The Report: Peru 2014
Over the past decade Peru has seen a period of transformative growth, effectively positioning it as one of the leading economic performers in Latin America. Posting growth rates in excess of 6% from 2010-12, the economy expanded by a further 5.1% in the first half of 2013. A major metals and minerals exporter with a burgeoning agricultural sector, Peru’s rapid economic growth has been the result of elevated global demand for commodities and key exports, as well as prudent fiscal planning and the expansion of non-primary sectors. With an investor-friendly legal framework, Peru has become a prime destination for foreign direct investment and was recently ranked the second-best country for doing business in Latin America by the World Bank. Despite ongoing social conflict related to extractive industries and a sizeable infrastructure gap, Peru’s stable macroeconomic environment and its efforts to diversify and guard against price volatility should ensure continued growth for this Andean economy.
Once known as a country blighted by economic and social upheaval, Peru has now experienced more than two decades of progress. Political and economic reforms implemented in the 1990s and reinforced in the 2000s have resulted in stability and a generally liberalised economy. The fourth-most-populous country in Latin America, Peru enjoys a rich heritage shaped by both Amerindian and Hispanic cultures. Peru is a member of the Pacific Alliance, the Andean Community and the Asia-Pacific Economic Cooperation, and recently signed a number of important FTAs with the US, China and the EU. With ongoing modernisation and a relatively democratic and pluralist political system, reducing corruption, social inequality and inefficient government bureaucracy are high on the political agenda.
This chapter contains interviews with President Ollanta Humala; Lord Green, Minister of State for the UK Trade and Investment; and José Manuel García-Margallo, Spanish Foreign Minister.Explore chapter
Over the course of the past decade Peru has recorded impressive economic growth, posting rates in excess of 6% from 2010-12. Though the pace of growth is estimated to slow to between 5.2% and 5.4% in 2013, mainly due to external shocks, observers are cautiously optimistic about Peru’s prospects for continued economic development. While the mining and hydrocarbons sectors continue to account for the bulk of exports as well as foreign direct investment, the recent growth of non-primary sectors, in particular construction, retail and services, point to increasing economic diversification. This is largely driven by greater domestic demand, expected to grow at 6.5% and 5.8% in 2013 and 2014, respectively. With a stable macroeconomic environment, prudent fiscal management and a number of new free trade agreements, Peru is well positioned for continued expansion. This chapter contains interviews with Karl de Gucht, EU Trade Commissioner; Luis Miguel Castilla Rubio, Minister of Economy and Finance; Javier Illescas, Executive Director, ProInversion; and Reubens Amaral Junior, CEO, Banco Latinoamericano de Exportaciones.Explore chapter
With a banking penetration rate hovering around 30% and an expanding middle class, Peru represents a solid growth opportunity for the banking industry. Lending activity jumped by 23% in 2012, with much of this coming from a rise in consumer and retail loans. The banking sector is forecast to continue to expand rapidly, with loan growth projected at between 15% and 20% in 2013. While rapid expansion has generated concerns over a possible overheating of the sector, new lending regulations are set to cool credit growth and help ensure sustainability. In addition, the rise of mobile banking has improved access significantly, while correspondent agencies now offer a wider range of services. This chapter contains interviews with Julio Velarde, President of the Central Reserve Bank of Peru, and Walter Bayly, CEO of Banco de Crédito del Perú.Explore chapter
While the Lima Stock Exchange (BVL) may have fallen short of expectations in terms of new issuances in 2012, its overall performance was solid, with the General Index up 5.9% over the previous year. Though market capitalisation and negotiated volumes dropped from 2012 to 2013, most analysts are positive in their outlooks for the near future. Private equity is expected to continue to grow in the coming years, given the relative shortage of high-return investment opportunities in the US and Europe. The current trend of Peruvian corporate bond listings abroad seems likely to continue, with demand remaining strong and investment banks maintaining an interest. Expansion and diversification of the BVL are also expected in the coming years as the government implements a series of reforms aimed at increasing listings, facilitating new financing structures and attracting investors. This chapter contains interviews with Francis Stenning, CEO of the BVL, and Luis Valdivieso, President of the Pension Fund Administrators’ Association.Explore chapter
While the insurance sector has seen sustained growth in premiums over the past several years, rising 10.12% in 2011 and 9.62% in 2012, penetration rates remain among the lowest in the region, with insurance premiums constituting 1.5% of GDP, compared to the regional average of 3%. The government is attempting to address this shortfall through a series of reforms aimed at reducing the cost of insurance and pension fund premiums and commissions. Overall, low market penetration and continued economic growth mean that the insurance industry has a lot of unexploited potential. With the entrance of several new players in 2013, competition is likely to heat up. This increase coupled with stronger regulation and gradual product diversification will help to ensure that citizens benefit the most from international insurers’ newfound interest in the Peruvian market. This chapter includes an interview with Rafael Venegas, CEO of Rimac.Explore chapter
