Savings & Investment

In 2020, Chile’s gross savings as % of GDP was 21.13% according to World Bank collection of
development indicators. Post 2010, the Gross National Savings Rate of Chile has dropped from 30% to
21% in 2020. Overall, in the previous decade, downward trend has been recorded. This is mainly due to
two major factors: Limitation of Pension system and Lower future Expected return on savings.

Chile was the first country

which replaced the traditional
system of PAYG to a pension
system which was fully funded.
Initially, the increase in savings
was related to success of the
system. However, as the
system matured, the minimum
contribution rates which were
set at a modest level resulted
in lower replacement rates,
both in comparison to early
projections at the time of the transition and by international standards. Again, since the adoption of new
contribution system, the real interest rates has seen a dip and is projected to remain low at medium
term, disincentivizing people to save.

In March 2021, Investment as

% of nominal GDP was
recorded at 23.9%. From 1996
to 2021, average investment as
% of nominal GDP has been
22.8%. Investment as % of GDP
was at all-time high of 31.7% in
1998.

Trade surplus of Chile has been

recorded at 0.09 billion USD. In
addition, the trade balance
despite fluctuations has overall been positive over past 10 years. It signifies that savings exceed
investment.

Opportunities

Chile is usually considered as one of the strongest investment destination in Latin America. It has
received enormous inflow of foreign capital due to heavy exposure to commodities like copper which
has helped the country to prosper. For investment in Chile towards geographical areas which are
isolated as well as in IT sector, incentives are being provided be it purchase of land or hiring of labor or
project financing. Incentives are also being provided for investment in underprivileged areas and remote
areas. In addition, fiscal advantages are there in tax-free-zones wherein companies located in such areas
are exempt from VAT, corporate income tax for services in the free trade zone. Few key sectors which
are considered very good opportunities for investment in Chile are energy sector, mining, road
infrastructure, building and agrarian sector (wine to be precise). Moreover, food industry is also
promising for investment. Apart from these, some major advantage Chile possess as an economy are as
follows:

Accommodative Monetary Policy: The Central Bank uses an inflation-targeting framework and a flexible
exchange rate regime to conduct monetary policy. Strong confidence in the framework has been
bolstered by skilled monetary management and an independent Central Bank, which has helped anchor
inflation expectations despite by 2020 recession. Inflation expectations have remained stable at 3%,
allowing the Central Bank to continue to conduct good monetary policy. Monetary policy should
continue accommodating and supportive of the recovery, with inflation expectations firmly established.

Strong Fiscal Position: Chile has had a long history of conservative fiscal management underpinned by a
strong fiscal framework, with the structural budget deficit remaining relatively steady. The fiscal
framework has recently been upgraded in line with OECD best practices, with the frequency of fiscal
reports increased and the addition of a new Financial Management Evaluation Report and a Public
Sector Human Resources Report. Chile will be able to sustain its macroeconomic strength and support
counter-cyclical policy by combining a credible fiscal norm with financial and monetary policies overseen
by an autonomous Central Bank.

Abundant Natural Resources: Chile is the world's greatest supplier of copper and lithium, the latter of
which is used to power next-generation batteries. According to some estimations, China holds a quarter
of the world's lithium reserves. Because of the growing investment in electric vehicles, this opens up
possibilities for the future.

Attractive Business Climate: Chile has maintained an appealing and dynamic business climate for
investors due to its political and economic stability, openness to trade, legal security, and great growth
potential. According to The Economist Intelligence Unit’s Business Environment Rankings, in the 2017-21
period, Chile is ranked first in the region and 17th internationally, owing to its long-standing and well-
functioning market economy, open investment regime, robust fiscal position, sophisticated capital
markets, and extensive network of free-trade agreements (FTAs).