ECONOMIC REASONS TO INVEST
 
PERUVIAN ECONOMIC FUNDAMENTALS 
 
Peru is showing an excellent economic performance. During 2008, the GDP increased by 9.8%, a rate among the highest in the world, and which ensures that the expansion of the country will be for more than 10 consecutive years. Despite the international crisis, these positive economic expectations for Peru in the coming years are based mainly on the public and private investments announcements, and to the increased confidence of foreign and domestic investors.  

During 2007, exports reached a record level of US$ 27,588 million, registering a growth of 16.3% over the previous year, after having grown by over 35% for 3 consecutive years. This reflects the growth in international demand derived from rising international prices and increasing quantities being demanded, from which the local private business sector is able to benefit.

Private investment in the country grew 24% during 2007, after having risen by 20.1% during 2006. It is expected to maintain similar rates in the coming years due to a significant increase in investor and consumer confidence in the country, reinforced by the recent qualification of the Peruvian economy as "investment grade." Thus, the flow of private investment in Peru should grow to more than US$ 20,000 million annually. Public investment will benefit from the high levels of revenue (tax revenue increased 15% during 2007 and 27.8% in 2006), which will permit an increase in financing of public works to 4% or 5% of GDP.

Other relevant characteristic of growth in Peru is that now it also builds on livelier domestic demand, stemming from growing incomes and more jobs. Sectors that stand out are construction, manufacturing and services. It is noteworthy that construction depends greatly on dynamic local investment. Other areas of strong investment growth are local manufacturing of capital goods and imports of capital goods (41% larger).  

International reserves and fiscal balance  

In 2007, Peru continued to demonstrate a solid international liquidity position, thanks to its high level of net international reserves, which reached US$ 27,686 million, a figure equivalent to seventeen months of imports. The high level of reserves also ensures Peru‘s compliance with its international obligations.

Another key element in the evaluation of the health of Peru’s economic growth lies in the government’s balance of payments, where Peru has managed to rapidly reduce its fiscal deficit. This went from an average of 2.4% of GDP during the first 3 years of this decade to registering a surplus of 2.5% of GDP in 2007. This is the result of good economic management and increased tax revenues, helped by economic growth and high international prices. It should be stressed that the Peruvian fiscal balance is one of the most solid in the region.

Price and Exchange Rate Stability

As a result of good economic management, Peru continues to have one of the lowest rates of inflation in Latin American. Its exchange rate, left free to non-speculative market forces, is also one of the most stable in Latin America.

Economic growth has been helped by the stability in exchange rates and prices that Peru has recorded for more than ten years. As a result of the strong commitment of economic authorities to the need for fiscal balance and a conservative monetary policy, Peru has achieved a permanent stability in its general price level and its exchange rate.

Peru’s currency, the nuevo sol, appreciated an average of 7.0% over the U.S. dollar in 2007. This evolution of the exchange rate is explained by the trade surplus, increased remittances from Peruvians living abroad and changes in the portfolio of institutional investors.

Peru: a country with “Investment Grade”

In April 2008, the credit risk agency Fitch Ratings granted investment grade to Peru by raising the long-term Peruvian foreign currency debt to "BBB-" from a level of "BB+" (speculative grade). This reclassification joins that previously granted in the third quarter of 2007 by the Canadian agency Dominion Bond Rating Service.

This improvement in the classification of the Peruvian debt responds to its strong economic growth, reduction of the degree of “dollarization,” improved fiscal accounts and reduction of the debt burden, as well as the accumulation of reserves as a result of a marked trade surplus.

Country Risk

The high growth of the Peruvian GDP and, in general, the capacity of the national economy to escape contagion from the various crises affecting other Latin American countries, are variables considered by the international financial market as a point in favor of Peru.

The comparison with U.S. Treasury bonds is the yardstick used by investors to approximate country risk. We can see clearly that Peruvian risk remains below the regional average and tends to lie between 1 and 2 percentage points above the rate payable by the U.S. Treasury.

