Prestige | Influence | Sustainabilty Investing and developing business in Chile General overview Jorge Batarce T. Commercial and Development Manager February 2015 Britcham Business Services | British – Chilean Chamber of Commerce What do you know about Chile? Manuel Pellegrini Manchester City North Atacama Desert Alexis Sánchez Arsenal Central Region Santiago Miners’ Rescue Dramatic Events Alma Project Observatory South Torres del Paine Britcham Business Services | Jorge.Batarce@britcham.cl Concha y Toro Vineyard Moais Easter Island 1 Chile and its remarkable links with the UK Cultural influence Scottish born Lord Cochrane Chile’s first Vice Admiral under the Bernardo O’Higgins administration. In command of the Chilean Navy in the war for independence against Spain. Five Chilean Navy ships honour his name. The Chilean Football Association was created by a British national in 1894 and the following year the Valparaíso Wanderers FC began competing in national leagues and continues to this day. Victorian-style houses became popular in Valparaíso at the end of the XIX century, as British immigration and commercial trade between Chile and the UK were steadily growing. Over 50,000 British immigrants settled in Chile between 1840 and 1914. The British Arch is a monument in Valparaíso donated in 1910 by the local British community in order to commemorate the first centenary of Chilean Independence. Seven years later the Chilean British Chamber of Commerce was created. Over 100 British companies have direct operations in Chile, with many more exporting through local partners. In general, British brands have had a prosperous devolpment in all economic sectors and are continually increasing their presence. Britcham Business Services | Jorge.Batarce@britcham.cl 2 Highlights of Chile Growth, competitiveness & ease of doing business Category Number / Percentage Population (2014 est.) 17,819,054 GDP (in USD PPP) per capita (IMF, 2013) 22,534 Poverty level by income (Casen, 2013) 14,4% Unemployment rate (Central Bank, August 2014) 6.7% Inflation rate (Central Bank, 2014) 4.6% Literacy rate in adults (UNICEF) 99% Economically active population (World Bank) 62% International Indicators Chile world rank LatAm rank Human Development Index 2014 (UN) 40 1 Global Competitiveness Report 2014-2015 33 1 GDP (PPP) per capita (2013, IMF) 53 1 Index of Economic Freedom 2014 (WSJ, HF) 7 1 Trade Opening 2014 (WEF) 8 1 Corruption Perceptions Index 2013 (TI) 22 2 Ease of Doing Business 2014 (World Bank) 41 4 Sources: listed above Britcham Business Services | Jorge.Batarce@britcham.cl 3 Existing commercial links Success stories in Chile: Britcham Business Services | Jorge.Batarce@britcham.cl 4 Chile and its geographic advantages Main areas and their economic activities Mining 16% of GDP Fishing Agriculture Manufacturing Services Agriculture 75% of GDP Cattle Breeding Antofagasta 11% of GDP Santiago 49% of GDP Concepción 7% of GDP 9% of GDP Forestry Fishing Agriculture Mining • North (Atacama Desert): mining - Chile is the world’s largest Copper and Lithium producer. Other products including Molybdenum and Iodine come from this region. The weather in this region is similar to Northern Africa. • Central Valley, including Santiago (capital and seat of government) and Valparaíso (seat of Congress): home to the two main ports in South America. Also leads in manufacturing, agriculture/agribusiness, wine production, retail and financial services. The weather in this region is similar to southern Europe. •South: Forestry, salmon farming, fishing, agriculture and, in Concepción, petrochemicals, pulpwood & board and steel production. The weather in this region is similar to the UK. •Fjords and Tierra del Fuego: Tourism, agriculture, aquaculture, fishing, gas & oil production and coal mining. The weather in this region is similar to Scandinavia. Britcham Business Services | Jorge.Batarce@britcham.cl 5 Why Chile? Among other Latin American countries Foreign direct investment in South America and Mexico as a % of GDP in 2012 11% 6% 5% 4% 4% 3% 3% 1% 1% 1% 1% Source ECLAC 2012, United Nations Latin America key business development attributes comparison chart Source: IMF WEO October 2013 Source: The Global Competitiveness Report 2013-2014 Latin America GDP per capita comparison chart Britcham Business Services | Jorge.Batarce@britcham.cl Source: IMF WEO - October, 2013 7 About Chile… Economic Profile Unemployment and inflation rates 2009-2013 GDP per capita in US$ 15000 12% 13000 10% 8% 11000 6% 9000 4% 2% 5000 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 7000 Chile -2% 2009 2010 2011 2012 Unemployment at the end the year Latin America Source ECLAC, United Nations 2013 Annual Inflation Source Central Bank of Chile Credit rating comparison Annual Probability of default Credit rating S&P Moody’s Fitch Chile AA- Aa3 A+ Brazil BBB- Baa2 BBB Colombia BBB Baa2 BBB Mexico BBB+ A3 BBB+ Estonia AA- A1 A+ Panama BBB Baa2 BBB Portugal BB Ba1 BB+ 3.6 2.1 0.3 0.7 0.9 1 1 2.5 2.8 1.1 1.3 1.3 1.3 Source: Deutsche Bank Research, 2014 Britcham Business Services | Jorge.Batarce@britcham.cl 8 About Chile… Trading overview With reduced trade barriers, Chilean exports and imports have risen significantly. Exports account for approximately one third of Chile’s GDP. Trade with the UK UK exports to Chile in 