Peru is one of the most important countries in Latin America. Its diverse characteristics include a variety of climates, a vast territorial expanse, significant natural resources, people with great skills and high academic standards, and a solid economic and industrial background.
Today, Peru is considered one of the world’s leading emerging markets, with a solid recent history of economic stability based on an uninterrupted average annual growth over the past 17 years of 5.1% of its Gross Domestic Product (GDP). Likewise, it is notable for its people, who are characterized by their productivity and entrepreneurship. These factors make Peru an excellent destination for foreign investment.
From the beginning of the new millennium through 2018, Peru has achieved an impressive cumulative growth of 139% of its Gross Domestic Product (GDP) accompanied by a cumulative inflation during the same period of just 65%, the best rates of their kind in all of Latin America. In monetary terms, poverty has been reduced by half in recent years, with more Peruvians living in better conditions, with a brighter future.
Nowadays, Peru is a true economic miracle nearly 20 years after the end of its history of hyperinflation and terrorism, which have given way to the best possible conditions of stability, respect, and promotion of investment in the Region, becoming the fifth largest economy in South America – measured in purchasing power parity – after Brazil, Argentina, Colombia, and Chile. Together with this economic progress, national pride has experienced sustained growth, rooted in our knowledge that we will continue to conquer the world together as a result of our own effort. This pride also stems from the rich historical legacy that influences our flourishing awareness of Peruvian identity, manifested, for example, in our cuisine and tourist attractions. Effectively, our entrepreneurial nature, as well as the exploitation and processing of our resources are changing our cities markedly, along with our way of life, and articulating a new Peru.
This growth comes with the challenge of sustaining it, which in turn demands an increase in productivity based on improvements in educational quality, infrastructure, domestic security, productive efficiency and modernity, the reduction of bureaucracy, and the implementation of much needed reforms. Indeed, with a Gross Domestic Product (GDP) per capita measured in Purchasing Power Parity (PPP) estimated at approximately US$13,334 for 2017, Peru crosses a development threshold where it is forced to avoid falling into a group of nations inserted in the so-called “middle-income trap.” This trap occurs when the growth of GDP per capita slows considerably after a period of rapid growth (generally, when the PPP reaches between US$10,000 and US$15,000) and could be attributed to a phenomenon of complacency with the relative success achieved, causing the continuous reforms so necessary for progress to stagnate. With all of this, Peru is just beginning its “demographic bonus” period, where 65% of its population between the ages of 15 and 64 reach their highest records of production, consumption, savings, and investment. This is why it cannot fail to take advantage of this historic moment of definitive consolidation as a country making the jump from a developing economy to a developed nation. In effect, the “demographic bonus” is expected to last until 2048.
Some of the challenges and opportunities that our Peru has prioritized in order to maintain the economic stability it has achieved are as follows: the concrete challenges of eradicating poverty and extreme poverty; prioritizing investment in technological innovation; improving the quality of education; fostering private investment and infrastructure investment and positioning itself in the Region as a bustling hub of international trade, thanks to the implementation of treaties strategically signed with the world’s primary economies, which account for 89% of our exports; sustaining a powerful domestic demand; promoting productive diversification; consolidating itself as an international reference point in cuisine and tourism; improving the management of public health, domestic security, and the environment; redesigning decentralization and regionalization; implementing a revamped, efficient and committed public administration, which makes it possible to implement and execute projects and investments, and which, in turn, enables the timely development of said projects through appropriate, optimized and efficient proceedings; resolving social conflicts in a timely manner; fighting corruption; fostering social inclusion; fighting against drug trafficking and eliminating the remnants of terrorism.
The sustainable annual growth potential of Peru’s GDP is above 4.5% and if, for example, over a period of ten continuous years it maintained an annual average growth rate of 6%, counted as from 2018, it would reach a Gross Domestic Product (GDP) per capita, measured in Purchasing Power Parity (PPP) of approximately US$20,000 in 2027.
