Peru Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Peru is a liberal economy enjoying six consecutive years of growth as of 2008. The rate of growth for 2008 was 9.2 percent, which is one of the highest in the world. The country is the third-largest in South America, and almost all the world’s climates are represented within its territory. It is the world’s largest producer of asparagus, paprika, flour, fish oil, argent, and alpaca and vicuña cloth. The estimated gross domestic product (GDP) in 2007 was $109.069 billion. Public debt as a percentage of GDP decreased from 28 percent in 2005 to 18.4 percent in 2007, and net international reserves were $35.603 billion in April 2008. These figures reflect a stable economy, and global financial institutions classify Peru as one of the best investment options in the region, due partly to the country’s overall investment risk, which falls below the regional average. Private investment is more than $20 billion each year.

The rising disposable income of citizens and improved employment figures have boosted local demand. In turn, this demand has given rise to such dynamic sectors as manufacturing, services, and construction. The government and the private sector have recently focused on investing in construction; roads, offices, shopping centers, hotels, and new transportation terminals have been built. The spread of infrastructure has not reached many parts of the population, however.

Peruvian exports are estimated to be $27.588 billion per year. Growth stabilized at 16.3 percent in 2007 after three years of a growth rate in excess of 35 percent. Agricultural exports had an annual growth rate of 18.6 percent, with coffee, asparagus, paprika, artichokes, mangoes, grapes, and onions representing major export items. Fishing is regulated by a law that promotes aquaculture development and grants income tax reductions and other benefits. As a result, Peruvian fisheries export to 104 countries.

Mining activities put the country in first place in the region in terms of production of gold, zinc, lead, and tellurium. Important mining companies operate in Peru, including Barrick Gold Corp. (Canada), Newmont Gold (United States), Doe Run (United States), and Vale do Rio Doce (Brazil).

Foreign Investment

Peru’s Proinversion is a special governmental agency that promotes foreign direct investment. No restrictions or controls exist on payments, transactions, transfers, or repatriation of profits. Foreign investment in Peru was $15.373 billion in June 2007. Spain represented 31.5 percent of this investment, followed by the United States (18.3 percent) and the United Kingdom (17.4 percent). Foreign investors have holdings in communications (31.6 percent), mining (18.8 percent), industry (15 percent), finance (12.5 percent), and energy (10.7 percent), making sectors such as mining, textiles, fibers, and infrastructure promising avenues for investment.

According to world competitiveness scoreboards for 2008, Peru is in 35th position. Moreover, 98.3 percent of Peruvian companies are small, family-owned enterprises, most of them (77 percent) in the services and commerce sectors. These companies account for 45 percent of GDP and 88 percent of employment. Nearly 3,500 of the country’s small enterprises are involved in foreign trade; they are dynamic agents of the economy.

The special government agency that promotes Peru as a tourist destination is called Promperu. Peru is well known as a destination, thanks to Machu Picchu, the city of the Incas; the mysterious Nazca lines; and many other attractions. The diversity of the country’s geography and gastronomy attract almost 1.8 million tourists per year, and tourism provides 5.9 percent of GDP.

Peru used to have a largely centralized economy, concentrated in Lima. Lately, economic growth has expanded to cities on the coast, along with Andean cities such as Cajamarca, Huaraz, and Huancayo (mining activities), as well as Cuco (tourism). Nevertheless, the country’s rugged and varied geography presents many challenges and limits the possibility of growth for most cities in the southern Andean region. In such areas, 70 percent of the population live in poverty. As a result, two major problems need attention: (1) many Peruvians are employed in the black market by unregistered businesses with low productivity and salaries; and (2) Peru’s education level ranks among the worst in international tests such as LLECE and PISA.

A notable issue is the emerging privatization process, which has encouraged the entry of foreign banks and the introduction of new technologies. Peru has a modern banking system, with 37 percent foreign capital, 61 percent private capital, and 2 percent state capital. There is less dollarization of loans and deposits, and residents and nonresidents may hold foreign exchange accounts. The structure of banking products is changing gradually from 84.5 percent of commercial credits and 14 percent of consumer and mortgage loans (1999) to 71.5 percent and 24.3 percent (2005), respectively. Moreover, deposits show a positive trend (the highest level ever recorded), whereas past-due loans diminished from 9 percent to 2.1 percent, the lowest ratio in the past 25 years.

The Peruvian securities market is small, centered on the small stock market and the pension system. In 2006 the stock exchange was the developing world’s best-performing equities market, increasing by 188 percent. In 2007 a new financial product, the Exchange Traded Fund (ETF), was created. This basket of shares includes the most representative securities in the Peruvian stock market.

Bibliography:

Lydia Arbaiza Fermini, Economía informal y capital humano en el Perú [Informal Economy and Human Capital in Peru] (ESAN Ediciones, 2008);
Marcelo Giugale, Vicente Fretes Cibils, and John L. Newman, An Opportunity for a Different Peru: Prosperous, Equitable, and Governable (World Bank, 2007);
Catherine Guirkinger, “Understanding the Coexistence of Formal and Informal Credit Markets in Piura, Peru,” World Development (v.36/8, 2008);
Stephan Klasen and Felicitas Nowak-Lehmann, Poverty, Inequality, and Policy in Latin America (MIT Press, 2009);
Blanca Moreno-Dodson and Quentin Wodon, Public Finance for Poverty Reduction: Concepts and Case Studies from Africa and Latin America (World Bank, 2008).

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