Strong real GDP growth and the introduction of tax reforms have strengthened Peru’s public accounts. However, the country's relatively strong fiscal position is being challenged by ongoing declines in the price of copper, a key source of government revenue. Despite a deteriorating fiscal picture, Peru’s growing middle class will make consumer-related sectors, such as retail and food & drink, increasingly attractive for investors over the medium to long term.

We keep our clients informed of the latest market moves and political developments in Peru, as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 19 of Peru’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. Our aim is to keep you ahead of the curve, so you can feel confident doing business in Peru.

Country Risk

Peru Country Risk

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Core Views:

  • The Peruvian economy will recover in the coming years, driven by robust private consumption growth and a pickup in investment into infrastructure.

  • After the budget balance flipped from a surplus to a deficit for the first time since 2009 in 2014, we expect persistent shortfalls in the coming years due to lower government revenue growth.

  • The Peruvian sol will continue to weaken this year due to weak trade dynamics, but begin a modest appreciatory trend in 2016.

Major Forecast Changes:

  • No major forecast changes this quarter.

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Macroeconomic Forecasts (Peru 2013-2016)
Indicator

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Peru Operational Risk Coverage (9)

Peru Operational Risk

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BMI View: Crime in Peru poses a serious security risk to potential investors, whether in terms of crimes against property and individuals, or cyber crime. Foreigners from well-developed countries present an enticing opportunity to criminals because of their perceived wealth; however, this is normally non-violent in nature and rarely life-threatening. The Shining Path terrorist group continues to pose a risk to business activity, but its capabilities have been undermined by successful security forces operations. In addition, the country enjoys a secure international position, which means that business assets are not at risk from invasion or war. Overall, Peru scores 40.1...

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Peru Crime & Security

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Peru scores 42.1 out of 100 for Crime and Security Risk.

Crime in Peru poses a serious security risk to potential investors, whether in terms of property crime, crime committed against an individual, or cybercrime. Foreigners from well-developed countries present an enticing opportunity to criminals because of their perceived wealth, but this is normally non-violent and rarely life-threatening. The prevalence of small gangs in larger cities, such as Lima, has contributed to an uptick in 'snatch and grab' robberies, which increases the risk to expatriates. Of equal risk to foreign workers is the rise in assaults and robberies taking place in unregistered taxis that have been collecting foreigners from airports.

Burglary, of both business and residential properties, has become more frequent, occurring mostly during the day and at weekends. Freight theft is also a growing concern in Peru, particularly for mining, oil and...

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Peru Labour Market

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BMI View: Peru's labour market offers a number of attractions for investors, notably stemming from its large and urbanised population, which boasts widespread vocational skills, and the low overheads incurred from employing local workers. These factors elevate Peru above all of its South American peers, bar neighbouring Chile, as an attractive location for labour intensive industries, reflected in a regional ranking of sixth out of 42 Latin American states in the BMI Labour Market Risk Index, with a score of 60.7 out of 100. The main drawbacks include an underperforming education system which fails to produce adequate numbers of highly skilled workers, necessitating more extensive training programmes and the import of foreign workers to fill higher-level positions.

Although the country has seen growth in the number of education...

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Peru Logistics

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Peru's relatively developed logistics network is a regional outperformer in the BMI Logistics Risk Index, with an above average score of 59.2 out of 100, placing the country in 52nd place out of 170 nations globally. Within Latin America, Peru is ranked 4th out of 28 countries, behind only Panama, Chile and Mexico. An insufficient level of investment into the maintenance and development of Peru's transport networks has left the country with a low score of 46.7 out of 100 for Transport Quality, the country's worst logistics rating in BMI's index. The score places it 84 th out of 170 countries globally and 12 th out of 28 states in Latin America. However, this is likely to improve with the government planning to invest USD15bn over the next 5 years.

With the exception of the country's 8,808km of navigable waterways, Peru suffers from a substandard network of transport. The...

