Big is not always best
When South African businesses look towards South America as a potential market for their products and services they prioritise the countries based on the size of their economies. The result is a disproportionate amount of time and money spent trying to break into Brazil and Argentina.
But Chile, having an economy of only 60% the size of South Africa’s, receives a short fly-fishing holiday at the end of the trip.
However, the experience of most companies trying to penetrate the South American market indicates that “big is not always best”. As long as your sector in a targeted country is large enough to warrant interest, relative size is irrelevant. What is fundamental to a new venture is a reduced risk of failure for first-time entrants. This will allow the maximisation of benefits through relatively lower risk, thus capitalising on the new and exciting market available.
Ranking the economies on the basis of political and economic stability as well as growth prospects, level of corruption and openness, Chile emerges as the winner above the likes of Brazil and Argentina. The latest Corruption Perception Index reveals that while Brazil and Argentina come in only at 46th and 57th position respectively in terms of transparency, Chile is ranked 18th. The stable, safe environment and huge potential just across the border, makes Chile the ideal entry point for South African businesses looking to operate in Latin America.
One way of stimulating trade and investment between South Africa and Chile would be a preferential-trade agreement. South Africa has long pursued a free trade agreement (FTA) with Mercosur (an economic integration project in South America) with little success. Trade talks scheduled for June were cancelled at the last minute. The slow, highly complicated and politicised process has hindered the involvement of business, which, tired of waiting, has now begun developing its own in-ways into the Latin American region.
A bilateral relationship between Chile and South Africa may be the best way to develop or expand ties in Latin America. Indeed there are strong similarities between the two. Both are emerging markets, active in the global system and with notable leverage in multilateral forums such as the World Trade Organisation. They therefore share similar experiences and ambitions in economic integration and are sensitive to changes in their regions and other foreign markets. South Africa and Chile are transparent, have low levels of corruption, are export-oriented and are relatively stable politically and economically. They also have comparable political histories and are on a par in terms of socio-economic development.
Although they are active participants as well as important role players in their regions, they differ from their neighbours and have implemented specific macro-economic policies geared toward global integration and market liberalisation.
Another similarity is the relationship South Africa and Chile have with members of the developed world. Like South Africa, Chile recently concluded an FTA with the European Union. It has been described as the most advanced trade agreement that the EU has signed with a developing country. It is also another step toward forging links between the developing South and the developed North. In this respect, South Africa and Chile are assuming their rightful positions as pioneers of North-South integration. The EU-Chile agreement also provides the opportunity to develop a three-way relationship. A combined South Africa-Chile could counterbalance the weight of the EU, creating a more equal North-South partnership.
Enhanced relations between Chile and South Africa will allow both to benefit from various forms of economic cooperation and alternative market access. Each is a springboard into their respective regions—two markets that offer infinite potential.
The areas of opportunity in market access and cooperation are spread broadly throughout the commercial, cultural, academic and technological sectors. Specific industries of interest include fishing and aquaculture, mining, chemicals, wine, fruit, forestry and pulp, cosmetics, pharmaceuticals and service industries including tourism and business consulting. There is also potential for cooperation among small and medium enterprises from South Africa and Chile involving the exchange of information and the possibility of joint ventures. Closer relations between Chile and South Africa could facilitate and help ease the process of international exposure for these small businesses.
Chile’s experience in bilateral agreements and the knowledge South Africa has gained through FTAs should be a valuable asset in the often lengthy negotiation processes. In order to fast track a South Africa-Chile agreement, it may prove useful to pursue such an initiative in an industry-to-industry, sector-to-sector or even business-to-business fashion. In this way, the private sector would drive the relationship, which would be bound by links between companies and individuals with commercial interests. It could be facilitated and managed by representative federations, foundations or chambers. Such an arrangement would be beneficial for both producers in need of market expansion and the entire economy.
Clearly, enhanced relations and economic cooperation between South Africa and Chile will provide greater commercial opportunities with benefits extending way beyond bilateral advantages, ultimately improving the position of both South Africa and Chile in the greater global economy.
Lyal White is the Anglo American Chairman’s Fund’s Latin American researcher at the South African Institute of International Affairs. Mark Venning is the president of the South African-Chile Chamber of Commerce in Santiago, Chile