The Report: Peru 2017
Over the last two decades Peru has been one of the fastest-growing economies in the region. Remarkably resilient to global headwinds, positive GDP growth has continued despite the end of the commodities boom. Yet the growth rate has slowed and the initial impetus of a first wave of structural reforms has faded. The question now is whether the current administration can address problems, implement further reforms and re-accelerate the economy.
Once known as a country scarred by economic and social upheaval, Peru has now experienced nearly two decades of economic growth alongside the continued establishment of democratic principles – increasingly so since the turn of the millennium. Buoyed by high commodity prices, the mineral-rich country grew at an average annual rate of 6.2% in the decade to 2014, cementing its status as one of the fastest growing economies in Latin America. Rapid growth also enabled Peru to make significant strides in improving social indicators, particularly in reducing poverty rates. However, the end of the commodity cycle saw GDP growth slow to a decade-low of 2.4% in 2014, as global commodity prices fell and Chinese demand for Peruvian minerals eased, sending Peru into uncertain uncharted waters.
This chapter contains interviews with President Pedro Pablo Kuczynski Godard; Ricardo Luna Mendoza, Minister of Foreign Affairs; Steven Ciobo, MP and Minister for Trade, Tourism and Investment, Australia; Mauricio Macri, President of Argentina; and Walker San Miguel, Secretary-General, Andean Community.Explore chapter
The Peruvian economy is at an interesting crossroads. Over the last two decades it has been one of the fastest-growing economies in the region, enjoying macroeconomic stability, a strong mining sector, an open economy, and growing agro-industry and services sectors. Positive GDP growth has continued despite the end of the commodities boom. According to World Bank statistics, Peru had a nominal GDP of $189.1bn in 2015, making it the sixth largest among Latin American nations. The country has an open economy, with trade representing 45% of GDP. Yet the growth rate has slowed and the initial impetus of a first wave of structural reforms has faded. The question now is whether the new government that took office in July 2016 can address problem areas, implement further reforms and re-accelerate the economy.
This chapter contains interviews with Alfredo Thorne, Minister of Economy and Finance; Peter Shaw, Head of Latin America, Fitch Ratings; and Álvaro Quijandría, Executive Director, ProInversión.Explore chapter
Peru’s banking system is widely seen as one of the most stable and well regulated in Latin America. One of main the banking sector stories in 2017 is how this solid services industry will adapt to Peru’s gradual transition from average annual growth rates of 7-8% during the commodity boom to a more moderate medium-term average growth rate, with the economy expected to stabilise at around 4-5%. Successive governments have sought to deepen the country’s financial markets, increase the proportion of the population that has access to banking services, and address the wider issue of financial inclusion and poverty reduction.
This chapter contains interviews with Julio Velarde, Governor, Central Reserve Bank of Peru, and Miguel Uccelli, CEO and Country Head, Scotiabank Peru.Explore chapter
The Peruvian stock exchange, the Lima Stock Exchange (Bolsa de Valores de Lima, BVL), had a boom year in 2016, achieving one of the highest rates of return in the world. The main index, the Standard & Poor’s (S&P)/BVL Perú General, ended the year at 15,567 points, a gain of 58.1% on the previous year, according to the World Federation of Exchanges. This made it the second-best-performing bourse in the world in 2016, after Egypt. BVL share prices are widely expected to see solid growth in 2017, albeit at a somewhat slower pace than in 2016, as a result of less vigorous performance by mining stocks, as well as some doubts over the underlying strength of the economy as it rebalances towards non-primary sector-led growth.
This chapter features an interview with Marco Antonio Zaldívar, President, Bolsa de Valores de Lima.Explore chapter
Though recent highs in premium income have made Peru’s insurance market one of the fastest-growing in Latin America, the country remains comparatively underinsured. Taking these two factors into consideration, the sector has been showing strong growth but from a relatively low base, and that awareness of insurance as a way of managing public and private risks is very low. These low levels of insurance penetration are influenced by Peru’s labour market informality rate of 72%, which is significantly higher than in other countries in the region.
This chapter features interviews with Socorro Heysen, Superintendent, Superintendency of Banks, Insurance and Pension Funds Administrators of Peru, and Eduardo Morón, President, the Peruvian Association of Insurance Companies.Explore chapter
The mining sector can be described as one of the main engines of the Peruvian economy as it accounts for 12% of total GDP. It creates direct employment for 174,000 workers and indirectly accounts for another 1.5m jobs. In 2016 mining exports totalled $23.8bn – consisting of 65% of the country’s total merchandise exports. The medium-term outlook is certainly positive, with a range of new mines set to be developed, including Quellaveco in the Moquegua region, where work could start late in 2017. Projects that could come to fruition in 2018 include the Mina Justa and Marcona mines in Ica, the Ollachea gold mine in Puno and expansion works for the Toromocho project in Junín. Work on the Pampa de Pongo iron reserve in Arequipa is expected to start in 2020, and at the Laguna Norte gold mine in La Libertad in 2021.
