A strong performer: Sounds policies bring in investment and boost trade as continued domestic demand drives growth

While neighbouring Brazil may garner more headlines as one of the “BRIC” giants, Peru has quietly and efficiently transformed itself into one of the world’s most dynamic emerging economies. Boasting significant natural resources and a population hungry for modernisation, Peru’s economic growth has outperformed the majority of its regional and global peers in the past decade. Government balance sheets show healthy levels of reserves and debt (especially when taken in the context of heavily indebted economies in Europe and America). And despite a perceived reliance on its export-oriented mining industry, this rapidly expanding, upper-middle-income economy is deeper and more diverse than first meets the eye.

That is not to say it is without its challenges. Infrastructure development, poverty alleviation and a lack of innovation are among a plethora of obstacles in its path to economic development. Even so, the country’s economic narrative is still just beginning after transforming itself during the 1990s from a highly regulated market with an economically active government to the vibrant, private-sector-driven country of today.

ECONOMIC PROGRESS: Neoliberal reforms implemented by the controversial figure of former President Alberto Fujimori during the 1990s have shaped economic development over the past two decades. “Fujishock”, as his policies (especially those of August 1990) have become known, effectively modernised the economy, although its impact on the social structure is still a subject of heated debate. Serving as president for the entire decade from 1990-2000, Fujimori oversaw the privatisation of the majority of state-owned assets and in the process opened up the economy to significant levels of foreign direct investment (FDI). Price controls, subsidies and exchange controls were all eliminated, resulting in drastic price increases in the short term, though inflation later began to fall rapidly.

The Peruvian inti, which originally replaced the highly inflated sol in 1985, was itself replaced in 1991 by the nuevo sol at an exchange rate of 1m:1. By the mid1990s Fujishock had restored macroeconomic balance to the country and in 1994 the economy was one of the fastest growing in the world, expanding by 12.8%, according to World Bank data. Since then, GDP growth has maintained a steady trend, increasing by an average of 5.4% annually in the following 18 years.

After running for a third term and winning a contentious election, Fujimori eventually resigned in 2000 amidst a number of corruption scandals. He has subsequently been jailed for human rights violations and abuse of power. A new election was won by Fujimori’s former opponent Alejandro Toledo. Since Toledo’s administration at the beginning of the first decade of the new millennium, Peru has been characterised by macroeconomic stability and growth, debt reduction, prudent fiscal spending, a widening trade surplus and the continued accrual of international reserves.

Former President Alan García returned to power in 2006 and his pro-market policies boosted economic growth, with the country winning its first-ever investment-grade rating from Fitch Ratings in April 2008.

The election of President Ollanta Humala in 2011, despite initially provoking concerns from the local business community, has thus far seen Peru continue marching head-on toward economic modernisation. Fears that the business-friendly climate that had been built up over the years would be at risk have proved to be wholly unsubstantiated.

MACROECONOMIC INDICATORS: Macroeconomic expansion over the past decade has been impressive as Peru has, along with Panama, been arguably one of the region’s top performers. After GDP expanded at more than 5% for five consecutive years from 2003-08, peaking at 9.8% in 2008 according to World Bank figures, growth was suddenly halted in 2009 amidst a weak macro environment brought on by the global financial crisis of 2008-09. Though by 2009 Peru’s economy had sufficiently been tied into the global market through mining and agricultural exports, it still managed to post positive GDP growth of 0.8% before rebounding strongly in 2010 with a figure 11 times that size – 8.8%. Growth decelerated slightly in 2011 with GDP expanding at 6.9%, according to figures from the Central Reserve Bank of Peru (Banco Central de Reserva del Perú, BCRP). The IMF has predicted a continuation of GDP growth in coming years, with expansion forecast at 5.25% in 2012.

Although it has suffered from periods of hyperinflation in the past, Peru’s inflation rate over the past decade has been relatively tame, especially when taken in the context of continental peers Argentina, Bolivia and Venezuela, which all suffer from varying degrees of high inflation. However, Peru’s inflation rate did increase significantly in 2011, reaching 4.6% after posting a low annual rate of 2% in December 2010. Adrian Armas, manager of economic studies at the BCRP, told OBG, “In November 2011 we hit a 30-month high in the inflation rate, though core inflation remained relatively low at 2.3%. High inflation is often the result of climatic changes affecting agricultural yields and food prices, as it was in this instance.” BCRP forecasts inflationary pressure to cool over the next two years to within the targeted 1-3% range, with annual rates of 2.6% and 2.5% in 2012 and 2013, respectively.

