Focus on Peru (IBR 2013)


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Peru is a rapidly developing economy of more than 30 million people. In 2012, its GDP was approximately US$200 billion, making it the 50th largest economy in the world and seventh largest in Latin America. This this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Peru, and more than 12,500 globally, over the past 12 months.

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Focus on Peru (IBR 2013)

  1. 1. Focus on: Peru Grant Thornton International Business Report 2013
  2. 2. Focus on: Peru Introduction 200 business interviews Peru is a rapidly developing economy of more than 30 million people. In 2012, its GDP was approximately US$200 billion, making it the 50th largest economy in the world and seventh largest in Latin America. Drawing on data sources such as the Grant Thornton International Business Report (IBR), the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Peru, and more than 12,500 globally, over the past 12 months. José Luis Sarrio Grant Thornton Peru Partner and International Business Centre director T +511 615 6868 E W US$200bn gross domestic product 30 million inhabitants Focus on: Peru 2
  3. 3. Focus on: Peru Economy Economy expanded by The Peruvian economy has doubled in size since the turn of the century, fuelled by demand from China for its raw materials, with growth averaging over 6% per annum in the lead-up to the global financial crisis. As China rebalances away from investment towards consumption, 19% Peru’s economy is set to slow although growth rates are expected to remain robust at more than 5% per annum. Gold accounts for 38% 17% 44% of exports while copper (7%), zinc (4%), lead (4%) and iron (2%) are also important. The United States and China are key trading partners. in Q3-2013 19% 16% 17% 44% 44% 15% 8% 5% 5.1% Export destinations 6% 5% 11% 6% 5% 8% 16% United States China Switzerland 44% Canada Japan Other 15% 11% 5% 9% 9% Key indicators • the economy expanded by 5.1% in Q3, up from 3.9% in Q2 and level with the Q1 result • the economy recorded a small trade surplus of US$4m in September, but the deficit for the first nine months of the year stands at US$932m, compared with a surplus of US$3.6bn for the same period in 2012 • exports declined by 9.4% year-on year-in the first three quarters of 2013 to US$30.95bn with both volumes and prices of key commodities sliding 7 • total imports grew by 4.2% year on year over the same period to total US$31.89bn, led by growth of 8.9% in consumer goods driven from Lima 19% where spending remains robust 19% • the headline inflation remains fractionally above the 1-3% target 17% 44% range but the BCRP reduced its 17% 44% benchmark interest rate to 4% 8% in November. 8% 6% 5% 5% 6% 7 Import originations 6 6 16% 16% 44% 44% 5 4 15% 15% 3 11% 5 China United States Brazil Chile Ecuador Other 4 3 2 5% 9% 11% 2 5% 9% Source: Observatory of Economic Complexity (2013) 7 1 7 6 0 6 2013 2014 2015 5 1 0 2013 2016 2017 2014 Focus on: Peru 3 2018 20
  4. 4. % 5% Focus on: Peru 16% 17% 44% Forecast GDP growth and inflation (%) 7 5% 9% 6 16% 15% 7 6 5 4 3 2 4 11% 5 1 The business operating environment remains friendly with Peru second in Latin America to Chile, and 24th overall, in the Global Dynamism Index 2013. Public finances are robust, supported in October by the passage of a fiscal responsibility law and strong reserves should help smooth out any exchange rate volatility. 11% 9% 0 2013 3 2 2014 5.3% forecast growth 2013 Source: EIU (2013) 2014 2015 2016 2017 2018 Real GDP growth Consumer price inflation 2016 in 2013 1 0 2015 Privates consumption growth is forecast at 5.3% in the short to medium-term, supported by relatively high employment and wage growth in Lima. Gross fixed investment is expected to expand by 10.0% in 2013, slowing slightly to 8.5% in 2014. Exports are likely to receive a boost from improving external conditions and a number of large mining-sector projects that are due to come on stream in 2014. Export growth of just 0.5% in 2013 is expected to accelerate to 6.0% in 2014, 6.4% in 2015 and 8.0% in 2016. Despite significant pressure from the left, the government is likely to maintain a pragmatic and centrist policy stance which should ease fears among the private sector over a radical change of direction. There is also a potential US$15bn portfolio of large infrastructure projects due start at the end of 2013 that should boost both private and public investment. 15% 44% The economy is expected to expand by 5.3% in 2013, down from 6.3% in 2012 due to a significant decline in exports. However, growth is forecast 8% to accelerate to 6.0% in 2014 and 2015 as external conditions improve, 6% 5% 5% domestic demand remains robust, private investment picks up and exports rebound. 17% 44% 8% Economic outlook 19% 6% 19% 6.0% forecast growth 2017 in 2014-15 2018 Focus on: Peru 4
