Country forecast peru

Peru:

Country Forecast
September 2010

Peru

Editor: Andrea Stiglich

Editorial closing date: 1st September 2010

Country Forecast September 2010 © The Economist Intelligence Unit Limited 2010

Peru:

Five-year forecast summary


Peru: Five-year forecast summary

The Economist Intelligence Unit expects that Alan García of the Partido Aprista Peruano (Apra) will
conclude his five year-term in July 2011. The political scene will be dominated by the general
elections in April 2011. Owing to a strengthening consensus around the current policy framework we
expect a centre-right candidate to ensure economic policy continuity.

Peru’s business environment will improve in policy towards private enterprise and competition and
towards foreign investment, but deficiencies in average education levels will pull labour market scores
down. Although there will be significant progress in infrastructure projects, it will not be sufficient to
narrow Peru's infrastructure gap or translate into better global rankings.

Economic growth will average 5.4% in the forecast period, lower than in the last five years (6.8%)
but still strong. Domestic demand will drive economic recovery in 2010-14, along with higher demand
for Peruvian exports from Asia.
Real GDP growth
(%)


Peru: Five-year forecast summary

The forecast for market opportunities is broadly positive. Peru has a small market, with a population
of 29.6m and GDP per head estimated at US$4,288 in 2009. The capital, Lima, will remain the
economic hub, but investment in infrastructure will help to integrate the market. National consumption
patterns will change as a result of an emerging urban middle-class in Lima and in secondary cities.

Long-term economic growth is forecast to slow from an annual average of 5.4% in 2010-14 to
3.5% in 2011-20 and 2.7% in 2021-30 as institutional improvements will not materialise swiftly enough
to sustain higher growth over the long term.

Household consumption per head
(US$)


Peru: Business environment rankings

Value of index a Global rankb Regional rankc
2005-09 2010-14 2005-09 2010-14 2005-09 2010-14
Overall position 6.17 6.34 44 48 5 5
Political environment 4.6 4.6 61 62 9 8
Political stability 5.9 5.9 51 50 7 7
Political effectiveness 3.6 3.6 64 67 8 8
Macroeconomic environment 8.9 8.6 5 4 1 1
Market opportunities 5.5 5.5 49 50 6 6
Policy towards private enterprise & competition 5.0 6.0 55 45 7 4
Policy towards foreign investment 6.9 7.3 41 36 5 5
Foreign trade & exchange controls 8.7 7.8 23 47 3 6
Taxes 6.1 6.3 36 39 3 3
Financing 6.3 6.6 36 32 4 3
The labour market 5.2 5.2 67 74 9 11
Infrastructure 4.5 5.5 65 64 11 11
a
Out of 10. b Out of 82 countries. c Out of 12 countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Cuba,
Dominican Republic, Ecuador, El Salvador, Mexico, Peru and Venezuela.

Methodology


Peru:

The political environment


Peru: Political outlook

Highlights

Apra’s Mr García will see out the remainder of his five-year term, which will end in July 2011.
Presidential and congressional elections will be held in April 2011. In the legislative election, no
party is likely to obtain a majority.

In the presidential poll, there is a risk that populist nationalist candidates gain ground, given that
the use and control of natural resources (minerals and hydrocarbons) are among the top
campaign issues, jeopardising foreign direct investment (FDI) inflows.

Populist or protectionist policy initiatives by regional governments could lead to tensions in
government and uncertainty for business. Opposition to extractive industries will continue to fuel
social unrest, hampering business operations.

Drug-trafficking will pose a localised threat to security, and there is a risk that it will further
penetrate the formal economy and undermine the already weak justice system

More from ViewsWire…


Peru:

Demographics


Peru: Demographic outlook

Population (m) 2005 2009 2014
Total 27.9 29.6 31.6

Period averages (%) 2005-09 2010-14
Population growth 1.4 1.3
Labour force growth 3.0 2.1

Peru is Latin America’s fifth most populous country in Latin America, with a population estimated
at 29.6m in 2009. Population growth is forecast to remain steady at 1.3% per year in 2010-14, and
although it will remain relatively young by global standards, the age structure will shift, increasing
pressure on the pensions system.
The labour force will continue to expand faster than the overall population, but the formal economy
will struggle to absorb new entrants to the labour market. Informal employment, which has
traditionally accounted for around 60% of urban employment, is expected to decline gradually
owing to slower growth in the labour force and firm job creation.
Underdevelopment in rural areas will encourage the trend towards urbanisation.


