New Investment Areas Emerge in Peru

Signs of change in Lima

The Peruvian capital city Lima reveals the tell-tale signs of the country’s economic history. The elegant colonial buildings are a reminder of Lima’s status as the Pacific coast hub of Spain’s Latin American empire, while the Victorian-style buildings dotted around the city and the port – there is even a Lima Cricket Club – are a throwback to when British traders dominated Peru’s guano, alpaca and shipping industries. As for the poorly-built, drab, mid 20th century concrete apartments and office blocks, they’re the legacy of the hard times that hit Peru once the opening of the Panama Canal robbed Lima of its relevance. Finally, you have the mass of shanty towns - the result of a Communist rebellion in the 80s and 90s that caused so many Andean communities to decamp en masse to improvised homes in the capital.

But you can also see a promising future emerging from the city. Tall shiny towers bear the names of leading European and North American banks that are eager to service the country’s booming economy. Part of the city look like a giant building site – but in a good way. Buildings are growing and infrastructure is being upgraded. The city's skyline is dotted with construction cranes, while the traffic – which like most Latin American cities is pretty bad – is made worse by the extensive road works taking place.

Consumer boom

Another big change is that the streets are covered in adverts offering the type of consumer goodies - credit cards, branded clothes and holidays – that would have been out of reach of most ordinary Limeños just a decade a go. “This country has its problems”, says Miguel Cornejo, a local entrepreneur, “but it’s reached the point of no return. People have had the chance to experience consumerism and they don’t want to go back.” He makes the point that a lot of the stuff we take for granted, TVs, bank services, mobile phones, weren’t mass market goods before in Peru. Now they are and the people have a real hunger for it. Roberto Santiváñez, a local lawyer, agrees. “What’s driving the economy at the moment is not just the mineral wealth but the hunger of the people. They’ve been through some tough times over the last few decades and now they are finally being given the chance to earn, improve themselves and enjoy their money.” It’s a theme you notice all over the place. When you take a local flight the airline runs public information adverts, telling adults on their first plane journey how to pull out their flight tray or open the toilet door. It might sound condescending but it’s a great sign of a society on the way up.

The power of the informal economy

Of course live isn’t a bed of roses for everyone here. Plenty of people are living in squalid poverty, while, in places, the state is weak and struggling to deal with criminal organisations. From an economist’s point of view, Peru’s biggest problem is that so much of the economy remains informal. It’s estimated that about 50% of Peru’s economy is ‘off the books’, which hits the country’s tax revenues. Indeed at 15% of GDP, the country’s tax take is well below developed country standards – for example in the UK it’s 36%. To anyone filing their tax return that probably sounds great but it means that the government lacks the resources to tackle the country’s problems. The standard of public education, health and social care are all below what any UK reader – no matter how libertarian – would want to receive.

“What’s driving the economy at the moment is not just the mineral wealth but the hunger of the people. They’ve been through some tough times over the last few decades and now they are finally being given the chance to earn, improve themselves and enjoy their money.”…

But this informal economy is also a strength for Peru. The purchasing power of consumers in this sector is growing fast and offers interesting opportunities for retailers entering the market.

Making money from the ‘Inca super-grain’

But investing in Peru isn’t just about mining and energy. As Peru’s Minister of Foreign Trade and Tourism, Magali Silva, told LatAm INVESTOR there are other exciting areas.

Peru’s non-traditional sectors, such as agriculture and tourism, now account for 30% of total exports. Among the niche sectors that are growing fast are organic, GM-free food produce – much of which goes to the UK – and tourism. For example sales of quinoa (an incredibly protein rich, cuscus-like Andean grain with supposed super-food qualities) were up by 250% in the first quarter of 2014 compared to the same time last year. Peru’s tourism and agriculture potential is partly down to its impressive ecological and geological diversity. But it’s also going to get a structural boost from a huge transport infrastructure programme – which will make life easier for exporters – and the Pacific Alliance

You can read more on Peru in the latest edition of LatAm INVESTOR’s quarterly magazine. To download the e-version for free and sign up to receive subsequent print editions for FREE click here