An agreement on nearshoring and investment between the United States and Guatemala advances
The Guatemalan Minister of Economy, Dr. Janio Rosales, and Foreign Minister Mario Búcaro, Minister of Foreign Affairs, participated in a meeting on Monday, February 14th, with the United States delegation led by Lindsey Zuluaga, Principal Advisor for Economic Affairs of the Office of the Vice President of the United States, Kamala Harris.
Also participating in the meeting were: Ryan Gwinn, Central America Strategist, Office of Central American Affairs and Office of Western Hemisphere Affairs; Jonathan Fantini Porter, Executive Director, Association for Central America; Mark Lopes, President/COO of the Partnership for Central America; Ann Marie Brouillette, Director of Programs, Alliance for Central America; Danielle Orihuela, Program Manager, Alliance for Central America, Whitney Dubinsky from USAID and John Szypula from the US Embassy in Guatemala.
The joint agreement on nearshoring and investment between the United States and Guatemala will trigger increased foreign direct investment
The joint agreement on nearshoring and investment between the United States and Guatemala will strengthen the attraction of foreign direct investment. This result will come to fruition through the new Central America Forward Plan. The plan maps out a course of action that includes a series of investment events and economic tours in the United States and Guatemala. These activities will strengthen economic and trade ties between the two nations.
Likewise, the Government of Guatemala is working together with its country’s private sector within the framework of the plan Guatemala No Se Detiene (Guatemala Does Not Stop). Guatemala No Se Detiene has prioritized attracting foreign investment to generate more opportunities for Guatemalan workers. With this program, economic officials seek to increase the country’s competitiveness.
Guatemala-based companies can reduce supply chain risk
The global economy is highly interconnected, and disruptions in one region can significantly affect businesses and economic conditions in other regions. In particular, opportunities have been identified in the joint agreement on nearshoring and investment between the United States and Guatemala for companies with a nearshoring model in the textile, mining, medical device, and food safety sectors, among others.
During his speech, the Minister of Economy thanked the attendees for their presence and the support received from the United States. Also, he highlighted the work of Ambassador William Pop for his commitment to Guatemala. Ambassador Pop commented, “all these important advances and the achievements that we are having in economic matters are of great value. We need to continue working on actions to strengthen the Guatemalan economy. This will improve the living conditions of Guatemalans and will generate more prosperity, security, and a better future”.
The United States is helping transform Guatemala
The United States government has been a crucial part of this transformation. It has contributed to the economic development of Guatemala by building walls of prosperity by attracting more foreign investment. The companies that aim to supply important markets and implement a nearshoring model are significant ones.
From this account, progress has already been made in the joint agreement on nearshoring and investment between the United States and Guatemala. But, most importantly, it promotes the creation of jobs. In addition, it addresses the fundamental causes of migration within the framework of “good governance and good jobs.” With this in mind, it seeks to increase supply chain resilience through a strategy directed by the Guatemalan Ministry of Economy and the country’s Office of the Executive.
Alliances such as the Centroamérica Adelante (Forward Central America) initiative and Vice President Harris’ Call to Action are essential to future economic growth. They aim to strengthen the commitment of companies that invest in and support the comprehensive development of people and their families in the region.
The goal is to generate stable, long-term supply chains
The nearshoring model and the diversification of sources of raw materials and components is an essential additional step in the growth of companies. Achieving this will contribute to the long-term stability of corporate supply chains by investing in local suppliers and developing local production capacities.
For example, companies such as Walmart, Pricesmart, Nestlé, Millicom, Nextil, Target, and Yazaki have trusted in the productivity of the Guatemalan workforce and have benefited from the country’s strategic location.
As indicated, strategies to attract important companies have also been developed between the Ministry of Economy through PRONACOM and the Project Creating Economic Opportunities of USAID. This alliance has led to the establishment of Guatemalan operations by companies such as Yazaki, which has pioneered the country’s move toward more sophisticated industrial sectors with trained and qualified human resources.
During the meeting on the joint agreement on nearshoring and investment between the United States and Guatemala, various American Guatemala-based companies testified to the excellent business climate they have encountered while doing business in the country.
Foreign investment in Ecuador and Chile: contrasting situations
The presidents of Ecuador and Chile, Guillermo Lasso and Gabriel Boric, face contrasting economic conditions.
Differing states of affairs
In the final phase of the first round’s Chilean electoral process and during the second round, most of the Chilean media affirmed that a victory registered by socialist Gabriel Boric would dramatically reduce foreign direct economic investment in the country. In addition, many believed that foreign capital would flee the country due to fear of the advent of a leftist government in the country.