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Peru Trade & Investment

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Peru has a weak legal system that offers little protection for businesses and suffers from extensive bureaucracy, hindering an investor's ability to open and close a business. However Peru's strong international ties provide good trade opportunities for investors and promote the country's trade and investment score. Overall, Peru is a regional underperformer for Trade and Investment Risk in BMI's Operational Risk Index, with a score of 45.9 out of 100, which places it 16 th out of 28 countries in Latin America and 94 th out of 170 states worldwide.

Peru's weak legal environment poses the most pronounced risk to investors, which is reflected in the country's low score of 46.6 out of 100 for this indicator in our Trade and Investment Risk Index. The country's law enforcement is considered to be highly corrupt, which has led to poor protection of intellectual property and a lack of confidence in the...

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Peru Industry Coverage (19)

Agribusiness

Peru Agribusiness

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BMI View: Our outlook for Peru's agricultural sector remains positive. Export crops such as coffee and cocoa are hampered by a lack of infrastructure and investment, but there is scope for strong growth in both, particularly as Peru is becoming increasingly recognised for organic and speciality crops. The country is set to benefit from cheaper food imports owing to the lower price of grains as well as the weakness in the Argentine peso, from where it imports a great deal of its grain. Grain production growth over the coming years will hampered by this dynamic.

Agribusiness Market Value
BMI Market Value By Commodity (2011-2019)
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Autos

Peru Autos

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2014 has proved to be a challenging year for new vehicle sales within Peru. Total new vehicle sales stood at 171,729 units for the first 11 months of the year, down by 7% year-on-year (y-o-y) according to figures from the Peruvian Association of Automotive Representatives (Araper). Breaking down the headline figure, passenger car sales were down by 1%, at 126,251 units.

Commercial vehicles (CVs) saw significant falls over 2014, against a backdrop of falling demand for Peru's key commodity exports and a slowing of economic growth. Light commercial vehicle (LCV) sales were down by 19% y-o-y over 11M14, at 28,656 units; heavy commercial vehicle (HCV) sales were down by 23% y-o-y, at 14,833 units, while bus sales were down by 21% y-o-y, at 1,989 units. This made for a total CV market of 45,478 units over 11M14.

Looking forward, BMI believes there is scope for a recovery in new vehicle sales in Peru...

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Commercial Banking

Peru Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Peru Consumer Electronics

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BMI View: Our bullish medium term outlook for devices spending growth in Peru is derived from the convergence of regional declines in device prices and our in-house Country Risk team's forecast for broad based economic growth 2015-2019, which is expected to result in a marked deepening of the market. However, we caution that risks are largely weighted to the downside, with local currency depreciation against the US dollar expected to squeeze demand by eroding Peruvian consumer purchasing power in global markets and result in a slight contraction in spending in 2015 by 0.1%. This will be offset over the medium term however, with BMI forecasting consumer electronics sales to grow at a CAGR of 4.2% 2015-2019.

Headline Expenditure Projections

Computer...

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Food & Drink

Peru Food & Drink

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BMI View: We maintain a positive longer-term view of Peru's food and drink sector, which will see strong expansion rates and present a number of interesting investment opportunities over the forecast period. Growth will be driven by a strong consumer outlook, supported by improving labour market situation and favourable crediting conditions. More generally, Peru's food and drink sector will continue to benefit from country's largely youthful population and ongoing formalisation of the mass grocery retail (MGR) segment.

Headline Industry Data (local currency)

  • Food consumption growth year-on-...

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Freight Transport

Peru Freight Transport

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BMI View: The increased wealth in Peru from the continued growth of the mining sector and the wider economy will see an attendant growth in private consumption in the country as the consumer power of the growing middle class increases. Despite our forecast for a notable slowdown in headline growth, we expect private consumption will remain a relative bright spot for the economy. This will drive demand for all freight modes, however air freight will, in our view, see the greatest growth as the economy strengthens and purchasing power rises, while road will continue to dominate the mix as the delivery of imported consumer goods and internet purchases soars.

