Peru’s economic environments

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Peru’s economic
environments

Strengths:

Peru
has been one of the fastest growing Latin American economies for the past ten
years. Since 2002 the Peruvian economy has grown by an average of 6.4% per
year, a trend expected to continue with a projected GDP growth of 6.3% in 2013.
Consumption and private investment are the main driving forces of this growth.
Projections for 2013 are that investment will grow 8.3% to a value of US$33.5
billion. The Ministry of Economy and Finance (MEF) set a target of 30% growth
in public investment. As the economy has grown, poverty in Peru has steadily
decreased. In its November 2012 Peru Handbook, HSBC states that Peru is “the
third-fastest growing consumer market globally, and set to be a bigger economy
than Chile, Colombia, or even South Africa in the long term.

Weakness:

Limited
Government:The top
individual income and corporate tax rates are 30 per cent. Other taxes include
a value-added tax (VAT) and a financial transactions tax. The overall tax
burden amounts to 17 percent of gross domestic income. The leftist government
has shown a surprising commitment to prudent fiscal policies, with government
spending falling to 19 percent of GDP and public debt shrinking below 20
percent of GDP.

Opportunities:

Open market: Peru’s average tariff rate is 1.5
percent. In 2013, Peru, Mexico, Chile, and Columbia created the Pacific
Alliance free-trade area. The government restricts imports of used clothing and
vehicles. Foreign and domestic investments are treated equally under the
constitution. Credit to the private sector has increased steadily, and banking
remains stable and well capitalized. Non-performing loans represent fewer than
5 percent of total loans.

Threats:

Starting a business now takes five
procedures and slightly less than a month, and no minimum capital is required.
Licensing requirements continue to be costly and time-consuming. Employment
regulations continue to evolve, but more slowly than in other economies. The
government partially subsidizes electricity and automotive and cooking fuels,
although it reduced subsidies for gasoline in 2013.