Peru a high potential market for Swedish companies

PERU

A HIGH POTENTIAL MARKET FOR SWEDISH COMPANIES

INDEX Page 4 Prologue Eva Zetterberg

CHAPTER N째1

CHAPTER N째2

Investment Projects in Peru 2012-2020

Economic Sectors in Peru

Page 53 Introduction: Why invest in Peru?

Page 6 Introduction

Page 58 Main Investment Projects in Peru 2012-2020

Page 8 Agricultural and Livestock Page 13 Fishing Page 16 Mining and Hydrocarbons Page 26 Manufacturing Page 32 Electricity and Water Page 35 Construction Page 37 Trade Page 38 Transport and Communication Page 41 Finance and Insurance Page 43 Services provided to companies Page 44 Restaurant and Hotel Page 46 Public Services Page 47 Import Duties and other Product Taxes Page 48 Bibliography Page 51 References

Page 62 Legal Framework Page 64 Investment Incentives Page 66 Foreign Direct Investment in Peru Page 70 Problems Page 71 Recommendations Page 72 Bibliography Page 73 References

CHAPTER N째3

Peruvian Imports and Swedish Exports to Peru Page 75 Introduction Page 76 Peruvian exports and imports Page 89 Top 10 Supplying Countries and Regions (2005-2011) Page 90 Swedish exports to Peru Page 96 Peruvian Imports Regime and Peru-EU FTA Tariff benefits Page 99 Bibliography Page 100 References

Prologue Eva Zetterberg Ambassador

For several years, Peru has had a fast-growing economy, the most dynamic in South America. The average growth for the period 2002-2011, the highest in South America, was 5.8 percent. During that period, the Peruvian GDP grew from 56 billion to 177 billion dollars. Both imports and foreign investments have increased sharply. Mining, infrastructure, energy, telecommunications and the environment are just some of the most interesting sectors. This also opens an interesting business potential for Swedish companies. Sweden’s exports to Peru increased six-fold in the last decade, rising from US$ 56 million in 2001 to US$ 389 million in 2011.

Peru represents a highly refined culture where also handcrafts, design, gastronomy and tourism may in the future generate an interesting exchange with Sweden.

As part of a long-term work aimed at the future installation of major Swedish promotional capabilities in Peru, the Swedish Embassy in Santiago decided in 2012 to do basic studies on the Peruvian economy and about the business opportunities it offers to Swedish companies.

With this goal and in collaboration with CCPN – Peruvian Nordic Chamber of Commerce, we proceeded to select a young Peruvian specialist in International Business, Jorge Fernández Gates, who worked for four months with the above mentioned studies. Jorge worked under the guidance of Roberto Broschek, Commercial Officer at the Embassy of Sweden and in collaboration with Lars Andrén, Consul General of Sweden in Lima.

The reports were mainly the following: 1. Economic sectors in Peru; 2. Investment projects in Peru 20122020; 3. Peruvian imports and Swedish exports to Peru; 4. Main Swedish companies established in Peru.

It is a great pleasure for me to present here the results of the work done, which I hope will help to improve the conditions for the promotion of Swedish economic and trade interests in Peru.

As a result of these studies, we are now convinced that Sweden must increase its trade promotion capacities in Peru. For this reason, Jorge Fernández Gates has now been appointed as Commercial Officer at the Consulate General of Sweden in Lima.

Economic Sectors in Peru CHAPTER N째 1

Introduction In the past years Peru has experienced political and economic progress, which has led the Peruvian economy into a continuous and stable development. According to the International Monetary Fund (IMF), in spite of the current lacklustre global economic growth, Peru is one of the few countries, which has maintained a solid growth reaching the highest growth rates (6%) in the Latin American and the Caribbean region for 2012. Furthermore, Standard & Poor’s raised Peru’s rating outlook one more step to BBB in the same period.

This rapid growth wouldn’t have been attained if it wasn’t for the increasing Foreign Direct Investment (FDI) and the economic policy measures put in force by the last Governments. However, there are still important issues to heed, such as the informal economy rate that for 2011 represented 60.9% of GDP. The tax evasion in average, cost yearly to the Peruvian economy 3.7% of GDP. Nevertheless, the Government has launched aggressive measures to reduce these types of activities that affect directly or indirectly relevant productive sectors, such as mining, fishing, agriculture and several others.

This first chapter will focus in the description of the different economic sectors in Peru and highlight its importance to the national economy as well as their evolution, tendencies, exports & imports, producers and main problems.

According to the National Statistics Institute of Peru (INEI), the economic sectors are divided into thirteen productive sectors. These are agriculture and livestock (A&L), fishing, mining and hydrocarbons (M&H), manufacturing, electricity and water (E&W), construction, trade, transport and communication (T&C), finance and insurance (F&I), services provided to companies, hotel and restaurant (R&H), public services, other services. Although is not properly considered as a sector, Import duties and other product taxes (I&D) is taken into account as a contributor to the national production.

Contribution to the Peruvian GDP by Economic Sector: 2011 %

9.5

9.8

P. Se rv.

Ot he rS er v.

I& D

15.2

14.9

9 7.4

7.1

6.5

5.8 3.5

3.9

F& I

R& H

4.9

2

Co m p.

S. To

T& C

Tra de

Co ns t.

E& W

M &H M an uf.

Fis h.

A& L

0.5

Source: INEI

CHAPTER N° 1 / Economic Sectors in Peru

6

Basic Facts Tumbes Loreto Piura Amazonas Lambayeque Cajamarca La Libertad

San Martín

Ancash

Huánuco Pasco

Ucayali

Junín

Madre de Dios

Lima Huancavelica Ica Ayacucho

Cusco Apurimac Puno Arequipa

Republic of Peru

Moquegua Tacna

Capital City:

Lima

Main Cities:

Lima, Arequipa and Trujillo

Languages:

Spanish (Official), Quechua and Aymara (main indigenous languages)

Government:

Unitary Presidential Constitutional Republic

President:

Ollanta Humala Tasso

Area:

1,285,216 km²

Population:

30,135,875 (2012) – 74% urban, 26% rural

Literacy:

92.9% (2007) – 96.4% men; 89.4% women

GDP (PPP):

US$ 177 billion (2011)

GDP per capita

US$ 5,904 (2011)

Currency:

Nuevo Sol (PEN)

Labor Force:

18 million (2011)

Main Exports:

Copper, gold, zinc, iron, steel, mineral fuels, gas, chemicals, heavy equipment, coffee, textiles, edible fruits, fishmeal, asparagus, cotton, pharmaceutical

Main Imports:

Mineral fuels, oils, machinery, nuclear reactors, vehicles other than railway, electronic equipment, plastics, iron and steel

Main Export Partners:

China, USA, Switzerland, Canada and Japan

Main Import Partners:

USA, China, Brazil, Ecuador and Argentina CHAPTER N° 1 / Economic Sectors in Peru

7

Agriculture and Livestock The Peruvian territory has a vast biodiversity, which has facilitated a rapid development of the agricultural sector. In Peru exist 28 different types of climates, 84 life zones out of 104 worldwide and 11 eco-regions. In addition, this country is home to many different species of fauna (11% of the world’s species) and flora (8% of the world’s flora)1.

According to the Ministry of Agriculture, Peru’s territory has 128.5 million hectares (12% coast, 28% highlands and 60% rainforest) from which 7.6 million hectares have the capacity to be intended for agricultural activities, that means 6% of the whole territory.

However, only 2.5 million hectares (2% of the territory) are currently under cultivation.

The coast has 15 million hectares from which 700,000 hectares (5% of coast) are currently under cultivation. It has an average annual temperature of 19.2°C and it does not experience drastic temperature changes during day and night. Between December and April there is a lot of water due to the rainy season in the Highlands and for the rest of the year, water can be extracted either from the ground or from water reservoirs. The main products produced in this region are cotton, mangoes, lemons, asparagus, grapes, strawberries, avocados, paprika, oranges, tangerines and beans.

The Highlands have 35.9 million hectares from which 1.2 million (3% of the highlands) are under cultivation. In this region 70% of the cultivations are produced by applying rain fed systems and the rest through irrigated agriculture. The Andes have many ecosystems and their temperatures can vary depending on the zone. In some places, average annual temperature can reach 20°C, whereas in other places, it can reach 0°C. The main products are cereals, legumes, vegetables, tubers, natural dyes, tare and other.

The jungle has 77.5 million hectares from which 600,000 (0.7% of the jungle) are under cultivation. It is covered mainly by tropical forests and during a year it has an average temperature of 25°C. The main products produced in this region are coffee, cacao, camu camu and other regional fruits.

According to the Peruvian Statistics Institute (INEI in Spanish), the production of this industry had an increase of 3.78% for 2011.

That is because the agricultural and livestock sector experienced respectively an increase of 2.81% and 5.19% during that period.

Additionally, the Ministry of Agriculture, entity in charge of its regulation and supervision, expects an annual growth rate of 5% in the production until 2016.

This industry represents 7.4% (US$ 13,078 million) of Peru’s 2011 GDP (US$ 176,728 million). Nowadays, it employs 2.8 million people (31.2% of the Peruvian labor force) and over 8.1 million people (31.8% of the population) live from agricultural activities2. The sector’s share in the Peruvian exports was 10% for 2011. The following graph shows the evolution of the agricultural and livestock production during the past years3: Variation of Agriculture & Livestock Production: 2000-2011 (January - December) %

9

8.34

8 7

6.8

6

5.51

5

5.26 4.63

4 2

3.78

3.28

3

2.71

1.94

1.57

1 0 -1

-0.05

-0.01

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

CHAPTER N° 1 / Economic Sectors in Peru

8

a. Agriculture Between 2001 and 2011, the agricultural sector has had an average annual growth on GDP of 4.8%. An important factor that contributed to the positive development of this sector was the weather. For instance, in the coast, the weather conditions benefited the crops of cotton, asparagus and plantings of lemons, bananas, grapes and mangoes. In the highlands, crops maintained their production, thanks to the abundant rain that allowed a normal development of potatoes and wheat. Likewise in the rainforest, the humidity and precipitations reached suitable levels that contributed to the cultivation of coffee and cacao.

The Peruvian exports are divided into two groups: the traditional and non-traditional exports for certain sectors, such as mining, fishing and agriculture: the following chart shows the exports of the traditional agricultural products for 20114: Traditional Agricultural Exports (TAE) MAIN TRADITIONAL AGRICULTURAL EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

0901119000

Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion.

1,591.19

1701119000

Cane or beet sugar and chemically pure sucrose, in solid form.

42.77

5101110000

Wool, not carded or combed.

20.97

5201002000

Cotton, not carded or combed.

5.89

1701999000

Other cane or beet sugar

4.82 18.15

Other

TOTAL

1,683.79

% TOTAL TRADITIONAL EXPORTS 2011

4.7%

% TOTAL EXPORTS 2011

3.7%

Peruvian Traditional Agricultural Exports: 2011 3%

1% 2%

94%

Coffee

Sugar

Wool

Since 2000, the traditional agricultural exports (TAE) have been widely increasing. For 2010, the output’s growth was much bigger than previous years with a 98% raise by reaching US$ 1,570 million in exports.

The most representative good of this group is by far coffee (94% of TAE) and then in less quantity comes sugar and wool respectively with 4% and 2% of TAE.

Other

Source: SUNAT

CHAPTER N° 1 / Economic Sectors in Peru

9

Main Destinations of Peruvian Traditional Agricultural Exports: 2011 22% 27% 3%

For 2011, coffee production reached its record (300.5 thousand tons). This raise was on account of the increase of the areas intended for crops and the better prices in the foreign market. For the same period, coffee boosted its production 78.13% compared to 2010 and the main destinations for the exports were Germany, United States and Belgium.

4% 3% 16%

25%

Germany Colombia

USA

Belgium Sweden

Spain Other

Source: SUNAT

Non-Traditional Agricultural Exports (NTAE) MAIN NON-TRADITIONAL AGRICULTURAL EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

0806100000

Grapes, fresh or dried.

304.16

0709200000

Asparagus, fresh or chilled

292.93

0804400000

Avocados, fresh or dried

161.29

2005600000

Asparagus prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 20.06.

142.77

2005991000

Artichoke, prepared or preserved

127.33

0804502000

Mangoes, fresh or dried

115.53

0904201010

Fruits of the genus Capsicum or of the genus Pimenta

87.14

2005992000

Piquillo Pepper prepared or preserved

66.11

0803001200

Bananas, including plantains, fresh or dried

64.32

1801001900

Cocoa beans, whole or broken, raw or roasted.

62.79

2001909000

Vegetables, fruit, nuts and other edible parts of plants, prepared or preserved by vinegar or acetic acid.

50.74

0703100000

Onions and shallots

42.81

0805201000

Mandarins (including tangerines and satsumas); clementines, wilkings and similar citrus hybrids

40.40

Other

1,284.91

TOTAL

2,843.23

% TOTAL NON-TRADITIONAL EXPORTS 2011

28%

% TOTAL EXPORTS 2011

6.2%

CHAPTER N째 1 / Economic Sectors in Peru

10

Main Destinations of Peruvian Non-Traditional Agricultural Exports (NTAE): 2011

25%

28%

2% 3% 4% 12% 4% 7% 7%

8%

USA

Germany

Netherlands

Belgium

Spain

Colombia

Ecuador

United Kingdom

France

Other

Source: SUNAT

Over the last ten years the non-traditional agricultural exports (NTAE) have been increasing as well and by the end of 2011, exports reached US$ 2,834 million.

The products related to this group are divided into three groups: First, fresh products (38% of NTAE) which include mainly asparagus, mangoes, grapes, bananas, avocados, citrus, sweet onions, snow peas, sweet potatoes, pomegranates and figs.

Secondly, the processed products (39% of NTAE), which include processed fruits and vegetables, capsicum, frozen fruits and vegetables, dairy products, specialties, drinks, oils, prepared foods and pastry products. Finally, food grains, cacao (14% of NTAE) which are cereals and cacao products. Other types of food represent 9% of non-traditional agricultural exports5.

As for the imports for 2011, the raw material and intermediate products for agriculture reached US$ 1,187.28 million.

These rose 21.7% compared to 2010 and represented 3.15% of 2011 total Peruvian imports. In this group there are mainly primary, half-processed and processed foods for animals, as well as other natural and processed raw material for agriculture. In addition to that, capital goods for agriculture, which are mainly machinery, tools and other equipment for this sector, were US$ 116.56 million and they had 36.57% growth. However, they only represented 0.3% of 2011 Total Peruvian Imports, One of the main problems that affect the agricultural sector, especially to the small and medium size producers, is the weak presence of the State in certain regions, which means difficult access to public services such as water and electric supply. Another issue is the rural poverty, which affects the development of producers and the lack of efficiency in their production owing to the limited technological development, limited access to financial loans and the presence of informal activities in the market. Unfortunately, all these issues hinder the development of competitiveness in the sector.

The main export companies in the agricultural sector are CAMPOSOL S.A, which is the leading agro-industrial company that by the end of 2011 had US$ 142 million in exports (43% growth compared to 2010). It is the world’s largest asparagus exporter and soon it will become the first avocado producer in the planet6. ALICORP SAA is the second largest exporter with a 30% growth and US$ 130 million in exports. Then comes SOCIEDAD AGRÍCOLA VIRÚ S.A (US$ 106 million – 2011), DANPER TRUJILLO S.A.C (US$ 100 million – 2011) and GLORIA S.A (US$ 92 million – 2011). It’s worth mentioning that all of these companies are Peruvian except from DANPER TRUJILLO, which is a joint venture between Danish and Peruvian capital.

CHAPTER N° 1 / Economic Sectors in Peru

11

b. Livestock In the last four years, the livestock sector has had a very positive advance both in its production and in exports, chiefly due the increase of the chicken demand in the foreign and domestic market. On the other hand, imports for the feeding of animals, such as corn and wheat increased respectively 40% and 38%.7 The livestock sector represents 2% (US$ 3,534.56 million) of Peru’s 2011 GDP. Meanwhile, there are 280,000 people who are directly employed in this industry and more than a million people indirectly.

As maintained by the last report of the Ministry of Agriculture in October 2012, the livestock sector has had a bigger increase in its production than the agricultural industry respectively of 7.10% and 1.47%. However, as a group, livestock represents 42.3% of the entire sector’s production. The output in that sense grew in average 12% in the last five years and it is mainly intended for the domestic demand. Since Peru’s population has become in one the biggest chicken consumers in South America, the sales for 2010 exceeded US$ 1,500 million. That means an average Peruvian consumer eats annually 35 kilos of chicken.

Peruvian Livestock Production by Region

The main products are birds (chicken, turkey, and duck), sheep, fresh milk, cattle, processed chicken, chicken and quail eggs. During 2012, there was an increase in these products outputs: birds (14.11%), sheep (14.11%), fresh milk (1.8%), cattle (0.62%).

Nevertheless, during the period from January to October of 2012, there was a slight decrease in egg production (-3.37%).8 According to the Ministry of Agriculture, the main production is located primarily in the coastal regions with the following distribution:

3%

1%

9% 57%

9%

21%

Lima

La Libertad

Arequipa

Ancash

Piura

Other

Source: MINAM

The trade balance of the industry is positive with US$ 73.87 million surplus. The 2011 exports were US$ 117.351 million and these increased 26.5% compared to 2010. On the other hand, imports for 2011 were US$ 43.85 million and in the last five years the main provider has been New Zealand, which represented almost 60% of all the livestock imports.

During the past years, the investment in capital goods has improved the sector’s infrastructure and technology, by increasing substantially the domestic output. Consequently, the production system has become more efficient and in the current market, there are many different companies, which are in charge of the whole production process. These companies have taken advantage of their experience and economies of scale in order to improve their competitiveness in the national and foreign market. The main companies of this industry are AVÍCOLAS SAN FERNANDO S.A, AVINKA, EL ROCÍO SAC and AVÍCOLA REDONDOS which basically all of them are Peruvian.

CHAPTER N° 1 / Economic Sectors in Peru

12

Fishing Throughout its history, Peru has always been a country with an important fishing industry. During the 1960s, Peru turned into the world’s main producer of various qualities of fish oil and fish meal, thanks to the large-scale diversity of the Pacific Ocean and the numerous rivers that flow across the territory.

There are approximately over 90,000 people who are employed in this sector and this industry represents 0.5% (US$ 883.6 million) of 2011 GDP. The fishing sector’s production is divided into two main groups: the sea fishing and the overseas fishing.

The sea fishing is divided into two groups: the extraction for direct human consumption and for the industrial consumption. The fishing for human consumption is basically the extraction and transformation of different types of species, such as fish, molluscs, crustaceous and other species that may be can be canned, fresh or frozen. The industrial consumption is principally for fish oil and fish meal production.

The following chart shows the evolution in % of the fish production compared to the previous year: Variation of Fishing Production: 2000-2011 (January - December) % 35

30.91

30

29.73

25 20 15 10

9.25

5.71

5

3.33

0

6.89

6.96

1.45

-5 -10

-10.3

-15

-10.7

-10.8 -12.2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

The main type of fish caught is the Peruvian “anchoveta”. The production of this species has increased significantly in the last two years. For 2011, the output grew 29.73% by reaching 7 million tons and compared to 2010 production (3.3 million tons), there was a better-than-expected 110% growth . It’s worth highlighting that whereas for 2010, there were registered 134 authorized days for fishing, in 2011 there were 169 days for fishing.

CHAPTER N° 1 / Economic Sectors in Peru

13

As well as the agricultural industry, the fishing exports are divided into two groups: traditional and non-traditional exports: Traditional Fishing Exports MAIN TRADITIONAL FISHING EXPORTS Exported FOB Value 2011 US$ Million

Product

Tariff Code 2301201100

Flours, meals and pellets, of fish or of crustaceans, molluscs or other aquatic invertebrates

1,766.64

1504201000 1504209000

Fats and oils and their fractions, of fish, other than liver oils

332.83

TOTAL

2,099.47

% TOTAL TRADITIONAL EXPORTS 2011 % TOTAL EXPORTS 2011

5.91% 4.6%

Non-traditional Fishing Exports MAIN NON-TRADITIONAL FISHING EXPORTS Tariff Code

Product

Exported FOB Value 2011 US$ Million

0307490000

Other; Cuttle fish (Sepia officinalis, Rossia macrosoma, Sepiola spp.) and squid (Ommastrephes spp., Loligo spp., Nototodarus spp., Sepioteuthis spp.)

230.79

1605909000

Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved.

198.68

0307291000

Other; Scallops, including queen scallops, of the genera Pecten, Chlamys or Placopecten

135.45

0307291000

Other

486.28

TOTAL

1,051.21

% TOTAL NON-TRADITIONAL EXPORTS 2011 % TOTAL EXPORTS 2011

10.3% 2.3%

At the present time, 95% of the anchoveta production is destined to the production of fish oil and fish meal. The other two principal species caught are the squid and the Chilean jack mackerel (also known as the Inca scad). The squid is the second main production with 400,000 tons per year and it is intended for the foreign and local market.

