The Report: Peru 2018
With a new administration in place, local and international players in Peru have regained optimism. As one of South America’s top performers due to its reforms and fiscal discipline, the country is benefiting from rising commodity prices and an export-oriented mining sector. In addition, 2018 brought increased public expenditure, with notable rises in the budgets for education, health, infrastructure and reconstruction.
Country Profile
With an average growth rate of 5.9% over the past decade, Peru’s economy has consistently outperformed most regional neighbours. Politically, the country has recently emerged from a period of instability and security concerns to rank among the top investment destinations in the developing world. That said, corruption continues to be a concern, particularly in the wake of several recent scandals that shook the country’s traditional political establishment. Aggravating this problem, a divided Congress has failed to reach any bipartisan agreement to push through much-needed anti-corruption reforms. However, the emergence of Martín Vizcarra, who assumed the presidency after Pedro Pablo Kuczynski’s resignation in March 2018, offers new hope to investors and Peruvians alike. Although it is still too early to assess his leadership, President Vizcarra has already shown promising signs that his administration will make concerted efforts to combat corruption, rebuild business confidence, encourage investment and increase economic growth. This chapter contains interviews with President Martín Vizcarra Cornejo; Sebastián Piñera Echenique, President of Chile; Liam Fox, UK Secretary of State for International Trade; and Juan Manuel Santos, Former President of Colombia; and Former President Pro Tempore, Pacific Alliance.
Economy
After a political transition that threatened business confidence and investment projects, Peru’s economic outlook has improved considerably. As one of South America’s top performers due to its structural reforms and fiscal discipline, Peru is seeing an economic rebound due to rising commodity prices and its export-oriented mining sector. The Ministry of Economy and Finance (Ministerio de Economía y Finanzas, MEF) projects that GDP growth will accelerate from 2.5% in 2017 to 3.6% in 2018, bolstered by a 17.5% and 4.5% increase in public and private investment, respectively. The longer-term outlook is yet more optimistic, with forecasts for higher average growth and domestic demand over the 2018-21 period. The MEF forecast greater private investment will support fiscal consolidation efforts from 2019, reactivating the virtuous cycle of investment, employment and consumption. This chapter contains interviews with Luis Alberto Moreno, President, Inter-American Bank of Development; Alberto Ñecco, Executive Director, ProInversión; and Roque Benavides, President, National Convention of Private Business Institutions.
Explore chapterBanking
Despite the deceleration of the Peruvian economy in 2017, driven in large part by the simultaneous impacts of the El Niño climate cycle and the corruption scandals related to Brazilian construction giant Odebrecht, the banking sector has remained stable. According to international credit ratings agency Moody’s, at the close of 2017 the sector was exhibiting sustained profitability, diverse earning sources and improved operating efficiency, with the annual report from the Peruvian Association of Banks recording a 4.7% increase in system-wide net income to PEN2.46bn ($757.4m). In 2018 the banking sector is expected to continue to act as an economic bellwether, maintaining positive indicators in terms of liquidity, solvency and efficiency. This chapter contains interviews with Julio Velarde Flores, President, Central Reserve Bank of Peru; Wilber Dongo, Central Business Director, Caja Arequipa; and Eduardo Torres-Llosa, General Manager, BBVA Continental.
Capital Markets
Peru has many of the economic ingredients needed for rapid expansion of the capital market, yet the authorities still need to channel efforts into making the Lima Stock Exchange (Bolsa de Valores de Lima, BVL) attractive to both businesses and investors. Since the turn of the new millennium, the number of listed companies has grown from 210 in 2001 to 277 as of June 2018. Of these, manufacturing (16%), finance (14%), public service (9%) and mining (8%) are among the most represented sectors. A handful of firms tend to dominate each of these categories. For example, Southern Copper Corporation, a mining company, comprises almost 25% of the entire exchange’s value at $40.6bn; Credicorp Capital, a local financial services firm, has a market capitalisation of just under $21bn, or 12.7% of the BVL total; and Banco de Crédito, a Peruvian bank, has a market cap of $17.2bn – equal to 10.5% of the total. This chapter features interviews with Marco Antonio Zaldívar, Chairman, Lima Stock Exchange; and Jorge Ramos, General Manager, BBVA Continental Bolsa; and President, Association of Peruvian Brokerage Houses.