Energy & Utilities
Although its resource wealth should help to ensure Peru’s long-term energy security, in the short term surging demand continues to put pressure on the sector. A recent influx of investment in hydroelectric power stations and natural gas-fired thermoelectric facilities should be enough to stave off any bottleneck in electricity generation and avert potential power shortages in 2016 and 2017. Within the hydrocarbons subsector, the commercialisation of the giant Camisea field in 2004 changed the country’s energy mix, sparking an increase in exploratory investment. It is estimated that as much as $25bn could be invested in the hydrocarbons sector from 2011-20. Peru currently relies on a single pipeline to provide the gas used to generate more than 40% of electricity, and more broadly, the lack of infrastructure is the main and most pressing challenge facing the industry in the near term.Explore chapter
The mining sector has seen its revenues increase significantly as Peru continues to ride the wave of a commodities “super-cycle”, bringing foreign reserves to an all-time high and sparking large-scale transportation and energy projects as production increases. As of June 2013, the Ministry of Energy and Mines reported an investment portfolio of $57.4bn. With the rich, polymetallic Andes as a source, Peru has an abundance of copper, gold, silver, tin, and zinc, among other deposits. Copper has attracted the majority of new investment in the sector, at some $36.37bn, or 63.36% of the country’s investment portfolio. Gold came a distant second at $7.18bn, or 12.51%, with iron ore close behind at $7.06bn. Long-term sustainable growth will depend on the stability of global commodity prices as well as the effectiveness of government strategies to address social conflict surround mining projects, illegal mining and a large infrastructure gap. This chapter contains an interview with Oscar Gonzalez Rocha, President and CEO of the Southern Copper Corporation.Explore chapter
Construction & Real Estate
The construction sector grew 14.8% in 2012, far more than the 3% recorded in 2011, and continued to expand at a rate of 13.23% in the first half of 2013. Investor confidence remains strong, with investment in current projects rising by 5.79%, most notably in the areas of housing and infrastructure, and public-private partnerships remain the favoured model for developing public works. Likewise, in the real estate sector mortgage credit has continued to expand in recent years. By June 2013, mortgages had grown by 24.7% year-on-year to reach $27.8bn. Though the number of self-built homes has more than doubled, rapid demand is creating a growing housing deficit. A new law to strengthen regulation in the sector and reduce bureaucratic challenges for construction firms should ensure continued growth in the years to come. This chapter contains an interview with René Cornejo Díaz, Minister of Housing, Construction and Sanitation, and José Graña Miro Quesada, Chairman of Graña y Montero.Explore chapter
Like many Latin American countries, Peru is prioritising industrial development, moving away from primary product dependency and working to establish a healthy balance between manufacturing and commodity exports. One of the most important economic activities in Peru, the manufacturing sector contributed 15.98% to GDP in 2012, displaying year-on-year growth of 1.32%, and continued to expand at a rate of 1.42% during the first half of 2013. Despite unfavourable external conditions that have to some extent reduced demand for primary products, the steadiness of non-traditional manufacturing has helped keep overall growth on track, diversifying both products and markets. External trade has proven a successful formula, positioning the country on an international level, while it benefits from strong internal demand due mainly to large-scale development in areas such as construction, mining and energy. A growing middle class is also fuelling internal demand, reflected in the positive performance of fast-moving consumer goods in particular.Explore chapter
Transport & Logistics
Transport and logistics infrastructure in Peru has not kept pace with the high level of economic growth. According to a report released by the Association to Promote National Infrastructure in October 2012, $88bn in investment will be necessary over the period 2012-21 to close the existing infrastructure gap, a move essential for continued economic development. To this end, in 2011 the government launched a plan to invest $20.5bn in infrastructure over the following five years, and major efforts are being made to attract more private investment. In 2013 the government declared the promotion and facilitation of investment in Peru a national priority, with special emphasis on procedures and the issue of permits and licences. Apart from confronting the natural challenges posed by the nation’s rugged and mountainous terrain, the biggest challenge facing the sector in the short term will be pushing investment plans through the lengthy bureaucratic approval processes in a timely fashion.Explore chapter