Peru is growing rapidly and, consequently, this creates new and better business opportunities.
Peru’s main import partners are China (23% of total imports), the United States (17%), Brazil (6%), Mexico (5.3%) and South Korea (5%).
Peru develops an investment promotion policy, convinced that it constitutes an important instrument that contributes to the development of the country.
It fosters a climate that favors foreign investment by providing an adequate legal framework. The country offers a vast investment opportunity in different sectors such as communications, finance, energy, services, construction, oil, transportation, industry, agriculture, commerce, mining, among others.
As an example, Peru is a big market in footwear line of products, at the same time is the leader inside South America. According the records the Peruvian market have around 70 brands and approximately 40 “branded made in Peru”.
In recent years, the footwear sector in Peru has undergone a radical change due to Asia strong market breakthrough.
On the other hand, the increase in the number of Commercial Centers in the country encourages more foreign and domestic companies to find their own store or brand areas inside department stores. In total, there are 69 shopping centers, 14.5% more than five years ago and is expected to open 14 more shopping centers between 2019 and 2021, with an investment of US$ 795 million.
Peruvians like to try new trends, they look for design and technology in their purchase, and receive a lot of influence from the American and European market, so they usually mix styles. According to National Institute of Statistics, 60% of Lima, traditional consumers, have increased their per capita expenditure on clothing and footwear.
These forecasts are linked to the growth of the Peruvian middle class and their income, which is reflected in the increase in private consumption in recent years.
Regarding the style, according to experts in the sector, in Peru there is a certain delay in the introduction of international trends since it is a country with more traditional taste, which implies that brands have to consider the possibility of developing differentiated collections adapted to the local taste, especially in women’s footwear shoes.
Indonesia has many export companies, including manufacturers and traders. The export proposal is large and not yet fully exploited.
On the other hand, the Chinese industrial market has the disadvantage that many of the exporters have been serving several Peruvian importers, this is a disadvantage because it limits the importer’s ability to have exclusive or unique details. Indonesia is still a new market for Peru, for a consumer who is looking for new options, lacks innovation and technology and who expects to have a different supplier than usually all other competitors.
The importers of the footwear category are divided between: Famous Brands such as Adidas, Nike, Skechers.
Retail points of sale, among Department Stores, Supermarkets, Stores and others.
And finally, Wholesale Importers who are dedicated to distribution, some with their own brands already developing in the Peruvian market and others marketing models with another approach either by price or novelty.
Of these 3 types of importers that the Peruvian market has, the most appropriate one must be identified in order to develop as a market.
The textile and clothing sector encompass a series of activities that includes the treatment of natural or artificial fibers, continues with the manufacture and finishing of fabrics, and ends with the manufacture of clothing and other items.
The production of textiles and clothing in Peru have shown growth in recent years and its growth in the international market has been based on competitive advantages among which we can mention the high quality and prestige of Peruvian fibers and the high level of integration of the sector throughout the production process. In addition, it is important to consider the investment of the companies of the sector in machinery and textile equipment of last generation to produce yarns and fibers. This process of modernization has allowed to increase the level of production of the companies of the sector to supply the national and foreign market and constitutes the support of the export.
The main exporter of yarn to Peru is India, it has monopolized more than 80% of the import. The main reason why the textile market consumes yarn from India is because the relation between price/quality it has globally, it is the main producer of yarn in the world and at the same time the one with the best price range in the world. In some categories of Yarn China has competitive prices but does not have the quality that this market can offer today.
India is indisputably the leader in the sector. And like Indonesia, the USA, Pakistan, Turkey, China and Vietnam struggle to sell more in the growing Peruvian market.
Unlike other product categories, the textile market is a very well-developed sector in the Latin American region. The entire region is famous for clothing, Peru manufactures for major international brands, produces, and exports worldwide.
