The beginning of the twenty-first century represents a period of impressive economic growth for Peru, Latin America’s fifth largest country by population. Peru is a resource-rich country, and like its Latin American neighbors, it has seen dramatic growth due to increased global demand for raw materials such as copper, gold, and agricultural products. Generally, the Latin American region is expected to average about 3.5 - 4.0% growth in 2013, and Peru is on track to grow at over 6%, after previously attaining 9% growth a few years back.
Growth in the Peruvian economy is attributable to a variety of external and internal factors. Externally, global demand for raw materials, particularly in the mining sector is driving economic growth. Internally, Peru has achieved macroeconomic stability with wise fiscal spending, external debt reduction, attaining investment grade status, and running government surpluses.
Generally, Peru’s economy is geared toward international trade. Recently the country entered a free trade agreement with the United States (U.S.-Peru Trade Promotion Agreement (PTPA)), implemented in 2009. Currently, Peru and the European Union are in the last stages of executing their own free trade agreement, with recent reports indicating official implementation as early as March of 2013. Additionally, Peru has a number of other free trade agreements internationally, particularly with its Latin American neighbors as well as throughout Asia. Such agreements encourage Peru’s further economic development, allowing the country to export its abundant natural resources, as well as goods and services from its burgeoning manufacturing and service sectors.
The Peruvian economy is diverse, although driven primarily by commodity exports. Trade and industries are centered in Lima, while timber and mining (particularly of copper, gold, and zinc) are the primary industries in the country’s interior. On the coast, the fishing industry dominates, with Peru producing nearly 10% of the world's catch. As a country with diverse geographic and climactic zones, Peru is also able to export a variety of agricultural goods ranging from grapes, to potatoes, to cotton.
Peru’s openness to global trade, however, makes it susceptible to changes in the overall international economy. In 2013, slowing global demand for raw materials, particularly from China could temper growth. Conversely, if economic conditions in the United States and Europe improve, Peru and Latin America could exceed expectations.
The basic legal structure for foreign investment in Peru was formed in the 1990s with the 1993 Constitution, the Private Investment Growth law, and Investment Promotion law. Under the Peruvian Constitution, foreign investors have the same rights as Peruvian investors, including benefiting from investment incentives, such as tax exemptions. Under Article 6 of the Supreme Decree No. 162-92-EF, the Peruvian Constitution authorizes foreign investors to carry out any economic activity as long as such activities are in compliance with all constitutional precepts, laws, and treaties.
Some exceptions to Peru’s relatively free foreign investment climate include legal exclusions of foreign investment in naturally protected areas and weapons manufacturing. Additionally, Article 6 of Legislative Decree No. 757 requires that Peruvians to be the majority shareholders in companies operating in certain industries, such as media and transportation. Furthermore, under the Peruvian Constitution, foreigners cannot hold titles to mines, lands, forests, waters, or fuel or energy sources within 50 kilometers of Peru's international borders.
Generally, since the 1990s, Peru has undertaken a major decentralization campaign to spur economic growth and foreign investment. However, Peru's commercial and bankruptcy laws are difficult to enforce in the country’s judicial system, and occasionally, laws are passed to protect particular debtors.
As such, local and international arbitration institutions have developed to handle Peruvian investment and business disputes. Peru is a party to the New York Convention and has committed itself to arbitration under the World Bank’s Investment Center for Settlement of Investment Disputes (ICSID) as well as other international arbitration tribunals. Moreover, free trade agreements provide legal frameworks for foreign investment, such as PTPA with the United States. Such agreements have also improved the legal framework for protecting intellectual property rights. However, overall intellectual property rights enforcement mechanisms remain weak.
Recently, a number of legal disputes between foreign investors in the mining industry and local communities have garnered national and international attention. Peruvian President Humala recently signed into law a requirement that the government should consult with local communities before approving mining projects. In the past few years, rural communities have fought against increased mining exploration, at times requiring the President to declare states of emergency in those regions. One of the most intense fights involved Minas Conga, a gold and copper extraction project awarded to the firms Newmont (from the U.S.) and Buenaventura (from Peru). Investors in the mining industry must therefore be aware of these potential conflicts with local community governments.
Overall Peru is one of the economic success stories of the developing world, increasingly attracting foreign investment. As with all international ventures, investors should seek legal assistance in navigating Peru’s business regulations.