Doing Business in Chile

2012

A complete guide to investing in

one of the world’s most dynamic

economies

CHILEdoing business in

ContentsTop 10 reasons to invest in Chile ............ 4

Chile country comparison ....................... 6

Prochile ................................................. ..8

Promoting Chile’s strengths .................. 10

Foreign Investment Committee ............ 12

Economic outlook ................................. 14

Setting up a business ........................... 16

Taxation ................................................ 20

Mining ................................................... 24

Energy ................................................... 28

Water resources .................................... 30

Wine ...................................................... 32

Sector Descriptions ........................ 36, 41

Chile’s Top 65 Companies .................... 38

Fisheries ................................................ 42

Agriculture ............................................. 44

Capital markets ..................................... 46

Banking ................................................. 48

Insurance .............................................. 50

Real estate ............................................ 52

Retail ..................................................... 54

Construction ......................................... 56

Telecoms ............................................... 58

Information technology ......................... 60

Media .................................................... 62

Tourism ................................................. 64

Hotels .................................................... 66

Astronomy .......................................... ..68

Isabel Allende: Memoire ....................... 72

Practical Information ............................. 74

This publication was jointly produced by Mediaside SARL with various Chilean investment promotion agencies, including ProChile, CORFO and the Chilean Foreign Investment Committee. The publishers thank the OECD for their input.Unless otherwise speci!ed, all currencies are in US dollars.Publishers: Mediaside SARL and the Chilean governmentEditorial director Christopher FodorEditors in chief Felix de Vincente and Matias MoriEditorial coordinator Robert GoldsmithArt director Rohit JunejaAdvertising sales Dany Laloum, Raquel Vidal

Mediaside SARL 77 rue du Faubourg St Denis 75010 Paris Tel +33 1 4483 9337 [email protected] www.mediaside.bizProChile Teatinos 180, Santiago, Chile Contact: Felix de Vicente, Director T : +56 2 827 5100 www.prochile.clChilean Foreign Investment Committee Ahumada 11, Santiago, Chile Contact: Matias Mori, Executive Vice President T: +56 2 698 4254 F: +56 2 698 9476 www.investchile.com

Copyright 2011Mediaside SARL and the Chilean Investment Authorities (ProChile, Chilean Foreign Investment Committee).All efforts have been made to insure accuracy of information provided. The publishers are not held responsible for mistakes. The opinions expressed in the articles, including the sponsored statements, are those of the authors and interviewees and do not necessarily represent the opinion of ProChile, CORFO, Chilean Foreign Investment Committee or the OECD.

Doing Business In Chile, 2012 Edition

Talented Human ResourcesA highly educated and skilled workforce is one of Chile’s main assets.Chile has 61 universities, 43 professional training institutes (giving four-year courses) and 11 technical training centers (giving two-year courses). It is home to three of Latin America’s 10 best business schools, according to a 2010 ranking by AméricaEconomia magazine. Two Chilean universities are classed among the 10 best in Latin America.

6Highly CompetitiveChile is Latin America’s most competitive economy. It is ranked 28th among 139 countries worldwide and !rst in Latin America in the Global Competitiveness Index calculated by the World Economic Forum, which also says Chile is “at the forefront of market liberalization”.Moreover, Chile is ranked 25th out of 59 economies and leads Latin America in competitiveness, according to the 2011 World Competitiveness Yearbook published by the Institute for Management Development (IMD).

7Cutting-edge Connectivity Chile has made remarkable progress in connectivity with the involvement of the private sector.In its annual study ranking world innovators, The Global Innovation Index 2011, INSEAD Business School ranked Chile 38th internationally and !rst in Latin America and the Caribbean, four places higher than 2010.Chile ranked !rst in Latin America and 30th out of 70 countries globally in e-readiness, according to the Economist Intelligence Unit’s Digital Economy Ranking 2010.

8Outstanding Quality of LifeChile offers a perfect mix of natural beauty, public safety, political stability and modern infrastructure.In a 2010 report, Newsweek magazine ranked Chile 30th worldwide and the best country to live in Latin America due to its economy, health system and political environment. International Living magazine ranked Chile third in South America and gave it top marks for safety in its 2010 Quality of Life Index.

9A Regional PlatformChile is a good jumping off point for regional operations.Chile’s tax system bene!ts enterprises that administer businesses in other Latin American countries. Companies that use Chile as a business platform (e.g. regional HQs) can administer investments in other countries without paying Chilean income taxes on pro!ts the foreign investments generate.

10

Top 10 reasons to invest in Chile

Dynamic EconomyChile has the most dynamic economy in Latin America. In 2010, Chile’s GDP expanded by 5.2% while per capita income reached its highest level in eight years, this despite Chile suffering the sixth largest earthquake ever recorded.The IMF estimates Chile’s GDP will reach $222,788 million in 2011, a 6% increase over 2010. The World Bank anticipates that Chile will grow by 5.8% in 2011 and 5% in 2012.

1Attractive Business EnvironmentChile has an attractive and dynamic business climate. It is the !rst country in Latin America and 10th among 179 countries worldwide for economic freedom, according to the Economic Freedom Index 2010.And Chile is !rst in Latin America and 15th among 82 economies worldwide for its business friendly environment, according to the Business Environment Ranking 2010-2014.

2Tax-friendly Taxes in Chile are the lowest in Latin America and well below many European countries. Chile has one of the lowest corporate income tax rates worldwide at 17% (temporarily increased to 20% in 2011 and 18.5% in 2012 as part of the country’s earthquake reconstruction program).Chile has bilateral agreements to avoid double taxation with 22 countries including Spain, the United Kingdom, France, Poland and Brazil, and tax treaties with the U.S., Russia and Australia.

3Low RiskChile is a reliable and safe place to do business.It is the only nation in Latin America to receive the lowest political risk rating from Aon Corporation, a Chicago-based organization offering risk management services for corporations looking to invest overseas. Chile’s report card for !nancial security boasts all As: Standard & Poor’s gave Chile an A+ credit rating; Moody’s ranked economic stability an Aa3; and Fitch scored the country an A.

4High TransparencyChile has a low level of corruption and government efforts are raising standards of administration.It ranks !rst in Latin America and 21st among 178 countries worldwide in transparency, according to the Perceived Corruption Index.Eighty percent of the Chilean economy is free. Chile placed 11th out of 179 countries in the Index of Economic Freedom World Rankings by Heritage Foundation.

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4 Doing Business in Chile | 2012 EDITION 52012 EDITION | Doing Business in Chile

Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation

for strong !nancial institutions and sound policy that have given it the strongest sovereign bond rating in South America. Exports account for more than one-fourth of GDP, with commodities making up some three-quarters of total exports. Copper alone provides one-third of government revenue. Since 1999, growth has averaged 4% per year. Chile claims to have more bilateral or regional trade agreements than any other country. It has 57 such agreements (not all of them full free trade agreements), including with the European Union, Mercosur, China, India, South Korea, and Mexico. Over the past seven years, foreign direct investment (FDI) in"ows have quadrupled. FDI had dropped to about $7 billion in 2009 in the face of diminished investment throughout the world. But in 2010, Chile received FDI worth $18.2 billion, up 43.3% on 2009. As a result Chile has the third highest FDI growth rate in the region and is the third most important recipient. FDI in relation to GDP, at about 8%, is the highest in the region. The Chilean government conducts a rule-based countercyclical !scal policy, accumulating surpluses in sovereign wealth funds during periods of high copper prices and economic growth, and allowing de!cit spending only during periods of low copper prices and growth.

Chile: Latin American leader

BrazilPopulation: 203.4GDP 2010: 2172GDP per cap. 2010: 10,800Avg. GDP growth: 4.4%FDI 2010: 349

ColombiaPopulation: 44.7GDP 2010: 435GDP per cap. 2010: 9,800Avg. GDP growth: 4.6%FDI 2010: 85

VenezuelaPopulation: 27.6GDP 2010: 345GDP per cap. 2010: 12,700Avg. GDP growth: 3.5%FDI 2010: 38

EcuadorPopulation: 5GDP 2010: 115GDP per cap. 2010: 7,800Avg. GDP growth: 3.8%FDI 2010: 12

MexicoPopulation: 113.7GDP 2010: 1039GDP per cap. 2010: 13,900 Avg. GDP growth: 1.9%FDI 2010: 328

PeruPopulation: 29.2GDP 2010: 276GDP per cap. 2010: 9,200Avg. GDP growth: 7.2%FDI 2010: 43

ArgentinaPopulation: 41.8 GDP 2010: 596GDP per cap. 2010: 14,700 Avg. GDP growth: 6.8%FDI 2010: 87

Source: The World Bank

* Population in Millions GDP 2010 in $ Billions GDP per capita 2010 in $ Average GDP growth 2006-10 FDI Inbound 2010 $ Billions

BoliviaPopulation: 10.1GDP 2010: 48GDP per cap. 2010: 4,800Avg. GDP growth: 4.6%FDI 2010: 7

Chile *Population: 16.9GDP 2010: 258GDP per cap. 2010: 15,400Avg. GDP growth: 3.3%

FDI 2010: 136

As of September 2008, those sovereign wealth funds amounted to more than $20 billion. Chile used $4 billion from this fund to !nance a !scal stimulus package to fend off recession. In May 2010 Chile signed the OECD Convention, becoming the !rst South American country to join the OECD. The economy started to show signs of a rebound in the fourth quarter of 2009, and GDP grew more than 5% in 2010.


Country overview

Wine, copper, salmon. Chile is an exporting powerhouse. In 2010, Chilean exports stood

at over $71 billion and China, the European Union and the United States were Chile’s leading trading partners with 80 percent of all purchases.

The country has an extensive export lineup that includes the food industry, mining supplies, biotechnology, global services (off shoring), and industrial logistics.

ProChile is responsible for implementing and enhancing Chile’s trade policy. It provides support to small and medium-sized Chilean enterprises, helping to encourage and diversify exports of Chilean products and services by increasing the number of export markets and companies.

As part of the Trade Commission of Chile and the General Directorate of International Economic Affairs of Chile’s Ministry of Foreign Affairs, ProChile has 56 trade of!ces and agencies located in 43 countries. It is active in 90 percent of the destination markets for Chilean exports.

What should you be importing from Chile?Chilean products and services are highly sought after worldwide. ProChile can help foreign buyers link up with Chile’s top exporters.

Beyond food and drinks, the Chilean industrial sector is a competitive global player notably in forestry, agribusiness, !sheries, aquaculture and mining. The sector lineup is complemented by innovative new entrants in !elds such as cosmetics and clothing accessories. In 2010, Chile’s total industrial exports amounted to nearly $12.5 billion.

In the forestry industry, Chile has enjoyed signi!cant growth. The great strides abroad in this industry are re"ected by signi!cant foreign sales growth in recent years and the constant development of a wide range of quality export products. In 2010, some 900 Chilean !rms shipped over 360 different types of forest and lumber products with various degrees of processing to some 118 markets worldwide.

Mineral resourcesThe success of the mining industry is one of the reasons behind the sustained growth and development the Chilean economy in recent decades. Chile owns vast mineral resources and is the world’s largest copper producer and exporter. Mining exports in 2010 alone exceeded $38 billion.

Copper in cathode and concentrate form is the leading mining product sold abroad but Chile is also a major iron, molybdenum, manganese, lead, zinc, gold, and silver producer. The main customers for copper exports are mostly in Asia and Western Europe but the demand for mining products is growing as well in emerging nations such as China.

With highly quali!ed human resources and state of-the-art technology infrastructure, Chile’s service sector (engineering, technology, architectural, design and other services) exports grew 9 percent a year in ten years. Studies expect Chile’s non-traditional service exports to be worth $5 billion a year in 2015 (IDC, 2010). ●

Activities abroad56 trade of!ces and agencies worldwide

Roles:

from Chile

contact with Chilean partners, for import-export or investment purposes

strategies for foreign companies interested in FDI

Activities in Chile15 regional of!ces

Activities:

in !nding export markets and clients

(letters of credit, international banking, etc.)

goods and services

ProChile Trade Commissions around the world offer no-cost expert advice to potential investors and buyers interested in Chilean products and services.

The food and drink industry is a pillar of the Chilean economy. In recent years the industry has become the second-largest currency earner, second only to mining. With sales of more than $12 billion at present food exports are expected to top $20 billion in 2015, placing Chile among the top-ten food-producing countries.

Alcoholic and nonalcoholic drinks ranging from wine, pisco (a grape brandy) spirit and beer to specialty waters and fruit and vegetable juices are key components of the Chilean food industry. They account for almost 15 percent of overall food industry exports. Annual drinks and beverages exports are worth more than $1.7 billion.

Wine is Chile’s most emblematic export and the country is the world’s !fth-largest wine producer. Chile’s wine industry plans to position Chile as the leading New World producer of premium wines by 2020, increasing export revenues to $3 billion.

ProChileFor more information:Teatinos 180, Santiago, Chile, Tel. +56 2 827 5300

To contact the local ProChile trade of!ce in your country, please visit:

prochile-en-el-mundo.phpInvestChile: www.investchile.comForeign Investment Committee: www.inversionextranjera.cl, www.foreigninvestment.clCentral Bank: www.bcentral.clChile´s Tax Service: www.sii.cl

Valparaiso is one of Chile’s most important seaports.

Max

Don

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Prochile’s role in attracting foreign investment

In addition to promoting the export of Chilean products and services, ProChile is also an international investment facilitator thus giving strategic support to anyone interested in investing in our country. We do this through ProChile’s 55 trade commissions and trade offices in 41 countries,

Our staff worldwide can help you with these investment tools:

North America, Europe and Asia.

counterparts.

Our extensive network of offices hold the “Interested in Investing” forums and have all necessary information regarding orientation and advise on investment.

Foreign investment has played a decisive role in our economic growth and development. Maintaining its upward trend, it has helped to increase our country’s competitiveness, not only through resources and new markets but also through technological development and specialized know-how.

We cordially invite you to get to know our country and its products, as well as experience Chile’s uniqueness that makes it like no other country on earth. And if you are considering investing in Chile we can provide you with detailed information about the benefits and incentives for foreign investors that make Chile a leading investment

Felix de Vicente Director of ProChile [email protected]

EDITORIAL

ProChile

Created in 2000 InvestChile provides a range of assistance to foreign companies interested

in locating in Chile. InvestChile promotes foreign investment in speci!c economic areas, including the food industry, biotechnology, mining supplies, offshoring, and manufacturing and assembly sectors. InvestChile offers incentives to industries in these sectors and gives speci!c assistance to foreign investors.

InvestChile has of!ces in the US, Spain and Portugal, Germany, the Nordic countries, France and China to gather business opportunities of every kind. It helps companies interested in building Chile-based projects serving Latin America, the US or European markets.

InvestChile has a specialized team of professionals to support foreign companies with services and incentives to national and foreign investors, to enable the evaluation, installation and materialization of investment in Chile. Its clients are investors that manufacture, integrate or provide services from Chile to the world. InvestChile seeks companies that add value to Chile.

Public fundingOne of the sectors with most development potential is the food sector which represents 23% of exports,

Attracting industry InvestChile aims to attract high-impact investment in order to grow the Chilean economy and diversify its production and export base.

Companies that chose Chile

Project Jobs created

Oracle Software development center 300

McAfee Engineering center 70

WorleyParsons Engineering center 600

Jazzplat Help desk 1140

Synthon Pharmaceutical plant 91

Pioneer Experimental Agroindustrial Station

96 permanent, 210 temporary

Source: InvestChile

stages of production with public funding and signi!cant investment available for technology transfers.

The Mining Suppliers investment program is set up to attract foreign investors that have an interest in settling in Chile. The country produces more than third of the copper in the world, as well as other minerals such as molybdenum, lithium, silver and gold. Its legislation and the good business environment have made Chile the mineral capital in Latin America.

Significant stepsElsewhere, Chile has taken signi!cant steps to incorporate biotechnology into its economy including a series of initiatives aimed at biotechnology companies abroad, a new regulatory framework and economic incentives. Meanwhile, manufacturing and assembly companies are supported with expert consultancy.

InvestChile can arrange meetings with Chilean counterparts, visits to industrial parks, as well as arrange contacts with trade associations and potential supply vendors.

Step-by-stepHow InvestChile helps foreign investors

InvestChile approaches foreign company

Foreign company approaches InvestChile

Preliminarymarket evaluation - market size - competition - entry strategies - identify potential

local partners

Schedule Chileexploratory trip - meetings with gov’t - meetings with

potential partners - biz setup meetings

Feasibility plan/business plan- operational

considerations- !nancial incentives- taxation bene!ts- pro!t & loss

estimates

Phase 1implementation- legal advisors

identi!ed- !nancing

arrangements- real estate

considerations

17% of employment and almost 10% of the Chilean GDP. Chile is acknowledged worldwide by the quality of its wines, fresh fruits and sea products, such as salmon, being the second largest exporter of salmon around the world.

In line with the importance of the food sector, InvestChile’s Food Industry Investment Attraction Program supports food industry entrepreneurs in all

For more information:Moneda, 921. Of. 520, Santiago, Chile

www.investchile.com

InvestChile was created by CORFO (from the Spanish Corporación de Fomento de la Producción) which was created in 1939 and played a major role in the development of domestic activities essential to the development of the country, including the mining, electri!cation, agriculture, commerce and transport sectors. ●

ProChile helps foreign companies interested in locating in Chile.

MOP


InvestChile

Promoting Chile’s strengthsAs CORFO’s InvestChile we are responsible for the promotion and attraction of direct foreign investment to Chile. In order to do so, we promote and communicate the competitive strengths of the country as a location for foreign investment and investment opportunities. We support and facilitate the process of assessment, decision and fulfillment of your company in the

country, by providing specialized services and incentives to the investment.

Since the beginning of its investment promotion in the year 2000, InvestChile has contributed to the materialization of over $2.4 billion in domestic and foreign investment, and the generation of more than 40,000 new direct jobs. It is estimated that on average, the foreign investment represents 43% of this total and in the specific case of 2010, foreign investment was 40%, making up for a total of $143 million.

This year, our goal is to contribute to the materialization of $155 million in direct foreign investment, and the capture of new foreign projects with a committed investment value that we estimate at $260 million.

With these advantages, we have all the conditions for those

Chile, where we offer the features of a developed country, but at the cost of a developing nation.

As CORFO’s InvestChile, we want to contribute to making Chile a regional pole for innovation and entrepreneurship. We also know that by taking on this task, we are a key piece in the competitive boost of our country and that is where we are headed.

Juan Antonio Figueroa, Head of Investment Promotion Division InvestChile [email protected]

EDITORIAL

Foreign direct investment (FDI) has played a decisive role in Chile’s economic growth and development.

Maintaining its upward trend, it has helped to increase Chile’s competitiveness, not only through resources and new markets but also through technological development and specialized know-how.

According to the World Investment Report 2010, published by the United Nations Conference on Trade and Development (UNCTAD), the stock of FDI in Chile reached $121.6 billion in 2009, the second largest in Latin America after Brazil.

In 2010, Chile received FDI for $18.2 billion, according to UNCTAD’s Global Investment Trends Monitor. This represented a percentage change of 43.3% between the years 2009 and 2010, well above the average increase of 21.1% for the region as a whole.

FDI has played a decisive role in Chile’s economic development and, in the three years between 2008

Chile among top FDI recipientsA strong economy, attractive business climate and skilled workforce are some of the reasons Chile is a highly attractive destination for international businesses and foreign direct investment.

since last year with its focus on Asian countries and particularly China.

“We are making a decided effort to increase investment in Chile by Asian countries which currently represent only 0.2% of total incoming FDI,” said Mori. “That is why we have translated our website and publications into Chinese and have created a China Desk, with Chinese staff, to better attend the requirements of investors from that country in their own language.”

“In addition, we have participated in eight visits to Asia - China, South Korea, Malaysia and Singapore - to promote the opportunities Chile offers at investment seminars and in meetings with government authorities and businesspeople, presenting a portfolio of speci!c public and private investment projects,” added the Executive Vice-President of the Foreign Investment Committee.

Excellent resultsThese activities have already begun to bear fruit, noted Mori.

“In the !rst half of this year, the Foreign Investment Committee has received investment applications for $417 million from Asian countries, up from $294 million in the whole of last year.”

UNCTAD anticipates that, as Asian countries continue to advance in their international integration, their outbound FDI will maintain its upward trend.

Preliminary World Investment Report data, in fact, shows that investment in Chile and Latin America has continued to increase this year. UNCTAD also forecasts that, in 2011, global FDI will return to its pre-crisis level, reaching $1.4-1.6 trillion. ●

and 2010, averaged 8% of GDP, with positive externalities that include employment creation, training, technology transfer and the development of new industries.

