Emerging Markets – Opportunities & Threats: Peru

by Sterling J. Scott, Marketing Communications Coordinator, MHI | @mhi_sterling

Opportunities
Peru’s economy grew 8.5% and 9.1% leading up to the global financial crisis and has slowed since the beginning of the recovery. The economy grew almost 6% in 2012 and 2013 while GDP per capita grew at almost 5%. The central bank currently forecasts the economy will expand by 5.5% in 2014.

Peru’s recent economic growth has been fueled by copper, gold, and silver mining, but is slowing due to falling exports due to lower commodity prices for products such as copper and by lower-than-expected mining output.

The Peruvian government is working on a package sent to its parliament that includes plans for economic growth that call for greater investment in mining and energy,  a relaxation of environmental rules for oil and gas projects, and reduced labor overheads. The proposed package has served as a positive sign for investors and, according to Moody’s, it is projected to improve Peru’s creditworthiness. The U.S.–Peru Free Trade Agreement has has positive effects on trade and employment. Peru is negotiating entry into the Trans-Pacific Partnership with the United States, Latin American, and Southeast Asian countries. The country also has free-trade discussions planned with India and Morocco in 2014, two other emerging markets.

Threats
The greatest risks in Peru exist at the institutional level. The lack of a streamlined bureaucratic system and inefficiencies in the judiciary system complicate government and legal affairs. The government also lacks adequate protection of property rights, which may prove problematic for both domestic and foreign investors. Also, over a quarter of the population lives in poverty, which has sparked conflict over natural resources as well as pushed people into the drug trafficking trade. Peru is one of the world’s top coca and cocaine producers.

Conclusion
Peru has experienced healthy economic growth due to its strong mining and energy sectors; however, growth has also been slowed by falling exports of these natural resources. Like many countries, Peru is working to boost economic growth while also facing problems in the distribution of wealth and the social challenges that result from it.

More information on supply chain trends, recommended strategy, and innovations that drive supply chains are available in the 2014 MHI Annual Industry Report which can be downloaded at www.mhi.org.

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