Before Peru welcomed in its new government this summer, investor sentiment about the Peruvian economy had been soured by weak demand for mineral resources, reducing foreign investment, but President Pedro Pablo Kuczynski’s administration is determined to change that.
The American Chamber of Commerce (AmCham) in Peru is responsible for promoting trade and investment in the country, embarking on missions to the United States with SMEs that otherwise couldn’t go there, and bringing U.S companies back to Peru. The Chamber is one of Peru’s primary tools for attracting investment, but with the countrywide issue of insufficient infrastructure, Peru has to take a different approach to bring in foreign companies.
AmCham Peru’s Executive Director and CEO, Aldo Defilippi, has been leading the Chamber for almost 15 years, and has experience as a senior economist for several multilateral and private institutions. In an exclusive interview with Nearshore Americas, Defilippi explained the current advantages that Peru can bring to foreign investors, and how the country is evolving under the new government.
Nearshore Americas: In what ways has Peru been preparing itself for investment from foreign companies?
Aldo Defilippi: Peru is a country that, since the 1990s, has been significantly improving its macroeconomic indicators. Despite the change in government, we have managed to maintain macroeconomic stability. Peru has been growing despite global difficulties; inflation is very much under control, as is the fiscal deficit. For any investor, it’s very important that a country has a stable macroeconomic environment like this.
The second characteristic of the Peruvian economy is it’s openness to trade, in the sense that we have trade agreements with key trading partners. The first free trade agreement that was signed was with the U.S., but then Peru signed with Canada, the EU, China, and many other countries. Peru is also negotiating the TPP and has helped create the Pacific Alliance with Chile, Mexico and Colombia. Along with Peru, these three countries have often followed the same policies to promote free trade and free enterprise.
The Pacific Alliance is a great opportunity to trade and share common activities between the four nations, and also develop new trade relationships with other countries like Panama, Costa Rica, and others. We expect there to be common efforts in education, infrastructure, and even foreign policy, as embassies could combine their services across the member countries.
What are the main characteristics of Peru as a nation that foreign investors might benefit from?
Peru is rich in natural resources, with an industrial focus on mining, agriculture, and fishing. There are plenty of touristic resources because of the country’s history, with some great beaches in the North. The climate is very temperate in Peru, and the coast and the highlands offer completely different environments for specific types of investments. The country also has a strategic geographic location due to its positon in South America and proximity to the Pacific Ocean, and Peruvian workers are extremely hard working.
An investment in Peru that is guided toward production or to offer services can also benefit highly from the free trade agreements we have, as raw materials, technology, or capital goods could be imported, put through production, and exported to another country easily.
For U.S. or European countries, joint ventures in Peru are very attractive. Unfortunately, some resident companies that are very active in Peru are facing economic problems, so U.S. or European companies could focus on that.
What does Peru need to improve in terms of infrastructure if the country is to attract more investors?
Peru is a developing country that over the last 25 years has been trying to modernize and improve, but still lacks many things. At the same time, those things become opportunities for investors. Railroads, roads, ports, airports, communications, and any types of infrastructure require an increase in investment to improve. Even clean energy production, such as solar and wind power, could be good opportunities for investors. This is not only to satisfy the demand in Peru, but things like energy and electricity could be exported to other countries, like Chile or Ecuador.
The sanitization of our water could also be a good opportunity for investment. In the Amazon Basin there are plenty of rivers, but there are deserts on the coast, so you could also bring water from the jungle to the coast in order to increase production. There are many factors in which the increase in infrastructure could have a huge impact on increasing production, increasing export, increasing employment, and reducing poverty.
What kind of tax incentives are in place for foreign investors, and how do they contribute to the Peruvian economy?
Instead of paying taxes, a company that operates in a region of Peru could instigate a private initiative to pave a road, for example, or build a bridge. They could also join forces with other companies in the same region to provide schools or other public amenities. These projects must first be approved by the government, because somebody has to control what investment is needed, and also ensure that the valuation of their project is adequate. Sometimes, companies propose similar projects of improvements, so the government has to choose between them and decide which is best for Peru. The idea is that, since Peru needs so much infrastructure, and the companies are already in the locations, they could directly provide a service that is needed instead of paying taxes.
In terms of communications and network infrastructure, where does Peru stand at the moment, and what initiatives are industry players and the government putting in place to increase it?
In telecoms and technology, we have major operators in Peru, like Telefonica, Claro, and Huawei, but we still need more here if we are to cover the entire national territory.
Over the last 25 years, the government has been acting through concessions or privatizations. The government doesn’t operate any economic activities; the private sector operates them. The government has to invest in some public roads and public infrastructure, but in general terms, that infrastructure is put in place through concessions by the private sector. The government is trying to facilitate opportunities for all sectors, but it is the private sector companies that need to fulfil these requirements.
How is the government working with educational institutes to increase the knowledge of technology and drive innovation in the country?
The government has an institution called CONCYTEC, which is in charge of the promotion of technology and the development of talent. There are also incentives in Peru for companies to develop talent for this generation of new technologies and innovations.
During a recent message from President Pedro Pablo Kuczynski, he put a very strong emphasis on the prioritization of education. An example of this is that the minister of education in the previous government who was very successful in the improvement of quality, teachers and infra for education has kept office, and is still the minister of education despite the change of government. Continuity is a key factor in the long-term process of improving education.
In the case of Peru and countries that have difficult geographical features, it’s very important that education is available for people in the cities and also for those people in remote places. The incorporation of more people into the labor market and the consumption of goods and services market, and access to services, has generated an increased level of income for many Peruvians, so they also require more goods and services and a higher quality. The process of incorporating people in remote locations into the economy is very important for the government and will add to the stability of the democracy.