Now is one of the best times to make an investment in Chile. I’ll explain why in just a moment. First, however, let me explain why Chile is one of my favorite places in the world.
Chile is not only a great place to make money but also a great place to live. The people are extremely hospitable (a line from the country’s most-famous folk song translates to “You’ll see how they love the foreign friend in Chile”), and the country is very affordable (a place where you can buy a 1_ pounds of fresh fish for a dollar).
Furthermore, Chile has some of the best beaches and ski resorts in the world… and some of the best wines, bottled in local vineyards—all at a fraction of the price you’d pay for similar items in Europe. In short, Chile has an unexpectedly high quality of life at affordable prices.
An economy open for investment
Over the past 15 years, the Chilean economy has averaged over 6 percent annual growth. That has made it the fastest-growing economy in the Western Hemisphere (almost twice as fast as that of the United States) and, for that matter, one of the fastest growing economies in the world. The principal reason for this boom is that Chile was the first nation in Latin America to wholeheartedly embrace free-market reforms.
In the early 1980s, the country began to unilaterally reduce and dismantle tariffs, bringing down the prices of imported capital and consumer goods and increasing competitive pressure on its own industry.
The government privatized dozens of state industries, slashed taxes and business regulations, and severely eased restrictions on foreign investment. It also implemented free-market-oriented reforms in sectors of the economy that are–the world over–traditionally controlled by the state. Chile, for instance, was the first nation in the world to privatize its social-security system.
This innovation has increased retirees’ average pensions by more than 50 percent has helped shrink the government, and has increased the amount of capital available to industry by tens of billions of dollars. In fact, the Chilean system of social security has worked so well that it has been emulated by Mexico and Argentina, and is being studied by European countries, Russia, and even the United States.
More people with money to spend
Chile’s economic boom has made a lot of people rich, but it is not only the rich who are benefiting. Over a million Chileans have emerged from poverty since 1980. Many are moving into a middle class that had already long been Latin America’s largest as a percentage of the population.
For example, I know a steelworker in Chile who has averaged an income of perhaps $800 a month over the past 30 years. Yet today he owns a home outright worth $70,000 and has a pension worth over $140,000. Quite a sum in Chile, where the average GDP per capita has risen nearly 150 percent in the last 10 years but is still only about $6,000 per person.
And because the country still has quite a ways to go before catching up with the developed nations of the world (though it’s getting there fast), the opportunity for foreign investors is enormous. Because it’s one of the most rapidly-developing countries in the world, it offers excellent opportunities to make handsome profits.
Underground bargains
Mining accounts for less of a share of the economy than it used to, but it remains Chile’s largest industry. Chile is the largest producer and exporter of copper in the world, and copper remains the country’s biggest earner of foreign currency. Since 1995, however, copper, along with most other commodities, has been in a bear market. This, combined with trade shocks from the Asian crisis, caused the economy to contract by 1 percent over the last 12 months.
The recession is the first in 15 years, and I believe it will be a brief one. Already, fourth-quarter economic growth is projected to be positive, foreign investment has set a new annual record (at $6 billion), the country has easily maintained its investment-grade ratings, and the government’s free-market policies are as strong as ever. What’s more, the temporary economic downturn actually presents an opportunity for investors.
In the last six months, commodities worldwide have begun to rally and copper in particular has rebounded by 25 percent. Now is an excellent time for foreign investors to take a look at mining investments in Chile. Phelps Dodge and Barrick are just some of the major global mining companies investing in the north of Chile at the moment. Individual investors, meanwhile, might consider SQM, a profitable, well-managed, and diversified Chilean mining company that trades on the New York Stock Exchange with a P/E ratio of just 10.
Jewelry for one-sixth the price you pay at home
Chile also produces gold, silver, and precious and semiprecious stones. This means you will find a wide availability of beautiful and highly affordable handcrafted jewelry at cheap prices. On a recent business trip, for instance, I bought my wife a bracelet at the Santiago airport. It was made of lapis lazuli stones set in silver.
When I returned to the States, I saw a similar bracelet in an upscale South Florida mall… but it was selling for three times what I paid in Chile! Had I bought the Chilean bracelet at a market instead of the airport (I was in a hurry), I could have got it for about 1/6th the Florida price. If you’re interested in importing, Chili is the place to buy jewelry.
Profits in the red—and white
Perhaps the most exciting direct-investment opportunity in Chile is in wine. Chileans are very proud of their wine, and rightfully so. Grapes cover practically the entire Central Valley–a 600-mile-region stretching from just above Santiago south to the Rio Biobió. In season, in the countryside, you can buy a kilo of tart, green grapes the size of pingpong balls for less than an American dime… or juicy red grapes to make tinto, a flavorful homemade red wine that millions of Chileans drink with their lunch every day.
Chileans are wine drinkers, much like the French and Italians. It’s part of their culture. And while Chile’s vintners have not been plying their craft as long as the Europeans have, they have been doing it for nearly 450 years. Because of that experience, and an ideal soil and climate in the Central Valley, many of Chile’s finer wines are now recognized as among the best in the world.
Award-winning wines
For instance, Chilean wines performed well at three of the top wine competitions in the world in 1999. At the World Competition in Brussels, Chilean wines were awarded two grand gold medals and nine regular gold medals, while at the International Wine Challenge in London, Chilean wines took home 12 gold medals. At the Concorse Enológico Internazionale de Vinitaly in Verona, Chilean wines took home the festival’s special prize and three gold medals, and perhaps, more significantly, two Chilean wine professionals were invited to sit on the panel of judges of this prestigious event for the first time.
