Chile’s struggle for independence from Spain was concluded with success in 1818. Since this time, Chile’s political leanings have been varied all across the spectrum, from socialist in the seventies with Allende, to civilian democratic in the eighties with Augusto Pinoche, to the free market economy of today. Chile’s past political instabilities and lack of economic certainty have made it easy for potential investors and lenders to write the country off as just another backwards, unhinged, Latin American country. Chile’s rapid movement from a closed-door socialist economy to a relatively open door free market economic model has made international opportunities flow into the country.

The Republic of Chile is located in South America, with a predominant north to south extent, occupying 6,435 kilometers of the continent’s western coastline. Chile has the South Pacific Ocean as its western border, Peru to the north, and both Argentina and Bolivia serving as its eastern borders. The country also has frontage on the South Atlantic. The climate of the country is classified as temperate but is tremendously diverse from region to region. It is arid and hot (desert) in the north, Mediterranean in central Chile, and cool and damp in the south.

The Andean mountain chain extends down the entire length of the country with elevations reaching to 6,880 meters at Nevado Ojos del Solado. This severely limits mobility and trafficability raising transportation costs within the country significantly, or in some cases, making transportation of goods impossible. If, for example, it is necessary for pieces of a product to be made in various parts of the region and brought together in one location for assembly, the rough terrain of this region may make this common procedure unfeasible. Add to this the lack of paved roads necessary for mobility (only about 13% of Chile’s roads are paved) and the transportation infrastructure may limit certain types of development. The Andes do, however, provide the country with drainage patterns ideal for capturing hydroelectric energy, which is taken advantage of. This fact is comforting to potential investors and developers because it means that Chile is dependant on no one for energy. The hydroelectric dependencies proved problematic in 1999 when Chile suffered a severe drought, which forced rationing of its hydroelectric energy and affected its economy negatively. The Andean mountain chain comprises a large percentage of Chile’s land resulting in a mere 5% arable land.

Natural hazards such as severe earthquakes, active volcanism, and tsunamis should be taken into consideration when considering direct foreign investment in Chile. Insurance costs will likely be higher, adding to the costs of a direct investment.

Chile’s strategic location in the world is a major factor in Chile’s international success. Although the country’s predominant north to south extend spanning over thirty five degrees of latitude causes packaging and transportation complications within the country, this physical characteristic accounts for more than six thousand kilometers of frontage on two major oceans, the South Pacific, and the South Atlantic. This fact alone makes Chile highly accessible, and places the rest of the world only an ocean away, practically at its doorstep. It is easier to export many types of goods and services over seas to Japan, the United States, or Europe than across the Andean mountains to Argentina, Brazil, or Bolivia. Add to this the fact that the former are much more consumer driven economies than the latter and it is easy to predict the composition of the list of trading partners for exports.

Chile’s top five trading partners for exports are: the European Union 27%, the United States 16%, Japan 14%, Brazil 6%, and Argentina with 5%. These figures seemed to contradict the distance factor of transportation of goods, and indeed they do. The reason for this contradiction is the weight of the friction factor incorporated into the calculations for cost of transportation by Chile’s rugged terrain and poor transportation system through and around the Andes. The relatively short distance to other South American markets is offset by the costs of ground transportation over the Andes, and the incomplete South American transportation network. Calculations of transportation costs across a more isotropic surface, such as an ocean, are more error free and speedy. Most of a firm’s costs that ship overseas are terminal in nature. This means that distance is less of a factor because the bulk of the cost of transportation are accounted for in loading and unloading, preparations, maintenance, and other costs which are unaffected by the length of the voyage. Ground transportation, on the other hand, is line-haul cost in nature. This means that the overall transportation costs are directly related to distance. The reason for this is that ground transportation has a relatively high GHFB ratio (goods-hauled-to-fuel-burned). Given the region’s highly frictional characteristics, the line-haul costs are exponential, and, in general, it is still cheaper to transport to neighboring countries by water. This is true in spite of the short distances, which would otherwise be optimal for ground transportation. It should also be noted that the majority of the international ground transportation of goods is by railroad.

Chile’s top five countries from which they import are: the United States 24%, the European Union 23%, Argentina 11%, Brazil and Japan 6%, and Mexico with 5%. The only reason for the differences in imports and exports are the nature of the countries. More developed countries such as the United States, Japan, and Europe demand not only more goods and services but more specialized, complicated, and a greater variety of goods and services. Japan, for example, is one of Chile’s largest clients for exported goods and services with 14% of total exports, but makes up a mere 9% of total imports. One reason for this is that Japan exports goods like semiconductors, automobiles, office machinery, and electronics. These goods are typically purchased by advanced consumer driven economies. Although Chile is showing a definite trend in this direction, its current economic situation is slightly more critical.

