Chile: The Switzerland of South America?

chile spiderChile could – and should – be called the Switzerland of South America, for good reason. Laws matter here. Everything is strictly above board. And the Chileans work hard – so much so that it makes the occasional visitor wonder if they ever rest!

The Chilean industriousness shows in its GEDI ranking. In the 2014 GEDI index, Chile was ranked as 15th among 120 countries ranked – just behind Norway and just ahead of Germany (of all countries). This feat is all the more impressive when you consider Chile’s GDP per capita (ppp). Whereas Norway boasts a GDP (ppp) per capita of 47,547 USD and Germany one of 34,766 USD, Chile’s per-capita GDP (ppp) is 15,848 USD. This is the lowest per-capita GDP among the top 20 countries in the GEDI ranking – by some margin relative to most countries.

This is impressive performance: the more wealth the country has, the more it can invest in innovation, and this should show in the quality of its entrepreneurship ecosystem. This is what the GEDI index measures. Yet, Chile outperforms the more than twice as rich Germany and is neck and neck with the almost thrice as rich Norway. Clearly, Chile is doing something right.

But what is it? A closer look at the entrepreneurship ecosystem profiles of Chile, USA, and Brazil provides interesting insight. Note that USA is the leading GEDI country globally, whereas Brazil only ranks 100th in the GEDI ranking. This comparison is shown in the Figure below.

Remember that this is an unfair comparison. USA is one of the richest countries on the planet, with a strong entrepreneurial culture. Yet, as we compare the profiles of the two countries, we see that Chile is on par with the US in terms of Entrepreneurial Attitudes (pillars 1 to 5). Chileans are actually ahead of the US in terms of risk acceptance. However, where Chile falls behind is the Attitude pillars (pillars 6 to 10) and Aspiration pillars (pillars 11 to 15).

Thus, Chilean attitudes are world class. It is this attitude drive that actually pulls Chile on par with Germany and Norway. However, where the gap relative to the most entrepreneurial (and in many cases, richest) countries starts to show is in converting these attitudes into high-quality, high-impact entrepreneurial activity. This is where Chile falls behind the US. And the biggest reason for this is infrastructure: infrastructure for business, and also, infrastructure for innovation. There is great potential in Chile, but to realize this potential, a fertile ground for growth and innovation is needed. This is where Chile needs to invest.

In summary, Chile’s entrepreneurship ecosystem offers great potential. Chile could easily be the Switzerland of South America. But to realize this potential, more investment is needed: in human capital and in an infrastructure to support innovation. Much of Chilean wealth is derived from raw materials and from natural riches. This wealth should be invested wisely to support innovation-driven growth to unleash Chile’s potential for entrepreneurial wealth creation.

Erkko Autio
Erkko Autio
Erkko Autio is professor of technology venturing at Imperial College Business School. He blogs about entrepreneurial ecosystems. You can follow his tweets at @eautio.