The Chilean jack mackerel represents 250,000 tons per year and it is largely destined for the local market.10 The fish meal produced from the Peruvian anchoveta is the main activity of the industry and along with the fish oil; they represent 75% of the Peruvian fish exports. During the first bimester of 2012, the fish meal exports had increased 113.4% compared with the same period for 2010. It is expected that by the end of 2012, exports shall increase by 12.3% (US$ 1,977.9 million)11. Other products which are still important are frozen seafood (fish fillets, squid, king prawns and seashells) and canned products, especially preserved fish.

CHAPTER N째 1 / Economic Sectors in Peru

14

Regional Share of Fish Production in Peru 15%

The output of fish oil and fish meal is made approximately in 150 plants distributed along the Peruvian shore from Piura (northern region close to Ecuador’s border) to Moquegua (southern region close to Chile’s border). Nowadays, almost 50% of all the extraction and production of fish meal are made in northern Peru (between Piura and Ancash). The other 35% and 15% are produced respectively in the central (Lima and Ica) and southern regions of Peru.

35% 50%

Northern Regions

Central Regions

Southern Regions

Source: PRODUCE

The main destination of Peruvian fish exports is China that represents 58.8% of the demand. For 2012, there was a 22.6% growth in the exports, owing to the FTA which recently came into force and has boosted the bilateral trade flows. For that reason, the exports to Germany and Japan had a decrease respectively of 13.6% and 22.9%. These two markets represent nowadays 8.9% and 7.6% of the demand12.

The main problems that affect this sector are the low productive diversification, which is mainly focused in the Anchoveta and fish meal. Moreover, there is a big presence of illegal fishing in the territory which is hard to control. The funds intended for research and technology are not sufficient and there are high rates of over exploitation that menaces the fish stock and its biodiversity. The main issue that threaten the sector’s stability is the “Fenómeno del Niño”, which is a quasiperodic climate pattern that alters the sea’s temperature and affects the industry every five years13.

As for the leading companies of the sector, the Peruvian company TECNOLOGÍA DE ALIMENTOS (TASA) covers 24.8% of the exports share. In second place, comes PESQUERA DIAMANTE another Peruvian which covers 11.6%. In third place, comes CORPORACIÓN PESQUERA INCA (COPEINCA) with 11.5%. Finally, comes AUSTRAL GROUP, which belongs to the Norwegian group Austevoll Seafood ASA with 9.5%.

CHAPTER N° 1 / Economic Sectors in Peru

15

Mining and Hydrocarbons Peru is known worldwide for being a mining country and for its geological richness.

It is the world’s largest silver producer and the second largest copper producer. In Latin America, it is the largest producer of gold, zinc, tin, lead and molybdenum.

As a result of the huge offer of important suppliers and a legal framework which promotes private investment, Peru has become a very attractive country for mining investment around the world . As for national reserves, Peru has 2.762 million tons of gold, 73,536 FMT (Fine Metric Tons) of copper, 22.3 million FMT of zinc, 120.5 million kilograms of silver, 6 million tons of lead, 11 million FMT of tin and 140,000 FMT of molybdenum reserves15 16 17.

In the last years, the impact of this industry in the share of exports (59% of total exports for 2011) has been considerably increasing.

Nevertheless, the impact on GDP was reduced from 5.7% for 2010 to 4.9% (US$ 8,660 million) of 2011 GDP (US$ 176,728 million)18. This increment in the exports was a result of the raising investment in the country, the favourable macroeconomic environment and the prices in the foreign market. It’s worth highlighting that the production rate has experienced a decrease since 2009 because important mining companies are currently under enlargement process, especially copper and zinc producers. Therefore, the output is expected to increase from 2013 onwards, when these processes conclude.

The employment rate in the mining sector has been also increasing 14.4% during 2011, especially in the provinces of Junín and Ica.19 According to the Peruvian Central Bank, the growth tendency is expected to reach for the next five years 10% or 11%, as a result of the confidence of foreign investors.20 This sector is divided into two groups: metal mining and hydrocarbons, which share respectively 79.4% and 20.6% of the sector’s output.

Variation of Mining & Hydrocarbons in Physical Production: 2000-2011 (January - December) %

14 11.95

12

12.17

10

7.59 8.74

8 6

5.22

5.27

4 2.87

2.2

2

0.89

0.87 0

-0.7

-2

-0.22

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

CHAPTER N° 1 / Economic Sectors in Peru

16

a. Metal Mining The following graphs show the evolution of the main metal production of the Peruvian mining industry between 2000 and 2011:21 22 Evolution of Peruvian Copper Production: 2000-2011 1000 FMT

554

722

845

843

1036 1010

1049

1190

1269

1275

1247

1143

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

Evolution of Peruvian Gold Production: 2000-2011 TONS

133

139

158

173

173

208

203

170

179

182

162

164

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

Evolution of Peruvian Zinc Production: 2000-2011 1000 FMT

910

1057

1233

1374

1209 1203

1202

1444

1602

1509

1460

1256

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

Evolution of Peruvian Silver Production: 2000-2011 1000 FMT

2437

2571

2870

2924

3060 3193

3470

3501

3681

3854

3612

3414

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

CHAPTER N째 1 / Economic Sectors in Peru

17

Evolution of Peruvian Lead Production: 2000-2011 1000 FMT 271

290

306

309

306

319

313

330

345

302

259

230

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

Evolution of Peruvian Iron Production: 2000-2011 1000 TMT 7010 6043 4247 4565 2646

3038

3056

4785

5104

5160

4419

3485

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

Evolution of Peruvian Tin Production: 2000-2011 1000 FMT 37

38

39

40

42

42

38

39

39

38

34

29

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

Evolution of Peruvian Molybdenum Production: 2000-2011 1000 FMT 14.3 7.1

9.5

8.6

17.3

17.2

16.7

17

16.7

19.1

12.2

9.6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

CHAPTER N째 1 / Economic Sectors in Peru

18

The main copper extraction is located in the regions of Ancash, Arequipa and Moquegua. The main mining companies are ANTAMINA, which has 33.3% of 2011 production and it is a joint venture between four leading mining companies: the Anglo-Australian BHP Billiton (33.75% company’s shares), the Anglo-Swiss XTRATA (33.75% company’s shares), the Canadian TECK (22.5% company’s shares) and the Japanese MITSUBISHI Corporation (10% company’s shares). SOUTHERN PERU COPPER CORPORATION which has 25.3% share of the 2011 production belongs to a Mexican mining company.

CERRO VERDE which has 22.9% of the output, is owned by the American FCX (53.3% of company’s shares) and the Dutch SMM Cerro Verde Netherlands (21% company’s shares). Finally, the Swiss mining company XTRATA has 3.70% share of 2011 production.

Copper Production by Company: 2011

15% 33%

4%

23% 25%

Antamina

Southern

Cerro Verde

Xtrata

Other

Source: SNMPE

Gold Production by Company: 2011 As for gold production, it is chiefly located in the regions of Cajamarca and La Libertad. The leading companies are YANACOCHA that has 28.68% share and it is a joint venture between the American NEWMONT MINING CORPORATION (51.35% of company’s shares), the Peruvian mining company BUENAVENTURA (43.65% company’s shares) and other. BARRICK MISQUICHILCA is a subsidiary of the Canadian BARRICK GOLD CORPORTATION and has 16.93% share in the gold production. The Peruvian MADRE DE DIOS has 10.36%; BUENAVENTURA has 5.98% and other 38.05%.

38%

29%

17% 6% 10%

Yanacocha

Barrick

Madre de Dios Buenaventura

Other

Source: SNMPE

Zinc Production by Company: 2011 The zinc production is principally located in the regions of Ancash and Pasco. The main producers are ANTAMINA (23.07%), the Peruvian mining company MILPO (13.67%) and the Peruvian VOLCAN (11.37%).

23%

52%

14%

11%

Antamina

Milpo

Source: SNMPE

CHAPTER N° 1 / Economic Sectors in Peru

19

Volcan

Other

Silver Production by Company: 2011

13% 12%

The production of silver is mainly situated in the regions of Ancash, Lima, Pasco and Junín. The main companies in the production of silver are ANTAMINA (12.65%), BUENAVENTURA (12.11%) and VOLCAN (9.75%).

10% 65%

Antamina

Buenaventura

Volcan

Other

Source: SNMPE

Lead Production by Company: 2011 The main lead output is principally located in the region of Pasco. The two main companies which are in charge of the extraction of lead are VOLCAN (12.01%) and the Peruvian EMPRESA ADMINISTRADORA CERRO SAC (10.96%).

12% 11%

77%

Volcan

E.A. Cerro

Other

Source: SNMPE

Iron Production by Company: 2011

As for the iron production, the only region where this metal is produced is in Ica. For 2011, the only iron producer in Peru was the Chinese mining company SHOUGANG.

100%

Shougang Source: SNMPE

CHAPTER N° 1 / Economic Sectors in Peru

20

Tin Production by Company: 2011

100%

The whole tin production is only produced in the region of Puno and the only company that is in charge of its production is the Peruvian mining company MINSUR. Minsur Source: SNMPE

Molybdenum Production by Company: 2011 The production of molybdenum is mainly situated in the regions of Ancash, Tacna, Arequipa and Moquegua. The main companies in the production of molybdenum are SOUTHERN COPPER CORPORATION (46.39%) and ANTAMINA (31.96%)23. It’s worth mentioning that part of the molybdenum output made by these companies come from their copper extraction.

22%

46% 32%

Southern

Antamina

Other

Source: SNMPE

By the end of 2011, the production had a slight decrease of 0.22% because of the 3.59% contraction of the metal mining industry.

However, iron and molybdenum were the only metals that increased their output respectively 16.02% and 12.84%. This contraction was related to different reasons, such as the depletion of reserves of old mining fields and some social conflicts that delayed the execution of projects.

In spite of the less production, the high prices of mining products in the international market for 2011 made profitable the extraction of these resources. Thus, the exports value for this period rose 25.20%. These products were iron, silver, lead, gold and copper that increased respectively their export value by 96%, 86%, 54%, 30% and 21%. The main destinations were Switzerland, China, Canada and Japan.

CHAPTER N° 1 / Economic Sectors in Peru

21

MAIN TRADITIONAL MINING EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

7108120000

Gold (including gold plated with platinum) unwrought forms

2603000000

Copper ores and concentrates

7,797.12

7403110000

Refined copper : Cathodes and sections of cathodes

2,743.86

2607000000

Lead ores and concentrates

1,783.057

2608000000

Zinc ores and concentrates

1,183.17

2601110000

Iron ores and concentrates, other than roasted iron pyrites: Non-agglomerated

1,023.14

2616100000

Silver ores and concentrates

631.52

261390000

Molybdenum ores and concentrates; Other

570.92

7901110000

Zinc, not alloyed : Containing by weight 99.99 % or more of zinc (For the graph: Zinc: NA)

339.09

8001100000

Tin, not alloyed (For the graph: Tin: NA)

322.29

Other

580.53

10,052.013

TOTAL

27,026.72

% TOTAL TRADITIONAL EXPORTS 2011

76.1%

% TOTAL EXPORTS 2011

58.8%

Share of Peruvian Mining Exports: 2011 2% 4%

2%

1%

1%

2% 37%

5% 7%

10%

29%

Gold Iron

Copper Silver

Copper Cathodes

Molybdenum

Zinc: NA

Lead

Zinc Tin: NA

Source: SUNAT

CHAPTER N째 1 / Economic Sectors in Peru

22

Other

The main problems that affect the mining sector are the informal extraction of resources, which has a negative environmental impact. Likewise, the continuous protests and strikes organized by the local villagers have also delayed the executions of some projects.

In spite of the efforts of several mining companies to implement along with their projects Corporate Social Responsibility Programs, which means invest part of the company’s incomes in infrastructure (roads, schools, bridges, etc.) and in the economy of the region in order to improve the quality of life and promote a sustainable development, the controversy is far more complicated than it seems.24 In that sense, the local villagers and the mining companies have their own solid arguments for confrontation, which mostly end up in violent manifestations.

The most recent case were the protests against the US$ 1,500 million mining project Conga of the company YANACOCHA in the region of Cajamarca, where the manifestations lasted months and several people died. This sort of problems have expanded to certain parts of the territory and the negotiations between the Government and the protesters sometimes can last long periods of time without coming into a mutual agreement.

b. Hydrocarbons Since the exploration of gas started years ago, the hydrocarbons sector in the last nine years has been progressively growing.

The main two products that represent this developing sector are: liquid hydrocarbons (liquid gas & petrol) and natural gas. For 2012, the output which had the highest increase was natural gas (9.38%).

The production of liquid hydrocarbons was 152,724 barrels for 2011.25 The main extraction plants are located in the eastern regions like Cuzco, Loreto, Ucayali and Huánuco. However, there are still other important plants in the northern regions such as Piura and Tumbes.

Peru's Liquid Hydrocarbons Output: 2002 - 2011 Barrels/day 180,000.00 160,000.00

145,47

140,000.00 120,000.00 100,000.00 80,000.00

96,882

111,17 117,94 113,87

157,18 152,72

120,04

91,353 94,104

60,000.00 40,000.00 20,000.00 0.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: MINEM

Since 1980, the national production of petrol has been decreasing drastically. By 1980, Peru used to produce more than 70 million barrels per day. However, for 2000, the output reached scarcely 38 million. According to the Ministry of Energy and Mines, Peru has 582 million barrels in proven reserves and probable reserves would reach 945 million barrels. That means, by continuing the production rhythm, the proven reserves would be exhausted within 21 years and the probable reserves would share the same luck within 34 years. The annual petrol consumption in Peru for 2011 was 190,000 barrels per day. Therefore the Peruvian petrol extraction industry in the coming years does not have a promising future26. For that reason, imports for 2010 were 88,080 barrels per day. For 2011, Peru’s imported petrol represented 65% and only 35% was produced domestically.

The main problem of the sector is that crude oil must be processed in order to be consumed and local refineries do not have the infrastructure and enough technology to do this process efficiently. Therefore, they cannot satisfy the local demand, which makes Peru a more dependant country of oil imports.

CHAPTER N° 1 / Economic Sectors in Peru

23

The companies that are in charge of the liquid hydrocarbon’s production are: (PLUSPETROL NORTE is part of PLUSPETROL operating in northern Peru) % Share of companies in the Liquid Hydrocarbons Production: 2012 21%

10%

51% 18%

Pluspetrol

Pluspetrol Norte

Petrobras

Other

Source: SNMPE

The natural gas is by far the most important product of this sector. Its production has been increasing enormously during the last nine years. In 2002, the annual production was 42,736 barrels and by June, 2012 the production was 972,890 barrels27. According to the Ministry of Mining and Energy, Peru has more than 11 quintillion cubic feet in reserves.28 Furthermore, there is the capacity to satisfy the domestic demand for more than 20 years. The main regions, where the natural gas is produced, are Cuzco, Ucayali and Piura. In addition to that, the company that has the biggest share in the sector’s production is the Argentinian company PLUSPETROL (96%).

Peru's Natural Gas Output: 2002 - 2011 / Million cubic feet per day (MMCFD ) MMCFD 1,200.00

1,099

1,000.00 800.00

691.6

600.00 400.00 200.00 0.00

41.98 50.57 82.85

145.6 171.4

258.4 327.6 335.7

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SNMPE

CHAPTER N° 1 / Economic Sectors in Peru

24

% Share of Companies in the Natural Gas Production: 2012 The use of this resource continues to grow rapidly throughout Lima and Callao, The number of consumers in 2010 were 35,957 and for 2011 there were 64,069 from which 62,886 were for houses, 1,012 were for the industrial sector and 171 for natural gas stations. There are more than 122,000 vehicles which use it as a fuel and is becoming quite popular as a result of the low price.

2%

2%

Natural gas exports for 2011 were US$ 1283.5 million in other words, exports rose 352.68% compared to 2010. The main destinations were to Spain (37.8% of exports), South Korea (17.4%), Japan (17.3%) and Thailand (13.1%).

96%

Pluspetrol

Aguaytia

Other

Source: SNMPE

Share of Peruvian Hydrocarbons Exports: 2011 27%

38%

23% 12%

Natural Gas

Other olis

Petroleum oils

Other

Source: SUNAT

MAIN TRADITIONAL HYDROCARBONS EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

2711110000

Liquefied : Natural Gas

1,283.51

2710111900

Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 % or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils

1,079.88

2709000000

Petroleum oils and oils obtained from bituminous minerals, crude.

574.16

Other

1,767.51

TOTAL

4,705.06

% TOTAL TRADITIONAL EXPORTS 2011

13.24%

% TOTAL EXPORTS 2011

CHAPTER N째 1 / Economic Sectors in Peru

10.2%

25

Manufacturing According to the latest report of 2011, the sector’s share is one the most important on GDP (14.9% or US$ 26,332 million). Moreover, it represents 11% of the labor force (1´750,000) and there are approximately 3.5 million people who depend indirectly to this sector. For 2011, it represented 16% (US$ 7,360 million) of total Peruvian exports.29 Despite of the economic crisis, the manufacturing sector has recovered slowly from the less demand of foreign markets since 2010.

During 2011, the growth rate has been increasing progressively. For June, 2010, 86% of these industries had a positive raise out of 70 different industries in the sector. Nevertheless, for July 2011, the percentage decreased to 55%. The total investment in this industry for 2011 was US$ 6,797 million, particularly in industrial machinery and equipment.

Variation of Manufacturing Production: 2000-2011 (January - December) %

20 15

14.1 10.86

10

8.27 6.55

5

5.7

7.29

8.96 6.8

5.56

3.35

0 -0.26 -5 -6.93

-10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

The production in this sector is classified in 2 groups: the primary manufacturing sector and the non-primary manufacturing sector.

The non-primary manufacturing sector is divided into three groups: consumption goods, intermediate goods and capital goods.30 The primary manufacturing sector shares 23.2% while the non-primary shares 76.8% of the sector’s output as shown in the table below: Peruvian Manufacturing Sector Production %

∆ 2011/2010

Primary Manufacturing Sector

23.2%

12.30%

Non-Primary Manufacturing Sector

76.8%

4.4%

Sector

Consumption Goods

23.2%

3.6%

Intermediate Goods

76.8%

5.6%

Capital Goods

76.8%

0.9%

TOTAL

100% CHAPTER N° 1 / Economic Sectors in Peru

5.6%

26

Primary Manufacturing Sector For 2011 the product that increased more its production was processed fish meal (77.6%). Other products that increased their output were metals (5.90%), meats (5%), and sugar (3.57%). However, for the same periodo, petroleum products suffered a 4.55% decrease in their production.

Non-Primary Manufacturing Sector: Consumption Goods

For 2011, the main consumption goods produced in this sector were clothing which had 12% growth, processed fruits and vegetables (16.4% growth), newspapers and magazines (13.5% growth), healthcare products (5.7% growth), non-alcoholic drinks (7.8% growth) furniture (4.5% growth). However, for the same period, flat knit garments decreased 8.95%. As a whole, consumption goods production rose 3.6%. As well as imports for the consumption goods rose 36.6%

Intermediate Goods

The most important intermediate goods are especially related to the construction sector, such as glass (22% growth), other metallic products (14.8% growth), plastic products (4.1% growth), chemical products (15.6% growth) and parts for cars and motors (17% growth). For 2011, intermediate goods had 5.6% growth and their imports rose 18.9%.

Capital Goods

In this sector, capital goods had an important impact in the positive trend of Peru’s economy. For instance, machinery for the mining and construction sector has increased 88.3% and pumps, compressors rose 51.8%. Other products that had a significant raise were motorbikes (9.2%) and low tension panels (3%). For 2012, imports rose 25%.

Since the FTAs with China and USA recently came into force, the trade flows with these countries have increased significantly, the following charts show the share of the exports and imports of the sector.31 Share of Peruvian Manufacturing Exports by Country of Destination: 2011 15%

45%

Share of Peruvian Manufacturing Imports by Country of Origin: 2011 19%

52% 13%

18% 13%

China

Switzerland

USA

Canada

Japan

Other

Source: SUNAT

6%

9%

5%

5%

USA

China

Argentina Source: SUNAT

CHAPTER N° 1 / Economic Sectors in Peru

27

Ecuador

Other

The manufacturing sector is an industry which depends on the stability of foreign demand. Therefore, due to actual crisis, there has been a negative impact in the exports. For that reason, the trade balance of this sector was negative (US$162 million) and it was the second consecutive deficit for the period. According to the National Statistics Institute, for 2012 this sector is expected to grow 1% or even 0%.

