UNO December 2013

An Alliance that benefits citizens


After almost two years since the signing of the Pacific Alliance, a request of economic, cultural and social integration between Chile, Colombia, Mexico and Peru, it is important to read the signs and the sense that the integration effort has.

Beyond the importance of the agreement, the relevant fact is that it conveys to the Latin American and international community the vision shared by the Member States of the need to promote free trade and the competitiveness of their economies as a model to achieve economic development. But this certainty of looking for economic growth does not have sense in itself. However, it affects decisively and positively on poverty it has a decisive and positive impact on poverty and reduces social inequality.

Chile, Colombia, Mexico and Peru can be considered nowadays as the best evaluated emerging economies within Latin America, and are globally recognized. According to figures of the IMF, this bloc is in good health. Figures of 2012 show a GDP of US$2 trillion –which represents 3.5% of the global GDP–; a total population of 221 million people, with an average and constantly increasing GDP per capita of 14,200 dollars; an average unemployment rate of 7.2%; a contained inflation around 3.5%; and a direct foreign investment which reached US$70,000 million.

The sustained economic growth of the four countries, as well as its concerns about social development, has been highlighted by international organizations. From our point of view, at the end of October, the OECD gathered in Santiago described the economic and fiscal performance of the country as strong and solid, in its Economic Study of Chile 2013, and in spite of recognising a tendency to slowing down, it highlighted that the pace of job creation in the country is “enviable”. Chile –pointed out the OECD– “has achieved remarkable advances towards a greater economic prosperity and a reduction of poverty. The per capita income has increased fivefold during the last 20 years, becoming the highest in Latin America”.

To have the ability to add to the economic benefits of productive integration, substantive changes of benefit to the citizens, is a major task
for this group

Along the same lines, one of the benefits of the Pacific Alliance is that it provides an environment of political and economic stability, and signs of legal certainty which makes international foreign investment and that between the Member States attractive. For example, the ranking 2014 on Ease of Doing Business Index of the World Bank and the International Finance Corporation (IFC) published in October places the group of countries around the 50 where it is easiest to run a business, from a total of 189 countries. At the same time, the World Economic Forum, in its report on Competitiveness of Nations, places them within the 70 most competitive economies, from a total of 148 countries.

But beyond the figures, which ones can be considered specific impacts of this effort of integration?

The very meaning of the economic-social integration is to explore in more depth goods exchange, foreign investment and movement of people, with a clear orientation towards the effective promotion of business opportunities between the participating countries. It will have direct benefits on trade exchange immediately. In addition, the alliance seeks the existence of the free movement of goods for export that –as a whole– represent about US$ 20,000 million in 2011 between the countries of the bloc. To do this it encourages cooperation between customs and a tariff relief for almost 90% of the products exported between Member States. This effort should arrive directly to customers, who will be able to access a wider range of better quality goods at a lower price.

At the same time, it will strengthen the strong and close commercial ties generated by large investments of corporate companies in countries of the bloc, which have become “multilatinas”companies. In this way a double opportunity occurs: countries of emerging markets are not only the destination of foreign capital but they have also transformed themselves rapidly into important foreign investors. In this decision-making process, the treaties have played an important role as they manage to reduce risk levels and enable growth in new markets.

The Pacific Alliance will boost the already existing strong and close trade links generated by investments of corporate companies in the member countries of the bloc, the “multilatinas” companies

The 2013 “multilatinas” Ranking of the magazine América Economía shows that a 56% of the 80 most important companies in Latin America belong to a Member State of the Pacific Alliance. Mexico has 18 companies in the ranking; Peru highlights three companies; Colombia stands out for the internationalization of four of them; and Chile leads in number with 20 companies.

In practice, “multilatinas” have been capable of transcending know how and experience, working for projects, clients and communities where they work. The retail company Mall Plaza, of Chile, is a clear example: in the decade of the 90´s, it sustained its business model in the profound study of an emerging middle class, in order to know its dreams and expectations, which allowed it to go ahead of its needs. With this vision, it multiplied “urban centers” at the same rate as the increase of the average income of Chileans. Later, with a regional vision, it identified similar scenarios and efforts of political and economic stability in Peru and Colombia, and saw that the model was exportable: Peru already has four urban centers and the opening of a second one in Colombia is underway. “Being the biggest in Chile, with leadership in innovation and growth, led us to look outwards. It entailed a thorough learning process: at first we stood in Chile, as a company with operations in Peru and Colombia… today we stand as a regional company, with standards and proposals of regional value. It means doing things and structuring the business in another way, looking for the best practices and local applications”, highlights Fernando de Peña, who has run Mall Plaza for over 15 years.

Enersis and its affiliates Endesa in Latin America are another example of regional integration and their contribution has helped to change the life of many people in communities or isolated regions. However not only this company, but several companies take on a similar challenge in education, convinced that it is the great instrument that allows social mobility and that the possibility of studying makes the difference. Multiple programs in different countries show how a coordinated job allows for the passing on of the best practices with efforts that not only include the improvement of the latest type of profitability, but invest in intangibles with the best return: human resources, internal mobility, job security and social responsibility.

