Chile’s government launches a plan to boost investment in the face of a weak economy

Photo: Provista

The package aims to boost investment by at least five percentage points during 2023. 

The Chilean government launched last Monday a plan to encourage investment by 2023 when the economy is going through a strong change after the post-pandemic recovery and activity is expected to fall until at least the middle of next year.

The measures include the implementation of tax incentives for private companies, improvements in access to financing and public investment, promotion of foreign capital, and improvements in the efficiency of regulatory procedures.

The package aims to boost investment by at least five percentage points during 2023, said Finance Minister, Mario Marcel, at a ceremony with progressive President Gabriel Boric.

“The lines of work grouped in this ‘Let’s Invest in Chile’ plan bring together efforts in management, public resources, regulatory and normative changes, all of which can be implemented quickly, which leads us to expect that we will see most of their effects during 2023,” Marcel said.

With the announcements, the government is also seeking to improve collaboration and coordination between law enforcement agencies and productive entities. In mid-August, the country’s mining companies asked the government to act to stop an “escalation of crime” that has affected operations in the vast north of the country, where the sector’s activity is concentrated.

“Chile has many opportunities. If we reach an agreement between the political sector, the unions, the workers, and the private sector, we can move forward,” said president Gabriel Boric during an activity at the Santiago airport.

The tax benefits include a US$500 million fund of tax credits against business activity taxes for projects with high green content, among other requirements, as well as the application of instant depreciation mechanisms for the whole of next year.

These aspects will be incorporated by the Government into the indications that it is preparing for these days to its tax reform bill, which also includes a mining royalty that has been discussed for years in Congress but which the Government hopes to push in the reform's framework.

The Government’s measures also contemplate that new copper mining projects will be exempt from a proposed ad-valorem component of the royalty for five years.

“New projects and deposit expansion projects will be motivated while maintaining a taxation in which copper income is shared fairly between the State and the private sector,” the Government said in a note, without giving further details.

By the end of this year, the government also plans to reopen investment offices in Europe and North America and strengthen foreign investment promotion teams, as well as install public-private working groups in sectors such as construction, energy, transport, and mining.

Last week, the Central Bank said it expects investment to fall by 3.3% this year and 4.7% in 2023. In its most recent Monetary Policy Report, the bank said that the economy will grow this year but will face a more complex scenario in 2023 with a contraction of between 1.5 and 0.5%.

The country was the Organization for Economic Cooperation and Development (OECD) country whose advanced composite indicators gave the strongest signal of an economic slowdown last August, in line with what had been happening in previous months.

Its indicator, which signals in advance inflections in the economic cycle, fell 57 hundredths of a point to 96.69 points, well below the 100 level that marks the long-term average, the OECD said last Monday when it published the data.

For the organization, the drop in August was 17 hundredths of a point to 98.90 points.

Those responsible for these statistics explain the variations should be considered as a sign of the strength of the inflection in the economic cycle on the horizon of about six months rather than as a measure of the economic growth that can be expected.

The sharp downturn observed in Chile does not mean that the country will have one of the lowest economic progression of the member countries, but it means that the downward trend change is very clear.

“One cannot deny the hard conditions, external and internal, in which we are today economically in the world and Chile. But it is not enough to say what the difficult conditions are. We have to take charge proactively. We have to turn the hand of the prognosis and for that, we need a firm collaboration with the public and private sector,” added Boric.

Source: Forbes Staff (2022, September 12). Gobierno lanza plan para fomentar la inversión ante debilidad de la economía. Forbes Chile. Retrieved September 22, 2022 from https://forbes.cl/economia-y-finanzas/2022-09-12/gobierno-plan-invirtamos-chile/