OFF THE ROCK, THE ROOTS OF PROSPERITY

Peru 2017 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

Despite the momentary slowdown from a dip in commodities prices, Peru remains just as promising a place to do business as any in Latin America. Diversification away from minerals, revamped special economic zones, and the narrow, unexpected victory of a Wall Street savant and committed infrastructural reformist mean that Peru looks to 2017 with bright eyes.

Ranked fourth by Bloomberg among the “best emerging countries for investment" in the world and the second-safest country to do business in Latin America, Peru has been one of the fastest-growing economies in the region in the past decade, growing an average 6.4% between 2002 and 2014. While the slowdown that year was caused by a global lull in the commodity prices on which the country heavily relies, its economic fundamentals remain strong. Supported by a sound macroeconomic policy, low inflation, highly efficient financial and labor markets, and a comparatively low exposure to fluctuations in the value of the dollar, Peru's growth should remain strong in years to come.

That being said, the pro-market policies inaugurated by Alberto Fujimori in the 1990s and continued under Alan Garcia and Ollanta Humala into the present will only bear full fruit if Peru continues to address its structural shortcomings and strengthens its national institutions, improves infrastructure, roots out corruption, widens access to health, education, and sanitation, and narrows the disparate wealth gap. A huge task, but one that Pedro Pablo Kuczynski, a former World Bank economist, Minister of Finance, and manager of the Peruvian Central Bank elected to the presidency in June, seems oddly but uniquely up to.

Corporate, start-up, and legal structures

With the exception of certain restrictions within the weaponry, security, and maritime/air transport sectors, foreign investors are treated as nationals in Peru. Once a company has registered with Proinversión (“pro-investment" in English), the government's authorized agency for foreign investment, the process for doing business in Peru is very straightforward: it registers either as a foreign-owned company (e.g. corporation, closed corporation, public corporation, or a limited liability company), a branch office, a joint venture, or find an agent or distributor with whom to work. With a legal system that protects foreign investors' interests by guaranteeing private property rights, the fulfillment of contracts, free capital transfers, and the remittance of earnings, and unrestricted access to internal and external credit, Peru is wide open for business.
Finally, those who commit to at least a two-year term and invest either USD7.5 in the mining or hydrocarbon sector or USD3.75 million in any other economic activity will be protected by the government's new “Legal Stability Agreement." This allows firms to accept non-Peruvian currencies, keeping their accounting in a foreign currency; it also provides tax stability and exemptions on income, export labor, and certain taxes; and offers non-discrimination polities for exchange rates and capital transfers.

Special Economic Zones

Though it has been promoting special economic zones for years now, in 2015 Peru consolidated part of this broader effort by designating three entities as special export, transformation, industry, marketing, and service centers. Known by their Spanish acronym as ETICOs (“ethical" in Spanish), it is based in the far northern and southern port towns of Ilo, Paita, and Matarani, its creation part of a broader strategy to diversify exports and develop a national logistics platform in peripheral parts of the country. Congress has extended the tax breaks and legal benefits given to firms that set up shop there by two decades, from 2021 to 2041. These incentives include the creation of an agro-industrial technology innovation center to design new ways of processing and marketing local products for export, such as olives and avocados, and plans to develop seawater desalination plants to help meet local agricultural irrigation needs.

All of this is part of a broader effort by the government to diversify away from mining and toward agriculture and agri-business, which has not been without success. In 2015, Peru was the largest exporter of organic coffee, the second-largest exporter of artichokes, the second-largest exporter of avocados, and the fifth-largest exporter of grapes in the world. With abundant government subsidies in these departments, the timing is perfect for those looking to export non-mining products.

Industrial Parks

Part and parcel of this effort to diversify away from minerals, the Peruvian government is also building several key industrial parks both in and outside of these ETICOs, and subsidizing firms that set up shop there. Though they will not receive the same tax breaks as the SEZs or ETICOs, their business processes and permits will receive preferentially streamlined treatment, in addition to government grants for approved ventures.