While Peru boasts strong macroeconomic figures, Carlos Anderson, a partner at global investment banking firm Europa Partners, told OBG that despite growth there is much work to do still. “Economic growth has not yet translated into economic development – there is still a noteworthy absence of downstream production in most sectors, for example,” he said. Lost opportunity costs are especially prevalent in the extractive industries, where raw materials are often sent abroad before being refined and manufactured into downstream products. Plans to develop a $3bn petrochemicals plant and additional smelter and refineries are signs the government has come to the same conclusion.

ECONOMIC POLICY: As laid out in the Ministry of Economy and Finance’s (Ministerio de Economía y Finanzas, MEF) Multiannual Macroeconomic Framework 2011-13, Peru has broadly adopted a countercyclical approach to economic management. As private consumption, spending and investment continue to mature into their roles as economic drivers, the government will slowly abandon the expansionary fiscal policy that saw budget deficits posted in 2009 and 2010. Reductions in public expenditures are seen as necessary to contain and reduce inflationary pressure, as well as to help control currency appreciation.

The MEF has recognised that Peru is increasingly tied to volatile global markets through the continued expansion of trade – exports reached a record level of $46.3bn in 2011, according to the BCRP (see analysis) – particularly in light of fiscal situations in the major European and American markets. By encouraging private sector investment and allowing public expenditures to play a supporting role, the MEF is seeking to strengthen the government’s fiscal position in the event of an international double-dip recession. Accrued savings could then be put towards stimulus measures if and when needed. Indeed, save in the good times so that you may spend in the bad times has become a central tenet of the country’s economic policy.

Armas goes further, touching on the role of exports in filling government coffers. “Historically, Peru has never boasted high reserves,” he said. “However, the growth of export industries has seen reserves reach their current levels of almost a third of GDP, which can then be used for counter-cyclical purposes, investment and to act as a safety net for the economy.”

Meanwhile, in place of public investment and expenditure, the MEF would like to create an even friendlier business environment to support and stimulate private sector growth. Reductions in red tape such as that surrounding the acquisition of construction permits, time and cost for starting a business, and property registrations are all areas identified as competitiveness enhancers capable of contributing to private sector development. The country recently scaled a few levels in some areas of the World Bank’s “Cost of Doing Business” rankings for 2012, especially in “protecting investors” (up four places, to 17th).

Although social inequality and poverty alleviation were key elements of the 2011 presidential elections, they were also part of economic policy established by the MEF under former President García. Social expenditures did, in fact, grow 141% between 2001 and 2010 and are seen as a key feature in long-term economic development. With rural poverty levels still more than 60% in 2009, one of the MEF’s stated objectives is to ensure “adequate decentralised public expenditure” in regional provinces and municipalities. The Regional and Local Public Investment Promotion Fund is but one of several vehicles used to promote localised investment in the short term in order to make economic benefits trickle down throughout the economy to produce a more balanced distribution of income.

Speaking about the economic policy of the Humala administration, Claudiano Manoel de Albuquerque, the IMF’s resident consultant in Peru, told OBG, “The new government has a clear vision for implementing social change, but it has remained supportive of the current economic model – which has certainly taken some by surprise.” Assuming the continuation of these policies, the MEF estimates that by 2013 both public debt and poverty will have been halved in comparison with their 2003 levels, while per capita GDP is forecast to reach $6134 – 2.7 times higher than the 2003 figure. Per capita income at purchasing power parity is around $10,000.

PUBLIC ACCOUNTANCY: As Albuquerque went on to explain, “Peru’s recent period of dynamic growth has afforded the government a very strong, stable financial position, particularly with regards to public debt.” Indeed, prudent financial policies saw Peru record a nominal fiscal surplus of 1.8% ($3bn) of GDP in 2011, all but erasing the deficits of the previous two years of 0.6% ($1bn) of GDP in 2010 and 2.1% ($2.6bn) in 2009, according to the BCRP.

This was largely due to increased government income as tax revenues have risen alongside economic growth to an estimated $28bn in 2011, more than tripling since 2003 when revenues tallied $8.1bn, according to figures from the BCRP and the National Superintendency of Tax Administration (Superintendencia Nacional de Aduanas y de Administración Tributaria, SUNAT). SUNAT announced in January 2012 that tax collections had increased 16.1% in 2011 compared with the previous year. Rises in tax revenues derived from exports and consumer sales have been critical elements, with the mining, hydrocarbons and manufacturing sectors each up more than 30% with respect to 2010 totals.