Peru:

The business environment forecast


Peru: Business environment outlook

Our business environment rankings assess a country’s relative attractiveness as an investment
location, both globally and regionally.

Peru's business environment score will improve slightly during the outlook period, although this
will not be sufficient for the country to move up the regional rankings, or to sustain its global
position. Improvements are expected in policy toward private enterprise and competition and
toward foreign investment, but several factors will weigh heavily on Peru's attractiveness as a
business location, principally poor infrastructure, rigidities in labour legislation and deficiencies
in average education levels. Structurally, Peru's score suffers from the small size of its domestic
market, which is only partly mitigated by its rising number of free-trade agreements (FTAs) with
its key trade partners.


Peru: Macroeconomic environment

Our baseline forecast is that the political consensus in favour of prudent macroeconomic policies
will be maintained in 2010-14, and that Peru will gradually build sufficient support to tackle
difficult structural reforms that are essential for the country to sustain rapid growth and job
creation.

These policies will include a sustainable fiscal policy and a declining public-sector debt, as well
as solid economic growth and structurally sound external accounts. The latter will be helped by
FTAs with the US and China, implemented in 2009 and 2010 respectively, and deepening links
with other growing Asian economies.


Peru: Fiscal policy

Central government budget balance Despite a boost to revenue from strong
(% of GDP) economic activity, the public finances will
remain in deficit in 2010-11 as the government
remains reluctant to cut spending in the run-
up to the elections.
On the assumption that a moderate candidate
wins the presidential election, we expect the
next government to cut expenditure more
aggressively in the second half of 2011.
The public finances will turn to surplus by the
second half of the forecast period, when we
expect a new government to seek to enhance
the quality of public spending.
A new government will keep capital
expenditure high (at an average of 28.7% of
GDP in 2012-14) in order to improve Peru's
poor infrastructure and extend poverty-
alleviation programmes.


Peru: Monetary policy

Lending interest rate
(%)

In the forecast period the Banco Central de Reserva del Perú (BCRP, the Central Bank) will
maintain its long-term policy objective of keeping inflation close to its target of 2% plus or minus
1 percentage point. Vigorous domestic demand growth and rising inflation expectations led the
Central Bank to begin its monetary tightening cycle in May 2010, which we expect will continue
in the remainder of 2010 and early 2011, unless global growth deteriorates markedly.
We expect the BCRP to return to its neutral stance (5-5.5%) by mid-2011, thereafter keeping
rates stable in 2011-14, assuming that inflation remains broadly within the BCRP's target range.


Peru: Policy towards private enterprise & competition

2010-11: Business-friendly rules are the norm and judicial enforcement is improved by specialised
courts. Strong domestic lobby groups obstruct entry by new players in some sectors, but
FTAs reduce their influence.

2012-14: Bureaucratic red-tape reduced and licensing procedures streamlined. The investment
promotion agency is strengthened. Emphasis on intellectual property rights protection.


Peru: Policy towards foreign investment

2010-11: Few formal barriers, but some ambiguity in policy toward investors. Mining, energy,
communications and transport will remain magnets, but investment will be dampened by
election cycle and social conflict.

2012-14: Investor confidence boosted by FTAs. Continued foreign investment in extractive mega-
projects. Opposition to foreign investment begins to subside in rural communities as a
result of improved socioeconomic conditions.


Peru: Foreign trade and exchange controls

2010-11: Implementation of FTA with the US, China and the EU. Focus on deepening trade links
with Asia and emerging economies (India, South Africa, Turkey and Russia). Tariffs will
remain below the common external tariff (CET) of the Comunidad Andina (CAN, the
Andean Community). Reform of customs procedures to facilitate trade.

2012-14: Gradual liberalisation to comply with bilateral trade agreements. Progressive
implementation of a single centralised web portal for all foreign trade processes.


Peru: Taxes

2010-11: System remains unsettled and complex. Net assets and financial transaction taxes
retained at lower rate; little prospect of a cut in 19% value-added tax (VAT) rate. Some
attempts at comprehensive tax reform under a new government.

