Peru has experienced strong and stable economic growth over the past 16 years, with an average annual growth of 5.1% and total GDP growth of 121%. It has developed into a true economic success story and is now considered one of the leading emerging markets. Peru has a solid macroeconomic framework supported by consistent policies and management of public finances, debt, and fiscal balances. Major factors driving growth include mining, infrastructure projects, a growing middle class, and developing industries like agriculture and tourism. Peru offers attractive conditions for foreign investment including political stability, respect for private property, low inflation, and a supportive legal framework.
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Peru: Land of opportunities
1. LatAm INVESTOR Q1 2017|34
Peru:
Land of opportunities
P
eru is considered one of the
world’s leading emerging
markets, with a solid recent
history of economic stability based
on an uninterrupted average annual
growth over the past 16 years of 5.1%
and an impressive cumulative growth
of 121% of its gross domestic product
(GDP). This was accompanied by a
cumulative inflation during the same
period of just 57%, the best rates of their
kind in all of Latin America. Likewise,
it is notable for its people, who are
characterised by their productivity
and entrepreneurship. These factors
make Peru an excellent destination for
foreign investment.
As a result, Peru is now a true economic
miracle. Indeed the International
Monetary Fund (IMF) views Peru as a
rising star, nearly 20 years after the
end of its history of hyperinflation and
terrorism, which have given way to the
best possible conditions of stability,
respect, and promotion of investment
in the region
It is well known that Peru is a
country with a solid macroeconomic
framework, supported by consistent
macroeconomic policy fundamentals,
an efficient management of public
finances, a diverse investment
portfolio, and a healthy management
of public debt and fiscal balance. It is
worth noting that, nowadays, Peruvian
growth is driven by five main factors:
the evolution of the mining industry,
the execution of infrastructure projects,
the growth of the middle class, solid
macroeconomic fundamentals and
the development of agribusiness and
tourism.
Why is Peru a good choice?
Peru has been given good forecasts by
the best-known risk rating agencies,
which have not only ratified the
country’s investment grade but have
also raised the Peruvian sovereign
credit rating. The factors that back this
rating are the solid economic prospects
reflected in a growth of 3.3% of the
GDP for 2015, and an estimated growth
of almost 4% for 2016 (as of December
of 2016). These economic forecasts
are backed by the rapid growth in
investment and the significant drop in
fiscal and external vulnerabilities, all
within the context of several sources
of growth, with low inflation and
strong macroeconomic fundamentals.
Obtaining the investment grade has
permitted Peru to attract a great deal
of international attention.
Recently, an increasing number of
multinational corporations have been
looking at Peru with greater interest.
The subsequent increase in jobs
and decrease in poverty will drive
improvements in social welfare.
The progress made in watching out
for the tax results, the promotion
of investment in important
job creation sources (such as
infrastructure, mining, hydrocarbons
and telecommunications), the
implementation of tenders as a specific
“countercyclical” measure in response
to the economic slowdown (i.e.
infrastructure projects of the Southern
Gas Pipeline, Line 2 of the Electric Train,
the Airport of Chincheros, the General
San Martin Port Terminal - Pisco,
among others) as well as the measures
taken to modify the tax system allow
us to observe how Peru guides its
development towards improving its
level of investment.
It is estimated that the direct foreign
investment in Peru (2015 and 2016) is
approximately $25billion.
Conditions to consider
Peru seeks to attract both domestic
and foreign investment in all sectors
of the economy. To achieve this, it has
taken the necessary steps to establish
a consistent investment policy that
eliminates any barriers that foreign
investors may face. As a result, Peru is
now one of the countries with one of
the most open investment systems in
the world.
Peru has adopted a legal framework for
investments that requires no previous
COUNTRY REPORT | PERU
Paulo Pantigoso, Managing
Partner, EY Peru
2. LatAm INVESTOR35 Q1 2017
authorisation for foreign investment.
In this regard, foreign investments
are allowed without restrictions in the
large majority of economic activities.
The activities with restrictions are very
specific, such as air transportation,
sea transportation, private safety and
surveillance and the manufacture of
armaments.
Additionally, Peru has a legal
framework to protect the economic
stability of investors and to reduce
government interference in economic
activities. The Peruvian government
guarantees legal stability to national
and foreign investors with regard
to the legislation governing income
tax and specifically, distribution of
dividends. Foreign investors with the
right to obtain legal and tax stability
are those willing to invest in Peru for
a period of no less than two years and
for a minimum amount of $10million
in the mining and/or hydrocarbons
sectors, or $5million in any other
economic activity. Peru’s legal
provisions, regulations, and practices
do not discriminate between domestic
and foreign corporations. There are no
restrictions on repatriation of profits,
international transfers of capital,
or foreign exchange practices. The
remittance of interest and royalties is
also not restricted in any way. Foreign
currency may be allocated to acquire
goods abroad or cover financial
obligations, provided the operator
complies with Peruvian tax laws.
The near future
The future of Peru is promising and
ambitious at the same time, as it aims
to be member of the OECD - where
the countries that share the best
practices to multiply their economic
and social development belong - in
2021. In 2025, Peruvian exports should
reach $150billion; today we skirt the
$40billion mark. It is a major challenge
if we consider that from 2005 to 2014
our exports grew 120%, with the help of
the rapid growth of the emerging agro-
export sector.
Our economy is in the beginning of a
period of “demographic bonus”, where
the population reaches its highest
record of production, consumption,
savings and investment. This period
gives us an opportunity to consolidate
economic growth and it is a key to
attract more foreign investment.
If all goals are accomplished, in 2025 we
should be one of the ten countries with
the greatest ease of doing business,
have increased our average annual
productivity by 5%, and have achieved
an annual growth in the workforce of
1.8%.
This article and further information
can be downloaded from the website:
ey.com/PE/EYPeruyLibrary
in association with
3. LatAm INVESTOR1 Q1 2017
STANDING OUT FROM THE CROWD
Peru - Latin America’s fastest-growing major economy
Q1 2017The UK’s only Latin America-focused investment magazine
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INSIDE: A detailed report on Peru’s investment opportunities