The Report: Peru 2016
After a difficult 2015, marked by lower commodity prices and reduced export revenues, Peru is on track to begin economic recovery in 2016, with increased mineral output set to drive much of its rebound. The IMF forecasts growth to rise to 3.3% in 2016, up from an estimated 2.5% in 2015.
Country Profile
Buoyed by high commodity prices and market-friendly policies, Peru has been one of the best-performing and most stable economies in Latin America over the past decade. Rapid economic growth has, in turn, spurred an emerging middle class and notable social gains, with the poverty rate falling by more than half from 2004 to 2014. Today the challenge facing Peru, as well as other commodity-driven economies in Latin America, is how to diversify its economy, ensure inclusive economic growth and sustain years of poverty reduction amid falling demand for commodities. Since coming to power in mid-2011, President Ollanta Humala has tried to maintain a balance between the expectations of the middle class, business leaders, foreign investors and the demands of local communities in Peru’s mineral-rich areas, with varying degrees of success. As the country heads to the national election in April 2016, economic recovery and anti-mining protests are likely to remain top issues in the country’s political agenda. This chapter contains a viewpoint from President Ollanta Moisés Humala Tasso, and interviews with Ana Maria Sanchez Vargas, Minister of Foreign Affairs; and Jorge Familiar, Vice-President for Latin America and the Caribbean, World Bank.
Explore chapterEconomy
In the 10 years to 2014 the Peruvian economy experienced rapid growth, averaging 6.2%, placing Peru among the fastest-growing economies in the region. In 2014 Peru was the seventh-largest economy in Latin America and Caribbean, with a GDP of $202.9bn. However, lower commodity prices and resulting lower export revenues for some of its key exports saw Peru’s growth slow considerably in 2015, to an estimated 2.5% according to the IMF. The El Niño weather pattern, which is expected to negatively affect the agriculture, fishing, trade and transport services sectors, the general elections in April, and slower demand from China are some of the challenges facing the Andean economy in 2016. Nonetheless, the IMF expects a rebound, forecasting growth of 3.3% for the year, driven primarily by increased mining activity. This chapter contains interviews with Alonso Segura, Minister of Economy and Finance; Ana Maria Carrasquilla Barrera, Chairman of the Board and Executive President, Latin American Reserves Fund; Carlos Herrera, Executive Director, ProInversión; and Dionisio Romero, President, Grupo Romero.
Explore chapterBanking
The Peruvian banking system continued to grow throughout 2015, with total bank credits rising by 15.26% year-on-year (y-o-y), to PEN250.8bn ($80bn) in September. The increase in bank credits in August 2015 reflected strong expansion in local currency lending, offset by a contraction in US dollar lending. Total outstanding local currency lending rose to PEN140.71bn ($44.9bn), at the end of August, up 35.2% y-o-y, while foreign currency lending was $23.67bn, down 18.6% y-o-y. Non-performing loans stood at 2.7%, representing an increase of 0.24 percentage points y-o-y, according to the Peruvian Banking Association. The upcoming national election, the risk of disruption because of the El Niño weather pattern and the possibility of a further slowdown in China are all factors to be monitored as potential downside risks to an otherwise solid and healthy outlook for the banking and financial sector. This chapter contains an interview with Julio Velarde, Governor, Central Reserve Bank of Peru.
Explore chapterCapital Markets
The Lima Stock Exchange (Bolsa de Valores de Lima, BVL) has had a difficult three years in 2013-15, having become somewhat less active and less liquid than its peers. The market capitalisation of listed Peruvian companies was worth 38.9% of GDP in 2014, according to the latest available comparable figures from the World Bank – ahead of Mexico (37.1%) and Colombia (38.8%) but behind Chile (90.4%). However, at only 1.8% of GDP in 2014, the BVL lagged behind in terms of the total value of shares traded, compared to Colombia (5.5%), Mexico (11%) and Chile (10.5%). During 2015, the BVL’s General Index was consistently down on year-earlier levels and by September it had slumped to 10,030, a fall o 38.2% y-o-y. Nonetheless, market players believe conditions point to a recovery in 2016, as the macroeconomic environment improves and investment returns to the region, encouraged by the strength of the US dollar relative to Latin American currencies. This chapter contains an interview with Christian Laub, President, Lima Stock Exchange.