According to report, Chile was the world’s 19th largest FDI recipient in 2010, up from 26th in 2009. This is the !rst time that it has ranked among the world’s top 20 host countries.

“These excellent results con!rm our country’s successful track record in the attraction of foreign investment and ratify its status as one of the most attractive places in the region and the world in which to do business while also reinforcing the trust that foreign investors have placed in it,” pointed out Matías Mori, Executive Vice- President of the Foreign Investment Committee.

According to the report, FDI "ows into Latin America and the Caribbean rose by an average 13% in 2010

to $159 billion but, in South America, the increase reached 56%. Most of this investment came from Asian countries where outgoing FDI is running at record levels.

In 2010, FDI out of emerging Asian economies rose by 20% to $230 billion. Investment abroad by countries like China, Malaysia and South Korea has accounted for around 17% of global FDI out"ows over the last two years, up from less than 10% in 2008, and is led by Hong Kong and Continental China.

This trend is in line with the investment attraction strategy implemented by the Foreign Investment Committee

For more information:Ahumada 11, Piso 12, Santiago, Chile, Tel: +56 2 698 4254

FDI has played a decisive role in Chile’s economic development.

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Foreign Investment Committee

UpdateIn 2010, the Foreign Investment Committee approved a total of more than $13 billion. This is the largest amount authorized in its history but FIC expects to surpass it in 2011. In times of global economic instability, Chile is seen as a reliable shelter for capital. Robust projections of growth and excellent business opportunities confirm that this is a good time to invest in Chile.

FIC: Who we areThe government agency responsible for attracting Foreign Direct Investment into Chile is the Foreign Investment Committee (FIC or CIE in Spanish for Comite de Inversiones Extranjeras).

The role of the FIC is to provide information about procedures and

regulations for investors bringing FDI into Chile. It publishes an up-to-date and accurate statistical register of foreign investment under the Foreign Investment Statute by compiling information about contracts and flows under these contracts.

Specific investment opportunities in private and public projects are also published by the FIC and regular reports about Chile’s business climate. Its outreach to foreign investors and potential investors involves coordinating business missions abroad, as well as seminars and conferences.

The FIC also provides general information about Chile, its economic and social environment, legal framework and policies on foreign investment. And it gives specific information on how to begin the process of setting up a business. FIC members include the ministers of Economy (who acts as president of the Committee), Finance, Foreign Relations and Planning, as well as the president of the Central Bank. Other ministers responsible for specific economic sectors are invited to participate in meetings when necessary. It is headed and managed by an Executive Vice-President who is appointed by the President of the Republic.

Since 1974, the majority of foreign investors have chosen to

capital into Chile. Under this regime, whose use is optional, foreign investors bringing capital, physical goods or other forms of investment into Chile may ask to sign a foreign investment contract with the State of Chile. An online version of the Foreign Investment Application form is available.

Matias Mori Executive VP

EDITORIAL

Once a relatively poor country, Chile has become prosperous through macroeconomic policy,

structural reforms, trade and investment and regulation. A rich endowment of copper and other mineral reserves has been used cautiously to foster resilience in the face of unexpected headwinds. Moreover, a stable democracy with an effective rule of law has been established. For some governance indicators Chile has caught up with, or even surpassed, OECD averages. Nonetheless, there is scope for further positive change.

Income per capita remains signi!cantly below the OECD average – making sustained and non-in"ationary growth an important goal. Between 1986 and 2007, Chile’s income per capita grew at around twice the rate in the OECD area and the income gap with richer countries was reduced substantially. Nevertheless, convergence slowed after 1998. Based on recent growth rates, it would take around 30 years to catch up with the current average OECD per capita income.

For the government to achieve fast growth while reducing income inequality, the main challenge will be to maintain the delicate balance between pursuing a strong recovery and preserving price stability. Strong domestic demand, partly related to reconstruction spending after the natural disasters of February 2010, and booming international commodity prices risk stoking in"ation.

One of the new government’s key objectives is to raise average GDP growth to 6% over 2010–14. This will require structural reforms. The main reason for the persistent income gap with high-income OECD countries is lower productivity; the under-utilization of labor resources explains a smaller part.

Fast increases in productivity will therefore be key to sustained economic growth in the long run. While

Keeping up momentumChile has spectacularly transformed itself over the past decades. In spite of this progress, there is scope for further positive change.

Chile has made substantive progress in upgrading its production structure to higher value-added activities, restrictions in product and labor markets have prevented full development.

Competition in some areas of product markets, especially in the services sector, remains weak by OECD standards. Reducing regulatory red tape for business start-ups and easing restrictions on entry in

speci!c services sectors, would strengthen competitive pressure. This would also encourage entrepreneurship and innovation. Similarly, reforming the burdensome bankruptcy procedure would give creditors legal certainty and remove the stigma of failure.

Structural reforms in labor markets would raise the participation rate of women and youth, which are among the lowest in the OECD, and enhance labor productivity. Despite substantive progress in childcare for working women, there remains scope to further expand these programs.

The minimum wage, which is high from an OECD perspective, particularly hurts the employment prospect of youth. A differentiated minimum wage, with lower rates for young workers, could help. To enhance labor productivity, the share of informal employment needs to be reduced. To assist employers, a reduction in severance pay and expansion of unemployment insurance would improve the Chilean model of “"exicurity”.

Openness to trade and foreign investment has intensi!ed competition in domestic markets and facilitated access to imported intermediate goods. Yet too much focus lies concentrated in the extractive sector. Protecting Chile’s exceptional biodiversity through appropriate market-based and regulatory instruments would boost Chile’s attractiveness as an eco-tourism destination.

In the medium term, higher productivity growth will be sustainable only with a well-educated and highly

skilled workforce. Scores on standardized tests for secondary students remain appreciably below the OECD average. Opportunities for further education and training for the existing workforce are limited.

Access to quality education at all levels for all Chilean children is key to reducing income inequality.

The real estate market is also helping consolidate the recovery in construction. During the second half of 2010, low long-term interest rates, improvements in employment levels and higher incomes contributed to the recovery.

While the abundance of of!ces created by the excessive production in 2007 led to a decline in production 2008-2009, the improvement of market conditions beginning in 2010 allowed production of of!ces to return to normal levels.

Accordingly, during the !rst half of 2011, the number of building permits approved for of!ces increased twice in comparison with 2010, indicating the emergence of new projects in the center of Santiago after four years of inactivity.

For further information, contact Nicola Brandt at the OECD: [email protected]

This article was condensed from the May 2011 OECD publication:Maintaining Momentum: OECD Perspectives on Policy Challenges in ChilePublication date: 14 April 2011

Chile must balance its strong recovery with price stability.


Economic Outlook

The process for setting up a business in Chile is becoming one of the simplest in Latin America.

This is particularly true since the passage of a law (number 20.494) in March 2011 that reduces costs and simpli!es requirements for the publication and registration of the articles of incorporation.

“Setting up a business in Chile used to be dif!cult but with the new law it’s getting a lot easier,” says Zandra Valenzuela, a lawyer with the Spencer Global law !rm in southern Chile who specializes in setting up small, foreign-owned businesses.

The total process for setting up a business in Chile takes at least three weeks. This is much shorter than the six weeks or so it took before the reform but longer than in the United States, for example, where a company can be set up in a matter of days. However, the Chilean Congress is currently considering additional reforms to further simplify the process.

“We need further improvement because it is still a bit complicated,” Valenzuela says. “Speci!cally when foreign companies want to set up a small business the articles of incorporation and certi!cates of good standing take time.”

Reducing red tapeA new Chilean law simpli!es the process of starting a business. It reduces the time required to get a business license to one day instead of 14. It also eliminates the 16-day process to verify activities for tax purposes and lifts the $150 charge to publish

Fewer rules for business creation Already one of the most business–friendly countries in Latin America, Chile is moving forward on making business creation simpler and more affordable for foreign investors.

an extract of the company’s foundation in the Diario O!cial (Of!cial Gazette). And a new business that has all the corresponding permits can obtain its de!nitive municipal license immediately.

First steps Still, the process for setting up a business in Chile is one of the simplest in Latin America. The !rst step is to obtain a Tax Identi!cation Number. This is known in Chile as a RUT (Rol Unico Tributario). This is obtained from the National Tax Service or SII (Servicio de Impuestos Internos), which has of!ces around the country. The next step is to de!ne the type of company to be created. In Chilean, there are three main types of company (see chart below).

While there is no minimum capital required for any type of company, the SII requires that the capital on hand is suf!cient for the type of business created. Service companies will need less capital, for example, than manufacturing companies.

The costs of establishing a company include the legalization of its deed, its publication in the Diario O!cial (Of!cial Gazette) and its inscription in the Companies’ Register. It is recommended to use an attorney for the drafting of the articles of incorporation for all types of companies. Attorney fees depend on the complexity of the business and the location

since fees are set by the regional Bar Association. Standard incorporation contracts cost from about $250 to $5,000.

While it is not necessary to speak Spanish to set up a company, the articles of incorporation and the publication and registration of the articles must be written in Spanish.

Once a company has been established, a business start-up statement must be submitted to the SII stating that the taxpayer plans to undertake activities that may be liable to taxation. The company will also need to open a bank account with a Chilean bank.

Some economic activities in Chile may be subject to special permits or requirements. These include health, environmental and municipal permits. Investors should obtain advice about permits required before starting their business.

EmployeesIn companies with more than 25 employees at least 85 percent must be of Chilean nationality. There are exemptions for specialized technical personnel not available locally, as well as for foreigners married to a Chilean. Foreigners who have been resident in the country for more than !ve years are also exempt. The minimum working age is 18.

Chile has four types of employment contracts, including inde!nite contracts; !xed-term contracts that have a maximum duration of one year or, exceptionally, two years; piecework contracts are used when a worker is hired for a speci!c task of a !nite duration; or professional services contracts.

Business friendlier Simplification of processes to set up businesses

2008 2009 2010 2011

World rank n.a. n.a. 70 62

Procedures (number) 9 9 9 8

Time (days) 27 27 27 22

Cost (% of income per capita)

8.6 7.5 6.9 6.8

Minimum capital 0 0 0 0

Source: The World Bank

Types of companiesCompany type Individual Limited Liability

Company (E.I.R.L.) Limited Liability Company (L.L.C.)

Stock Corporation (S.A.)

Spanish name Empresa Individual de Sociedad Anónima

Minimum capital None None None

Conditions One person company. Designed for small business. Requires full legal residency or Chilean

and partner must be the same person.

Minimum 2, maximum 50 partners. Advantages include decreased reporting requirements and simplicity of corporate structure. Good for sales offices, import or export companies. Partners may be Chilean or foreign, individuals or legal entities.

A full company with shares, partners, and all the privileges of a company in Chile. Most complex in terms of organization and costs. Offers greatest flexibility. Shareholders liabilities limited to amount of individual capital contribution. Governed by board of directors. Can be publicly traded or closely held.

The process for setting up a business in Chile is simple.

Max

Don

oso


Setting up Business

For more information:Bank accounts see www.sii.cl and www.sbif.clLegal formalities and services for entrepreneurs and businesspeople see www.chileclic.clEmployment contracts see www.inspecciondeltrabajo.clVisas see www.extranjeria.gov.cl and www.minrel.gob.cl

Employees must be paid at least the minimum monthly wage. For workers between 18 and 65 years of age this is 165,000 pesos (about $350). For those over 65 or under 18 it is 123,176 pesos (about $260).

Employees with more than one year on the job are entitled to 15 working days of vacation a year on full pay. Workers in the Chilean Antarctica and certain regions are entitled to 20 working days.

ContributionsAll workers must contribute to a pension fund (AFP or Administradora de Fondos de Pensiones). The worker is free to choose the AFP. The employer deducts the contribution from the employee’s earnings and pays it to the AFP. The minimum total deduction is approximately 12.3 percent of the worker’s gross wage.

Employees also contribute at least 7 percent for healthcare coverage, although they can pay more. The employer pays this amount monthly into either the National Health Fund (FONASA or Fondo Nacional de Salud) or to a Health Insurance Institution (ISAPRE or Institución de Salud Previsional) of the worker’s choice.

Foreign investors must enter Chile under a tourist visa. These are issued on arrival by the immigration authorities. After entering Chile as tourists, investors and businesspeople can apply for a Temporary Visa for Investors and Businesspeople which allows them to reside in the country for a year. At the end of the year, they may apply for permanent residence.

Registering websitesAn organization called Nic Chile is responsible for registering websites that operate under the ‘.cl’ domain. To register a name under this domain, individuals must be legally domiciled in Chile. Public and private legal entities legally authorized to operate in Chile can also register a website name. Individuals or legal entities not resident in Chile may apply to register a website through a representative domiciled in the country. ●

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become subject to the income tax structure in effect at that time.

Decree Law 600 also provides tax stability with respect to VAT and customs duties applicable to the import of machinery and equipment not manufactured in the country. It also provides tax stability for mining investments of $50 million or more and an alternative method for calculating capital gains subject to tax in Chile when the investment is sold.

Foreign investors who establish their business center in Chile to invest in other countries can use special investment vehicles called investment platforms, which are considered as a foreign legal entity for tax purposes and as such are subject to taxation in Chile only on their Chilean source income, not on investments made outside Chile.

Investment platforms are not very popular because more signi!cant advantages can be achieved using a regularly taxed company to invest outside of Chile, including access to the largest tax treaty network in the region and the inexistence of anti-deferral or CFCtype legislation.

Chile has one of the most extensive tax treaty networks in the region. As of October 2011, there were 24 double taxation treaties. Treaties with the US, Russia and Australia have been signed but are not yet in force.

Other tax advantages are offered for investments made in the extreme regions of the country as well

Chile’s tax systemTax type Indicative rate

First category tax (corporate income tax) 1 20% 2

Mining royalty From 0.5% to 5%

Second category tax (employment tax) From 0% to 40%

Global complementary tax (taxes on Chilean resident individuals)

Up to 40%

Value added tax (VAT) 19%

Stamp tax Normal: from 0.1% to 1.2%

Donation and inheritance From 0% to 25%

Real estate tax 1% to 1.2%

Municipal license From 0.25 % to 0.5% with a cap of ca. $320K 3

1. Corporate tax is allowed as a tax credit against final taxes (Additional tax or Global complementary tax)

2. The 17% corporate tax has been increased to 20% during 2011 and 18.5% for 2012. The tax rate should return to 17% in 2013.

3. The cap is 8,000 Unidades de Fomento. Source: KPMG Chile, CORFO

At just 20%, Chile has one of the lowest and most user-friendly corporate tax rates in Latin America.

And Chile´s tax structure recognizes several bene!ts and advantages for foreign investors.

The Chilean corporate tax rate has been increased temporarily to 20% from 17% to fund reconstruction following the February 2010 earthquake. Under current law, the tax rate will return to 17% in 2013 (18.5% in 2012), but it is likely the 20% rate will be extended for additional.

“Our tax system utilizes a low corporate tax rate of 20%, as long as the pro!ts are not distributed to Chilean individual residents, non-resident individuals or corporate owners,” explains Francisco Lyon, Lead Tax and Legal Partner at KPMG Chile.

If pro!ts are distributed to non-resident entities or individuals the !nal taxation applicable to those distributions will be the withholding tax (called Impuesto Adicional) with a general tax rate of 35%, but allowing the corporate taxes paid as a credit.

“Our tax system allows unlimited carry-back and carry-forward of tax losses,” Lyon explains.

“Together with the tax-free distributions of pro!ts or dividends between Chilean entities, this allows a sort of tax consolidation when a group of companies is structured properly, given the possibility of recovering the corporate tax paid in previous years on the undistributed pro!ts through current or future losses,and to stop paying taxes until the company has returned to a net operating tax pro!t in the future”, Francisco Lyon says.

AdvantagesChile offers several tax advantages to foreign investors. For example, foreign investors who are planning to invest more than $5 million in the country can enter into an agreement with the Chilean government under the Decree Law 600. This guarantees nondiscrimination for the foreign investor and the right to repatriate the amount of capital originally invested at least one year after the investment was made and to repatriate pro!ts at any time.

The foreign investor also can elect for income tax stability for a ten-year period, although with an aggregate 42% rate of income tax instead of the normal 35% rate. In any case, at any time the foreign investor can forfeit their income tax stability and

Investor-friendly taxationCompared to other South American countries, Chile has an enviable and simple tax system that is investor-friendly.

Santiago’s dramatic skyline is just one of Chile’s many irresistible attractions for businesspeople and tourists alike.

For more information:Chilean Customs www.aduana.cl.Chilean Internal Revenue Service www.sii.cl.Dirección General de Relaciones EconómicasInternacionales www.direcon.cl

as to promote R&D. Chile offers a credit against the corporate income tax equal to 35% of the payments made under R&D contracts signed with an eligible external R&D center with certain caps.

Chile also has a "at 6% customs duty and free trade agreements with 58 countries. Regardless of the country of origin, capital assets meeting certain requirements may be imported into Chile with no customs duties.

Juan

Ern

esto

Jaeg

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Taxation

Investors at the door

Chile is experiencing a dramatic rise in foreign direct investment. Inbound FDI into Chile amounted to nearly $13 billion in 2009, illustrating the country’s ability to pull beyond its weight. Brazil, a country almost 10 times Chile’s size in terms of GDP, attracts only about twice the FDI amount annually.

Machiavello, head of Cinver, the Chilean investment agency. “Joining the OECD is one factor since this sends a signal of stability, financial transparency, and orientation toward the global economies.

” Chile’s tax advantages have also contributed to the growth

success factor for foreign investors in Chile is good returns on investment.

“Repeat investors account for a large portion of investment,”

more. The good returns can be explained by our stability, our good workforce and the overall growth in Chile.”

FDI growth also stems from the 2010 earthquake which created strong demand for infrastructure projects to replace residential and commercial real estate, transport infrastructure, etc.

Another factor is mining, which is attracting significant foreign investment. “For the 2009-2017 period we expect investments of roughly $45.4 billion, and much of this is from international mining giants,” says Danilo Torres of Sonami, the Chliean mining association.

ANALYSIS

During the second quarter of 2010, the Chilean government

announced an anti-tax evasion plan that seeks to collect $1.3 billion over four years from increasing tax audits,on the VAT and income tax. In this sense, transfer pricing becameone of the most important initiatives included within the framework of the plan. As a part of this

plan, the Chilean IRS (Servicio de Impuestos Internos or SII) has created a specialized unit (comprised of economists, lawyers and accountants) that will be in charge of conducting transfer pricing audits.

Additionally, from the beginning of 2011, the SII has published in different forums and in the press a “Draft Bill on Transfer Pricing.” The authority has repeatedly indicated that the change in the law is not intended to provide a new look at the topic. On the contrary, the essence of the regulation (to comply with the arm’s length principle) is maintained. It solely intends to provide certainty for legal aspects and clarify the methodology for the taxpayer.

According to the authorities, the items that will be contained in this new regulation are:

Clarification of the accepted methodology: Both the methodology accepted and the selection of the method will be consistent with OECD Guidelines

Transfer pricing reformCompared to other South American countries, Chile has a enviable and simple tax system that is investor-friendly.

(Chapter 2, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, July 2010). The accepted methods will be: Comparable Uncontrolled Price Method, Cost Plus Method, Resale Price Method, Transactional Net Margin Method, and Pro!t Split Method. In the selection of the method,no hierarchy will be expected. The most appropriate method must be selected based on the underlying transaction.

Transfer pricing information return: Chilean taxpayers conducting transactions with foreign related entities will be required to !le an informational return, detailing their cross-border intercompany transactions. The details of the contents of this return are yet to be determined by the SII. However, it is expected (based on other countries’ experience) that the return will require the following information: types and amounts of all transactions with related parties; names, countries and tax ID numbers of all related parties; the transfer pricing method(s) used to test each transaction; and the gross or operating margin earned by the taxpayer in each transaction.

Advance Pricing Agreements:The possibility of entering into voluntary Advance Pricing Agreements (APAs) will be allowed. The request for agreement will have to include a transfer pricing report.

Contemporaneous transfer pricing documentation (Transfer Pricing Report): As a rule, transfer pricing analyses will not be an explicit requirement for taxpayers. These will have no value by themselves. Transfer pricing analysis will be background information which companies will be able to use to determine their transfer pricing policy. Notwithstanding the above, a well-performed transfer pricing analysis will simplify the audit process.

Corresponding adjustments:The limit for this type of sequential adjustment is estimated to be !ve retroactive years.

