Note: It might seem funny, but I’ve never written a standalone post about doing business in Chile. If you’re interested in going deeper, please check out the Chile category on the blog, as there’s 8 years of content about what it’s like, delving deep on banking, real estate, startups, investing and more.
Chile is a long, thin country at the tip of Latin America that is widely considered one of the best countries in the region to do business. Across several indicators in the World Bank’s Doing Business Report, Chile beats out the regional competition. In 2018, Chile ranked 55th in the world on the World Bank’s Doing Business report, coming in just after Mexico, which ranked 49th. However, in recent years, Chile’s business-friendly reputation has slid from 34th to 55th which has been subject to some controversy.
Still, Chile is undoubtedly one of the most influential economies in the region, despite its small size. Chile’s population reaches just 17 million people, but the country is extremely centralized. The capital, Santiago, is home to 7 million people, or one-third of the total population. By comparison, São Paulo, the biggest city in Brazil, has over 21 million inhabitants – more than the entire country of Chile.
Chile’s overall GDP was US$247B in 2016, 28% of which is made up of exports. Chile is the world’s largest exporter of copper, and it also exports lithium, fish, and wine. While Chile’s overall GDP appears small beside giants like Brazil (US$1.8T) and Mexico (US$1.1T), its population is more than ten times smaller. When measured per capita, Chile’s GDP is the second-highest in the region after Uruguay.
Chile also boasts robust institutional stability, quality higher education programs, and the lowest rate of crime in Latin America. Despite high levels of bureaucracy in some areas, the government runs smoothly and efficiently, with relatively low levels of corruption. Chile ranked 26th out of 180 countries surveyed by Transparency International in 2017, right after France and Uruguay, who are tied for 23rd. By comparison, Argentina ranks 85th and Brazil ranks 96th.
It costs approximately 25% less to live in Chile than in the United States. Rent in Santiago is 83% lower than in New York or San Francisco. In fact, the cost of living in Chile is on par (though still slightly lower) with Tupelo, Mississippi, one of the most affordable cities in the US.
Still, Santiago struggles with high levels of pollution and traffic, like many other Latin American cities, and Chileans work some of the longest hours in the world for relatively low wages. The Chilean work week is the 6th longest in the OECD, after Mexico, Costa Rica, Korea, Russia, and Greece.
The Start-Up Chile Effect
Since 2010, innovation has been an official priority of the Chilean government. Start-Up Chile was one of Latin America’s first accelerator programs and ranked first in the region and fourth in the world on the 2015 Global Accelerator Report. Start-Up Chile is also the reason I first arrived in Chile in 2010, to participate in the first generation of the program.
Start-Up Chile is a government-funded accelerator program that incentivizes entrepreneurs to use Chile as a launching pad for their startups. The program provides US$40K in equity-free funding, as well as a year-long work visa, to bring companies to Santiago from all over the world. Since 2010, Start-Up Chile has helped more than 1,400 startups which have generated more than US$420M in additional funding, or ten times the original investment made by CORFO, Chile’s economic development ministry.
Start-Up Chile is helping Chile transition to a knowledge and technology-based economy in order to decrease its reliance on minerals such as copper and lithium, which lose more value every year. As a result, Chile has one of the most mature entrepreneurial ecosystems in Latin America and has served as a model for the region.
To incentivize innovation, Chile continuously works to decrease the bureaucratic friction for immigrants who want to start businesses in Chile. In 2017, Chile debuted a new Tech Visa, which allows entrepreneurs or professionals that work in technology to receive a visa in just 15 working days. It is also relatively easy to start a business in Chile, taking an average of 5.5 days.
Unsurprisingly, dozens of international startups have sprouted out of Start-Up Chile. Here are a few of the most successful companies to come out of the accelerator:
CargoX (Start-Up Chile 2011): Brazil’s “Uber for Trucks,” CargoX is a smart freight broker that uses technology to make shipping logistics more efficient. I interviewed CargoX CEO, Federico Vega, on my Crossing Borders podcast, where he talks about his Start-Up Chile experience.
Doist (Start-Up Chile 2011): Doist has created a variety of online platforms that make working online more productive and less stressful. Their most popular apps are Todoist, an online to-do list, and Twist, a corporate messaging system that rivals Slack. Doist founder, Amir Salihefendic, and marketing director, Brenda Loury, have both appeared on my podcast.
The Intern Group (Start-Up Chile 2011): The Intern Group provides international summer internships for university students across Latin America, Europe, North America, and Australia. They are based in Medellin, Colombia and Santiago, Chile. Learn more about The Intern Group in my interview with CEO, David Lloyd.
Viajala (Start-Up Chile 2013): Viajala is Latin America’s largest travel metasearch company, which aggregates flight and hotel information from dozens of sites for easy searching. Listen to my interview with Thomas Allier, the founder of Viajala, on my podcast as well.
Many of the companies Magma Partners has invested in participated in Start-Up Chile as well, including GroupRaise, PropertySimple, Slidebean, and Keteka. However, Start-Up Chile is no longer the only entrepreneurial program active in the country. Chile’s largest newspaper, El Mercurio, recently reported that there were over 80 programs – ranging from VC funds to small incubators – supporting entrepreneurship in Chile.
The Drawbacks of Doing Business in Chile
Chile has flourished under a free market regime since the mid-1980s when dictator Augusto Pinochet implemented a neoliberal agenda to drive growth. As a result, Chile has often seen strong GDP growth, averaging around 5% per year until a recent drop to 1.6% in 2016.
However, Chile is the most unequal of all OECD countries, coming in 15th in the world in 2013. This statistic has had an unusually heavy impact on financial inclusion, with Chile ranking 90th on Doing Business rankings for obtaining credit, one of the lowest in the region.
While Start-Up Chile is a highly visible result of government spending on innovation, Chile still relies heavily on mining, which only employs 2% of the population. Other extractive industries, such as logging and fishing, also dominate Chile’s economy. Compared to other OECD countries, Chile continues to invest very little in research and development: just .4% of the budget last year.
Much like in other Latin American countries, doing business in Chile can be slower and more conservative than in the United States. Finding a job is frequently about who you know, and socioeconomic class continues to be a significant divider in society. It can occasionally be easier in the tech industry, especially with the new visa. In my article for VentureBeat, I describe some of the best ways to job hunt in Chile.
Chile is well-placed to grow. In 2016, 45% of Chileans had smartphones, and three-fourths of the population had access to mobile devices. In the same year, 66% of the population had access to the Internet, and those numbers are multiplying quickly. While the economy has recently taken a small dip, Chile’s long-term economic growth and stability will allow it to hold on to a position of power in the regional economy. Having recently elected a new, business-friendly president, Chile is open and ready for investment.