  5. 5. 44% Focus on: Peru 44% 5% 6% Investment in plant & machinery remains elevated, pointing to expansion of the economy’s long-terms growth potential. Net 59% of businesses expect to invest over the next 12 months, slightly down on the 2012 average (62%) but ahead of Chile (50%) and the Latin America average (47%). Expectations for R&D are also strong: net 47% expect to increase activity in this area, compared to 37% across Latin America. 19% 17% 17% 8% 9% 5% 8% Peruvian business confidence slipped to net 74% in Q3, down from 98% at the start of the year. Business leaders remain the most optimistic in the region, ahead of Chile (52%) as the Latin America average slipped to 38% in Q3. Declining optimism in the health of the overall economy is feeding through to 15% business growth prospects. On average, net 76% of Peruvian businesses expect revenues to climb over the next 12 months, down from 78% in 2012. However, expectations are above the Latin America average of 69%. Profitability expectations 11% have also declined from last year, with net 66% expecting an increase in 2013 compared with 72% in 2012. 16% 5% 19% 6% Business growth prospects 44% 44% 5% 9% are planning plant and 5% Profits 70 2013 60 50 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 expect Investment revenues Peru Latin America to rise 47 R&D 47 2015 Source: Grant Thornton IBR 2013 2014 30 machinery 76% 66 52 59 40 16% 7 6 5 4 3 2 1 0 69 15% 11% 76 80 to invest in 9% 16% 15% 11% 7 6 5 4 3 2 1 0 90 Net percentage of businesses expecting an increase (next 12 months) Revenue Net percentage of businesses optimistic for the economic outlook (next 12 months) 100 59% 37 Source: Grant Thornton IBR 2013 Peru Latin America 2016 Focus on: Peru 5 201
  6. 6. Focus on: Peru Business growth constraints Business leaders in Peru feel empowered to grow their operations in comparison with peers across the region. A lack of skilled workers is the most pressing growth constraint in Peru (see next page) but at 24% this is well below the Latin America average (32%), rising to 40% in Brazil. Bureaucracy, in the form of regulations and red tape, is cited by a fifth of business leaders (20%) in Peru, level with Chile, but under half the Latin America average (41%) – which is driven up by the comparative struggles of peers in Argentina (45%) and Brazil (52%). A shortage of finance is an issue for 18% of businesses in Peru, compared with 24% across the region with peers in Argentina (50%), where various capital and foreign exchange controls are in place, suffering most in this regard. Infrastructure concerns are low on a regional comparison but the proportion citing poor quality transport options as a constraint on growth is higher than the global average (14%). Just one in ten cite a lack of demand, compared to one in five regionally. Percentage of businesses citing factor as a constraint on growth 41 20 Regulations & red tape 18 24 Shortage of finance 15 bureaucracy constraining growth plans 20 ICT infrastructure business 24 Source: Grant Thornton IBR 2013 32 Lack of skilled workers 24 18 Transport infrastructure 11 21 Shortage of orders Peru Latin America a lack of talent is a challenge Focus on: Peru 6
  7. 7. 17% 44% 44% Focus on: Peru 15% 8% 5% 11% 6% 5% 9% The labour market Without the right people to drive a vision forward, an entrepreneur cannot achieve scalability in his or her businesses. The best people not only increase productivity, but can also save a business time and money and dynamic companies around the world go to great lengths to attract such workers. It is a concern therefore that a lack of skilled workers emerges as the key constraint on business growth prospects faced by business leaders in Peru (see previous page). While this challenge is being faced by just a quarter of local businesses, compared with closer to a third in Latin America and across the world, upskilling the labour force is key to Peru’s opportunity to benefit fully from the its demographic transition – a one-off boost to growth as the proportion of people of working age rises (and peaks) relative to the proportion of dependents (those too young or old to work). The transition has already transformed the age structure of the Peru’s population, with the working age share of the population rising by 5.7 percentage points in the decade to 2011. However, the UN estimates that the dependency ratio will bottom out in around 2030, after which point the proportion of people of working age (15-64) will begin shrinking relative to the proportion of the population (0-14 and 65+) they have to provide for, potentially weighing on Peru’s growth trajectory. The good news as Peru looks to put these young hands to work is that businesses are hiring: net 49% of local businesses hired workers over the past 12 months, well above the Latin America average (31%). This has helped the unemployment rate, which average 8.4% in previous decade, to fall to 5.8%. Hiring plans also remain robust: net 65% of businesses plan to hire workers over the next 12 months, well above the Latin America average of 43%. And Peru also ranks tenth globally for the dynamism of its labour force according to the GDI 2013, driven by labour productivity growth of 3.7% in 2012. Working age share of total population (%) 70% 65% 60% 55% 50% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 Source: UN Population Division (2013) Net percentage of businesses reporting/expecting increased hiring 65 49 dependency 43 ratios to 31 2030 Past 12 months rise from Source: Grant Thornton IBR 2013 Next 12 months Peru Latin America Focus on: Peru 7
  8. 8. IBR 2013 methodology The Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally. The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors in businesses with 20-149 employees in Peru. Q3 data is drawn from 3,300 interviews globally (50 in Peru) conducted in September 2013. 2013 data is drawn from over 12,500 interviews (200 in Peru) conducted between November 2012 and September 2013. To find out more about IBR, please visit: Dominic King Grant Thornton International Ltd Global research manager T +44 (0)207 391 9537 E Lorena Bernales Grant Thornton Peru Head of marketing and communications T +511 615 6868 E © 2013 Grant Thornton International Ltd. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a seperate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions.