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. While the sector faces a number of challenges, including transport congestion and hurdles in terms of taxation and regulation, it nonetheless stands to gain from increased infrastructure investment and a move towards the digitalisation of Customs procedures. 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.


After four years of negative growth, 2018 marked a notable comeback for the sector with industrial production growing by 6.2%, according to the National Society of Industries (Sociedad Nacional de Industrias, SNI). This performance was driven primarily by the fish processing and preservation industry, which grew by 70.4% in 2018, supported by high catch rates coupled with rising domestic demand and increased external demand from the US, Europe and East Asia. This category included the canning, drying, freezing and processing of all manner of seafood. However, while the fishing industry had a major impact on overall sectoral growth, industrial production excluding this activity still amounted to a healthy 3.3%.

Manufacturing as a whole grew by 6.2%, with primary manufacturing growing by 12.7% and non-primary manufacturing by 3.9%. The second fastest-growing industrial segment was electrical equipment manufacturing at 28.5%, followed by metal products (11.1%), furniture manufacturing (8%) and garment production (4.8%). However, not all industrial segments performed so well, with machinery and equipment production shrinking by 10.4%, followed by refined petroleum products, which contracted by 6.6%, and textiles and beverages, which registered negative growth of 4.9% and 0.7%, respectively. Non-traditional exports grew 13% in 2018 to reach $13.2bn. Foodstuffs led the way in this expansion, with exports of fish products rising by 26.4% while exports of agro-industry products grew by 15.2%. This was followed by mechanical products, which grew by 13.6%, chemicals (12.5%), textiles (10.1%) and non-metallic minerals (7%). The main products exported from the chemicals subsector were sheets of the polymer propylene, zinc oxide, sodium hydroxide, ethylene and sulfuric acid.

This marks the best industrial production and export performance since 2013. Speaking to local press in August 2018, Raúl Pérez-Reyes, the minister of production, attributed the recovery to “the solid performance of domestic demand, greater dynamism in the construction sector and a significant increase in manufacturing exports”. Additionally, the allocation of bank credit to the industrial sector rose 7.6% in 2018 to reach PEN39bn ($11.8bn). Concurrently, following three years of negative growth from 2014 to 2016 and a weak recovery of 0.2% in 2017 private investment grew by 4.4% in 2018. In a further sign of renewed confidence in the country’s industries there has been a rise in mergers and acquisitions (M&A) activity in the sector. According to a report by PwC, more M&A took place in the industry than any other sector in 2018, with 23% share of the total. Furthermore, the value of this M&A was second only to the energy sector and rose significantly, from $17bn in 2017 to $50bn in 2018.

Challenges & Opportunities

This apparently robust recovery of the industrial sector showed some signs of reversal during January 2019. During the period production fell, posting negative growth of 5.6%, driven primarily by a contraction of the fish and precious metals segments, which registered negative growth of 32.8% and 46.2%, respectively. Nevertheless, non-primary manufacturing grew 3.5% in January 2019 and exports and non-traditional exports increased by 8.1%. Regardless of how these figures develop during 2019, the sector faces a number of bottlenecks to its future expansion.

Rafael Zacnich, chief economist at the Society of Exterior Commerce (Sociedad de Comercio Exterior, COMEX), told OBG that underdeveloped transport and logistics lines, coupled with road congestion, and issues related to insecurity and drug trafficking, create challenges. Furthermore, chronically underperforming industrial segments will need to find new areas in which to specialise in to become more competitive, Dante Carhuavilca, head of economic and social studies at the SNI, told OBG.

Yet despite these challenges, the country possesses considerable scope for further industrial expansion. According to figures from the International Trade Centre (ITC), Peru had $12.6bn in untapped export potential in 2018. The industrial products with the greatest room for export growth are processed fish and copper cathodes, according to the ITC. Meanwhile, the US, China and the Netherlands constitute the markets with the greatest potential for Peruvian exports.

Furthermore, the sector may receive a boost from rising production of metals. According to BBVA Research, a new cycle of investment is under way in Peru’s mining industry, with a 26% increase in 2018 to $5bn, a figure that is expected to exceed $6bn in 2019. Nevertheless, production stagnated due to temporary supply issues caused by geotechnical issues. However, production is projected to rise by 4% in 2019 with the normalisation of extraction practices and rising international demand, driven by electric vehicle production and the end of monetary tightening by the US Federal Reserve.

