide which Republican horse to back: Mitt or newt. they don’t much like either but their favorite, Michelle Bachman, remains way down the list at 35 to 1. dow Jones loses 0.45% with experts blaming the “fact” that absolutely no one knows what either candidate really stands for.

at the Un, president cristina Fernández makes a formal request to president piñera to support argentina’s claim to the Falkland (Malvinas?) islands. chile insists this is a bilateral issue. Result: the pound holds steady against the dollar and euro but the FtSe 100 climbs almost 2%. Bolivia, peru and venezuela immediately back argentina’s claim.

china announces it will slow growth for the next five years in

a major effort to control rising inflation. copper futures fall back by a whopping 30%. chile’s Bolsa drops 15% and is likely to drop further. the chilean government warns of a serious budget deficit for 2013.

GlaxoSmithKline announces a proven, guaranteed treatment for baldness. GSK stock rises 9% and this pushes the FtSe up 2.3%.

the long awaited Facebook ipo raises an extraordinary US$135 billion making Mark Zuckerberg richer than 65 member countries of the Un. Stock was oversubscribed by 110%!

Spain, an extraordinary sporting nation, fails to retain the euro cup. Five days of national mourning are announced with little effect on local markets as unemployment in Spain has already reached 39%. the extra days off will hardly be noticed.

putin and Medvedev swap jobs (again) after what are called “clean, fair presidential elections” in Russia. Status Quo. Markets stable.

attempting to appease a nation with 48% inflation and households unable to afford basic services, president hugo chávez nationalizes all foreign investment in venezuela and bans the sale of fossil fuels to the United States. obama calls chávez a “lunatic” and threatens to invade. dow Jones rises almost 3% on rumor of a massive increase in defense contracts.

and so it goes on and on and on…. Watch for the signs; keep your nose close to the ground - like

a bloodhound; realize that markets respond as much to rumor as to hard facts. Start a rumor, if you can, and then back it with big bucks. then sell down just when the truth emerges. insider trade as much as you can – if you don’t ask the people who really know what is happening, you are completely daft or worse.

i remain cynically aware that market oscillations are inevitable, unpredictable, unkind and unwelcome. My recommendation? cash in, have the best vacation of your life and bury the rest in the garden.

santiago eneldo

(appreciation and gratitude to [email protected] )

life in the Slow lane

yBull, Bear or Bust!

Líderes en Leasing Operativo de la RegiónMás de 33 años de liderazgo en la industria.

Confíe en el número uno, confíe en RELSA.

DISPONIBILIDAD REGISTRADA

invest banking remolino 28x215 Rev amcham B.pdf 2 14-11-11 18:22

business chileissue - amcham chile€¦ · k & d comunicaciones ltda. olga kliwadenko, general...

Documents