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Peru in Latin America

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Peru Overview

Peru is one of the fastest-growing economies in Latin America and the wider world. The average growth rate of the last decade has been around 5%, with an inflation average below 3%. This was possible due to a combination of several factors, including structural changes in several areas, sound economic policies and a positive external environment; supported by geographic diversity and rich natural resources, among other factors.

Peru's macro-economic outlook remains strong, based on the outstanding growth of recent years' powerful impact on internal consumption and purchasing potential, improving employment and income rates. According to the Peruvian National Institute of Statistics (INEI), poverty rates fell by more than half between 2005 and 2015, going from 55.6% to 21.7% of the population. An important part of that decrease relates to extreme poverty, where the number of people living in such conditions went down from 15.8% to 4.07%. There has been a slight setback on the rate of decrease in poverty in recent years, but the government has announced programmes to recuperate traction in such matters, which is fundamental for the country's development.

Politics 

The first year in office of Martin Vizcarra, who stepped in after Pedro Pablo Kuczinsky's resignation in 2018, confirmed the business-friendly economic environment that was expected. The transition from the President to his elected Vice-President was seamless and, despite the naturally turbulent political waters, did not create any economic shockwaves. Unfortunately, the generalised lack of trust fostered by the Lava Jato corruption scandal in Brazil continues, ramifications of which have continued to affect the business environment in Peru during 2017 and 2018, together with home-grown cases involving the Judiciary and Congress. Though improved in several respects, the Executive branch continues to find difficulty in building bridges with Congress, where Keiko Fujimori's party has an absolute majority.

With such perspective, Peru continues to face two major challenges in the upcoming years: achieving sustainable economic growth and strengthening the relationship between growth and equality. Both of these aspects will require continued investment in all sectors and regions of the country in order to accelerate growth and protect vulnerable populations which could fall back into poverty.

Since 2008 the Peruvian government has been promoting private companies to help them close the infrastructure gap and increase the standard of living in the country. Through a law called "Taxes for Work" (Obras por Impuestos), companies can pay their taxes by building public infrastructure (roads, schools, water systems, etc) and so obtain significant tax reductions. Such scheme has been boosted, together with an amended version of public-private partnerships by the Vizcarra administration.

Investment 

An estimated USD70 billion is due to be spent on investment projects from 2019 up to 2022, including major mining and oil & gas projects, as well as significant infrastructure works and public-private partnerships.

Investment Opportunities - Relevant Sectors  

Mining 

Peru is currently ranked among the top countries in Latin America in the Mining Attractiveness Index of the Fraser Institute. This is due to a legal framework that promotes investment, a mining cadastre that provides security of tenure, the availability of skilled professionals, a strong information network and world-class geological potential. The country is the second highest producer of copper and silver, third of tin and zinc and sixth of gold worldwide; and a top-tier Latin American producer of several precious and base metals. A recent discovery has been announced of what would potentially be the largest lithium deposit in the world.

Oil & Gas 

Peru has significant oil and gas resources in several areas of the country, with three main locations: the northwest (Piura and Tumbes), the Central Jungle (Junín, Pasco, Huánuco, Ucayali) and the southeast regions (Cuzco and Madre de Dios). Its geographical position grants Peru an advantage to supply the markets of the Pacific coast, mainly the USA, Mexico and Central America, as well as the Asia-Pacific region. Also, Peru continues to promote the development of petrochemical hubs along the southern coast and in the southern Andes, including a legal framework providing tax breaks and incentives for the installation, operation and maintenance of such plants.

Energy  

There are important investment opportunities in power generation projects, both increasing and building new capacity. Also, Peru has enormous hydroelectric potential, coupled with significant projects for clean energy coming from solar, geothermal and wind resources. Nine out of twenty-five regions have been identified as having wind potential. The general growth of economic activity always demands more power generation, and in turn this requires the development of infrastructure to transmit and distribute energy (gas and electricity) to all regions in the country.

Infrastructure  

There is a need to invest in infrastructure in order to gain access to more markets, increase the competitiveness of Peruvian companies and reduce poverty and inequality. The infrastructure gap has been recently estimated to be in the order of USD69 billion. Internal consumption has leveraged the infrastructure in Peru, as it has given the construction sector continuous growth in the past five years. The development of several projects, mining units and business centres, among others, are always present, as are investment opportunities for roads and railways. Despite the country's growth, for example, Peru is still really low on industrial parks and even in shopping centres when compared with the rest of the region.

Transportation  

Peru has prioritised the development of transportation infrastructure to increase its competitiveness and form a logistic hub that integrates Latin America with the Asia-Pacific region. The current pipeline estimated by the Promotion of Investment Agency (Proinversion) is around USD25 billion in projects for 2019-20, which represents important investment opportunities.

Telecommunications  

Through the Telecommunications Investment Fund, several measures are being developed in order to reduce the digital gap in basic telecommunication services in rural areas. Also, the recent implementation of 4G technology and the increase of fibre-optics and backbone infrastructure is steadily increasing investment in this sector.

Conclusion  

The fast-growing Peruvian economy has opened many doors for both multinational companies wanting to take advantage of the country's business reputation, as well as local entities that are using the current momentum to expand beyond their borders. This has therefore increased the need for advice of an international standard and cross-border legal advice in the country. It then comes as no surprise that Peru has recorded historic M&A transactional amounts in the last decade.

As a result, some international law firms have started to enter Peru over the past six years, either independently or by incorporating an existing national firm into their structure. In return, Peruvian law outfits that have chosen to remain independent have embraced the need for increasing their regional profile, building a strong reputation to prove to their current and potential clients that they are more than capable of handling complex and even cross-border transactions with the required international standard.