In 1994 at the Summit of the Americas, Chile announced its formal decision to apply for participation in the North American Free Trade Association (NAFTA). A large percentage of Chile’s international trade is with the United States and Mexico, so it makes sense to reduce the trade barriers between and among these countries. The United States considered this proposal seriously and made alterations to include Chile in this free trade agreement but decided it was too risky at the last minute. Chile’s proposal did not materialize primarily because of the freshness of its prosperity and upward mobility. After all it was only twenty years ago that the Republic of Chile was not a republic at all but a socialist country. Argentina has attempted to include Chile in its free trade agreement with Brazil, Paraguay, and Uruguay, acronymed MERCOSUR, but Chile’s focus has been on the opportunities in North America. Chile is listed as a MERCOSUR associate in the current World Factbook.

Chile’s exports total $18 billion and its imports total $17 billion. These figures suggest a trade balance in favor of Chile by one billion dollars. This fact combined with the services industry comprising 54% of the total gross domestic product, is a positive characteristic. This means that the country sells more than it has to buy, but at the same time it is not selling off its valuable natural resources to keep this positive balance. This over selling of natural resources is typical of developing countries, and is self-destructive. The fact that Chile does not have to exploit itself to turn a profit is impressive considering its background and location.

Chile’s population was estimated to be 15,328,467 in July of 2001 with a population growth rate of 1.13%. Life expectancy at birth is 72.63 years for men, and 79.42 years for women. Birth rate is 16.8 per one thousand people and the death rate is 5.55 per one thousand people. It was estimated in 1999 that one thousand people died from HIV/AIDS. The total populations literacy rate is 95.2%. Chile’s infant mortality rate was estimated to be 9.36 deaths per one thousand live births in 2001. Chileans speak Spanish, and are predominately Roman Catholic.

All these figures are indicative of a country’s standard of living. Relative to other countries in the region, Chile has a high standard of living. This means that their health is better by consulting the life expectancy. In general economies in which the people live longer means that they have enough to eat and some focus and capital can be focused more on leisure and consumer based activities and goods. This is a good indication to potential investors.

Economical statistics such as gross national product, per capita income, purchasing power parity index (PPP index), medical care, housing, jobs, living costs etc. are indicators of a country’s standard of living. For investors and business people, the purchasing power parity index is a better indicator of the sales potential for a market than gross national product. The purchasing power parity index is a better indicator of what a sum of money can actually buy. This is important for business applications because the actual purchasing power of a market can be used to calculate market potential by quantifying not only the amount of money potential consumers in a given market have, but also their money’s power relative to the United States dollar. Chile’s purchasing power parity is $153.1 billion, that is $10,100 per capita. This is significantly higher than other countries in South America. Bolivia, for example, has a purchasing power parity of $2,600 per capita. When compared to the United States’ $36,200 per capita Chile seems insignificant at best.

Cost of living has gone up in recent years because of the rise in prices. The Chilean peso was re-valuated and inflation occurred because of a boom in the tourism industry. When tourists with money were willing to pay higher prices, demand increased resulting in higher prices for all. In turn, the purchasing power parity for Chile dropped because Chileans could buy less with their money than they could before. When more workers are put to work and pay is increased to keep up with the inflated prices, the purchasing power of the Chilean peso will rise.

Chile had 2.603 million main telephone lines, 944,225 mobile cellular telephones in use, one hundred and eighty AM, and sixty four FM radio broadcast stations in 1998. There were 5.18 million radios, sixty-three original television broadcast stations, and 3.15 million televisions in 1997. In 2000 Chile had seven Internet service providers and 625,000 Internet users. These figures are much higher than those for other countries in the region. All indications point towards rapid expansion of all of these communications resources especially Internet service providers and users. Currently Internet usage is expensive and many users are billed by time usage. Both of these factors severely limit development of information services, which feed the fire for development.

Chile’s economic stability has been steadily increasing for many years. With time, potential investors will see Chile’s potential and be able to invest heavily with more assurance. More time in this current trend will improve Chile’s credibility drastically. Chile has a growing reputation as an illegal drug transshipment country. Territorial disputes with Bolivia have been constant since the Atacama area was obtained from Bolivia in 1884. Solving these problems and conflicts will dispense many fears of instability for the Country.

Chile is diverse in climate, geography, and history, with deep fertile valleys, spectacular mountains, beautiful beaches, natural hot springs, fresh cool waterfalls, hot deserts, icy tundras, and much more. This level of diversity attracts me tremendously. I have yet to visit this fascinating country though, therefore I cannot say that I would or would not want to live in Chile for an extended period of time. I can say that I would have to be convinced that Chile is a stable and safe country just as potential investors would.

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