Economics, trade, politics and infrastructure of Peru

This section provides you with recent information on Peru’s economic performance, economic prospects, trade and investments, politics and international relations and infrastructure.

Economic performance

Peru has been one of the fastest growing economies in Latin America, with an average growth rate of 5.9 percent over the last decade in a low inflation context (World Bank, 2016). The liberal economic reforms in 1990 benefited foreign investments in mining and manufacturing which have boosted the nation’s economy. GDP growth is expected to level out to an average rate of 3.6 percent. The services sector is the main contributor to the country’s GDP, comprising nearly 60 percent. Within this sector, telecommunications and financial services are the dominant branches accounting for approximately 40 percent of GDP. However, the service sector has still a way to go in terms of modernization and competitiveness. Around 35 percent of GDP is comprised out of the industry sector, whose  process of modernization has translated into increased employment in the country’s primary industrial areas (Focus Economics 2017). Poverty rates have been reduced tremendously as a result. However, the World Bank (2016) indicate that the GDP estimates are vulnerable to the following developments: “policy uncertainty as the elected government faces a Parliament dominated by the main opposition party, the impact of El Niño on real economy and a population that is vulnerable to shocks which could make them fall back into poverty”. Inflation declined to 2.9 percent in August 2016, which reflects the weaker depreciation pressure of the sol and reduction of food prices.

Economic Outlook

GDP growth is expected to decrease to an average annual rate of 2.9% from 2015-2030 and 2.4% to 2013-50. According to the Economist Intelligence Unit (2016) future growth will likely be repressed by issues as poor institutional environment and widespread income and regional inequalities. The low inflation and a stable currency will likely create a macroeconomic stability. The World Bank (2016) foresees that in future years there will be abundant opportunities in energy, mining and infrastructure for investments. Over the next two to three years large-scale mining projects are expected to begin with production. Additionally, increased investments from both private and public sources in infrastructure projects will support the combined demand. In 2017 growth is projected to approach 4 percent due the investments made in several large public infrastructure projects (World Bank, 2016). This will drive up domestic demand and will offset the gradual slowdown in export growth.

Key indicators
Population

31.77 mln (2016)

Capital

Lima

Currency

Sol

Time zone

-5 GMT

GDP at market prices

US$ 192 billion

Real GDP growth rate

2.6% (2016)

GDP per capita

US$ 5,950 (2016)

Doing Business In Index*

58 out of 190 (2017)

Corruption Index**

96 out of 180

Source: WorldBank (2018)
* doingbusiness.org
** transparency.org

Trade and investments

Peru is the fifth populous country of South America with a population of more than 31 million, and with a netto GDP of US$ 189 billion. With the leading growth rates in Latin America for over a decade, Peru is one of the fastest growing economies in the world. Currently Peru is the 41st largest country by GDP, and is expected by the HSBC (Hongkong and Shanghai Banking Corporation) to become the 26th largest economy by 2050 (Gov.UK, 2014). Peru’s main exported commodities are primary products and include ores (copper and zinc); precious metals (gold and silver); petroleum; copper; fruit; and fishmeal, composing 73% of the total exports. The majority of these exports service the markets of China, the United States, Switzerland and Canada. Imports consist of final and intermediate goods like machinery and mechanical appliances; petroleum oils and oils obtained from bituminous minerals; electrical machinery like telephone sets and monitors and projectors; vehicles other than railway or tramway rolling stock; and plastics. China, United States, Brazil and Mexico are the largest suppliers of imports. Peru has been recording trade surpluses since 2002, but has turned into a net importer from 2012 as a result of low mineral and fish meal prices and the high price of oil imports. In 2016 the trade balance has slowly turned positive again, which was mainly driven by the exports of commodities including copper, gold and zinc Peru ranks 54 out of 190 countries surveyed in the World Bank’s Doing Business 2017, making it the easiest country in Latin America to do business in after Mexico and Colombia, with their respective 47th and 53rd place. Peru is followed by Puerto Rico (55th) and Chile (57th). The Central Reserve Bank of Peru (BCRP) reported a flow of US$ 6,861 million of foreign direct investment for 2015 (ProInversion, 2016). FDI has shown a decreasing trend in Peru from 2012 but is forecasted to slowly increase again from 2017 onward. Investments in Peru are the highest in the region, with 28% of GDP (World Bank, 2016). Spain, the United Kingdom and the United States were the main sources of capital investments in Peru in 2015, accounting for half of the foreign investments (ProInversion, 2016). Of the capital invested, 86% went to the mining, finance, communications, industry and energy sectors (ProInversionm 2016).

Politics and international relations

Peru is a presidential representative democratic republic with a multi-party system, which was established in 1993. Peru has a turbulent political background, changing back and forth between periods of democratic and authoritarian rule. In more recent years, Peru has taken steps to consolidate its democracy and pursue market-friendly economic policies. In addition, it has improved its economic governance and social integration. Nevertheless, poverty and social exclusion are still issues in the poorest communities and are crucial for the future economic development of the country. Additionally, institutional and macroeconomic stability is needed to allow for Peru to achieve its development goals. Peru’s latest president, the conservative Pedro Pablo Kuczynski, was inaugurated 28 July 2016. While he aims to calls for a social revolution in Peru to fight income inequality and improve basic services, he needs the approval of his opponent Keiko Fujimori’s, who has a majority of seats in the Congress. Peru is has been a member of the United Nations, APEC and the WTO. In addition, Peru is committed to free trade. More than 80% of trade is covered by Free Trade Associations (FTAs). Peru is planning to fully integrate into the ANDEAN Free Trade Area, is an active supporter of the Free Trade Area of the Americas (FTAA), had a founding role in the free trading Pacific Alliance bloc, and has an active participation in the Trans-Pacific Partnership negotiations.

Infrastructure

The World Economic Forum Global Competitiveness Report ranked Peru 67th out of 138, with its neighboring countries ranking 61st (Colombia), 81st (Brazil), 91st (Ecuador) and  122nd (Bolivia). Compared to other Latin American and Caribbean countries, Peru scores quite high on macroeconomic environment and financial market development but is behind on technological readiness, innovation and infrastructure. Peru is a multilingual country, with Spanish as the main spoken language and traditional languages Quechua and Aymara to a lesser extent. Peru’s infrastructure remains underdeveloped, and the infrastructure gap for the years 2016–2025 is estimated to be approximately US$ 159.5 billion (Law Business Research, 2017).  Of this amount, approximately US$ 57.5 billion is linked to the transportation infrastructure gap; US$ 17 billion for railway investments; US$31.8 billion for highway investments; US$ 2.3 billion for airport investment and US$ 6.3 billion for port infrastructure (Law Business Research, 2017). Peru’s recent economic successes have prompted infrastructure development by the former and recently elected government. The government has created a legal framework encouraging local and foreign investments in infrastructure projects, by passing laws that allow for public-private partnerships (PPP).

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