2012-14: Gradual liberalisation to comply with bilateral trade agreements. Progressive
implementation of a single centralised web portal for all foreign trade processes.


Peru: Financing

2010-11: Consolidation and greater competition in banking. Banks retain cautious lending
practices, presenting an obstacle to small and medium enterprises (SMEs). Stockmarket
capitalisation remains relatively low.

2012-14: Deepening local capital market as a percentage of GDP, helped by rapid accumulation of
financial resources managed by institutional investors including private pension funds
(AFPs), mutual funds and insurance companies.


Peru: The labour market

2010-11: No attempt to reform labour legislation ahead of 2011 elections. FTA with the US boosts
compliance with labour laws in the export sectors. Wage pressures weak, but skill levels
remain generally low. Improvements in the quality of education reform are marginal.

2012-14: Progress in worker formalisation remains slow. Formal job creation in urban areas
improves.


Peru: Infrastructure

2010-11: Private concessions to upgrade roads, ports, airports and natural-gas pipelines. Progress
in linking Peru's transport infrastructure with that of Brazil. Expanded electricity and
sewage coverage in rural areas.

2012-14: Further infrastructure upgrades, but insufficient to narrow Peru's infrastructure gap.
Further development of projects linking Peru's transport infrastructure with that of Brazil.
Distribution of Camisea natural gas to the regions facilitated by the construction of
regional gas pipelines.


Peru:

The economic forecast


Peru: International assumptions

Economic growth (%)

Despite a softening of growth in the US and other industrialised economies, we continue to expect
the global economy to grow by 4.4% in 2010 and by 3.6% in 2011, driven by rebounding emerging
economies. There are strong downside risks to growth next year, when the boost to growth from
inventory rebuilding and fiscal stimulus fades.
With metals prices expected to be significantly stronger on average in 2010-11 than in 2009,
Peru's terms of trade will strengthen. Strong perceptions of Peru's creditworthiness should help
shelter it from global market volatility resulting from fragile market sentiment


Peru: Economic outlook

Economic outlook
(% real change)

In 2010-14 average growth, at 5.4%, will be lower, but it will remain strong. Initially supported by a
large fiscal stimulus package, growth will be led by a sharp recovery in business and consumer
confidence. Assuming that the new government maintains the current policies, Peru will enjoy
relatively solid rates of investment growth.
Domestic demand will continue to drive growth, with investment growth (particularly in energy,
mining and transport infrastructure) offsetting a net negative contribution from foreign trade. The
current account will post manageable deficits.


Peru: Wage and price inflation

Consumer price inflation
Commodity price falls and low demand have
(%; annual av)
brought the annual rate of consumer price
inflation down from a decade high of 6.8% in
November 2008 to 2.3% in August 2010.
However, there remains a risk that inflation
breaches the upper limit of the target band in
2010, owing to a low base of comparison (end-
2009 inflation was extremely low) and upside
risks to our current growth forecast for 2010-11.
Over the remainder of the forecast period,
disciplined fiscal management and a solid
inflation-targeting regime will support low
inflation.


Peru: Exchange rates

Exchange rates

The gradual appreciation of the nuevo sol observed since the beginning of the year has become
more marked since the BCRP began its tightening cycle in June, leading the nuevo sol to trade
between Ns2.79:US$1 and Ns2.83:US$1 in July-August. With more aggressive tightening on the
horizon, we expect the currency to end the year at Ns2.83:US$1.
The currency will be supported by a manageable current-account deficit and by firm FDI inflows.
Robust international reserves will allow the Central Bank to continue to smooth bouts of currency
volatility during the forecast period.


Peru: External sector

External sector
(US$ bn unless otherwise indicated )

Peru is forecast to run a manageable current-account deficit averaging 1% of GDP in 2010-14,
with trade and transfers surpluses offset by services and income deficits.
Firm minerals prices and steady export volume increases will be offset by a rising import bill,
leading to a trade deficit averaging an annual rate of 4.4% of GDP in 2010-14.
Outward profit remittances by foreign companies operating in Peru will rise as profitability
strengthens and FDI levels rise.