At the moment, the rest of the world looks with interest at the Pacific Alliance. There are 20 observer countries, with the intention of integrating into it, and some like Costa Rica and Panama, which are already candidates for being members of the group, which shows the dynamism and wide potential of the group.

But as we pointed out at the beginning of this reflection, the effort of economic growth makes sense insofar that it has an impact on the quality of life of the population of the signatory countries.
Over the past few years, a global phenomenon has moved the relation of citizens with institutions.
The gravitating role which the civil society has assimilated and the tendency towards an “active Citizenship have had a direct impact not only on political decisions, but also on the relation of the population with companies, which have shown how important projects in productive and service areas are questioned by the community.

Currently, the community is and should be seen as an essential actor for the success of business projects. Not to recognize or address this in a reactive manner creates consequences which can be devastating and irreversible, in losses not only of big investments, but also of corporate reputation. A strategic challenge for companies in their early connection with their social surroundings, not only to achieve the approval of a project, but also to establish a long-term and above all mutually beneficial relation. An instrumental or utilitarian link on behalf of the company will undermine all credibility and it will become a waste of resources, energy and time.

In Chile, we see signs on the right track. A year ago, the president at the time of the Production and Trade Confederation (CPC), Lorenzo Constans, affirmed categorically that “a company has a responsibility which we cannot avoid: nowadays we must be a citizen company, inserted in communities and mindful of the needs of all Chileans.”
At the end of last October, there was a second sign: business men at the highest level in an effort to extend good corporate practices launched a project “Bien común, dilemas éticos y compromisos empresariales” (common good, ethical dilemmas and business commitments), which addresses issues related to free competition; self-regulation; communities and the environment; relations with workers, consumers and stakeholders. Declarations such as “a company does not begin with sales and end with earnings, but begin with sales and end in society” (Alfonso Swett, vice-president of the Chile´s Manufacturers´ Association, Sofofa) or “a company can only exist in the long-term if it brings benefits to society greater than the costs it generates” (Gerardo Jofré, president of the Board of Directors of Codelco) are symptomatic of a change that, we hope, has come to stay.

It is also a good sign to see how business men today applaud and value efforts towards regional integration, petitions which in past decades were branded as bureaucratic and inefficient.

The Chilescopio 2012 study, presented by the University for Development (UDD) revealed that 73% of the citizens consulted perceive “a lot of abuse” on the part of the companies towards their workers and that 71% consider that there is “a lot of abuse” of the companies towards consumers.

Although Chile has shown a solid economic growth and an important poverty reduction (38% in 1990 to 14,4% in 2011), it continues to be the most unequal country among the members of the OECD and one of the 20 most unequal in the world, according to the World Bank. As the general secretary of the OCDE, Ángel Gurría, pointed out recently, the reduction of the inequality gap in Chile after the implementation of public policies in the right direction has enabled it to differentiate itself from other nations. He added, however that the “level continues to be unacceptable from a point of view of our ambitions with regard to a more egalitarian society.”

In this context, neither Chile nor the member states of the Pacific Alliance can close their eyes. Also in the words of Gurría, the inequality in Latin America can be addressed with more education, health, infrastructure, opportunities, growth and employment, in a continent which even though it is not the poorest in the world, it has the greatest inequalities, and, for this reason, work has to be done on it. This is one of the challenges of the Pacific Alliance. To have the ability to add to the economic benefits of productive integration, substantive changes of benefit to the citizens. A major task ahead is to ensure that statements and agreements turn into results perceived and valued by citizens. This involves working with a state-company-society relation based on closeness, mutual recognition and transparency.

Marilú Velasco
Managing Partner of Extend Comunicaciones
She studied Journalism in the Catholic University of Chile. In 1991, she founded Extend Comunicaciones, which has become the leader of corporate communications in Chile in 23 years and which she actually runs. She has a wide experience in the field of design and implementation of efficient communication strategies for national and international companies and in crisis management for companies, social organizations, ministries and different institutions. These efforts have contributed, in a convenient and responsible manner, to her business strategies and the construction of a solid and valid relation with different stakeholders.
Pilar Velasco
Managing Partner of Extend Comunicaciones
She is a journalist from the University of Chile and MBA from Adolfo Ibáñez School of Management, Miami, USA. She is managing partner of Extend Comunicaciones. She was the press secretary during President Patricio Aylwin’s government (1990-1994). This experience provided her with a broad knowledge of the power of public bodies and the importance of working on their relationship with the private sector. As a managing partner of Extend, she has led many communication strategies and campaigns and she has designed many plans and actions regarding authorities, the relevant sector stakeholders and citizenship, at various stages and according to the communication necessities of companies, bodies and projects.

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