The Report: Peru 2019
Peru has seen relatively stable economic growth and significantly reduced the number of people living in poverty. Still, there have been multiple cases of corruption, but the government of President Martín Vizcarra Cornejo, who took office in 2018, has focused efforts on combatting this and stabilising the political climate. Nevertheless, challenges to ensuring sustainable development remain.
Country Profile
Peru is a major producer and exporter of copper and gold, as well as a prolific exporter of liquefied natural gas, seafood and agricultural products. In addition, it is a popular tourist destination, with 4.5m tourists visiting annually, bringing in annual revenue of $5bn. On the whole, 2018 was considered a recovery year for the economy, with investment in mining increasing by 25% over the previous year. President Martín Cornejo Vizcarra also took office in 2018, which has calmed the political environment. The outlook for 2019 is positive, with more large-scale investment in infrastructure and mining ahead. As Lima prepares to host the Pan-American Games in July, there is optimism that it will restore Peru’s image of economic prosperity with an investor-friendly framework and political stability. This chapter contains a viewpoint with Martín Vizcarra Cornejo, President of Peru; and an interview with Néstor Popolizio, Minister of Foreign Affairs.
Explore chapterEconomy
Peru has emerged as one of the best performing economies in Latin America. The country possesses strong fundamentals, combining robust growth, a falling fiscal deficit, rising export revenue and a credit rating second only to that of Chile. Nevertheless, challenges remain in terms of ensuring sustainable development. Peru has undoubtedly benefitted from its openness to private enterprise and foreign investment, along with its prudent fiscal policy. Despite issues with corruption, Peru possesses an independent central bank and a well-functioning investment authority. Furthermore, it showed regional leadership in implementing anti-corruption legislation. GDP is expected to grow by 3.7% in 2019 and in 2020, underpinned by infrastructure projects, rising exports and increased investment in mining sector. While the economy is steadily improving, more needs to be done to achieve the country’s development objectives. This chapter contains interviews with Carlos Oliva, Minister of Economy and Finance; and Julio Velarde Flores, President, Banco Central de Reserva del Perú.
Explore chapterBanking
The banking crises of the 1980s and 1990s have left Peru with a highly concentrated, conservative banking system that is on one of the region’s most solid foundations, boasting strong capital and liquidity. The sector has retained a positive outlook from global credit ratings agency Moody’s since November 2017, which last reaffirmed this view in October 2018, predicting a recovery in loan growth, stable asset risk and solid profits to bolster capital buffers. However, though domestic lending to the private sector has increased, provision of credit remains comparatively low, at 41.1% of GDP. Furthermore, despite significant progress to increase banking penetration, financial inclusion metrics remain below the Latin American average. If Peru’s financial system truly embraces the digital era, financial inclusion indicators should improve, representing a chance for banks to vastly grow their customer base. This chapter contains an interview with Gianfranco Ferrari, CEO, Banco de Crédito del Perú.
Explore chapterCapital Markets
While the economy has increased three-fold since the turn of the century, capital markets have not proved able to emulate this growth. With trading volumes falling again in 2018, it is clear that markets need to see more dynamic growth in terms of size and liquidity. Efforts to increase penetration should see the high market concentration give way to more diverse participation from individuals and companies of all sizes and sectors. A cornerstones to this will be ensuring the business community and the wider population are made more aware of the financial benefits that capital markets can bring. Looking to the 2020s, question marks remain as to whether Peru will be able to bolster the size and penetration of its capital markets in a way that more closely reflects the scope and dynamism of its economy. This chapter contains an interview with Marco Antonio Zaldívar, Former Chairman, Lima Stock Exchange.