Francisco Lyon Head of Tax & Legal KPMG Chile

22 Doing Business in Chile | 2012 EDITION

in the sector. In this time period Chile had one of the fastest-growing economies in the world and mining accounted for 8.5% of the GDP and 47% of exports. Over the past three decades, private copper production has been multiplied over 25-fold.

The state-owned !rm CODELCO is still the world’s single largest copper producing company but foreign private investment has developed several new mines and the private sector now produces more copper than CODELCO. Private mining now represents 72% of the country’s production. Foreign mining companies now in Chile include Australian giants BHP Billiton and Rio Tinto, and UK-linked Anglo-American and Xstrata.

The mining sector collects abundant foreign investment. According to Chile’s Foreign Investment Committee, in 2006 mining was the country’s largest recipient sector of FDI, receiving almost $1.2 billion in investments. Furthermore, future mining projects in Chile are expected to generate approximately $18.5 billion in investments by 2015. This is not only due to the size and prestige of Chile’s mining sector, but also

to the legal environment surrounding the industry. The Business Monitor states that “Chile’s mining laws are perceived to be more investment friendly and globally aligned than most of its Latin American peers.”

What company is the money-earning star of the Chilean economy? Escondida, a private mining

company that operates the highest-producing copper mine in the world. In 2010, its net pro!ts totaled more than $4.3 billion, the highest of any Chilean company.

Likewise, the mining sector itself is the highest-earning industrial sector in Chile with nearly $18 billion in net pro!ts in 2010. This is a 53% increase over 2009 pro!ts of $11.7 billion. Electricity, the second-highest earning sector, had net pro!ts of less than $3 billion in 2010, down from more than $3.2 billion posted in 2009. Moreover, the mining sector is Chile’s biggest exporter accounting for 60% of all exports in 2008.

The star of the mining sector is copper, which represents 86% of mining sector exports. According to Chile’s Central Bank, Chile has approximately 24% of the world’s known copper reserves and is the world’s largest copper producer. In 2009, Chile produced 5,520 metric tons of copper accounting for 34% of world total. In 2010 it produced slightly less at 5,390 metric tons.

“Chile has been very good at developing itself, perhaps using Australia or Canada as models,” explains Charlie Sartain, the Australia-based CEO of Xstrata Copper. “We plan to open our South American

project development division here in Chile, with 200 staff coordinating our activities for Chile, Peru and Argentina.”

But copper is not the only ace up Chile’s sleeve. The country is also a leading producer of iodine, rhenium, lithium, arsenic, molybdenum, mined boron (ulexite), re!ned selenium and pumicite. It is the world’s sixth ranked producer of silver accounting for about 6% of global mine output. It also accounts for about 2% of the world’s mine production of gold.

Chile can be thankful for its underground wealth. Although mining represents a smaller share of the country’s overall economy (in terms of GDP) than ten years ago, that is not a re"ection on a dwindling mining sector, quite the contrary. Mining is growing in size as new mines open to exploitation and extensions of existing mines are planned. Exports of minerals grew almost four-fold in the past ten years reaching more than $38 billion by 2010.

Investment friendlyChilean miners have been digging for gold since 1530 or earlier, but industrial mining activity greatly expanded in 1974 when Decree Law 600 gave the private mining sector free wing. The 1990s marked the beginning of a boom in Chile’s mining industry, especially in copper mining, principally due to FDI

Underground wealthThe Chilean government strongly supports foreign investment in the mining sector and has modified its mining industry laws and regulations to create a favorable investing environment for foreigners.

“We chose Chile because it is politically stable and with OECD membership we expect it will be easier to attract funds

from investors for new projects.”

Charlie Sartain, CEO Xstrata Copper

Top mining companies 2010

Rank CompanyYear

FoundedRevenues

$MProfits

$M CEO Website1 Codelco 1978 16,066 1,876 Diego Hernandez Cabrera codelco.cl2 Escondida 1893 9,212 4,338 Carlos Mesquita mineraescondida.cl3 Codelco Div. Chiquicamata n.a. 5,285 492 n.a. codelco.cl4 Antofagasta 1983 4,577 1,052 antofagasta.co.uk5 Collahuasi 1880 3,929 2,048 Giancarlo Bruno collahuasi.cl6 1983 3,286 1,647 lospelambres.cl 7 Codelco Div. El TTeniente n.a. 3,216 542 n.a. codelco.cl8 Codelco Div. Radomiro Tomic n.a. 2,204 496 n.a. codelco.cl9 Anglo American Sur 1980 2,123 900 John MacKenzie angloamerican-chile.cl10 Anglo American Norte 1980 2,010 551 John MacKenzie angloamerican.co.uk

Source: AmericaEconomia, the Financial Times

New growthInvestments in expansions and new projects over $1.5 billionStartup year Company Investment ($M)2015 4,8002015 Kinross, Barrick 4,2002018 BHP Billiton 4,600post 2011 Antofagasta Minerals 3,2002015 Teck Cominco 3,0002017 Teck Cominco 3,0002013 Barrick 3,0002014 New Gold (GolfCorp) 2,5002015 AngloAmerican, Xstrata 2,4502012 AngloAmerican 2,4002013 2,3332010 Antofagasta Minerals 2,3002013 Pan Pacific Copper 2,000

2015 BHP Billiton 2,0002018 2,0002014 Minera Quadra Mining Chile 1,9002017 1,533n.a. 1,500

Source: SONAMI, 2010

The mining sector collects abundant foreign investment.


Mining

Upcoming projectsAccording to SONAMI, the National Mining Society, an agency that oversees mining in Chile, a total of $45.4 billion in mining investments is on the blackboard until 2017. These investments cover all links in the value chain. Some are for upstream geological exploration for new sites. Others are for expansion of existing mines. Yet others are for downstream infrastructure in smelting or in export facilities, namely harbors.

Although the copper price is the barometer for new investment, the stability of the Chilean market – especially compared to its neighbors – makes it a long-term magnet for investment. But will Chile move down the value chain in mining?

“One of the issues we face is that important end-user markets such as China and India have made very substantial investments in copper smelters, and so

they do not wish to import re!ned copper. For them copper concentrate is suf!cient, since their low labor and energy costs make it ef!cient to smelt locally,” explains Christian Thiele, General Manager of Minera Esperanza, part of the Antofagasta group.

Still, SONAMI expects that potential does exist in the research and development areas, namely in developing better technology for furnaces, for smelting or for !ne-grinding technologies. There are also projects underway with the Chilean government, CORFO and the Education Ministry to establish state-of-the-art research centers.

For more information:National Mining Society (Sociedad Nacional de Minería) www.sonami.clNational Copper Corporation (Corporación Nacional del Cobre de Chile) www.codelco.cl/english

Optimum Environment

Xstrata Copper is the world’s fourth largest copper producer with total mined copper production in 2010 of 913,000 tons. In Chile Xstrata posted an operating profit of $195 million tha year. The company is also one of the world’s largest producers of smelter and refined copper, including from third party materials.

Before acquiring Falconbridge in 2006 for $20 billion, Xstrata already had operations in southern Peru and so knew Chile well.

“Chile has the world’s most important copper reserves and, today, that is its principal potential,” Charlie Sartain, Chief Executive of Xstrata Copper, notes. “Also, the conditions it offers for developing operations and projects within a framework of sustainable development and its economic, political and institutional stability help to create a transparent and optimum business environment.”

The Falconbridge copper operations established a strong center for Xstrata in northern Chile, with the Altonorte smelter, the Lomas Bayas mine and a 44% share of the giant Collahuasi mine. The acquisition also strengthened its position in Peru. Xstrata also has operations in Argentina as well as Australia, Canada, U.S., Philippines, Papua New Guinea.

“Although we have operations around the world, Chile plays an important role for Xstrata Copper precisely because of the conditions it offers for the development of innovative and sustainable projects in which we hope to continue growing,” says Sartain, who also chairs the International Copper Association and is a member of the senate of the Sustainable Minerals Institute at the University of Queensland, Australia.

“Santiago is the base of our South American Project Development Division and that allows us to create synergies with our other operations in the region, taking advantage of growth opportunities through our new copper projects and the expansions already underway at our existing operations in Chile and Peru.”

Chile’s business-friendly envirornment allows Xstrata to maximize its shareholders’ investment.

“In Chile, we can work with institutions and the authorities as strategic allies, focusing on the management of sustainable development, which requires legal stability in terms of environmental, social and labor issues, and that is not a minor consideration when deciding where to invest,” Sartain explains.

“After almost five years in Chile, I can say that our experience has been very positive; we have found favorable conditions for the organic growth of our business as well as professionals who are very technically competent, which is a further encouragement.”

SUCCESS STORY

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Potential powerhouseOver the last few years Chile has seen an important increase in the use of thermal energy. Last year for the first time in its history more than 50% of the electricity supply was generated by non-renewable fuels. Chile’s alternate energy resources could change that.

Chile is a developing country with important annual growth prospects. But its limited domestic

energy resources are not enough to meet demand. Energy consumption in Chile has grown fast in recent decades, especially electricity consumption, which has increased at an annual rate of 2.4% since 2001 and 4.2% since 1990.

Chile’s proven crude oil reserves in January 2006 were estimated at 150 million barrels (equivalent to 20 million tons or Mt), which is insigni!cant in comparison with annual domestic consumption of 11.7 Mt. Proven natural gas reserves varied between 42 and 98 billion cubic meters (bcm) in 2006 compared with annual consumption of 7.8 bcm that year.

Chile does have signi!cant low- sulfur, sub-bituminous coal reserves, estimated at between 200 Mt and 500 Mt. But domestic production falls far short what the country uses. In 2007 for example, Chile produced 0.8 Mt of coal compared to the 5 Mt it consumed.

Similarly, Chile has abundant hydropower potential but its hydropower supply is not as geographically diverse as that of other countries making it vulnerable to hydropower supply disruptions caused by recurring droughts every two or three years.

Filling the demandTo meet its energy demand, Chile turned to Argentina to supply natural gas in the 1990s and the share of natural gas in electricity generation

increased from 1% in 1997 to 33% by 2004. However, beginning in 2005 because of restrictions on gas exports by Argentina, as well as low hydrology, the situation reversed in favor of coal and oil.

Electricity companies turned to coal-!red plants, an easy solution since Chile is not required to reduce CO2 emissions by the Kyoto Protocol. Another solution was the construction of two lique!ed natural gas (LNG) terminals.

The !rst project at Quintero Bay, located 114 km from Santiago, cost $1.2 billion and was developed by GNL Quintero and processes 2.5 million tons of LNG annually. A second plant, GNL Mejillones, owned equally by Suez Energy International and CODELCO, is an on-shore LNG regasi!cation terminal in Antofagasta.

The government is also supporting the exploitation of Chile’s vast but mostly undeveloped renewable

energy potential. Hydropower will remain a signi!cant component of its energy mix with the construction of a major new complex in southern Chile.

Chile’s two largest generators, Endesa and Colbún, have created a joint venture, HidroAysen, to build a 2,750 MW installed capacity power hydroelectric plant and a 2,000 kilometer transmission line, with a total investment of almost $10 billion.

Hydroelectricity is the main source of renewable energy there is in the world,” says Colbún Chairman Bernardo MatteLarrain. “Any other alternative in Chile involves importing fuel. As we don’t have gas, we have to bring it from far away. We have very little coal and it’s not enough, so we have to import it from Australia, Colombia, the U.S. and so on. So as an energy base, hydroelectric power is without a doubt the way forward for Chile.

Wind has the potential to contribute to a large share of additional renewable energy capacity. As of end-March 2009, the list of wind projects under evaluation in Chile’s environmental impact assessment system

and those approved in the period 2006-09 totaled potential new capacity of around 1,500 MW. The country currently counts with more than 160 MW of capacity, but nearly 500 MW of additional capacity is planned to start construction by 2020.

Chile also has 10% of the world’s active volcanoes, highlighting an abundant potential for geothermal energy. Since 2000, special legislation and subsidies promote the development of geothermal energy, which has been of!cially designated the country’s strategic priority. Seven 40 MW geothermal generation projects are planned to be built between 2016 and 2020. The north of the country is rich in solar energy, which could be used both for thermal energy and electricity production. The Atacama Desert gets up to 9.28 kilowatt-hours of sun daily per square meter, among the world’s highest. More than a dozen solar installations are planned here.

Electricity generation by source

40 000

50 000

60 000

70 000

0

10 000

20 000

30 000

40 000

1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

GWh

Coal/peat

Oil

Gas

Hydro

Comb.renew. & waste

Source: OECD/IEA

Chile’s primary energy mix 2008(in teracalories )

Production Imports Consumption

Crude oil 1,397 108,806 110,420

Natural gas 19,695 7,287 24,795

Coal 2,765 43,400 43,695

Hydroelectric 21,496 0 20,865

Wind energy 33 0 33

Wood and other sources 51,170 0 51,170

Total 96,556 159,493 250,977

Source: Chilean National Energy Commission

For more information Chilean National Energy Commission: www.cne.clCentral Energia: centralenergia.cl

How do you say fjord in Chilean?With a strategic vision about clean power in emerging markets, Norwegian company SN Power is busy developing renewable and low-CO2 energy projects in Chile and Peru.

Based in Oslo, Norway, SN Power is a joint venture between Statkraft and Norfund. Founded in 2002, the company had 2010 revenues of $114 million, from eleven countries on three continents. SN Power first decided to invest in Chile in 2004, after several months of evaluation period and feasibility study.

Convinced of the potential in the country, SN Power first committed to invest about $800 million in two hydroelectric projects, La Higuera and La Confluencia, about 250 kilometers south of Santiago. Both hydropower plants will each produce around 750 GWh annually.

Completed in 2009, SN Power’s wind farm at Totoral, about 300 kilometers north of Santiago, was the company’s third investment in Chile. The wind farm’s 23 turbines produce almost 110 GWh every year, supplying energy for about 36,000 people (or 12.000 households).

“What makes Chile all the more interesting for us,” explains Torger Lien, CEO of SN Power (Norway), “is that we can start using Chile as a regional platform for our other South American operations, namely our twin projects in Peru and our developments in Brazil.”

SUCCESS STORY

Hydroelectricity is Chile’s main source of renewable energy.

Ende

sa


Energy

Chile has one of the best coverage and quality levels in Latin America for water supply and

sanitation, especially in the urban areas where 85% of the country’s population lives.

In 2010, 99.9% of the population of Chile’s urban areas had access to potable water and 95.9% had access to sanitation, according to SISS (Superintendencia de Servicios Sanitarios) the Chilean regulatory agency for urban areas. Nationally, 91.3% had water supply access and 82.5% had access to sanitation, according to the Casen Survey 2006.

That’s a huge improvement since the 1970s when Chile began extending and developing its water and sanitation infrastructure.

“The situation in the late 1970s was a bit tricky,” explains Gonzalo Cordua, General Manager of Nuevo Sur, the fourth largest water operator in Chile. “We rely on fruit and agriculture exports for a substantial part of our economy, yet some of these trees and vineyards were drinking water from rivers that did not necessarily pass through waste treatment plants. It would have been a matter of time before health concerns arose and alarms went off.”

As a result of the infrastructure development, water access increased from 78% in 1976 to 98% in 1988, and sanitation access increased from 52% in 1976 to 82% in 1988.

In the 1990s, most utilities were partially handed over to the private sector. Investment in Chile’s water and sanitation sector reached $5.7 billion during the 1993–2005 period, according to the World Bank’s Private Participation in Infrastructure database.

As a result of public outcry over the privatization of water utilities, in 2001 the government stopped selling

Cool, clean waterChile is the only country in Latin America that has privatized its entire urban water supply and sanitation sector.

utilities and started granting 30-year concession contracts instead via build-operate-transfer (BOT) agreements.

The outcry against privatization continues as some Chileans object to price increases and private control of the resource. For example, in 2009 the Spanish electricity company Endesa bought up 80% of the water rights in a big region in the south. In the north, agricultural producers compete with mining companies for scarce water supplies.

“We have come a long way, and even though 94% of Chilean water production is in private hands, we have made great environmental progress,” says Magaly Espinosa, SSI Director. “Our next steps will be to expand our rural water program and confront

challenges in !nding new groundwater sources and new water desalination investments, mainly in the dry northern areas of the country.”

More than 80% of Chile’s fresh water is used for irrigation, followed by industry (8%), mining (7%) and drinking (4%). Many of the water development projects now underway are to supply water to the country’s mining sector.

About $7.7 billion is planned in current projects to augment water supply for the mining industry. Copper production is expected to reach 7.3 million tons in 2020 which means a 45% increase in water use. That poses a problem since the mining industry is in one of the driest regions on the planet.

Some mining companies have water rights but in some cases the aquifers they draw from will be depleted within a few years. Unless alternative sources of water are developed, some of the planned mining

expansion won’t happen, says Santiago González Larrain, Chile’s mining minister.

We must motivate the construction of desalination plants as an alternative,” González says.

The private sector agrees. Aguas Antofagasta, a Chilean water utility, is building a $120 million desalination plant in the northern city of Antofagasta. The plant will produce 1,000 liters a second of potable water and is expected to be completed by late 2013.

And a Spanish sustainable development company, Acciona, recently won a $65 million contract to build and operate a desalination plant near the Atacama desert which will produce 17 million liters (4.5 million gallons) of fresh water a day.

For more information:SISS (Superintendencia de Servicios Sanitarios) www.siss.gob.cl

Water headsTop five private water and sanitation companies (2010)

Rank Name Client base (1000s)

Ownership

1 Aguas Andinas S.A. 1,577 Agbar-Suez

2 Essbío S.A. 681 Ontario Pension Fund

3 Esval S.A. 542 Ontario Pension Fund

4 Nuevo Sur 225 Ontario Pension Fund

5 Aguas Araucanía 201 Marubeni Corp and Innovation Corp of Japan

Chile has made great progress in its water and sanitation standards.


Water Resources

No water, no miningChile’s mining industry is located in the arid north of the country. But the scarcity of water in the region is a serious problem, not just to the mining industry but to the economy as a whole since mining accounts for about a fifth of Chile’s GDP.

Finding new sources of water for industries like mining is an issue because the overexploitation of limited groundwater resources in the north puts into question the sustainability of existing and planned mines.

Many people are convinced that alternative sources of water, particularly desalination plants, are the solution.

Chile’s Minister for Mining, Santiago González Larrain, says that without additional sources of water, some planned mining developments will not be brought online.

“We must motivate the construction of desalination plants as an alternative,” says González.

This concern is driving a new wave of desalination projects in Chile’s north, such as in the Atacama region where copper mining, which consumes the vast majority of the water used by the mining industry, consumes 105,000 m3 of water a day, which is in excess of the industry’s allocated water rights.

In a recent report, the Chilean copper commission, Cochilco, states that after peaking in 2017, copper production will reach 7.3 million tons in 2020. To meet this demand, the industry’s water usage will need to increase by 45%. In the Atacama region alone water consumption will more than double by 2020 .

ANALYSIS

Wine grapes are not native to the Americas. They arrived in the 1500s with the Spanish missionaries

who needed wine to celebrate the Catholic mass. Today Chile is the world’s eighth-largest wine producer and !fth-largest exporter, selling to 150 markets and reaching a market share of 8% by volume of the global international wine market at the close of 2010.

But Chile is planning to conquer an even bigger share of the market.

“We want to play a key role in Chile’s progress,” says René Merino, President of Wines of Chile, a public-private organization created to promote Chilean wine exports. “We are convinced of the enormous potential of Chile’s wine industry, its importance at the global level as a world-class producer, and its multiplying effect on the image of Chile.”

Industry plans are to position Chile as the leading New World producer of premium, diverse and sustainable wines by the year 2020, increasing the value of bottled wine exports to $3 billion within a decade.

With an estimated 8,000 producers of wine grapes, the country’s planted area of vines for wine has increased over 70 percent during the last eight years and is now estimated to be 119,000 hectares. Out of the total planted area, around 76 percent are red varieties. Also, close to 75 percent of all planted area is under irrigation.

Due to low domestic consumption, Chile exports 70% of the wine it produces making it the world’s most globalized wine industry. In 2011, wine production reached an all time record level of 1,046 million liters, a 14% increase over 2010. This exceeds the previous production record of 1,009 million liters in 2009.

Export champion Wine is one of Chile’s most emblematic exports, recognized worldwide for its quality and variety. With the growing popularity for Chilean wine around the world, the industry aims to grow even more.

Improvements in quality and low prices help to keep or increase exports levels. Chile traditionally exports both bottled and bulk wine. Bottled wine exports expanded more than bulk wine exports in 2010 and so a large number of wineries are making a big effort to increase premium-bottled wine exports. Currently, there are more than 70 Chilean wineries that export.

