Steady economic growth in Peru may have masked a potential problem: investment has been falling over the last three years. The country’s GDP grew by 2.4% in 2014, 3.3% in 2015 and 3.9% in 2016, an impressive performance in the context of low commodity prices and contraction of some of the larger economies in Latin America. But across those same three years, the gross fixed investment value decreased. It fell by 2.5% in 2014, 5% in 2015 and by 5% again in 2016, according to the central bank, Banco Central de Reserva del Perú (BCRP). The decline occurred across both public and private investment. As a general rule, private investment is the most important in Peru, accounting for around 80% of the total.

Expressed as a proportion of GDP, investment reached a multi-year peak of 28.4% in 2013. In that year, private investment was equivalent to 22.7% of GDP, while public sector investment represented 5.7% of GDP, according to BCRP figures. The total then fell to 27.1% of GDP in 2014 (21.7% private, 5.4% public), 24.9% in 2015 (20% private, 4.9% public), and then shrunk again to an estimated 22.9% of GDP in 2016 (18.2% private, 4.7% public).

Future Growth

Although investment normally follows a cyclical pattern, the concern is that a prolonged downturn compromises the economy’s future growth potential. In fact, according to the March 2017 edition of the central bank’s inflation report, the main quarterly economic and inflation review published by the bank, the indications were that the economy had continued to grow in part because of a better than expected performance by net exports, which had offset the negative effects of the investment slump. According to the report, a number of different factors explained the contraction of investment. One was that there had been a “bunching” of large investment projects, particularly in the mining sector in 2014, and a lower volume after the peak was to be expected. In fact, mining investment fell by 10.8% in 2015 and by an estimated 49.6% in 2016. Public sector fiscal austerity also had an influence. Although not specifically mentioned, the fact that 2016 was a year in which there were elections and a change of government would also have caused some investment decisions to be paused.

Infrastructure & Investment

However, based on an analysis of upcoming projects, such as Line 2 of the Lima Metro, infrastructure work linked to Peru’s role in hosting the 2019 Pan-American Games and work on the Talara refinery, the BCRP expects an upturn in public sector investment in 2017. A similar analysis of mining projects led the BCRP to conclude that there would be a recovery in private investment in the same year. However, not everyone agrees on this. Marcial García Schrek, tax partner at EY Peru, told local press that mining investment would fall slightly in 2017 to $4bn, down from $4.25bn in 2016.

Overall, the BCRP report expected that investment would bottom out at around 22.2% of GDP in the period between 2016 and 2018. However, the central bank’s report was written before the Odebrecht corruption scandal led to the postponement of the Southern Peru Gas Pipeline, which at over $7bn is the largest project in the country. The consensus is that investment is still set to recover, but there are differences of opinion over how soon and how strong the recovery will make itself felt.

As of March 2017 there were 177 private sector investment projects, worth an estimated $20.46bn, due to be executed in the period spanning 2017 and 2018. Of these, 27 are in mining, 24 in the energy sector and 23 in infrastructure works, according to the BCRP. The government is working to boost that number by deploying a wide range of initiatives designed to streamline and stimulate the project approval and execution process. In fact, many of the 112 decrees issued during the 90-day period of special presidential authority granted to President Pedro Pablo Kuczynski were designed to help energise the investment pipeline.

Public Oversight

One element of the Kuczynski administration’s changes was the creation of a new body to assess and prioritise public sector investment, known as, which replaced the previous system, the System of National Public Investment. The new approach is designed to allow for the more rapid approval of projects, with local and regional governments taking a greater share of responsibility for implementation. There will also be a greater emphasis on targeting infrastructure gaps.

In March 2017 Gonzalo Tamayo, minister of energy and mines, said his officials were working on a plan to make the tax levied on mining companies during the exploration phase refundable if no discoveries were made. The complex process of obtaining social and environmental approvals for mine development, a process that can take years, rather than months, was also being simplified. Companies would now be required to submit detailed environmental and archaeological studies at the pre-production stage, rather than at the earlier pre-exploration phase. The government was also proposing to create a special office the aim of which would be to defuse the social conflicts that frequently delay mining projects.


Another focus of the effort to kick-start private investment was a modification of the roles of the state investment promotion agency ProInversión and of the framework for public-private partnerships (PPPs). Changes to both were made via Decree No. 1251. In February 2017 Alfredo Thorne, minister of economy and finance, told local press the overall aim was to achieve high-quality investment projects carried out by top contractors with a high level of transparency. In November 2016 Álvaro Quijandría, executive director of ProInversión, told local press that the agency was being restructured. Lisbeth Loja Arroyo, an investment specialist at ProInversión, told OBG that apart from its traditional international investment promotion role, ProInversión is actively managing projects and competitive tenders on behalf of government ministries, local and regional authorities, and, in some cases, private sector entities. Under PPP regulations, projects are able to be commissioned by ministries or local governments directly, or channelled through ProInversión. The agency’s board, which was previously composed of five ministers, is now being changed so that it will have three ministers balanced with three representatives from the private sector.

In January 2017 ProInversión said it was prioritising 32 projects in 2017-18, with a total value of $14.4bn, and that many of them will be PPPs. Of that total, ProInversión is expected to award 16 in 2017, with expenditure from those projects estimated at $4.07bn. A further 15 worth $3.75bn will be awarded in 2018. One additional project, Line 3 of the Lima Metro, would be awarded either in late 2018 or in early 2019. As a result of this portfolio of investment projects, the agency said over 950 km of new highways would be built in central Peru, along with more than 650 km of new electricity transmission lines, over 190 km of new railway track and more than 75,000 sq metres of new, better equipped hospital floor space. Keisuke Tanaka, Lima office representative of the Mitsubishi UFG Financial Group, told OBG, “The $16bn pipeline of infrastructure projects for 2017 and 2018 opens the opportunity for foreign financial institutions looking to participate in syndicated loans, given the limited capacity of domestic banks to individually finance large projects.”

New Rules

New public sector procurement regulations are also designed to support an upturn in investment. Prime Minister Fernando Zavala told local press he expected the new rules to help public sector investment grow by more than 10% in 2017. The government’s aim was to simplify and standardise, as well as prevent public works being halted midway through implementation due to administrative or legal problems. Zavala also said they would bring greater transparency to the calculation of reference prices. In order to discourage unrealistically low bids, the adjudication process for tenders introduced a new system based on average offer prices. Officials also stressed that the new regulations were designed to discourage and penalise corruption.

The government’s attempts to kick-start investment have had a broadly positive response from the private sector. Roque Benavides, newly elected president of the National Confederation of Private Business Institutions, told local press in March 2017 that the new procurement regulations, along with updated Works for Taxes initiative (see analysis) and efforts to reduce the informal economy (see analysis) were likely to help increase investment. Benavides said, “We are sure that all these actions will allow us to move forward to reduce the infrastructure deficit and advance the social agenda, which allows us to take one step further on the path of progress.”