Explore chapterInsurance
The Peruvian insurance sector has experienced its fair share of volatility in recent years. After registering gross premium growth of 17.8% and 24.3% in 2014 and 2015, respectively, 2016 saw the industry contract by around 3.5%, according to a report issued by BMI Research. The sector’s poor performance was due mainly to a reduction in investment across the economy, damage caused by the El Niño weather pattern, weaker private consumption and a new regulation that allowed up to 95% of pension funds to be withdrawn. However, the industry appears to have rebounded somewhat, experiencing moderate growth in 2017 encouraged by rising household incomes and personal savings, continuing growth in the individual life segment, and increasing knowledge and popularity of products among the general public. Additionally, innovative products aimed at attracting previously neglected or underinsured areas should provide significant room for the industry to expand.
Explore chapterMining
Contributing around 10% to GDP in 2017, the mining sector is fundamental to Peru’s economy, accounting for significant levels of foreign exchange and tax revenues, as well as the creation of direct and indirect jobs. Supportive legal and tax regimes, low production costs and an abundance of natural resources all contribute to increasing investor appetite, together with a relatively stable macroeconomic and political environment, which has given rise to favourable mining policies. However, the sector is not without its challenges; growth is only just now returning after a period of low commodities prices, while conflicts in mining regions in some parts of the country have made it clear that mining companies need to work more closely with local communities. Still, the recommencement of key projects, rising mineral prices and the pro-business policies of the new administration of President Martín Vizcarra all bode well for the sector. This chapter contains interviews with Luis Marchese, President, National Society of Mining, Petroleum and Energy; and Country Manager, AngloAmerican; and Mariela García, CEO, Ferreycorp.
Energy
Having 50% of its electricity generated from renewable sources – of which 42.7% comes from hydro – with this projected to reach 60% by 2025, Peru is making on progress on its goal to support the renewable energy segments. At the same time, the country is currently suffering from an oversupply of energy. This can serve as a growth opportunity, but only if the necessary demand can be identified and harnessed. Recognising untapped markets has the potential to make the energy sector more competitive. For example, electricity demand in the mining sector is estimated at 2 GW in 2018. According to 2017 data from the Central Reserve Bank of Peru, metal mining production increased by 4.2% over the course of the year, compared to the 2.4% drop seen in the hydrocarbons sector. The consistent growth of Peru’s energy sector in the past decade is not anticipated to slow in the near future. This chapter includes an interview with Rik de Buyserie, CEO and Country Manager, Engie Peru.
Explore chapterConstruction & Real Estate
After two years of contraction and a slow first half of 2017, the construction sector recorded much-welcomed growth late in the year. In response to the political challenges and natural disasters of 2017, the government passed two milestone documents: an anti-corruption law and a PEN25.7bn ($7.9bn) Reconstruction Plan. Although the private segment contracted in 2017, positive results may follow from the anticipated public sector revitalisation. Overall, the construction sector is expected to be a mobilising force in 2018. The real estate sector had high expectations for 2017, with the Economic Report on Construction by the Peruvian Chamber of Construction (Cámara Peruana de la Construcción, CAPECO) predicting 6.6% growth. However, the sector ended the year with only 2.4% growth. Despite this, the real estate sector managed to perform 57% higher than other goods and services sectors. Projections for 2018 remain high, with CAPECO reporting that real estate developers have a higher than average growth projection of 80%. This chapter features interviews with Gonzalo Sarmiento Giove, CEO, Inversiones Centenario, and Carlos Neuhaus Tudela, President, XVIII Pan American Games and VI Parapan American Games of 2019.
Explore chapterIndustry & Retail
In 2017 Peru was struck by the El Niño Costero floods, and some industrial segments were forced to stop production as a result. Despite that, significant growth in non-primary manufacturing segments – such as food products, paper and cardboard, and construction equipment and machinery – helped the sector record a relatively positive outcome for the year. Moreover, driven by the expansion of shopping malls, low prices at supermarkets and pharmacies, and a growing middle class, the retail industry grew by 4.3% in 2017 and is projected by the Lima Chamber of Commerce and the Retail Labour Union to grow by up to 6% in 2018. Furthermore, the 2017 Global Retail Development Index claimed that Peru’s retail industry recorded the largest growth in Latin America, despite an economic slowdown. Peru ranked 9th out of 30 countries based on market attractiveness, country and business risk, market saturation and time pressure. This chapter includes interviews with Rafael Álvarez, CEO, Backus; and Mario Campodónico, CEO, Supermarket Division, Cencosud Perú.
