Peru Case Study

PERU
a case study of an emerging economy

Center for Experiential Learning Global Management Studies Symposium 2008
© Jeannie Chan, 2008

Presentation Agenda

Country Overview

SWOT Analysis

Conclusion


Country Overview: Basic Peru Facts
Climate:
Tropical east
Desert west
Frigid Andes

Government:
Constitutional Republic

Currency:
nuevo sol (since 1985)

Major industries:
Agriculture
Mining
Tourism


Country Overview: Case Question

Country credit rating*:
United States: 94.1
China: 75.9
Peru: 58.2

What factors affect the strength and the
stability of the Peruvian economy?

*Credit Rating by Institutional Investor http://www.iimagazinerankings.com.


SWOT Analysis: Strengths

Natural resources: oil,
natural gas, minerals etc.

Major industries: mining
and agriculture

Cultural heritage and
tourism


Strengths: Mining
No.1 industry in Peru
Largest producer of metals in Latin America
Provides jobs (e.g. Yanacocha)


Strengths: Agriculture
No.2 industry in Peru
Fertile land and weather
Different plants: variety of potatoes
Lama / Alpaca textiles


Strengths: Cultural Heritage and Tourism
Historical sites: Machu Picchu, Cusco, Sacsayhuaman
Local culture: clothes, music, art crafts
Food culture: exotic dishes, Inca Kola, Pisco Sour


SWOT Analysis: Weaknesses
Natural resources-dependent economy
Mining exports are subject to volatile commodity prices
Agriculture sector is challenged by low productivity and highly-
fragmented land ownership

Insufficient infrastructure
Hesitation in investing in high capital intensive infrastructure (e.g.
hydroelectric energy)
Inadequate transportation infrastructure (e.g. roadways, bridges,
flight routes)


SWOT Analysis: Weaknesses
High poverty and unemployment rates
Pose risk for economic and political stability
Hamper development of human capital
Impact investor confidence

Low capacity of local governments
Conflict between companies and government as to who bares
social responsibility in local communities


SWOT Analysis: Opportunities
Tourism growth
Number of tourists doubled from
2000 to 2005
Net Income of the hotels owned by
ACRES has increased over 400%
from 2000 to 2007
This trend is expected to continue
in the following years

The U.S. - Peru Free Trade
Agreement in 2006

One of the best stock markets in
Latin America
Political supports for attracting
foreign and domestic investors
Peru’s growing economy with low
inflation rate attracts investors


Threat Analysis:
Socioeconomic Stability


SWOT Analysis: Threats - Social
Disparity between classes
44.5% of population is poor
Most effected by mining
(extraction) industry
Mining Villages, Indigenous Tribes,
Remote Communities

Welfare/Responsibility
Income Redistribution: “How can
we improve welfare of population
through distribution of wealth?”


SWOT Analysis: Threats - Economic
Trade Disputes: failure to maintain
free trade agreement with the U.S.
or seek out FDI

Policy Failure: Dependence on
Developed Countries
Slowdown in world economic
growth/Domestic GDP (i.e. Asian
Financial Crisis)

Volatile Commodity Prices


Conclusion
Strengths Opportunities
Natural Resources Tourism Growth
Cultural Heritage Free Trade Agreements
Attractive to Investors
Weaknesses
Natural resources- Threats
dependent economy Socioeconomic Stability
Insufficient infrastructure
High poverty and
unemployment rates
Low capacity of local
governments


Questions?


Thank You to All Our Advisors
Pre-trip
Frank Benavides, Trip Advisor: Peru overview
Todd Milbourn, Olin Business School: “Estimating the Cost of Capital in Emerging Markets”

Lima
Alberto Arispe, Project Development Manager, Bolsa de Valores de Lima (Peru stock exchange)
Ismael Benavides Ferreyors, Minister of Agriculture
Margarita Benavides, Sub-Director, Instituto Del Bien Comun (non-profit on common resource
management)
Javier Riofrio Orrego, Vice President, Acres Investments (venture capital)
Livia Benavides, Senior Social Sectors Specialist, World Bank
Victor Grande, Project Operations Officer, IFC
Raul Benavides, Vice President, Buenaventura (NYSE: BVN, mining company)

Cajamarca
Carlos Scerpella, External Affairs, Communications, & Human Rights Senior Specialist,
Yanacocha Gold Mine
Operators of Yanacocha / Newmont Mining
Staff of Koriwasi Center of Technoloigcal Innovation in Jewelry

Cuzco & Arequipa
Vamos Expeditions


The Team


About Me

Jeannie Chan
A Curious Marketeer Exploring the World

www.jeanniechan.com
www.linkedin.com/in/chanj
Twitter: @jeannie_chan


Peru Case Study

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