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The Report: Peru 2012

With a surface area of 1.29m sq km and 2414 km of coastline, Peru is the third-largest country in South America. It has a population of 28.2m, 30.2% of which is under the age of 14. While there is no official religion, the majority of Peruvians are Christian, and the Catholic Church plays an important role in the country’s culture. After a volatile political environment during and following the terms of former President Albert Fujimori in the 1990s, which brought about the dissolution of Congress and a decade of authoritarian rule, the political system has become stable and balanced. As a result, the country has seen more than a decade of sustained economic growth.


Country Profile

This chapter provides an overview of Peru’s geography, government, population, religion and climate, among other characteristics. It also features analyses on recent economic policies, social inequality and relations with China. The section also includes interviews with President Ollanta Moisés Humala Tasso; Juan Manuel Santos, President of Colombia; and Rafael Roncagliolo, Minister of Foreign Affairs.

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Economy

A dynamic emerging market, Peru has enjoyed a decade of sustained economic growth driven principally by its export-oriented extractive industries, with exports reaching a record $46.3bn in 2011. Even in spite of the global economic crisis, Peru posted positive growth of 0.8% in 2009 and rebounded impressively with 8.8% growth in 2010. The government has begun putting a greater focus on social equality and poverty reduction programmes, supporting agricultural development and restructuring policies on mining royalties. Government reserves and debt are both at healthy levels. Meanwhile, though inflation has been rising, it remains relatively tame compared to previous decades. This chapter includes interviews with Luis Miguel Castilla Rubio, Minister of Economy and Finance; Milton von Hesse, Executive Director, ProInversión; Diego de la Torre, Chairman, La Viga, and President, UN Global Compact-Peru; Alessandro Texeira, Brazil’s Deputy Minister of Development, Industry and Foreign Trade; José Luis Silva Martinot, Minister of Foreign Trade and Tourism; and Muhamad Noor Yacob, Executive Director, Asia-Pacific Economic Cooperation.

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Banking

As banks in the US and Europe faced buyouts and nationalisation, Peru’s banking sector held firm in the wake of the financial crisis. With a sound regulatory body, hefty capital reserves and limited exposure to complex financial instruments, no Peruvian banks were forced to close their doors. The country currently has 15 banks and 59 financial institutions, including 34 microfinance institutions, and increasing bank penetration throughout the country is a priority for the sector. Growth in lending rates and deposits have indicated that more people are taking advantage of the country’s banking services and overcoming historical distrust in banking institutions. Further retail operations are likely to remain the focus in the years to come, as the sector continues its expansion. This chapter includes an interview with Julio Velarde, President, Central Reserve Bank of Peru; and a roundtable discussion with Eduardo Torres-Llosa, CEO, BBVA Continental; José Antonio Blanco Cáceres, CEO, Citibank; Luis Felipe Castellanos, CEO, Interbank; and Carlos González-Taboada, CEO, Scotiabank.

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Capital Markets

Strong economic growth in recent years has enabled Peru’s capital markets to remain relatively unscathed by the global economic crisis that devastated many exchanges around the globe. While the Lima Stock Exchange (Bolsa de Valores de Lima, BVL), with market capitalisation of around $135bn, is one of the region’s smaller exchanges, it is likely to attract interest based on its recent successes. Indeed, in March 2012 it was reported that the exchange had grown 19.1% year-on-year. The BVL still must concentrate on building a broader and deeper marketplace with more regularly traded companies. The focus for the exchange now is on attracting more institutional and retail investors to build a more solid foundation for domestic capital markets. This section features interviews with Walter Bayly, CEO, Banco de Crédito del Perú; and Francis Stenning, President, Lima Stock Exchange.

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Insurance

While global insurance markets have been showing lower levels of growth in recent years, Peru’s insurance sector has expanded apace, averaging 15% annual growth in premiums over the past five years. There are 14 insurance companies providing a variety of plans and services. Life in particular has performed particularly well by global standards: while life insurance sales dropped by 4.3% globally in 2009, premiums in Peru grew 9.73% that year. Though insurance penetration in the country remains low, at 1.6%, recent levels of growth indicate that the Peruvian population is becoming more attuned to the benefits of insurance plans, boding well for future expansion in the sector.

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Energy & Utilities

The exploitation of the Camisea natural gas field has attracted investors to Peru and caused the country to look more closely at the potential of its hydrocarbons industry. The government has also turned its focus to oil production, with state-owned energy company Petroperú stating it hopes to triple oil production over the next four years and thereby turn Peru from a net importer of crude to a net exporter. The country is also adding hydroelectric generating capacity with private investments, thereby bringing electricity to more rural areas. While the government is obviously dedicated to developing its energy sector, it also must address a number of social conflicts – which involve the effects of hydrocarbons projects on indigenous populations, as well as environmental concerns. This chapter includes an interview with Jorge Merino Tafur, Minister of Energy and Mines.

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Mining

In 2010 Peru was among the world’s top 10 producers of a variety of minerals, among them gold, silver, copper, lead, zinc, tin and mercury. Commodity prices of copper and gold have kept revenues high despite a decline in production over the last several years. Exports increased from $3.2bn in 2000 to $21.7bn in 2010, posting average annual growth of 58% during that period. While the mining industry has had to struggle with issues such as illegal mining, which has caused tremendous damage to the environment, as well as with the negative effects of the sector on indigenous populations, the government is working to strike a balance in development, legislating for consultation with local groups before licensing new projects. This chapter features interviews with Pedro Martínez Carlevarino, President, National Society of Mining, Petroleum and Energy; and Roque Benavides, Chairman & CEO, CIA De Minas Buenaventura.