Explore chapterTransport
The transport sector remains a vital aspect of Peru’s economic success, growing by 2.30% in 2016, and by an average of 2.26% in the first eight months of 2017, according to the National Institute of Statistics. This expansion was driven by a 3.05% increase in airport transit, a 4.26% growth in railway transport, as well as respective increases of 2.11% and 0.74% for passenger and freight ground transport. To better compete internationally and accelerate the economic growth of its regions, Peru will have to prioritise reducing its logistics costs. Road transportation remains the area with the greatest future challenges as well as investment potential. That being said, significant upgrades in infrastructure, both at the urban and provincial levels, appear set to take place in the next few years. This chapter features an interview with Javier Lancha de Micheo, CEO, APM Terminals Callao.
Agriculture & Fisheries
Peru’s agriculture sector has enjoyed consecutive annual expansions in recent times, with agricultural GDP growing at an average rate of 3.3% per year between 2000 and 2015 – above the regional average for Latin America, according to a March 2018 report by the World Bank titled “Gaining momentum in Peruvian agriculture: Opportunities to increase productivity and enhance competitiveness”. The country climbed two positions to 53rd in the 2017 Global Food Security Index, which ranks 113 countries according to the affordability, availability and quality of food for the population. The strength of Peruvian agriculture is due in part to its crop diversity, with coastal regions providing the majority of exports and inland production channelled towards domestic consumption. Agriculture currently constitutes 7.3% of GDP, according to the World Bank. This chapter features interviews with Adriana Giudice, General Manager, Austral Group; and Jorge Arangurí, Executive Director, Danper.
Explore chapterTourism
Peru’s tourism sector is ranked 46th out of 185, in terms of relative importance of travel and tourism’s total contribution to GDP, according to the World Tourism & Travel Council’s “Economic Impact 2018 Peru” report. According to the same report, in 2017 Peru’s travel and tourism sector was directly worth PEN26.5bn ($8.2bn), or 3.8% of GDP, a figure which is forecast to rise by 4.5% in 2018, and expand by an average of 4.7% per year over 2018-28 to reach PEN43.7bn ($13.5bn), or 4.2% of total GDP by 2028. The sector’s total contribution — direct plus indirect — was PEN68bn ($20.9bn) in 2017, a considerable 9.8% of GDP. This is forecast to rise by 4.7% in 2018 and 4.5% per year to PEN110.8bn ($34bn) and 10.6% of GDP in 2028, highlighting the continued importance of the tourism sector to the overall Peruvian economy. This chapter includes interviews with Virgilio Martínez, Head Chef and Owner, Central; and Jorge Melero, CEO, Hoteles Libertador.
Explore chapterICT
Since the market entry of new operators in 2014, competition, investment and consumption have risen, boosting the dynamism of the telecommunications sector. These positive trends continued into 2017 as the regulatory framework was strengthened, with a particular focus on driving competition, reducing costs and protecting the interests of consumers. In 2017 Peru’s ICT sector represented 2.6% of GDP, according to industry consulting firm Ovum. Political instability and an unfavourable regulatory environment are the main factors affecting the country’s competitiveness in terms of ICT adoption, according to the World Economic Forum. Furthermore, there is plenty of room for improvement regarding the country’s online security measures. With the bold expansion of internet access to rural areas and the renewed focus on strengthening cybersecurity measures, the Peruvian ICT sector is starting to establish itself as an emerging market in the region. This chapter features an interview with Rafael Muente Schwarz, President, OSIPTEL.
Explore chapterEducation & Health
Although Peru is increasingly focusing resources on education, there is some way to go to catch up to its regional peers. However, there are encouraging signs that the necessary changes are being made, including more public investment via a centralised spending framework, revised regulations, take-up of technology and other innovations. The dynamic private sector looks set to capitalise on increasing demand for high-quality education among the burgeoning middle class. Nevertheless, the sector needs to overcome a divide between rural and urban education provision, opposition to some reforms from educators and a significant infrastructure gap. In terms of health, Peru has made impressive strides towards achieving its aim of universal health coverage by 2021. With the launch of the e-health programme, the government has shown itself to be receptive to utilising emergent technologies to expand and improve provision nationwide. Nevertheless, the sector faces persistent shortages of doctors, and inequalities in services between rural and urban areas. This chapter includes interviews with Jorge Yzusqui, General Manager, Innova Schools; and Juan Carlos Salem Suito, General Manager, SANNA.
Explore chapterTax
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, VAT regulation, foreign source income and other investor considerations. This chapter contains an interview with Humberto Astete Miranda, Tax Partner, EY Perú.
Explore chapterThe Guide
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 chapterTable of Contents
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