Explore chapterInsurance
The Peruvian insurance sector has experienced a decade of strong growth, benefitting from sustained economic expansion, a significant reduction in poverty levels and a rising middle class. In the 10 years to 2013, premium income tripled, and according to the Peruvian Insurance Association, net premiums then increased by 5.36% to $3.54bn in 2014. In the first 11 months of 2015 total premiums hit $3.4bn, up by 7.6% year-on-year. In 2013 the largest source of revenue – 40.4% of net premiums – came from general insurance, followed by private pension fund life and accident cover (24.9%), general life (21.2%), and accident and health insurance (13.5%). The penetration of products remains low, meaning there is still significant room for growth. The latest estimates are that total premium income reached 1.85% of GDP in 2014, up from 1.18% in 2007, but still below levels in neighbouring countries, such as Chile. This chapter contains an interview with Daniel Schydlowsky, Former Superintendent, Superintendence of Banks, Insurance and AFPs.
Explore chapterMining
By any measure, Peru is a giant of the global mining industry. Only Chile and China produce more copper and the country is the world’s seventh-largest producer of gold and the third largest of silver. It is unsurprising that Peru’s economic fortunes have been tied to the mineralogy of the Andes Mountains for many centuries. The mining industry has been the driver behind the growth of the Peruvian economy for 10 years, today accounting for about 17.6% of GDP and half of exports. In the first half of 2015 Peru exported just over $9bn of metals, its weakest six-month performance since 2009. However, local miners are well placed to withstand a period of low prices, and the entrance of major new projects means 2016 should be a bumper year for production. A coherent strategy for resolving social conflicts is set to figure among the priorities of future governments. This chapter contains an interview with Rosa Maria Ortiz, Minister of Energy and Mines.
Explore chapterEnergy
By harnessing its hydro and gas resources, Peru has developed a robust and diversified energy mix. Cheap and plentiful power is one of the key comparative advantages for the country’s mining and industrial sectors. However, falling commodity prices coupled with anti-mining protests have led to the delay of major copper and gold projects in 2016. As a result, demand for energy has not reached previously forecast levels. Several major generation projects are set to come on-line in 2016 and 2017. As such, the country faces a period of oversupply estimated to last until at least 2021. In 2016 the push to facilitate the export of electricity should open up plans for major transmission projects and provide a new source of revenue for Peru. Meanwhile, at prices under $38 a barrel, appetite for oil exploration in the country’s remote regions has dwindled. This chapter contains an interview with Luis Ortigas, Former President, Perupetro.
Explore chapterConstruction & Real Estate
Peru’s construction sector is experiencing a slight deceleration, falling from a few years of double-digit growth to more conservative figures in 2014 and 2015, following a reduction in public expenditure. Upcoming elections in 2016 and related government change can be expected to slow the rate of projects being allocated over the short term. However, a significant number of works in the pipeline will ensure activity over the coming years. As authorities gradually improve the environment for public-private partnerships, the infrastructure construction market is set to become easier to manage for Peruvian and foreign firms alike, ensuring the country remains a competitive destination for foreign direct investment. Meanwhile, although economic uncertainty weakened investment in the Real Estate sector for most of 2015, real estate development continues to offer significant opportunities. Housing demand remains high, and growth rates have encouraged the development of office, commercial and industrial real estate projects. This chapter contains an interview with Fernando Castillo, President, ICCGSA.
Explore chapterIndustry & Retail
With falling commodity prices taking their toll on Peru’s export revenues and GDP growth, the focus of the Ministry of Production (PRODUCE) has turned to the diversification of the economy and provision of greater added value to production. PRODUCE has set the target of returning Peru to 7% growth rates through private partnerships that will develop the country´s secondary and tertiary industries. Despite these efforts, the industrial sector is experiencing a slowdown, with sector GDP amounting to $9.8bn in the first five months of 2015, a 2.6% year-on-year decrease. Meanwhile, Peruvian retailers look set to take stock and focus on maximising revenues rather than rushing to open more floor space. The days of double-digit consumer growth may be a thing of the past, but medium-term expansion of between 3% and 4% in 2016 presents attractive prospects. While per-capita incomes remain low by regional standards, recovering commodities prices are expected to support the retail sector’s long-term potential.
Explore chapterTransport & Logistics
Several years of rapid economic growth have laid bare persisting gaps, underscoring the need to reduce logistics costs and revamp the country’s infrastructure. Improving transportation networks has become one of Peru’s top priorities. Although the slowdown in China is sure to impact demand for the country’s mineral exports and affect state spending, investment in upgrading and expanding infrastructure is expected to continue. Peru’s Ministry of Transport and Communications expects investment in transport to continue to grow, with another $10.2bn to be committed through new concessions set to be signed in 2016. These investments may take time to materialise, but will have the long-term benefit of improving conditions for the private sector to operate. The transport sector will remain a pillar of Peru’s economic future, as reducing the infrastructure deficit is key to sustaining the growth trends Peru has experienced in recent years.