For Indonesia, the supply of cotton yarn is presented as an opportunity because, if we look globally, the production capacity of India, China, Pakistan and the US is in decline, leaving spaces to Vietnam, Indonesia and now Uzbekistan.
In the Peruvian case, Peruvian growth is due to its ability to produce export garments for the region with micro and small businesses. If its productive capacity continues and the economic level of both the country and the region is increased, the demand for the product will be substantially increased.
More than 80% of yarn importers from Peru buy the product as raw material. In this way, the most important thing is to be competitive in the characteristics that the market requires for this category.
Indonesia’s export proposal is large, the level of quality they handle is up to the requirements of the Peruvian market, but it has not had enough presence in the country to penetrate the market in greater proportion. India has an advantage over this market due to its participation in textile fairs and organization of events focused directly on the main parties involved in this product line. It is important to identify the main companies and allow them to access the products. This product line needs a testing process, so it not only requires being within the appropriate price range but also satisfying the need at the specs level.
In this sector, the strategy involves analyzing the characteristics of Indonesian yarn together with the sales value of the product, to have a competent approach to offer to the importer companies.
It should also be noted that in Gamarra, a textile emporium, their entrepreneurs are in search of new related businesses; and one of them is the opportunity to directly import cotton yarn, limiting intermediaries and reducing their operating costs.
It is extremely important to have the physical proposal for the textile testing process. The price negotiation and the characteristics of the import process such as freight cost, load capacity, payment terms, production time, are key in this product line.
To conclude, under Peruvian legislation, foreign and local investors have the same rights over their investments, based on the principle of “national treatment”. No authority has the power to apply differentiated treatment concerning prices, exchange controls, tariffs, non-custom duties, business information, or any other feature with equivalent effects based on nationality, types of economic activity, or geographic location in the country.
No specific restrictions or requirements apply to foreign investment in most economic activities. Furthermore, they do not need prior authorization from the government. Investments that require approval are those involving weapons and/or explosives, private security and surveillance, investments in maritime or air transport, as well as those located within 50 kilometers of Peru’s borders or in natural protected areas.
Moreover, the acquisitions of shares belonging to local investors are freely permitted, both through the stock market and over the counter Foreign investment considerations operations. Investors have the right to organize and carry out their business activities in any form envisaged by the law.
The authority responsible for promoting private investment in the country is the Private Investment Promotion Agency (Proinversion). Among its main duties are the proposal and execution of the
national policy to promote private investment in infrastructure projects and public services; investor’s guidance in the stages of pre-establishment and post-establishment; the subscription of legal stability agreements and investment agreements; and foreign investment registration.
Regional governments also promote private investment projects in their territorial jurisdictions and within the framework of their functions and competencies.
Investors may enter into stability agreements with the government, either under the general
regime or specific regimes (i.e. mining and oil).
Under the general regime, investors may enter into juridical stability agreements that
guarantee the following advantages for a ten-year period:
- Stability of the income tax regime in force at the time the agreement is entered into, regarding dividends and profit distribution.
- Stability of the Peruvian government monetary policy, according to which there is a complete absence of exchange controls, foreign currency can be freely acquired or sold at whatever exchange rate the market offers, and funds can be remitted abroad without any previous authorization.
- Right of non-discrimination between foreign and local investors.
Under the mining regime, local mining companies may enter into stability agreements of guarantees and investment promotion measures that ensure the following for 10, 12, or 15 years:
- Stability of the overall tax regime.
- Stability of the overall administrative regime.
- Free disposition of funds (foreign currency) arising from export operations.
- No exchange rate discrimination.
- Free trade of products.
- Stability of special regimes for tax refunds, temporary import, etc.
Oil and gas companies may enter into stability agreements that guarantee the following for the term of the contract:
- Stability of the overall tax regime.
- Free disposition of funds (foreign currency) arising from export operations.
- Free convertibility of funds.
- Free trade of products.