The following charts show the exports of the main manufacturing exports for 2011 and their share in the total exports:

MAIN NON-TRADITIONAL TEXTILE EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

6109100030 6209200039

T-shirts, singlets and other vests, knitted or crocheted of cotton

6105100051 6105100052

Men's or boys' shirts, knitted or crocheted of cotton

375.44

132.73

6106100090

Women's or girls' blouses, shirts and shirt-blouses, knitted or Crocheted of cotton

56.24

5105391000

Wool and fine or coarse animal hair, carded or combed (including combed wool in fragments) of llama and alpaca

43.77

Other

1383

TOTAL

1991.18

% TOTAL NON-TRADITIONAL EXPORTS 2011

20%

% TOTAL EXPORTS 2011

4.3%

Share of Peruvian Textile Exports: 2011

19%

7%

69%

3%

2%

Cotton T-shirts

Cotton men’s shirts

Llama & Alpaca Hair

Cotton women’s blouses Other

Source: SUNAT

CHAPTER N° 1 / Economic Sectors in Peru

28

MAIN NON-TRADITIONAL CHEMICAL EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

3205000000

Colour lakes; preparations as specified in Note 3 to this Chapter based on colour lakes.

130.86

3920209000

Other plates, sheets, film, foil and strip, of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials of polymers of propylene

119.09

280701000

Sulphuric acid; oleum.

86.67

2817001000

Zinc oxide; zinc peroxide

81.83

3203002100

392302000

Colouring matter of vegetable or animal origin (including dyeing extracts but excluding animal black), whether or not chemically defined; preparations as specified in Note 3 to this Chapter based on colouring matter of vegetable or animal origin.

81.65

56.03

Carboys, bottles, flasks and similar articles Other

1096.04

TOTAL

1,652.17

% TOTAL NON-TRADITIONAL EXPORTS 2011

16.2%

% TOTAL EXPORTS 2011

4%

Share of Peruvian Chemical Exports: 2011 8% 7% 5%

66%

5% 5%

4%

Colour lakes

Other plates

Sulphuric acid

Colouring matter Carboys, bottles

Other

Source: SUNAT

CHAPTER N째 1 / Economic Sectors in Peru

Zinc oxide

29

MAIN NON-TRADITIONAL METAL MECHANIC EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

8474900000

Parts of Machinery of 84.74

20.29

8544491090

Other electric conductors of copper

19.19

7325910000

Grinding balls and similar articles for mills

18.34

8431439000

Parts for boring or sinking machinery of subheading 8430.41 or 8430.49

18.34

8431490000

Other Parts of 84.26, 84.29 and 84.30

8430490000

Other boring or sinking machinery

14 12.71

Other

382.29

TOTAL

481.97

% TOTAL NON-TRADITIONAL EXPORTS 2011

5%

% TOTAL EXPORTS 2011

1%

MAIN NON-TRADITIONAL IRON AND STEEL EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

7408110000

Wire of refined copper of which the maximum cross-sectional dimension exceeds 6 mm

297.95

790112000

Zinc, not alloyed containing by weight less than 99.99 % of zinc

199.68

8431490000

Other Parts of 84.26, 84.29 and 84.30

7407100000

Copper bars, rods and profiles of refined copper

56.87

Other

496.9

14

TOTAL

1,051.38

% TOTAL NON-TRADITIONAL EXPORTS 2011 % TOTAL EXPORTS 2011

CHAPTER N째 1 / Economic Sectors in Peru

10.3% 2.3%

30

Share of Peruvian Iron & Steel Exports: 2011 28%

19%

47% 6%

Wire of refined copper

Zinc, not alloyed

Cooper bars

Other

Source: SUNAT

MAIN NON-TRADITIONAL NON METALLIC MINING EXPORTS Tariff Code

Exported FOB Value 2011 US$ Million

Product

251010000

Natural calcium phosphates, natural aluminium calcium phosphates and phosphatic chalk.

690890000

Glazed ceramic flags and paving, hearth or wall tiles; glazed ceramic mosaic cubes and the like, whether or not on a backing.

69

270111000

Coal; briquettes, ovoids and similar solid fuels manufactured from coal.

21

236

Other

166

TOTAL

492

% TOTAL NON-TRADITIONAL EXPORTS 2011

4.8%

% TOTAL EXPORTS 2011

1.1%

REST NON-TRADITIONAL EXPORTS Exported FOB Value 2011 US$ Million

Tariff Code

Product

4409291000

Wood (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rebated, chamfered, V-jointed, beaded, moulded, rounded or the like) along any of its edges, ends or faces, whether or not planed, sanded or end-jointed.

57

491110000

Other printed matter, including printed pictures and photographs.

32

711319000

Articles of jewellery and parts thereof, of precious metal or of metal clad with precious metal.

30

Other

511

TOTAL

630

% TOTAL NON-TRADITIONAL EXPORTS 2011

6%

% TOTAL EXPORTS 2011

CHAPTER N째 1 / Economic Sectors in Peru

1.4%

31

Electricity and Water The electricity and water share respectively 78.4% and 21.6% of the sector’s production and they represent 2% (US$ 3,535 million) of 2011 GDP. According to the Ministry of Labour, for 2010 there were 2,238 and 2,240 people respectively employed in Lima in the electric and water sector.

The following chart shows the cumulative variation of both sectors during the 21st century.

Variation of Electricity and Water Production: 2000 - 2011 (January - December) %

9

8.39

8

7.85

7.69

6.89

7 6 5

5.39

4.72

4.18

4 3

7.4

4.48

5.26

3.87

2

1.19

1 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

a. Electricity In Peru the installed generation capacity comes basically from two types of energy sources: thermic and hydroelectric. By 2006, Peru had 6.7 GW of installed capacity, which 52% came from thermal and 48% from hydroelectric energy. Out of this total, 5.63 GW (84% of total capacity) is intended for the electricity market, whereas 1.03 GW (16% of total capacity) was generated for self-consumption.

Nevertheless, due to the high variable costs of thermal generation, the use of this resource has lowered. For 2011, the electrical energy production was 35217,34 GWh, which 58% came from hydraulic sources while 42% came from thermal sources.34 Furthermore, the Ministry of Energy forecasts a 7% annual increase of the electricity demand for the next six years. Hence, new plants must be built in order to satisfy the needs of future demand.

Peru had one of the lowest rural electrification rates in the region where coverage was barely 30%. For example, by 2006, 79% of the Peruvian population had access to electricity. However, this has improved gradually. For 2011, coverage rose to 92% of population on account of many projects launched by the Government to in order to improve generation and distribution .

The Government has tried to reduce the dependence of hydroelectric resource in order to generate electricity. Thus, in the last years, investment in gas generation plants has increased considerably. One of the major projects is named Camisea and it will start with its first generation plant of gas located in Tumbes with 140 MW. The main target of this project is to provide of gas to the entire territory. The gas production is going to contribute to reduce imports of other hydrocarbons such as diesel products, and increase annually the electrical generation by 9.3% by reaching 30 TWh (Terawatt hours). In addition to that, even though the actual cost of electricity in Peru is ranked in the 3rd place, as one of the highest costs in South America (US$ 110 for MWh), it is expected that these will experience a radical decrease with the progressive use of gas for electricity generation.

CHAPTER N° 1 / Economic Sectors in Peru

32

Accordingly, gas will become the most competitive source for generation and would increase the output to 6.0 GW for 2030. Moreover, from 2026 onwards, natural gas is going to have the dominant share (44% of electricity output) among the current sources like the hydroelectrical.

This sector is divided into three groups: generation, transmission and distribution: For 2006, there were 36 companies that generated electricity for the Peruvian market and four of them covered 70% of the whole market. These were EDEGEL, ELECTROPERÚ, ENERGÍA DEL SUR SA, EGENOR. ELECTROPERÚ was the leader in hydroelectric production with 32% share and EDEGEL lead the thermic production with 32% share as well. Among these companies, 31% were public and 69% were managed by private companies.

Transmission activities are managed by six companies and all of them belong to private capital. The most important companies in charge of this process are: REPSA, CONEHUANA, TRANSMANTARO, ETESELVA SRL, ISAPERU and REDESUR, which all of them are Peruvian.

For distribution, there were 22 companies in charge of this process, which represented 63% of the commercialized electricity; the other 37% of the companies that commercialized electricity were managed by generation companies. The most important companies were LUZ DEL SUR, EDELNOR, ENERSUR, EDEGEL, ELECTROPERÚ and TERMOSELVA. In terms of distributed electricity, private companies share 71% and public ones 29%.

According to the National Statistics Institute, there was a positive growth (6.16%) during 2012, due to the increase of output (13.76%) of thermic energy for the general public. However, the production of hydraulic energy for general public decreased in 0.81% as a result of the less availability of water in lakes and lagoons in the Highlands for the period of July.

For 2007, the investments in this sector were: Subsector Generation

Transmission

Private companies 260.4

29,2

% Share

90%

10%

Million US$

16.5

0

100%

0%

Million US$

73.5

66.5

% Share

52%

48%

350.5

95.7

Million US$

% Share Distribution

Total

Public companies

Million US$

Total 289.6

16.5

140.1

446.2

During 2007 and 2008, the investments shown in the table, contributed to enhance the electric generation capacity in more than 1300 MW. It has improved the service quality and the facilities for electric transmission.

Clients are divided into two groups: the regulated clients and free clients. The regulated clients are the ones who have a demand no more than 250 Kw. These clients are mostly houses and apartments. As for the free clients, they consume in average, more than 2,500 Kw and these are predominantly important mining camps and facilities for industrial and commercial activities .

In order to promote the efficient use of electricity, the Government has launched many programs, especially in the southern regions where most of the mining camps are located and large amounts of electricity are consumed. The agency in charge of this project is the DGEE (Dirección General de Eficiencia Energética), which is supported by the Ministry of Energy and Mines and together with The National Environmental Commission (CONAM), they have implemented advisory programs regarding energy saving, CSR, sustainable procedures, better ways of handling equipment etc. Currently, these programs have reduced by 800,020 tCO2 yearly the contamination as a consequence of the electricity production.

The main companies of this sector are the Peruvian company EDEGEL S.A that for the year 2010, it was the first producer of energy all around the country and has 22.34% share in the output of the sector. ELECTROPERÚ S.A is a public company which is the second largest producer of energy and it has 22.06% share. Other companies in the sector are TERMOSELVA, EGENOR, ENERSUR, SN POWER, and EGASA. The only foreign company is the Norwegian SN POWER.

CHAPTER N° 1 / Economic Sectors in Peru

33

b. Water Peru has big water resources all over its territory, such as glaciers, innumerable rivers, lakes etc. However, there are still problems in the ways of distribution, especially to the coastal regions where two thirds of the population live.

The water sector has likewise improved its infrastructure in the last 22 years. The water coverage and the sanitation coverage have increased respectively 85% and 37% for 2010. According to a research made by the World Health Organization (WHO) for 2010, water services improved 91% in urban areas and 65% in rural areas. Moreover, the sanitation service improved 81% in urban areas and 37% in rural areas. It’s worth highlighting that the urban areas represent 77% of the population and the rural areas represent 23% of the population.38 In addition to that, the program “AGUA PARA TODOS” created by the former President Alan García in 2006, improved the range of the water services remarkably.

The last reports of the National Statistics Institute showed that for 2009, 73% of the population had access to drinking water supply and 57% had access to sewerage. However, there is a development plan called PLANBICENTENARIO, which aims to provide water supply to 85% and sewerage to 79% of the population for 2012.39 According to a local survey regarding the quality of services, 64% of the respondents were satisfied with the quality of the water they received. Nevertheless, other respondents felt the water provided had bad taste, bad smell and high levels of chlorine and several other negative aspects40.

On the other hand, the 2012 production of drinking water increased 0.86% due to increase of the production of the following companies: EPS GRAU (4.47%), SEDAPAR (3.25%), EPSEL (1.80%) and SEDAPAL (0.64%).41 All these Peruvian companies are private, except from SEDAPAL which is a public company.

SEDAPAL provides water to the region of Lima and according to the entity that regulates the Water Service and Sanitation in Peru in Spanish SUNASS, this company has 90% share of the entire city’s coverage but barely covers the 16% of the wastewater treatment.42 However, for the last years there has been an inefficient management, which has brought negative consequences to final customers, like the considerable raise of services costs and therefore there have been many discussions of whether this company should be handled by private capital instead of a public entity.43

CHAPTER N° 1 / Economic Sectors in Peru

34

Construction In spite of the big economic crisis in which the world is currently passing through and has affected certain important economic sectors of Peru, the construction sector, owing to a strong domestic demand and several other reasons, has become in one of the most dynamic sectors.

The Peruvian Chamber of Construction forecasted a 17% growth for 2012 and in accordance with the last data published by the National Statistics Institute, this industry had a contribution of 6.5% (US$ 11,487 million) to 2011 GDP . For 2010, there were 3.7 million people who were employed in the sector and for 2011 the employment rate rose 2.7% with a total of 3.8 million employed.

This development has been taken with scepticism by many experts, due to the fear that this dynamism would create a real state bubble. However, according to the President of the Peruvian Reserve Central Bank (BCR) the situation of Peru does not resemble to the situations experienced by other countries before the bubble, where houses cost 25 times more than the annual rent price.

In Peru the price is in the average of 16 times the annual rent so Peru is not experiencing yet a bubble. Additionally, BCR has strengthened controls of loans and monthly reports of real estate prices, in order to prevent a possible crisis.45 Variation of Construction: 2000 - 2011 (January - December) % 20 14.83

15 10

8.76

8.72 4.79

5

17.44

16.31 16.42

6.14

4.69

3.43

0 -5

-4.82

-10

-6.39

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

This sector would not only increase in the construction of new housing complexes, but new malls, hotels, highways in different parts of the capital city and provinces. For 2008, there was an unsatisfied demand of 290,000 houses in the medium and low-income districts of Lima. However, the Government has launched a plan of US$ 2,186 million in order to stimulate the dynamism of the sector and to fulfil the on-going demand.46 This measure has encouraged foreign investors to increase their investments in Peru. Therefore, the main infrastructure projects are currently managed by Private Public Partnerships (PPP), which are becoming very popular in the last years and represent 64% of all the projects in the territory.

Another important signal of the sector’s expansion is the cement production indicator. According to the cement association, the cement production for 2012 increased 15.76% compared to 2011.

CHAPTER N° 1 / Economic Sectors in Peru

35

The accessibility to mortgage loans has been also one of the pillars to the real state dynamics. The banks and the programs created by the Government like “Fondo MIVIVIENDA” have had an important role during this process. As a result of these measures, this program will finance 40,500 houses for US$ 680 million in credit for 2013.

Furthermore, the less offer of space in the high demanded districts in Lima, such as San Isidro, Miraflores, San Borja, Santiago de Surco and La Molina has risen the prices per square meter where the highest prices can reach up to US$ 2,500/m2. For these reasons, the profits of construction companies rose 22% for 2012. On a medium-term basis, it is expected that the demand as well as the construction materials will continue to enhance by increasing the prices per square meter, which eventually these will be very close compared to the prices per square meter in Santiago de Chile and Bogotá.47 The main companies of the construction sector which are in charge of the biggest projects in Peru are the Brazilian company ODERBRECHT that had US$ 725.5 million income for 2010, the Peruvian company GYM S.A (GRAÑA Y MONTERO S.A) with US$ 564.1 million income, CONRISA S.A with US$ 400.1 million income and the Peruvian company JJC CONTRATISTAS with US$ 225 million income48. Other important companies are the Brazilian TECHINT, which for 2009 had US$ 384 million income and the American company CB&I, which for the same period had US$ 384 million income.49 A recently approved legislative measure could jeopardize the current profitability of the construction companies because from now on, these companies are no longer allowed to postpone the tax payment for three years as it occurred in the past years.

Since now on, they must do an annual payment. This will affect directly to the construction companies that have projects which have no less of one-year duration to execute them. This measure is expected to come into force in January 2013.50

CHAPTER N° 1 / Economic Sectors in Peru

36

Trade This sector in the last five years has become in one of the sectors which has had a key contribution to the national production. For 2011, the industry had the biggest share in 2011 GDP reaching 15.2% (US$ 26,863 million) chiefly due to the increasing trend of the domestic demand51. According to the Ministry of Labour, the trade sector represented 24% (1.1 million) out of all the workplaces created in Lima in 2009. In addition to that, by the end of 2011, the commercial sector had 8.82% raise owing to its three components:52 Trade Sector

∆ 2011/ 2010

Motor Vehicle Sales

10.14%

Wholesale Trade

7.68%

Retail Trade

10.34%

Source: INEI

a. Motor Vehicle Sales The sales of new motor vehicles and their related activities maintained a positive tendency for 2012. In spite of the international crisis, the sales for the first semester of 2012 rose 34.5%. For the same period of 2011, there were 67,896 units sold. However, for 2012, the units sold were 91,376 new vehicles (new sales record). The expectations regarding new vehicles sales for the end of 2012 are 200,000 units, a complete new record in sales. For the coming years, the sales will expect to raise annually 20%.53 This increase could not have been achieved, if it wasn’t for the high demand of vehicle credits provided by banks. The credits in June increased 19% which means almost US$ 90 million in credits. It’s worth mentioning that the main car brands demanded in the market are Toyota, Hyundai and Kia. The use of NGV (natural gas vehicle) is becoming more popular in the Peruvian market, because of a good marketing strategy to promote its use and the lower cost compared to petrol. Moreover, along with parts, maintenance and accessories of cars and motorbikes, the demand of these products has been increasing as well.

b. Wholesale Trade The sales that had the fastest growth were mostly construction materials and house hardware products. This is to the increase of new private and public projects in the construction sector in different parts of the territory. On the other hand, machinery, medical equipment and machineries for the mining, agricultural and telecommunications sectors have increased their demand substantially. Likewise, the wholesalers of house products, such as speakers, household products, washing machines, refrigerators, cleaning products have risen.54

c. Retail Trade The retail products have an emerging and continuous growth over the last five years. These products are mainly: computer equipment, optics, sport equipment, textile products, garments, footwear and leather goods, pharmaceutical products and cosmetics.

Peru has the lowest retail penetrations in the region (30% up to 45%). So there is still a big potential market for retailers. Therefore, as a result of the rapid expansion of department stores, malls and supermarkets around the country, the sales in these places have also contributed to the positive growth of the sector. According to the Peruvian Malls Association, for 2011, sales in the retail sector will increase 25% (US$ 4,200 million).

The main retailers are planning to invest at least US$ 1.000 million in the next three years in order to open ten more shopping centres in different parts of the country. This expansion will enhance the competition in the market which currently is mainly managed by Chilean companies, such as RIPLEY, FALABELLA and CENCOSUD.

CHAPTER N° 1 / Economic Sectors in Peru

37

Transport and Communications Peru’s location has a geographical strategic advantage, and has the capacity to become an important platform for the shipments between South America and all the countries at the other side of the Pacific. However, in spite of the rapid economic development; the investment in transportation infrastructure is still a weak point in the industry. The sector’s share in 2011 GDP is 9% (US$ 15,906 million) and for 2010 there were approximately 470,000 people employed (and 10.7% of the Lima’s labour force).

According to the Global Competitiveness Report, Peru in matters of transportation infrastructure descended from the 92nd place to the 105th place out of 142 countries. In regards to airport infrastructure, Peru is ranked in the 70th place and for highway infrastructure is ranked in the 98th place. As for telecommunications, in Peru fixed and mobile telephony are ranked respectively in the 89th and 72nd place.

a. Transport This sector is divided in 4 groups: road, water, rail and air transport55.

Road Transport

The Peruvian Road System is organized in three levels: the national roads, the regional roads and tertiary roads (urban places).

Out of 95,863 km of road all over the country, 23,076 km (24.07%) are considered national or primary roads, 25,329 km (26.42%) are regional roads and 47,458 (49.51%) are tertiary roads. By these means of transport is transported 90% of all the national cargo and 80% of the passengers.

On the other hand, for the period from January to July 2012, there has been an increase of 3.67% in the demand of road transport. This increase could not be accomplished if it was not for the new investments promoted by the Government that were around US$ 3.423 million.

There are approximately 358 companies which offer road transport services with 5,340 buses which makes in average 10 buses per company. Nevertheless, one the main problems are the informal companies. In this sector there are many companies that don’t have all the legal required permissions and sometimes their units are not in the best condition. That is the reason why the accident rate using this type of transport is one highest in South America.

In Peru the taxi service is not regulated and it is mostly informal even though the efforts of the Government to regulate it. In the Capital City does not exist an efficient transport system yet and most of the public transport contaminate the air due to the old units in the auto fleet. Consequently, most of the times, they do not offer security to the passengers. This is because in Peru there is still a lack of road safety culture and environmental protection.

Rail Transport

The rail transport is mostly controlled by private operators, especially by mining companies. The most important one belongs to the SOUTHERN COPPER CORPORATION, which has almost 80% of all the private railways in Peru. Even though the rail transport is barely used for transportation of people and mostly for cargo ready to be exported, the infrastructure and the units in this sector are tremendously old.

Most of the railways are located in the Highlands and there are few which are intended for passenger transportation. For instance, the train in Cuzco that leads directly to Machu Picchu is controlled by the company PERURAIL and by several others since 2010.

Nevertheless, in Lima a very ambitious project for urban transportation called “El trén eléctrico” or the electric train has already been finished in July 2011 and has facilitated the communication between the outskirts of Lima. The investment for this project was US$ 519.1 million.