Economic growth in Peru will improve modestly in 2015, driven by a recovery in the construction sector following a sharp deceleration in 2014. However, ongoing weakness in...

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Information Technology

Peru Information Technology

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BMI View: As a result of the squeeze on Peruvian household purchasing power from expected depreciation against the US dollar in 2015, we have downgraded the IT spending growth outlook - but this has only a minor impact on our positive medium-term outlook. The relative immaturity of the Peruvian market - with low penetration of devices in the retail market and solutions in the enterprise market - means we expect robust growth across all three IT market segments. A supportive economic...

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Infrastructure

Peru Infrastructure

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BMI View: Our 2015 construction industry forecast for Peru stands at a solid 7.1% real growth on the back of a robust project pipeline, high infrastructure demand, and strong government support for infrastructure development. Peru's construction industry will grow by an average of 5.1% over the next five years, which is lower than the double-digit growth registered over the last decade but still strong by regional standards.

A USD20.5bn budget in infrastructure investment between 2011 and 2016 has prompted strong growth in Peru's construction industry as the industry reported annual average growth of 9.5% between 2011 and 2013. High value investment plans to expand Peru's infrastructure over the next few years should continue to drive strong growth; however, cracks in the business environment cannot be ignored and may erode growth potential over the medium term.

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Medical Devices

Peru Medical Devices

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BMI Industry View: Peru represents the second smallest medical device market in the Americas region and has one of the lowest rates of per capita medical device spending in the region, which indicates potential for growth. With a 2013-2018 CAGR projected at around the regional average rate, the market is expected to remain significantly smaller than neighbouring Latin American countries. Lima remains the most attractive area in the private sector, as the urban population has more disposable income to spend on medical devices. Nevertheless, the private sector has seen increasing growth in other provinces as private health insurance has risen. Public hospital modernisation will also contribute to...

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Mining

Peru Mining

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BMI View: Peru's mining sector growth will be driven by both a strong project pipeline, by both domestic and international firms, encouraged by the country's strong investment and regulatory framework for miners. However, increasing public protests regarding Peru's mining sector will delay new projects from coming online.

Peru's mining sector should see further growth over the next five years on account of its significant untapped reserves and open investment framework. Peru will still remain a significant global producer of several base and precious metals, and we expect continued diversification as miners explore and develop new deposits. Copper projects accounting for the largest proportion of new mine projects and expansions. The Peruvian government estimates that the...

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Oil & Gas

Peru Oil & Gas

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BMI View: While the Peruvian government is trying to garner investor interest in the country's upstream potential, we believe that lack of below-ground prospectivity, a history of strong environmental opposition and a highly competitive regional market will be the key factors diminishing the attractiveness of the country's oil and gas industry over the coming years.

Headline Forecasts (Peru 2013-2019)
2013 2014e...

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Petrochemicals

Peru Petrochemicals

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Peru has the potential to develop a competitive, world-class petrochemicals facility, but progress has been slow with upstream gas production likely to take years to develop, according to BMI's latest Peru Petrochemicals report.

With proven gas reserves of over 400bcm, by 2019 Peru should have the ability to extract 1.5bcm of ethane for use in petrochemicals production. This would support the production of a large-scale petrochemicals complex with competitively priced output that could compete with the US's new shale-based units.

We caution though, that there remain a number of above-ground risks, including opposition from the indigenous population, continued security concerns, and a cumbersome bureaucracy. The key sticking point is pipeline infrastructure and the ability to overcome the strong challenge posed by new US capacity, fed by low-cost ethane derived from shale gas.

...

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Pharmaceuticals & Healthcare

Peru Pharmaceuticals & Healthcare

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BMI View: A reliance on imported medicines, longstanding trade agreements with the US and EU and work to improve regional trade relations will continue to improve Peru's investment appeal in 2015 as the country's burden of chronic diseases and demand for medicines grows. A positive economic outlook for Peru in 2016 will also aid in the positive trajectory of the country's pharmaceutical and healthcare markets.