The BCRP also reported a 26.1% rise in income tax revenues throughout the year and a 10.1% growth in general sales tax, which contributed to increasing government revenue by 13.9% over the course of the year.

2012 BUDGET PLANS: A larger 1.5% budgetary surplus has already been approved for 2012 which, if achieved, would raise it to $2.35bn. However, government spending on stimulus – much of which depends on the performance of global markets – could see a more balanced budget before the year ends. Current measures already built into the approved 2012 budget call for stimulus spending equivalent to 2% of GDP, although this could creep up to 3.5% of GDP depending on economic growth.

Indeed, although rising in dollar terms, public debt as a percentage of GDP has been steadily declining since 2003, when it registered at 47% of GDP, according to the BCRP. By 2010 it had fallen to 23.4% ($36.2bn) and from January to September 2011 it continued its downward path, coming in at 21.8% ($35.9bn) of GDP. The BCRP forecasts public debt to fall to 20.1% ($38.8bn) of GDP in 2012 and 18.6% ($39bn) of GDP in 2013. Declines so far have mostly been in foreign debt, while domestic debt remains largely stable.

The federal government also has a fiscal stabilisation fund, which could increase from $6bn to $7bn in 2012. The fund, roughly equal to 3.6% of GDP, was created under former President García to act as a rainy day emergency account. International reserves have grown consistently since the beginning of the millennium, largely thanks to the increased production and exportation of minerals. Higher demand from emerging markets has driven commodity prices to new heights over the past decade, resulting in record-breaking export revenues and growing international reserves. By the end of November 2011, net international reserves stood at $49bn, nearly five times the $10.1bn held in 2003 and equal to 28.6% of GDP.

RATINGS: Successful economic policies and sound fiscal prudence prompted all three major credit ratings agencies to grant Peru investment-grade status over the past five years. Standard & Poor’s and Fitch raised Peru’s credit evaluation in 2011 from “BBB-“ to “BBB”, the second-lowest investment-grade rating. Moody’s, however, maintained Peru’s “Baa3” evaluation in December 2011, its lowest investment grade rating.

With investors looking to emerging market economies amidst increasingly risky European sovereign debt, Peru sold $1.1bn worth of sovereign bonds in January 2011 for the first time since November 2010, when it sold $1bn worth of overseas debt. The bonds were divided into two tranches, the first of which was $500m worth of 5.625% dollar-denominated bonds due in 2050, while the second tranche consisted of $600m worth of 6.875% sol-denominated bonds due in 2031.

INVESTOR CONFIDENCE: Investors have responded accordingly to positive remarks from the ratings agencies, showing increased confidence in the country. Investment levels have corresponded with economic progress and have contributed progressively to growth, although the MEF’s counter-cyclical policies saw public investment contract 24.2% from January to September 2011. Public investment, which totalled just $1.7bn in 2003, reached $9.1bn in 2010, expanding 27.3% on 2009, according to figures from the BCRP.

Private investment growth from January to September in 2011 also decelerated to 13.1% compared to the same period in 2010, which saw 21.3% growth. Private investment is expected to continue expanding, albeit at a slower pace, with the BCRP forecasting the growth rate to drop to 8.3% by 2013. Funds from private investors are expected to total $48.3bn between 2011 and 2013, with primary destinations being mining, hydrocarbons, electricity, industry and infrastructure. Accordingly, gross fixed investment as a percentage of GDP has also steadily increased since 2004, when it registered 17.9% growth to 25.1% in 2010. While 2011 saw a slight decrease in the rate of expansion, with growth in gross fixed investment dropping to 24.1%, it is expected to accelerate to 25.6% in 2012 and 26.1% in 2013.

FDI is also playing an important role in driving economic growth (see analysis). FDI rose from $1.3bn in 2003 to $7.6bn in 2011, according to investment promotion agency ProInversión. Much of this is being poured into the mining sector, which is expected to attract $51.5bn over the next decade, according to the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM). However, mining is not the only sector to have attracted international attention as foreign firms in electricity generation have succeeded due to increasing demand, while foreign retailers ( particularly Chilean firms) have also capitalised on growing private consumption and expanding consumer economy.