Explore chapterInsurance
The Peruvian insurance market as a whole returned to profitability in 2018, following losses and anaemic expansion over the course of 2016 and 2017. Underwriters enjoyed the most robust returns in the life segment, particularly in personal income annuities, which have come into high demand among new retirees as reinvestment vehicles for pension withdrawals. Furthermore, overall claims fell significantly against indemnities paid out in 2017, when the El Niño climactic phenomenon precipitated widespread damage to residential and agricultural properties in the north of the country. Even as the insurance penetration rate remains low vis-à-vis uptake among Peru’s South American neighbours, the sector is expected to drive growth in the wider economy, as coverage for earthquakes, fires and other accident liabilities grows alongside investments in mining and construction. This chapter contains an interview with Jorge Ramos, CEO, Sura (Peru).
Explore chapterMining
With a vast wealth and diversity of metals and minerals, Peru is rich in natural resources. Mining plays a significant role in Peru’s non-oil economy, especially in terms of exports and job creation. However, investment in the sector fell in recent years, largely owing to external headwinds such as the drop in commodity prices that begun in 2014. Internal challenges also slowed sector activity, with social conflicts and community protests delaying several projects. The sector’s development will depend on the speed and manner in which these challenges are dealt with, as well as on the reduction of bureaucratic bottlenecks and increases in investment incentives. Given the number of projects set to come on-line in the near future, the production of minerals is expected to return to more stable levels. This chapter contains interviews with Mark Cutifani, Chief Executive, Anglo American; and Nick Holland, CEO and Executive Director, Gold Fields.
Explore chapterEnergy
The development of Peru’s energy market has been rife with challenges and opportunities in recent years. While Peru could once stake a claim to being South America’s largest commercial producer of oil, fuel output has been on a steady decline for more than two decades, the country accounted for 1.8% of regional oil output in 2017. However, the same shifts that have undermined Peruvian petroleum – namely, technological breakthroughs in the extraction and distribution of natural gas, and innovations in renewable energy – have created new markets in a country abounding with natural gas and vast resources in solar, wind and biomass. Policymakers and investors intent on securing Peru’s energy future are looking to split the difference between these trends. Proposed amendments to the hydrocarbons law could double petroleum production and help to make up the shortfall in domestic supply. This chapter contains an interview with Jorge Olazábal, General Manager, Cálidda.
Explore chapterConstruction & Real Estate
Increased investment in infrastructure projects – such as those in mining, the $1.5bn extension of the Jorge Chavez International Airport, the increased supply of social housing and infrastructure development around the 2019 Pan American Games – are set to propel the construction sector. Investors are optimistic given the large portfolio of public projects, but authorities should be sensitive to concerns regarding project slowdown and transparency. Performance in several segments of the real estate sector improved in 2018. Government incentives and facilitation of mortgages are expected to fuel residential real estate demand. Warehousing expansion is being driven by e-commerce sales growth, and a widening middle class is attracting investment and international brands to the retail segment. Challenges like a systemic housing deficit and low mortgage penetration rates remain, but the uptick in the sector is expected to continue. This chapter contains an interview with Guido Valdivia, Executive Director, Peruvian Chamber of Construction.
Explore chapterIndustry & Retail
The industrial sector returned to growth in 2018, with production, exports and investment growing substantially after four years of contraction. Improvements have come largely through the expansion of manufacturing, including the production of a range of higher-value-added products, along with processed fish and agro-industrial goods. In order to sustain and expand this development, the government is pursuing a number of programmes emphasising the diversification of exports, coupled with domestic policies to improve competitiveness. The retail sector has lead growth in the Latin American market in recent years, driven by the expansion of shopping malls, promotions and discount prices at supermarkets and pharmacies, and an expanding consumer base. The sector is expanding and strengthening its various formats whether that is through increasing store-based retailing or e-commerce, while stakeholders are work to take advantage of the growing middle-class consumer base. This chapter contains an interview with Toshiro Hayashi, CEO, Toyota del Perú.
Explore chapterTransport
The commitment of Peru to meeting its transport and logistics needs is apparent in the FY 2019 budget. The Ministry of Economy and Finance set aside PEN326.6m ($98.9m) for road, air and port infrastructure development, with plans to secure additional funds from the private sector. The prospects for investment in the sector are positive, as the need to close the country’s infrastructure gap is coupled with Peru’s improving image as a business destination. The latter is supported by a legal framework that facilitates public-private partnerships. Planning processes must take into account that the acquisition of land, and contracts now include an anti-corruption clause. The government is working to improve the business environment by hiring international consultants to contribute to the employment of best practices when carrying out joint works by the government and private sector. This chapter contains an interview with Juan José Salmón Balestra, CEO, Lima Airport Partners.