Investment promotion in the Amazon
Certain tax benefits in relation to VAT and income tax have been established for taxpayers located in the area designated by the law as the ‘Amazon’, and who engage in the following activities:
- Agriculture and livestock enterprises.
- Manufacturing activities linked to the processing, transformation, and commercialization of primary products originated from the aforementioned economic activities, and in forest transformation, provided these products are produced in the area.
Special zones of development
(Special Zones for Developments – ZED) – known before as Centers of Export, Transformation, Industry, Commercialization, and Services (CETICOS)
ZED are duly delimited geographical areas with a customs primary zone status and special treatment destined for the generation of development poles through industrial, maquila, assembling, or storage activities.
The ZEDs are located in the cities of Paita (Piura), Ilo (Moquegua), and Matarani (Arequipa).
Agribusiness and agro-exporting activities may be performed within a ZED.
Agribusiness activity is primarily the transformation of agro-farming products produced in the country. Such transformation must be carried out at ZED.
Until 31 December 2042, companies engaged in industrial, maquila, or assembling activities, established or set up in the ZED are exempt from income tax, VAT, excise tax, municipal promotion tax, as well as from any other taxes, fees, contributions levied by the Central Administration, and even taxes that require express exempt regulation.
The Constitution of the Republic of Peru provides regulations that constitute essential principles to guarantee a favorable legal framework to private investments in general and to foreign investments in particular. One of its key principles is the equality in the treatment of national and foreign investments. The main regulations of the treatment of private investments are:
Legislative Decree N° 662, approval of the Legal Stability Scheme for Foreign Investments,
Legislative Scheme N° 757, approval of the Framework Law for Private Investment Growth, and
Regulations on Private Investment Guarantee Schemes, as approved by the Supreme Decree 162-92-EF.
According to these regulations, some important items for foreign investors in Peru are the following:
Basic Rights of Foreign Investors:
- Non-discriminatory treatment compared to national investors.
- Freedom of trade and industry, and export and import freedom.
- To send remittances abroad for the profit or gains, after having paid any applicable taxes.
- Guarantee to freely possess and use foreign currency.
- To use the most favorable exchange rate in the market.
- To freely re-export any capital investments.
- Unlimited access to domestic credit.
- Free hiring of technology and remittance of royalties.
- To purchase shares owned by national investors.
- To take investment insurances abroad.
- To enter into Legal Stability Agreements with the Peruvian Government, for their investments in Peru.
Foreign Investment Models:
Foreign investments can be freely made under any of the business legal forms recognized by law, and under the following models:
- Direct Foreign Investment, as contributions to social capital.
- Contributions to the development of contractual joint ventures.
- Investments in goods and property located within Peruvian territory.
- Portfolio investments.
- Intangible technology contributions.
- Any other mode of investment contributing to the development of Peru.
- Free Access to Financial Sectors
Private investments are allowed, without restrictions, in almost all financial activities, and do not require any prior authorization. Activities with restrictions to foreign investments are very few, such as air transportation, sea transportation, private security and surveillance, investments in protected natural areas and the manufacture of weapons of war.
According to the Constitution of Peru, the property right is inviolable except under exceptional circumstances, when expropriation is allowed after the payment of a fair indemnification that includes a compensation for eventual damages.
Additionally, when it comes to ownership, foreign and Peruvian entities are in the same conditions. However, foreign entities cannot purchase or own mines, land, forests, water, fuel or energy sources within 50 kilometers from international borders, with the exception of cases of public necessity that are specifically declared as such by a Supreme Decree approved by the Council of Ministers.
In accordance with the commitments made at the WTO, no mechanism of selection or performance requirement is applied or required to foreign investors.
Freedom of Organization and Performance of Activities
Every company has the right to organize and perform activities in the manner that it deems convenient. The Government has repealed any legal provisions establishing production modalities or performance rates, prohibiting the use of supplies or technology processes and, in general, intervening in the production processes of a company, with the exception of legal provisions dealing with hygiene and industrial safety, environment preservation and health.