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Industry and Retail

A number of new free trade agreements – including with the US, Canada and Singapore – and a shift of focus toward value-added production have boosted the industrial sector. The government is now concentrating on growing the export activity of small and medium-sized enterprises (SMEs), which make up more than 99% of Peruvian companies. The textile business continues to thrive, with large quantities of finished fabrics being shipped abroad. Peru is keen to grow in petrochemicals as well, and has hopes of establishing the first petrochemicals production centre in Pacific South America. Meanwhile, retailers are looking outside of Lima for growth opportunities as the sector continues to expand. This section includes an interview with Pedro Olaechea, President, National Society of Industry.

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Transport & Logistics

With more than 2400 km of Pacific coastline, Peru is well placed to take advantage of increasing levels of trade in the Asia-Pacific region. As China has overtaken the US as the country’s biggest trading partner, Peru has turned its attention to improving transport and logistics to facilitate the flow of Asia-bound exports. For example, the Ministry of Transportation and Communications in late 2011 announced a $20.5bn project to upgrade transportation infrastructure. The plan calls for upgrades to roads and highways – including Peru’s portion of the Interoceanic Highway, which runs from Peru’s Pacific coast to Brazil’s Atlantic coast – as well as the expansion of the rail network and upgrades to Lima’s Jorge Chavez International Airport and the construction of a new airport in Cuzco. This section includes interviews with Carlos Paredes, Minister of Transport and Communication; and Jorge Vilches, CEO, LAN.

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Construction & Real Estate

With expansion of 3.34% in 2011, the construction sector looks primed for further growth, due in part to a need for new housing evidenced by the country’s housing deficit of some 2m units. The government has publicly announced a goal to build 500,000 housing units by 2016, and there are a number of opportunities for public-private partnerships in the sector. While the real estate market has tended to focus on luxurious, high-end private homes, the housing deficit means the government and developers alike are turning to low- and middle-income housing. The private sector seems poised to take on a larger role, while other segments likely to benefit from the new focus include cement and prime office space providers. This section includes interviews with Mario Alvarado Pflucker, CEO, Graña y Montero; and Jorge Barata, Superintendent, Odebrecht.

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Telecoms and IT

The mobile segment has been responsible for driving growth in Peru’s telecoms sector, which expanded by 16.4% in 2011. While growth in 2012 is expected to cool down, new revenue streams from sources such as mobile data will continue to make the sector an important source of foreign direct investment. Meanwhile, with internet teledensity in the country still relatively low, at 4.39% in 2011, the IT sector will require more research and development initiatives, particularly to expand into rural areas, where less than 1% of all households have an internet connection. The government has laid out a new plan that will bring internet to all public schools in the country by 2016, which will raise teledensity to 12.7%. This chapter includes a dialogue between Miguel Rivera, President, Nextel; and Javier Manzanares, President, Telefónica.

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Agriculture

While Peru remains a mainstay in products such as asparagus and fishmeal, areas like coffee and organic produce are where new growth is likely to come from. Agricultural exports increased by more than $800m to reach $4.8bn in 2011, with the US being the top destination. Peruvian coffee in particular is gaining an international reputation for quality, especially in new markets, and organics are a welcome value-added alternative for many of the country’s small farmers. The government is turning its eye to improving agricultural infrastructure, particularly with regard to irrigation and distribution. Additionally, the creation of more Peruvian agricultural brands, such as Juan Valdez coffee, could have tremendous positive effects on the sector. This sector includes an interview with Carlos Pinillos González, CEO, Tecnológica de Alimentos.

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Tourism

With visitor numbers having risen to 2.5m in 2011, representing a 9% increase year-on-year, the government is developing tourist destinations outside traditional travel hotspots. While the focus has traditionally been on the country’s many historical and cultural sights, the sector is now seeing increased demand for business tourism services. Ecotourism is also a growth area, with more tourists coming to Peru to see the many wild plant and animal species of the Amazon. Niche segments also have a good deal of potential for expansion, and efforts are being made to diversify the options available to visitors and boost local economies throughout the country. This section includes an interview with Claudia Cornejo, Vice-Minister of Tourism.

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Education & Health

With an eye to bridge the divide between socioeconomic development and education, the Peruvian government has allocated a 30% increase to the education sector in the 2012 budget and has announced plans to build 400 new schools and hire 12,000 teachers. Enrolment levels in higher education institutions continue to grow, with 103 public and private universities currently operating in the country and a number of technical and vocational institutions also offering professional certifications. Meanwhile, the government is instituting a new plan that will bring universal health insurance by 2013. With 30% of the population lacking health insurance, this will be a challenge and require major public investment. Additionally, clearer regulations and guidelines in the health care sector will promote the expansion of higher-quality care and medications.

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Tax

Together with PwC, OBG explores and clarifies Peru’s tax system, paying special attention to policies for foreign investors. This section also includes a viewpoint from Miguel Mur, Latin America Tax Leader, PwC.

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Legal Framework

OBG introduces various aspects of the Peruvian legal system, in cooperation with its local legal partner, Estudio Echecopar. This chapter includes a viewpoint from Javier Tovar Gil, Partner, Estudio Echecopar.

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The Guide

Together with local chef Gaston Acurio, OBG takes a look at Peruvian cuisine and its importance in the country’s culture. The Guide also contains an overview of the country’s best hotels and resorts, as well as contact information for local government offices and services and a number of useful tips for first-time visitors.

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