Mar. 12, 2015


Paulo Pantigoso

Peru

Paulo Pantigoso

Managing Partner, Ernst & Young Peru

"I think the country offers macroeconomic and political stability."

BIO

Paulo Pantigoso is the Managing Partner of Ernst and Young Perú. He began his career in 1993 at Arthur Andersen, and was named the leading associate of consultancy and a member of the executive committee at Ernst and Young, a position that included responsibility for the firm’s operations in Colombia, Venezuela, Ecuador, and Peru. He is the editor of Ernst and Young’s Business and Investment Guide, which is created annually in cooperation with Peru’s Ministry of Foreign Affairs. He has been Managing Partner since 2014.

What is your economic outlook for Peru for 2015?

I think we will have a better year than 2014, especially in terms of improvement in GDP. At the beginning of 2014, we anticipated 6% GDP growth but ended up on 2.4%. One of the main reasons was the drop in commodity prices of traditional exports, which represent 75% of Peru's exports. However, I foresee a highly positive 2015, because 2014 was also a tough year for sectors such as mining, manufacturing, and fisheries. In the latter, we expect two peak moments in terms of exports throughout 2015. Peru faces the challenge of becoming more competitive and diversifying its economy and industry, and we must also become more dynamic with our traditional and non-traditional exports. In my opinion, GDP growth for 2015 will register at around 4%. That will be difficult to achieve, but tax incentives, public expenditure, and non-traditional exports can help to reach the goal. Moreover, the rapidness with which we implement such actions and strategies will drive our growth this year. Overall, I am positive for 2015 and 2016 and I anticipate fast growth in the second half of the year, despite 2016 being an electoral year. We also need to put this in context, because 2015 is a difficult year for Latin America in general, with Brazil experiencing slow growth rates and many other countries hit by scandals or low oil and commodity prices. Latin America is expected to register 1.3% growth for 2015. Oil and mineral prices will have an impact on the region's economy and their development. In this context, Peru is a leading regional copper exporter and, in two years time will become a more powerful international exporter. We are a country with vast reserves of tin, silver, zinc, and gold. Each of these metals has particular behavior trends and that has an impact on our economy. Over the past couple of years, Peru has seen high levels of investment in the mining industry and this trend will continue with projects such as Tia Maria. We will shortly start seeing the results of such investments. We expect the US to have a strong economy through 2015 and 2016, which should drive up demand again, especially for Peruvian copper. Our challenge here is to provide the volumes needed, as well to better control cash costs. On the other hand, energy costs in Peru are 50% lower than in Chile, for example, and labor costs are 20% to 40% less expensive. These are two of Peru's competitive advantages. Nevertheless, our rugged geography makes transport costs higher. Overall, we have certain efficiencies and advantages, but at the same time inefficiencies based on infrastructure and transport, which need to be tackled and improved over the next two years.

In terms of infrastructure, how would you assess the overall development of the economy?

The Association for the Promotion of National Infrastructure has calculated the infrastructure gap in the country to be approximately $87 billion. This includes all types of infrastructure, but the main problem has to do with road infrastructure. This sector has notable potential and has been labeled as a strategic one. However, we have to be more dynamic and provide investors with more advantageous conditions. Peru should be completing infrastructure projects every year at a rate of $15 billion in order to close this gap faster. However, we need to assess the capabilities of the government and the industry, bureaucracy for investors, and so on. We need to evolve to meet our potential. For example, we need to build bridges between the public and private sectors. The development of this sector will boost other strategic sectors for the country.

“I think the country offers macroeconomic and political stability."

What are the competitive advantages of Peru as an investment destination?

I think the country offers macroeconomic and political stability, and it has a favorable business environment for foreign investors. There are certain issues that need to be addressed such as bureaucracy and the licensing process. We need more outreach toward foreign investors, too, because many only get to find out about our culture and our particularities once already here.

What is Peru's potential for boosting exports?

Agriculture has huge potential. In fact, agricultural exports increased by 19% between 2013 and 2014, reaching $5 billion. For 2015, we expect them to reach $7 billion, which is on par with Chile's 2014 output. Agriculture is attractive for foreign investors as well. Peru has vast amounts of prime agricultural land all over the country that has the capacity to boost agribusiness. However, investors need to know how to be selective. I think retail and poultry are two sectors of huge potential for investment and export. Tourism also has great potential. However, I think we need to boost cooperation between the public and private sectors; there should be a national agenda, with key projects for the country realized in conjunction.

How will the Peruvian sol perform over the coming years?

It is not easy to make a solid prediction, but if pushed for an answer I would say that the sol would continue to devalue because the US economy is growing and the dollar is getting stronger. The challenge is to strike a balance between these currencies that benefits both importers and exporters. I talk about the US and the dollar, because they play a key role in our economy. In 2008, Peru had 52% of its economy dollarized. Today, this figure has decreased to 38% and the government wants to further reduce it to 33%. This renders our economy more attractive in the international arena. In general terms, think the country will become stronger with the further de-dollarization of our economy, especially it is done gradually. In my opinion, the secret for success is that changes are gradual and sensitive to economic realities.

What are your 2015 expectations for Ernest & Young?

We are the leading business services company in Peru, and we are thankful for the trust of our clients. Our challenge is to continue growing and to develop an enterprise of knowledge in the areas in which we operate; audit, consultancy, taxes, and corporate finances. We develop business guides that provide technical knowledge for those needing it. We also have teaching tools and initiatives in place with workshops, round tables, and university courses. Our aim is to be close to businessmen at the moment when they need us the most. Our growth over the past few years has been 3 to 4 times the rate of the Peruvian economy, which is our economic segment standard and in 2015 growth will continue at this level.

© The Business Year - March 2015

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