CHAPTER N° 1 / Economic Sectors in Peru

38

Water Transport

The Peruvian port system has 134 installations in sea, rivers and lakes. In the coast, the port infrastructure is composed by eight ports for public use: Callao, Salaverry, Chimbote, San Martín, Ilo, Matarani, Paita and Arica (In Chile). There are other private ports mainly specialized in certain type of cargos such as gas, mining and agricultural products.56 Peru’s most important port is Callao; it is the 7th biggest port in South America and is in the top 100 ports in the world regarding cargo shipments. It holds almost the 70% of all the cargo in Peru and has the 90% of all the container traffic in the territory. One of the main goals is to implement a modernization plan in order to transform Callao into a high-competitive Hub and increase the trade flows with the Asian countries57.

As a result of the new US$ 707 million investment made by the consortium DP WORLD CALLAO, Callao south dock container terminal will be soon capable of mobilizing 850,000 TEU every year. Additionally, the Dutch company APM Terminals together with a strategic partner ENAPU S.A are going to build a multi-purpose terminal in Callao north dock with a US$ 749 million investment, which will allow this dock to mobilize around 2.9 million TEU per year.

In regards to the current container traffic in Peru, for 2004, there were 816,232 mobilized TEU. However, by 2010 there were 1,531,790 TEUs. In other words, due to increase of the exports of different sectors, the container traffic rose 87.7% from 2004 to 2010. Callao represented 87.9% of the national traffic.

The river transport is very popular in the jungle due to the inexistence of highways or roads in this part of Peru. For this reason, the Amazon River is widely the most important waterway in the region. However, most of the units of transportation are at least 20 year old and most of them are very unsafe. Furthermore, there is a big presence of informal companies which hampers other companies to compete.

As for the sea transport for the period January–July 2012 had an increase of 10.03%. Nevertheless, the river transport decreased 7.68% for the same period.

Aviation

The national airport system is composed by 116 active terminals, which include 23 airports (11 international airports), 75 aerodromes and 18 heliports.

The most important airport in Peru is the JORGE CHAVEZ AIRPORT; in 2001, the company LIMA AIRPORT PARTNERS received a 30-year concession. It has recently been appointed as hub in South America because approximately 19% of all the passengers who come from abroad have to make the change to other destinations. In the meantime, there is an investment plan of US$ 1,062 million in order to build another runway and improve the airport’s infrastructure.

For 2011, the 19 airports around the country mobilized 11.9 million passengers, this a significant increase (170.5%) compared with the data of 2000. Out of the 11.9 million passengers, 51.8% were national and 42.8% were international passangers.

Furthermore, for 2011, national and international flights rose respectively 13.1% and 14.1% by reaching 41 international destinations through 27 airlines compared to 2010.58

CHAPTER N° 1 / Economic Sectors in Peru

39

b. Communications This sector has developed really fast since it started and it has experienced many changes regarding new technology and procedures.

Nevertheless, the infrastructure is still a big issue that affects the sector. For instance, by September 2011, there were still 447 districts (24.4%) which did not have access to fixed telephony, 149 districts (8.1%) did not have access to internet and 208 districts (11.3%) did not have access to services of mobile telephony.

Since 2011, there are four main operators in the country, which provide telecommunications services to the Peruvian market, which are the Spanish company TELEFÓNICA MOVILES, AMÉRICA MOVIL, NEXTEL PERU and recently the Vietnamese group VIETTEL. This Asian group is planning to invest US$ 27 million in the market.59 Telecommunication Operators in Peru: 2011 4%

33%

63%

Telefónica Móviles América Móvil

Nextel Perú

Source: OSIPTEL

The communication sector is divided into three groups:

Fixed telephony

Since 2001 to 2011, the number of fixed-lines rose 91.9% which means 3,014,268 lines. In the last five years, 803 districts had access to fixed telephony. The main distribution of the services is mainly centred in the region of Lima with 63.33%.

Mobile Telephony

Due to the increasing demand and the entrance of strong competitors in the market, this sector has been real dynamic and has evolved really fast in the last years. Thanks to this evolution, the number of lines reached 30,793,558 for 2011. In other words, the penetration attained in average 103.05 mobile lines for every 100 habitants.

Internet

In the last five years there has been a significant positive raise in the demand of internet service. Nowadays, the range of internet services reaches 1685 districts that mean 91.9% of all the districts of Peru. For the period January–July 2012, there was an increase of 11.87% in the telecommunications sector.

In Peru exist fiber optic cables of 4953 km long in order to facilitate the access to the broadband. These cables are located principally along the coast and in some cities of the Highlands, such as Cajamarca, Huancayo and Puno.

The Government is planning to extend 690 km of fiber optic cables in order to improve the range and provide internet service to the regions in the jungle and the rest of the Highlands.

Furthermore, there are plans to develop Advanced International Mobile telecommunication services in the country, which means fourth generation of mobile services 4G.

CHAPTER N° 1 / Economic Sectors in Peru

40

Finance and Insurance The Peruvian finance and insurance sector in the last years has had a promising development even though the crisis that affects the world’s economy. For 2011, credits had a 17.5% increase as a result of the 24.7% growth in the mortgage credits, 20% growth in the consumption credits, 15.4% growth for corporate activities and 27.7% for the SMEs.60 The sector’s share on GDP has been progressively increasing reaching its highest level in 2011 with 3.5% (US$ 6,185 million). Moreover, there were in Lima 386,000 people employed in this sector for 2010.

a. Finance By the end of 2011, the Peruvian financial system was composed by 64 financial institutions: 15 banks, 10 finance companies, 13 CMACs (small regional finance institutions), 11 CRACS (small rural finance institutions), 10 development entities for small size enterprises, 1 factoring company and 2 companies specialized in mortgage management (EAHs). Additionally, there are plenty more entities that are not regulated by the SBS (Banks and Insurances Regulator) like NGOs which offer some type of credits as well.

By the end of 2008, the international financial crisis had a negative impact in the internal demand and the economic situation.

Hence, the credit demand lowered significantly. In spite of that, the financial system has been progressively recovering each year.

By the end of 2011, the credits portfolio rose 17.64%; this is mainly to the increase of GDP and the consecutive growth of domestic demand.61 In past years, the banking institutions have focused in the big and medium-size companies. However, due to the big competition, many institutions are trying to improve their services and become more specialized. Thus, there are banks focused in consumption credits such as MiBANCO and AZTECA BANK (Mexican bank) or banks focused in financing small-size enterprises such FINANCIERA CREDISCOTIA, FINANCIERA EDYDICAR FROM BANCO DE CRÉDITO and several others.

The credits portfolio for the financial system for the December 2011 had de the following distribution: Credit Portfolio of Peruvian Financial System: 2011 6% 12%

18%

14% 18%

15%

17%

Consumption Credits

Corporate Credits

Mortgage

Medium - Size Companies

Small - size Companies

Big - size Companies

Micro entities

Source: CLASS & ASOCIADOS S.A

In the last years, the personal banking credits such as mortgage and consumption credits represented 31% of the credit portfolio with a rapid growth rate. This is due the expansion of the national economy and the increase in medium class incomes, as a result of higher wages, better labour rates, which means a better credit capacity.62 As for deposits, they have shown a slight decrease for 2011 due to the economic situation around the world which generated risk. However, according to the last report of the National Statistics Institute; the deposits have increased 8.9%. The dollarization was stable in 2011, reaching 44.7% in the credit sector and 40.7% in the deposits.

CHAPTER N° 1 / Economic Sectors in Peru

41

According to a research regarding the 25 top banks of Latin America in 2011 made by America Economía, a specialized economic magazine, there are 4 Peruvian banks in the list: in 5th place BANCO CONTINENTAL, 7th INTERBANK, 10th BANCO DE CRÉDITO and SCOTIABANK PERU. In addition to that, as a result of the huge potential of the Peruvian market, big important banks have already announced their entrance to the Peruvian market like the Industrial and Commercial Bank of China (ISBC), the Brazilian BANCO ITAU (1st place as stated by the mentioned research). Several other banks like BANCOLOMBIA and other Chinese and Arabic have shown their interests towards the Peruvian market as well.63

b. Insurance The Peruvian insurance sector has become very dynamic in the last five years. It has reached during this period an average 18.1% growth owing to to the rapid economic growth and the measures adopted by the Government to promote certain lines of insurances, especially pension funds which are expected to keep boosting for the next years. However, for 2012 the growth expectations are probably not going to follow the same example as in past years. Hence, the growth rate will be slower.

For 2011, even though the total premiums of the insurance sector rose less-than-expected 10.2%, the net premiums gained grew 16.2%. Moreover, the net income of the sector was US$ 346 million, this was a 50.8% increase compared with the net income for 2010. Consequently, the profitability of the sector improved substantially with a 22.9% ROAE (Return on Average Equity) and 4.8% ROAA (Return on Average Assets).64 According to a local research, the Peruvian Insurance market has currently three main tendencies: emphasise in the production of general insurances, increase the importance of health insurance and enhance the insurance penetration in provinces. This is mainly because even though there is a big dynamism in the sector, the national insurance penetration is not so widely spread (1.5%) compared to the average penetration in other countries of the region (3%).

As for the production of general insurances including accidents and diseases, they grew 12.1% for 2011 by reaching US$ 1,483 million of total premiums. Among the general insurances, the ones which increased more were: fire insurance (11.7%), technical insurance (14.8%), transport (16.6%), car insurance (10%) and accidents & diseases (8.5%). It worth mentioning that main portfolio is focused in the car and fire insurance (44.3%).

For 2011, life insurances production was US$ 1,334 million of total premiums; this exceeded the production 2010 by 6.4%. This is to the increase of its main components such as Payment Protection of Insurance (37.4%), Provisional Insurance (40.6%) and Traditional Life Insurance (10.7%).

The presence of many insurance companies has made the actual market highly competitive. Currently, there exist 14 companies: 5 are specialized in general insurances such as MAPFRE PERÚ, EL PACIFICO PERUANO SUIZA, LA POSITIVA, SECREX and INSUR, 5 which are specialized in life insurances such as InVITA, MAPFRE PERU VIDA, EL PACIFICO VIDA, LA POSITIVA VIDA and PROTECTA. Finally, 4 companies that are specialized in both life and general insurances, these companies are ACE, CARDIF, INTERSEGURO and RÍMAC. In regards of the market share of each of these companies, for 2011 was as following: % Share of Insurance Companies in Peru: 2011 4% 6% 7%

33%

11%

12%

27%

Rimac

Pacifico Group

InVita

La Positiva

Interseguro

Mapfre Perú

Other

Source: SBS

CHAPTER N° 1 / Economic Sectors in Peru

42

Services provided to Companies The services provided to companies as the denomination clearly express, are the group of different types of services which are offered to companies or economic units in order to facilitate their activities. For 2012, the sector rose 7.56% due to the increase in each of its components. This sector represented 7.1% (US$ 12,548 million) for 2011 GDP. This sector is divided into five main types of services provided to companies in different economic sectors65:

a. Real Estate Activities For 2012, the number of rents grew 11.61. It is the most important activity in this sector, because of the growing demand and valorisation of properties in the private and public sector. The main properties rented or owned in the sector are destined mainly for housing and commercial projects.

b. Rent of Machinery and Equipment This activity increased by 9.36% for 2012 due to increase of the rents of transportation, construction and engineering equipment and machinery for the mining sector and industrial activities. Likewise, Machinery and equipment for offices and several other projects experienced as well an increase.

c. Informatics and Related Activities These activities barely rose 3.51% for 2012. The services which had more demand were maintenance of machinery and equipment intended for offices, accounting and informatics. Then, the repair and technical assistance for equipment in mining and industrial camps evolved in the last two years. Finally, other relevant activities were: database management, especially for the financial sector and consulting services regarding informatics programs and equipment.

d. Radio and Television In the last years, there has been a big evolution in the number of contracts for new broadcasts in TV, due to the bigger audience and a better frequency range as a consequence of to the implementation of new infrastructure. For 2012, these activities increased by 9.26%. The use of cable has also increased with the broadcast of variety of programs regarding sports, news, and entertainment. As for radio programs, it has also shown a slightly expansion due to creation of new programs related to music, interviews and sports.

e. Other Activities for Companies The services which had a positive evolution were specially related to market research projects, security services for companies and personal security. Consulting services related to quality controls for different sectors, such as mining, fishing and textile.

Furthermore, services related to cleaning, fumigation, transportation of waste materials, topography and exploration for mining drilling have had likewise a positive trend with 8.54% growth in 2012.

CHAPTER N째 1 / Economic Sectors in Peru

43

Restaurants and Hotels In 2011, Peru’s gastronomy received the distinction of “Cultural Heritage of Latin America” and has also been awarded with important prices in Europe.

Since then, the popularity of the Peruvian cuisine has been spreading internationally.

On the other hand, for 2007 Machu Picchu was officially named as one the Seven Wonders of the World. For these reasons and plenty of more, the flow of national and international tourists has tremendously extended in the last years. For 2011, the number of international tourists reached 2.6 million, 14.5% more than 2010. For 2012, it is expected to reach 2.7 million tourists who will leave US 3,000 million in foreign exchange earnings.

For 2011, the sector’s share on GDP was 3.9% (US$ 6,892 million). The growth of this sector for 2011 was 9.64%; this is due the positive growth of restaurant’s activities (9.38%) and hotels (11.54%) . For the same period, restaurant and hotels subsectors shared respectively 88.18% and 11.82% of the sector’s production. By 2010, this sector employed 271,000 people in Lima.67

a. Restaurants For 2011, the sales in this sector were US$ 117,000 million and for august 2012, sales reached US$ 130,000 million. According to the Lima Chamber of Commerce, sales for 2012 will boost by 9%. Nowadays, there are approximately 330,000 people who are employed in this sector.

The main type of food establishments in Peru are: Peruvian Chicken Restaurants, in Spanish known as “Pollo a la brasa”, this Peruvian chicken is one the main representative dishes of Peruvian cuisine and there are a large number of restaurants which are exclusively focused in this dish. Its demand has risen in the last nine years since the gastronomic boom.

Fast food restaurants are currently experiencing an expansion process all over Peru as a result of the creation of malls in provinces.

The fast food competition is really hard and in the market there are many international and national food brands which are continuously competing creating new offers in order to attract more clients.

Since the massive Cantonese migration between de 19th and 20th century, the Cantonese cuisine has become in the most popular foreign cuisine all over Peru. Chinese restaurants also known as “chifas” are located in every district in Peru regardless if there are low or high-income districts. These restaurants can reach very low and very high prices depending on the establishment and the place where they are located.

b. Hotels As a result of an efficient and well-planned promotion strategy lead by the Peruvian Bureau for promoting Tourism and Exports (PROMPERU), the concurrence of tourists has boosted widely for the past years encouraging investors to put their eyes in the sector.

According to the Peru’s Hotels Society there are many coming projects in the hotel sector that reach US$ 777 million. For 2012, there would be a total investment of US$ 184 million, which US$ 98 million will be destined to the southern regions; US$ 53 million to Lima and US$ 33 million to the northern regions. Currently this sector employs more than 500,000 people.68

CHAPTER N° 1 / Economic Sectors in Peru

44

The hotel investment in Lima will be destined 90% for the corporate sector and 10% for the touristic sector. In the southern regions it would be 90% for tourism and 10% for corporate sectors. Additionally, in the northern regions the distribution will be 60% corporate and 40% tourism69.

The hotel demand is very stationary and the concurrence of national and foreign tourists depend upon the long weekends (new year’s eve, Christmas, national day), typical regional celebrations for example the Inti Raymi in Cuzco, the Carnival in Arequipa and the international Marinera Contest in Trujillo. During these celebrations, the hotel capacity can reach 100%.

The national tourists prefer to go the beach in the northern regions to enjoy the warm beaches and the endless sun. They usually stay in friend’s houses or houses of their own instead of staying in a hotel. This type of tourist doesn’t expend too much many during his journey.

As for the foreign tourists, there are two clearly divided groups: the medium-income and the high-income tourists. The highincome tourists who mainly come from China, USA, Europe and Japan, usually stay in a five-star hotel expending daily US$ 600 in average. On the contrary, the medium-income tourists prefer to stay in cheaper hotels and they have in average US$ 150 daily expenses.

Nevertheless, according to a recent research made by Scotiabank, the bureaucratic procedures still are big risk to the on-going investment in the sector. These procedures could jeopardize the 50% of the US$ 777 million which are planned for investment.70

CHAPTER N° 1 / Economic Sectors in Peru

45

Public Services As the economy continues to boost, the Government is responsible to manage the country’s incomes and redistribute them properly in the different areas of interest. For 2011, this sector rose 4.88% and shared 5.8% (US$ 10,250 million) of GDP. The services regarding the public services are as follows:71

a. Internal Affairs The majority of these services are regarding to national security, in other words the implementation of special programs intended for police training, lifeguards, patrols, investigation and capture operations, operation that my attempt to national security, drug control and seized chemical products.

b. Education Even though the public education is still one of Peru’s main weak points, the Government is trying to handle this situation. The services in public education are mainly activities regarding the development of programs to ameliorate the quality of education in different areas, especially rural.

c. Health The demand for hospitalization and medical appointments has also increased. Likewise, the management of Human Resources, emergencies attention, back up services for diagnosing and treatment rose during the year 2012.

Furthermore, all other public services for Ministries, Legislative and Judiciary purposes enhanced gradually.

CHAPTER N° 1 / Economic Sectors in Peru

46

Import Duties and other Product Taxes Even though is not considered as a sector, the National Statistics Institute takes into account as an economic activity that contributes to the national production.

For 2011, there has been an increase in tax collection of 7.17% in real rates due to the increase of product taxes (6.49%) and import fees (13.85%).

In Peru there are two components for the Product’s Tax (18%): The first component is the value added tax known in Peru as IGV, which experienced an increase of 10.43% for 2012. The second component is the ISC (Selective Consumption Tax or in Spanish Impuesto Selectivo al Consumo), which experienced a raise of 4.23% for the same period.