PRIVATE CONSUMPTION: Private consumption has become an ever more important component of economic growth as rising per-capita GDP, which increased by 60% in 2006-10 from $3312 to $5291, has resulted in newfound consumer confidence among the middle class. Peru saw consecutive years of high growth in private consumption as it expanded from a 3.6% increase in 2004 to a peak of 8.7% in 2008 before slowing to 2.4% in the aftermath of the global financial crisis in 2009. Following data from the BCRP, private consumption then recovered to around a 6% growth rate in 2010, an estimated 6.3% the following year and is forecast to continue rising at rates of 5.6% and 5.8% in 2012 and 2013, respectively.

Increased access to credit is one reason for improved consumer confidence, and private consumption as credit to the private sector increased from 1% of GDP in 2004 to 5.2% in 2010 (it reached 6.3% in 2008), according to figures from the BCRP.

The total number of credit cards issued reached 6.77m in September 2011, according to the Peruvian Association of Banks. The figure looked certain to clear the 7m mark by the end of 2011, meaning nearly one in four Peruvians would have access to a credit card. Hugo Perea Flores, chief economist of BBVA Banco Continental, told OBG, “Access to credit has certainly improved recently. However, at 30% of GDP there is still a long way to go. By comparison Chile’s credit to GDP ratio is close to 80%.” While lines of credit are common in Lima, they have not yet had a significant impact in regional cities, although increased retail activities could begin to change that. Lima has historically been the centre of retail trade and consumption. Anderson said, “Private consumption has increased dramatically but crucially that growth is not just occurring in Lima as it traditionally does but across the provinces as the emerging middle class has higher disposable income and better access to credit.” Microfinance has also been a great success for Peru, which is now considered to be a world leader in the field.

TRADE DEALS & REGIONAL INTEGRATION: Rising demand for commodities among emerging markets has resulted in sustained high prices, prompting a swift expansion of mineral production in the past decade. Exports from the mining sector now account for nearly two-thirds of the total value of Peruvian goods sent abroad. Moreover, a multitude of free trade agreements (FTAs) have provided Peru with privileged access to some of the world’s biggest markets, including the US and China (see analysis).

While the continual inking of FTA deals has ensured growing ties with overseas markets, Peru has also stepped up regional economic integration efforts. It is a member of the Andean Community – known as the Andean Pact when it was founded in 1969 – a Customs union and trade bloc formed between Peru, Bolivia, Colombia and Ecuador. The Andean Community formerly also contained Venezuela and Chile, although Chile’s withdrawal in 1976 and Venezuela’s more recent 2006 departure, after Peru and Colombia signed FTAs with the US, has reduced its membership to four. Venezuela subsequently applied to join Common Market of the South (Mercosur), South America’s other trade bloc consisting of Argentina, Brazil, Paraguay and Uruguay. In 2004, the Andean Community and Mercosur signed a cooperation agreement with the intention of integrating all of South America into a single economic entity. Thus far integration has been limited to members of the Mercosur being granted associate membership in the Andean Community and vice-versa.

Regional integration efforts also facilitated the creation of the International Latin America Market (MILA) in May 2011. The MILA was established when Chile, Peru and Colombia combined their respective capital markets to create the second-largest exchange in Latin America (see Capital Markets chapter). MILA is expected to increase investment in Peru’s capital market, the Bolsa de Valores de Lima (BVL), although thus far crossborder trading has been limited. In December 2011 Mexico signed a letter of intent to join MILA – potentially expanding the bourse to become the region’s largest. Brazil has also shown interest in joining MILA.

EXTRACTIVE INDUSTRIES: Much is owed to the growing importance of extractive industries within the national economy. Peru’s widening trade surplus, increasing international reserves and strong fiscal position are all linked to the mining and hydrocarbons sectors. It is a major producer of copper and gold, which accounted for 76% of all mineral exports in 2010. In turn, mineral exports accounted for 61.3% of the national total, according to MINEM.

Domestic benefits have come from the recent commercialisation of the giant Camisea natural gas field, which has reduced electricity costs by as much as 30%, while simultaneously providing a new energy source during a period when the national grid has been under intense pressure as it struggles to keep up with rising demand due to increased economic activity.

Record commodity prices have made the extractive industries a magnet for investment, with mining and hydrocarbons attracting 58% ($28bn) of total private investment from 2011-13, according to the BCRP. Figures from the National Statistics Institute (Instituto Nacional de Estadística e Informática, INEI) indicate extractive activities accounted for 17% of GDP in 2010, up from 12% in the year 2000.

Even though this figure may continue rising, a lack of downstream production is seen as a key obstacle to furthering economic development and maximising returns on natural resources. Additionally, the sector is currently affected by social conflict as local communities and the mining industry continue to debate over a variety of concerns related to environmental, economic and social issues (see Mining chapter).