Explore chapterAgriculture & Fisheries
The Peruvian agriculture sector grew 1.5% in 2013 and 1.6% in 2014, according to the central bank, well below overall GDP growth of 5.8% and 2.4%, respectively. In the first six months of 2015 the sector contributed nearly 6% to GDP, and the fishing industry another 0.5%. Yet, while exports have risen strongly, sector growth in the first quarter of 2015 was just 0.5%, although this picked up to 2.9% year-on-year in the second quarter. Exports of agricultural and fish products have grown at 10-15% per annum from a base of $925m in 2000. In 2014 sector exports surpassed $5bn, a 19% increase on the figure from the previous year. This chapter contains an interview with Mario Mustafá, President, Ecosac.
Explore chapterTourism
In recent years, Peru has established itself as one of the world’s most unique tourism destinations, with much of the sector’s growth resting on the Incan ruins of Machu Picchu. According to the Ministry of Foreign Trade and Tourism, international arrivals increased from a total of 993,706 in the period between January and September 2004 to 2.6m during the same nine-month period in 2015. Sector revenues have also seen a gradual increase, reaching $3.8bn in 2014. The government expects to attract up to 5.1m visitors annually by 2021 and generate income of close to $7bn. To accelerate expansion over the coming years, tourism authorities and the private sector are simultaneously increasing promotional efforts and developing the country’s touristic products. Meanwhile, an inflow of private capital into the growing hospitality sector and infrastructure development is opening up other regions of the country to domestic and international visitors. This chapter contains an interview with Magali Silva Velarde-Álvarez, Minister of Foreign Trade and Tourism.
Explore chapterTelecoms & IT
Peru’s economic growth of the past decade has spurred significant changes to the country’s telecommunications and IT sectors. In addition to four full-fledged telecommunications operators fighting for market share, the sector anticipates the entrance of mobile virtual network operators in the near future. Meanwhile private investment is being deployed into 4G-network infrastructure across the country in response to the rising use of mobile data. Government plans to improve the reach of broadband through a new fibre-optic network are also helping to bring telecommunications services to more remote areas. Increased competition has brought about a new level of dynamism to the market, encouraging investment by operators and putting downward pressure on profits. A dynamic telecommunications sector is encouraging the expansion of smartphone technology, which has allowed small and medium-sized enterprises to access software and increase IT usage to sustain expansion at affordable costs. This chapter contains an interview with Gonzalo Ruiz, President, OSIPTEL.
Explore chapterHealth & Education
As diversification efforts continue, the education sector remains a top priority for the government of President Ollanta Humala. Since taking office in 2011, the Humala administration has initiated large-scale reforms aimed at improving educational outcomes. While the presidential elections in 2016 add a degree of uncertainty over the future, there seems to be enough political will to carry the current reform efforts forward. Meanwhile, a push to extend health coverage to more Peruvians has seen significant strides made towards achieving universal health coverage in the past decade. However, rising demand for health care is increasing the burden on already strained public facilities. The reforms initiated under President Humala are expected to increase efficiency and improve service delivery in public facilities in the medium-term. In the meantime, a dynamic private sector is set to benefit from growing demand for private services and new opportunities for public-private partnerships. This chapter contains interviews with Jaime Saavedra, Minister of Education; and Raúl Diez Canseco, Founder, Universidad San Ignacio de Loyola.
Explore chapterTax
This chapter provides an overview of the Peruvian tax regime, covering areas of particular interest to investors such as individual and corporate income tax, capital gains regulations, stability agreements, Customs regulations and other investor considerations. This chapter contains an interview with Orlando Marchesi, Lead Partner, Tax and Legal, PwC Peru.
Explore chapterLegal Framework
Peru’s current modern legal framework has now been in place for more than 25 years. After several different governments, global economic crises and other phenomena affecting the country, its underlying legal framework has essentially remained the same. Laws may have changed and some experiments have been conducted, but the country’s principles, laws, regulations and constitution have endured, which is no small feat for a growing developing country that battled domestic terrorism in the 1980s and 1990s. Importantly, throughout these years, the economy was opened up to foreign investors and the country strived to provide a business-friendly and predictable regime that welcomes investment. This chapter provides an overview of Peru’s legal framework, covering a range of topics from the mining and environmental permits to corporate law. This chapter includes an interview with Pablo Berckholtz, Managing Partner, Estudio Echecopar.
Explore chapterThe Guide
In addition to an article on Peru’s ecotourism potential, this chapter contains information on hotels, government agencies and other listings, as well as useful tips for visitors on a range of topics such as visa requirements, currency and transportation.
Explore chapterTable of Contents
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