Like Norway, the foundations of Chile’s economy are the primary industries, especially mining and forestry. Copper is an equally important part of the economy as oil does for the Norwegian economy. However, the country is one of the more industrialized countries in South America as more industrial sectors and export industries are expanded. Copper is very important to the economy and control of copper has been an important factor in Chilean politics throughout history. The economic model introduced during the dictatorship in the 1970s and 1980s, with a focus on liberal economic policy, privatization, foreign competition and integration into the world economy, has been maintained even after the introduction of democracy. Liberalization has led to an increasing share of the copper and other economic sectors having private and foreign owners – despite the fact that the center-left coalition La Concertación has been in power since 1990.
Chile has a stable economy and the country has evolved to become an economic model for other Latin American countries. Chile is considered to be in the group of countries that are between the underdeveloped and the developed.
The economic development
Under President Salvador Allende, all mineral deposits and parts of the industry were nationalized as well as many large estates were expropriated and organized as state farms. Greater state control meant more consumption and welfare, but also scarcity of goods, high inflation, capital flight and political polarization, which ended with a military coup in 1973.
After the coup, much of industry and agriculture were privatized, a virtually free market economy was introduced and foreign investment was largely opened. Liberal economists, the so-called “Chicago Boys” (educated at the University of Chicago), became advisors to a new capitalist economy that was to be overcome with protectionism and government interference. Liberalization meant social consequences, rising unemployment and falling real wages. A coin reform in 1976 replaced the then currency unit escudo with peso. A severe economic downturn in the late 1970s ended with a debt crisis in 1981-82 after international borrowing rates had risen sharply and copper prices had fallen. After the introduction of democracy in 1990, governments have continued the market liberal model under the military dictatorship. The state’s role in the economy is limited to regulation, besides a few state companies, including CODELCO, the largest copper company in the world.
After the crisis in the 1980s, Chile has experienced relatively stable economic growth. Chile has a stable and adjusted public policy and, by law, a public surplus of 1% of gross domestic product (GDP) is required each year. GDP grew by 10.6% in 1995. In the period thereafter, GDP grew by around 5%, but from 2007 to 2008, GDP grew by only 3.8%. Chile is among the countries in Latin America with the highest GDP per capita. However, it is significantly lower than Norway and other developed countries. Foreign debt has fallen sharply in recent years and in 2008 it represented less than 2% of GDP. inflation has been relatively low compared to the 1970s and other Latin American countries after introducing inflation targets. In recent years it has remained below 4%, although it is important to note that in 2008 it was 9%. Inflation has not always been as low; at the beginning of the 1970s there were periods between 300-600% and in the 1980s it was between 20-30%. Exports have risen sharply in several sectors. Large national savings and investments have helped the country’s economic growth. The private national pension system (AFP) has promoted national investment, but has nevertheless been criticized as only about 55% of the population is covered. Two state funds were established in 2006 and 2007; Fondo de Reserva de Pensionesá la State Pension Fund in Norway and the Fondo de Estabilización Económica y Social, a stabilization fund. The funds will be filled with funds from the surplus of copper exports. Stability and development have made Chile a pioneering country. economy. Nevertheless, it is important to point out the country’s dependence on the commodity copper and the economy’s vulnerability to copper prices in the world market.
Transport and Communications
The country’s topography is detrimental to the transport sector, which is best developed in the middle parts of the country. Both the railway and the road network follow the Chilean longitudinal valley in the north-south direction to Puerto Montt, where the mountain and fjord-rich landscape makes further development difficult. The railway network consists of an approximately 3300 km long trunk line from north to south with a number of side lanes in the east-west direction, totaling just under 4500 km. Several different track widths prevent efficient utilization of the railways. The most common means of access in Chile and neighboring countries are car and bus. The bus system is relatively well developed in comparison with neighboring countries.
The main road network has been undergoing rapid expansion. The Pan-American Highway is completely paved from Arica all the way north to Quellón on the island of Chiloé south of Puerto Montt. The road between Santiago and the port cities of Valparaíso and San Antonio has also been expanded; the other roads are usually of a poor standard.
The long coastline has given shipping traffic an important role in the country’s development. The coastal routes are still important for transport, and can only be reached by boat or plane to the southern parts of the country. Valparaíso has been the country’s most important port city; Other important ports are Talcahuano, Antofagasta, San Antonio and Punta Arenas.