Chile’s main export markets are Europe followed by the U.S. and China. The industry continues its focus on the Asian markets, however, less than 10% of total exports go to that market, according to Wines of Chile.

Wine takes offAfter centuries of obscurity, Chilean wines experienced an aggressive growth spurt in the 1980s. This was due partly to foreign investment from Spain, France, Italy and the U.S. that provided Chilean vineyards with upgraded technology and facilities. Many

well known foreign vintners have also developed wineries in Chile, including such prestigious labels as Bodegas Torres, the Rothschilds, Pernod Ricard, Kendall-Jackson, Franciscan State and Bruno Prat and others.

In less than ten years, Chile began to produce !rst-class wines that were becoming recognized around the world for their quality and style, and demand abroad for Chilean wine began to grow. To meet the increase in demand, Chile vastly increased the amount of land for planting. Between 1996 and 2006, the amount doubled from 56,000 to 117,000 hectares. Later, other regions were added including for the !rst time the north and south of the country. The newest vineyards are planted along the coast and in the Andes Mountains at altitudes up to 2,000 meters.

But it is Chile’s Central Valley that is its winemaking treasure. Sprawling over 1,200 kilometers north to south, the valley bene!ts from an ideal Mediterranean

International tasteTop Chilean wine exporters and quantity exported in 2010 (bottles and bulk)

Rank Winery Liters exported (millions)

Export value ($M)

Avg. price/L

1 Vina Concha y Toro 107 280 2.63

2 Vina Cono Sur 37 94 2.56

3 Vina San Pedro 45 94 2.09

4 Vina Santa Rita 13 56 4.18

5 Vina Sta. Carolina 20 42 2.07

Source: Vinos de Chile

climate and wide diversity of soils. The Andes on the east and the Paci!c on the west provide cool breezes that regulate temperatures and result in a higher range of terroirs.

The prime wine growing regions are the Elqui, Limarí, Choapa, Aconcagua, Casablanca, San Antonio, Maipo, Cachapoal, Colchagua, Curicó, Maule, Itata, Bío-Bío and Malleco valleys. These areas grow a wide range of premium grapes, notably Cabernet Sauvignon, Merlot, Sémillon, Shiraz, Chardonnay, Sauvignon Blanc, Riesling, Pinot Noir, Gewürztraminer, and Carmenère.

Chile’s wine conquest

With an unwavering confidence in the quality of Chile’s wine potential – what oenologists might call the ‘terroir’ – Eduardo Guilisasti set about constructing the company into what is now the world’s 8th largest wine producer. Concha y Toro is now listed in New York and sells over 28 million cases, of which 67% abroad, representing 2009 revenues of $643 million.

“The strategy behind this success,” explains Thomas Domeyko, export director, “was part Chilean and part Harvard Business School (which has published a case). The Chilean portion is our true gift of fantastic wine country: beautiful valleys with abundant water; a coastal mountain range that protects us from the cold Paciic currents; vast longitude suitable to diferent cépages (grape varieties).”

As for the business vision, Concha y Toro has skilfully expanded along four dimensions. “We are double-branded,” explains Domeyko. “We have six winery brands, including the original Concha y Toro, and Almaviva, our venture with Baron Philippe de Rothschild. Then, within each winery, we produce wines under diferent labels. Our investment in global wine brands – such as Casillero del Diablo – has been instrumental to our success.” The third dimension is geographical, with vineyards in nine diferent valleys in Chile and Argentina.

“Our fourth dimension is our export scope,” adds Domeyko. “We sell in 135 countries and have our own distribution in the UK, Brazil and Scandinavia. From 10 export employees in 2000 we are now up to 100 people. Their understanding of these markets is key to our success.”

SUCCESS STORY

Chile is one of the world’s largest wine producers and exporters.

Felip

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Wine

A unique facet of Chilean wine-growing environment is that because of the country’s geographic isolation, little or no pesticides are used to ward off grape-eating predators.

As a result, Chile, along with Argentina, is one of only two countries in the world not af"icted by the lethal phylloxera pest, an insect that devastated European vineyards in the late-19th Century and decimated the vineyards of California in the 20th.

Currently no signi!cant expansion in production is expected as more than 95% of the planted area is in full production. Any production increases that occur will be because of the weather, vineyard management improvements and on future expansion or replacement of existing but low-producing vineyards.

The government provides no direct subsidies to support wine production or subsidize exports. Although Chile does have a successful market promotion campaign called “Tastes of Chile” that includes wine. The government contributes 15% of the total promotion costs through its export promotion agency ProChile.

Saved from Extinction Carmenere was one of the most widely planted varieties in Bordeaux until the 1860s when the deadly phylloxera louse arrived in Europe. Carmenere vines are particularly defenseless to phylloxera and so the variety was abandoned when phylloxera-resistant American rootstocks were introduced in France.

Prior to the phylloxera crisis, Chilean vignerons took cuttings from Bordeaux vineyards thinking they were Merlot, which is similar-looking to Carmenere. In doing so they unwittingly saved Carmenere from extinction.

The mistaken variety came to be known as Chilean Merlot. The error was not discovered until 1994 when DNA research carried out in Montpellier, France, confirmed that it was Carmenere. Since then Carmenere plantings have grown rapidly, from 330 hectares in 1997 to 8,411 hectares in 2008, representing 7% of Chile’s total vineyard plantings.

For more information Wines of Chile: www.winesofchile.orgMOVI (Vintners Independent Movement) is a group of independent vintners: www.movi.cl

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372012 EDITION | Doing Business in Chile

Latin America has shown great resilience in the face of the

economic recession and presented the fastest-growing "ows of both inward and outward foreign direct investment. The volume received in 2010 exceeded the average of previous years, re"ecting the region as a new solid investment destination for transnational companies.

Also, it is important to highlight the rise of trans-Latins. A signi!cant proportion of Latin American investments are made within the region. According to deals reported by Bloomberg, 47% of M&A concluded by Latin American companies in 2010 took place in a neighboring country. Moreover, as stated by the Economic Commission for Latin America (ECLAC), green!eld investments also are mainly directed within the region itself (59% of the total in 2010).

Given this situation, the importance of trans-Latins as agents of regional integration is growing fast. Investments made by Chilean !rms reached a record $8.7 billion, 58% of which was directed to other Latin American countries, mostly to !nancial, retail and

FDI and M&A activity in Latin AmericaWhile much of the global economy has experienced a sharp reduction in foreign direct investment and M&A deal-making as a result of the financial crisis, Chile and other Latin American countries are holding their own.

Alejandro Cerda Head of Advisory KPMG Chile

manufacturing sectors. The most dynamic sectors for M&A activity in 2010 were basic materials, consumer goods and !nancial services, reaching a volume of $3.8 billion, according to Bloomberg.

The reasons behind this increase in transaction volume are the high economic growth of emerging economies, high commodity prices, lower costs of capital, restructuring and sale of distressed assets, and the overall trend towards consolidation.

In 2011, Latin American M&A activity has been mainly concentrated in such sectors as energy and natural resources, telecom and materials. These sectors along with consumer goods and !nancial services will most likely dominate M&A activity both in Chile and in the region.

Due to reduced in"ation levels, capital access and investment reforms, Latin American countries are becoming more hospitable to M&A especially in light of the current economic and political situation in the US and debt crises in Europe. There is reason to believe that this trend will continue in coming years, causing an increase in overall deals and in market con!dence in Latin America.

Trends in miningMining sector investment in 2011 is expected to exceed $460 million. Chile’s mining association (Sociedad Nacional de Minería) projected investment in the industry for 2011-2018 would reach $70 billion. The main source of investment is copper, for which production levels are

expected to increase by 48% by 2018. Investment in gold mining is expected to triple the current level of production (from 40 to 120 tons by 2018). For its part, the Chilean Copper Commission (Cochilco) projects copper mining will be at a level close to $54 billion by 2020.

Benedicto Vasquez Head of Mining Industries, KPMG Chile

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Sector Description

companies at a glanceRank Company Sector

Year Founded

2010 Revenues

$M

2010 Profits

$M CEO Website41 Xstrata Copper Chile Mining 1926 1,707 n.a. Michael Davis xstrata.com42 Supermercados Santa

IsabelRetail 1976 1,652 n.a. n.a. santaisabel.cl

43 Ripley Chile Retail 1956 1,544 78 Lazaro Calderon ripley.cl 44 Salfacorp Construction 1929 1,512 14 Francisco Javier Garces Jordan salfacorp.cl45 Empresas Banmedica Healthcare 1988 1,509 95 Carlos Kubik Castro empresasbanmedica.cl46 Telefonica Chile Telecoms 1930 1,495 224 Ramiro Lafarga Brollo telefonicachile.cl 47 Gasco Oil and gas 1982 1,435 108 Gerardo Cood Shoepke gasco.cl 48 Candelaria Mining 1912 1,434 542 Richard C. Adkerson fcx.com 49 CMPC CELULOSA Pulp/paper 1920 1,413 322 Arturo Iniguez Mackenna, cmpc.cl 50 Petrobras Oil and gas 1953 1,373 n.a. José Gabrielli petrobrastuchile.cl51 CMPC TISSUE Pulp/paper 1920 1,345 44 Arturo Iniguez Mackenna, cmpctissue.cl52 Terpel Oil and gas 1968 1,338 n.a. Amaury de la Espriella terpel-web.co53 Molymet Industrial 1975 1,297 92 John Graell Moore molymet.cl54 Cge Distribucion Energy 2003 1,292 26 Francisco Javier Marin Estevez cge.cl55 Empresas Navieras Transport 1992 1,273 44 Franco Montalbetti Moltedo empresasnavieras.com56 Minera Del Pacifico Mining 1981 1,271 902 Erick Weber cmp.cl 57 Minera Spence Mining 2001 1,243 n.a. Marius Kloppers spence.cl 58 Paris Retail n.a. 1,227 n.a. n.a. paris.cl59 Gnl Quintero Oil and gas 2007 1,178 n.a. Antonio Bacigalupo gnlquintero.com60 La Polar Retail 1998 1,153 64 Martin Andres Gonzalez Iakl lapolar.cl61 Minera El Abra Mining 1912 1,126 483 Richard C. Adkerson phelpsdodge.com62 E-CL Energy 1981 1,120 200 Lodewijk Verdeyen e-cl.cl63 Minera Zaldivar Mining 1995 1,119 529 Robert Mayne-Nicholls Sécul barrick.cl 64 Finning Chile Heavy

Equipment1997 1,091 n.a. n.a. finning.cl

65 Minera Valparaiso Multisector 1906 1,069 234 Emilio Pellegrini Ripamonti minera.cl

Chile’s top 65Rank Company Sector

Year Founded

2010 Revenues

$M

2010 Profits

$M CEO Website1 Codelco Mining 1955 16,065 1,876 Diego Hernandez Cabrera codelco.cl2 Cencosud Retail 1960 13,226 633 Daniel Rodriguez Cofre cencosud.cl3 Enersis Electricity 1983 13,193 1,038 Ignacio Antonanzas Alvear enersis.cl4 Empresas Copec Energy 1934 12,150 603 Eduardo Navarro Beltran empresascopec.cl5 Escondida Mining 1988 9,211 4,338 Carlos Mesquita escondida.cl6 Falabella Retail 1986 8,923 883 Juan Benavides Feliu falabella.com7 Enap Energy 1950 8,180 70 Ricardo Cruzat enap.cl8 Copec Combustibles Oil and gas 1934 7,775 n.a. Lorenzo Gazmuri Schleyer copec.cl9 Sudamericana De Vapores Transport 1872 5,448 171 Guillermo Luksic Craig csav.cl10 Endesa Energy 1982 5,120 1,139 Joaquin Galindo Velez endesa.cl11 Walmart Chile Retail 1985 4,861 89 Enrique Ostale Cambiaso dys.cl12 Antofagasta Plc Mining 1983 4,577 1,052 Jean-Paul Luksic antofagasta.co.uk13 LAN Transport 1987 4,387 419 Enrique Cueto Plaza lan.com14 CGE Energy 1982 4,295 128 Pablo Guarda Barros cge.cl15 Cmpc Papeles Y Cartones Pulp/paper 1920 4,216 637 Arturo Iniguez Mackenna cmpc.cl16 Collahuasi Mining 1880 3,929 2,048 Giancarlo Bruno collahuasi.cl17 Arauco Pulp/paper 1967 3,788 701 Cristian Infante celarauco.cl18 Mall Plaza Retail 1990 3,653 n.a. Fernando de Peña Yver mallplaza.cl19 Hipermercados Lider Retail 2009 3,320 n.a. Enrique Ostale Cambiaso lider.cl 20 Los Pelambres Mining 1983 3,286 1,647 Jean-Paul Luksic lospelambres.cl 21 Sodimac Retail 1952 2,619 168 Juan Pablo Del Rio Goudie sodimac.cl22 Entel Telecoms 1982 2,314 369 Antonio Buchi Buc entel.cl23 Chilectra Energy 2006 2,142 322 Cristian Fierro Montes chilectra.cl 24 Anglo American Sur Mining 1980 2,123 900 John MacKenzie angloamerican-chile.cl25 Ripley Corp. Retail 2004 2,083 77 Lazaro Calderon ripley.cl 26 Anglo American Norte Mining 1980 2,010 551 John MacKenzie angloamerican.co.uk27 CAP Industrial 1946 1,992 590 Jaime Charles Coddou cap.cl 28 Embotelladora Andina Beverages 1946 1,898 30 Jaime García koandina.com 29 Shell Chile Oil and gas 1919 1,837 n.a. Peter Voser /

Rodrigo Infante Casanelloshell.cl

30 Sigdo Koppers Construction 2005 1,832 113 Juan Pablo Aboitiz Domínguez sigdokoppers.cl31 Sqm Mining 1983 1,829 382 Patricio Contesse Gonzalez sqm.cl32 Movistar Telecoms 1995 1,802 n.a. Claudio Munoz Zuniga movistar.cl 33 Aes Gener Energy 1981 1,801 170 Luis Felipe Ceron Ceron gener.cl 34 Entel Pcs Telecoms 1964 1,800 262 Juan José Hurtado Vicuña entelpcs.cl 35 CCU Beverages 1982 1,790 236 Jose Patricio Jottar Nasrallah ccu.cl 36 Agrosuper Agroindustrial 1960 1,770 n.a. Jose Guzman agrosuper.cl 37 Supermercados Jumbo Retail 1960 1,743 n.a. n.a. jumbo.cl 38 Supermercados Unimarc Retail 1961 1,729 n.a. n.a. unimarc.cl 39 Enami Mining 1960 1,721 30 Hernán Eduardo de

Solminihac Tampierenami.cl

40 Fasa Retail 1997 1,712 -5 Marcelo Weisselberger Araujo fasa.cl

Rank CompanyYear

Founded

2010Revenues

$M

2010Profits

$M CEO Website1 Banco Santander 1978 2,918 1,011 Claudio Melandri santander.cl2 Banco de Chile 1893 2,468 799 Pablo Granifo bancochile.cl3 Banco BCI 1937 1,579 469 Lionel Olavarria bci.cl4 Banco Estado 1953 1,562 180 Pablo Piñera bancoestado.cl5 Corpbanca 1871 689 249 Mario Chamorro corpbanca.cl6 Banco BBVA 2000 618 102 Ignacio Lacasta bbva.cl7 Scotia Bank 1944 595 152 James Callahan scotiabank.cl8 Banco Itau 2007 389 100 Boris Buvinic itau.cl9 Banco Security 1991 244 71 Francisco Silva security.cl10 Banco BICE 1979 228 86 Alberto Schilling bice.cl

Chile’s top ten banks


Company Rankings

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The new report from the World Bank and International Finance

Corporation (IFC) shows that economies are still adopting reforms that promote transparency and access to information, improving the ability of local !rms to do business.

The facts speak for themselves. In the latest World Bank “Doing Business” rankings, Chile advanced two places from 41st to 39th place out of 183 economies. In Latin American, this advance puts us in !rst place for ease of doing business.

The Ministry of Economy bears primary responsibility for this improved assessment. The Ministry promoted the adoption of new technologies and improvements required. These changes were the result in part of the enactment of Law 20.494, passed in March 2011, which streamlined business creation procedures.

It is through these efforts and other reforms that we are achieving positive results. These are measurable and comparable with those of more developed countries. This improvement makes us proud. It reverses a trend of decline in Chile’s international rankings in competitiveness and clearly demonstrates that the life of entrepreneurs in our country is improving.

Creating an environment conducive to entrepreneursChile has moved up in World Bank rankings, proving it is up to the challenge of creating one of the world’s most business-friendly environments.

Cristián Bastián Senior Partner KPMG Chile

Nevertheless, according to the World Bank ranking, Chile is weak in two variables: training and plant closings. But thanks to recent reforms, we have reduced the barriers to addressing these weaknesses, which further explain why we have progressed in the ranking.

The process of reform can be very slow and inef!cient, which is why the Ministry of Economy is addressing another area impacting businesses, the bankruptcy system. The Ministry has proposed measures that will reduce the overall complexities and constraints of the current bankruptcy procedures.

We believe it is a key and fundamental task for the development of our country to generate a favorable environment for entrepreneurs with real opportunities and business regulations adapted to the 21st Century.

Indeed, our country is on track to achieving this goal. It is an honor to be the !rst country in South America to become a member of the OECD. We must continue to work ef!ciently to overcome our weaknesses and attain the level of our peers among the developed nations of the world. Indeed, it will be a challenge, but a challenge we are certain to overcome.

Ranking Chile’s top companiesFor executives and entrepreneurs interested in doing business in Chile or other Latin American countries, AméricaEconomía magazine is a comprehensive source of information about the region.

AméricaEconomía was created in 1986 and is published monthly in Spanish and Portuguese. The 25th anniversary issue of the magazine, published July 2011, focuses on Chile and provides in-depth analysis and rankings on all aspects of Chile’s business, economic and financial climate.

The centerpiece of the issue is a detailed ranking of Chile’s top 500 companies based on 2010 revenues. The ranking provides more than 20 indicators about each company’s health such as annual profits, ROI and number of employees.

Sector Description

Salmon exports leaping backChile’s fish farming industry began with private sector initiatives and despite occasional setbacks the industry is awash with opportunities for entrepreneurs to get involved in the industry’s future.

Chilean salmon !sheries are recovering from the outbreak of infectious salmon anemia (ISA) in

2007 which severly damaged one of the country’s leading exports. Salmon production fell dramatically as a result of ISA and is not expected to recover fully until 2013.

The industry association, SalmonChile, says the results of the exports of salmon and trout in the !rst half of 2011 exceeded 187,000 tons, a growth of 23% in volume compared to same period of 2010, the low point of the crisis. Exports sales amounted to $1.4 billion, a 45% increase compared to the !rst half of 2010.

“We see a gradual recovery in the industry, but the important thing is that growth is with environmental, health, sustainability and social support,” says Carlos Odebret General Manager of SalmonChile. “These are the lines of the new programmatic agenda of SalmonChile for the next three years.”

Salmon accounts for 93% of Chile’s !sh farming industry. The industry includes 140 producers and more than 1,000 suppliers of associated good and services. Prior to the ISA outbreak Chile was the second largest producer of salmon and trout in the world after Norway. The main markets for salmon are Japan, the U.S. and Brazil.

Until 2007 Chile experienced 15 years of growth in the salmon farming industry. By 2006 it accounted for 38% of the world’s salmon production and Norway produced 39%. In 2006 salmon was Chile’s third largest export product in terms value, just behind copper and molybdenum.

Because of the low per capita consumption of !sh in Chile, it is produced primarily for export. Chilean aquaculture products for export include rainbow trout,

Atlantic and Paci!c salmon, turbots and molluscs, Northern scallops, Paci!c oysters, mussels, red abalone and Chilean oysters. Chile is the world’s second largest producer of scallops and fourth largest producer of mussels.

Commercial !sheries exports were led by jack mackerel, southern hake, and Chilean sea bass. Chile also produces considerable amounts of !sh oil and !sh meal for use in the animal feed and other industries. Algae and algae byproducts for industrial use are another important export.

Chile is a natural !shing and !sh-farming country. The Chilean Sea is considered among the most productive marine ecosystems in the world with clear, clean and cold waters.

“Just as Chile is blessed with natural attributes for grapes, so it goes for !sh farming,” explains Cesar Barros, President of SalmonChile. “The 5°-20°C range

No chipsChile’s top five aquaculture companies

Company 2010 revenues in ($M)

2010 profits ($M)

Exports as % of sales

Multiexport Foods

202 32 1.4%

Salmones Multiexport

162 n.a. 100%

Mainstream Chile 137 n.a. 100%

Trusal 129 n.a. 80.6%

Salmones Antartica

103 n.a. 100%

Source: AmericaEconomia

of our waters suits !sh growth. We also have a great network of fjords, islands and canals so !sh can breed easily. Lastly, the distance between sweet and salt water is very short so transport costs are low.”