KEY SECTORS

Areas such as construction (16.5% growth), commerce (12.8%) manufacturing (8.5%),mining and hydrocarbons (7.6%) stand out among the results at the close of 2008. The construction sector is showing strong growth, reflecting the increasing activity in building shopping malls, self-construction, the development of the real estate market, carrying out major infrastructure and other projects nationwide.

The commercial activity recorded an increased of 12,76%, prevailing the commerce of manufacture products (fishing, dairy products, sugar, bakery products others food products, beverages, shoes, furniture, medicaments and vanity kit, chemical products and refined products of oil); agricultural (olives, coffee, potato, mango, avocado, grapes, orange, tomato, poultry); fishing ( mackerel, hake, seafood, seaweed, and others) and mining (gold, copper, silver, zinc, tin, and lead). 

The manufacturing sector recorded an increased of 8.53%, which was mainly explained by the growth of non-primary manufacturing, which usually contains a higher value-added component and a greater impact on the generation of employment. This growth was sustained both by a prolonged increase in domestic demand and the consolidation and access to new markets abroad. The most dynamic areas were food and metal-mechanics.

GROWING EXPORTS

EXPORTING SECTORS

The exports increased 13% in 2008 and recorded a total of US$ 31,529 million, a figure 3.5 times higher than 6 years ago. The increase was made possible through a combination of factors such as acceptable international prices despite the international crisis, diversifications of exportable offers, and the Peruvian capacity to participate in the competitive international market. Moreover, the effect that had the strengthening of Sol (Peruvian currency) against of our main commercial partners currencies.

Fifty eight percent of Peruvian exports were in mining, but these include many different metals including copper, gold, molybdenum, silver, zinc, among others. To that, one must add increasing exports of hydrocarbons, of which Peru is projected to become a net exporter in a few years.

Peru is the largest producer of gold, silver, zinc, lead and tin in Latin America, and is second in copper and molybdenum, while also producing lesser-known metals. Mining exports amounted to about US$ 18,657 million during 2008, growing 8.23% over the previous year. The increase in the value of exports reflects the sustained pace in exploration, discovery, mine construction and exploitation, which permitted a continual increase in mineral production. It should be stressed that a disproportionate decline in international prices is not anticipated despite the international crisis, given the important demand from both the developed economies and from countries with large and rapidly growing population, such as Brazil, Russia, India and China (BRIC countries).

The country has also substantially increased most of its non-traditional exports, and during 2008 recorded an increased of 20% over the previous year.

The expansion of the Agribusiness sector is a clear example of non traditional exports, Peru is currently the leading exporter in the world of asparagus, organic coffee and dried paprika.

Among the many manufacturing activities in Peru, the textile and clothing sectors stand out, with over US$ 2,000 million in exports in 2008, an increase of 16.24% over the previous year. In textiles, a long and efficient chain has been formed that specializes in "full package" orders that range from agricultural activities to weaving, dyeing, knitting, and the assembly and finishing of garments.

The fishing sector also permits Peru to be highlighted as the world’s leading producer and exporter of fishmeal and oil. Fishing is one of the major economic activities in Peru, and among the sectors with the highest level of exports. Considering both traditional and non-traditional products, Peruvian fishing exports reached US$ 2,413 million in 2008.

Main exports’ destinations

Eighteen percent of Peruvian exports went to the United States, a country with which Peru has tariff preferences through the FTA recently implemented. Other important markets are the Asian bloc countries, including China and Japan, destination of 12% and 6%, respectively, of Peruvian exports.

Geographic Location

Land advantages

An extensive and mega-diverse territory

Of its 128.5 million hectares, nearly 8 million hectares have the potential for agricultural crops, 18 million r pastureland and 49 million for sustainable forest activities (in addition to 54 million hectares of natural reserves).  Peru's natural forest area, which includes trees that produce cedar and mahogany, is estimated at a little less than 80 million hectares.  Its extensive natural forests positions Peru ninth in the world and second in South America (behind Brazil).  There are also numerous glaciers, lakes, lagoons, and rivers throughout its territory.  Among them is Lake Titicaca, the highest navigable lake in the world; the White Mountain range, one of the highest ranges in the world with dozens of peaks that surpass the 6,000 mt, and the Colca and Catahuasi canyons that are among the deepest in the world. 

