The Chilean government has embarked on the most ambitious structural reforms that the country has seen in decades, with the aim of improving equality and productivity and raising its long-term economic growth potential.

Michelle Bachelet, who started her second four-year term as Chile's president on March 11, 2014, and represents the centre-left political coalition Nueva Mayoría, won 62% of the vote at the presidential elections in December 2013, and received a strong mandate for her proposed radical – and controversial – reforms that embrace education, taxation, labour laws, energy and the constitution. The president set herself the ambitious goal of making concrete steps to introduce 50 policies within the first 100 days of office, and says she managed 46.

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The changes have not proved popular with all sections of society, mainly because they involve a rise in the overall tax burden of 3 percentage points to about 23% of GDP by 2018, and the president’s approval rating has now dropped to 25%, according to Chilean research company Cadem. Analysts point out, however, that Chile’s tax burden is low compared to the average of member states of the OECD, which is 34.1% of GDP, and that the tax increase is mostly being used to make state education free, which could be seen as a form of investment in human capital and the country’s future.

Changing times

The changes come at a time when the Chilean economy has started to slow down – the International Monetary Fund estimates the country's economy grew by 1.8% in 2014, compared with an average of 5.3% between 2010 and 2013 – mostly because of a drop in commodity prices. (Chile is the world’s largest exporter of copper – it accounts for 60% of the country’s total exports – and copper prices plummeted by 14% last year.) The Central Bank of Chile expects the economy to grow between 2.25% and 3.25% this year, which would still make it one of the fastest growing economies in Latin America.

“I think we have started to see the green shoots of economic recovery this year,” says Jorge Pizarro, vice-president of Chile’s Foreign Investment Committee (known as CIEChile in Spanish), the country’s inward investment agency. “Chile also remains very attractive to foreign investors because of its strong rule of law and the business opportunities. FDI in the country grew by 14% last year, while it dropped by 19% in Latin America and 9% globally, according to the UN.”

According to the central bank, Chile received $23.3bn in FDI last year, compared with $20.2bn in 2013. The country is the third largest recipient of FDI in Latin America, after Brazil and Mexico. The sectors that attract the most investment in Chile are energy – including electricity, gas and water – and mining. The US is the biggest investor in Chile, accounting for 17% of all the capital that entered the country during the past five years.

The government wants to make the economy more competitive by investing in energy and infrastructure, and believes there are many opportunities for foreign firms to become involved in these sectors.

Investment in the energy sector has grown in recent years, and Chile has become one of the most active markets for renewable energy – especially solar and wind – in the world. Last year alone, the government approved more than 70 new wind and solar projects. The country is ideal for these kinds of renewable energy projects because it is home to the world’s driest and sunniest desert – Atacama – and has 6440 kilometres of coastline exposed to ocean winds.

Strengthening its position

Last July, Ms Bachelet presented a national infrastructure plan that includes $9.9bn in new concessions in the period to 2020, and $18bn in public works projects in the period to 2021, including highways, airports and reservoirs.

“Chile is a very stable, transparent country and the least corrupt in Latin America,” says Rafael Ojeda, the Spanish trade attache to Chile. “In the long run, I think Chile is a very good country for investors to come to. Doing business in Chile suffers from some bureaucracy, but it is nothing like in other countries in Latin America, where new bureaucratic hurdles are being thrown up all the time.”

Chile and Mexico are the only two countries in Latin America that are members of the OECD, and Chile has the best overall credit ratings of any country in the region. It is seen as the most politically stable country in Latin America; however, recently this stability was dealt a blow when the leading political parties in the country were implicated in a scandal over illegal campaign financing, which has dented public confidence in the political system.

Chile has signed 24 free-trade agreements with 63 countries and has established a reputation as an open, business-friendly economy. One of the government’s most important initiatives is aimed at helping a greater number of SMEs to export overseas (currently, 325 companies account for 90% of the country’s exports). New centres at the 15 regional offices of ProChile, the Chilean export promotion bureau, have been set up to help SMEs explore export markets and make foreign contacts.

The country is also one of the members of the Pacific Alliance, alongside Peru, Colombia and Mexico, a trade bloc that wants to strengthen commercial ties between the member states and develop stronger trade links with Asia.

Ease of doing business

Underlining the significance that Chile attaches to foreign investment, the country’s congress approved a new draft law in May to create a ministerial committee to advise the president about national foreign investment policy. A new specialised agency – which builds on the work of CIEChile – will also be set up to implement this policy. It is expected that the new institutional framework will make it easier for foreign firms to invest in the country by making the whole process more transparent.

Currently, Chile has challenges economically and politically but the country is seen by investors as one of the most stable in Latin America. Investment in the mining sector should pick up again as the commodities super cycle turns, but the country presents many other opportunities for investors, especially in the energy, infrastructure, and food and beverages sectors.