The private sector has been the main impetus behind Chilean !sh farming from the beginning. In 1974 the !rst private initiative to raise trout for commercial purposes began. In 1976, Coho salmon eggs were imported and in 1977 the fry were released into Chilean lakes. The next year, the state created Sernapesca, the National Fish Service, and over the next two years a series of private initiatives created companies dedicated to salmon farming. By 1985,

the year SalmonChile was created, there were 36 !sh farms and production reached 1,200 tons.

Chile currently has 174 aquaculture farms dotted along its 6,500 kilometers of coastline, down from a tally of 344 farms in 2008. On average each farm produces over 500,000 !sh in a two-year growing cycle.

Several factors have been decisive in the expansion of !sh farming such as technological development, business entrepreneurship and foreign investment. Between 1989 and 2004, foreign investment reached $300 million. Fishing and aquaculture, particularly salmon, are supported by public and private research, development and innovation programs. The main investment opportunities are in !sh farming due to the forecasted increase in global demand for farmed !sh.

For more information:The National Fishing Association (Sonapesca) www.sonapesca.clThe National Fish Service (Sernapesca) www.sernapesca.cl

Controlling the catchChileans have always relied on fishing for food and jobs. Today fishing is still a big business in Chile but that industry is under threat. The total commercial fishing catch in 2010 was 3.3 million tons, compared to 7 million tons in 1996.

In 2000, the government introduced Individual Transferable Quotas (ITQs) to stop the decline. Under ITQ, a total catch permitted is given to fishing companies each year based on historic catches.

The law has met with some success. Although total catches remain low, a guaranteed quota means companies can focus more on quality and produce more high-value products, such as canned and frozen fish for human consumption, and less fishmeal, used as feed by salmon farming companies.

This has helped create jobs and increase exports, which have risen from $1 billion in 1996 to $1.5 billion in 2010. About two thirds of the catch is now canned or frozen fish.

The ITQ system will expire in 2012 and the government is expected to propose a new law to regulate the industry for the next 25 years. One option being considered is to modify the ITQ system by putting part of the individual quotas up for auction.

This has raised protests from opponents who say that, among other things, it has been tried and failed in other countries. Proponents argue that the current system limits the entry of new players into an industry dominated by six companies.

ANALYSIS

Chile is a natural fishing and fish-farming country.


Fisheries

Food power The food industry is one of most dynamic sectors of Chile’s economy representing around 24% of its GDP.

Chile˙s food exports have grown at an average annual rate of 10% over the past ten years, making it the

world’s fastest-growing food exporter. By 2010 exports had risen to more than $11.6 billion compared to $5 billion in 2002. The Chilean food industry now employs more than a million people, representing around 20% of the country’s workforce and providing 174 countries with premium fresh and processed food products.

“Agriculture is one of the engines of the Chilean economy,” says Juan Pablo Matte, Secretary General of Sociedad Nacional de Agricultura (SNA), the agricultural association. “Our agro-industry is no longer content with the mere export of natural resources. There is a new dynamism with regards to adding value to these products, and moving beyond being just a commodities exporter.”

If Chile is successful in its bid to become a food power, it will be among the world’s ten largest food exporters (including the U.S., France, Belgium, Germany, Holland, Canada, China, Spain, Italy and Australia). This would be an important jump from its current 17th position and would mean food exports of $250 billion by 2015. Projections suggest that in the future exports will reach $62 billion by 2030 and the sector will account for more than 35% of Chile’s GDP, employing one in three workers.

Chile is a leading producer and exporter of some of the world’s !nest fruits, berries, vegetables, !sh, shell!sh, poultry, meats and premium wines. It is the world’s largest exporter of fresh grapes (29%), plums (23%), and fresh !sh !llets (22%). It is the world’s second largest exporter of frozen paci!c salmon (30%), avocados (16%), and other frozen !sh (10%). And it is the world’s !fth largest exporter of wine (5%) and frozen pork meat (5%).

The area cultivated for fruit has increased from 221,000 to 265,000 hectares over the 2004 to 2009 period, representing an increase of almost 20%. However, the share of cultivated land devoted to subsistence crops (such as wheat and maize) has seen a substantial drop in acreage, although they still have the largest number of hectares in cultivation. As a result, wheat

imports have grown four-fold since 2004. Beef is also a large import item, about 100,000 tons each year.

Chilean foods win awards for their taste and quality in international food competitions. For example, Chilean olive oils have garnered international acclaim at competitions including the Leone D’Oro dei Mastri Oleari 2006, Parma, Italia, and the Sol d’Oro 2006, Diploma di Gran Menzione. In addition, a Chilean cheese received the American Cheese Society award, while Chilean lamb was recognized as the Best Organic Product from ANUGA.

Favorable conditions Chile’s prodigious food production is the result of the convergence of several factors.

“Chile still has vast untapped agricultural potential,” Matte says. “We have four important competitive advantages.”

First, Chile is 4,300 kilometers long and extremely narrow, creating a diverse geography and unsurpassed

climatic range and soils that are suitable for growing a wide range of foods. The mild, Mediterranean-style climate of Chile’s central region is ideal for growing !ne-quality fruits and vegetables, both traditional as well as exotic varieties, which the country exports to 70 markets.

As a southern-hemisphere country, Chile also has off-season production, which means its produce does not compete with European or American produce during their peak seasons. Chile can thus supply the fresh fruits and vegetables to northern hemisphere countries during their winter months.

Moreover, the protective natural barriers of ocean, high mountains, desert and glaciers have protected Chile’s meat (pork, lamb, and beef) and poultry industries from the parasites and diseases common to most other countries. Chile has never experienced any known cases of avian "u or mad cow disease. In addition, Chile is free from all animal diseases

registered on List A of the World Organization for Animal Health (OIE).

Lastly, Chile has a network of trading arrangements with 58 countries meaning Chilean producers have preferential tariff access to markets that represent over 80% of global GDP and almost half the world˙s population. And by 2012, 74% of Chilean agribusiness exports will be duty free.

For more informationMinistry of Agriculture : www.odepa.gob.cl Sociedad Nacional de Agricultura: www.sna.cl Chilealimentos: www.chilealimentos.com

FoodiesChile’s top 5 agro-industrial companies

Company Products Sales 2010 ($M)

Agrosuper Poultry, pork, sausages, salmon

1,800

Supercerdo Pork 660

Watt’s Fruit derivatives, cooking oils, pasta, pork, wines

624

Super Pollo Chicken 595

Soprole Dairy, fruit derivatives

579


Unbeatable climateChile’s climate and geography were the main attractions for Pioneer, a world leader in the development of agricultural biotechnology and the production and sale of seeds

Located in the Azapa Valley in the Arica Region in northern Chile, Pioneer’s Experimental Agroindustrial Station specializes in the development of corn seed hybrids, soybeans and canola.

“The unbeatable natural and climatic conditions of the Azapa Valley make it a unique place for the development of specialized agriculture and seed research. Together with the important support of CORFO, this made us decide on Arica to set up one of Pioneer’s most important centers in the world,” says German Alessandri, External Affairs Manager for Semillas Pioneer Chile.

Pioneer, a subsidiary of the U.S. chemical company DuPont, chose Arica for the research center because of the region’s natural advantages, such as its year-round dry climate and the fact that the valley is isolated from the country’s agricultural zone.

And because Chile is in the southern hemisphere, Pioneer can take advantage of the months in which the northern hemisphere is in winter. This extends the total number of months in which continuous research can be made to nearly nine months a year. This means costs savings and longer research time.

The CORFO-InvestChile program provided Pioneer with guidance during the evaluation and development of the business, assistance in collecting information, and granted financial incentives to the company for project development.

Pioneer employees 96 employees permanently and 210 temporarily including professional researchers and technicians in the area.

SUCCESS STORY

Chile is a leading food producer and exporter.


Agriculture

For trading in stocks, bonds, currencies and other !nancial instruments, Chilean investors and

institutions turn mostly to the Bolsa de Comercio de Santiago (BCS), the stock exchange. Founded in 1893, the Santiago Stock Exchange is hosted in a venerable old building, and boasts a beautiful trading "oor, where the high-tech digital displays vie for attention with marble "oors, wood panelling, and stuccoed walls.

For traders wanting a complete electronic alternative, Chile offers the Bolsa Eletronica de Chile (Chilean Electronic Exchange).

At the creation of the BCS in 1893, !fty companies register for trading. Twenty years later, the BCS construction of the actual building started, and the mural by artist Pedro Subercaseaux was completed in 1917.

In 1958, the IGPA index was launched, followed in 1977 by the more selective IPSA index.

In 1981, two events of importance occurred. The !rst was the introduction of computers in the back of!ce and the trading systems. The second had a strong indirect effect: the creation of privately-owned pension fund administrators (to handle the obligatory social security system), which were to become the largest institutional investors and users of the BCS.

In good companyChile’s main stock exchange, the Bolsa de Comercio de Santiago, has performed well over the past decade. It relies more on bonds and debt instruments than on a less-active equity market.

In 2010, sights have been set on greater integration with exchanges in Peru and Colombia, through the MILA, Latin America Integrated Market.

Proof the value of the BCS? The fact that one of its licenses (enabling trading) sold for about $4 million in 2008.

The Santiago stock exchange has seen healthy growth rates over the past years, even weathering the 2008 !nancial crisis with serenity. In 2008, the stock exchange managed to grow by 3.1% (in terms of traded value) over the prior year, whilst the rest of the world was licking its !nancial wounds.

For its activity, the stock exchange relies less on equity trading (i.e. company shares), and more on bonds and monetary instruments. “Equities represented only 7% of the value traded in 2010,” explains Pablo Valdes, the chairman of the Santiago Bolsa de Comercio in the exchange’s annual report. “Whilst 51% of the trading was in money market (add explanation), and 27% in !xed income instruments.”

The Santiago stock exchange presents a mixed picture in terms of performance. Even though the number of listed companies has been in slight decline, the market capitalization has increased dramatically – over three-fold to represent almost $350 million in 2010.

As for the number of companies listed, it stood at about 230 in 2010, a slight drop from the 2001 tally of 250 companies. In fact, the stock exchange typically

only sees only one or two IPOs each year. 2005 was a banner crop, with !ve companies listed capturing $500 million in fresh capital. In 2010, the single listing generated new capital of almost $200 million for the new market entrant.

Although the IPO market is limited, the stock exchange is oft-used by existing listed members to raise fresh capital for ongoing expansion projects. In 2010, the listed companies raised a total of $3.5 billion in fresh money via bonds and other issues.

The activity of the stock exchange closely re"ects the economic make-up of the country, with commodity companies being the most active members, representing about 27% of the free "oating trading. Utilities and retail are the next most active, also with about 25% each. Industrial goods and FMCG only represent 12% and 5% respectively.

To bolster its growth and regional position, the Bolsa Comercio has extended to operators beyond the 230 listed companies. There are 60 approved issuers for the money market instruments, and 143 issuers for the !xed income market. These players include not just famous banking names (e.g. Santander or Banco Chile), but also blue-chip industrial operators, such as Coca-Cola or highway operating companies. There are also 118 issuers in the offshore market, specializing in foreign currency denominated instruments.

For further informationBolsa de Comercio de Santiago www.bolsadesantiago.comBolsa Electronica de Chile www.bolchile.cl BCS makes available a 110-page annual report (search for “Reseña de valores 2010”)

Stock market name Co’s listed Year founded Market cap ($ Bill) CEO Website

Bolsa de Santiago 268 1893 $342 Jose Antonio Martinez bolsadesantiago.com

Bolsa Comercio de Buenos Aires 105 1854 $445 Adelmo Gabbi bcba.com.ar

BM&F - BOVESPA (Brazil) 470 1890 $1,540 Edemir Pinto bmfbovespa.com.br

Bolsa Mexicana de Valores (Mexico) 157 1933 $749 Luis Tellez Kuenzler bmv.com.mx

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300

400

500

600

700

800

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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As of 1984, another growth driver was the government privatization process, which favored new listings on the BCS. The year 1990 saw further expansion of activities, namely dollar currency trading, and futures contracts.

The Santiago stock exchange has seen healthy growth rates.


Capital Markets

Growth factors

The underlying economic growth of Chile will have its normal multiplier effect on the sector. “Chile has a good economic system that weathered the recession well and enables the country to pull ahead quickly. Growth will be derived from the reconstruction and rebuilding projects,” purports Mr. Hassi of MetLife. The expected 6% growth for 2010 will probably be followed by higher levels thereafter, he pursues.

Novel marketing techniques, combined with a non-saturated market also mean growth will remain healthy in the near future. “We experimented with direct marketing and telemarketing in 2007, and although it represents a small portion of sales, it shows good promise,” says Hassi of Metlife. “Another growth factor has been the extension of our network of branches nationwide.”

“The increasing globalization of our business is a key driver,” explains Mr. de la Barra of Compass Group. “The outlook is very positive outlook for the next five years. Much investment is coming in.” For Compass, the sectors showing the best promise include healthcare, education, infrastructure and real estate, which never suffered from a bubble so the market fundamentals are strong. “Education is one area I would stress,” says Mr. de la Barra. “There is a current deficit which needs to be addressed. There is also a need for school construction, especially post-earthquake.”

Banking

The best benchmark for the growth of the Chilean !nancial sector? As in many countries, it seems to

be the sprouting number of skyscrapers that dot Las Condes, the neighborhood of Santiago that hosts many of Chile’s roughly 20 banks, 60 insurance companies, and numerous asset management companies.

Finance is Chile’s hottest economic engine, thanks in large part to the country’s stability, down-to-earth economic policies, and governance. Financial services already represent 16% of Chilean GDP, as much as mining.

“Chile remains a small !nancial platform,” explains Alejandro Alarcon, head of ABIF, Chile’s banking association. “Our total banking assets are the same as that of one large Brazilian bank.”

Although small, Chile lies on sound bases, as explains Lionel Olavarria, chairman of BCI, Chile’s third largest bank: “Our 1982 !nancial crisis – remember the petrodollars? – ensured that we cleaned up our banking framework and instilled some healthy competition. It also freed our currency from its previous dollar peg.”

“One of the most important drivers of our !nancial

sector is the tremendously high savings rate,” pursues Joaquin Echenique of Primamerica Consultores, a consulting !rm specialized in insurance. “Because there are no company retirement plans, and only a limited government retirement plan, almost two-thirds of the Chilean working population have private pension plans, managed via !ve asset management !rms.”

The Chilean savings rate is currently an astounding 21.6%, placing Chile in the ranks of the top frugal countries worldwide. The country’s mandatory savings system for all dependent employees certainly helps. Also of assistance to the !nancial sector is the fact that the Chilean government has been in regular budget surplus for the past years.

Growth via opennessSurely the openness of Chile’s !nancial market – namely to foreign investors – has been an important driving factor. “Under our constitution, domestic and foreign investors have the same rights. The suspension of the reserve requirement, and the elimination of the one-year minimum requirement have also been strong growth factors,” emphasizes Mr. Alarcon.

Chile’s banking sector underwent some structural

reform in 1997, when the capital market laws helped enforce market deregulation. Further openness was achieved in the early 2000s under president Ricardo Lagos, when the capital account was opened, and tax levels were reduced (namely capital gains tax and withholding tax).

Chile currently has 20 banks, of which the largest is Santander, followed by Banco de Chile (see table). Foreign banks poured into the country when the sector opened up to foreign investment. Aside from Santander, other players from abroad include Scotia Bank, Itau, Deutsche Bank, HSBC and others. “There is still good growth potential for banks, as there subsists a substantial number of Chileans without bank accounts,” says Mr. Olavarria of BCI.

With this vast pool of savings to invest, it will come as no surprise that Chile has experienced fast growth. “Mutual funds have had 20% compound annual growth over the past ten years,” expounds Valentin Carril of Principal Financial. “Our biggest challenge is to !nd good investments in Chile, especially since Chile Central Bank bonds yield only around 3%.”

Further growth can be expected due to Chile’s low risk premium, as Felipe Bosselin, deputy chairman of the Association of Mutual Funds, explains: “Our prudent macro-economic management has translated into a low risk premium, which will mean a lower external funding cost for Chilean companies and therefore an increasing investment portfolio.”

It does not help that Chile’s stock exchanges are not the most dynamic. “We need to work on that front,” says Mr. Alarcon. “Our Bolsa de Comercio is old and

not very deep with an insuf!cient amount of titles traded. The more recent Bolsa Electronica, which operates between Chilean banks, could speed things up.” Another boost could come from commodity markets, especially since Chile is home to so much mineral production.

The extension of the Chilean exchanges could also facilitate the integration with other South American countries, as explains Mr. Olavarria of BCI: “I trust our new government to be more active in this area, and also hopefully in helping to create a separate high-yield market for small-cap companies. Chile needs more investment opportunities, especially since many companies are family-controlled and therefore inaccessible to outside investors.” ●

Money flows southChile is developing a strong financial services sector, based on its political stability, strong savings rate, and low lending rates.

For more informationABIF (Association of Chilean Banks and Financial Institutions) www.abif.clJorge Awad, Chairman, + 56 2 892 2802

Chile has one of the most open financial markets in Latin America.

SUCCESS STORY

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Chile’s insurance sector grows upWith a prosperous economy and an open market, Chile’s insurance sector expanded powerfully during the last decade. Now as the demand for new insurance products increases, the market is getting more competitive but looks set to keep on growing.

Chile has one of the fastest-growing insurance markets in Latin America. The value of total

insurance premiums more than tripled in Chile over the last decade, from $2.7 billion in 2001 to $9 billion in 2010. During most of those years the insurance sector grew faster than the mighty Chilean economy – 18.1% in 2010 compared to GDP growth of 5.2%.

Moreover, Chileans spend a higher percentage of their incomes on insurance than any other Latin American country. In 2010, they spent 4.1% of their GDP on insurance, far above the 3.2% posted in 2001. Similarly, per capita spending on insurance, more than $528 in 2010, was the highest in Latin America.

The strength of Chile’s insurance sector can be attributed to the country’s sound economic situation, the development of a long-term capital market, its pension system, and its openness to foreign participation which started in the early 1980s.

“Chile was the !rst Latin America country to open its market to foreign insurance,” says Joaquin Echenique,

a consultant with PrimAmerica Consultores which specializes in the insurance industry. “Foreign ownership of local insurers was never restricted as it was in most of the neighbor countries. Licensing an insurance company is quite straightforward, although approval from the superintendent is required, as well as $3.6 million in capital.”

Stability is another factor. Due to tight supervision by the Chilean insurance regulator (the Superintendencia de Valores y Seguros or SVS), plus reasonably conservative regulations, Chile has maintained the same number of insurance companies, an average of 54, for more than a decade.

“The supervision at the central level explains why insurance failures are few and far between,” Echenique explains. “The last failure, seven years ago, amounted to less than $70 million, a drop compared to AIG. The failure statistics in the U.S. are far worse.”

The good lifeTop 5 life insurance companies in 2010 based on premiums ($M)

2001 2010 Increase

Metlife Chile 118 641 443%

Consorcio Nacional 276 494 79%

Chilena 135 467 246%

CorpVida 106 426 302%

Inter Vida y Ahorro 44 340 673%

Source: FECU

Chile’s insurance sector is usually divided into life insurance and general insurance (property and casualty). Life insurance is by far the largest of the two accounting for about two-thirds of the total insurance market, and it’s growing fast. Between 2001 and 2010, life insurance premiums tripled from about $2 billion to nearly $6 billion, growing at an average annual rate of 13%.

The dominance of life insurance is due to Chile’s pension system which obligates workers to save in private pension funds. On retirement, the money is usually transferred from the fund to a life insurance company to buy annuities. Although that is changing as can be seen in the decline of annuities premiums, which fell from 65.5% to 38.2% between 2001 and 2010.

“On one hand, there has been a drop of retirement pensions due to changes on early retirement requirements and also due to lower return of pension funds because of the 2008 crisis,” says Sergio Ovalle, CEO of BiceVida, one of Chile’s largest life insurance companies. “On the other hand, we have witnessed

an increase in market share for the other life products. This comes from a growing concern for different life insurance products by the population.”

These different products now include individual pension savings schemes similar to the 401k in the U.S.; group life policies as most companies now offer their employees health and life insurance; mortgage and loan insurances which are usually required by !nancial institutions; and disability and survivorship insurance.