Just as important for investors, however, is the fact that Chilean vintners not only are making great wines but are doing it at a cost far less than that of the global competition. For example, Viña Concha y Toro’s Don Melchor Cabaret has been rated “outstanding” by Wine Spectator. Yet it sells for only about $15-$20 a bottle in the United States. Similarly rated French wines go for about three times that.
There’s no doubt but that Chile is enjoying success in the upper tiers of the wine market. But the biggest profits aren’t in the upper-category, medal-winning wines. You’ll make the most money in the table wines – the ones people around the world consume every day with their meals.
Chile excels in this class of wine, and, because of its price advantages, it is grabbing an ever-larger share of this sector, the biggest of the international wine market. Chile has already become the third-largest exporter of wine to the United States, trailing only France and Italy. But more importantly for investors, Chile is the fastest-growing exporter of wine to the United States, the largest market for imported wines in the world.
The largest of Chile’s exporters, Concha y Toro, trades as an ADR on the New York Stock Exchange and has risen more than 50 percent in the past year, despite the fact that American investors have shied away from “emerging markets” in recent years.
Freedom and high ratings
I once published, for a number of years, a newsletter called Latin American Index, covering business and investment in Latin America. Chile was regularly at the top of our list of recommendations for both direct and portfolio investment. It remains so today.
The country is consistently rated by international business organizations as among the 10 most transparent and reliable places to do business in the world, often scoring higher than the United States. International Speculator’s Doug Casey considers Chile one of the world's relatively few countries that “offer the most in personal freedom and financial opportunity.”
It is also the first country in Latin America to receive an investment-grade rating from the major rating agencies. Chile is rated A- by Fitch, Duff and Phelps and Standard and Poor’s. Moody’s Investors’ Service, meanwhile, gives it a similar rating at BAA1.
Leading direct-investment opportunities besides, those mentioned above, include salmon fisheries in the southern section and forestry and tourism development throughout the country.
A house rental for $250 a month
It doesn’t cost much to live the good life in Chile. In Iquique, a growing northern port city, $250 a month will get you a small house not far from the center of town. In Santiago, you can rent a bare-bones one-bedroom apartment in downtown Santiago, with a living room, a dining room, a kitchen and a washer and dryer, for the same price. If you are willing to pay three or four times that, you can live in the lap of luxury in the middle of a brilliant city.
Because of Chile’s extraordinary economic success, asset prices have soared during the past 15 years. Between 1985 and 1995, for example, the stock market shot up 3,570 percent in dollar terms. Housing prices did not rise nearly as steeply, though they have more than doubled throughout most of the country in the past 10 years.
A 10,000-square-foot, two-bedroom apartment with a view of the ocean in Viña del Mar, for instance, now lists for $170,000. Six hours north by car, in the colonial city of La Serena (Chile’s second oldest city), a three-bedroom, three-bath house that’s right by the ocean and has a heated pool goes for $162,000. Yet, because of the recession, you may be able to knock as much as 25 percent off these asking prices.
Preconstruction prices on 2,300-square-foot new developments overlooking the ocean in the northern city of Iquique are at about $107,000.
If you get off the beaten path, you’ll find even better values. A 4,000-square-foot home in a hillside, gated community on the outskirts of La Serena, for instance, goes for just $58,000. For even better deals, look at undeveloped land.
Ten minutes from the immaculate Bavarian town of Puerto Varas, settled by Germans in the 19th century, for example, prime pastureland is being offered for just $13,000 a hectare (2.5 acres), though the seller will probably take $12,000. This area is often referred to as the Switzerland of South America. The only difference at times seems to be that instead of the Alps, immense volcanoes ring the chilly blue lakes.
The plots are across the road from the celebrated Lake Llanquihue, with the Andes in the background. An increasing number of tourists head to the area every year for the sights, the hiking, world-class trout fishing, sailing, windsurfing, rafting, mountain biking, tennis, and golf. So the likelihood of continued strong appreciation of land values in this region is high…yet your property taxes will run just $45 a year!
As little as $30 a week buys groceries for two
You can live a quality European lifestyle in Chile–amidst a friendly and highly educated population, in a beautiful country with one of the most dynamic economies in the world. And you can do it all for less than it would cost you to stay home.
Building your own home may be the way to go. The minimum wage in Chile is only $155 a month, and a skilled laborer won’t charge more than twice that. Wood is of the highest quality in the world, and, like other materials, it’s plentiful and cheap.
Chile invested heavily in roads and infrastructure in the 1980s and 1990s. Well-maintained highways now reach throughout the country. Medical care is of a very high quality, and banking and financial services are the best in Latin America. Utilities in the cities and most of the villages are efficient, reliable, and cheap–and the country’s communications network is about as good as you’ll find anywhere in the world.
This country has come a long way. When I lived in the port city of Talcahuano in 1977, only a few families on our block had phones. Today, it seems everyone in the neighborhood has one, and a growing minority also have a cell phone, a computer connected to the Internet, and 65 channels of cable TV.
Wherever you choose to live – renting or buying – once you’re settled in, the cost of living will prove quite reasonable. Electricity for a two-tenant apartment should run about $50 a month, water about $20, and phone service about $70. Food costs practically nothing. It’s hard to spend more than $30 a week on groceries for two people. You can buy a pound and a half of fresh fish for a dollar, two pounds of chicken for $1.50.
Good help is not hard to find. You can get maid service for about $220 a month. Hiring a nanny for your children will run about the same. Weekly gardening service runs about half that.
Justin Ford lived in Chile for a year and a half in the late '70s. He has returned to the country for business and pleasure numerous times since. For a period of six years, Mr. Ford was also the publisher and managing editor of Latin American Index, a highly regarded newsletter on business and investment in Latin America. IL