This chapter contains interviews with Carlos Gálvez Pinillos, Vice-President and CFO, Minas Buenaventura, and Luis Rivera, Vice-President, Gold Fields Las Americas.Explore chapter
The advent of plentiful natural gas has led to an evolution of the energy sector. Among President Pedro Pablo Kuczynski’s key pledges in the 2016 election campaign was the “massification of natural gas” to serve residents and industrial users across southern Peru. Another feature of Peru’s policy focus is to diversify gas exports, including the potential renegotiation of the country’s liquefied natural gas contract with Mexico. The government’s plan to use the country’s reserves to provide cheap fuel to both underserved citizens and industrial concerns should serve the economy well. Further infrastructure investment, to the tune of some $30bn, will be needed if the country is to reach its ambitious goals going forward, however, these plans are viable.
This chapter contains interviews with Gonzalo Tamayo, Minister of Energy and Mines, and Carlos Temboury, Director and Chairman, Enel Generación.Explore chapter
Construction & Real Estate
After contracting the previous year, the construction sector is looking to grow again in 2017. Still feeling the impact of the recent downturn, the sector is only expected to register growth in the fourth quarter, following the negative effects of the coastal El Niño floods in early 2017. While causing significant damage, the floods made it necessary for the newly elected government of President Pedro Pablo Kuczynski to draft an ambitious $3bn reconstruction plan from which the construction sector will benefit in the medium to long term. The government foresees over $9bn worth of investments in the sector in the coming five years. Moreover, real estate investments remained quiet during 2016. While some dynamism was shown in the industrial and retail segments, housing and office did not show the signs of recovery that were expected. Many predict a pickup to occur by the end of 2017 and throughout 2018, as the housing and office segments are closing a cycle where vacancy increased steadily.
This chapter features an interview with Fernando Castillo, General Manager, ICCGSA.Explore chapter
Industry & Retail
While there are disagreements regarding the short-term economic forecast for industry, the consensus for 2018 is considerably more upbeat. By that time, reconstruction and other infrastructure projects should be well under way, delivering the positive shock that the domestic economy, and the sector, urgently requires. In addition, the retail sector in Peru has been the second-fastest-growing sector of the economy over the past decade, after construction, driven by rising consumer spending. Retail sales peaked at $64bn in 2013-14, before falling back to an average of $61bn in 2015-16, in line with the slightly cooler economy. Peru’s total private consumption has more than doubled in nominal terms since 2007 to peak at $132bn in 2014, easing a little in 2014-16 to around $126bn, and the country ranks seventh in the region for this indicator, meaning that there is tremendous room for growth.
This chapter includes interviews with Alfredo Pérez, General Manager, Alicorp, and Juan Pablo García Bayce, General Manager, Gerdau Siderperú.Explore chapter
The transport sector will remain a vital aspect of Peru’s economic success, and reducing the current infrastructure deficit is key to sustaining recent positive growth trends. In light of the 2017 flooding crisis, the Ministry of Transport and Communications is now urgently prioritising investment in transport infrastructure so as to restore the minimum conditions for the private sector to operate. This investment will, in turn, deliver an important boost to economic activity across several sectors, creating jobs in the process. To better compete internationally and accelerate the economic growth of its regions, Peru will also have to prioritise reducing its logistics costs.
This chapter features interviews with Lizardo Helfer, General Manager, Cosapi, and Félix Antelo, CEO, LATAM Airlines Peru.Explore chapter
Agriculture & Fisheries
Despite the effects of El Niño in 2017, agriculture’s prospects remain positive. According to the Ministry of Agriculture and Irrigation, projections, the sector is expected to post average growth of 3-3.5% in 2017, with exports projected to increase by 20-25% to reach $6bn. In the longer term, ongoing public programmes to assist small-scale farming should help to ensure that more smaller producers are integrated into the attractive export industry, while public-private initiatives to develop Peru’s vast forestry resources could see this segment play an increasingly important role in the future of the country’s economy.