Between the 2001 and 2012, there hasn’t been a quite regular tendency regarding tax collection. For 2009, there was a negative growth (1.1%). Moreover, from 2010 onwards, there has been a progressive decrease in tax collection.72

Variation of Taxes: 2000 - 2011 (January - December) %

12

11.2

11.1

10 8

7.2 6.4

6 4.85

8.4 5.5

4 2

2.1 1.1

1.6

0.1

0

-1.1

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: INEI

CHAPTER N° 1 / Economic Sectors in Peru

47

Bibliography AMÉRICA ECONOMÍA (2012) Exportaciones de harina de pescado crecerán en Perú en 12% en 2012 (http://www.americaeconomia.com/negocios-industrias/exportaciones-de-harina-de-pescado-en-peru-creceran-12-este-ano) (Accessed 12.10.12) AMÉRICA ECONOMÍA (2012) Sector Agrícola impulsó la importación de tractores (http://www.americaeconomia.com/negocios-industrias/sectoragricola-en-peru-impulso-en-807-la-importacion-de-tractores-febrero)(Accessed 29.10.12) AMERICA ECONOMÍA (2012) Reservas de Oro del Perú suman más de dos millones de toneladas (http://www.americaeconomia.com/negocios-industrias/reservas-de-oro-de-peru-suman-mas-de-dos-millones-de-toneladas) (Accessed 29.10.12) AMERICA ECONOMIA (2011) Un millón y medio de peruanos de zonas rurales tendrán acceso a la electricidad dura (http://www.americaeconomia.com/economia-mercados/un-millony-medio-de-peruanos-de-zonas-rurales-tendran-acceso-la-electricidad-dura) (Accessed 9.1.13) AMERICA ECONOMIA (2011) Ranking de mayor empresas constructoras en el Perú (http://rankings.americaeconomia.com/2011/500-peru/por_sector_construccion.php) (Accessed 24.01.13) ANDINA (2012) Participación del Sector minero e hidrocarburos en PBI subirá a 14.4% (http://www.andina.com.pe/Espanol/Noticia.aspx?id=CvNzT5C1ncs=) (Accessed 23.10.12) ANDINA (2012) Sector Hotelero genera más de 500 mil puestos de trabajo (http://www.andina.com.pe/Espanol/Noticia.aspx?id=dxiocC7vEkE ) (Accessed 25.10.12) ANDINA (2012) CCL prevee que sector comercio mantendrá dinamismo y crecerá 7.4% este año (http://www.andina.com.pe/Espanol/noticia-ccl-preve-sectorcomercio-mantendra-dinamismo-y-crecera-74-este-ano-418840.aspx) APOYO & ASOCIADOS (AAI) (2011) Sector seguros en Perú: Revisión 2011 Perspectivas 2012 (http://www.aai.com.pe/files/compa_ias_de_seguros/sistema/sistema_dic_2011.pdf) (Accessed 21.10.12) BANCO CENTRAL DE RESERVA DEL PERÚ (BCRP) (2012) Cuadros Estadísticos Sector Manufactura (http://www.bcrp.gob.pe/publicaciones/nota-semanal/cuadros-estadisticos.html) (Accessed 20.10.12) BIZNEWS (2012) Capeco proyecta crecimiento hasta de 17% en el sector construcción (http://biznews.pe/noticiasempresariales-nacionales/capeco-proyecta-crecimiento-hasta-17-sector-construccion-2012) (Accessed 20.10.12) CAMPOSOL (2012) Página Principal Información de la Compañía (http://www.camposol.com.pe/) (Accessed 11.10.12) CENTRO NACIONAL DE PLANEAMIENTO ESTRATÉGICO (CEPLAN) (2011) Plan Bicentenario el Perú hacia el 2021 (http://www.ceplan.gob.pe/documents/10157/d25c8335-f587-4171-96ea-26e650bb7726) (Accessed 19.10.12) CENTRUM CATÓLICA (Centrum) (2009) CHAPTERe Sectorial: Sector Pesca (http://www.latinburkenroad.com/docs/BRLA%20Fishing%20Industry%20(200911%20Spanish).pdf) (Accessed 12.10.12) CLASS & ASOCIADOS S.A (C.S) (2011) Informe Sectorial: Sistema Financiero Peruano (http://www.classrating.com/sisfin2011.pdf) (Accesses 24.10.12) COMEXPERU (2012) ¿Cómo hacer para que convivan la actividad minera y las comunidades de su entorno? (http://www.comexperu.org.pe/archivos%5Crevista%5CMayo05%5Cportada.pdf) (Accessed 16.10.12) EL COMERCIO (2012) Principales destinos de exportaciones peruanas este año (http://elcomercio.pe/politica/1346574/noticia-estos-son-principales-destinos-exportaciones-peruanas-este-ano) (Accessed 29.10.12)

CHAPTER N° 1 / Economic Sectors in Peru

48

EL COMERCIO (2012) Importaciones aumentaron mas de 10% al sumar 3,599 millones en setiembre (http://elcomercio.pe/economia/1484358/noticia-importaciones-aumentaron-mas-10-al-sumar-us3599-mlls-setiembre) (Accessed 29.10.12) EL PERUANO (2012) Sector Minería e Hidrocarburos creció 4.21% (http://www.elperuano.pe/edicion/noticia-sector-mineriae-hidrocarburos-crecio-421-47958.aspx) (Accessed 15.10.12) LA PRIMERA (2012) Sistema Financiero Peruano es seguro (http://www.diariolaprimeraperu.com/online/economia/sistemafinanciero-peruano-es-seguro_104054.html) (Accessed 25.10.12) LA REPUBLICA (2012) Peso del Sector minero en el PBI nacional será mayor con nuevo rango del INEI (http://www.larepublica.pe/31-03-2012/peso-del-sector-minero-en-el-pbi-nacional-sera-mayor-con-nuevo-rango-del-inei) (Accessed 4.1.13) MINISTERIO DE AGRICULTURA (MINAG) (2012) Presentación Sector Agrario (http://www.minag.gob.pe/portal/sectoragrario/agricola) (Accessed 11.10.12) MINISTERIO DE ECONOMÍA Y FINANZAS (MEF) (2012) Simposium Oro (http://www.mef.gob.pe/contenidos/comun_notp/presentaci/2012/simposium_oro.pdf) (Accessed 29.10.12) MINISTERIO DE ENERGÍA Y MINAS (2012) Perú un país minero (http://www.minem.gob.pe/descripcion.php?idSector=1&idTitular=159&idMenu=sub149&idCateg=159) (Accessed 13.10.12) MINISTERIO DE ENERGÍA Y MINAS (MINEM) (2011) Informe de sobre la Producción Fiscalizada de Hidrocarburos líquidos del 2002 al 2011 (http://www.minem.gob.pe/minem/archivos/file/Hidrocarburos/estadistica%202011/Abril/Produccion%20Total.pdf) (Accessed 16.10.12) MINISTERIO DE LA PRODUCCIÓN (Produce) (2009) Plan Estratégico Sectorial Multianual PESEM 2011-2015 Lima: Ministerio de la Producción MINISTERIO DE LA PRODUCCIÓN (Produce) (2010) Anuario Estadístico sector Manufactura (http://www2.produce.gob.pe/RepositorioAPS/1/jer/ANUARIO_ESTADISTICO/anuario-estadistico-2010.pdf) (Accessed 24.10.12) MINISTERIO DE TRANSPORTES Y COMUNICACIONES (MTC) (2012) Plan Estratégico Sectorial Multianual: Sector Transportes y Comunicaciones 2012-2016: (http://www.mtc.gob.pe/portal/home/transparencia/PESEM.pdf) (Accessed 22.10.12) MINISTERIO DE TRABAJO (ML) (2010) Encuesta de ministerio de trabajo del sector agua y luz (http://www.mintra.gob.pe/archivos/file/estadisticas/peel/beo/BEO2010-II-5.pdf) (Accessed 10.1.13) MINISTERIO DE TRABABAJO (ML) (2010) Encuesta del ministerio de trabajo del sector restaurant y hoteles (http://www.mintra.gob.pe/archivos/file/estadisticas/peel/beo/BEO2010-I-3.pdf) (Accessed 10.1.13) MINISTERIO DE VIVIENDA, CONSTRUCCIÓN Y SANEAMIENTO (MVCS) (2011) Compendio estadístico del sector construcción (http://fenix.vivienda.gob.pe/Compendio2011/) (Accessed: 10.01.13) NANO, PABLO (2010) Sector Construcción Lider (http://www.comexperu.org.pe/archivos%5Crevista%5CAbril10%5CPortada_152.pdf) (Accessed 22.10.12) OFICINA ECONÓMICA Y COMERCIAL DE LA EMBAJADA DE ESPAÑA EN LIMA (Oficina Comercial España) (2010) EL sector de la construcción en Perú (http://www.oficinascomerciales.es/icex/cma/contentTypes/common/records/mostrarDocumento/?doc=4388005) (Accessed 22.10.12)

CHAPTER N° 1 / Economic Sectors in Peru

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PACIFIC CREDIT RATING (PCR) (2011) Informe Sectorial: sector Eléctrico (http://www.ratingspcr.com/archivos/publicaciones/SECTORIAL_PERU_ELECTRICO_201009.pdf) (Accessed 17.10.12) PACIFIC CREDIT RATING (PCR) (2011) Informe Sectorial: sector minero (http://www.ratingspcr.com/archivos/publicaciones/SECTORIAL_PERU_MINERIA_201012.pdf) (Accessed 14.10.12) PACIFIC CREDIT RATING (PCR) (2011) Informe Sectorial Perú Minería ( http://www.ratingspcr.com/archivos/publicaciones/SECTORIAL_PERU_MINERIA_201012.pdf)(Accessed 29.10.12) PERU 21 (2012) Aumentan las trabas en sector Construcción (http://peru21.pe/2012/08/09/economia/aumentan-trabassector-construccion-2036785) (Accessed 23.10.12) PERU 21 (2012) Sector Construcción sube 10% en el primer trimestre (http://peru21.pe/2012/04/07/economia/construccionsube-10-primer-trimestre-2019102) (Accessed 20.10.12) PERU 21 (2012) BCR descarta burbuja inmobiliaria (http://peru21.pe/economia/bcr-descarta-burbuja-inmobiliaria-2105753) (Accessed 10.01.13) PERU 21 (2012) Sector gastronómico venderá alrededor de 50 mil millones (http://peru21.pe/economia/sectorgastronomico-vendera-alrededor-s50-mil-millones-2040196) (Accessed 21.10.12) PERU.COM (2011) Cinco bancos peruanos entre los mejores de Latinoamérica (http://peru.com/2011/10/13/actualidad/economia-yfinanzas/cinco-bancos-peruanos-entre-mejores-america-latina-noticia-24782) (Accessed 22.10.12) PROMPERÚ (2011) Boletín Agro y Agroindustria Enero – Diciembre, 2011 (http://media.peru.info/siicex/resources/sectoresproductivos/250073884rad5A160.pdf) (Accessed 11.10.12) RPP NOTICIAS (RPP) (2010) Perú cuenta con 30% de reservas de plata y 16% del cobre mundial (http://www.rpp.com.pe/2010-08-24-peru-cuenta-con-30-de-reservas-de-plata-y-16-del-cobre-mundial-noticia_290130.html) (Accessed 29.10.12) REVISTA MINERA (2010) Se recupera producción de molibdeno en el Perú (http://revistaminera.wordpress.com/2010/09/20/se-recupera-produccion-de-molibdeno-en-el-peru/) (Accessed: 29.10.12) SOCIEDAD NACIONAL DE MINERÍA, PETROLEO Y ENERGIA (SNMPE) (2012) Sector Minería (http://www.webestadisticas.snmpe.pe/EST_EXTRANET/EST_Graficos/est_gra_principal.asp) (Accessed 15.10.12) SUPERINTENDENCIA NACIONAL DE SERVICIOS DE SANEAMIENTO (SUNASS) (2012) Informe Sectorial Agua (http://www.sunass.gob.pe/sunass.php) (Accessed 17.10.12) TYN LATINOAMÉRICA (2011) Perú ya tiene un cuarto operador de telefonía móvil (http://www.tynmagazine.com/359275Peru-ya-tiene-un-cuarto-operador-de-telefonia-movil.note.aspx) (Accessed 26.10.12) VELA, Lindon and GONZALES, José (2011) Competitvidad del Sector Agrario Peruano, Problemática y Propuestas de Solución (http://www.cclam.org.pe/sectoragrario.pdf) (Accessed 10.10.12) WALL STREET JOURNAL (2012) Domestic demand drives Peru’s cruising GDP (http://online.wsj.com/article/BT-CO20120815-710994.html) (Accessed 20.10.12) WIKIPEDIA (2012) Articule: Water supply and sanitation in Peru (http://en.wikipedia.org/wiki/Water_supply_and_sanitation_in_Peru) (Accessed 18.10.12) WIKIPEDIA (2007) Article: Sector electric en el Perú (http://es.wikipedia.org/wiki/Sector_el%C3%A9ctrico_en_el_Per%C3%BA) (Accessed 9.1.13)

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References Vela and Gonzales: 2011 MINAG: 2012 3 INEI: 2012 4 MINAG:2011 5 Promperu: 2011 6 Camposol: 2012 7 America Economía: 2012 8 Gestion: 2012 9 INEI: 2011 10 Centrum: 2009 11 America Economía: 2012 12 América Economía: 2012 13 Produce: 2010 14 MINEM: 2012 15 América Economía: 2012 16 RPP Noticias: 2012 17 Revista Minera: 2010 18 Andina: 2012 19 Gestión: 2012 20 PCR: 2011 21 SNMPE: 2012 22 MEF: 2012 23 SNMPE: 2012 24 COMEX: 2012 25 MINEM: 2011 26 ESAN: 2012 27 MINEM: 2011 28 Gestión: 2012 29 Produce: 2010 30 BCRP: 2012 31 El Comercio: 2012 32 El Comercio: 2012 33 ML: 2010 34 ESAN: 2012 35 América Economía: 2011 36 PCR: 2011

Wikipedia Sunass: 2012 39 Ceplan: 2012 40 Wikipedia: 2012 41 INEI: 2012 42 Gestión 2012 43 Gestión 2012 44 MVC: 2011 45 PERU 21:2012 46 Gestión 2012 47 Nano: 2010 48 América Economia: 2011 49 Oficina Comercial España: 2010 50 PERU 21: 2012 51 Andina: 2012 52 INEI: 2012 53 PERU 21: 2012 54 INEI: 2012 55 MTC: 2012 56 MTC: 2012 57 MTC: 2012 58 MTC: 2012 59 TYN Latinoamérica:2011 60 La Primera: 2012 61 C.S: 2011 62 C.S: 2011 63 PERU.COM: 2011 64 AAI: 2011 65 INEI:2012 66 PERU 21: 2012 67 ML: 2010 68 Andina: 2012 69 Gestión: 2012 70 Gestión 2012 71 INEI: 2012 72 INEI: 2012

1

37

2

38

CHAPTER N° 1 / Economic Sectors in Peru

51

Investment Projects in Peru 2012-2020 CHAPTER N째 2

Introduction: Why invest in Peru?

In the last thirty years, Peru has experienced drastic transformations on the political, economic and social side. As for the economic side, during the 80s and early 90s Peru endured one of highest inflation rates the world had ever experienced reaching a soaring 7,500%. Nevertheless, after a long period of uninterrupted efforts of the last four Governments in order to ameliorate the appalling economic situation, nowadays Peru has become in one of the most promising economies in the region having the rapidest economic growth rates in Latin America, the lowest inflation rate in the region as well as several other accomplishments.

The following table shows the forecasts of the average annual variation of GDP of the main countries in Latin America1: GDP in Latin America : 2012 - 2014 (Average Annual Variation) % 6

3.4

M ex ico

Br az il

3.7

Ar ge nti na

4.3

3

Ve ne zu ela

4.7

Ch ile

Pe rú

Co lom bia

4.8

Source: MEF According to the National Central Reserve Bank (BCR), Peru’s GDP has had a constant enhancement in the last twelve years, not only as a consequence of the increasing exports and the massive penetration of Peruvian products in different markets worldwide, but also for the solid and boosting domestic demand that strengthens the economic stability.

The following graphs show the evolution of the Peruvian GDP in billions of US$, % of variation and GDP per capita for the last eleven years. It’s worth mentioning that for 2008 and 2009 there was no increase in GDP, due to the international economic crisis, which affected directly and indirectly the Peruvian exports to Europe and the United States:2

Evolution of Peru's Gross Domestic Product (GDP) 2001-2012 US$ Billion

53.9

56.8

61.3

69.7

79.4

92.3

107.1

127.4 127.4

153.9

176.7

199.7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BCR

CHAPTER N° 2 / Investment Projects In Peru 2012-2020

53

Evolution of Peruvian Gross Domestic Product (GDP) 2001-2012 % 12 10 8 6 4 2 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0.2

5

4

5

6.8

7.7

8.9

9.8

0.8

8.8

6.9

6.3

Source: BCR

Evolution of Peru's GDP per Capita: 2001-2012 US$ 6626 5932 5226 4413

4372

3772 3284

2047

2124

2264

2540

2855

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BCR Furthermore, due to the lower balance of foreign loans and global bonds, according to the debt strategy, which aims to reduce market risk and refinancing, the public debt has also lowered its participation in GDP as the following chart shows: (2012 data is estimated)3

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54

Evolution of Public Debt (% of GDP): 2003-2012 % of GDP 47.1

44.3 37.7 33

29.7 24.1

27.1

23.4

21.7

21

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BCR Likewise, Peru’s international reserves have increased considerably in the last ten years, especially due to the increase in foreign currency deposits, which give the Peruvian economy a solid armor against the crisis which affects the world’s economy.

The following chart shows the evolution of the Peruvian International Reserves from the period 2003-2012.4 Peru's International Reserves: 2003-2012 US$ Billion 63.9

48.8 44.1

27.7

10.2

12.6

14.1

31.2

33.1

17.3

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BCR

CHAPTER N° 2 / Investment Projects In Peru 2012-2020

55

Peru's International Reserves as % GDP: 2003-2012 % of GDP 25.9 16.6

18.1

17.8

24.5

26.0

28.7

32.0 27.6

18.7

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BCR Additionally, several economic researches around the world have established that Peru offers various opportunities for investors and has improved its region-wide competitiveness. For instance, according to the BlackRock Sovereign Risk Index (BSRI) made

by BlackRock Group in New York, Peru is ranked in the 17th place in the world as one of the countries which offers more investment security and therefore has become the 2nd safest place to invest in Latin America5. On the other hand, according to the Latin Business Chronicle headquartered in Florida, Peru is ranked in the 3rd place of the Latin American countries to do business with, especially for its excellent macroeconomic development.6 In the last ten years, the inflation in Peru hasn’t experienced noteworthy changes, with the exception of 2008 when the annual percentage change of consumer prices index increased by 5.8% which became the highest inflation rate since 1998 (7.2%).

Additionally, it is also remarkable that the Peruvian average inflation rate during the decade was 2.8% which made Peru the country with the lowest average inflation in Latin America7. The following chart shows the inflation’s variation for the period 2002-20128: Variation of Peru's Inflation by Consumer Prices: 2002 - 2012 % 7 6 5 4 3 2 1 0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.2

2.3

3.7

1.6

2

1.8

5.8

2.9

1.5

3.4

3.7

Source: World Bank

CHAPTER N° 2 / Investment Projects In Peru 2012-2020

56

Despite the rapid economic development and institutional progress in Peru, there are still plenty of fields to improve. The following chart shows the position of Peru according to Doing Business 2013 research made by the World Bank.9

TOPIC RANKINGS

DB 2013 Rank

DB 2012 Rank

Change in Rank

Starting a Business

60

53

-7

Dealing with Construction Permits

86

104

+18

Getting Electricity

77

78

+1

Registering Property

19

21

+2

Getting Credit

23

23

No change

Protecting Investors

13

17

+4

Paying Taxes

85

87

+2

Trading across Borders

60

58

-2

Enforcing Contracts

115

115

No change

DOING BUSINESS RANK

106

106

No change

DOING BUSINESS RANK

43

43

No change

CHAPTER N째 2 / Investment Projects In Peru 2012-2020

57

Main Investment Projects in Peru 2012-2020 a. Main Investment Projects Name

Basic description of the Project

Private-Public-Other

Investment

Start and End date

Conga10

Mining project for the extraction of gold and copper lead by Newmont and partners in Cajamarca

Private

US$ 4,800 million

2012- 2031

Cerro Verde11

Freeport-McMoran, Cerro Verde and Buenaventura plan to triplicate plant capacity for copper extraction

Private

US$ 4,000 million

2012-2016

Milpo12

Votorantim Metais plans to expand zinc refinery and construction of lead refinery

Private

US$ 3,200 million

2012-2016

Quellaveco13

Anglo American shall construct a plant for copper extraction in Moquegua

Private

US$ 3,000 million

2012-2016

Grupo Mexico

Grupo Mexico shall enlarge its extraction activities in copper production

Private

US$ 2,600 million

2011-2015

Toromocho14

Chinalco Peru will invest in the construction of a copper mine in Junin

Private

US$ 2,200 million

2012-2014

Pampa de Pongo15

Jinzhao Mining Peru shall invest in the contruction a mining camp for iron production in Ica

Private

US$ 1,500 million

2012-?

Andean Optical Fiber

The Spanish Telefonica shall increase the range of internet services in the Highlands and the jungle

Private

US$ 1,500 million

2012-2013

Chaglla

The Brazilian Oderbrecht plans to build a hydroelectric power station in Huanuco.

Private

US$ 1,200 million

2012-2016

Constancia16

Hudbay Minerals is planning to build a copper extraction camp in Cusco to produce 85,000 tons of fine copper

Private

US$ 1,000 million

2012-2016

América Móvil

America Móvil group announced an investment in the telecommunications sector to increase its participation

Private

US$ 1,000 million

2012-2015

Jorge Chavez Terminal

Lima Airport Partners shall build a second runway and a new terminal in the Jorge Chavez airport

Private

US$ 1,000 million

2013-2014

Cálidda

Cálidda plans to widespread the natural gas services in the whole territory reaching 1.5 million households

Private

US$ 1,000 million

2012-2024

Mantaro

Mantaro Peru plans to build a rock phosphate processing plant in Junín starting 2015

Private

US$ 850 million

2015-2035

Cerro del Aguila17

Inkia Energy Group plans to develop a hydroelectric plant in Huancavelica

Private

US$ 750 million

2012-2014

PPP

US$ 175 million

2013

Concessions for the construction, Longitudinal de la Sierra operation and maintenance of Section Road Project Section 2 2 Longitudinal de la Sierra road.

Estimated 879 km long.

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Concessions for the construction, Longitudinal de la Sierra operation and maintenance of Section road Project Section 4 4 Longitudinal de la Sierra road.

Estimated 640 km long.

PPP

US$ 129 million

2014

Concessions for the construction, Longitudinal de la Sierra operation and maintenance of Section road Project-Section 5 5 of Longitudinal de la Sierra road.

Estimated 425 km long.

PPP

US$ 155 million

2014

Lima and Callao electric mass transportation system- Line 2

Concession to the design, finance, build, supply of electromechanical equipment, acquire rolling material, operate and maintain Line 2 of the electric mass transportation system.

PPP

US$ 5,300 million

2013

Supply System of LPG for Lima and Callao

Concession to design, finance, build, operate and maintain the LPG transports system from the producer facilities (Pisco) to Lima province border.

PPP

US$ 124 million

2013-2033 (plus 28 months construction period)

PPP

US$ 206 million

2013-2033

Concession to design, finance, build, operate and maintain a supply system that will allow to have a reserve of liquid natural gas produced at the gas liquefaction plant of Pampa Melchorita and re gasify It for emergency periods.

PPP

US$ 252 million

2013-2043

Concession to design, finance, build, operate and maintain the line in order to increase the electricity transmission capacity to the eastern zone of Peru and interconnect the electricity systems in these departments with the National Grid.

