Chile’s competitive edge at risk from organized crime fallout, political polarization

As an investment destination, Chile today retains a competitive edge compared with the rest of Latin America, but headwinds have been building.

In recent years the nation has witnessed an increase in political fragmentation that has hampered lawmaking, combined with growing concerns over organized crime and a perceived sluggish policy response.

Leandro Lima, senior analyst for Brazil and the Southern Cone at global risk and strategy consultancy Control Risks, summed up the state of play following a business risk forecast event in Chilean capital Santiago. 

“Although the operational environment for businesses in Chile is not as challenging as in other Latin American countries – Chile continues to be a relatively stable destination for foreign investment – I think the main takeaway is the fact that the trends could be concerning,” Lima told BNamericas. “We see, in different areas, levels of uncertainty and risks increasing, for example, security is an area where risks for business have increased.”

In Chile, criminal gangs – among them Venezuela’s Tren de Aragua – have been spreading their tentacles and moving into areas such as copper theft, clandestine immigration and extorsion.

“It has always been challenging in southern Chile, but it has been increasingly challenging in Santiago and in northern Chile,” Lima said.

According to 1H23 data from Chile’s state prosecutor, northern border regions Arica y Parinacota, Tarapacá and Antofagasta were the three jurisdictions with the highest murder rates in the country. Nationally, the official murder rate was down 3% in 1H23 compared with 2H22. 

New legislation to help combat organized crime and protect critical infrastructure is needed, the event was told.

The government is working to demonstrate it is tough on crime and has announced initiatives, but border control issues in the north and increased sophistication of criminal gangs – deemed underlying drivers of security risks – are expected to persist this year.

In surveys, crime, which particularly impacts lower income neighborhoods, regularly tops the list of citizen concerns. 

In terms of political polarization, the country’s two traditional coalitions have weakened as new political parties from the left and right have emerged on the map. Against this backdrop, the current administration has struggled to get draft legislation passed, as did the previous one. Stiff political confrontation, once chiefly seen only around election times, has become more common, seemingly since the social protests of 2019, despite efforts by some political figures to build bridges.  

President Gabriel Boric – whose approval ratings have been floundering – is not expected to succeed in getting his planned pension and tax reforms through congress before next year’s general election, or at least not without them being amended. While maintaining the status quo may be considered positive by some, congressional gridlock creates fallout, the event was told.

Last month Cecilia Cifuentes, Chile director of Brazilian investment bank BTG Pactual, told BNamericas that Chile needed to improve its institutions to fully take advantage of the energy transition opportunities knocking at the door.

COMMUNITY RELATIONS

Along with security, community relations and social and environmental issues are key concerns of investors in general. 

Engaging with communities is deemed vital in both the permitting and operational phases of projects.

“These are issues that have been increasing in importance for all economic sectors and they have direct and indirect impacts on company operations,” Lima said.

Charts presented by Control Risks showed that community groups account for the bulk of protests, with energy, mining and sanitation the main associated sectors.

As part of a battery of planned pro-investment measures, Chile’s government has draft legislation in congress to overhaul and improve the project permitting system, often bemoaned by investors as lengthy and complex.