The main international airport is at Santiago (Arturo Merino Benítez).
Chile is a mineral-rich country and is the world’s largest producer and exporter of copper. Copper reserves are estimated at just over 20% of the total known reserves in the world, and Chile accounts for around 30% of world production. Chuquicamata is one of the world’s largest open copper mines (mining), and El Teniente, southeast of Santiago, is the world’s largest underground copper mine. The largest smelters are in Potrerillos and Quintero. Copper production was 5,384,456 tonnes in 2006, an increase of 54,041 tonnes from 2005. Mining was approx. 8% of GDP in 2007, but just over 1% of the population work in the sector. Copper represents a large part of the state revenue through the largest state copper company CODELCO. Copper prices have risen over the past decade and contributed to higher government revenues. In 2009, however, prices fell drastically and almost halved.
Chile is also an important producer of molybdenum ore, which is obtained as a by-product of copper production. Significant quantities of gold, silver, saltpeter, manganese and iron ore are also extracted. The iron ore is mainly found in the semi-desert area. Copiapó is the leading mining center, and Caldera is the main export port for the ore. Oil and natural gas were found in southern Chile in 1945, but production covers only a minor part of the country’s needs. The most important fields are located in the Northern Fireplace. North of Chile is the world’s largest reserve of lithium.
Salmon extraction was very important in the Chilean economy until the First World War. This is of limited importance now, but when it comes to iodine by-product, Chile is a world leader.
About. 16% of the land is used for pasture and approximately 6% is cultivated land. Chilean agriculture has traditionally been dominated by large landowners (latifundistas), who have used poor farmers (inquilinos) as labor. The land reforms in the late 1960s and early 1970s led to the expropriation of many large estates, which were organized as cooperatives, agricultural colonies and state farms. These reforms were later repealed under Augusto Pinochet’s military dictatorship.
Agriculture, forestry and fisheries employ just under 13% of the working population, but account for just over 6.4% of GDP (2005). Agriculture is generally poorly developed and the country is not self-sufficient in food. Agriculture is largely concentrated in the Mediterranean climate and temperate forest zones (Zona Central and Zona Sur). In the middle parts of the country, where the climate is relatively similar to the Mediterranean, corn, rice, fruit and grapes. The Chilean wine production is great in this area. In the more precipitous forest zone further south, among other things, wheat, oats, and potatoes. There is also a considerable pig and cattle herd. In the past decade, cattle production has almost doubled to 726 021 tonnes. Sheep breeding is carried out on the Patagonian steppe and on the Fireland to the south of the country; a great deal with first-class animals of English descent.
Chile’s largest forests are located between Concepción and Puerto Montt (Zona Sur). This area was first colonized in the last 100 years, and the forests have been scarcely exploited. About. 12% of the country’s area is covered by forests and ¼ of the forest areas are suitable for economic forestry. Fast-growing pine and pine species are used in the paper and cellulose industries. This is built up, among other things. in Concepción and Valdivia and in these areas deforestation has progressed rapidly.
The north-west Perustr stream (Humboldt stream) off the coast provides good conditions for fisheries. The industry expanded rapidly from the 1960s onwards, and Chile is today one of the world’s largest fishing nations. Total catch quant. fishery and shellfish in 2006 were 5,379 tonnes, 99 tonnes less than in 2005. Shellfish production has risen sharply over the last 10 years, from 185,000 tonnes in 1996 to 459,000 tonnes in 2005. Among the most important catches are mackerel, sardines and shellfish. The bulk of the catch is for industrial purposes, and fishmeal is an important export product. In recent years there has been an extreme development in fish farming, and Chile is today the foremost in the world in this area. Chile is number two in the world after Norway in salmon production. However, it is worth mentioning that since 2008, the salmon industry has been in a serious crisis due to the infectious ILA virus. The disease has led to a halving of salmon production, bankruptcies and several thousand layoffs.
Chile’s hydropower resources per capita are considered to be the most significant in the world, and in recent years there has been a significant expansion of hydropower plants. In 2017, the total expanded production capacity was 7 GW, but the expandable potential is estimated at 12.5 GW. In the south of Chile, in Magallanes, there is some oil recovery.
Electricity production has risen sharply in recent years, from 31.7 TWh in 1997 to 76.3 TWh in 2017. The share of hydropower was 28 percent. Chile began importing natural gas from Argentina in the 1990s and has subsequently become dependent on imports. In 2004 Argentina began to reduce natural gas exports to Chile, and it is possible that in the future supply will be completely stopped. This means that Chile has to adapt to other energy sources.
