Chile returns to FDI growth after three years

FDI into Chile appeared to flatline after a severe drop-off in 2014, which has become a trend synonymous with many Latin America economies. The situation turned bleaker in 2016 as Chile was confined to fifth place among the most popular destinations for FDI projects in Latin America, down from fourth spot.

While the country has found itself behind Mexico, Brazil, Colombia and Argentina and unable to break back into fourth position, FDI into Chile in 2018 saw a rise in project numbers for the first time in three years. Greenfield investment monitor fDi Markets recorded 88 projects into Chile in 2018, which represents a 62.96% increase from the 54 projects that were announced in 2017. The current FDI figures for 2018 show something of a resurgence in project numbers, capital investment and jobs into the country. Capital investment increased by 79.27% and job creation rose by 115.74% in 2018 based on comparisons with 2017.

In light of these figures (including estimates), Chile now ranks third, behind only Mexico and Brazil for capital investment into Latin America and the Caribbean. In response to Chile’s performance in 2018, the director of InvestChile, Christián Rodriguez Chiffelle, said "‘FDI is back on track after the fall that we saw over the past three years." He added: "The general picture shows our ability to attract investment has recovered... There is confidence in the future of our economy and in the management of the government."

These sentiments are echoed by international companies investing in the country, 47% of whom between January 2015 and December 2018 cited a motive to invest because of favourable regulations or the business climate. In the same period, 35.2% of motives were attributed to domestic market growth potential.

Indeed, Chile has exemplified the positive reciprocal relationship between FDI and GDP. In September 2018, the IMF presented its World Economic Outlook report, which indicated that the Chilean economy would grow by 4% in 2018, 3.4% in 2019 and 3.2% in 2020 before converging to a long-term annual growth rate of 3%. Moreover, Chile’s economic growth casts an attractive picture for foreign investors that are looking for economic stability and growth. Data from fDi Markets highlights that the main investing companies in Chile, accounting for 28 projects in 2016 and 17 in 2017, are headquartered in the US, Spain and France. These three source countries represented more than half of FDI into Chile in 2018, with 48 announced projects.

The real estate and renewable energy sectors were the top sectors by number of projects originating from the US, Spain and France in 2018. Comparatively, 30% of projects were directed towards business services, communications and software and IT services. Over these years, FDI projects into Chile have been centred around sectors such as software and IT services, renewable energy and business services. According to fDi Markets data going back to 2003, the metals industry has been the top sector for capital investment, with estimated flows of more than $37.9bn, and the business services sector has created the most jobs. However, in 2018 the communications, hotel and tourism and real estate sectors made up ground, overtaking software and IT services and business services in terms of project numbers.

It appears that an increase in project numbers from previously underdeveloped sectors, coupled with a consistent showing from key sectors, has played a role in facilitating Chile’s first increase in FDI for three years.