Headline Expenditure Projections

  • Pharmaceuticals: PEN4.7bn (USD1.7bn) in 2014 to PEN5.0bn (USD1.7bn) in 2015; +6.2% in local currency terms and +0.5% in US dollar terms. Forecast has been maintained from Q215 based on historic data.

  • Healthcare: PEN32.9bn (...

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Power

Peru Power

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BMI View: We maintain our positive outlook for Peru's power sector and we expect total power capacity and generation to grow by an annual average of 4.8% and 6.4% between 2015 and 2024. The energy-intensive mining sector, a sound business environment and an expanding consumer base will continue to drive economic growth in Peru - and by extension fast growth in power consumption. Growth in electricity generation will come primarily by additional...

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Real Estate

Peru Real Estate

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BMI View:  Weaker economic growth is on the cards for Peru over the next few years however we expect the commercial real estate to remain resilient and record strong growth across all three sub-sectors. Private consumption, foreign investment and infrastructure spending are all on the rise, which will help bolster demand for real estate space. Existing levels of high demand combined with staggeringly low vacancy rates represent a wealth of untapped opportunities for potential developers and investors.

Demand for office space in Lima and Arequipa, the two Peruvian cities we monitor, remains very strong with increasing levels of international investment taking place. An active development pipeline is catering to this demand with the completion of many major projects expected in 2015. There is the possibility that demand may...

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Retail

Peru Retail

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BMI View: The Peruvian retail sector looks to remain one of the most open economies for foreign investment throughout the forecast period. Moreover, larger disposable incomes and a growing middle class are driving total household spending; both trends are aiding development of the retail sector and providing increased opportunity for investment. While we expect all sub-sectors of the retail sector to experience growth between 2015 and 2019, spending on recreation and culture (already the largest sub-sector) looks set to experience the largest rate of growth.

Apart from recreation and culture, communications spending and spending on education will experience the greatest rates of growth over the forecast period. The non-essential nature of these sectors reflects the growing affluence of the Peruvian population and indicates where the greatest opportunities for investment can be found. As...

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Shipping

Peru Shipping

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BMI maintains its positive outlook on Peru's shipping and port sector. Economic growth in Peru will improve modestly in 2015, driven by a recovery in the construction sector following a sharp deceleration in 2014. However, ongoing weakness in the mining sector will ensure that headline economic growth continues to trend lower in the coming years as compared with the five-year average of 5.8%.

A recovery in the construction sector will drive stronger economic growth in Peru in 2015 relative to 2014. Real GDP growth slowed from 5.8% in 2013 to 2.4% in 2014, as growth in the construction sector decelerated from 8.9% to 1.7% over the same period. However, the main reason for weak construction activity was delays in infrastructure projects, and we expect a batch of those projects to move forward this year. This will result in modest labour market improvements, moderately strong household spending and a recovery in...

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Telecommunications

Peru Telecommunications

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BMI View : The Peruvian telecoms industry has strong potential for growth, despite the effective duopoly of Telefonica's Movistar and Telmex's Claro. The two companies took nearly 95% of the mobiles market in Q215, Telefonica leads the broadband and pay-TV sector and both offer triple-play packages rivals cannot compete with. However, with 4G auctions and Virgin Mobile, AT&T and Falabella prospectively the first MVNOs in H215, competition is set to intensify and push down prices for end users. BMI supports the view that Azteca's Fibre Optic Backbone Network, set to be completed in March 2016 will significantly boost broadband coverage, although mobile broadband will continue to...

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Water

Peru Water

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BMI View: This quarter we have substantially adjusted our water forecasts, drawing on new data and revising our future projections. Overall, we expect demand to drive investment into the water supply sector, and increased water metering to boost revenues and reduce non-payment risks to service providers. We maintain our positive outlook with regards to infrastructure developments, owing to the need for extensive sanitation developments and additional water supply requirements. However, we note that economic issues might constrain investment.

The water sector has improved dramatically over the past few years. This has largely been due to increased investment by the state and the main water companies, better connections reducing wastewater dumping, increasing revenues, better water...

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