Peru:

Foreign direct investment


Peru: Foreign direct investment

Stocks and flows
The stock of inward FDI totaled US$36.9bn at end-2009, ranking it seventh of the eight major
recipients of FDI in Latin America, ahead of only Ecuador. FDI inflows held up well during the global
financial crisis, reaching US$4.8bn in 2009 (3.8% of GDP), slightly above the average of US$4.6bn
registered in 2005-08, which includes the historical high of US$7bn registered in 2008.
With a strong pipeline of projects anticipated in the outlook period, including several mega-projects in
the mining, energy and petrochemicals sectors, we expect robust FDI inflows. Despite the global crisis
in 2008-09, the outward stock of FDI continued to increase in 2009, reaching US$1.9bn, up from
US$1bn in 2005.

Inward foreign direct investment stock, 2010
(% of GDP)



Determinants
The opening to foreign investment and the achievement of macroeconomic stability in the 1990s
paved the way for large increases in FDI inflows. In the first half of the 1990s, in particular, the
government adopted a policy of aggressive pursuit of foreign investment in privatisation, above all in
communications and financial services.
The government’s efforts to attract private investment into concessions to build and maintain
infrastructure will be a major determinant of FDI over the forecast period. There are significant
opportunities in mining, hydroelectricity and oil and gas exploration.
The single largest investment project over the forecast period will be a copper mine development
known as Las Bambas, which is expected to boost copper output by 30% by 2014.

Inward foreign direct investment stock per head, 2010
(US$)



Potential
Investor surveys indicate that Peru will be an important destination for FDI during the forecast period. In
absolute terms, we expect average annual inflows of FDI to rise from US$4.8bn (3.8% of GDP in 2009)
in 2005-09 to US$7.4bn (3.5% of projected GDP for 2014) in the forecast period, led by mining and
energy projects.
Although the government expects US$36bn in mining projects and US$12bn in hydroelectric plants in
2010-14, owing to an increasingly polarised context in the run-up to the elections, we expect the majority
of projects to be delayed in obtaining environmental licences, allowing only a fraction of these
investments to materialise in the outlook period.
Investment prospects will be greatly helped by the country’s macroeconomic stability and the FTAs with
the US and China, among others.

Annual inflows of foreign direct investment
(US$ m)


Peru:

Market opportunities


Peru: Market opportunities

GDP per head
(US$ at PPP)

Peru is a small market and opportunities will remain restricted by low purchasing power measured
in terms of GDP per head.
Although Lima will remain the economic hub, government investment in infrastructure will help to
integrate the market.
Strong economic growth will allow Peru to become a more significant importer of consumer goods,
a trend that will accelerate under the FTAs with the US and China.
The population is ageing but will remain much younger than in developed markets. As a result,
there may be more rapid changes in national consumption patterns.


Peru:

The long-term forecast


Peru: Long-term outlook

Real GDP growth
(% annual change)

Peru will continue to benefit from improvements to economic policy and the business environment
in the long term. In the first half of the forecast period, the development of gas from the giant
Camisea project will have a major impact on the economy, providing cheaper energy to local
industries, power generators and households, and turning Peru into an energy exporter.
The expected slow pace of institutional improvement will be the main factor behind a slowdown in
average annual growth in the second half of the long-term outlook period. Hard-won
macroeconomic stability, in the shape of low inflation, a stable currency and contained
government deficits, will help to stimulate investment, as will abundant opportunities in energy and
mining. Nevertheless, with export-oriented industries the mainstay of the economy, Peru will
remain vulnerable to fluctuations in external demand and commodity prices.



Demographic trends: Peru’s population is still young by international standards, but its
demographic profile is ageing, owing to slowing population growth and rising life expectancy at
birth. The working-age population will grow faster than the overall population throughout the
forecast period, containing the rise of the age-dependency ratio (the ratio of children and elderly to
the working-age population). The level of urbanisation will increase from its current level of 75%.

External conditions: The Peruvian economy is highly exposed to world commodity prices. Peru’s
vulnerability to commodity price shocks will, to some extent, be mitigated by greater export
diversification, sound public finances and a moderate external debt burden. From 2010 Peru is
expected to benefit from a free-trade agreement (FTA) with the US, which will provide permanent
low- or zero-tariff access for its goods to the US market. We expect global trade flows to continue
to outpace world output growth over the long term, and Peru’s increasing integration with the
world economy should allow it to benefit from growing world demand.