In Ecuador, the opposite happened. Throughout the campaign of candidate Guillermo Lasso, the media spread the message that his victory would open sources of foreign capital and investment in Ecuador and that foreign direct investment (FDI) in the country would grow at a noteworthy pace. As a consequence of these assumptions, it was supposed that the unemployment rate in Ecuador would decrease significantly and that the economy would grow briskly.
However, economic data has demonstrated a different outcome. Foreign direct investment did not flee from Chile when Boric was elected, nor did FDI flow generously to Ecuador towards the government of Guillermo Lasso. On the contrary, recent Central Bank of Chile reports show that foreign investment has grown steadily throughout the past year. On the other hand, the Lasso government and local media, such as El Mercurio, have been forced to acknowledge that foreign direct investment in Ecuador has decreased significantly in recent times.
Foreign investment in Ecuador
In a recent edition, El Mercurio of Ecuador newspaper noted, “Foreign investment has fallen to the lowest level in the last twelve years.” This is because there has been a noticeable drop in investment in the mining and transportation sectors. According to the Central Bank of Ecuador, foreign direct investment (FDI) reached 51.3 million dollars in the third quarter of 2022, compared to the same period of the previous year. This figure represents a year-over-year contraction of 67 percent. Furthermore, it is the lowest level recorded since the fourth quarter of 2010, when FDI had a negative balance of 30.9 million dollars.
Prominent analyst Jaime Carrera commented that the Ecuadorian economy would have difficulty taking off for the foreseeable future. This statement coincides with the forecasts made by the International Monetary Fund, IMF, which states that “the Ecuadorian economy will be one of the least growing in Latin America this year.”
Keep in mind that the Economic Commission for Latin America and the Caribbean (ECLAC) considers that, for Latin America to create new jobs and appreciably reduce poverty consistently, these countries must grow at least 5 percent annually for the next 20 years. This point agrees with an assessment made by the International Monetary Fund (IMF) and the Ecuadorian analyst Carrera.
According to the Central Bank, foreign investment in Ecuador fell in five of nine critical economic activities in the country. Within these, the mining sector is the one that registered the most significant contraction; financing fell by 39.2 million dollars in the third quarter of 2022.
Foreign investment in Ecuador in the manufacturing, transportation, communications, and construction sectors also declined. On the other hand, foreign direct investment grew in finance and insurance, agriculture, commerce, and the gas and water services sector in 2022.
Foreign investment in Chile
Contrary to what many had predicted by traditional Chilean media, a collapse in the pace of Foreign Direct Investment in Chile has thus far yet to occur due to Gabriel Boric’s ascension to the Chilean presidency.
The Central Bank of Chile, through a recently published bulletin, reported that the FDI received by the country between January and December of last year (2022) reached 17.1 billion dollars. This represents an increase of 12 percent compared to the year 2021, which means the best FDI performance in the last 15 years.
It also represents 36 percent more than the average of the last five years and 23 percent higher than the average between 2003 and 2022. However, it is essential to note that the reinvestment of profits reached a total of 6.1 billion dollars, and “instruments of debt accumulated an amount of 2.9 billion dollars, an amount lower than the record for the month of October 2022, ”according to the Central Bank.
The Minister of Economy, Nicolás Grau, noted the statistics and asserted, “The figures published by the Central Bank show that the Chilean economy is resilient.”
For information about the investment climate for foreign direct investment in major Latin American economies, contact LATAM FDI.
Foreign direct investment in Chile registered an increase of 12% in 2022
Foreign direct investment in Chile reached US $17.1 billion in 2022. The Minister of Economy, Nicolás Grau, indicated that this figure is a “good sign for the Chilean economy.” He stated, “It speaks of investor confidence in the country and contributes to the generation of more and better jobs for the country’s citizens.”
On February 5, 2023, the Central Bank reported that the flow of foreign direct investment in Chile (FDI) received between January and December 2022 reached a total of US$17.1 billion. According to the analysis carried out by InvestChile, this amount is 12% higher than that accumulated during the same period in 2021. Additionally, it is 36% higher than the average of the last five-year period (US$ 12.6 billion) and 23% higher than the average for the years 2003-2022 (US$13.9 billion).
The most important component of the FDI flow was participation in capital investment, which accumulated an amount of US$9.1 billion in the period. The reinvestment of profits reached an amount of US$6.7 billion, while the debt instruments accumulated an amount of US$1.3 billion.
The figures in early February correspond to a preliminary assessment. Thus, they may undergo adjustments in the next review that the Central Bank will make on March 18.
A good year for foreign direct investment in Chile
The Minister of Economy, Nicolás Grau, pointed out that the figures are a “good sign for the Chilean economy” since “a higher level of foreign direct investment, in addition to meaning an injection of liquidity for the economy, contributes to the development of the country through the installation of sustainable projects, the arrival of new technologies and the generation of quality jobs for Chilean men and women.”
“The figures published by the Central Bank show that the Chilean economy is resilient. When choosing where to install their projects, global companies focus on long-term results, which is a good sign that foreign direct investment in Chile continues to grow. This speaks of confidence in our economy and its future development. As a government, we will continue working to attract sustainable and quality investment to Chile since its contribution to the recovery of the economy is fundamental”, said Minister Grau.
The director of InvestChile, Karla Flores, highlighted that last year’s investment level was the highest since 2015 and one of the highest figures in the historical series (20023-2022). The numbers exclude the Chilean mining boom (2010-2015). In addition, she pointed out, they reaffirm the willingness of investors not only to maintain their positions in the country but also to increase existing operations. “We are facing an injection of capital and long-term resources since 92% of all the capital flow that entered the country corresponded to new projects or expansion of existing operations, and only 8% consisted of loans to subsidiaries from the parent company”, explained Flores.
InvestChile ‘s 2023 planning will focus its work on attracting quality foreign direct investment in Chile in markets classified as strategic. This effort will be complemented by the work of the new Investment Attachés in the United States, Germany, France, Italy, and Canada, which are added to the already existing Attaché Office of Japan.
“2023 will undoubtedly be challenging for foreign direct investment, but we have reasons to be optimistic: Chile has established itself as a preferred investment destination within Latin America, especially in terms of technological infrastructure and clean energy. These are two sectors that we believe will continue to develop this year. All companies that want to contribute to the sustainable development of our country are welcome to participate in foreign direct investment in Chile,” said Flores.
Free zones are open to foreign direct investment in Chile
In Chile, the free zones are located in the two most extreme regions of the country. They are in the Region of Tarapacá in the city of Iquique, and in the Region of Magallanes, in the city of Punta Arenas. Both of these special economic areas receive government support to promote their economic development. In Iquique, the free zone is better known as ZOFRI; in Punta Arenas, it is known as PARENAZON. Both areas have tax benefits that make them attractive for doing business.
In the free zones, you can find shopping malls, automotive industries, and department stores with all kinds of wares. The free zones are called free ports because the free port was formerly a zone where commercial exchanges were carried out without having to pay customs fees or any type of tariff. Free ports were part of these extreme zones in the Chilean economy for many years until they were decreed as free zones.
In the free zones, new materials can be traded, and imported used goods following the Internal Operational Regulations of the zone can be exchanged. The merchandise that can be seen most frequently in the trade of these areas are clothing, perfumes, food, machines, vehicles, spare parts, supplies, etc. In Iquique, many buy vehicles free of tariffs and customs taxes.
The function of free zones in Chile
Free zones have the main function of:
- Streamlining foreign trade operations related to imports.
- Lower the costs of foreign products in Chilean national territory.
- Promoting the development and quality of life in the most extreme regions of the country. Preferential fiscal treatment of commerce compensates for the high logistics and transportation costs to and from the zones, directly impacting citizens’ cost of living.
- Being a merchandise warehouse, they will be in place awaiting their final destination.
- Transforming, manufacturing, and marketing goods without any type of restriction.
- Simplifying everything that has to do with the most common customs procedures, as well as allowing the payment of customs and commercial taxes to be deferred when necessary or simply waiving taxes.
From the customs point of view, free zones in Chile are considered to be foreign territory, so while merchandise is in the free zone, it is considered as being in its country of origin.
Foreign direct investment in Chile is an attractive option in its free zones and throughout the country. This is so because the country offers a stable and predictable investment environment, a strategic location with easy access to other markets in the region, abundant natural resources, a skilled workforce, and investment incentives that make it an attractive option for foreign investors looking to expand their operations in South America.
For further information on foreign direct investment in Chile, contact LATAM FDI.
Legislation and free trade agreements govern investment in Chile
The primary laws governing foreign direct investment in Chile are the Foreign Investment Law (Law 20.848 of 2015) and the Central Bank of Chile’s Foreign Exchange Regulations. These laws pertain to the entry and operation of foreign companies in Chile and set forth requirements for the repatriation of profits and currency conversion.
Additionally, the Chilean government has signed multiple free trade agreements that further facilitate foreign investment in the country by eliminating barriers to entry and providing greater protections for those individuals and companies that engage in investment in Chile
Investment in Chile is regulated by legislation
The Foreign Investment Law in Chile provides several vital provisions to promote and regulate foreign direct investment in the country. Some of the key provisions of the law include the following:
National treatment: Foreign investors are entitled to the same treatment as Chilean investors and are not subject to discriminatory measures.
Protection of investments: The law guarantees foreign investments, including protection against expropriation and compensation in case of losses.
Free transfer of capital: Foreign investors can freely transfer their capital and profits abroad.
Simplified procedures: The law streamlines the processes for foreign companies engaging in investment in Chile, making it easier for them to establish operations in the country.
Access to financing: Foreign investors have access to funding from domestic and international sources.
Access to technology: Foreign investors can transfer technology and technical knowledge when seeking to participate in investment in Chile.
Non-discriminatory regulations: The Chilean government prohibits enacting rules that unfairly discriminate against foreign investors.
The Central Bank of Chile’s Foreign Exchange Regulations are designed to regulate and supervise foreign exchange transactions in the country. Some of the key provisions of these regulations include:
Reporting requirements: All foreign exchange transactions over a specific value must be reported to the Central Bank of Chile.
Foreign currency exchange: Foreign currency exchange operations are allowed between authorized financial institutions and dealers.
Repatriation of profits: Foreign investors can freely repatriate profits and capital related to their investment in Chile, subject to certain conditions and restrictions.
Currency conversion: Foreign currency can be converted into Chilean pesos and vice versa, subject to the provisions of the regulations.
Exchange rate determination: The exchange rate between the Chilean peso and foreign currencies is determined by market forces, subject to the Central Bank’s intervention when necessary.
Foreign exchange controls: The Central Bank may impose foreign exchange controls to regulate the flow of capital in and out of the country and maintain stability in the foreign exchange market.
These regulations ensure stability in the Chilean foreign exchange market and provide a framework for managing foreign exchange transactions in the country.
Chile has a broad range of free trade agreements
The Chilean government has signed several free trade agreements (FTAs) to promote trade and investment with other countries. Some of the most notable FTAs signed by Chile include:
- North American Free Trade Agreement (NAFTA): Chile signed a bilateral FTA with Canada and Mexico in 1997, becoming the first South American country to enter into a trade agreement with North America.
- Free trade agreement with the United States
- Trans-Pacific Partnership (TPP): Chile is a member of the TPP, which is a free trade agreement between 11 countries in the Asia-Pacific region.
- European Free Trade Association (EFTA): Chile has signed an FTA with the EFTA, which includes Switzerland, Norway, Iceland, and Liechtenstein.
- Asia-Pacific Economic Cooperation (APEC): Chile is a member of APEC, which is a forum for promoting economic cooperation and trade among 21 economies in the Asia-Pacific region.
- Mercosur: Chile signed a trade agreement with the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) in 1996, which created one of the largest free trade areas in the world.
- China: Chile has signed a bilateral trade agreement with China, which provides greater market access for Chilean goods and services in the Chinese market.
These FTAs provide opportunities for Chilean companies to access new markets and increase their competitiveness globally. Additionally, these agreements provide greater protection for foreign investors in Chile and further facilitate trade and investment in the country.
Because of legislation and negotiated free trade agreements, the economic outlook for Chile is generally positive, with a forecast for continued growth in the coming years. Chile has experienced steady economic growth in recent years, driven by strong exports, favorable demographics, and a stable macroeconomic environment. The country has also benefited from its diversified economy, which is based on a mix of traditional sectors (such as mining and agriculture) and modern services industries.
Chile’s national economy was transformed in the 1980s
A significant reason that Chile is currently one of the best-positioned and modern economies in South America is because of a series of reforms that were introduced during the 1980s. The measures brought on what was termed the “Chilean miracle,” which led to increased foreign direct investment. These reforms included:
Privatization: The government sold state-owned enterprises, including utilities and other key industries, to the private sector. This helped reduce government intervention in the economy and increase competition, spurring investment in Chile.
Deregulation: Chile reduced regulations on businesses and simplified procedures for starting and operating a company. This helped reduce business costs in Chile and increase the economy’s efficiency.
Trade liberalization: Chile opened up its economy to foreign trade and investment, reducing barriers to trade and attracting foreign direct investment.
Fiscal: The government reduced inflation by implementing strict monetary policies, including using inflation targets.
Social security reform: The government reformed the social security system, switching from a defined benefit system to a defined contribution system, which has helped to reduce the long-term costs of social security for the government.
These reforms helped transform Chile’s economy from a primarily state-controlled system to a market-oriented one, thus making it more attractive to invest in Chile. The result was increased economic growth, lower inflation, and improved competitiveness. The reforms have been widely recognized as a model for other countries seeking to transition to a market-oriented economy.
Today, the Chilean economy is expected to fully recover from the recent coronavirus pandemic, driven by a rebound in global trade, a recovery in domestic consumption, continued growth in the services sector, and continued foreign direct investment in the nation’s economy.