Meanwhile, the non-life insurance sector, despite having a smaller share of the market, has grown faster than life insurance. Non-life sales nearly quadrupled between 2001 and 2010 going from $740 million to more than $3 billion. The sector grew at an average annual rate of 17% compared to 13% for life, now non-life occupies a third of the entire insurance sector whereas ten years ago it had a fourth.

“There are many reasons for the growth of non-life,” says Eduardo A. Couyoumdjian, CEO of General Insurance for Chilena Consolidada, which is 90% owned by the Swiss insurer Zurich.

Events such as the reconstruction after the 2010 earthquake and the subsequent rise in housing prices contributed. Privatization of the construction industry did as well. Most public construction projects such as schools and hospitals are now built by private companies which are required to have insurance to bid on projects. Chile’s developing economy is another factor.

“Chile is getting a mature economy, we are in the OECD, poverty is reduced, the country is expected to reach 7.2 percent GDP this year, and there is a higher mentality for insurance,” says Couyoumdjian.

While the number of insurance products being sold have remained the same, the sales channels have become bigger and more competitive.

“The market has changed aggressively in the last ten years,” Couyoumdjian says. “At least 25% of multiple lines of business now go through large retail department stores like Falabella, Almancen Paris and Ripley, or through insurance banks. So now we are all in bed with them and it’s quite delicate.”

For more information:SVS (Superintendencia Valores y Seguros) www.svs.gob.cl

Strong in generalTop 5 general insurance companies in 2010 based on premiums ($M)

2001 2010 Increase

RSA Seguros S.A. 68 442 550%

Penta Security S.A. 66 343 277%

Mapfre Seguros Generales

52 299 475%

BCI Seguros Generales 30 278 827%

Liberty Seguros S.A. 65 262 303%

Source: FECU

Chileans spend a high percentage of their income on insurance.

SVS


Insurance

Latin America’s favorable economic outlook is driving the of!ce real estate markets as well as all

other commercial facilities. The region’s total of!ce supply has increased an average of 6% a year over the past decade and is expected to grow by another 8% a year over the next two years to satisfy demand, real estate company Colliers International says in their end-of-year report on the Chilean market.

In Chile, the dynamic growth of the economy is re"ected into both industrial and of!ce markets. Brazil and Chile, among the strongest regional economies, report the lowest vacancy rates in Latin America, averaging between 3% to 5% by mid-2011. In Santiago, of!ce vacancy fell to 2.6%.

Despite the tight market, rents have stabilized for Class A buildings in the Chilean capital and are among the lowest in the region. In Rio de Janeiro, for example average asking rents rose almost 8% during the !rst half of 2011 to more than $81 m2/month. This was driven by strong rental growth in the city’s numerous submarkets.

But in Buenos Aires and Santiago, rental values have remained stable. Currently at just over $27 m2/month, Santiago of!ce rents are slightly lower than the average at year-end 2010.

The low of!ce vacancy rate in the Chilean capital will begin to ease up next year with the opening of the Costanera Center, the country’s "agship real estate project.

The $600 million project will consist of four skyscrapers. The 70-story main tower is set to enter to the market in April 2013 and will be the tallest in Latin America at more than 300 meters high. It will have a total surface area of 694,000 m2, split between of!ce and retail

Spurred on by a strong economy and optimistic growth expectations, Chile’s real estate market is growing rapidly. In addition to the Costanera Center, the new Plaza San Damian and Rosario Norte 100 buildings in the Las Condes submarket of Santiago which opened in 2011 will provide almost 30,000 m2

of Class A of!ce space.

In Santiago the supply of of!ce space is only beginning to match demand, particularly in class A of!ce space. The total new supply of of!ce space in Santiago in 2010 was 161,500 m2, an increase of 148% on 2009. Net absorption was up by 74%. The net absorption of existing space has been high and is increasing. One cause of this is the 2010 earthquake which encouraged tenants to migrate to newly-constructed buildings. Expanding companies are seeking new of!ce space despite the recent delivery of large buildings.

In the industrial market, both demand and supply are increasing, but in balance, with demand slightly outpacing supply. This is so even though new supply has been added at a very high rate.

In Santiago’s industrial sub-sector, there has been an intensifying pickup from 2010. Chile’s real estate sector has for years broadly kept supply and demand for commercial property in balance. Limited development before the current growth surge began in 2010 has produced just enough supply to ensure low vacancy rates.

The absorption in class A+ and A of!ce building in Santago reached 35,543 m2 in the second quarter of 2011, according to a Colliers Research and Forecast Report on Santiago. While this was a slight decrease from the previous quarter, the pace of absorption is in line with an expanding market.

Mining, engineering and energy companies absorbed much of the of!ce space. The areas of Santiago that saw the most absorption were the El Bosque/El Golf and the Nueva Las Condes areas.

Real estate boom

Santiago class A+/A office market index by neighborhood (Q2 2011)Submarket Inventory (m2) Vacancy rate Average Lease Price ($/m2) Average Sale Price ($/m2)

El Bosque/El Golf 790,185 1.39% 28.80 2,927

Nueva Las Condes 384,976 6.34% 25.55 2,602

Providencia 178,180 0.35% 24.15 2,416

Santiago Centro 295,542 1.16% 19.04 1,951

Vitacura 47,961 4.27% 24.15 2,462

Ciudad Empresarial 4,826 0% n.a. n.a.

Source: Colliers International

space. The main tower itself will provide Santiago with 128,000 m2 of new of!ce space.

“The emblematic Costanera Center was the icon of the recession, paradoxically it has become the icon of the real estate reactivation,” a spokesperson for Colliers says.

Santiago’s office space supply is set to increase massively when the Costanera Center, the country’s flagship real estate project, opens.

For more information:National Chamber of Real Estate Services www.acop.clReal Estate Developers Association www.adi-ag.cl

Sanhattan skyscraperThe Costanera Center is more than just another skyscraper, according to the building’s developers Cencosud. The mega-project is an example of the concept of “neo-urbanism,” an urban design movement against urban sprawl.

The Costanera Center is designed to make maximum use of the space on which is it built. Costanera Center has built more than 700,000 m2 in an area of 47,000 m2. It will use the latest technologies to reduce energy use and privileges a concentration of residential, commercial and professional activities. This concept limits the number of roads needed, reduces traffic and improves pedestrian spaces.

The $600 million Center will include two hypermarkets; a Jumbo, an Easy, Santa Isabel, shops Paris, Ripley and Falabella, a large food court, a gastronomic walk with restaurants and cafes, 12 cinemas, bowling alleys, medical health centers, fitness center and parking to accommodate 5,500 vehicles into six levels.

The tallest of the Center’s four buildings, named the Gran Torre Santiago, was designed by Argentine architect César Pelli, one of the most renowned architects in the world, designer of the Petronas Towers in Malaysia, and the World Financial Center in Hong Kong.

The Gran Torre itself will be 300 meters in height, making it the tallest building in South America and the sixth highest building in the world. Two other buildings will be 170 meters high.

The Costanera Center is being built in the Sanhattan financial district of Santiago between Providencia and Las Condes. Construction was put on hold in January 2009 as a consequence of the recession but resumed later that year. The Center is scheduled to be completed in 2013.

CLOSEUP

The growth of the economy is reflected in Chile’s real estate market.

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Retail is ringingGood news for retailers. The forecast is for strong growth across all retail sectors as Chileans have more disposable income due to the country’s strong economic growth.

Chile has become one of the world’s most attractive countries for retailers. It placed third for retail

development in a 2011 study of 30 emerging countries, moving up three places from 2010. With Brazil and Uruguay ranked !rst and second respectively, and Peru eighth, South America had four countries in the top 10 for the !rst time.

“The region is ready for that next wave of modern retail growth,” says Hana Ben-Shabat, a partner at management consulting !rm A.T. Kearney, which has conducted the study for ten years.

With a population of almost 17 million, Chile’s economy grew at a 9.8% annual rate for the three months ended March 31, 2011, compared with 6.8% for Uruguay and 4.2% for Brazil. Chile’s retail sales are forecasted to grow 14.5% by 2015, from $53 billion in 2011 to $61 billion, according to Business Monitor International.

Chile’s retail sector is growing because of high consumer spending power, well developed physical infrastructure, a business-friendly regulatory

environment and large urban population. Almost 88% of Chileans live in urban areas, with 40% in the Santiago metropolitan area alone. In 2009 about 44% of supermarket sales were in the metropolitan area. By 2015, more than 90% of the country’s population will live in urban areas.

Strong growth is forecasted across all retail sectors up to 2015, including food and drink, mass grocery retail, over-the-counter pharmaceuticals and automobile sales. With GDP per capita higher than in Argentina or Brazil, Chile’s consumer electronics markets is one of the most sophisticated in Latin America. Sales here are forecast to rise nearly 36% to more than $3.23 billion by 2015.

Along with sales, employment !gures are also rising. By the end of 2011, the supermarket industry foresaw 10,000 new jobs being created due to growing demand, a 9% increase over 2010.

Chile’s retail market is highly concentrated with !ve chains dominating 60% of sales. Cencosud and Walmart lead the supermarket industry. Walmart entered Chile in 2009 and now has almost 300 stores there.

“We were aware of Chile’s political, economic and institutional stability as an incentive for foreign investment and of its interesting network of bilateral trade agreements with a wide range of countries,” says Eduardo Solórzano, President and CEO Walmart Latin America. “This made Chile the right place to invest.”

The department store sector is dominated by Falabella, Almacenes Paris (part of the Cencosud group) and Ripley. La Polar is also a dominant player but it has had !nancial trouble and shares in the company fell signi!cantly in 2011.

While Chile has become one of Latin America’s most promising retail markets, foreign companies may encounter hurdles there. High levels of growth may be offset by consumer credit volatility. In addition, outside of the largest cities, the population is largely rural, which limits expansion opportunities.

Still the country is a big enticement for foreign retailers. Besides Wal-Mart, Gap, the largest U.S. clothing chain, opened its !rst store in Latin America in Santiago in October. The store opened the same week Gap revealed plans to close 189 stores in the U.S.

“Chile is a great match for Gap brand’s aesthetic and target customer,” said Stefan Laban, Managing Director of Strategic Alliances for Gap Inc. “With a nearly $6 billion apparel and footwear market, a retail sector that makes up 9.4% of the country’s GDP, and a proven customer base interested in American style and brands, Chile represents a natural extension for our brands.”

But because of the concentrated market, some Chilean chains are expanding regionally. Several retailers have opened stores in Peru, including Cencosud (64

supermarkets and hypermarkets) Ripley (15 stores) and Falabella (57 supermarkets and stores).

Other Chilean companies have already opened shop in Colombia including Falabella, Cencosud, LAN Airlines, and fuel and forestry conglomerate Copec. ●

Top retailersRank Company Sales

2010 ($M)Increase

over 2009Profits

2010 ($M)

1 Cencosud 13,226 26% 633

2 Falabella 8,923 28% 883

3 D&S (Walmart) 4,861 7% 89

4 Mall Plaza 3,653 68% n.a.

5 Hipermercados Lider 3,320 19% n.a.

Source: AméricaEconomia

Fulfilled expectationsWal-Mart, the leading supermarket chain in the U.S., made its debut in Chile in 2009 after acquiring a majority stake in the local D&S chain. This was the largest foreign investment materialized in Chile in 2009. Wal-Mart now has almost 300 stores in Chile. Eduardo Solórzano, Wal-Mart’s President and CEO for Latin America, responds to questions about the company’s experience in Chile.

Q: What was Wal-Mart’s impression of Chile before entering the market?A: We had a very good opinion of Chile. We were aware of its political, economic and institutional stability as an incentive for foreign investment and of its interesting network of bilateral trade agreements with a wide range of countries. Together with its solid macroeconomic fundamentals, its business climate and its open and competitive economy.

Q: What were the key factors for Wal-Mart’s decision to invest in Chile?A: In D&S we found a solid, stable and serious company, with corporate values similar to ours, which promised to facilitate the future integration of the two companies. In addition, Chile offered excellent conditions in terms of a propitious economic and institutional environment for doing business.

Q: What characteristics made Chile attractive for positioning your regional expansion strategy?A: The decisive aspects included its political, economic and social stability, together with the respect that exists for government institutions and the role they each fulfill. In addition, Chile’s growth rates over the past two decades, accompanied by controlled inflation, are an undeniable attribute for any investor.

Q: In retrospect, how do you evaluate your venture through D&S?A: Very positively because it has fulfilled our expectations. We are happy with the decision we took three years ago and have found very good conditions for the development of our projects, which will allow us to continue growing through innovative and sustainable initiatives.

SUCCESS STORY

For more information:Santiago Chamber of Commerce www.ccs.cl

Strong growth is forecasted across all retail sectors.

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Retail

The February 27, 2010, earthquake that struck Chile caused an estimated $20 to $30 billion in damage

to the country’s infrastructure, including 400,000 homes that were either damaged or destroyed, not to mention dozens of schools, hospitals and other public facilities.

The total cost to the insurance industry from the earthquake was estimated at up to $7 billion, which could increase insurance premiums for companies with assets in Chile.

Nevertheless, the task of reconstruction has given private construction companies a boost and the sector is projected to grow 11.3% in 2011, according to the Chilean Construction Chamber (CChC), an association of Chile’s biggest construction companies.

Part of the impetus to grow is coming from the Chilean government, which plans to spend $14 billion on infrastructure development by 2014, with $6 billion coming from the state budget and $8 billion sought from the private sector.

Much of the investment will be spent on public infrastructure, including eight new hospitals with a total value of $1.4 billion. Homes are another priority. In 2010 the government replaced 30,000 homes and repaired another 70,000. In 2011 it will deliver 220,000 grants that are expected to deliver more than 160,000 new homes. In 2010, 1,000 schools were repaired and in 2011 and 2012 another 1,000 will be repaired and 40 rebuilt.

Beyond earthquake reconstruction, the government has several development projects coming up. One of these is expanding the passenger terminal at the Santiago International Airport, the sixth busiest airport in Latin America by passenger traf!c. The airport has operated

Construction revivalChile has suffered some devastating blows recently, including the 2009 financial crisis and the 2010 earthquake. Like many sectors of the economy the construction industry is coming back strong.

in excess of its 9.5 million passengers/year maximum capacity since 2008 and is projected to need to be able to handle 50 million passengers/year by 2045.

Furthermore, the government has also announced plans to improve the country’s roads, including !ve new urban highways with an estimated total investment of $2 billion. Several new prisons will be built as well to relieve the overcrowding and poor conditions of existing facilities.

Private sector Construction is one of the main drivers of the Chilean

economy. In 2010 the sector represented 7.3% of Chile’s GDP and employed 8% of the country’s workforce of 7.3 million people.

Private construction employment is likely to peak in 2012 due to increased mining activity. Mining construction could account for more than 35% of all private construction jobs (about 39,000) by December 2012, according to a report by the Corporation of Technology Development and Capital Goods (Corporación de Desarrollo Tecnologico de Bienes de Capital or CBC).

The copper mining regions Atacama and Antofagasta are expected to attract half of the country’s private construction workforce, while Santiago will get more than 22 percent, the most of any single region.

According to the estimates of the CChC, 70% of the investment in construction is associated with infrastructure projects particularly mining and energy. By 2020 mining construction projects should amount to almost $70 billion.

“As long as China wants our copper we will continue to have investments in mining,” says Javier Hurtado, CChC Research Manager. “Moreover, 30% of Chile’s energy is consumed by mining.”

In other sectors, tourism-related construction includes 31 hotels, resorts and similar lodgings scheduled for construction by 2013, most (58%) of which will be in the central Valparaíso and metropolitan regions.

The real estate market is also helping consolidate the recovery in construction. During the second half of 2010, low long-term interest rates, improvements in employment levels and higher incomes contributed to the recovery.

Top Chilean construction companies (2010)Company Sales

($M)Profits ($M)

Founded

Sigdo Koppers 1,800 113 2005

Salfacorp 1,500 47 1929

Socovesa 551 25 1982

Besalco 537 36 1995

Claro Vicuña Valenzuela 178 12 1958


Built to lastSacyr Vallehermoso is a leading Spanish construction company based in Madrid. In 1997, Sacyr won its first concession contract in Chile, which was for the Los Vilos-La Serena section of Route 5 (the Pan-American Highway) north of Santiago.

Since then, its subsidiary Sacyr Chile has completed civil works and infrastructure projects worth $2.7 billion. It has won nine major highway concessions either directly or with consortia, including a 227-kilometer section of Route 5 between Vallenar and Caldera that opened in November 2011.

That same month, Sacyr Chile and Agua Santa, one of Chile’s largest construction firms, was awarded a $68 million contract for a 66-kilometer access road to the El Morro mine in the Atacama Region.

“Chile was, is and will be absolutely strategic for the company’s future,” says Sergio Gritti Bravo, General Manager for Sacyr Concessions Chile. “Chile was Sacyr Vallehermoso’s first international project and so started a process of internationalization that opened Sacyr to the world.”

Gritti praised Chile’s positive business environment, its deep financial markets and well functioning institutions. “We have encountered a serious country, with clear rules, established macroeconomic indicators and a legal system that protects businesses,” he says.

For the moment, Sacyr Chile is focused on completing two new highway concessions now under construction, bidding on new public works contracts and participating in new business opportunities in the private sector, especially in the growing mining sector. But it has bigger ambitions.

“In the shortest time possible, we want to replicate in Chile the diversified business areas that the Sacyr Vallehermoso group has in Spain,” Gritti says.

While the abundance of of!ces created by the excessive production in 2007 led to a decline in production 2008-2009, the improvement of market conditions beginning in 2010 allowed production of of!ces to return to normal levels.

Accordingly, during the !rst half of 2011, the number of building permits approved for of!ces increased twice in comparison with 2010, indicating the emergence of new projects in the center of Santiago after four years of inactivity.

For more information: Chilean Chamber of Construction www.cchc.cl

SUCCESS STORY

Construction is an economic driver.

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Construction

Good connectionsWhen it comes to telecommunications, it’s not by chance that Chile stands out among its Latin American neighbors. Chile’s geographic isolation makes the ability to communicate with the rest of the world essential to its continued economic growth.

Chile has one of the most advanced telecommunications infrastructures in South

America. IMD’s 2011 World Competitiveness Yearbook ranks Chile !rst in Latin America and 25th out of 59 economies worldwide. One reason it gives for this is the country’s high-standard telecommunications.

Nokia’s Connectivity Scorecard 2011I ranks Chile second worldwide and adds that in Latin America, Chile outperforms Mexico and has widened the gap with Argentina and Brazil.

“The country’s internet and broadband penetration rates are among the highest in the region, and this can be attributed to its relatively high GDP, its receptivity towards new technologies, and high competition in its broadband market,” the report states.

Chile is especially strong when it comes to adopting new technologies, it adds. It was the !rst country in Latin America to introduce mobile WiMAX, IPTV, wireless TVoIP, triple-play services, EDGE, and mobile voice-to-text, and was second to introduce 3G mobile services.

Competition for quadruple-play (mobile and !xed telephone, TV and internet package) is heating up as well.

“The trend in Chile is more advanced than in other countries of the region,” says Sergio Rodriguez, a telecommunications analyst with Fitch Ratings, who adds that !xed telephony operators offer quadruple play as a way to control disconnection rates as subscribers move to mobile.

Penetration of mobile telephony in Chile is almost twice the world average and on a par with rates in

industrialized countries. In one decade the number of subscribers rose from 5 million to 19.8 million by 2010 when, in December, penetration reached 115.6 per 100 inhabitants.

Chile’s telecoms operators are also investing in !ber optic networks. The government estimates overall

investments in !ber optics will amount to $7 billion in the next few years.

“Investments will focus on !ber optic to homes and investments in mobile networks to improve data (mobile broadband) services and investments in LTE,” says Patricio Soto, a telecommunications analyst with IDC.

LTE, or Long Term Evolution, is a standard for wireless high-speed data communication comprised of 3G and 4G networks.

Furthermore, Chile stands out for internet use. In 2010 it had 1.8 million !xed-line broadband connections, up 6.3% on 2009, with a household penetration rate of 36.58%. Mobile broadband access has shown explosive growth—a 649% increase between January 2009 and December 2010, according to Subtel (Undersecretariat for Telecommunications).

Including both !xed-line and mobile, Chile had more than 3 million internet connections by December 2010.

The main trends in internet use include a drop in the price of computers, increased broadband access even among lower-middle sectors of the population, an increase in average connection time, the growth of social networks (about 26% of Chileans have Facebook accounts) and the greater internet use for transactional activities.

According to the Santiago Chamber of Commerce (CCS), Chile’s digital economy accounted for sales of over $32 billion in 2010, up 10% on 2009, with e-commerce accounting for $20 billion of that amount.