Historically speaking, rising extraction of metals in Peru has moved in tandem with increased manufacturing, chemicals production and construction (see Mining chapter). Additionally, in a sign of improving economic fundamentals, the country was ranked 63 out of 140 countries in the World Economic Forum’s “Global Competitiveness Report 2018”. This performance was nine points higher than its score in the previous report for the 2017-18 period, and only two places below its 2013-14 position.


In terms of both production and exports the food segment led the way in 2018, with the overall sector growing by 17%, its highest growth rate since 2012, according to Ministry of Production (Ministerio de la Producción, PRODUCE). This expansion was driven primarily by growing production of fishmeal, fish oil, and canned and frozen seafood products. According to PRODUCE, greater production of milled grain, meat products and animal feed also had a positive impact. The foodstuffs segment forms a substantial part of the broader industrial sector along with the economy at large, contributing 20% to manufacturing GDP and 2.6% to national GDP in 2018. The industry is also a major employer, providing 342,000 jobs, or 22.1% of manufacturing employment and 2.1% of the total. Baking activities, preservation and processing of fruits and vegetables, and industrial fishing provide the highest numbers of jobs, according to PRODUCE.


While textile production contracted in 2018 the subsector was the fifth-largest exporter, with exports growing by 10.1% and then by 22% in January 2019. The industry is also a major source of employment, hiring 463,000 people in 2018, with 95% of the industry being operated by small and medium-sized enterprises (SMEs). Furthermore, textiles possess considerable potential for growth in the future despite facing short-term challenges.

Speaking to the press in October 2018, Leandro Mariátegui, dean of the Faculty of Engineering at the Technological University of Peru, stated that part of the reason behind this decline in textile production is that a number of foreign-owned lowcost garment brands – including Old Navy, Gap and Walmart – relocated factory production from Peru to Central America. Nevertheless, faced with these pressures, the industry has been able to innovate and reallocate resources to higher-value garment production, boding well for the future growth of the industry, according to Mariátegui.

One of the fastest-growing segments of the industry is dressmaking, with production growing by 6.2% in 2018. Meanwhile, exports rose by 10.9% to $800m, with the US serving as the country’s primary client. Nevertheless, other overseas markets also helped support this expansion, including Russia. In order to facilitate the further expansion of the textile industry the Commission for the Promotion of Peruvian Exports and Tourism (Comisión de Promoción del Perú para la Exportación y el Turismo, PROMPERÚ) has developed a strategy for the industry subsector, placing particular attention on leveraging of the country’s production and trade in alpaca products.


One of the fastest-growing, high value-added industrial subsectors in the country in recent years has been the manufacturing and marketing of medicines. According to the most recently available figures from the Association of Exporters, the export of pharmaceuticals grew 4.8% year-on-year between January and November 2018, driven by increased imports of Peruvian products by China and the US, along with neighbouring Latin American states. During this period the value of exported pharmaceuticals totalled around $49m. The country exports a broad range of medicines and medical materials, along with veterinary medication.

Sector Overhaul

In order to improve the efficiency and competitiveness of the Peruvian industrial sector and ensure its sustainable expansion over the long term, a number of different reforms are being pursued. In August 2018 the SNI announced five proposals to increase the use of technology and the pursuit of innovation among Peruvian firms: integrate and increase funds for innovation, while promoting inter-firm cooperation on innovation; expand government programmes for technology; simplify and shorten the registration procedures for intellectual property; introduce tax deductions for innovation costs; and the development of an information system to allow industry players to keep up with research and development (R&D), while also informing researchers about the industry’s needs.

In order to support the development of the industrial sector, the government established the National Innovation Programme for Competitiveness and Productivity in 2015, to provide loans to firms – particularly SMEs – to engage in innovation. However, this funding lacked a sufficient complimentary legal framework. As part of an effort to address this issue, the government approved a series of technical guidelines for the public financing of science, technology and innovation in November 2018. The guidelines establish a framework for strengthening technology transfer between industries and encouraging R&D at public universities.

Furthermore, in December 2018 the government approved a new strategy for the development of productivity and competitiveness. The primary objectives of the strategy are to increase both physical capital and human capital. According to the programme, this is to be done through the construction of infrastructure and the development of financial support for innovative firms, along with the improvement of the education and health care systems, along with reforms to the labour market. However, while the policy strategy has been welcomed by industry players, it has also faced some criticism for not being specific or detailed enough in identifying how it will achieve these objectives. For example, Carhuavilca told OBG that the strategy needs to prioritise increasing flexibility for young workers and reducing both taxation and regulation on private enterprise in order to meet its objectives.


