Pan Am Games Prove Peru's Progress
The Pan-American and Parapan American Games, Lima2019, showcased Peru's success stories, writes Paulo Pantigoso, Managing Partner, EY Peru. But there is plenty more to come for investors that believe in the country...
This summer elite athletes from Canada to Chile arrived in Peru as Lima hosted the Pan-American and Parapan American Games. It was the first time that we’ve held a sporting event of this size and a great opportunity to show both the world and ourselves how far we have come. We didn’t top the medals tables – although EY Peru is proud to sponsor some of Peru’s leading athletes and para athletes – but it gave us a chance to highlight some other important Peruvian victories. We have had 20 years of consecutive economic growth – one of the best records in the Americas. That steady economic growth reduced poverty, created return for investors and boosted our international profile. But we still have many important goals to achieve and there are plenty of opportunities for investors to keep Peru growing.
Investment opportunities
From our work at EY Peru helping clients across different sectors of the economy, we can see that Peru is growing solidly. However, we need growth of at least 5% per year if we are to absorb the 300,000 new Peruvians entering the workforce per annum. In recent years we have probably had a similar annual number if Venezuelans coming to Peru as well, so we really need to unblock big mining and infrastructure projects that can boost the economy.
On the mining side, it’s clear that international interest in Peru is growing. We had the largest foreign delegation in PDAC, the world’s most important mining summit, where EY presented its annual Mining and Metals Guide. There were about 500 businessmen and geologists from Peru, showcasing our country’s incredible geological endowment. Peru has delivered some of the world’s largest copper projects in recent years, while precious metals explorers are constantly finding valuable new deposits. Yet there is potential for much more. If you take the highlands for example, it represents around 20% of the total territory yet just 2% has been explored for mining. Of course, there have been some challenges with protests around mining projects and there is lots of work still to do in rural areas to ensure people in these places benefit from the industry. Britain is now the largest mining investor in Peru and Anglo American’s $5billion Quellaveco mine is the type of investment we want to attract. The company has complied with all of the national and local laws in Moquegua and also has prioritised the social welfare of the region. It has even built a local community relations team that speaks Quechua to ensure good communication.
The success of the mining industry, despite some stalled projects, is one reason why our annual exports reached $50billion in 2018. However, we will have to move fast to meet our target of $75billion by 2021, the bicentenary of Peru’s independence. Non-traditional agriculture – think asparagus, berries, avocados and grapes – has been our fastest-growing export industry over the last decade. Now we hope that aquaculture will experience a similar boom as it’s recently been granted the same tax incentives that boosted non-traditional agriculture.
Human talent
There were 153 athletes representing Peru in the Pan-American and Parapan American Games this year. And even though they didn’t receive as much financial support as opponents from places like the US or Brazil, they did us proud in the competition. Their success was a much-needed symbolic boost to our young people, showing them that Peruvian talent can compete with the rest of the world. But that’s something that we already know at EY Peru.
"We are now in our 19th year of uninterrupted democratic rule – the second-longest period in our country’s history…"
EY Peru has become a centre of excellence for certain managed services in the EY Latin America North region, which covers 13 countries. We are particularly strong in providing managed services for the financial industry, so revenue assurance and price modelling. Our work as a centre of excellence for EY countries in the region is based on Peruvian talent, which is perfectly balanced between skill and cost. EY Peru is always looking for the best talent in the market and in addition to our great local candidates we have also found some excellent international workers. We have a centre of excellence on financial integrity and fraud detection services and the practise in the US prefers us to some Asian outsourcing options, not just because of our billing rate, which is competitive, but also because of the quality of our talent and the convenience of our time zone. In the same way that our athletes will improve by testing them against the best of the rest from the Americas, our growing international client base means we encounter varied problems that encourage us to develop new solutions. So, our strengths are always growing as our people are challenging themselves daily and creating new applications and processes.
Improving business environment
Lima 2019 was a celebration of sport for the whole region but as it fades into the past, it is leaving a powerful legacy to Peru. The organising committee, Copal, demonstrated that Peru can build important infrastructure projects on time and under budget. This was mainly because of the government-to-government agreement with the UK. The G2G can’t be replicated for all of our other infrastructure projects, however, the government is now looking at how to extract the most important lessons from that success story and apply it to other strategic public works. Our infrastructure deficit is one of the most serious barriers hindering future growth, so it’s vital that we build on this success.
Another positive development that augurs well for the future has been the tax system. Peru’s version of HMRC is Sunat, which is one of the strictest tax agencies in Latin America. Last year it switched to electronic invoices and managed to increase state tax collection by 11.2% in just 12 months. The government had set a goal of reducing the fiscal deficit to 1% of GDP from 3.2% of GDP by 2021 and Sunat’s work managed to reduce the deficit to 2% of GDP in just one year, so it’s been a real success.
One area where Peru needs to improve is in bilateral tax agreements, where we are performing less well than our Pacific Alliance peers. We have just 11 countries covered in eight double tax agreements, compared to Mexico’s 65, Chile’s 26 and Colombia’s 13. One of the most important new double taxation agreements would be with the UK. At present British firms active in Peru are subject to 29.5% tax in Peru, plus another 20% in the UK. When you consider that Britain is the largest investor in Peru it’s imperative that we agree a deal. EY Peru would be happy to support a bilateral tax agreement between the UK and Peru, providing the analysis of the undoubted economic benefit this could bring to both countries.
I started this article proudly stating Peru’s 20-year economic expansion record. But there is another statistic that’s even more important. We are now in our 19th year of uninterrupted democratic rule – the second-longest period in our country’s history. Yes, there may be lots of political fallout from the ongoing corruption scandal but, if anything, the fact that nobody, not even presidents, have judicial immunity shows how Peru has become fairer. It’s no coincidence that our return to democracy coincides with our strong economic performance. Peru has investment opportunities, human talent and an improving business environment. Now we are keen to work with international investors so that we can increase our growth to 5% or 6% and maintain our winning record.