FINANCIAL MARKETS: Although showing healthy balance sheets – Peru’s financial markets were far from the dangerous instruments that led to the financial crisis – the lack of a developed capital market and access to credit has the potential to slow long-term economic growth (see Capital Markers chapter). According to Albuquerque, “The financial sector needs to be developed and become more competitive as currently the top five banks control a large portion [some 80% of market share] of the sector’s assets and consequently the sector has limited financial products and an underdeveloped, albeit growing, credit market.”

The BVL is also generally considered to be lacking in depth and diversity of both issuers and investors – mining companies accounted for 51.6% of the BVL’s market capitalisation at the end of 2011 and not a single initial public offering (IPO) was made during the entire year. “The BVL is incredibly underdeveloped and needs to be much deeper in terms of market capitalisation and diversification. Another fundamental problem is that the investor pool is quite small, and the majority of trading on the bourse is done by pension funds,” Anderson said. Indeed, with more than $30bn, pension funds have become important investors in the country, while individual retail investors are slow to emerge and have shown limited interest.

The European debt crisis ensured a rocky year for stock markets around the globe, and although Peru’s bourse did experience volatility, it was for very different reasons. Commodity prices and uncertainty ahead of the looming June 2011 elections caused the main index, the IGBVL, to fall by 16% in the first quarter when world markets were rebounding on the back of a strong showing in the US. In May and June world markets plummeted following fiscal crises in Portugal and Greece, while the IGBVL bounced back nearly 10%. The IGBVL endured its worst one-day slide in history immediately following the June 2011 presidential elections when it dropped by 12.5%, and after a series of ups and downs in the second half of the year it finished down 16.7%. In 2012, IPOs did finally resume as usual. Market capitalisation stood at $137bn as of the end of March 2012.

MONETARY DEVELOPMENTS: After experiencing periods of hyperinflation in the past, particularly in 1988-89, like other Latin American nations Peru operates a de facto dual currency monetary system with the dollar, even though the nuevo sol has been relatively stable since its introduction in 1991. Following a decade of relatively low inflation, Peruvians have shown more confidence in local currency. “Increasing confidence in the nuevo sol in the domestic market is also partially because the younger generation did not experience the trauma of hyperinflation,” Armas told OBG. Armas explained that as a result the long process of de-dollarisation is already under way, with monetary supplies split roughly 55:45 between the sol and the dollar, respectively. That is a long way from dollarisation levels in 2000, which reached between 70% and 80%.

According to World Bank data, M2 money supply, including foreign currencies, went up 23.2% between 2007 and 2008 before considerably decelerating in 2009, when it increased by just 2.5% as a result of the global financial crisis. Monetary supply then returned to formative growth in 2010, increasing 21.5% and bringing the sum total to PEN159.4bn ($59.5bn).

In May 2011, the BCRP was one of the first central banks in Latin America to raise interest rates following the global financial crisis. The benchmark rate increased from 1.5% to 4.25%, where it remained at the beginning of 2012. As a dual-currency economy the BCRP has intervened to prevent volatility in the monetary markets, although the external sector also clearly benefits from a stable currency. The Peruvian sol reached its strongest level in three years in January 2012, with the currency trading at 2.69:$1.

EMPLOYMENT: Although the INEI reports that Peru’s unemployment rate (among the economically active population) declined from 5.1% to 4.1% from 2001 to 2010, perhaps more significance should be attached to figures concerning the underemployed. While the underemployment rate fell during that decade – from 68.6% to 52.6% – it remains a constraint on economic development and poverty alleviation. The adequately employed segment of the population stood at some 40% in 2010, up from 29.8% in 2001.

These figures are encouraging in that they are moving in the right direction but they do not change the fact that the majority of the economically active population is either unemployed or underemployed.

The population reached 29.5m in 2010, according to the World Bank, although population growth has slowed down significantly over the past 30 years such that a growth rate of 1.1% now falls well below the accepted replacement rate of 2.1 children per woman. The rate dropped from 2.5 in 1980 to 1.9 in 1992 and finally 1.1 in 2006, from where it has remained stable through 2010, the most current figures available.

Population size and structure have real economic consequences, such as a country’s age-dependency ratio or the proportion of its economically inactive population (children under 15 and adults over 65) to its active population. As a result of declining birth rates, Peru’s age dependency ratio has fallen from 66% in 2001 to 56% in 2010. While a positive development in the short term, this could spell problems in the long term as the current swollen working-age generation enters retirement in the next 20-40 years, leaving behind fewer children to support economic production. Labour regulation rigidity is also an issue, as the country is one of the most rigid states in term of labour for the region.