Peru is open to international trade and has made concerted efforts to develop a favourable business environment for overseas investors. According to the most recent annual report from the Central Reserve Bank of Peru, the country had the fourth-highest level of foreign direct investment (FDI) at the end of 2017, totalling $6.7bn.

Furthermore, the total stock of FDI amounted to $98.2bn in 2017, or 47.4% of GDP, with 12.4% of FDI going to the industrial sector. Foreign investment appeared to have increased further in 2018, with an inbound flow of $6.8bn during only the first three quarters of the year, according to the UN Economic Commission for Latin America and the Caribbean. This placed the country among the highest recipients of FDI, behind only Brazil, Argentina and Colombia, but ahead of Chile, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela. Nevertheless, despite these encouraging signs, the country still has room for improvement in developing an attractive business environment for foreign investors. While the country ranked 68 out of 190 states and territories listed in the World Bank’s “Doing Business Report 2019”, this was 10 places lower than in the previous report. Most notably, Peru performing weakly in terms of starting a business (125), paying taxes (120) and trading across borders (110).

Infrastruture Boost

In addition to creating a more favourable business environment for domestic and international investors, the industrial sector is also set to benefit from a number of major infrastructure projects. The FY 2019 budget allocated PEN326.6m ($98.9m) to the upgrade and development of road, air and port infrastructure (see Transport and Logistics chapter). Furthermore, in mid-2018 ProInversión, the government agency for the promotion of private investment, announced that it was seeking $160bn in private investment for a broad range of infrastructure projects to be operated under public-private partnership agreements.

Notable among the infrastructure projects in the ProInversión portfolio for the 2018-21 period are the $235m upgrade of the Huancayo-Huancavélica railway line, the construction of a new port terminal at Chancay, the construction of the Port of Chimbote, and the upgrade and expansion of Lima’s Jorge Chávez International Airport. These projects stand to significantly improve international trade connectivity and support the development of global supply chains, thereby helping to boost the competitiveness of the country’s industrial exports.

Peru has also been making efforts to leverage emerging technologies to improve the efficiency of its logistics operations. In October 2018 the Inter-American Development Bank announced that it was supporting the development of blockchain solutions to facilitate automated and secure information sharing between the Customs administrations of Latin American countries, including Peru. This is expected to help support the implementation of mutual recognition agreements between regional states. Furthermore, in December 2018 the National Superintendency of Tax Administration inaugurated a $10m Customs laboratory to develop digital solutions for the improved collection of Customs duties and taxes. The new lab is based on the international standards developed by the World Customs Organisation and is set to become among the most advanced laboratories of its kind in the region.

Free Zones

Peru is also seeking to attract foreign investment and develop global markets for domestic firms through its special economic zone (SEZ) offering. As of 2019 the country offered seven SEZs, in addition to five industrial parks. These SEZs are designated as export, transformation, industry, marketing and service centres (Centros de Exportación, Transformación, Industria, Comercialización, y Servicios) and were therefore previously more widely known by their Spanish acronym CETICOS. These SEZs are located in Ilo, Paita, Puno, Matarani and Tacna. The SEZs provide tax exemptions for firms ranging from 30 to 50 years.

Nevertheless, while these SEZs have played a role in the development of the country’s industrial sector, the segment remains underdeveloped by regional and international standards. By way of comparison Peru’s SEZs exported only $33m and generated 1500 jobs in 2018, whereas Colombia had over 100 SEZs, generating $2bn and supplying more than 70,000 jobs, according to the SNI. Similarly, Costa Rica had around 139 SEZs and Hondurus had 102, highlighting that the segment has a wide scope for expansion. Speaking to the local media in late 2018, Ricardo Márquez, president of the SNI, stated that the zones have the “potential to promote the country’s competitiveness, adopting and amplifying local and international best practices”. Nevertheless, Márquez emphasised that in order to be successful, SEZs must be established with clear objectives, with companies agreeing to specific levels of investment and job creation. They must also have an appropriate legal framework under which to operate, promote competition and be managed by private firms. Márquez also emphasised that SEZs must be serviced by the necessary infrastructure, both in terms of utilities and telecoms, but also in terms of road, rail and port transport links.


The year 2018 marked a major turn around for the previously ailing industrial sector, with production, exports and investment showing robust growth. This shift in part reflects lessons leant by the sector, with both government and private firms making concerted efforts to boost export competitiveness and embrace innovation. Nevertheless, this change was also facilitated by favourable exogenous factors, the continuance of which cannot be relied upon. Sustaining this expansion will therefore rely on continued improvements in reducing regulations and attracting foreign capital.