When investors think of Latin America, Chile has historically been one of the first countries that comes to mind. A land of stability, openness to trade, and stable legal frameworks, it is one of the most competitive regions for foreign direct investment (FDI) in the world. But as competition grows, and investor expectations change, Chile needs to confront domestic challenges that may hinder attracting investment to Chile.
Chile in the Global Investment Context
With the reawakening of American interest in Latin America as a trading partner and investment opportunity, attracting investment to Chile presents both an opportunity and a challenge. In a rapidly changing geopolitical and economic environment, Chile has proven itself as a reliable destination for mining, clean energy, tech, and agribusiness. However, it cannot afford to rest on its laurels.
“Chile is still seen as an innovation hub,” says Roberta Valenca, President of the Chilean-American Chamber of Commerce (AmCham). “We maintain strong ties with the US, which accounts for 33% of our FDI.”
But Valenca and other industry experts say the country needs to address three crucial aspects — security, institutional quality, and talent development — to maintain and grow its appeal to investors in order to continue attracting investment to Chile.
Investor concerns around public security
The other issues that investors are increasingly discussing is public security. In fact, business leaders across industries all agree that the quality of a country’s institutions — its ability to ensure safety and enforce the rule of law — are key factors when deciding to invest in Chile.
“The market’s image as a secure place to do business has been weakened as of late. Suppose we do not move forward on basic elements like the rule of law. In that case, we risk losing ground to a country like Argentina, which right now projects a better stability than we do in some indicators,” says Patricio Jarpa, General Manager of Nanotec Chile.
Although Chile still ranks relatively well compared to other countries in the region in terms of global governance indicators, a recent uptick in crime and street protests has already begun to chip away at investor perceptions of stability. Stronger law enforcement, more efficient courts, and government reforms that strengthen the country’s institutions are now critical to attracting investment to Chile. These improvements would contribute to more investment in Chile for global firms concerned with operational risks.
Human capital: A core foundation of a competitive economy
Apart from a sound physical infrastructure and regulatory framework, the country’s ability to develop and retain a talented workforce is a key factor in attracting investors to Chile. As the economy moves away from a natural resource and export-driven economy, toward a knowledge-based one, companies are looking for places with a trained and flexible workforce. This is particularly true in knowledge-intensive industries such as information technology, biotechnology, and green energy, where innovation and competitive advantage are key to business success.
“We have over 100,000 professionals in the technology sector, a solid foundation. However, there are productivity gaps and gaps in specialization that remain to be filled,” says Isaías Sharon, founder of Perzon AI. “Our labor productivity is still about 50% below the OECD average. Investors want competitive, malleable talent with a global perspective. If we do not work to strengthen that foundation, we will not be able to keep up in our efforts to continue attracting investment to Chile.” The development of human capital is essential to ensure a consistent influx of investment to Chile in these advanced and rapidly evolving sectors.
Updating Chile’s educational system and upskilling for the future
If Chile wants to increase the productivity and specialization of its labor force, it needs to re-envision its education and training system. Conventional universities and universities of applied sciences need to better align with market demands in areas like data science, software engineering, and clean energy.
But public-private partnerships could play a role as well, creating training programs and apprentice schemes in industries such as agritech or food production. Incentivizing greater access to technical education and continuing professional development will also enable more fluidity in the labor market, as well as a pipeline of talent for the high-value-added sectors of the future. This educational modernization will be instrumental in creating an even more attractive investment in Chile for companies that rely on specialized, adaptable labor.
Modernizing human resources management
Another element is how companies manage their human resources. Investors are not only looking at numbers, but at the overall culture of an organization, its processes, and its treatment of employees.
“We are no longer talking about a macroeconomic assessment. Investors want to see reliable work environments, efficient processes, and data-driven decision making. We need to use more technology in human capital management if we are to continue attracting investment to Chile,” says Sharon.
Digitizing human resources practices, from using AI and predictive analytics to automate HR processes, can improve talent attraction, better measure employee performance, and keep talent from leaving. Such investment in technology signals to global investors that Chilean companies are ready for the future of work and contribute to making Chile a more attractive investment option.
Chile’s strong infrastructural advantages
One area where Chile has long been lauded is in its physical infrastructure. The country boasts a state-of-the-art road and port network, high-quality airports, and advanced telecommunications. It has a long coastline along the Pacific Ocean and enjoys trade agreements with over 60 countries, including the U.S., China, and the EU, as well as being a major transport hub in South America. So, as an entrepôt, Chile connects companies to global markets.
It also has an advantage in the availability of renewable energy. With investments in solar and wind energy in the Atacama Desert and southern Patagonia, Chile is becoming a leader in clean energy in Latin America. For companies focused on environmental, social, and governance (ESG) goals, the investments increase Chile’s investment appeal.
However, as always, Chile must maintain and modernize its infrastructure. It needs to invest in smart logistics, deployment of 5G networks, and digitalization of services to stay ahead of its competitors in the region.
Policies and investor confidence
Along with infrastructure, the stability of Chile’s policies and regulations is also key to attracting investment to Chile. Chile has gone through a period of political polarization in the past decade, resulting in tax policy, environmental regulations, and labor laws with uncertain trajectories.
But by engaging with stakeholders in the public and private sectors, Chile can ensure open dialogue and a pro-investment environment. That includes streamlining administrative processes, digitalizing government services, and creating a clearer legal environment for the growing industries of the future, like fintech and green hydrogen.
Incentives for research and development (R&D), funding for innovation, and special economic zones could also serve as additional levers to attract high-tech companies and startups.
New high-value sectors poised for growth
The future of Chile, as it begins to navigate the future, has many sectors poised for growth that could attract new investors.
- Green hydrogen: With its strong potential for renewable energy production, Chile aims to be a leading exporter of green hydrogen by 2030.
- Fintech and digital services: Chile’s capital city Santiago is already establishing itself as a fintech hub in Latin America.
- Advanced agribusiness: From precision farming to agri-tech startups, Chile’s advanced agricultural sector is attracting increasing interest from outside.
- Health technology: The pandemic accelerated the development of healthtech solutions, and Chile’s relatively strong public health sector is well-positioned to evolve further.
Such sectors do not only offer potential for traditional investors but also for venture capital and impact investors seeking to promote sustainable and inclusive development.
Call for a coordinated approach
In the end, the challenges facing Chile are not insurmountable. But they do require a concerted effort. Agencies, companies, universities, and civil society must work together to build an investment ecosystem that can keep attracting investment to Chile.
This means updating outdated regulatory frameworks, investing in social cohesion, and bringing economic policy into line with long-term sustainability and innovation goals.
Conclusion: Future-proofing Chile’s attractiveness
In the end, Chile’s future remains bright. Its advantages in connectivity, clean energy, and open markets will continue to attract investors from around the world. But in a changing and unpredictable world, these advantages must be built on a firm foundation of institutions, security, and a trained workforce.
That’s the message for Chile. Chile’s attractiveness will not depend on the supply of natural resources or free trade agreements alone. In the future, it will be determined by Chile’s ability to offer security, train its people, and innovate at all levels of society — the core elements that make for an attractive investment in Chile in a 21st-century global economy.