Chile’s top telecoms operatorsRank Company Sales

2010 ($M)

CEO Website

1 Entel 2,314 Antonio Buchi Buc

entel.cl

2 Telefonica Moviles Chile

1,802 Claudio Munoz Zuniga

movistar.cl

3 Entel PCS 1,786 Juan José Hurtado Vicuña

entelpcs.cl

4 Telefonica Chile

1,495 Ramiro Lafarga Brollo

telefonicachile.cl

5 Telefonica Telefonia Fija

1,027 n.a. movistar.cl Over the next few years, e-commerce is expected to continue to show high growth. In the medium term, the outlook is also extremely promising as the market incorporates the generation that grew up with computers, mobile telephones and online social networks.

For more information:Subtel (Subsecretaría de Telecomunicaciones) www.subtel.gob.cl

Virgin Mobile targets Chile Virgin Mobile Latin America has selected Chile for the initial launch its mobile virtual network operator (MVNO) service in Latin America. Virgin Mobile plans to launch the service in Chile before the end of the first quarter 2012.

“We felt that the progressive economy, transparent and inviting regulatory environment along with Chile being ‘right-sized’ for our first launch in the region made it an ideal market candidate,” says Peter Macnee, President and CEO of Virgin Mobile Latin America. “In addition, Virgin’s heritage of building a strong brand relationship with the youthful market segment suits the generally young demographic of this country.”

Part of the UK-based group founded by Richard Branson, Virgin Mobile will provide its MVNO services in Chile using Movistar’s Telefonica Chile network.

“Chile will be our first launch with Colombia likely our second,” Macnee says. “We are focusing much of our business development efforts now on Argentina, Brazil and Mexico.”

The company will invest more than $200 million to develop MVNO service across Latin America over the next five years. Latin America is viewed as an attractive market for MVNOs because of its significant population of more than 550 million, strong economic prospects and attractive regulatory structures, there are fewer than ten active MVNO operators in the region.

In a statement, Richard Branson said: “We are excited to have made such good progress towards launching our first mobile business in Latin America in Chile. This is an exciting project for Virgin and we believe Virgin Mobile Chile customers will be delighted by the services we will be offering them at launch.”

An MVNO is a company that provides mobile phone services but does not have its own licensed frequency allocation of radio spectrum, nor does it necessarily have all of the infrastructure required to provide mobile telephone service.

SUCCESS STORY

Chile telecoms sector tops its neighbors.

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Telecoms

Chile is one of the world’s most attractive destinations for investment in global services,

which is one of the world’s most dynamic industries.

Comprised of four sectors -- Information Technology Outsourcing (ITO), Innovation Processing Outsourcing (IPO), Knowledge Process Outsourcing (KPO), and Business Process Outsourcing (BPO) – the global services industry is worth $280 billion worldwide is expanding at a rate of 10% a year..

In the case of Chile, the industry grew from $200 million in 2006 to more than $700 million in 2010, generating approximately 30,000 skilled jobs. The US management consultants A.T. Kearney ranked Chile 8th out of 50 countries internationally in its 2009 Global Services Location Index. It indenti!ed Chile as the most attractive country for these services in Latin America because of its political stability and favorable business environment.

“Its main strengths are in the high-value-added area, which has boosted IT service companies such as Oracle and TCS, and knowledge processing outsourcing (KPO) activities in IT and biotech,” the report stated.

Chile’s IT market is one of the most developed in Latin America, according to the Chile Information

IT sector growing fastBecause of the high growth potential of global services, Chile has made it a priority. As a result, the country is now one on the world’s most attractive destinations for this type of investment.

An excellent business environment

Evalueserve opened its Latin American operations center in Chile’s port city of Valparaíso with an initial investment of $2 million. With more than 200 employees, the company’s most important clients are in banking, healthcare, telecommunications, construction and transport. Evalueserve aims to provide outsourcing services to clients in North America, Europe and Asia,

What were your selection criteria? We studied six locations – Sao Paolo, Mexico City, San José in Costa Rica, Buenos Aires, Santiago, and Waterloo in Canada. We evaluated the talent pool, business environment, and the cost of doing business. Evalueserve decided to open the center in Chile primarily because its clients in the Western hemisphere did not want to work with the time difference with India. It is now able to offer a global reach and an offshore model also for customers in Spain and Portugal.

What did you see as Chile’s main advantage? In the three aspects that we analyzed Chile came out well in comparison to the other countries in the region. It offers global services companies and excellent business environment and has urban infrastructure that is by far the best in Latin America. Chile is an example, in the region and worldwide, or appropriate economic policies and political stability. Corruption is non-existent and the crime rate is low. In addition, the country is home to some of Latin America’s best universities.

What has your experience in Chile been like? Very good. In addition to talent, Chileans have good work habits and are innovative. I would also like to stress the support provided by CORFO which offers a very attractive subsidy package to foreign investors. This demonstrates the intention of developing string and clear policies to transform Chile into a South American Silicon Valley.

What are your plans in Chile? We want to stay in the country and continue growing. For 2014 we would like to have 500 employees working there. We plan to incorporate new services and sooner or later to install anther office in the country.

Technology Report Q3 2010� by Business Monitor International. The report stated Chile’s IT sector is projected to grow at a compound annual growth rate of 11% from 2010 to 2014. Chile posted IT sales of $2.3 billion in 2010 and these are expected to grow to around $3.4 billion by 2014.

“Chile retains some strong IT market fundamentals, including consumer af"uence and a relatively favorable business environment,” the report states. “Chile’s development as an offshoring location will attract more investment in IT services, with sectors like retail, distribution, !nancial services, telecoms and healthcare all offering opportunities.”

In 2009, the Chilean government in association with the Chilean Association of Information Technology Enterprises (ACTI) created Chile-IT, a not-for-pro!t organization committed to fostering the national IT industry. Chile-IT acts as a bridge between the local providers and its potential foreign partners.

“In the last year, the IT industry in Chile had a turnover of $3 billion,” says Gordana Stojkovich, Executive Director of Chile-IT. “The sector is growing so fast because Chile has many of the attributes that outsourcers are looking for. We have a large pool of some of the most highly educated computer engineers in the region, yet their wages are highly competitive especially when you compare them to wages in the United States or Europe. Moreover we have the most state-of-the-art infrastructure in Latin America. And of course there is a lot of government support for developing new technologies and for attracting international investors.”

Currently more than 60 international companies operate in Chile in the different areas of the global services industry. Among others, these include JP Morgan, Citigroup, Accenture, Sandvik, Yahoo and Bayer. McAffe Labs decided to establish its !rst Latin American engineering centre in Santiago in 2010.

“After three years of research, we reached the conclusion that Chile was top of the list because it ful!lled all of McAfee Labs’ needs,” says Hiep Dong, Director of Operations. “There are three issues that are key for us – the availability of talent, economic and political stability, and infrastructure. Chile was well evaluated on all these points.”

Exporting powerhouseThe main markets for Chile’s global services exports are South America (Peru, Colombia, Argentina), followed by the U.S. and Europe. Export revenues for the global services industry in 2009 topped $840 million and employed 20,000 people, according to a report by the IDC consulting company.

Chile is well-positioned to continue expanding into new markets. A 2010 survey by ACTI (Chile-IT) and Diego Portales University found over half of Chile’s ICT companies are exporting their services, especially to South America (67%) and Central America (18%). ACTI Expects to rise to export value over $1.5 billion in 2015.

Opportunities abound for global services investors in Chile across the industry. The main areas are in application development and administration, systems integration, ITO consultancy, customer services, BPO and KPO.

Engineering services are the area of KPO that generates the most revenues. With exports of $276 million, it represents 73% of the sector’s revenues and more than a third of the total export revenues. ●

Global servicesChile’s export revenues by category for 2009

Outsourcing category Share of sector

Annual revenues ($M)

Information Technology (ITO) 20% 170

Innovation Processing (IPO) 12% 97

Knowledge Process (KPO) 44% 378

Business Process (BPO) 24% 199

Total 100% 844

Source: IDC

For more information:Chile-IT: www.chile-it.comChilean Association of Information Technology Enterprises (ACTI: www.acti.cl)

SUCCESS STORY


Information Technology

Search for innovationIn Chile, open television is still the most relevant medium in terms of nationwide penetration, with a potential reach of 98% over the total population. At the same time, it is the medium with the highest share of ad spend in the local industry (48% of the mix).

Companies continue to trust TV as the most important medium for their communication

plans, and they are looking for innovation as a way to differentiate their brands from the rest. Currently they count on several tools to achieve that goal, such as 3D spots, interactive placements or platforms combining both, open TV and the digital world. This has clearly refreshed the way brands and agencies are using this medium, way beyond the traditional 30-second spot.

The big change that TV is going to face in the coming years is the implementation of digital TV, for which the Chilean state has adopted the Japanese norm ISDB (Integrated Services Digital Broadcasting). This process, currently in the testing period (started in 2010) will take about eight years to be fully implemented. It is expected that digital TV will cause important changes not only for users but also for the way that TV is being commercialized.

Even though there are several TV channels in the country, only seven of them have a national coverage. These stations are organized in ANATEL (National Television Association).

As for the internet, it has been steadily becoming a relevant medium for advertisers. The explosive growth experienced by online media, which is estimated to have grown 28.7% in terms of ad spend in 2010 alone, is just a re"ex of the high consumption that this medium has achieved among Chilean population. In fact, Chile is one of the leaders in the region in terms of internet penetration.

We are already observing an increase and specialization of social marketing (social networks), and a trend to mobile marketing in light of the exponential growth of smart phone users. The internet is, day by day, obtaining a more important role in the mix, and advertising agencies are taking measures to adapt themselves to these new needs by creating specialized areas for the digital world.

The print press has showed a downward tendency the last few years, which is directly connected to the increase of internet use, given the change of habits that it has caused among consumers, especially in their way of staying informed. The main challenge for the press has been the invention of new formats as they try to become more avant-garde and "exible.

There are two major holdings in the Chilean press market, which accounts for 80% of ad spend. The main group is El Mercurio (55% of SOI) with its brands

El Mercurio, Las Últimas Noticias and La Segunda. All of these provide national coverage plus a strong presence in provinces through associated local media. The other important group is Copesa, which handles the brands La Tercera, La Cuarta and La Hora, all of them which provide national coverage. Copesa also is involved with some magazines including Paula and Qué Pasa, and radio stations such as Zero, Carolina and Disney FM.

Outdoor advertising (OOH) is experiencing an interesting tendency towards innovation, with an evolution to technology, including movement, light and sound on billboards. Traditional structures are being used less due to the search of more interactivity between the billboards and individuals. There is a

strong presence of international groups working this medium, like CBS Group, Clear Channel, Stand Off and JC Decaux. Decaux has exclusivity for commercializing the advertising in Santiago’s subway.

Pay TV has almost doubled its penetration during the last three years from 35% in 2008 to current levels of 60%. VTR is the main actor in this medium, offering a wide range of channels both nationally and internationally. VTR commercializes spots during breaks especially de!ned for VTR. Satellite television is becoming a relevant player in pay TV, given the possibility of reaching locations where cable TV cannot access.

Magazines are a medium with several titles oriented to different demographics, some of them very targeted. Televisa Group stands out with over 20 titles covering interests such as lifestyle, home and family, and health and wellness. Other important magazine companies are Holanda Comunicaciones, Copesa and Tiempo Presente.

The radio scene is very developed in Chile with a large number of stations, nationwide and locally, offering different styles and themes oriented to different audiences. There are four dominant radio groups in the country: Ibero Americana Radio Chile (37.5% potential reach, which belongs to Spanish group Prisa), Grupo Dial (13% potential reach, belongs to Copesa), Cooperativa (8% potential reach), and Bezanilla Group (7% potential reach)

Marcelo Lazo, Managing Director ZenithOptimedia Chile

[email protected]

For more information:National Televison Council www.cntv.cl

What's on? Chile's TV stations ranked by advertising spend

Station Owner Ad spend

TVN Government 26%

CHV Turner 26%

Mega Claro Group 19%

Canal 13 Luksic Group/ Catholic University of Chile

15%

Red TV Red Group 8%

Telecanal Alfa Tres 4%

UCV TV Catholic University of Valparaiso

2%

Source: Megatime

Growing digitalChilean daily newspaper readership February-July 2011

Newspaper Online only Total online/print

Las Ultimas Noticias 387,401 703,068

El Mercurio 54,355 407,222

La Tercera 46,890 354,307

La Segunda 26,593 92,167

La Cuarta 21,671 408,638

La Hora 3,123 321,242

Publimetro 1,739 367,314

Source: IPSOS

The main challenge for the press has been the invention of new formats.

TVN


Media

Remote potential Chile wants to take advantage of its remoteness by turning its off-the-beaten track reputation from a disadvantage into an advantage for tourists looking for unique experiences.

Separated from the rest of South America by the Atacama Desert, the Andes Mountains and

the Antarctic, Chile is practically an island. But it is exactly this remoteness that Chile’s tourism industry is promoting.

“As a country we are interested in serving as a destination for high-quality tourism. And there we have a great competitive advantage because what we offer is aligned with the unique experiences sought by tourists in the special-interest market,” says Hugo Lavados, Chile’s Minister of the Economy.

Consequently, Chile has made the development of high-quality, special-interest tourism a priority. Not just to showcase the country’s unique environment and local cultures, but to accelerate its economic growth while protecting its environment and cultures.

To encourage foreign investment in this type of tourism, Chile has developed new destinations, improved its tourist infrastructure, upgraded highways, airports and ports, built hotels and is installing internet access in remote locations visited by tourists.

“We have set ourselves the goal of transforming the tourism industry into the third most important sector in the country, increasing its contribution to GDP from the current 3%, to 6% or 7% within the next ten years,” says Tourism Minister Pablo Longueira.

Tourism accounted for 3.4% of Chile’s GDP in 2010, according to the World Economic Forum Travel and Tourism Competitiveness Report 2011, and is forecasted to increase by 5.3% annually until 2020. The report ranks Chile 9th in the region for tourism competitiveness and 57th globally, due to its cultural resources (it has six World Heritage cultural sites) and several international fairs and exhibitions.

“In addition, policy rules and regulations are conducive to the development of the T&T (travel and tourism) sector, with few foreign ownership restrictions, a liberal visa regime, and open bilateral Air Service Agreements,” the report states, adding that also tops the rankings among Latin American and Caribbean economies for security.

International tourism is increasing steadily. During April-June 2011, international arrivals grew 19.8% compared to the same period in 2010 and 13.5% and 27.4% compared to 2009 and 2008. Still, at least 70% of Chile’s tourism is domestic although per capita income has increased at an annual average rate of 3.7% during the last !ve years.

In line with Longueira’s goal, Undersecretary of Tourism Jacqueline Plass has developed a tourism strategy that includes developing investment opportunities in tourism. As part of this strategy, the Foreign Investment Committee has compiled a list of private projects for tourism investment which it is distributing to potential foreign investors.

These opportunities include building high-quality ecotourism facilities and !shing lodges, developing marinas along the Paci!c coast, constructing theme trails in national parks as well as networks of agrotourism lodges and activities.

Plass recently announced a $169 million plan to promote tourism in the southern Chilean region of Araucanía, home of the Mapuche indigenous culture. The main focus of the plan, which will run through 2014, is infrastructure improvement. This includes improving the region’s international airport and highways, and implementing a GPS system.

At the other end of the country, in the northern Atacama desert, astronomical tourism is being promoted in the Coquimbo Region where eight international observatories are located along the so-called “Route of the Stars.”

Business tourism is also growing in importance. From 2001 to 2008, the business market increased from 11.8% of all visitors to Chile to 21%. In 2010 Chile hosted 97 international meetings compared to 37 in 2001, according to the International Congress and Convention Association.

To support investors, Chile offers incentives to help develop tourism and other industries in remote areas of the country, such as in the Arica, Palen and Parinacota provinces and the Aysen and Magallanes regions. Tourism and some other industries are eligible for tax and customs bene!ts for setting up business in the Magallanes region and Chilean Antarctic. ●

For more info: National Tourism Service (Sernatur) www.sernatur.clChile Travel www.chile.travel

Way off the beaten trackHere are a just few of the many unique sites that Chile offers adventurous tourists looking for something unique.

The Atacama Desert is the world’s driest. Visitors are attracted to the desert because of its variety of landscapes and salt flats. Several movies have been filmed here, including the James Bond film “Quantum of Solace”. The most noteworthy tourist attractions are the Valle de la Luna, the Valle de la Muerte, the El Tatio geysers and the area’s lakes and flamingos. The Atacama Salt Flats are the second largest in the world. Several volcanoes also dominate the desert landscape.

Easter Island is located 3,800 kilometers off the coast of Central Chile in the Pacific Ocean. The island is one of Chile’s main tourist attractions due to its natural beauty and ancestral culture, of which the only remains are 887 giant stone statues known as moai. The island also has outstanding marine life and opportunities for diving. The Rapa Nui National Park is a World Heritage Site.

Northern Patagonia stretches from Puerto Montt south to Cape Horn and boasts ancient forests, glaciers, vast ice fields, lagoons, fjords, rivers and lakes. It is ideal for adventure tourism, fishing, trekking, extreme sports, kayaking, rafting and observing flora and fauna in its most natural state. The Southern Highway runs 1,240 kilometers to Villa O’Higgins and provides access to one of the world’s most unspoiled regions.

ADVENTURE

Chile has made the development of special-interest tourism a priority.

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Tourism

Rooms for growthChile’s hotel sector is growing quickly, especially in Santiago and the popular central region. Areas outside the center lag but could present significant development opportunities.

Chile’s central regions, including the cities of Santiago and Valparaiso, are the favored

destinations of 65% of all tourists visiting the country. Not surprisingly, it is also where most of Chile’s current hotels and resorts are found and where most tourist-related new construction will take place.

This is especially true of the region northwest of Santiago, which includes Valparaiso. The region has the highest concentration of hotels and resorts (179) in Chile, representing 17% of the country’s total. The metropolitan region, which includes Santiago, comes in second with 125 hotels and resorts, or 12% of the total.

The metropolitan region, however, has the most rooms (8,515) or 23% of the national total, whereas Valparaiso (5,333 rooms) has 14% of the total. Nearly 50% of the 36,844 hotel and resort rooms in Chile are located in Santiago, Valparaiso and Antofagasta, a north-central region with 3,786 rooms.

Hotel investment in Chile is dynamic. Hotel development proposals range from large foreign chains like Accor (with projects for its IBIS and Novotel brands), Hilton (the recent opening of the Hotel Garden Inn at the airport) and plans to add four more in the coming years hotels, Hyatt (with projects in Santiago and Viña del Mar), and national chains such as Atton, Diego de Almagro, Radisson, and The Singular.

New constructionMost (58%) of the 31 tourist-related building projects scheduled for construction by 2013 will be in the Valparaíso and metropolitan regions. This will add nearly 1,800 rooms in the metropolitan region, a 21% increase, at an investment of $419 million. Valparaíso’s capacity will increase 13% with 716 new rooms and an investment of $130 million. Countrywide, new

hotel construction will add more than 3,600 rooms to the current hotel capacity by 2013.

Many tourism projects are for large foreign chains like Accor. The French multinational has been in Chile for ten years and currently operates !ve hotels there: three in Santiago, one in Antofagasta and one Concepcion. It is planning a major expansion mostly in Santiago.

“Accor has de!ned Chile as a priority country for development for the group in Latin America,” says Gilles Gonzalez, Senior Vice President Development Latin America. “By 2015 we plan to operate 30 hotels in Chile with a concentration in Santiago, 40% to 50% of our portfolio, because the capital itself concentrates almost 50% of the country’s GDP.”

Hilton, which recently opened the Garden Inn Santiago Airport, plans to add four more hotels. Hyatt has projects in Santiago and Viña del Mar. And national chains such as Atton, Diego de Almagro, Radisson and The Singular are also expanding.

Much of the hotel investment focused on the

Top five with 5Michelin’s top five 5-star rated hotels in Chile

Hotel name Location Price from ($):

Hotel Boutique Le Reve Santiago 229

Panamericana Hotel Antofagasta

Antofagasta 100

Hotel Cumbres Patagónicas Puerto Varas 200

Hotel Boutique Acontraluz Valparaiso 160

The Aubrey Santiago 280

Source: The Michelin Green Guide

Accor: Chile makes development easy The French multinational Accor is the world’s leading hotel operator with more than 4,200 hotels in 90 countries. It is present in ten Latin American countries where it has 200 hotels. It has been in Chile for ten years and operates five hotels there including three in Santiago.