The second-largest contributor to GDP after construction, the retail sector reported 6.7% year-on-year growth in 2012, and continued to post 5% growth in the first half of 2013. The rapid development of the sector has meant a significant advantage for retailers that established a presence in the country in the early 2000s, and as a result a few conglomerates have dominant stakes across various retail segments. Land availability in Peru’s biggest cities remains a challenge, as does infrastructure, particularly in more remote regions. With the industry’s fundamentals set to continue to support growth in the coming years, retail should retain its high ranking in terms of both investment and contribution to national GDP, while the sophistication of consumer loans, which have grown six-fold over the past decade, is also expected to help spur development.Explore chapter
Increased domestic consumption, exports and investment have led to consistent sector growth since 2004, averaging 4.2% per year in GDP terms from 2003-12. In 2012 the agriculture and livestock sector grew 5.1%, with agricultural activity comprising 60% of the sector’s total growth, though its contribution to GDP declined to 7.2% as the pace of growth in other sectors rose. In the first half of 2013 agricultural production expanded by another 1.9% year-on-year. Most key agricultural exports experienced growth, except for coffee, which fell by 7.3% due to a combination of adverse climatic conditions and a drop in global prices. In the short term, growing domestic demand alongside expansion of the amount of irrigated land and improved production techniques should help support output growth. In addition, upward movement of prices for export produce, the commercialisation of which is facilitated by a rising number of FTAs, bodes well for revenues.Explore chapter
Despite a global economic recession, international tourist arrivals in Peru rose by 10% in 2012 to reach 2.85m and the industry forecasts these numbers will continue rising at a steady rate, exceeding 3m visitors by the end of 2013. Overall heightened economic activity and investments are building a large corporate segment that is pushing industry standards, particularly in the hospitality business. Revenues from foreign tourists amounted to $3.23bn in 2012, representing an 11% increase from the previous year, and official full-year figures for 2013 to surpass $3.5bn. The government hopes to boost annual tourist arrivals to 5.1m by 2021. Government support, most notably in efforts to simplify the process of obtaining construction permits for hotel development, as well as positive quantitative indicators demonstrate that tourism is becoming an area of growing importance for the country.Explore chapter
Telecoms & IT
Fuelled by private investment and broader economic growth, the telecoms market grew 13% in 2012 and is projected to expand by a further 11% in 2013. As the mobile market becomes more saturated with the entry of a fourth mobile operator in 2013, non-voice services are being rolled out to maximise customer revenues, such as mobile money and banking. The dominance of two operators in the mobile segment, stagnation in the fixed-line market, and the obstacles to the establishment and maintenance of telecoms infrastructure in rural areas continue to pose substantial challenges to the sector. Though the IT market grew 12% in 2012, growth is forecast to slow to 6% in 2013, with the hardware segment being the largest contributor to industry revenues, followed by IT services. Nonetheless, a more coherent national policy, coupled with a budding software market and a growing reputation as an outsourcing destination should ensure stable growth for the sector in the near future.Explore chapter
Health & Education
A series of reforms in late 2013 have effectively redesigned the health sector’s institutional framework and increased coverage and access to services. While state funding remains low, the sector has seen a significant rise in private sector participation, which is expected to continue following implementation of the reform package. With a number of larger companies investing heavily, smaller clinics now face difficulties staying competitive, which may lead to greater consolidation within the sector. Rapid economic growth is also enabling better access to education, accompanied by efforts to uphold educational standards. Total public expenditure has inched along in recent years but is still below the regional average. With government spending for education remaining relatively low, private participation has played a crucial role in the development of the sector, which continues to offer ample opportunities for private investment, especially in underserved areas.Explore chapter
Featuring an interview with Esteban Chong, senior partner, PwC Peru, the tax chapter provides an overview of the Peruvian tax regime, highlighting recent changes in areas of interest to investors such as income taxes, stability agreements, tax treaties, tax exemptions and pension fund contributions, among others.Explore chapter
For the past two decades, the Peruvian legal framework has developed along similar lines, promoting foreign investment and competition, as well as social inclusion. This chapter highlights some of the most important recent changes that have occurred in the areas of mining, electricity, tax, employment of foreign nationals, corporate transactions, banking and finance. In addition, it features a viewpoint with Ismael Noya, partner, Estudio Echecopar, a member firm of Baker & McKenzie International, on Peru’s evolving business environment.Explore chapter
In addition to an article on the evolving art scene in Lima, this chapter contains useful tips for first-time travellers to the country, including hotel listings and contact information for various institutions, such as government agencies and foreign missions.Explore chapter
Table of Contents.
There are no articles in this chapter. To view the table of contents, please open click the "View in online reader" link above.