POVERTY REDUCTION: A key component of advancement to the next stage of economic development is poverty reduction and social inclusion, important elements of current administrative policy. Perea of BBVA Banco Continental explained, “Thus far, economic growth has not trickled down to the poorest segments of society, a challenge that must be resolved with investment in infrastructure, education and industrialisation.”

Between 2005 and 2010 the percentage of the population below the national poverty line fell from 48.7% to 31.3%, according to figures from INEI. This is largely attributed to the strong macroeconomic performance and corresponding increases in per capita GDP. According to World Bank data, Peru’s Gini coefficient (a standard measurement of income disparity where 1 represents complete inequality and 0 complete equality) also indicates a shrinking poverty gap, having fallen 13% from 0.55 in 2002 to 0.48 in 2009.

Though President Humala’s election prompted fears there would be a drastic change in economic policy to fulfil promises of social inclusion, the administration has sought to achieve its social goals by continuing the policies that have promoted economic development and poverty alleviation. Even so, some changes are indeed being made to the model for social development. The creation of the Ministry of Development and Social Inclusion in August 2011 is part of a larger overhaul of social spending. The national food assistance programme is expected to be reformed, along with other social initiatives, while new schemes have also been established such as “Pension 65” to provide assistance to senior citizens living in poverty and “Beca 18” to provide scholarships to under-privileged students.

The government restructured mining royalties in September 2011, in theory bringing the government an additional $450m per year – much of which will be spent on various social programmes. Development agencies have taken action and the World Bank provided a $3bn loan to help fund social programmes in October 2011, while the Inter-American Development Bank provided an additional $200m the following month.

Foreign aid often finds its way to agricultural development, which has a considerable effect on social inequality due to its ability act as an engine for employment. For this reason it has been singled out as a vital element to poverty alleviation, especially in rural areas where poverty rates can be as high as 60%. In 2010 the agriculture sector accounted for 7.5% of national GDP, though it provided almost one-third of total employment. Large irrigation projects and private investment revived the sector during the 1990s and provided the platform for the sector’s recent successes.

BUILDING INFRASTRUCTURE: Another obstacle, quite literally, in the way of economic development is topography – which hardly makes life as a civil engineer in Peru enviable. Travelling from west to east beginning at the long western coastline (which is primarily desert terrain), one quickly faces the obstacle of the vertebrae-like Andes mountain range running through the centre of the country. On descending the volatile, young and ever-shifting mountains, the thick, inundated Amazon jungle then presents itself.

Building and maintaining transportation, energy and communications infrastructure is difficult and expensive (especially in remote areas of the country) yet absolutely fundamental to economic growth. The infrastructure gap also does not make life easier on investors, who at times find themselves building proprietary infrastructure when the government fails to step in.

However, things are slowly beginning to show signs of improvement. In November 2011 the Ministry of Transportation and Communications announced an infrastructure investment budget of $20.5bn for 2011-16. Among the emblematic investments is the Interoceánia Highway. Additionally the government has, and will continue to, hand out a multitude of concessionary contracts as it seeks to encourage private sector involvement in infrastructure development. Notably two global operators, Dubai Ports World (DP World) and APM Terminals, have taken over the majority of operations at Peru’s main port in Callao. The impact has thus far been significant, with DP World constructing a new $700m terminal. Foreign energy firms have also taken a keen interest in developing electricity-generating facilities, particularly gas-fired thermoelectric power plants utilising resources from the giant Camisea natural gas field. Public-private partnerships (PPPs) are also encouraged by the government; in fact, the InterAmerican Development Bank found that Peru, along with Chile and Brazil, was one of the top three countries in which to carry out a PPP in Latin America, citing a strong institutional framework.

OUTLOOK: While the prognosis for the Peruvian economy is largely positive, there are questions as to whether the benefits of economic growth can trickle down to the poorest segments of society, particularly in rural areas. “The macroeconomic outlook for Peru is very good, but we still need more production and market efficiency,” Perea emphasised to OBG.

Positive macroeconomic growth figures, partially owed to the success of and growth in export-oriented extractive industries, have masked a lack of development throughout other areas of the economy.

However, downstream industrial production, infrastructure development and social spending are all high on the government’s agenda. Successful implementation of these policies over the next decade should see the beginnings of Peru’s transformation from an economy driven by efficiency to one driven by innovation.