2013 totaled £1.503bn, breaking the £1bn barrier for the first time. This is comprised of goods exports of £1.159bn (up 83%) and services exports of £344m (up 48%) Chile is the UK’s third largest export market in Latin America, after Brazil and Mexico. Exports to Chile are more than those of the next two largest countries (Argentina, Colombia) combined Key UK exports to Chile include crude oil, cars and replacement parts, machinery, whisky, pharmaceuticals and clothes Chile has signed 23 Free Trade Agreements with over 60 countries, UK imports of Chilean goods are mainly fruit, wine and frozen meat including the EU, the USA and China. accounting for up to £610m in 2013 93% of Chile’s exports get preferential treatment Main Export Destinations Countries Main Import Supplier Countries (in millions of US$) 18,601 (in millions of US$) 15,092 9,047 9,009 4,490 12,696 6,225 4,448 3,813 2,671 4,740 725 3,120 2,958 2,730 1,358 Source: ProChile, Business Intelligence Britcham Business Services | Jorge.Batarce@britcham.cl 9 New Government (2014 – 2017) Changes and challenges ahead In September 2014, with approval from Congress, President Michelle Bachelet promulgated a tax reform that was a key part of her election campaign. Its objective is to gradually increase tax revenues in order to finance new fiscal spending, mainly on education, whilst also improving income distribution. This in order to level the Chilean tax legislation to the standards that developed countries have. The main areas of change are the following: • • • • Corporate tax: from 2014 to 2017, the tax rate will rise gradually from 20% to 25%. Immediate depreciation: will allow small and medium sized businesses to deduct all investments in fixed assets from the year’s taxable income. Green taxes: a new tax on CO2, NOx, and particulate matter (PM) from fixed sources will be introduced, as well as a tax on new light vehicles that use diesel fuel. Tax avoidance & evasion: the bill will increase the budget and inspection powers of the National Tax Service (SII) in order to tighten controls on avoidance and evasion. The new government proposal will focus on the following main targets: • • • Education reform: focus on educational quality, improving social inclusion and making the entire education system universally free. Tax reform: mainly to leverage taxes (among developed countries) for growth initiatives. New Constitution: main topics are related to human rights protection, guarantees on sustainable development and the political doctrine as a socially democratic system. Britcham Business Services | Jorge.Batarce@britcham.cl 10 Exporting to Chile Procedures and Taxes Costs Chile In Transit UK FOB CIF= FOB + 2%FOB (Insurance) + Delivery Costs Fixed Cost: ~400USD AdValorem: 6%CIF* VAT= (CIF+ AdV)*19% Taxes Example 650 650 = + 200 -350 + 800 800 = *Ad Valorem Tax is 0 For UK products by FTA with EU, Effective Tariff 0,7% (average) **Tax Reform will replace for 25% ***With tax reform, with or without dividends payment, companies will be Britcham Business Services | Jorge.Batarce@britcham.cl charged 35% AT tax -200 +1000 11 Business Culture Corporate culture • Chileans are straightforward in negotiations and normally get written confirmation of agreements • English language isn’t widely used • Face-to-face contact is usually crucial in order to do business in Chile • Punctuality is highly valued • While formality is respected, a light initial conversation and a bit of humor are appreciated • Family and friendship play a big role in business connections • Be prepared to go through a personal assistant before getting to the manager • Interruptions are normal and not considered rude, but rather a way of showing interest and enthusiasm Britcham Business Services | Jorge.Batarce@britcham.cl 13 Chile and its markets Main sectorial challenges & opportunities Retail Energy Mining Food Industry Transport • E-Commerce platforms • Losses management & control • Portfolio management: new brands & products • Design: improvements in layout of stores and shopping malls • Energy efficiency initiatives for households (PV and Thermal) and large scale projects 100x MW • Energy storage for 24/7 supply of energy • Huge demand for clean energy in order to reduce pollution in the largest cities • Good natural conditions exist for the development of non-conventional renewable energy •There are remaining challenges in the area of transmission • Equipment and parts • Engineering and consulting • Construction • Production efficiency measures for: fruits: berries, cherries, nuts and for the Wine Industry • Organic and cost related issues Functional food • Disease and production challenges in the Salmon Industry. Production in farming ponds • Salmon and trout feeding systems and caging services • Chile is set to become a distribution hub for the region with its maritime ports in the north • Huge challenges in public transport and pollution of greater cities Infrastructure • Chile has an investment portfolio amounting to US$ 7 bn. in public tenders including roads, airports, hospitals, ports and urban infrastructure among others Tourism • Opportunities and tourist attractions in all regions of the country. Ability to develop hotels and recreational projects in areas of interest • Sustainable tourism development in protected areas