This chapter features an interview with Juan Varilias, President, Association of Exporters.Explore chapter
Thanks to its unique historic and cultural offering, including one of the world’s most exciting cuisines, Peru is the fastest-growing tourism destination in the region. International tourism inflows rose by 7.7% in 2016, according to the “Economic Impact 2017 Peru” report by the World Tourism and Travel Council (WTTC), posting faster growth than anywhere else in the Americas, and above the global average of 3.9%. According to the WTTC, Peru’s travel and tourism sector was directly worth PEN25.7bn ($7.6bn) in 2016, or 3.9% of GDP, a figure which is estimated to rise to 5% of GDP within a decade. The sector’s total contribution was put at PEN66.2bn ($19.6bn), a considerable 10.1% of GDP. This is forecast to reach almost 12% of GDP by 2027, making tourism one of the country’s critical sectors.
This chapter includes an interview with Eduardo Ferreyros, Minister of Foreign Trade and TourismExplore chapter
As economic growth has slowed in recent years, weighed down by a combination of volatility and relatively weak demand in the primary and extractive sectors, strength in Peru’s ICT industry has been a constant bright spot. The telecommunications sector has been particularly dynamic, spurred by increased competition, investment and consumer use. The early signs are that these trends have carried over into 2017, with growth remaining in the double digits, more new players entering the market and progress continuing to be made toward rolling out next-generation fibre-optic infrastructure nationwide. At the same time, the regulatory framework continues to be strengthened, with a particular focus on boosting competition, bringing down prices and otherwise protecting the interests of Peruvian consumers.
This chapter features an interview with Gonzalo Martin Ruiz Díaz, Former President, OSIPTEL.Explore chapter
Investment in research and development (R&D) and innovation has been increasing in recent years in Peru, partly as a result of a greater government commitment to science, technology and innovation issues. Spending on science and technology R&D increased by 93.6% between 2011 and 2014. This investment seems to be paying off in terms of institutional development, sector incentives and increased funding, as well as an overall improved standing in global rankings in innovation and innovation-related issues. However, there is still much to accomplish as Peru continues to lag behind regional benchmarks in many respects, with improvements still needed in key areas such as availability and access to funding, limited public policies and instruments, inadequate infrastructure, insufficient human capital and intellectual property protection.
This chapter contains interviews with Gonzalo Villarán, Director of Innovation, Ministry of Production, and Karl Maslo, Regional CEO, EXSA.Explore chapter
Education & Health
As the period of contraction of the commodity cycle continues to dampen Peru’s growth prospects, the education sector has become critical to the country’s ability to begin its transition to a knowledge-based economy. In a post-commodity cycle scenario, aligning vocational and technical training with labour market needs is expected to gradually rise to the top of the agenda in the medium term, as efforts to stimulate growth outside of natural resource-based sectors gain momentum. President Kuczynski hopes to expand access, improve quality and modernise Peru’s health system, a task that will demand increased levels of public spending at a time when the government grapples with a slowdown in economic growth. Meanwhile, though the private sector has not been immune to the deceleration of economic growth, the market continues to attract significant investor interest.
This chapter includes interviews with Fernando D’Alessio, Director-General, Centrum Católica Business School, and Carlos Heeren, CEO, University of Technology and Engineering (UTEC)Explore chapter
Located in the south of Peru, the department of Arequipa shares its border with six other departments, including Ica and Ayacucho to the north-west, Apurímac and Cusco to the north, and Puno and Moquegua to the south-east. The population of Arequipa is set to reach a total of 1.3m people in 2017, representing 4.1% of the country’s population. In 2015 Arequipa had about 693,100 economically active people, down from an approximate 700,200 in 2014. In the third trimester of 2016 Arequipa’s economy grew by 29.3%, with the highest growth sectors including mining, which contributed 19.9%, followed by telecommunications and information services at 9.7%, other services (4.7%), and transport, storage, mail and messaging (3.9%). The outlook for Arequipa appears positive and the present government has taken measures to attract private investment.
This chapter features interviews with Yamila Osorio Delgado, Regional President of Arequipa; Diego Muñoz-Nájar, President, Arequipa Chamber of Commerce; and Michael Michell, Executive President, Michell Group.Explore chapter
This chapter provides an overview of Peru’s tax regime, covering areas of particular interest to investors such as individual and corporate income tax, international tax transparency, double taxation treaties, foreign source income and other investor considerations.
This chapter contains an interview with Paulo Pantigoso, Country Managing Partner, EY Peru.Explore chapter
This chapter provides an overview of Peru’s legal framework, covering a range of topics from public works for taxes to foreign investment law. In addition, it features an interview by Fernán Altuve-Febres Lores, President, Ontier Perú, on the impacts of new legal framework.Explore chapter
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, among others.Explore chapter
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