The Coast, a narrow strip that extends for 2,500Km alongside the Pacific Ocean, has 52 valleys that are watered by rivers that descend from the western slope of the Andes.  The coast covers only 11% of Peru's territory but accounts for more than 52% of its population.  Some of the country's main cities are located here such as Lima, the capital; Trujillo, Piura, Chiclayo, Ica and Tacna, among others.

The Peruvian Sea or the Sea of Grau in the Pacific Ocean extends along the coastline and has 200 miles of territorial sea.  Its marine richness is the result of both the Humboldt and El Nino marine currents.  The ocean is host to a variety of species of fish; its abundance makes Peru one of the leading fish producers in the world. El Callao, Paita, Chimbote, Ilo, Matarani, Pisco and Salaverry are the main ports.

The Sierra or Mountains, rich in minerals, crosses the Andean mountain range from south to north.  Its highest peak is the Nevado Huascaran with 6 786 mt above sea level.  This region extends from the coastal band to 250Km deep into land to the north and 400Km to the south.  Peru's highlands can be described as a plateau that is divided by valleys and dominated by one of the most convoluted mountain ranges in the world.  In this region, where 37% of the population is located, the Incas established their capital, Cusco.  As a result, Cusco in a main tourist attraction for both locals and foreigners.  Other important cities are Puno, Arequipa, Huancayo, Ayacucho, Huaraz, and Cajamarca.  

The rainforest is a region of forests and rivers, representing 56% of the Peruvian territory and home for 11% of the population.  This area registers a lot of rainfall during the rainy season.  This area forms part of the Amazon Basin, the largest tropical forest of the world, home for a large diversity of flora and fauna, navigable rivers, and oil and gas deposits.  Some of the country's most extensive natural reserves have been established here, making the jungle a biological reservation and one of the last green "lungs" left on the globe.  Two main cities: Iquitos and Pucallpa.

In the coast the average temperatre lies between 14º and 27º C.  The Sierra has a dry and cool climate; the average temperatures are between 9º and 18º C.  In the jungle the weather is hot and humid; the average temperatures are 25º to 28º C.

A country with an impressive geography and history

Peru is considered a mega-diverse country given that it contains 84 of the 104 "living zones" possible in the world.  Peru is ranked among the top 10 tourist destinations in the world.  It is also the country where the world's mightiest river, the Amazon, is born and where the railroad at the highest altitude in the world was built (which now operates using natural gas from Camisea).  Peru is one of the countries that have contributed the most species to feed world, with now "globalized" products like potatoes, tomatoes, the sweet potato, maize, the avocado, achiote, and many others.  It has nearly 4,400 species of native plants with known uses, emphasizing those with nutritional, medicinal, ornamental, dyeing, gynecological, gastronomical, aromatic, and cosmetic properties, among others.  And still there are numerous genetic resources to investigate and take advantage of. 

Peruvian cuisine stands out for the quality and diversity of its ingredients; while its national drink, Pisco, has won numerous international awards.

Peru was home for several cultures that astound the world today.  The Incas, Paracas, Nasca, Wari, Moche, Chimu, Tiawanaku, are among the cultures that left a mark in this country's history.  Some achievement include the biggest astronomical calendar on the Nasca plains, Incan trails that outmatch the Roman ones, aqueducts that are still used today, solar observatories; textiles that have maintained their vivid colors for more than a thousand years; small towns like the ones in Carral that were built before the Egyptian pyramids, where their inhabitants would gather in the main circular plaza and listen to music, just like the Greeks did 1,500 years later.  We are heirs of these great civilizations, the same ones that irrigated our deserts, conquered the Andes, and built remote cities in the high land of the jungle.