through state grants Across all markets, key success drivers are environmental compliance, business sustainability, corporate social responsibility and human resources utilizing best practices. Britcham Business Services | Jorge.Batarce@britcham.cl 16 Examples of services provided • • • • • • • • • Peelports is one of UK’s leading ports in container shipping Located in Liverpool The objective was to obtain an overview of the commodity trade Chile- UK and to identify key players BBS provided a complete market background per sector and a list of 46 key companies Peel ports is evaluating next trip to Chile Powder Systems Limited is a manufacturer of filtration and drying solutions for pharmaceutical laboratories. The objective was to find potential distributors a specific new product line BBS identified 17 potential companies of which 3 showed interest in representing PSL in Chile Following a country visit ,PSL selected 1 of them as distributor • • • • • • • • • Yanco is an innovative insecticide and mosquitoes repellent manufacturer Located in Liverpool The objective was to find potential distribution partners in Chile BBS identified 19 potential companies of which 5 showed interest in representing Yanco brand in Chile Following a round of teleconferences, , Yanco is under negotiations with 3 of them Brain International offers IAB´s accreditation in Accountancy for bookkeepers around the world The objective was to find potential partners for its certification BBS identified 32 potential educational institutions of which 10 showed interest in providing the certification Following a country visit , IAB is currently in conversations with three of them Britcham Business Services | Jorge.Batarce@britcham.cl About US British Chilean Chamber of Commerce (Britcham) • Established June 25th, 1917 • Britcham is a non profit organization which strives to inform & create networks among its members • 180 members, across 40 sectors including: Banking, Construction, Engineering, HR, Law, Mining and Retail • Britcham makes its own business publications and carries out its own events focused to specific audiences Patrons 2014 Sponsors 2014 Britcham Business Services (BBS) • BBS was initiated by a UK government request with the objective to promote business in order to double UK exports worldwide by 2020. If you would like to know more about Chile and its economic situation, please read our latest Economic Report: http://britcham.cl/wp-content/uploads/2014/04/22-04-2014.pdf For further more information about the British Chilean Chamber of Commerce, please visit: http://www2.britcham.cl/en/ Britcham Business Services | Jorge.Batarce@britcham.cl 25 Our Services For UK companies BRITCHAM BUSINESS SERVICES (BBS) We develop different levels of support packages to suit different sectors and budgets of UK exporters. We offer tailored professional advice on market entry, setting up shop and meeting the right people. – Some services (*) that will be offered through our business partners are: • • • • • Office accommodation IT Support Legal support Financial Outsourcing Translation services • • • • • Business Process Outsourcing Communications HR/Recruitment Import/Export services Transport outsourcing / Inventory management – Other services (**) provided primarily by BBS, in order to develop leads and stay involved for as long as necessary, include: • • • • • • Market research Industry cost structure Distribution channels Key success factors Pricing analysis Brand analysis • • • • • • Competitive interactions analysis Any financial analysis Due diligence Meeting with key partners Inbound / Outbound missions Business consultancy (*) This services may have a fixed or variable cost involved. (**) Depending on the complexity and time required for analysis, there may be an additional fee. Britcham Business Services | Jorge.Batarce@britcham.cl 26 Who we are Greg Holland – Managing Director Greg is a CEng, CMarEng, FIMarEST, MCIWEM, with vast experience in managing position across the world. In 2003 arrives at Chile as MD of Thames Water. He has been involved in projects related to Energy, Water and operation management. Jorge Batarce – Commercial and Development Manager Jorge is a qualified civil engineer, and holds an MSc in engineering, a Masters in Finance, and an MBA. He has experience working in transnational companies managing projects with values exceeding USD $250m in investment for the last 10 years. Marcia Gattoni – Trade & Promotion Manager Marcia is an administration and customer care professional with more than 10 years experience working for international companies in Chile and the UK, including 5 years experience in Market Intelligence. Andrés González – Market Specialist Andrés has a Bachelor with distinction in Business Administration and Economics and a Bachelor degree in Social Sciences. He has 3 years of experience in market expansion endeavours as well as business & public planning in both the public and private sectors. Francisco Macaya – Market Specialist Francisco has a Bachelor of Business. During that time he spent a semester abroad in Germany working as a pre-Master of Marketing student. He has 2 years of experience in Research Studies & Management Control and specializes in Quantitative methods. Britcham Business Services | Jorge.Batarce@britcham.cl 27