Brazil is Accor’s strategic country in Latin America. The country makes up more than 82% of Accor’s portfolio in the region. However it has made other countries a priority for development including Chile, Argentina, Peru, Colombia and Mexico. By the end of 2015, Accor plans to open 85 more hotels across Latin America.

“The results we have had in Chile are very encouraging which is why we are planning to operate a total of 30 hotels there by 2015, half of these will be in Santiago,” says Gilles Gonzalez, Senior Vice President Development Latin America. “These investments will be made by Accor and our local partners.”

Chile has excellent fundamentals, according to Gonzalez, including a secure and stable business and legal environment, known rules of the game, and funding opportunities in the local currency at competitive rates.

“It’s very easy to do business in Chile which promotes our development,” says Gonzalez. “Besides anticipating operating 30 hotels the only limit is that the market, which while promising, is still limited because the population is only 17 million. The GDP and population of Brazil are ten times higher!”

SUCCESS STORY

metropolitan area and Valparaiso is due to the region’s developed infrastructure and promotional expertise which facilitates the development of hotel initiatives. Chile’s challenge now is to promote tourism in regions with less-developed infrastructure and lacking promotional expertise.

Some projects are on the books for these areas nevertheless. Projects that would add 470 new rooms (an increase of 17%) are being considered in the Bio Bio region. In Aysén, one of the regions with lowest hotel capacities, two projects are expected to add 125 new rooms which means an increase of 36% and bringing the total for the entire region to 474 rooms.

But other regions such as Arica-Parinacota, Tarapacá, Maule and Los Rios (which has the lowest number of rooms in hotels and resorts) have no projects planned. Chile’s Undersecretary for Tourism, the National Tourism Service and the National Forestry Corporation have launched a call for projects of sustainable tourism in 12 wild protected areas (ASP).

The projects selected in this process have not yet made known, but 13 proposals for accommodation from hotels, lodges and cabins, total an estimated investment of nearly $87 million.

Sustainability is becoming an expected amenity by many travelers to Chile wanting to experience some of the world’s most spectacular landscapes. In 2007, Chile became the !rst country in South America with a hotel certi!ed for sustainable construction practices by the U. S. Green Building Council. Since then other resorts that have little to no negative impact on the environment have been built in some of the remotest regions of the country.

For more information:Fedetur (Federation of Tourism Enterprises) www.fedetur.clSernatur (National Tourism Service) www.sernatur.clCONAF (National Forestry Corporation) www.conaf.cl/

Both foreign and national chains are investing in Chile’s hotel sector.

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Hotels

Window on the UniverseThe transparent skies above the Atacama Desert in northern Chile are among the best in the world for star-gazing. No wonder Chile is home to the most ambitious astronomical projects the world has ever undertaken.

Are we alone? One of the places astronomers are hoping to !nd the answer to mankind’s oldest

question is 3,000 meters up in Chile’s northern Atacama Desert. That’s the site of the European Extremely Large Telescope (E-ELT), also known as the great window of the Earth to observe the universe.

Due to its gigantic dimensions, which includes a primary mirror measuring 42 meters in diameter, the E-ELT will be the biggest telescope of its kind in the world when it starts operations early next decade. One of its purposes will be to track down Earth-like planets around other stars where life could exist.

The Atacama Desert was chosen as the site for the $1 billion facility after several other sites in Spain, Morocco and Argentina were rejected.

The decision to build the in Chile was made “on a scienti!c and technical basis -- to situate the best telescope in the world in the best place in the

world,” says Massimo Tarenghi, representative in Chile of the European Southern Observatory (ESO), a European intergovernmental astronomy organization that provides research facilities for astronomers and astrophysicists.

With 42% of the world’s current astronomy infrastructure, Chile is the astronomy capital of the world. Almost 80% of state-of-the-art telescopes south of the equator are in Chile. By 2018 the country will have 70% of the world’s infrastructure of telescopes.

Chile’s stellar position attracts many of the world’s leading astronomers to come and work there. Moreover, Chilean universities are granted 10% of the observation time at E-ELT and other observatories, providing students at local universities a unique opportunity.

“Compared to the United States and Europe, Chile has the enormous advantage of making it possible

Looking upEuropean Southern Observatory (ESO) observatories in Chile’s Atacama Desert

Name Type Location Start of operations Why special?

VLT (Very Large Telescope) 4 x 8.2 meter and 4 x 1.8 meter optical telescopes

Cerro Paranal 1998 World’s most advanced optical instrument

NTT (New Technology Telescope)

3.58 meter optical and infrared telescope

La Silla 1989 First with a computer-controlled main mirror

ALMA (Atacama Large Millimeter/submillimeter Array)

50 x 12 meter antennas, 12 x 7 meter and 4 x 12 meter antennas

Chajnantor 2013 (planned) Largest ground-based astronomical project ever

E-ELT (European Extremely Large Telescope)

39.3 meter optical to mid-infrared telescope

Cerro Armazones early next decade Studies planets around other stars, black holes, dark matter, dark energy

Source: ESO

to facilitate the use of its observatories, which is very complicated in northern countries,” says Nelson Padilla, a professor of astronomy at Chile’s Universidad Católica. “Postgraduate students can use the facilities for free so they can obtain data from the observatories for subsequent analysis in class, a bene!t that also extends to foreign students.”

Normally, a night’s worth of observation in the Cerro Paranal observatory, for example, costs about $50,000.

Observatory heaven The E-ELT will not be alone in the Atacama Desert. ESO operates three observatories there including the "agship facility at Cerro Paranal, home of the Very Large Telescope (VLT). This is actually an array of four telescopes, each capable of seeing celestial objects so far away it is said to be like being able to see objects four billion times fainter than those that can be seen with the naked eye.

ESO’s !rst site at La Silla, 600 km north of Santiago, started operations in 1989 and was the !rst observatory in the world to have a computer-controlled main mirror, a technology now used on most of the world’s large telescopes.

One of those is the Transiting Planets and Planetesimals Small Telescope (TRAPPIST), one of the newest telescopes installed at La Silla and which will be operated from a control room in Belgium. TRAPPIST is the !rst step in a new type of research called astrobiology, the study of the origins and distribution of life throughout the universe.

The latest star rising on ESO’s horizon is the Atacama Large Millimeter/submillimeter Array (ALMA). The

$1.2 billion observatory is expected to be completed in 2013 and will have 66 high-precision antennas capable of picking up objects in the coldest parts of the universe. This includes molecular gas and dust and leftover radiation from the Big Bang – the building blocks of all the stars, planetary systems, galaxies and life in the universe.

With the construction of the E-ELT, Chile will have 60% of world’s cosmic observation, and will consolidate the country’s position as the main astronomical pole on earth.

Other projects under construction include the Large Synoptic Study Telescope (LSST) that will be built by 2017 and is said to be the largest photographic camera in the world. The Giant Magellan Telescope is scheduled to be installed by 2018 in Atacama. ALMA will be the largest radio-astronomical project in the world.

This scienti!c infrastructure is due to the good conditions the Chilean skies offer for observing the cosmos. The country currently owns more than a third of the existing area for capturing the light originating in stars, planets or galaxies on the far side of the universe, a term known in astronomy as photon collection.

Galileo’s telescope revolutionized our perception of the universe 400 years ago. The world should get ready for another cosmological revolution this time coming from Chile’s high desert.

For more information:The National Commission for Scienti!c and Technological Research www.conicyt.clEuropean Southern Observatory www.eso.org

ESO/

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Chile’s stellar position attracts many of the world’s leading astronomers.


Astronomy

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Contracting for ESO has its privilegesWhen the Atacama Large Millimeter Array (ALMA) telescope in Chile becomes fully operational in 2013 it will have a resolution of measurements ten times better than that of the Hubble space telescope.

One of the main reasons for ALMA’s precision is instruments supplied by a small Swedish company named Omnisys Instruments. Founded in 1992, Omnisys won its first European Space Agency contract in 1993.

In June 2007, it was awarded an $8 million contract with the European Southern Observatory (ESO) for 58 water vapor radiometers for the satellite dishes that make up ALMA, the world’s largest radio telescope.

“The radiometers measure the amount of water vapor at the site of each antenna so the correlation of measurements between the antennas can be more precise,” says Omnisys CEO Martin Kores.

Although Omnisys was a foreign company importing goods into Chile, it benefited from customs privileges ESO had negotiated with the Chilean government back in 1963.

“It has been very smooth for us,” says Mats Wannerbratt, Omnisys Project Manager for the ALMA radiometer contract. “We declare the goods and ESO in Santiago handles the customs procedures for us.”

ALMA is a partnership between Europe, North America, East Asia and Chile. As an international organization, ESO has

negotiated privileges with the Chile government, such as an exemption from custom duties on goods needed for their projects.

“The privileges and immunities granted to ESO are consistent with what usually is granted to intergovernmental organizations,” says Nikolaj Gube, a legal advisor for ESO in Santiago. “Because we have several member states that finance us we want to make sure that all member states are treated.”

Other privileges ESO has negotiated include immunity from jurisdiction, inviolability of ESO property, exemptions from VAT and income taxes, and no restrictions on transit and residence for ESO officials. None of these privileges can be used for personal benefit.

Although the privileges ESO has with the Chilean government were not aimed at benefiting its foreign contractors such as Omnisys that is the result. It also benefits ESO.

“It makes procedures and formalities easier so the contractor saves money which otherwise would be charged to ESO,” says Gube. “Also because ESO in general is free to contract without restrictions, companies from all member states can work in Chile. This greatly increases the number of companies available and thus leads to more competition.”

But perhaps those who will benefit most are the recipients of the new knowledge that ALMA and other ESO projects will bring.

INSIGHT

The Milky Way as seen from La Silla, Chile.


north from the fertile central zone. Here lies the valley of Elqui, one of the spiritual centers of the Earth, said to be magical. The mysterious forces of Elqui attract pilgrims who come there to make contact with the cosmic energy of the universe, and many stay on to live in esoteric communities. Meditation, Eastern religions, gurus of various stripes, there’s something of everything in Elqui. It’s like a little corner of California. It is also from Elqui that our pisco comes, a liquor made from the muscatel grape: transparent, virtuous, and serene as the angelic force that emanates from the land. Pisco is the prime ingredient of the pisco sour, our sweet and treacherous national drink, which must be drunk with con!dence, though the second glass has a kick that can "oor the most valiant among us. We usurped the name of this liquor, without a moment’s hesitation, from the city of Pisco, in Peru. If any wine with bubbles can be called champagne, even though the authentic libation comes only from Champagne, France, I suppose our pisco, too, can appropriate a name from another nation. The norte chico is also home to La Silla, one of the most important observatories in the world, because the air there is so clear that no star—either dead or yet to be born—escapes the eye of its gigantic telescope. Apropos of the observatory, someone who has worked there for three decades told me that the most renowned astronomers in the world wait years for their turn to scour the universe. I commented that it must be stupendous to work with scientists whose eyes are always on in!nity and who live detached from earthly miseries, but he informed me that it is just the opposite: astronomers are as petty as poets. He says they !ght over jam at breakfast. The human condition never fails to amaze.

The valle central is the most prosperous area of the country, a land of grapes and apples, where industries are clustered and a third of the population lives in the capital city. Santiago was founded in 1541 by Pedro de Valdivia. After walking for months through the dry north, it seemed to him that he’d reached the Garden of Eden. In Chile everything is centralized in the capital, despite the efforts of various governments that over the span of half a century have tried to distribute power among the provinces. If it doesn’t happen in Santiago, it may as well not happen at all, although life in the rest of the country is a thousand times calmer and more pleasant.

The zona sur, the southern zone, begins at Puerto Montt, at 40 degrees latitude south, an enchanted region of forests, lakes, rivers, and volcanoes. Rain and more rain nourishes the tangled vegetation of the cool forests

We Chileans still feel our bond with the soil, like the campesinos we once were. Most of us

dream of owning a piece of land, if for nothing more than to plant a few worm-eaten heads of lettuce. Our most important newspaper, El Mercurio, publishes a weekly agricultural supplement that informs the public in general of the latest insigni!cant pest found on the potatoes or about the best forage for improving milk production. Its readers, who are planted in asphalt and concrete, read it voraciously, even though they have never seen a live cow.

In the broadest terms, it can be said that my long and narrow homeland can be broken up into four very different regions. The country is divided into provinces with beautiful names, but the military, who may have had dif!culty memorizing them, added numbers for identi!cation purposes. I refuse to use them because a nation of poets cannot have a map dotted with numbers, like some mathematical delirium. So let’s talk about the four large regions, beginning with the norte grande, the “big north” that occupies a fourth of the country; inhospitable and rough, guarded by high mountains, it hides in its entrails an inexhaustible treasure of minerals.

I traveled to the north when I was a child, and I’ve never forgotten it, though a half-century has gone by since then. Later in my life I had the opportunity to cross the Atacama Desert a couple of times, and although those were extraordinary experiences, my !rst recollections are still the strongest. In my memory, Antofagasta, which in Quechua means “town of the great salt lands,” is not the modern city of today but a miserable, out-of-date port that smelled like iodine and was dotted with !shing boats, gulls, and pelicans. In the nineteenth century it rose from the desert like

a mirage, thanks to the industry producing nitrates, which for several decades were one of Chile’s principal exports. Later, when synthetic nitrate was invented, the port was kept busy exporting copper, but as the nitrate companies began to close down, one after another, the pampa became strewn with ghost towns. Those two words—”ghost town”—gave wings to my imagination on that !rst trip.

I recall that my family and I, loaded with bundles, climbed onto a train that traveled at a turtle’s pace through the inclement Atacama Desert toward Bolivia. Sun, baked rocks, kilometers and kilometers of ghostly solitudes, from time to time an abandoned cemetery, ruined buildings of adobe and wood. It was a dry heat where not even "ies survived. Thirst was unquenchable. We drank water by the gallon, sucked oranges, and had a hard time defending ourselves from the dust, which crept into every cranny. Our lips were so chapped they bled, our ears hurt, we were dehydrated. At night a cold hard as glass fell over us, while the moon lighted the landscape with a blue splendor. Many years later I would return to the north of Chile to visit Chuquicamata, the largest open-pit copper mine in the world, an immense amphitheater where thousands of earth-colored men, working like ants, rip the mineral from stone. The train ascended to a height of more than four thousand meters and the temperature descended to the point where water froze in our glasses. We passed the silent salt mine of Uyuni, a white sea of salt where no bird "ies, and others where we saw elegant "amingos. They were brush strokes of pink among salt crystals glittering like precious stones.

The so-called norte chico, or “little north,” which some do not classify as an actual region, divides the dry

where our native trees rise tall, ancients of thousand-year growth now threatened by the timber industry. Moving south, the traveler crosses pampas lashed by furious winds, then the country strings out into a rosary of unpopulated islands and milky fogs, a labyrinth of fjords, islets, canals, and water on all sides. The last city on the continent is Punta Arenas, wind-bitten, harsh, and proud; a high, barren land of blizzards.

Being so far from everything gives us Chileans an insular mentality, and the majestic beauty of the land makes us take on airs. We believe we are the center of the world-in our view, Greenwich should have been set in Santiago-and we turn our backs on Latin America, always comparing ourselves instead to Europe. We are very self-centered: the rest of the universe exists only to consume our wines and produce soccer teams we can beat.

My advice to the visitor is not to question the marvels he hears about my country, its wine, and its women, because the foreigner is not allowed to criticize-for that we have more than !fteen million natives who do that all the time. If Marco Polo had descended on our coasts after thirty years of adventuring through Asia, the !rst thing he would have been told is that our empanadas are much more delicious than anything in the cuisine of the Celestial Empire. (Ah, that’s another of our characteristics: we make statements without any basis, but in a tone of such certainty that no one doubts us.) I confess that I, too, suffer from that chilling chauvinism. The !rst time I visited San Francisco, and there before my eyes were those gentle golden hills, the majesty of forests, and the green mirror of the bay, my only comment was that it looked a lot like the coast of Chile. Later I learned that the sweetest fruit, the most delicate wines, and the !nest !sh are imported from Chile. Naturally.

From MY INVENTED COUNTRY. Copyright ©2003 by Isabel Allende. HarperCollins Publishers. All rights reserved. Used by permission.

MyInventedCountryIsabel Allende is one of Latin America’s foremost writers. In this excerpt from her 2003 memoire My Invented Country: A Nostalgic Journey Through Chile, Allende takes us on an evocative tour of her homeland from north to south.

Isabel Allende’s books have sold more than 57 million copies and have been translated into 37 languages. Allende was born in Lima, Peru in 1942 but returned to Chile with her father, a diplomat, at the age of three. She worked as a journalist in Chile until the 1973 military coup, when her uncle, Chilean President Salvador Allende was assassinated. She "ed with her husband and children to Venezuela and now lives in California.

Lori

Barra


Memoire


OFFICIAL LANGUAGE Spanish. Most hospitality industry personnel speak some English. Some may speak German or French.

TIME ZONEWinter: -4 GMTSummer: -3 GMT (Daylight Savings Time is from 2nd Saturday in October to 2nd Saturday in March).

SEASONSChile is a Southern Hemisphere country which means its seasons are opposite of Northern Hemisphere countries.

CURRENCYChilean peso (CLP)Exchange rate: $1 = approximately 500 Chilean pesos (as of November 2011)Currency exchange bureaus: 9 a.m. to 6 p.m. (1800) Monday to Friday, 9 a.m. to 2 p.m. (1400) SaturdayForeign currency: Cash or travelers checks may be exchanged at banks, currency exchange bureaus, and most hotels. Most major credit cards are honored throughout Chile and most foreign bank cards can be used for ATM withdrawals.

HOURSBusinesses: 9 a.m. to 6 p.m. (1800), Monday to FridayBanks: 9 a.m. to 2 p.m. (1400), Monday to Friday Stores: In Santiago most larger stores open daily from 9 a.m.to 9 p.m. (2100), with Sunday shopping the norm. Elsewhere, shops may close from 2 p.m.to 4 p.m. (1600).

POWER Chile uses 220V 50Hz type C (two-prong) and type L (three-prong) electric plugs.

CLIMATE: Santiago

Temperature °C January April July October

Maximum 29.4 23 14.5 22

Minimum 12.4 7.6 3.2 7.8

DRINKSCup of coffee/tea: 500 to 1,000 pesos ($1-2)Glass of beer: 1,000 pesos ($2)Glass of Chilean wine/pisco: 1,000 pesos ($2)

ENTERTAINMENT Cinema:

General: 3,000 pesos ($6) Children/elderly: 2,000/3,000 pesos ($4/$6)3D !lms: 5,000 pesos ($10)

Museum:General: 3,000 to 4,000 pesos ($6-$8)Children, students/elderly: 2000 to 3000 pesos ($4-$6)Teachers: 1,000 pesos ($2)

TRANSPORT Taxi: Airport to downtown Santiago 20,000 pesos ($40). In Santiago, taxis charge a base price of 250 pesos ($0.50) plus about 100 pesos per 200 meters distance (or per-minute wait). Rates are indicated on the windshield. Negotiate a price with the driver for longer distances or locations outside the city.

Subway and bus: The Metro de Santiago is part of the Transantiago integrated public transport system that includes bus routes. Transantiago uses an integrated fare system. Passengers can make bus-bus or bus-metro transfers for the price of one ticket. The system uses a contactless Bip! card which can be purchased in all stations for 2,000 pesos ($4). Single-trip tickets are available but don’t allow transfers to buses. Fares depend on the time of day. Peak fares are 620 pesos ($1.25).

Car rental: A compact car rents for 20,000 to 25,000 pesos ($40 to $50) a day. Rates are lower in Santiago than in the provinces. Smaller companies may negotiate prices.

Hotel Acontraluz is a place to gather, re-energize and share experiences. Located in the heart of Cerro Alegre, the hotel overlooks Valparaíso, one of Chile’s most beautiful cities, named part of the

World Cultural Heritage by UNESCO.

Our hotel is a place of silence, colors, lights and shadows. Textures of the urban landscape and sea reach through windows and onto terraces, accompanying guests at all times of the day and night.

With its discreet early 20th century German architecture, the hotel offers first-class facilities, indoor and outdoor dining rooms and gardens, an underground bar, wine cellar and cinema.

Spacious rooms give a spectacular view of the great bay of Valparaíso. Other rooms overlook the hills and colorful urban landscape surrounding the bay, a view admired by artists, poets and

everyone who visits our patrimonial city.

Welcome to the Hotel Acontraluz.

San Enríque 473, Cerro Alegre, Valparaíso - Chile. Information: +56.32.211 1320 — +56.32.328 0602 [email protected]

Hotel Boutique AcontraluzValparaiso - Chilew w w . h o t e l a c o n t r a l u z . c l

Practical informationfor visitors to Chile

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