Chile’s industry is relatively well developed compared to neighboring countries, and the country is considered among the most industrialized in South America. However, Chile spends only about 0.6 percent of GDP on research (R&D), which is small compared to developed countries. The industry was protected from foreign competition by high tariff walls from before World War II, but in 1981 the tariff rates were sharply reduced and industrial production fell sharply. In 2007, the population of work in the industrial sector corresponded to 13% and accounted for about 17% of GDP. The production of food, stationery, textiles, clothing, footwear and cigarettes predominates, and is largely concentrated to the capital Santiago. Here are also mechanical industries, assembly plants for cars, chemical factories etc. The country’s leading heavy industrial complex is San Vicente at Talcahuano, with the integrated iron and steel plant in Huachipato, in operation from 1950, and the country’s first petrochemical plant, in operation from 1970. The petrochemical industry is also located in Concón outside Valparaíso.
Foreign trade and foreign investment
In the late 1970s, Chile had large trade deficits abroad. Since 1981, the trade balance has been more favorable, with relatively large export surpluses. There has been a trade surplus since 1999 and in 2006 and 2007 the surplus was over $ 23,000,000. The growth in exports these years is largely due to the high copper prices. In 2008, however, profits went down to $ 8,846,000.
- COUNTRYAAH: Find major trading partners of Chile, including major exports and major imports with latest trade value and market share as well as growth rate.
Exports have gone up in all sectors, especially in the copper sector; in 2005, copper was exported for over USD 22 million. Exports are dominated by copper, but the percentage has been declining over the years; in the 1970s, copper exports accounted for over 80%, from 1995 the share (refined copper and copper concentrate) was between 35 – 50%. Other important export products are fruits and vegetables, wine, wood pulp, meat, fish and fish products (fish meal). In particular, exports of fruit, fishery and wine have increased significantly.
Imports into the country include machinery, transport equipment, chemical and petrochemical products, as well as food. Reduced customs duties on imports have stimulated imports of agricultural and consumer goods. Chile imports approx. 85% of their petroleum needs.
Chile has in recent years signed a number of free trade agreements with several countries around the world. EU, EFTA, USA, Japan and China. The United States is the most important trading partner, and in recent years trade has expanded significantly; in 2008, it was exported for $ 7,793,538,160 from the United States and imported for $ 10,939,172,805. By the way, China has become an important trading partner; in 2008, it was exported for $ 9,851,200,023 to China and imported for $ 6,795,042,930. Japan, South Korea, the United Kingdom, Argentina, Brazil and Germany are also important trading countries. Just under half of exports go to countries in America, approx. 30% to Asia and approx. 25% to Europe. In 2008, Chile exported $ 65,781,633 to Norway, and the same year it was imported for $ 126,439,664. Chile exports i.e. wine, fruit, berries, animal feed and vegetable oils to Norway. machinery, pharmaceuticals and ships. Chile reduced the import tariff to 6% for countries that do not have a free trade agreement with the country. High tariffs now only apply to wheat, wheat flour and sugar.
Regionally, Chile is a member of the Asocíación Latino-Americana de Integración (LAIA) from 2003 and an associated member of the Mercado Comun del Cono Sur (MERCOSUR), which consists of Argentina, Brazil, Paraguay and Uruguay from 1996. Chile is and member of Asia-Pacific Economic Cooperation (APEC) from 1994. The international organization OECD has invited Chile to discuss official membership.
- According to AllCityPopulation, the capital city of Chile is Santiago de Chile with a population of 6.2 million (estimate 2017). Other major cities include Concepción (901,000), Valparaíso (723,000) (estimate 2017).
An important part of Chile’s cooperation with other countries has been their opening for foreign investment. The introduction of democracy and the liberal constitution of 1981 has laid the foundation for a broad interest in investing in the country. The Foreign Investment Act gives foreign investors the same treatment as Chilean. USA, Spain and Canada represents the largest investors, but also several other European and American countries, including Norway, have shown interest in investing. The largest Norwegian investments are found in the salmon and energy sectors. Foreign capital has built several capital-intensive industries and greatly developed the mining sector. The most important sectors in general for foreign investment are the copper sector and the electricity, gas and water sectors. In recent years, Chile has also accumulated significant investments abroad, especially in neighboring countries.