Explore chapterAgriculture
Increased investment and the expansion of irrigated land along the Peruvian coast has ensured the continued development of large-scale industrial agriculture for over two decades. After introducing dozens of new products, local agri-business firms have successfully expanded and diversified Peru’s agricultural export base. Meanwhile, increases in production and exports occurred despite the effects of the El Niño climatic phenomenon, which caused crop damage in 2017. Certain hurdles still need to be addressed for Peru to move from being a regional agricultural leader to a global one. In the coming years, ongoing public programmes to assist small-scale farms should help ensure that producers are more integrated into the export industry. In addition, the development of value-added services could see the sector play an increasingly important role in the future of the country’s economy. This chapter contains an interview with Édgar Vásquez Vela, Minister of Foreign Trade and Tourism.
Explore chapterTourism
While Peru’s rich and diverse cuisine continues to attract visitors, demonstrated by a range of quality eateries in Lima and the proliferation of Peruvian restaurants around the world, Machu Picchu remains the number-one attraction for visitors. Named the “World’s Leading Tourist Attraction” for 2018, the historical site is seeing faster-growing tourist rates than the country overall. Herein lies the main challenge for the industry: diversification. Greater connectivity and infrastructure efforts in other regions – particularly the north – is hoped to pull tourists to different parts of the country and see them engage in adventure and nature tourism in addition to visiting cultural sites. This chapter contains an interview with Eduardo Ibarra, Hotels Business Unit General Manager, Grupo Los Portales.
Explore chapterICT
A highly competitive market has ensured mobile usage has expanded rapidly, and companies continue to invest in the networks, despite finding their margins squeezed. In some ways, Peru is playing technological catch-up. Key indicators lag behind similar economies in the region, and slow progress in rolling out regional fibre-optic networks has stalled the government’s plans to digitally connect the entire country. However, a competitive market pushing operators to improve services and lower prices means that there has been progress in mobile coverage. With one of the most positive economic outlooks in Latin America, stable domestic demand and impressive growth in new segments such as agri-business, Peru certainly has the potential to be a centre for innovation. More agile government policy, including digitalising the state apparatus itself, could see Peru become a major player in the Fourth Industrial Revolution. This chapter contains an interview with Mariana Costa, CEO and Co-founder, Laboratoria.
Explore chapterEducation & Health
Efforts to reform the education sector, boost teacher salaries, provide qualitative assessment and coordinate national education policy are areas being targeted by the government, while the skills mismatch between graduates and the private sector, the urban-rural gap, and underperforming private primary and secondary schools highlight other areas that require attention. Local authorities and international organisations have already taken steps towards overcoming these challenges, and the government appears to be on track to achieve its bold education objectives. With increased funding, the government laid out a series of initiatives aimed at increasing access to and improving the quality of health care, which should help achieve universal coverage by 2021 and further improve health indicators. Although challenges remain, particularly with a rural-urban divide and a shortage of doctors and medical specialists, Peru’s is strengthening its health infrastructure. This chapter contains an interview with Angela Flores, Executive Director, National Association of Pharmaceutical Manufacturers.
Explore chapterTax
In conjunction with EY Peru, this chapter explores the taxation system and Peru’s efforts to build an investor-friendly environment. It also contains an interview with Humberto Astete, Tax Partner, EY Perú.
Explore chapterLegal Framework
This chapter introduces the reader to the different aspects of the legal system in Peru, in partnership with RGB Avocats. It also contains an interview with Ricardo Guevara Bringas, Corporate Lawyer and Partner, RGB Avocats.
Explore chapterThe Guide
This section includes information on hotels, government offices and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress code, business hours and electricity.
Explore chapterTable of Contents
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