Although mining is still the driving force of its economy, Chile has become a benchmark in renewable energy in recent years and a major recipient of foreign investment for the development of solar and water energy projects.
Following the shock of the COVID-19 pandemic, which caused Chile’s GDP to fall by 6.1%, the country recovered thanks to the adaptability of the region’s economic agents and highly expansionary monetary and fiscal policies. It achieved a growth rate of 11.7% in the second quarter of 2021 and reached activity levels from prior to the public health and social crisis, as reflected in the latest report published by ICEX. This increase began to slow down in 2022 (+2.4%), and the forecasts made by the Central Bank of Chile have been revised downward, to 1% in 2023. For the coming year, between 1.25% and 2.25% is forecast and between 2% and 3% is forecast for 2025.
The latest data released by the bank show inflation has declined in recent months—after the sharp increase in 2022, when it rose to 11.6%—although it is still considered high. “Total inflation will continue to decline. At year-end, the annual rate will be 4.3% (4.2% in June), which will fall to meet the goal of 3% in the second half of 2024. At the end of 2023, underlying inflation will stand at an annual rate of 6.3% (6.5% in June) and reach 3% at the beginning of 2024.”
Exports are a fundamental pillar of the Chilean economy and about 50% of the goods sold come from the mining (copper) industry, with China as the main customer. According to the report “Foreign Direct Investment in Latin America and the Caribbean” prepared by ECLAC this year, the most important international operation linked to the exploitation of natural resources in Latin America took place in Chile: the acquisition of a stake in Sierra Gorda SCM, the copper and molybdenum mining company, by the Australian company South32 Limited.
Chile finds its main business partners outside the region, and as we have indicated, China’s contribution stands out.
According to ICEX data, Chilean exports in 2022 totaled $98.0062 billion, which represented a 4.9% increase compared to the previous year. Total imports reached $98.7648 billion, up 12.9%. The main exported products were linked to mining (more than 50%), with copper minerals and concentrates predominating (22.32% of the total). This industry boom has attracted foreign investment interest in Chilean assets.
Foreign Direct Investment (FDI) has contributed to the improvement of the country’s competitiveness. According to ECLAC data, Chile was country with the third-highest income in 2022—it received $20.865 billion—31% higher than the previous year. “Profit reinvestment was the most relevant component (52% of the total) and income for that item was 138% higher.”
Leading the energy transition
Chile has been a leading country in consolidating renewable energy in the world, with relatively brief but strong momentum. Although there was no capacity in the region to generate solar energy in 2005, it has since become a benchmark in the development of this energy source: up to 2022, 124 projects had been announced, representing more than $23.000 billion in total. In this context, foreign investment has played a critical role. “Chile’s public policies have become a point of reference for the development of the global solar energy sector,” ECLAC said.
These investments focus on two regions with persistent solar radiation throughout the year: Antofagasta and Atacama, which attract 60% of the projects. Against this backdrop of growth, the government continues to announce new objectives for the energy transition and wants to increase distributed generation capacity. The goal of the policy is to reach 80% renewable energy by 2030 (including hydroelectricity, importantly).
Other Relevant Markets
The country’s authorities are making an important effort to boost tourism through programs developed by the National Service (Sernatur), with international promotional campaigns. In 2017, Chile was one of the ten fastest-growing tourist destinations in the world, but during the pandemic these figures were devastated: 1,222,858 in 2020 and 190,022 in 2021. After the country opened geographically and economically, 2,036,103 arrivals were recorded in 2022, still far from the more than 5 million in 2018, but they gave a promising outlook. According to Sernatur, more than 60% “of foreign tourists who visit the country state that the main reason they do so is nature, scenery, flora, and fauna.” To that effect, World Travel Awards gave Chile the award for the Best Green Destination in the World in its thirtieth edition. It is the second consecutive year Chile has received this award and the fourth time in its history.
ECLAC also highlights the dynamic nature of the telecommunications industry in the region, which was able to restructure and optimize the portfolio of companies in the industry in 2022. “In addition to internal operations, it is worth noting the sale of 3,800 telecommunications towers to Phoenix Tower International, which will be completed in 2024 and which has made the U.S. company the largest owner of this type of infrastructure in Chile. ICEX, in this sense, highlights the advantages Chile offers “in terms of stability, regulatory certainty, access to renewable energy at competitive prices, and world-class technology and telecommunications infrastructure that have led to technology giants making the decision to install data centers in the country.