Peru is emerging as a priority destination for foreign direct investment due to its strong macroeconomic and legal framework that are highly favorable to foreign participation
Peru’s macroeconomic performance over the past decade has been striking and the country has been one of Latin America’s top performers. After GDP expanded at more than 5% for five consecutive years (according to the World Bank) from 2003-2008, peaking at 9.8% in 2008, growth was suddenly halted in 2009, due to the world economic crisis.
However, by this time Peru’s economy had sufficiently been tied into the global market through mining and agricultural exports and managed to post positive GDP growth of 0.8% in 2009. This figure grew tenfold in 2010 to 8.8% and decreased slightly in 2011 to 6.9% according to the Central Reserve Bank of Peru. As of the end of 2011, Peru’s GDP reached a value of US$ 176.728 million; thus, the Peruvian economy completed 10 years of continuous growth with rates above the Latin American average.
The International Monetary Fund (IMF) has predicted a continuation of GDP growth in coming years, with expansion forecasted at 5.25% in 2012. These assumptions are mainly based on the announcement of investment projects and on the high expectations of domestic consumption. This is accompanied with the economic agents’ confidence generated by the implementation of responsible economic policies, which have been constant throughout the recent series of governments.
Peru’s rapid expansion, coupled with cash transfers and other programs have helped to reduce the national poverty rate by 23 percentage points since 2002. A growing number of Peruvians are sharing in the benefits of growth but inequality persists, posing a challenge for the new Ollanta Humala administration, which has championed indigenous and local disenfranchised groups.
IIRSA, the Initiative for the Integration of Regional Infrastructure in South America, consolidates Peru as an effective bridge between the markets of South America, Asia and the U.S.
Executive Director of ProInversión
The government is committed to Peru’s free-trade path and the country has continued to attract foreign investment and carry on with economic modernization, despite provoking concerns from the local business community that the trade-friendly climate that had been built up over the last years was at jeopardy.
ProInversión, a government agency has the responsibility to keep up this trend in economic growth. Its duty is to promote Peru and act as the agency that the population and investors acknowledge as a strategic ally for the development of investments in Peru, with the aim of improving the population’s well-being. Promoting investment by private agents not depending on the Peruvian State, so as to boost and reinforce Peru’s competitiveness and sustainable development is also the main function of ProInversión.
The agency’s other responsibilities are to develop mechanisms oriented to attract and assist investors, to promote the image of the country as an adequate place to develop national and foreign investments, to promote investments mainly established in regions and provinces, to prioritize investment promotion aimed at creating jobs and to oversee exports, always taking into account national, regional and local interests.
ProInversión manages projects in various different sectors, including agriculture, energy, tourism and mining to name just some. According to ProInversión Executive Director Javier Illescas, Peru is a country with a territory that has almost every climate on the planet and with significant resources in the fields of mining and energy.
It is these natural advantages that the agency is capitalizing on and coupled with the work of Peruvians means that Peru is the leading exporter of asparagus, paprika and fish oil in the world. They are also the largest producer of gold, silver and zinc in Latin America, making the country an extremely attractive choice for investors. ProInversión have the facts and figures at hand, which provide the evidence to sell the country to prospective investors.
Peru maintains a pro-active attitude with respect to its participation in integration mechanisms that make it possible to access broader markets, which the investors in Peru can gain access to by harnessing its natural resources and competitive advantages.
The negotiation of the trade promotion agreement (TPA) with the United States sets new standards in terms of the movement of goods and services and the protection of investment, which served as the foundation for negotiating the free trade agreements with Singapore, Canada, China and the EFTA countries, the Early Harvest Protocol signed with Thailand and the deepening of the Economy Complementary Agreement (ECA) with Chile.
On this same foundation, negotiations are being developed for the expansion of ECAs with Mexico and the signing of free trade agreements with Japan. In addition, Peru is negotiating an association agreement with the European Union, a block that sets zero tariffs for fishing, agriculture and textile products through the General System of Andean Preferences.
Peru is also a member of the free trade area agreed upon among the Andean nations that also includes Bolivia, Ecuador and Colombia (Andean Community of Nations) and that comprises a market of nearly 100 million inhabitants. Moreover, since 1998 Peru has been a full member of the Asia-Pacific Economic Cooperation Forum (APEC), whose market totals almost 50% of the world’s population, which is being called to become a natural link between the industrialized economies of Asia and emerging economies in Latin America.
There are numerous international groups from all regions of the world that maintain a presence in the country. Investment comes from both European (the largest portion provided by Spain and the United Kingdom) and North and Central American countries (the United States, Canada and Mexico). In addition, there is an increasing trend among Peru’s South American neighbors to invest in the country.
A sizable portion of these foreign investments relate to use of the country’s natural resources, providing public services, banking and tourism and infrastructure construction, within the framework of companies’ internationalization strategies.
According to Mr. Illescas, the country’s location on the west coast of South America allows it to be projected as the regional business hub of the area. Peru also has the largest city in the region, Lima, with 9 million inhabitants. In addition to this, the port of Callao, which is currently being expanded, is the most dynamic on this coast.
All of these factors, along with the work of ProInversión, make Peru an extremely appealing country to invest in. Sustained economic growth over the last decade, increasing participations in global markets, the country’s strategic location in the South Pacific, vast natural resources and many high potential sectors for investment all amount to justifiable reasons to put money into Peru.