Long-term performance: We forecast growth to average 2.7% in the long-term forecast period.
Past reforms, in particular the establishment of private pension funds, will continue to bear fruit,
helping to deepen capital markets and raise the savings rate. Nevertheless, growth is likely to be
focused on resource-intensive areas, export agriculture and specialised areas of manufacturing,
such as textiles. Relatively low educational levels for the majority and low spending on research
and development will make it difficult for the economy to move into higher value added areas.



GDP per head
(US$ at PPP; index, US=100)

Nominal GDP
(US$ at PPP; index, Peru=100)


Peru:

Resources


Peru: Map


Peru: Comparative GDP, 2009

Gross domestic product Gross domestic product per head
(US$ bn; market exchange rates) (US$; market exchange rates)


Peru: Basic data

Land area 1,285,216 sq km

Population 27.22m (2005 census)

Climate Varies by region and altitude. In general, temperate on the coast, tropical in the
jungles, cool in the highlands; the western highlands have a dry climate, but
there is heavy rainfall in the eastern and northern highlands between October
and April
Weather in Lima Hottest month, February, 19-28 C (average daily minimum and maximum);
coldest month, August, 13-19 C; driest months, February, March, 1 mm average
monthly rainfall; wettest month, August, 8 mm average monthly rainfall
Language Spanish is the principal language and the lingua franca for the large numbers of
Quechua and Aymara speakers; Quechua and Aymara also have official status

Currency Nuevo sol (Ns)

Time 5 hours behind GMT

Public holidays January 1st, Easter (half-day Maundy Thursday and all day Good Friday), May
1st (Labour Day), June 29th (Saint Peter and Saint Paul), July 28th
(Independence Day), August 30th (Santa Rosa de Lima), October 8th (Battle of
Angamos), November 1st (All Saints Day), December 8th (Immaculate
Conception), December 25th (Christmas Day)


Peru:
Business environment rankings: Methodology

Outline of the model
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries
covered by Country Forecasts using a standard analytical framework. It is designed to reflect the main criteria used by
companies to formulate their global business strategies, and is based not only on historical conditions but also on
expectations about conditions prevailing over the next five years. This allows the Economist Intelligence Unit to utilise the
regularity, depth and detail of its forecasting work to generate a unique set of forward-looking business environment
rankings on a regional and global basis.
The business rankings model examines ten separate criteria or categories, covering the political environment, the
macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign
investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. Each category
contains a number of indicators that are assessed by the Economist Intelligence Unit for the last five years and the next
five years. The number of indicators in each category varies from five (foreign trade and exchange regimes) to 16
(infrastructure), and there are 91 indicators in total.
Almost half of the indicators are based on quantitative data (eg, GDP growth), and are mostly drawn from national and
international statistical sources for the historical period (2005-09) and from Economist Intelligence Unit assessments for
the forecast period (2010-14). The other indicators are qualitative in nature (eg, quality of the financial regulatory system),
and are drawn from a range of data sources and business surveys adjusted by the Economist Intelligence Unit, for 2005-
09. All forecasts for the qualitative indicators covering 2010-14 are based on Economist Intelligence Unit assessments.
The main sources used in the business rankings model include CIA, World Factbook; Economist Intelligence Unit,
Country Risk Service, Country Finance, Country Commerce; Freedom House, Annual Survey of Political Rights and Civil
Liberties; Heritage Foundation, Index of Economic Freedom; IMF, Annual Report on Foreign Exchange Restrictions;
International Institute for Management Development, World Competitiveness Yearbook; International Labour
Organisation, International Labour Statistics Yearbook; UN, Human Development Report; US Social Security
Administration, Social Security Programs Throughout the World; World Bank, World Development Report; World
Development Indicators; World Economic Forum, Global Competitiveness Report.

