RIO DE JANEIRO, BRAZIL – FDI fell from US$8.9 billion in 2019 to US$3.1 billion in 2020. Therefore, the government is investing in technology. Peru has 12 free trade agreements with 58 countries, most recently the United Kingdom. The country launched a tourism reactivation plan and boasted an inflation rate of 5.83% in the fourth quarter of 2021.
Before the pandemic, Peru had attracted companies from across the business spectrum: Spanish energy company Repsol, the Canadian Bank of Nova Scotia through its subsidiary Scotiabank Peru, food manufacturer Nestlé through its subsidiary Nestlé Peru, automaker Toyota through its subsidiary Toyota del Perú, Chilean retail conglomerate Falabella and several domestic and foreign mining companies.
Read also: Check out our coverage on Peru
UNSTABLE POLITICS
Peru generally offers solid protections for contractual and property rights; however, Peruvian economist Hernando de Soto warns, the new government’s nationalization plans are unclear: “No one is sure if they will do it or not.”
With five presidents since 2016, Peru’s politics are unstable. President Pedro Castillo and his Peru Libre party narrowly won the June election with 50.13% of the popular vote. Still, they faced a motion of no confidence, which was only temporarily overshadowed by a 7.5 magnitude earthquake on November 28. A divided nation, Soto argues, struggles to enact groundbreaking reforms.
“The new administration’s program was based on some bold moves, one of which is to nationalize, or at least heavily intervene in, the mining sector, one of the engines of the economy,” he explains. “So there is a lot of uncertainty.”
The government also has ideas for land reform, but the actual plans are unclear, creating uncertainty for the agricultural sector. In general, the political system in Peru is highly fragmented, with party loyalties more focused on leaders than ideology or policy.
The inexperience of key players is another wild card. “Those in charge are not necessarily the ones who are capable of understanding politics and managing the government,” says Soto. “Several ministers changed in a short time, which gave the impression that there is little coherence in the plans. [Castillo] does not have the machinery to put together a coherent set of measures.”
In addition, some mining operations have reportedly threatened to close due to environmental protests, and the government has not granted some licenses due to similar concerns.
Such factors, taken together, perhaps recommend a wait-and-see approach for now. As Soto points out, “It costs nothing to watch and wait.”
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