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Invest in Peru: The Third Economic Jaguar of South America

285px-80_-_Machu_Picchu_-_Juin_2009_-_edit.2An investment in the flourishing economy of Peru can allow the entrepreneur the opportunity to get in on the ground floor of a country that is emphasizing economic growth above anything else. Peru along with Colombia and Chile have collectively decided that the 21st century will be about how their nations will join the economically advanced countries of the world. According to a number of statistics Chile has already arrived upon this goal with Colombia and Peru in hot pursuit.

The economy of Peru has grown at a faster rate in the past decade than any other large country not only in South America, but Latin America as well. Numerous analysts and investors have made the determination that Peru is the next breakout country.

Peru is dealing with a number of challenges that will effect investment and growth over the next decade. These would include a continuing problem of corruption, a problematic mining industry, and a labor force that is somewhat inflexible and low skill. The solution to these problems will provide an extra impetus toward economic growth and investment in Peru.

The Gross Domestic Product (GDP) rate of growth at the end of 2013 in Peru stood at 5.1% for the year. GDP per capita stood at $6,990 USD (United States Dollar) and Purchasing Power Parity (PPP) was $11,880 USD. Inflation was down to 2.9%, the currency is stable and the budget is basically in balance. Unemployment last reported in 2012 was down to 3.6%.

Flag of Peru

Flag of Peru

However, the most impressive statistic in Peru has been the reduction in the national rate of poverty. In the year 2004 the rate was near 60%, in 2007 the rate had dropped to just above 40%. Just 5 years later in 2012 it had been cut in half. Still above 20% but quite remarkable if one considers the 2/3 reduction in a decade in the national poverty rate.

250px-Peru_(orthographic_projection).svgThe population for Peru in 2014 is estimated at 31.6 million. The country is the 20th largest country in the world at 1,285,216 km2 (496,225 sq mi).

The government of President Ollanta Humala will be under increasing pressure from opposition parties, former allies and groups. They would all like a redistribution of the new wealth that is being created. The government has instead embraced Western liberal economic policies that have led to continuous economic growth and ascending living standards. Increased public investments in electric power, water and sanitation has been a major contributor to these improvements.

Lima Business Center

Lima Business Center

Much of this new growth was made possible by rising support for the government. The reinforcement for this trend has come from private enterprise and foreign investors.

The GDP of Peru was worth over $200 billion USD in 2013. Considering it was less than $100 billion USD in 2007, this has led to what some refer to as the Peruvian Miracle. In PPP terms the GDP for this year will be $368 billion USD.

How was this miracle achieved? Along with the new political stability the government embarked on a number of basic principles that have led to increased investment and economic growth. The first step was to achieve macroeconomic stability. This was to create a legal frame work for business and investment. The government then pursued a restrained policy of fiscal spending. This in turn, created the fiscal surpluses that allowed the external debt reduction and the high international reserve accumulation ($65.22 billion USD in 2014). The result was the achievement of investment grade status.

Since 1991 the Peruvian economy has experienced continuous growth except in the years 1997 and 1999. The expansion continued even during the difficult years of the global meltdown of 2007-2009. This has led to Peru being reclassified by the World Bank to be upper middle income and has now become the 40th largest economy in the world.

Peruvian Stock Exchange

Peruvian Stock Exchange

Lima Peru

Lima Peru

Investment is pouring in from the Europe, the United States, Japan and more recently China, India and Brazil. Chilean and Ecuadoran entrepreneurs and financiers have also made substantial investments. An important indicator for the stability of Peru is that the government does not engage in the strict currency controls that other nations in Latin America follow. The currency of Peru the sol, is strong enough to no longer need regulation and support from the government.

The major export partners for Peru consist of China, the United States and the European Union. Their share of the total trade in exports are 20%, 15% and 15% respectively. Brazil and Chile both comprise 10% each. They are followed by Japan, Mexico, the United Kingdom, and Bolivia with 5% each. The total value of exports for 2013 was estimated to be $73.50 billion USD.

The major exports consist of numerous metals including copper, gold, lead, zinc, tin, iron ore, molybdenum and silver. Peru also exports alloys, metal products, machinery and textiles. In the energy sector exports include petroleum and related products including natural gas. Food exports include coffee, asparagus, fruit, other vegetables, fish and fish meal.

Port of Callao Major Hub for Exports and Imports for Peru

Port of Callao Major Hub for Exports and Imports for Peru

Peru runs a trade surplus. The total value of imports were estimated to be $68 billion USD for 2013. This allows the country to enjoy a yearly surplus in excess of $5 billion USD. The percentage of the trade for imports for individual countries parallels that for exports. The exceptions are 25% of the total for China, Japan 10% and Chile 5%. Colombia, Ecuador, and Bolivia come in at 5%, 4% and 1% respectively.

Imports consist mainly of petroleum products, chemicals, plastics, machinery, and vehicles (including power shovels and front-end loaders) iron and steel. Consumer products include telephones, telecommunications equipment and televisions. Other products include medicines, vaccines, cotton, paper, soybeans, wheat, and corn.

Peru has aggressively sought new free trade agreements with a number of its trade partners. Most notable among them was the United States in 2006, China in 2009, Japan in 2011 and the European Union in 2012.

226px-Puerto-del-callaoAs one can see there is diversification in the economy, although commodity exports still make up a substantial part of the economy. This is somewhat of a problem because it exposes the Peruvian economy to the risks of major price volatility in international markets. Trade and industry are still too centralized in Lima, the capital of Peru, but the major increase in agricultural exports have led to the development of the interior as well.

Manu National Park in the Amazon

Manu National Park in the Amazon

The expansion of the port facilities on the coast, the new superhighway connection with Brazil, and the fairly new trade agreements with major trading partners, guarantee that the expansion of trade and investment, will continue to surge forward.

Alpamayo in Huascaran National Park

Alpamayo in Huascaran National Park

The service sector of the economy comprises 43% of the total GDP followed by manufacturing at 32.3%. Extractive industries come in at 15% and taxes at 9.7%. It is a good balance for a developing economy. Tourism is also increasing its share in the economy as well. Machu Picchu and Cusco the old Inca capital being two of the most popular.

Peru offers the investor a wide choice in opportunities. The country looks favorably upon entrepreneurs in general, regardless of their origin. Taxes are still quite reasonable. Labor and real estate are generally sensible in price so foreigners looking for a new investment, should seriously look to add Peru to their international portfolio.

 

 

 

2 Comments

  1. An interesting article, with lots of facts and figures. How is Peru’s booming economy affecting the Amazon Rainforest?

    Most of the wealth is in Lima, outside of Lima there is still huge poverty. The divide between rich and poor is increasing which is worrying.

    Corruption is ingrained in society and at the very top of the political structure. For Peru to really advance, many things about the Peruvian society will need to change drastically. Education is still very low.

  2. It is the Cocaine, Stupid.
    Because of the epidemic of Meth, the US has shifted away from worrying too much about Cocaine and is focusing on back yard Meth Labs (Meth is a derivative of Ephedrine or fever medicine, where Coke derives from the Coca plant, which makes anesthesia).
    This means that this is a great time to be in the Cocaine bussiness. Perú has to launder hundreds of millions of dollars each month and they do so, by building shops, malls, restaurants, bus lines, hotels, you name it, and hiring people to look busy. Cocaine is the reason Perú is doing better than other countries in the region, based on short term success stories instead of steady growth.
    GIven time, the level of violence will explode. Now a days, compared to the violence Perú felt through the Terrorist years (the 90´s) Perú is mellow. Give it time and the Cocaine culture will show its ugly head. Other than that, Bienvenidos

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