PPP

US$ 416 million

2013-2043

220 kW Macchu Picchu-QuencoroOnocora-Tintaya Transmission Line

Concession to design, finance, build and maintain the line (300km) to increase the transmission capacity of electric power to the southern area of the country and reinforce the bidirectional connection between the subsystems of the area and allow the future connection of new charges and/or electric power plants.

PPP

US$ 181 million

2013-2043 (plus 38-month construction period)

Mantaro-MarconaSocabaya-Montalvo 500Kv Transmission Line

Concession to design, finance, build, operate and maintain the line with an approximately length of 900 km and a capacity of 1600 MVA.

PPP

US$ 372 million

2013-2043 (plus 44-month construction period)

Design, construction, finance, operation Hydroelectric power and maintenance of a hydroelectric stations (Molloco power station) power station with a total energy capacity of 300 MW.

PPP

US$ 700 million

2013

Concession of the supply of power and energy to the national grid, in its first stage, it will run based on a regular supply that will end once the operation of Moyobamba – Iquitos transmission line begins

PPP

US$ 81 million

2013-2033 (plus 24-month construction period)

Mass use of natural gas nationwide Supply system of LNG for domestic market

220 kW MoyobambaYurimaguasNauta Iquitos Transmission Line

Energy supply to the city of Iquitos (70 Mw)

Mass use of natural gas nationwide

CHAPTER N° 2 / Investment Projects In Peru 2012-2020

59

New international airport of Chinchero-Cusco

Concession of the design, construction, financing, management, operation, maintenance and exploitation of the new international airport of Chinchero in Cusco

PPP

US$ 420 million

2013-2053

General San Martín port terminal

Concession for the design, construction, financing, maintenance and operation of General San Martín port terminal

PPP

US$ 101 million

2013-2043

Upgrading and maintenance of navigability conditions of Rivers Huallaga, Ucayali, Marañón and Amazonas

Development of dredging works, rivers information signs, in order to assure the navigability and therefore the traffic between the port terminals of Yurimaguas, Pucallpa and Iquitos

PPP

US$ 74 million

2013-2033

PPP

To be defined

2013-2033

1710-1770 Mhz and 2110-2170 Mhz Band Nationwide

The project involves the selection of private telecommunication operators that will be in charge of providing Public Telecommunication Services in Blocks A and B of the 1710-1770 MHz and 2110-2170 Mhz bands. The same bidder will not be able to award both bands blocs.

National optical fiber backbone network

The goal of the project is to expand a broadband in Peru through the installation of optical fiber in the Capital of 195 Provinces of the country

PPP

US$ 420 million

2013

Chavimochic irrigation project Majes-Siguas project

To complement the development of Chavimochic project in order to incorporate 53,000 ha of new lands into the irrigation system and improve irrigation system of 48,000 ha in the valet and inter valleys of Chao, Virú, Moche and Chicama

Private

US$ 499 million

2013-2037

Majes-Siguas project

Sale of 02 plots of untilled lands of 500 ha each, with water right of up to 13,500 m3/ha/year

Private

US$ 4 million

2013

PPP

US$ 100 million

2013

PPP

US$ 45 million

2014-2034 or 2044

PPP

US$ 400 million

2014-2034 or 2044

Provision of sanitation services for the southern districts of Lima

Regulation works for Chillón River

The project involves the design, finance, construction and operation of the systems: desalination of sea water, water storage and distribution drinkable water, sewerage, and treatment and final disposition of treated waste water The project involves the design, finance, construction operation and maintain of dam works (40 MMC approximately) of Chillón river basin.

The project comprises the design, finance, build, operate and maintain of, extension of Pomacocha and HuallacoMain works and conduction of drinkable cha Bajo dam (approx. 100 MMC), water supply for Lima diversion works of Pomacocha – Río Blanco (approx.. 10km of trans Andean tunnel), water purification plant (5m3/s and Ramal Sur conduction line (approx.. 25,6 km)

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Kuelap cable car

Concession to design, finance, build, equip and operate the cable cars system for a fast and modern access to Kuelap Fortress

PPP

US$ 11 million

2013-2033 or 2038

Management of the National Grand Theater

PPP that includes the management of the Theater with participation of private investment in order to provide high quality performance, for which it was designed, built and implemented.

PPP

To be defined

2013-2033

PPP

To be defined

2013

Private

Auction

2013

Private

Auction

2013

The project involves the transfer to the private sector of two remaining deposits of Michiquillay of 14,927 ha.

Concession of Remaining Michiquillay Project

Sale of shares held by FONAFE (Telefónica del Perú SA and Edegel companies)

Sale of shares held by FONAFE

Sale of shares of the Agroindustrial company Cayaltí

Sale of Shares of the Agroindustrial company Cayaltí

b. Main Investments by sectors Sector Electricity & Water

Agriculture & Livestock

Mining & Hydrocarbons

Transport & Communications

Group

Total Investment (US$ million) 1,750.00

Energy Water

545.00

Total

2,295

Agriculture

503.00

Total

503.00 22,300.00

Mining Hydrocarbons

582.00

Total

22,882

Land Transport

459.00

Airports

420.00 5,300.00 22,882

Railways Telecommunications

420.00

Ports

175.00

Total

6,774

Tourism

11.00

Culture

n.d

Capital Market

n.d nd

Total

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Legal Framework Since 1991 Peru has undertaken to boost Peru’s development through the Legislative Decree N° 757 and the approved Supreme Decree N° 162-92-EF, which establishes a legal framework that provides security for foreign investments in the territory. This law was called the “Foreign Investment Promotion Law”.

The current Constitution was enacted in 1993 and this included several provisions to guarantee a promising and an attractive legal framework in order to enhance the private sector’s development and foreign investment. Some of the most important principles written were as follows: Free private initiative exercised in a market-based social economy.

Freedom of work and to engage in business, trade and industry.

Definition of subsidiary role for the State in economic activity.

Free competition and prohibition of restrictive practices and the abuse of dominant or monopolistic positions.

Powers of State to establish guarantees and grant securities by means of contract law.

National Treatment.

Right to submit controversies arising from contractual relationship with the State to national or international arbitration.

Freedom to hold and dispose of foreign currency.

Inviolability of property and establishment of conditions for exceptional causes that empower expropriation, specifically, in-advance cash payment of a fair-value; equal treatment on taxation matters; and the express acknowledgement that no tax may have confiscating effects.

The entire legal framework is based under the principle of “national treatment” and all the commitments signed in the WTO. That means, there aren’t any restrictions in most of economic activities or prior required authorization or performance for foreign investments.

Moreover, foreign investors are completely permitted to acquire domestic investor’s shares or stocks through any mechanism and are allowed to develop the organization and processes of their companies without a legal requirement in the use of certain inputs. There is no prohibition regarding production processes in companies regardless their economic activity, installed capacity or any other similar economic factor. However, exceptions may arise regarding hygiene or industrial security, health and corporate social responsibility (CSR).

Nevertheless, even though foreign investors are treated equally as national investors, these are not allowed to acquire places of natural resources such as mines, lands, woods, water, fuels and energy sources within fifty kilometers from the country’s borders unless there is an urgent necessity approved by the Government.

Basic rights of foreign investors Right to receive non-discriminatory treatment versus national investor Freedom to conduct commercial and industrial activities and to perform import and export operations.

Right to remit abroad profits or dividends, after payment of the corresponding taxes.

Right to use the most favorable exchange rate existing in the market for any exchange operation.

Right to free re-exportation of invested capital, whether from a sale of shares, reduction of capital or total or partial liquidation of investments.

Unrestricted access to domestic loans, under the same conditions than national investors.

Free acquisition of technology and free remittance of royalties.

Freedom to acquire shares of national investors.

Right to acquire insurances for investments Right to subscribe Legal Stability Agreements with the State over investment in the country18 In order to consolidate a trustworthy legal framework that guarantees and protects the current investment and encourages the investment flows, Peru has signed international agreements with different countries from the Pacific, Europe and Latin America as well as different FTAs, which have recently, came into force. Additionally, Peru is an active member to the Multilateral Investment Guarantee Agreement (MIGA) member of the World Bank Group and a signatory to the International Centre of Settlement of Investment Disputes (ICSID) and to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

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As for the protection of intellectual property and free competition, the entity in charge of applying legal provisions on the defense of competition and protecting market from monopolistic practices, which may hinder the possibility of a fair completion in the commercialization of products or providing services is called INDECOPI (National Institute for Consumer’s Protection and Intellectual Property).

Additionally, INDECOPI is in charge as well in controlling possible unfair practices in the market that may affect final consumers or agents. It controls and imposes penalties to dumping and/or subsidies and practices against the commercial doctrine of good faith; it controls the non-tariff restrictions and possible bureaucratic obstacles that may appear in different entities of the Government and may affect market agents.

Promotion of Decentralized Investment One of the main efforts of the last Governments was to promote decentralization in the country by promoting investment in provinces. For that reason, in 2002 the first stage of a decentralization process began with the issued Law n° 27783, Base Law for Decentralization.

By this law, Regional Governments are totally authorized to promote private investment projects in their territorial jurisdictions and within the framework of their functions. Hence, they are allowed to grant concessions and to settle agreements in order to build or improve the infrastructure projects of their region if they are considered as projects of national interest. Furthermore, these projects may serve as a tool to achieve integral and sustainable development for each region. Nevertheless, regional Governments if necessary may request technical assistance from specialized institutions such as PROINVERSIÓN to develop desired or feasible projects.19 PROINVERSIÓN is the national agency that promotes private investments mainly established in regions and Provinces.

Likewise, it incentives Peru’s competitiveness and sustainable development by creating new jobs, attracting and providing assistance to foreign investors, improving quality of utilities, increasing exports and encouraging non-dependent investments of the Peruvian State.

An important initiative promoted by the Government and it has become very common in the past few years, is the Private Initiatives on State Resources (in Spanish: Iniciativas Privadas en Recursos Estatales). These initiatives promote private investment on State resources, assets, companies, projects, services, public infrastructure works. However, there are certain requirements and procedures from which, once a private initiative is approved and published in the local media and if third parties don’t participate, then the author of the initiative will be favored with the direct adjudication or concession.

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Investment Incentives In Peru there are certain investment incentives created by the Government especially focused in the tax benefits in order to boost FDI:

a. Special Regime of VAT Anticipated Recovery or Spot The regime consists in the refund of the VAT paid for imports and/or local acquisitions of new capital goods, intermediate goods, services and construction contracts made in a previous operation so the beneficiary may use it directly for the execution of projects foreseen in the Investment Contracts and are destined for operations burden with the VAT or exports.

In order to enjoy the benefits of this regime, the companies have to make a Subscription of Investment Contract with PROINVERSIÓN and the sector of destination with an investment commitment of no less than US$ 5 million (include no VAT) during the previous stage of operation. However, this minimum amount is not applied to agricultural projects. The projects need to have a no-less-than 2 year duration counted from the commencement date of the investment programed in the contract. Furthermore, in order to grant the VAT anticipated refund for each contract, there must be an approved Supreme Resolution signed by the Ministry of Economy and the authorities of the sector.

b. Tax Refund of Value Added Tax The regime consists in the refund of the tax paid or transferred on imports and/or local acquisitions of capital assets, intermediate goods, services and construction contracts made in a previous operation of infrastructure and public utilities which have been intended to operation not burdened with such tax and are used directly to the execution of projects in infrastructure works and public utilities.

In order to enjoy the benefits of this regime, the company has to subscribe a Concession Contract under the Supreme Decree N° 059-96-PCM. Moreover, the corporate body has to make a Subscription of Investment Contract with PROINVERSIÓN and the sector of destination with an investment commitment of no-less than US$ 5 million (include no VAT) during the previous stage of operation.

Furthermore, in order to grant the anticipated tax refund for each contract, there must be an approved Supreme Resolution signed by the Ministry of Economy along with the approving vote of the Cabinet.

c. Agriculture Sector Incentives The agriculture sector’s development is considered as a high priority matter for the Government. Hence, over the past years there have been creating new incentives promoted by the State in order to attract specialized companies that can contribute to the cultivation or breeding development, except from forestry industry. Similarly, individuals or companies dedicated to the agribusiness activities enjoy these incentives. However, agribusiness activities related to wheat, tobacco, oleaginous seeds, oils and beer are excluded.

The benefits in this regime are as follows: Income tax will be determined by applying 15% rate over the net income. (Normal net income tax 30%) Companies my depreciate 20% yearly, the amount invested in hydraulic infrastructure and irrigation works.

During the previous production stage and in no-longer 5 year term, individuals or entities may request the refund of the VAT paid for the acquisition of capital goods, inputs, services and construction contracts.

The tax benefits only apply up to December 31, 2021.

Companies are allowed to hire personnel for an indefinite or definite term and this shall depend on the agricultural activity. Additionally, all accumulative hours may be established due to the nature of work. However, if the working hours during the term of the contract don’t exceed in average the maximum limits set forth by law. Overtime hours must be paid only when such average is exceeded.

The labor and social security regime for the agricultural sector has special features such as a four-hour working day, 15-day vacation, compensation equivalent to 15 daily salaries per worked year with a maximum of 180 salaries, monthly contribution to health insurances.

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d. Aquaculture Sector Incentives As the case of agriculture activities, the Government is committed to boost the aquaculture activities by attracting investment so they can improve the infrastructure and the technical cultivation of hydrobiological species in selected, controlled, natural, conditioned or artificial environment. This may include research and primary processing of products.

The tax benefits for individuals or companies which are in the aquaculture business shall pay a 15% rate over net income. As for the labor and social security regime of the aquaculture activities, this regime is the same as the agricultural that means a four-hour working day, 15-day vacation, compensation equivalent to 15 daily salaries per worked year with a maximum of 180 salaries, monthly contribution to health insurances.

e. Amazon Region Law In order to promote a sustainable and integral development in the Amazon Region, the Government has established preferential tax conditions for the companies that desire to invest in this area.

For that reason, all companies or individuals involved in agro-farming, aquaculture, fishing, tourism, forestry extraction, manufacturing activities related to processing, transformation of primary products extracted from the region shall apply a 10% or 5% rate from the Third Category Income Tax depending on the geographic location.

Companies established in the Amazon region which use a minimum of 30% of their net income to reinvest it in investments projects may as well apply for a Third Category Income Tax rate of 10% or 5% depending on the working location.

Furthermore, taxpayers who are in the agriculture business and/or transformation or processing of native products are exempt from the Income Tax. As for cacao, coffee and oil palm producers, the exemption will be only applied to the agrarian production.

The transformation and/or processing companies shall pay a 10% or 5% rate depending on their location in the region.

f. Special Zones Centers of Exports, Transformation, Industry, Commercialization and Services (CETICOS)

CETICOS are geographical areas considered as “custom primary zon with a special treatment” in order to develop industrial, agricultural, assembling or storage activities. They are located in the coastal cities as Paita, Ilo and Matarani.

Established companies in CETICOS are totally exempt of any type Tax that includes VAT, Income tax, Excise tax, Municipal Promotion tax, as well other type of tax, contribution managed by the Central Administration until December 31, 2022.

Companies in charge of the transformation, repairing and adaptation of used cars may continue their activities until December 31, 2012 in the other special treatment zone called ZOFRATACNA. The shipment that comes through the Paita, Ilo and Matarani ports are totally exempt of any type of tax such as VAT, municipal promotion tax or other type of tax, contribution managed by the Central Administration.

Goods produced in CETICOS may enter to the rest of territory under the Temporary Admission Regime, Temporary Importation Regime, and Replacement of Raw Materials and Input Regime. However, once they have entered to the territory, they are no longer exempt of taxes and are under all the custom duties, VAT, Excise Tax, Municipal Promotion Tax and other taxes.

Tacna Duty-Free zone (ZOFRATACNA)

The Government decided to create ZOFRATACNA in order to promote and contribute a sustainable economic development in the province of Tacna. All types of economic, productive activities are allowed in this region such as storage, agribusiness, assembly, packaging, labeling, mining, conditioning, maintenance, among others. These activities are approved by a Ministerial Resolution from the Ministry of Production and the Ministry of Economy and Finance.

Individuals or companies established at ZOFRATACNA which carry out approved activities, are exempt from the Income tax, VAT, Excise Tax, Municipal Promotion Tax, Solidarity Tax as well of other related taxes.

Final products or services provided to ZOFRATACNA will be considered as an export and it will be applied all the regulations regarding Simplified Restitution of Goods entering with a temporary status, considered as a temporary export. However, when the products reenter to the territory with an improvement or modification, import taxes will be calculated on the added value.

Companies established in ZOFRATACNA may introduce transport machinery, equipment, tools and spare parts as an importation and they will benefit from a special regime for suspension of tariffs, duties and other taxes on imports.

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Foreign Direct Investment The Foreign Direct Investment (FDI) in Peru has been increasing progressively throughout the 21st century. This better-than-expected evolution is due to the solid development of Peru’s economy and sustained economic and legal measures adopted by the last four governments which have enhanced confidence deposited by foreign investors. The following charts show the unfolding investments for 2001-2013 and their annual growth rate for the same periods20:

Flows of Foreign Direct Investment in Peru: 2001 - 2011 (US$ Million) US$ 9000 8000

7328

6924

7000 6000

5491

5000 4000

7659

5576

3467

3000

2579

2156

2000

1144

1000 0

1335

1599

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: BCR

Annual Growth Rate of FDI in Peru: (2002 - 2011) % 100 80 60 40 20 0 -20 -40 -60

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

88.5

-38.1

19.8

61.3

34.4

58.4

26.1

-19.5

31.4

4.5

Source: BCR

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FDI Contributors in Peru for the 2001 - 2011 period

5%

1%

2%

3%

9% 34%

5%

8%

18%

15%

During this period, the main countries that contributed to boost FDI were mainly European countries such as Spain, United Kingdom and the Netherlands.

However, United States was still an important inv estor during this period as the following chart shows:

Spain

United Kingdom

USA

Netherland

Chile

Panama

France

Switzerland

Canada

Other

Source: PROINVERSIÓN

FDI in the Peruvian Economic Sectors during the 2001-2011 period Furthermore, along this period these investments were focused in certain economic sectors which grew much faster than others. For instance, during this period, the communications sector was one the most developed mainly due to the privatization process of the Spanish group Telefónica. Then, finance, manufacturing and mining had as well a significant participation during this process.

1%

2%

5%

2% 34%

13%

13%

17%

13%

Communications Finances Trade

Manufacturing

Services

Mining

Hydrocarbons

Energy

Other

Source: PROINVERSIÓN

FDI Contributors in Peru for 2011 Nevertheless, for 2011 the contribution’s outlook in economic sectors and their actors have slightly modified. Nowadays, there are new actors who contribute to the FDI in Peru and mining has become the sector which receives more investment. These new actors are more neighboring countries such as Colombia and Brazil which have found Peru a very attracting and safe country to invest. Spain and the United Kingdom are still the leading countries. However, the British investment share along with the Spanish are now equal (20%). The following chart shows the latest modifications in the FDI share:

4%

2%

13% 20%

4% 5%

5% 6%

20% 7%

Spain Colombia

14% United Kingdom Brazil

Panama

Source: PROINVERSIÓN

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USA

Netherland Canada

Mexico

Chile Other

FDI CONTRIBUTORS IN PERU FOR 2011 Country

Millions of US$

%

Spain

4,458.54

20.25%

United Kingdom

4,450.82

20.21%

United States

3,166.38

14.38%

Netherlands

1,532.80

6.96%

Chile

1,347.97

6.12%

Colombia

1,048.65

4.76%

Brazil

1,021.88

4.64%

Panama

924.02

4.20%

Canada

845.17

3.84%

Mexico

464.76

2.11%

Switzerland

436.62

1.98%

Singapore

365.5

1.66%

Luxembourg

272.42

1.24%

Japan

233.79

1.06%

France

207.95

0.94%

Bahamas

183.11

0.83%

Other

1,059.14

4.81%

TOTAL

22,019.52

100.00%

As for the FDI in the economic sectors, the investment in mining has taken the first place in the investment portfolio; this is to the huge potential of the Peruvian mining industry and the increase of new extracting companies operating in Peru, such as Peru Cooper Synicate, SMM Cerro Verde, Anglo American, Cyprus Climax, Gold Fields, Votorantim Metais, Xtrata and MVM Resources International. Most of these investments were made during 2004-2011; however, between 2012 and 2013, these companies are expected to invest a total of US$ 15 billion.