Back to Rankings


Peru:
Business environment rankings: Methodology

Calculating the rankings
The rankings are calculated in several stages. First, each of the 91 indicators is scored on a scale from 1 (very bad for
business) to 5 (very good for business). The aggregate category scores are derived on the basis of simple or weighted
averages of the indicator scores within a given category. These are then adjusted, on the basis of a linear transformation,
to produce index values on a 1-10 scale. An arithmetic average of the ten category index values is then calculated to yield
the aggregate business environment score for each country, again on a 1-10 scale.
The use of equal weights for the categories to derive the overall score reflects in part the theoretical uncertainty about the
relative importance of the primary determinants of investment. Surveys of foreign direct investors' intentions yield widely
differing results on the relative importance of different factors. Weighted scores for individual categories based on
correlation coefficients of recent foreign direct investment inflows do not in any case produce overall results that are
significantly different to those derived from a system based on equal weights.
For most quantitative indicators the data are arrayed in ascending or descending order and split into five bands (quintiles).
The countries falling in the first quintile are assigned scores of 5, those falling in the second quintile score 4 and so on. The
cut-off points between bands are based on the average of the raw indicator values for the top and bottom countries in
adjacent quintiles. The 2005-09 ranges are then used to derive 2010-14 scores. This allows for intertemporal as well as
cross-country comparisons of the indicator and category scores.
Measurement and grading issues
The indices and rankings attempt to measure the average quality of the business environment over the entire historical or
forecast period, not simply at the start or at the end of the period. Thus in the forecast we assign an average grade to
elements of the business environment over 2010-14, not to the likely situation in 2014 only.
The scores based on quantitative data are usually calculated on the basis of the numeric average for an indicator over the
period. In some cases, the "average" is represented, as an approximation, by the recorded value at the mid-point of the
period (2007 or 2014). In only a few cases is the relevant variable appropriately measured by the value at the start of the
period (eg, educational attainments). For one indicator (the natural resources endowment), the score remains constant for
both the historical and forecast periods.
Back to Rankings


Peru: Indicator scores in the business rankings model
2005-09 2010-14
Regional Regional
Peru averagea Peru averagea

Political environment
1. Risk of armed conflict 4 3.9 4 4.0
2. Risk of social unrest 2 2.8 2 2.8
3. Constitutional mechanisms for the orderly transfer of power 3 3.3 3 3.5
4. Government and opposition 3 3.2 3 3.0
5. Threat of politically motivated violence 3 3.6 3 3.6
6. International disputes or tensions 4 3.5 4 3.3
7. Government policy towards business 3 3.1 3 2.9
8. Effectiveness of political system in policy formulation and execution 2 2.6 2 2.7
9. Quality of the bureaucracy 2 2.6 2 2.7
10. Transparency and fairness of legal system 2 2.6 2 2.5
11. Efficiency of legal system 2 2.4 2 2.4
12. Corruption 2 2.1 2 2.2
13. Impact of crime 2 2.6 2 2.5

aOut of 12 countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador,
Mexico, Peru and Venezuela.
Note. A single asterisk (*) denotes scores based on quantitative indicators. Indicators with a double asterisk (**) are partly
based on data. All other indicators are qualitative in nature.


2005-09 2010-14
Regional Regional

Macroeconomic environment
1. Inflation* 5 3.8 5 4.0
2. Budget balance as % of GDP* 5 4.3 5 3.9
3. Government debt as % of GDP* 5 4.6 5 4.4
4. Exchange-rate volatility* 5 4.3 4 4.3
5. Current-account balance as % of GDP* 5 4.0 5 3.7
6. Quality of policymaking 4 3.1 4 2.8
7. Institutional underpinnings 4 3.3 4 3.0
8. Asset prices 3 2.8 3 2.8



2005-09 2010-14
Regional Regional

Market opportunities
1. GDP, US$ bn at PPP* 3 3.1 3 3.1
2. GDP per head, US$ at PPP* 2 2.4 2 2.7
3. Real GDP growth* 5 3.8 4 3.3
4. Share of world merchandise trade* 1 2.0 2 2.2
5. Average annual rate of growth of exports* 3 1.9 3 2.7
6. Average annual rate of growth of imports* 3 2.9 4 3.4
7. The natural resource endowment* 3 3.2 3 3.2
8. Profitability* 5 4.2 4 3.9
9. Regional integration 3 3.0 3 3.4
10. Proximity to markets 2 2.3 2 2.1



