BIGGER & BETTER

Peru 2015 | REAL ESTATE & CONSTRUCTION | FOCUS: THE INFRASTRUCTURE GAP

The estimated investment that is required to upgrade Peru's infrastructure to meet the needs of the economy is around $80 billion—a “gap” that the government is looking to close, with big opportunities for investors.

Peru has experienced impressive development in the past decade. According to the IMF, GDP growth rate has been one of the fastest in Latin America, registering an average of 6% in the last years, compared to 3% in the region. Unfortunately, infrastructure did not grow at the same rapid pace and, nowadays, it turns out to be insufficient and could slow down Peru's development. In order to avoid this, the government aims to reduce the infrastructure gap, which ballooned to $121 billion in March 2015, with 2,083 projects. According to a report titled “Infrastructure Projects in Peru 2015-17” published by the agency Peru Top Publications, the country “is on the way to close most of the infrastructure gap with a $113 billion portfolio of projects financed jointly by the central government and local governments, in partnership with the private sector.” Of all these projects, 392 will fall into the Public-Private-Partnership scheme worth $107 billion and will be developed respectively in the provinces (60%) and Lima (40%). Furthermore, 1,527 projects are to be executed under the “Work for Taxes” mechanism summing up an investment amount of $2.14 billion, 92% of which will be concentrated in the provinces. The Work for Taxes scheme, available to any typology of company, consists of “paying” the income tax through the execution of a public work. It's worth mentioning that only 10% of the 2,083 projects have been awarded. This means that the country is offering plenty of opportunities to international investors.

To promote the government's intention of reducing the infrastructural gap and attracting foreign investors, Peru's federal procurement agency ProInversión visited several countries around the world, completing roadshows in the US, Australia, New Zealand, France, China, South Korea, Japan, Spain, and the UK

Peru has historically a strong ability to attract capital and develop investments. According to the consulting company EY (Ernst & Young), Peru is the country in all Latin America with the highest proportion of FDI on the GDP, with a level of 4,6%, being equivalent of US$9,000millions. On the second and third steps of the podium are Chile (3,4%) and Brazil (3%). Moreover, EY forecasted that private investments will exceed the $41,890 million registered in 2014 and would reach $42.7 million this year.

Alicia Bárcena, Executive Secretary at the Economic Commission for Latin America and the Caribbean (ECLAC), highlighted that “Foreign direct investment (FDI) is more cost effective in countries that concentrate natural resources. Last year, Peru was the second country in the region with more FDI as it posted a return of over 25% between 2006 and 2011 and over 15% between the period 2012 and 2013.” Also in terms of transparency and financing, Peru is preferred over other countries in the region. Investors appear unfazed by the outlook of rising interest rates and they particularly like Peru's investment plans because of the flexible financing structures and the guarantees offered by the State. In the World Bank's “Ease of doing business” ranking. Peru is at 35th position, which is the highest position among all Latin American countries, after only Colombia at 34th

Regarding international relationships, Peru had been lethargic for many years, signing only four Free Trade Agreements before 2010, specifically with Chile, Canada, Brazil and The Andean Community of Nations (Spanish, CAN). With the aim of turning Peru into an appealing destination for investments, the Ministry of Foreign Affairs signed last year four Free Trade Agreements (Portugal, Switzerland, Korea and Mexico). Peru's government is aware of the lack of infrastructure and put in place an ambicious plan for which an enormous amount of investment is needed. The situation is already improving. The World Economic Forum puts Peru in 88th place in its infrastructure ranking (it ranked 91st in 2013). Christine Lagard, Managing Director of the International Monetary Fund, said last year: “Peru's future looks promising.” Lima will host the IMF and World Bank Annual Meetings in October. This will be a tremendous opportunity for Peru to broadcast investment opportunities to investors from all around the world.