Peruvian CEOs Optimistic about Economic Prospects, in Spite of Ongoing Corruption Concerns

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In early June the Central Reserve Bank of Peru (Banco Central de Reservas del Perú, BCRP) revised its 2019 growth projections for the local economy, forecasting GDP to expand by 4.2% next year, up from its March prediction of 4%. The institution maintained its projection of 4% for 2018.

These figures reaffirm the sentiment expressed in our latest OBG Business Barometer: Peru CEO Survey – that despite recent challenges, economic prospects are steadily improving.

There were a number of trying obstacles in 2017. For one, Peru weathered a difficult El Niño phenomenon, which impacted agricultural output. In addition, there were ongoing repercussions from the major corruption case involving Odebrecht, Brazil’s largest construction company, which delayed some key infrastructure projects.

The business environment eased somewhat as Peru moved into 2018: national infrastructure plans progressed under new public-private partnerships, construction recommenced on many projects and commodity prices were once again on the rise, helping to boost the development of mining and hydrocarbons industries.

However, some instability remained, particularly on the political front. After a series of corruption scandals and parliamentary crises, President Pedro Pablo Kuczynski stepped down in favour of his successor, Martín Vizcarra, in March.

Peruvian business buoyant throughout volatilities

Evidently, Peru is dynamic and capable of growth, even with a certain degree of instability – a needed strength for any emerging market. As we’ve seen in our most recent CEO survey, as well as previous ones, the confidence of Peru’s private sector is resilient.

In our latest results, 84% of the CEOs we interviewed had positive or very positive expectations of business conditions for the next 12 months. Furthermore, nobody in any of our face-to-face surveys cited having a very negative outlook for the year ahead.

However, this is marginally lower than the 89% who had positive or very positive expectations in December 2017, when we published our last CEO Survey.

In terms of investment intentions, the numbers have risen slightly since our last results. In the December edition of our survey, 58% of CEOs were planning on making a significant capital investment in the next 12 months. Now, the figure sits at 60%.

Our results are in keeping with the BCRP’s positive GDP growth projections, as well as Peru’s recent economic performance. In April the country recorded year-on-year growth of 6%.

This is in part due to the financial sector’s solid foundations and reliable regulation, with these appearing to work well in practice: 71% of respondents considered access to credit to be easy (52%) or very easy (19%).

Areas of the Peruvian market in need of further development

Although Peru has withstood considerable adversities, there is of course room for improvement. Notably, the private sector continues to demand that more is done in the fight against corruption. As many as 71% of respondents said that government efforts in this regard were insufficient or very insufficient.

In terms of human capital, the Peruvian business sector considers leadership as the skill in greatest need (33%) in the local labour market, which is a common result among many of the emerging countries that we survey.

Reducing the dependency on commodities would also improve the sustainability of Peru’s growth. Although the prices of minerals and hydrocarbons are contributing to the expansion of the energy sector, they also generate volatility in the longer term. CEOs are aware of this pitfall, with 57% of respondents citing low commodity prices as the top external event that could impact the local economy. The second-most-chosen event was a possible slowdown of the Chinese economy (19%), demonstrating the increasing dependence of Peru on Asian markets.

For now, Peru is enjoying a more favourable global environment for its mining and hydrocarbons sectors, but even more promisingly, its manufacturing, fishing and construction industries are continuing to lead growth. Furthermore, the Andean country’s optimistic private sector appears to be more active than ever.