2005-09 2010-14
Regional Regional

Policy towards private enterprise and competition
1. Degree to which private property rights are protected 3 3.1 4 3.4
2. Government regulation on setting up new private businesses 2 2.8 3 2.8
3. Freedom of existing businesses to compete 3 3.3 3 3.2
4. Promotion of competition 3 2.7 3 2.8
5. Protection of intellectual property 2 2.6 3 2.8
6. Price controls 3 3.3 4 3.4
7. Distortions arising from lobbying by special interest groups 3 2.4 3 2.5
8. Distortions arising from state ownership/control 3 3.0 3 2.8
9. Minority shareholders 3 2.3 3 2.5



2005-09 2010-14
Regional Regional

Policy towards foreign investment
1. Government policy towards foreign capital 4 3.5 4 3.4
2. Openness of national culture to foreign influences 4 3.8 4 3.7
3. Risk of expropriation of foreign assets 4 3.4 4 3.3
4. Availability of investment protection schemes 3 3.1 4 3.4
5. Government favouritism 3 3.0 3 3.0



2005-09 2010-14
Regional Regional

Foreign trade and exchange controls
1. Capital-account liberalisation 5 3.8 5 4.0
2. Tariff and non-tariff protection** 4 3.5 4 3.6
3. Ease of trading 4 3.4 4 3.5
4. Openness of trade* 4 3.5 2 3.3
5. Restrictions on the current account 5 4.3 5 4.3



2005-09 2010-14
Regional Regional

Taxes
1. The corporate tax burden** 4 3.6 4 3.5
2. The top marginal personal income tax* 5 4.7 5 4.5
3. Value-added tax* 3 3.2 3 3.3
4. Employers' social security contributions 4 3.4 3 3.3
5. Degree to which fiscal regime encourages new investment 3 2.6 3 2.5
6. Consistency and fairness of the tax system 3 2.4 3 2.6
7. Tax complexity 2 2.3 3 2.5



2005-09 2010-14
Regional Regional

Financing
1. Openness of banking sector 4 3.0 4 3.3
2. Stockmarket capitalisation 3 2.6 3 2.7
3. Distortions in financial markets** 4 3.3 4 3.4
4. Quality of the financial regulatory system 3 3.1 4 3.3
5. Access of foreigners to local capital market 4 3.2 4 3.0
6. Access to medium-term finance for investment 2 2.5 2 2.3



2005-09 2010-14
Regional Regional

The labour market
1. Labour costs adjusted for productivity* 3 3.7 3 3.8
2. Availability of skilled labour* 2 2.3 2 2.7
3. Quality of workforce 2 3.0 2 3.1
4. Quality of local managers 3 3.5 3 3.6
5. Language skills 3 3.1 3 3.3
6. Health of the workforce* 2 3.5 3 3.5
7. Level of technical skills 3 3.1 3 3.2
8. Cost of living* 5 3.5 3 2.8
9. Incidence of strikes** 2 3.2 2 3.3
10. Restrictiveness of labour laws 3 2.7 3 2.8
11. Extent of wage regulation 4 3.3 4 3.2
12. Hiring of foreign nationals 4 3.8 4 3.7



2005-09 2010-14
Regional Regional

Infrastructure
1. Telephone density* 2 2.8 3 2.8
2. Reliability of telecoms network** 4 4.0 3 3.5
3. Telecoms costs* 3 3.2 3 3.8
4. Mobiles* 3 3.2 4 4.3
5. Stock of personal computers* 3 3.3 4 3.8
6. Internet use* 3 2.9 4 4.3
7. Broadband penetration* 3 3.0 3 4.3
8. R&D expenditure as % of GDP* 2 2.3 2 2.3
9. Research infrastructure 2 2.8 2 2.8
10. The infrastructure for retail and wholesale distribution** 2 2.4 3 2.8
11. Extent and quality of the road network** 3 3.1 3 3.0
12. Extent and quality of the rail network** 1 2.3 2 2.4
13. Quality of ports infrastructure 3 2.9 3 3.3
14. Quality of air transport 2 3.2 3 3.4
15. Production of electricity per head* 2 2.3 2 2.3
16. Rents of office space* 4 3.0 4 3.0



Country forecast peru

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