In Lota, a struggling former mining town on Chile’s Pacific coast, investment in IT and worker re-training programs are helping residents connect into the 21st Century global economy. Historically, the town’s economic and cultural life centered around the nearby coal mines. But, after the mines closed, Lota had trouble attracting new investment and promoting job growth.
In recent years Chile’s government launched programs to re-train workers, provide young students with technical skills, and encourage IT businesses to open offices in Lota. Thanks in part to investment projects like the Banco Estado call center, an IT center that opened in 2001, hiring 160 local employees, Lota’s residents are now working to transition away from the mines and look for work in new sectors of the economy. More broadly, Chile’s government is now looking toward IT sector development as an important new engine of economic growth.
Chile, a country that has earned a reputation for good governance and solid economic management, is working hard to promote investment in IT services and data centers. In 2010, Chilean IT firms earned over US$1 billion in revenues. Some analysts predict that by 2015 this figure could increase five-fold to US$5 billion.
IT investment is helping to spread the benefits of economic development to the poorer parts of Chile. The Banco Estado call center, for example, sits perched on a hill overlooking Lota’s densely populated, downtown district. When I visited Chile in July, 2010, Lota was in the middle of its cold rainy winter. I saw that the building next to the call center, a restaurant called Chiflon del Diablo, had been badly damaged in the 8.8-magnitude earthquake that rocked Chile in February, 2010. One of its walls was propped up by sturdy wooden braces.
Maria Diaz, the restaurant’s co-owner, greeted me warmly when I walked into the restaurant, an aging building from the town’s mining past. The dining room, which was covered with photos and paintings of local miners, was filled with students wearing uniforms, who joked around together, apparently happy to be out of the rain. Maria told me that the students eat there every day, thanks to food stipends provided by Banco Estado.
From what I heard, five months after the quake hit, many of Lota’s residents were living in emergency conditions, struggling to survive the winter. “It’s terrible,” Maria, told me, “many people are still living without electricity, without running water.”
Because of the town’s storied mining past, and highly publicized economic troubles, Ricardo Lagos, Chile’s president from 2000 to 2006, believed Lota could become an example of the country’s broader transition. One of his first projects as president was to order Banco Estado, the country’s state-owned bank, to locate its national Internet and telephone sales office in Lota, creating 160 jobs.
‘Distances Do Not Exist Anymore’
At a speech given in Lota following the announcement of the plan to build a call center, then-President Lagos explained that ”with globalization, distances do not exist anymore and opportunities are there for those who know how to seize them.”
”We need to adjust to the new economy, or history will pass us by,” he said.
Chile’s subsequent leaders have followed in line with similar pro-growth policies. In a recent television interview, Chile’s billionaire right-of-center president Sebastian Piñera candidly told Charlie Rose that “[Chile] would like to be the first Latin American country that, before the end of this decade, would be able to say that we have defeated poverty and that we have defeated underdevelopment.”
Lagos’ pet project, the Lota call center, was part of a broader government push toward IT. In 2000, the Chilean Economic Development Agency (CORFO) began actively promoting Chile as a regional IT outsourcing center and offering financial incentives for companies to locate there. By 2006, Chile’s outsourcing industry employed 6,700 workers. By 2008, that number tripled to 20,000. The sector is expected to grow by over 10% annually over the next five years.
Most analysts expect the IT sector to play an important role in Chile’s future. Thanks, in part, to government subsidies for tech companies opening locations in Chile, the country has become one of Latin America’s new outsourcing hubs. In October, 2010 Chile’s government helped bring Nasscom, the Indian IT and BPO industry group whose members include Infosys and NIIT Technologies, to attend a series of meetings in Chile and explore possible opportunities for investment.
Chile’s government has also launched a program that provides students interested in the IT sector with scholarships to study English. It was thanks to programs like this that the European Business School recently named Chile as the Latin American country with the best capacity for innovation.
At a more local level, Banco Estado’s call center in Lota is one of several new businesses that have opened as the region transitions away from its mining past. In the last ten years private banks like BBVA and Santander have opened branches near Lota. Experts say in the longer term, this trend of investment is likely to continue.
Benefits of ‘Policy Continuity’
During a recent telephone interview, Cameron Brandt, a senior global markets analyst at EPFR, a Cambridge, Mass.- based consultancy, explained that “if [he] were to start an IT company [he] would certainly consider Chile as a place to start.” The country’s reputation for political and policy stability and current pro-business government do a lot to encourage this type of investment. In many ways, Chile is actually seen as exhibiting many of the same characteristics as a developed market.
“Chile provides policy continuity,” Cameron explained. “It’s the most predictable business climate in Latin America,” he added. A stable market with a government that is working hard to promote investment and innovation is sure to attract attention.
Chile’s economy is expected to grow at over 6% in 2011. As new tech businesses invest in Chile, young Chileans will be able to look forward to the prospect of finding jobs in the country’s nascent IT sector and other new industries.
On my last day in Lota I saw a band of school children walking up the road that leads from the city center to the technical high school on the hilltop. They marched past a hand-painted mural that said “Lota: History and Strength Are What Move Us.”
Nathaniel Parish Flannery is a New York City based financial journalist. He currently covers Latin America for a Wall Street research group. He has worked on projects in Chile, Mexico, Colombia, Argentina, Peru, and Ecuador and published articles with The Nation, Lapham’s Quarterly, Alternative Latin Investor, and a number of other magazines and newspapers. He is currently pursuing a degree in Latin American Regional Studies at Columbia University in New York.