On the other hand, the financial sector became very dynamic regarding FDI. That is to the entrance of new competitors in the market such as the Canadian Bank of Nova Scotia, known in Peru as Scotiabank, which will invest for 2012, US$ 40 million in order to expand its services in the Capital City and in provinces. Other important companies are the Dutch company Latin America Cellular Holdings B.V and the Chilean Cencosud International Ltd.21

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FDI in the Peruvian Economic Sectors for 2011

3%

2%

2%

3% 24%

4% 13%

18%

14% 17%

Mining

Finances

Trade

Hydrocarbons

Communications Manufacturing Services

Transportation

Energy Other

Source: PROINVERSIÓN

CAPITAL CONTRIBUTION BY ECONOMIC SECTOR OF DESTINATION FOR 2011 Sector

Millions of US$

%

Mining

5,384.05

24.45%

Finance

4,056.21

18.42%

Communications

3,788.64

17.21%

Manufacturing

3,064.60

13.92%

Energy

2,893.92

13.14%

786.8

3.57%

Hydrocarbons

559.13

2.54%

Services

541.45

2.46%

Transportation

331.94

1.51%

Construction

294.88

1.34%

Fishing

163.01

0.74%

Tourism

76.55

0.35%

Agriculture

45.23

0.21%

Housing

31.86

0.14%

Forestry

1.24

0.01%

22,019.52

100.00%

Trade

TOTAL

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Problems The Peruvian labor regime has certain regulations that sometimes foreign investors, especially European find it not so attracting.

That is because the number of salaries has annually a slight variation compared with other countries of the region.

For instance, every Peruvian employee receives 15 wages yearly: 12 monthly salaries + 2 salaries for July and December and 1 salary called the CTS. In other words, apart from the twelve monthly wages in July and December, Peruvian employees receive a double salary plus one more salary called CTS (Compensation for the time worked in a company) which is because in Peru it does not exist an unemployment insurance.

Furthermore, there are still some companies that apart from the mandatory double salary, they must give their employees a special present for Christmas called in Spanish “Aguinaldo” which is usually a type of box with different products. Even though the Peruvian salary average is still one the lowest in the Latin American Region, in the last years there has been an increasing trend. Recently, the current president Humala raised the minimum salary up to S/. 750 (US$ 288). Moreover, if a company yearly in average has more than twenty employees in its staff and has profits for that period, by law it’s mandatory to do profit sharing among its employees. The percentage may differ depending on the company’s activity.

As for the migration regime, there are some limitations in hiring foreigners. For example, foreigners cannot exceed 20% of company’s personnel and their salaries cannot exceed 30% of the total of company’s salaries. There are however exceptions for managers, but this process takes some time. It’s worth mentioning that non-domiciled individuals are subject to a tax rate of 30% until they attain their domiciled situation.

Whereas the Government promotes foreign investment in the country by creating a safe environment to investors, there isn’t a clear migration policy to the increase of foreigners who come to Peru to work. The processes to take permissions or several other requirements take long (sometimes three months) and during this period foreigners are not legally allowed to work.

As for the corporate side, when investors want to provide services to the State, they have to register at the OSCE (the Supervising Entity of State Contracts in Spanish: Organismo Supervisor de Contrataciones del Estado) and/or if they want to invest in other economic sector they have to register in a certain entity. Sometimes these processes depending on its nature may take long periods of time. Nevertheless, there is an improvement process promoted by the Government in order to facilitate and speed up the registration of foreign companies.

Since the increase of foreign investment in different areas, there has been a boosting demand for specialists in different fields, especially in the mining sector. For example, the demand for topographers, geologists, social communicators, anthropologists and many other professions has enhanced considerably in the last years. However, the market is beginning to experience a less offer of specialists. This is because there aren’t many students who plan to study these careers and there aren’t many universities that offer them neither.

On the other hand, other important problems are the social conflicts that affect directly the execution of projects. During the last two years, some protests took place in provinces such as Cajamarca, Cusco, Ancash and southern Peru where mining projects where going on, in spite of the efforts of these companies to contribute to the regions development by improving the infrastructure, creating new jobs for the local villagers, building schools, applying Corporate Social Responsibility and several other changes.

However, the main reasons that explain the strong rejection against these projects are that the communities accuse the mining companies of contaminating their environment and they fear this would affect their land permanently which in a long-term basis would affect drastically their family’s health and work.

Due to these problems, some mining projects are currently on standby waiting for a mutual agreement between the villagers, the Government and the company through dialogue. However, the Government is trying to ameliorate these type situations by increasing its presence in the poorest provinces where the protests go on and try first to provide information to the communities about the investment’s benefits (schools, highways, electric power and infrastructure) before the execution of the project.

Piracy is still a considerable issue in the Peruvian market, even though the efforts of the Government to eradicate the commercialization of pirated or illegal products in Peru by strengthening penalties to the people behind this crime. According to INDECOPI, the country loses annually US$ 600 million on account of piracy22. The most affected are the film, music and book industry and at the present time, this has brought serious consequences to important bookstores, which are unable to compete with their illegal competitors who sell their books far more cheaper and can be sold in many places, especially best sellers which can be commercialized in many streetlights by ambulant vendors.

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Recommendations As businessmen and investors you may have many ideas of how to boost your business and probably you are always thinking how to find better opportunities to expand your products and services. Nowadays the world’s economy is coming to a crucial turning point and there are new potential markets emerging in different parts of the globe, specifically in the west coast of South America.

As a prominent Italian archaeologist once said, “Peru is a beggar sitting in a golden bench”, because he discovered the huge potential the country offered, but Peruvians unfortunately by that time, weren’t aware of the richness their territory possess.

Nevertheless, at the present time after experiencing dramatic economic situations, Peru’s economy has evolved vastly reaching one the rapidest growth rates in Latin America and in the world. In the last twelve years, Peru has had continuous developments in many sectors and there are many prestigious universities discussing “the Peruvian miracle”.

This development would not have been achieved if it was not for the political, economic and social measures adopted by the last four Governments, which encouraged foreign investors to come to Peru. Hence, as shown in this research, there are many projects in process and there are still more to come.

Peruvian sectors such as mining, construction, infrastructure, telecommunications, among others are still developing sectors that require a partner who can provide Peru with high technology, efficient sustainable high-quality machinery and has experience worldwide leading innovation. These descriptions could not describe best what Sweden offers to the world. Peru lacks what the Swedish industry may offer and since the FTA with Peru comes into force in March 2013, business opportunities for Swedish companies will abound, the only thing required is to think out the box.

Even though there are still some problems yet to solve, Peru is country that promotes competitiveness, sustainability, offers emerging markets in different sectors, a stable attracting legal framework and a save environment for investment.

So as mentioned above, among all the ideas you have to expand your products and find new profitable markets around the world, think about this quote, think about Peru.

“Om jag får 300 idéer på ett år och en är användbar, då är jag nöjd” Alfred Nobel

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Bibliography AMERICA ECONOMÍA (2012) El Saldo de la deuda pública en el Perú asciende 19.8% del PBI en el primer trimestre (http://www.americaeconomia.com/economiamercados/finanzas/peru-saldo-de-deuda-publica-asciende-198-del-pbi-en-el-primer-semestre) (Accessed 7.11.12) BANCO CENTRAL DE RESERVA (BCR) (2012) Página Principal del Banco Central de Reserva del Peru: Estadísticias (http://www.bcrp.gob.pe/estadisticas.html) (Accssed 9.11.12) BUENAVENTURA INGENIEROS (BISA) (2011) Memoria anual 2011 (http://www.bisa.com.pe/images/upload/paginaweb/archivo/3/Memoria%20BISA_2011.pdf?PHPSESSID=765590697b400bf6 8b6e7b44926cbe69) (Accessed 7.11.12) DOING BUSINESS (2012) Official webpage of Doing Business Measuring Business Regulations http://www.doingbusiness.org/data/exploreeconomies/peru/ (Accessed 6.11.12) EL COMERCIO (2012) El Perú es el segundo país más seguro para invertir en América Latina (http://elcomercio.pe/economia/1412943/noticia-peru-segundo-pais-mas-seguro-invertir-america-latina) (Accessed 8.11.12) GESTIÓN (2012) Perú es el tercer mejor país para hacer negocios en la región (http://gestion.pe/noticia/283455/peru-tercermejor-pais-hacer-negocios-region) (Accessed 8.11.12) GESTIÓN (2012) Utilidad de Cerro Verde cayó 4.9% en el segundo semestre (http://gestion.pe/empresas/utilidad-cerro-verdecayo-49-segundo-trimestre-2008776) (Accessed 9.11.12) GESTIÓN (2012) La canadiense Hudbay construye su proyecto Constancia en perfil bajo (http://gestion.pe/empresas/canadiense-hudbay-construye-su-proyecto-constancia-perfil-bajo-2011253) (Accessed: 9.11.12) GESTION (2012) Perú tuvo la inflación más baja de la región en la última década (http://gestion.pe/economia/peru-tuvoinflacion-mas-baja-region-ultima-decada-2050749) (Accessed 18.12.12) LA REPÚBLICA (2012) Así de forjó el acuerdo de Moquegua (http://www.larepublica.pe/10-08-2012/asi-se-forjo-elacuerdo-de-moquegua-con-el-proyecto-minero-quellaveco) (Accessed 9.11.12) MINISTERIO DE ECONOMÍA Y FINANZAS (MEF) (2011) Informe del Banco Central de Reserva sobre las proyecciones del Perú (http://www.bcrp.gob.pe/docs/Publicaciones/Programa-Economico/MMM-2012-2014-agosto.pdf) MINERANDINA (2012) Votorantim plans to invest US$ 3.2 billion in Peru until 2016 (http://www.minerandina.com/en/votorantim-to-invest-us-3-2-billion-in-peru-until-2016/) (Accessed 9.11.12) PROINVERSIÓN (2012) Marco Regulatorio en la Inversión (http://www.proinversion.gob.pe/RepositorioAPS/0/0/jer/PUBLICACIONES/documentos/Guia/esp/pdf/guia9.pdf) (Accessed 7.11.12) RPP NOTICIAS (2012) Reservas Nacionales suben a $62 235 millones (http://www.rpp.com.pe/2012-11-01-reservasinternacionales-de-peru-suben-a-us$-62-235-millones-noticia_536515.html) (Accessed 7.11.12) RPP NOTICIAS (2012) El Perú pierde US$ 600 millones anuales por la piratería (http://www.rpp.com.pe/2012-04-25-perupierde-us$-600-millones-anuales-por-pirateria-noticia_475462.html) (Accessed: 20.12.12) PERU.COM (2012) Scotiabank invertirá US$ 40 millones en el Perú (http://peru.com/2011/09/08/actualidad/economia-yfinanzas/scotiabank-invertira-us40-millones-peru-2012-noticia-19523) STRACON (2010) Información sobre cartera de proyectos (http://www.stracon.net/es/pdf/STRACON_groupnews_-_vol_5__jul_2010_-_Spanish.pdf) (Accessed 8.11.12) WALSH PERÚ (2012) Estudio de Impacto Ambiental Proyecto Modificación de los componentes de la central hidroeléctrica Cerro del Águila (http://www.regionhuancavelica.gob.pe/portalweb/descargas/Direccion%20Energia%20y%20Minas/2012/estudio/Resumen-Ej ecutivo-Mod-EIA-central-hidroelecrtica-cerro-aguila.pdf) (Accessed: 8.11.12) WORLD BANK (2012) Official Web site of the World Bank (http://datos.bancomundial.org/indicador/NY.GDP.MKTP.KD.ZG/countries) (Accessed 17.12.12) YANACOCHA (2012) Página Oficial de Yanacocha: Folleto Informativo del Proyecto Conga (http://www.yanacocha.com.pe/wp-content/uploads/Folleto-informativo-del-Proyecto-Conga.pdf) (Accessed 9.11.12) CHAPTER N° 2 / Investment Projects In Peru 2012-2020

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References MEF: 2012 World Bank: 2012 3 América Economía: 2012 4 RPP: 2012 5 El Comercio: 2012 6 Gestión: 2012 7 Gestión: 2012 8 World Bank: 2012 9 Doing Business: 2012 10 Yanacocha: 2012 11 Gestión: 2012 12 Minerandina: 2012 13 La República: 2012 14 Stracon: 2010 15 Bisa: 2011 16 Gestión: 2012 17 Walsh Perú: 2012 18 PROINVERSIÓN: 2012 19 PROINVERSIÓN: 2012 20 BCR: 2012 21 Peru.com: 2012 22 RPP: 2012 1 2

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Peruvian Imports and Swedish Exports to Peru CHAPTER N째 3

Introduction During the last ten years, Peruvian imports have experienced a significant evolution. This rapid unfolding wouldn’t have been possible if it wasn’t for the remarkable development of certain sectors in Peru, such as the agricultural, construction, mining and transport.

Peru has been one of the main promoters of market economy in Latin America. Since 2000, the Peruvian Government has signed Free Trade Agreements (FTA) with important countries or economic groups in order to promote national products around the world and penetrate different markets in the five continents.

Nowadays, Peru has commercial agreements with Canada, Chile, China, Cuba, EFTA, Japan, Mexico, Panama, Singapore, South Korea, Thailand and United States. The coming FTAs are with the European Union (March, 2013), Costa Rica, Guatemala and Venezuela and several other are still under negotiation. These agreements will boost trade between Peru and these countries which eventually will have a noteworthy impact in the export and import flows.

This chapter will be focused firstly in showing the development of Peruvian imports starting with a brief introduction of the exports evolution for comparison. Secondly, it will explain the evolution of the imports groups as well as the subgroups. Thirdly, it will show the ten most important supplying countries to Peru by country and by region from 2005 to 2011 and then explain the evolution of the trade balance for a nine-year period between Peru and Sweden, by emphasizing the Swedish exports to Peru and their potential for the next years.

Finally, it will explain the Peruvian imports regime regarding procedures, costs, taxes and several other requirements and then a brief introduction to the benefits that the EU products will have after the FTAs entries into force.

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Peruvian exports and imports a. Introduction to Peruvian Exports Peruvian exports are divided into three groups: traditional, non-traditional goods and other. In the last nine years, exports have risen over 500% as a result of the increase of the traditional goods, which have taken an important share of Peruvian exports, usually more than 50% every year. This important contribution is especially due to the mining and hydrocarbons industry, which leads by far the exports, sharing nearly 70% of all Peruvian exports.

In addition to that, there are still other developing sectors, such as the fishing and agricultural, which represent respectively 7% and 10% of 2011 Peruvian exports. It’s worth mentioning that the exports growth rate of these industries is one of the highest in the Peruvian exports.

The following graphs show the evolution of the exports and their share on GDP for the period 2003-2011: Evolution of Peruvian Exports: 2003-2011 US$ million

2003

2004

2005

2006

2007

2008

2009

2010

2011

8940

12726

17230

23574

27800

31163

26624

35073

46001

Source: SUNAT

Exports Share in National GDP: 2003-2011 % GDP 25.6 14.5

18.2

21.7

26.0

24.5

20.9

22.8

26.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

76

The following table shows the structure of Peruvian exports according to the National Entity of Controlling Taxes and Custom Duties (SUNAT)1:

PERUVIAN EXPORTS: 2011 US$ million

∆ 2011/2010

Exports share

Traditional goods

35,515

28%

77%

1

Mining

27,027

23%

59%

2

Fishing

2,099

11%

5%

3

Oil and Natural gas

4,705

52%

10%

4

Agricultural

1,684

73%

4%

Non-Traditional goods

10,192

32%

22%

6

Agricultural

2,843

29%

6%

7

Textile

1,991

28%

4%

8

Fishing

1,051

62%

2%

9

Chemical

1,652

35%

4%

10

Metal-mechanic

482

20%

1%

11

Ironworks

1,051

20%

2%

12

Non-metallic mining

492

95%

1%

13

Rest

629

182%

1%

294

20%

1%

46,001

28%

100%

Other TOTAL

The last subgroup the “Rest” classified in the non-traditional goods includes handcrafts, woods and paper, jewelry among others and these have risen 182%. Although it is not a significant group in the exports, woods and paper share in the last six years more than 50% of the subgroup.

On the other hand, the main destinations of 2011 exports were China (15% of exports), Switzerland (13%), United States (13%) and Canada (9%).

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b. Peruvian imports Peruvian imports in the last nine years have experienced as well, important evolutions reaching 482%. However, for 2009, the exports as well as the imports were affected by the international crisis which lowered the demand. Peru’s market openness has contributed to find new partners, which has promoted the flow of new products in national territory.

The imports are divided into three main groups: consumption, raw material & intermediate and construction & capital goods.

Imports of raw material & intermediate goods have become the most important group, especially the intermediate goods for the industry, which have been the leading imports since 2003 until 2011.

The following graph shows the evolution of Peruvian imports and trade balance for the periods 2003-2011:

Evolution of Peruvian Imports: 2003-2011 US$ million

2003 2004 2005 2006 2007 2008 2009 2010 2011 7824

9287 11508 14236 18980 25880 20460 29966 37732

Source: SUNAT

Evolution of Peruvian Trade Balance: 2003-2011 (US$ million) Exports Imports

50000 40000 30000 20000 10000 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

78

The following table shows the structure of Peruvian imports according to the National Entity of Controlling Taxes and Custom Duties (SUNAT)2:

PERUVIAN IMPORTS: 2011 US$ million

∆ 2011/2010

Imports share

Consumption goods

6,810

19%

18%

1. Non-durable goods

3558

22%

9%

2. Durable goods

3252

16%

9%

18,463

27%

49%

3. Fuels & lubricants and related products

5,929

41%

16%

4. Raw material and intermediate goods for agriculture

1,187

22%

3%

5. Raw material and intermediate goods for industry

11,347

22%

30%

Capital goods & Construction materials

12,427

27%

33%

1,606

30%

4%

117

37%

0%

8. Capital goods for industry

7,714

31%

20%

9. Transport equipment

2,990

18%

8%

Other

31

622%

0%

Total

37,731

26%

100%

Raw material & Intermediate goods

6. Construction materials 7. Capital goods for agriculture

Share of Peruvian Imports: 2011

18%

33%

49%

Consumption Goods

Intermediate Goods

Capital Goods

Source: SUNAT

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79

c. Peruvian imports by groups The Peruvian imports are divided into three groups: consumption goods, raw material & intermediate goods and construction materials & capital goods.

Imports of consumption goods are the less important regarding volume and growth. Although their evolution has been positive since 2003, these do not represent a significant share (18% for 2011) compared to the other two groups. This group is divided into two subgroups: non-durable and durable consumption goods. Non-durable goods which are mainly primary and processed foods, beverages, tobacco, garments, cosmetics and pharmaceutical products have been the most important subgroup for the last years.

On the other hand, durable consumption goods which are household utensils, ornaments, furniture, appliances and transport vehicles, have had a slightly less evolution than the non-durable but still the growth rates of both products have followed the same trend as shown in the following graph: Imports of Consumption Goods: 2003-2011 (US$ million) Non-durable Durable 4000 3000 2000 1000 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

Imports of raw material and intermediate goods are the most important by sharing almost half of total imports for 2011 with US$ 18,000 million. This group as shown in the previous table is divided into three groups.

First, the most important subgroup of all Peruvian imports: intermediate goods for industry. This subgroup has the highest growth rates and shares 30% of total imports as a result of the developing market. Secondly, fuels & lubricants and related products share the second place in this group (16%) and for 2011, it had the fastest growth rates (41%) of every subgroup in the three import groups. Finally, intermediate products for agriculture, which are mainly primary and processed food for animals, represent the lowest share in the subgroup.

The following graph shows the evolution of the three subgroups: Imports of Intermediate Products: 2003-2011 (US$ million) Fuels & Lubricants and related products Intermediate Products for Industry

Intermediate Products for Agriculture

15000 10000 5000 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

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80

Imports of capital goods and construction materials have experienced as well a growing trend since 2003. This group is divided into four subgroups: construction materials, capital goods for agriculture, capital goods for industry and transport equipment.

The most important subgroup is capital goods for industry, which are mainly tools, machinery and parts for industrial sectors. It is worth highlighting that along with the intermediate goods for the industry, they almost represent 50% of total Peruvian imports.

Imports of Capital Goods: 2003-2011 (US$ million) Construction Materials Cap. Goods for Industry

Cap. Goods for Agriculture Transport Equipment

10000 8000 6000 4000 2000 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

The following graph shows the evolution of the total Peruvian imports in the last nine years: Evolution of Peruvian Imports: 2003-2011 (US$ million) Consumption Goods Capital Goods

Intermediate Goods

20000 15000 10000 5000 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

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81

d. Peruvian imports by subgroups Peruvian imports are divided into nine subgroups, which two belong to the consumption goods, three to raw material & intermediate goods and four to construction materials & capital goods.

i. Consumption Goods:

These goods are classified into two groups: non-durable and durable consumption goods3:

1.

Non-durable Consumption Goods:

2011 (CIF US$ million)

Non-Durable Consumption Goods

Variation % (2010-2011)

Share %

125.47

13.64%

0.33%

1093.44

19.47%

2.90%

Beverages

80.16

18.54%

0.21%

130

Tobacco

25.59

-7.22%

0.07%

140

Pharmaceutical and cosmetics

802.36

15.08%

2.13%

150

Garments and other textile products

527.91

40.89%

1.40%

190

Other non-durable consumption goods

902.87

26.33%

2.39%

3,557.80

22.37%

9.43%

111

Primary Food

113

Processed Food

120

TOTAL

Imports of Non-Durable Consumption Goods: 2003-2011 (US$ millions) US$

4000

3557.8

3500 3000

2907.5

2500

2387.8

2000 1500 1000

1050

1165

1259

1490.3

2178.8

1789.4

500 0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

This group had a 9.43% share of the whole Peruvian imports for 2011. The products that had a considerable increase were garments and other textile products reaching 40.89% and other non-durable consumption goods with 26.33%. However, imports of tobacco have decreased 7.22% due to increasing restrictive policies of the Government.

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82

2.

Durable Consumption Goods:

2011 (CIF US$ million)

Durable Consumption Goods

Variation % (2010-2011)

Share %

210

Household utensils

157.58

19.32%

0.42%

220

Ornaments, Musical Instruments, other

505.61

23.70%

1.34%

230

Furniture and other home equipment

246.94

21.12%

0.65%

240

Appliances

881.67

15.11%

2.34%

250

Transport Vehicles

1,453.25

12.94%

3.85%

290

Weapons and Military Equipment

7.40

37.55%

0.02%

3,252.45

16.04%

8.62%

TOTAL

Imports of Durable Consumption Goods: 2003-2011 (US$ millions) US$ 3500

3252.4

3000

2802.7

2500

2282.7

2000

1859.4

1500 1000 500

771

813.3

885.6

1180.4

1486.9

0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

The imports of durable consumption goods are growing slowly. The most important products are ornaments, musical instruments and other. These products have grown 23.70% and they represent the second biggest variation of the group.

The biggest variations are products intended for the armed forces, such as weapons and military equipment. This is part of to the recent policies of the Government to modernize the armed forces equipment. Nevertheless, these sorts of products have a restrictive control and commercialization and they don’t represent an important share in this group, so this growth is just casual.

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83

ii. Raw Materials and Intermediate Goods:

These goods are classified into three groups: fuels & lubricants and related products, raw materials and intermediate products for agriculture and raw materials and intermediate products for the industry.

1.

Fuels & lubricants and related products 2011 (CIF US$ million)

Fuels, Lubricants and related products 311

Primary Fuels

312

Semi-processed fuels

313

Processed Fuels

320

Lubricants

330

Electricity

TOTAL

Variation % (2010-2011)

Share %

3,741.19

34.13%

9.92%

7.26

377.63%

0.02%

1,912.63

58.05%

5.07%

264.66

20.68%

0.70%

3.66

-

0.01%

5,929.40

40.50%

15.71%

Imports of Fuels & Lubricants and Related Products: 2003-2011 (US$ millions) US$ 7000 6000 5000 3000 1000

4220.2

3812

4000 2000

5929.4

5444.8

1472

1873

2317.1

3063.3

2942.9

0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

Peru is becoming more dependent of fuel import. That’s because the national production in the last thirty years is reaching its final process. Nowadays, fuels are 65% imported and 35% of national production but these proportions will vary substantially for the next years. Processed fuels represent 5.07% of the national imports and this share is expected to grow.4 For 2010, there were no imports of electricity. Therefore, the National Entity of Controlling Taxes and Custom Duties (SUNAT) considers there is no variation.

2.

Raw materials and intermediate products for agriculture Raw materials and intermediate products for agriculture 411 Primary food for animals

2011 (CIF US$ million)

Variation % (2010-2011)

Share %

3.73

18.41%

0.01%

421.97

9.52%

1.12%

413 Processed food for animals

73.14

24.16%

0.19%

421 Other raw materials for agriculture (natural)

74.96

0.56%

0.20%

613.47

35.22%

1.63%

1,187.27

21.70%

3.15%

412 Semi-processed food for animals

423 Other raw materials for agriculture (processed) TOTAL

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

84

Imports of Raw Materials and Intermediate Products for Agriculture: 2003-2011(US$ millions) US$

1400 1187.3

1200

1005.8

1000 800

975.6 854.3

697

600 400

314.4

200

404.1

377.7

495.1

0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

The agricultural development has encouraged and promoted imports of food for animals in the last five years. However, this increase hasn’t been as dynamic as other intermediate groups. For 2011, this subgroup had the lowest share of the group with 3.15% of imports. Other raw materials for agriculture (processed) were the most important products with US$ 613.47 million and the most significant growth rates (35.22%) for the same period.

3.

Raw materials and intermediate products for industry Raw material and intermediate products for industry

2011 (CIF US$ million)

Variation % (2010-2011)

Share %

1,325.3

36.5%

3.51%

Semi-processed food products

633.2

22.7%

1.68%

521

Agricultural non-food primary products

300.8

44.8%

0.80%

522

Agricultural non-food semi-processed products

450.3

15.2%

1.19%

523

Agricultural non-food processed products

1,166.4

19.8%

3.09%

524

Agricultural non-food waste products

18.9

14.8%

0.05%

531

Mining primary products

100.3

12.5%

0.27%

532

Mining semi-processed products

1,345.7

4.6%

3.57%

534

Mining processed products

1,630.6

27.4%

4.32%

552

Mining waste products

98.88

-22.3%

0.26%

553

Chemical pharmaceutical primary products

3,728.8

27.6%

9.88%

547.6

7.4

1.45%

11,346.8

22.14%

30.07%

511

Primary food products

512

Chemical pharmaceutical semi-processed products TOTAL

Imports of Raw Materials and Intermediate Products for Industry: 2003-2011(US$ millions) US$

12000

11346.6

10000 6394.8

6555.5

2003 2004 2005 2006 2007

2008 2009

6000 4000 2000

9290.1

8788

8000

2746.2

3346.5 3622.8

4803.3

0

2010 2011

Source: SUNAT

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

85

This is the most important group of the national imports with a 30.07% share. The most important products are the chemical pharmaceutical primary products and all sorts of mining products, due to the rapid development of the mining industry that demands components for an efficient execution of projects.

iii. Capital goods and construction materials

These goods are classified in four groups: construction materials, capital goods for agriculture, capital goods for industry and transport equipment.

1.

Construction materials 2011 (CIF US$ million)

Construction materials 611

Natural raw material

612

Semi-processed

613

Processed

TOTAL

Variation % (2010-2011)

Share %

4.70

39.47%

0.01%

426.12

21.71%

1.13%

1,175.58

33.02%

3.12%

1,606.40

29.83%

4.26%

Imports of Construction Material : 2003-2011(US$ millions) US$

2000 1000 500 0

1606.4

1469.8

1500

223.8

216.8

303.3

533.5

939.9

659.4

2003 2004 2005 2006 2007

2008 2009

1237.3

2010 2011

Source: SUNAT

The construction sector is experiencing one of the most dynamic moments ever. This sector has developed really fast during the last ten years. Therefore, their inputs have had a similar increase. For that reason, the three components of this group have reached a very positive growth, especially the natural raw material which is expected to keep growing.

2.

Capital goods for agriculture 2011 (CIF US$ million)

Capital goods for agriculture 710

Machinery and tools

720

Other equipment for agriculture

730

Transportation and traction material

TOTAL

Variation % (2010-2011)

64.97

33.77%

0.17%

2.69

-25.90%

0.01%

48.90

47.56%

0.13%

116.56

47.56%

0.31%

Imports of Capital Goods for Agriculture: 2003-2011 (US$ millions) US$

140 116.6

120 99.6

100

76.2

80 60 20

85.4

55.2

40 18.3

31.5

37

Share %

33.6

0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

CHAPTER N째 3 / Peruvian Imports and Swedish Exports to Peru

86

This group is the less important of the intermediate goods (0.31% of total imports). Even though machinery and tools and transportation and traction material have had a very positive growth in the last two years, the amounts aren’t still significant. On the other hand, there has also been a consequent contraction of the imports of other equipment for the agricultural sector.

3.

Capital goods for industry 2011 (CIF US$ million)

Capital goods for industry

Variation % (2010-2011)

Share %

1,326.59

19.72%

3.52%

820 Tools

213.58

28.96%

0.57%

830 Parts and accessories of industrial machinery

650.10

39.13%

1.72%

840 Industrial machinery

3,948.42

33.62%

10.46%

850 Other fixed equipment

1,575.35

29.98%

4.18%

TOTAL

7,714.04

30.57%

20.44%

810 Machines and office & scientific devices and instruments

Imports of Capital Goods for Industry: 2003-2011(US$ millions) US$ 10000 8000

6121.8

6000 4000 2000

2079.3 1465.9 1703.2

2910.8

4185.8

7714 4745

5907.9

0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

The capital goods for the industry have being growing rapidly as a result of the increasing demand of the construction, manufacturing and mining sector. Hence, the industrial machinery is the leading component of the group. The imports of these machineries and their parts had a 12.18% share in total Peruvian imports for 2011.

4.

Transport equipment 2011 (CIF US$ million)

Transport equipment

Variation % (2010-2011)

Share %

910 Parts and accessories of transport equipment

1,004.69

19.64%

2.66%

920 Rolling stock of transport

1,936.16

17.80%

5.13%

49.37

-3.98%

0.13%

2,990.22

17.97%

0.31%

930 Fixed equipment of transport TOTAL

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87

Imports of Transport Equipment: 2003-2011(US$ millions) US$ 3500 2990.2

3000 2500

2534.7

2245.8

2000 1500 1000 500

513.8

360.4

624.4

925.6

1525.2

1347.7

0

2003 2004 2005 2006 2007

2008 2009

2010 2011

Source: SUNAT

The imports of parts, accessories and rolling stock for transport have had a positive growth and these rates are expected to boost for the next years5. This is because the latest mining projects of Toromocho executed by the Chinese CHINALCO and several other mining projects along with the Government have promoted an initiative to improve the highways infrastructure around the country.

e. Peruvian services imports Peruvian services imports have been growing progressively during the last years. From 2003 to 2008, imports grew 212%. The main imported services were transport services, especially the sea freights services, which shared nearly 84% of all these transport services. Other important imported services are intended to the sectors of tourism, telecommunications and insurances. Insurances in the last five years have had progressive advances and it is expected to maintain this positive trend.

The following chart shows the evolutions of the main groups of services imports according to the last report of the Andean Community6: Peruvian Services Imports: 2003-2008 (US$ million) Transport Communications

Tourism Insurance

Other

3 000 2 500 2 000 1 500 1 000 500 0

2003

2004

2005

2006

2007

2007

Source: Comunidad Andina

Trade in services as part of GDP has been quite stable since 2003. However, since 2008 it is experiencing a slight decrease in the share on GDP as the following graph shows7: Peruvian Trade in Services: 2003-2011 %GDP

2003 2004 2005 2006 2007 2008 2009 2010 2011 7.1

6.8

6.8

6.6

7

7.4

6.7

6.3

6.1

Source: World Bank

CHAPTER N째 3 / Peruvian Imports and Swedish Exports to Peru

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Top 10 Supplying Countries and Regions (2005-2011) From 2005 to 2011, the main exporters to Peru have experienced certain changes, not only in the presence of new actors, but also in the share of each one of them. Since 2005, USA was the most important exporter to the Peruvian market. For that period, as shown in the chart of imports by region, 22% of all imports came from North America from which 78% was imported from the United States.8 However, even though imports have been increasing due to the FTA which recently came into force, a new competitor has shortened US share and for the next years, it is expected to surpass it. By 2005, China had 8% share in the imports with 10% difference from the leader US. Nevertheless, China’s share through the last years has progressively strengthened and nowadays there is only 2% difference between these two countries. This is due the increase of trade flows and tariff preferences owing to the FTA that Peru signed as well with the Asian country. By 2012, China became Peru’s most important trading partner regarding exports and soon in imports.

As for other important Asian countries, Japan has always been a significant commercial ally for Peru, but in the last two years, Peru has found another strategic trading partner that provides efficient technology and vehicles to the market. South Korea has taken Japan’s top 10 places and for the next years, it is expected to increase its share. Consequently, for 2011 imports from Asia were 51% from China, 12% from South Korea and 10% from Japan. It’s worth mentioning that Peru has already signed FTAs with these two countries as well.

Furthermore, Peru’s neighboring countries have always been important suppliers in the region and although shares have varied in the last years, Ecuador, Argentina, Colombia, Chile and especially Brazil have always been important trading partners of Peru.

However, in the last seven years, their share in the Peruvian imports has been affected due to the competition with the Asian countries. Thus, their share from 2005 to 2011 lowered 11%.

Likewise, the share of imports from Europe has decreased for the same period. Nevertheless, since the FTA with this region comes into force in March 2013, it is expected that their share will enhance the trade flows between Peru and the EU countries, which eventually will have a big impact in the share of other regions. For 2011, the most important suppliers were Germany (26% of 2011 imports from Europe), Italy (13%), Spain (13%) and Sweden (9%).

For the regions of Africa and Australia, these currently do not represent an important share (3%) in the imports. The most important African supplier is Angola with 62% of total imports from this region and it is ranked in the 12th place as the main supplying countries to Peru. Meanwhile, Australia and New Zealand barely represented respectively 0.3% and 0.1% of total Peruvian imports for 2011.

Peruvian Imports by Country: 2005

Peruvian Imports by Country: 2011 18%

34%

19%

32% 8%

17% 8% 4%

4% 4%

7% 5%

4%

6%

6%

6% 4% 4%

5%

5%

USA

China

Brazil

Ecuador

Colombia

USA

China

Brazil

Ecuador

Argentina

Argentina

Chile

Venezuela

Japan

Other

South Korea

Colombia

Mexico

Chile

Other

Source: SUNAT

Source: SUNAT

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

89

Peruvian Imports by Region: 2005

Peruvian Imports by Region: 2011

1%

14%

0%

11%

39%

28%

33%

20%

4%

Latin America

North America

Africa

Asia

Europe

25%

3%

22%

Oceania

Latin America

Source: SUNAT

North America

Africa

Asia

Europe

Oceania

Source: SUNAT

Swedish exports to Peru a. Trade Balance between Sweden and Peru9 Peruvian Exports to Sweden: 2001-2011 (Millions of US$) US$ 350

327.9

300 250 200

185.4

150 100 50 0

10.5

18.6

26.3

26.8

213.7 145.4

65.16 79.71 66.54

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

Main exported products: Copper minerals, raw coffee, zinc manufactures, fresh and dry tangerines, fresh asparagus and processed mangoes.

Peruvian Imports from Sweden:2001-2011(Millions of US$) US$ 500 400

266.35

300

234.4

200 100 0

389.4

56.3

40.6

43.2

53.2

89

115.6

168.8

159.1

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

The following graph shows the evolution of the trade balance for both countries. As shown, there is a negative balance for Peru since 2001 and the gap for the period 2001-2011 has enlarged progressively. Although the difference was not so big after the decrease in 2009 due to the economic crisis in Europe which affected imports and exports worldwide, Swedish exports to Peru have enhanced rapidly.

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Trade balance between Peru and Sweden: 2001-2011(Millions of US$) Peruvian Exports to Sweden

Swedish Exports to Peru

450 400 350 300 250 200 150 100 50 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SUNAT

For 2003, Swedish exports were in the 29th position in the list of supplying countries to Peru. However, for October 2012, Sweden rose 9 places up to the 20th position exceeding France, United Kingdom, Russia and Venezuela. It’s worth highlighting that Peruvian imports from Sweden represented 1.03% of 2011 Peru’s Total Imports and Peruvian exports to Sweden represented 0.71% of Total Peruvian exports for the same period.

On the other hand, Swedish imports from Peru represented 0.2% of Total Swedish Imports for 2011. Swedish exports to Peru represented likewise 0.2% of Total Swedish Exports.10

b. Imported products from Sweden According to the database of the National Entity of Controlling Taxes and Custom Duties (SUNAT) and the Swedish Trade Council, products imported from Sweden are mainly machinery and mechanical appliances, electrical equipment and their parts. The goods are mainly intended for the construction, transport, and mining sectors, which as result of their rapid boost, products of high quality are been demanded.

The following charts show the top 10 imported products from Sweden for 201111 Share %

Swedish products exported to Peru

Graph Code

Imported Value US$ million

8704

Motor vehicles for the transport of goods (exceeding 20 tonnes)

M. Vehicles

64.33

8701

Road tractors for semi-trailers

R. Tractors

40.95

8429

Front-end shovel loaders

S. Loaders

30.73

8430

Other moving, grading, levelling, scraping, excavating, tamping, compacting, extracting or boring machinery, for earth, minerals or ores; pile-drivers and pile-extractors (self-propelled)

Machinery

30.22

8411

Turbo-jets, turbo-propellers and other gas turbines. (Of a power exceeding 5,000 kW)

Turbines

17.03

8207

Other drill bits expect the diamond bits

Drill Bits

13.25

8414

Air or vacuum pumps, air or other gas compressors and fans; ventilating or recycling hoods incorporating a fan, whether or not fitted with filters

Pumps

10.50

8207

Interchangeable tools for hand tools, whether or not power operated, or for machine-tools (for example, for pressing, stamping, punching, tapping, threading, drilling, boring, broaching, milling, turning or screw driving), including dies for drawing or extruding metal, and rock drilling or earth boring tools.

Tools

9.02

7225

Flat-rolled products of other alloy steel, of a width of 600 mm or more.

S. Products

8.53

8411

Turbo-jets, turbo-propellers and other gas turbines.(Parts)

Turb. Parts

7.40

Other

157.38

2011 TOTAL SWEDISH EXPORTS TO PERU

398.34

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91

Peruvian Imports from Sweden: 2011 17% 40% 11%

8%

2%

8% 2%

M. Vehicles Drill Bits

2%

3%

R. Tractors

Pumps

4%

3%

S. Loaders

Tools

Machinery

S. Products

Turbines

Turb. Parts

Other

The following charts show the evolution of the main five Swedish exports from 2006 to 2011 in US$ million: (Products abbreviations are explained in the first chart of Swedish exports 2011)

Source: SUNAT

2006

2006

2006

2006

2006

2006

M. Vehicles

1.0

2.0

4.0

7.10

23.73

64.33

R. Tractors

7.65

5.37

17.67

10.83

27.80

40.95

S. Loaders

11.44

17.61

21.78

17.68

23.96

30.73

Machinery

7.24

10.50

5.24

4.75

14.66

30.22

Drill Bits

4.66

5.53

4.28

6.74

9.20

13.25

Top 5 Swedish Exports

Import Evolution of Top 5 Swedish Exports to Peru: 2006-2011(US$ million) S. Loaders Machinery

M Vehicles R. Tractors

Drill Bits

80

TĂ­tulo del eje

60 40 20 0

2006

2007

2008

2009

2010

Source: SUNAT

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92

2011

However, for the last five years, there have been other products which didn’t appear in top 10 ranking for 2011 but they were in the Top 10 imported products from Sweden from 2005 to 2010. These were the following 12,13,14.

HS Code

Products

3102

Mineral or chemical fertilizers, nitrogenous

7219

Flat-rolled products of stainless steel, of a width of 600 mm or more.

7225

Flat-rolled products of other alloy steel, of a width of 600 mm or more.

7228

Other bars and rods of other alloy steel; angles, shapes and sections, of other alloy steel; hollow drill bars and rods, of alloy or non-alloy steel.

8525

Transmission apparatus for radio-broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras, digital cameras and video camera recorders.

8532

Electrical capacitors, fixed, variable or adjustable (pre-set).

8535

Electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits (for example, switches, fuses, lightning arresters, voltage limiters, surge suppressors, plugs and other connectors,junction boxes), for a voltage exceeding 1,000 volts.

9018

Instruments and appliances used in medical, surgical, dental or veterinary sciences, including scintigraphic apparatus, other electro-medical apparatus and sight-testing instruments.

c. Main Importers The majority of companies that import from Sweden are established Swedish companies in Peru. Atlas Copco and Volvo are interesting cases because as a result of the increasing demand of machinery suppliers and motor vehicles for the mining sector, imports have increased substiantially.

Apart from the Non-Swedish companies, Pluspetrol Peru Corporation is an Argentinian company which is the largest oil and gas producer in Peru and the most important gas producer in Argentina and has become one the main importers of Swedish machinery.

The following graph shows the main companies that imported from Sweden for 2011:

Main Importers from Sweden: 2011 15%

32%

22%

2% 2% 2%

2%

2%

12% 2% 7%

Volvo

ABB

Atlas Copco

Fame SA Explosivos

Pluspetrol Peru Corporation Scania

Sandvik

Tetra Pak

SSAB Oxelosund SKF

Other

Source: SUNAT

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93

The following graph shows the evolution of the main importers from Sweden in the last seven years: Imports Evolution from Sweden of Main Swedish Importers: 2005-2011(US$ million) Atlas Copco Volvo

Sandvik Tetra Pak

Cia. Ericsson

120 100 80 60 40 20 0

2005

2006

2007

2008

2009

2010

2011

Source: SUNAT

d. Potential Swedish exports to the Peruvian market This chapter has shown that over the last nine years, the most developing and potential subgroups of imports have been intermediate and capital goods for the industry. These two subgroups have had the fastest growth rates and they both had an important share in the imports for 2011 with nearly 50% of total.

As mentioned, this has been to the lack of the Peruvian industry in developing machinery for the emerging sectors, such as mining, construction and transport, which has increased imports of high-quality machinery. However, although there’s a hard competition going on between French, German, American and Asian companies, these products coincidentally are the Swedish main exports to the world, so it is important to consider the possible decisive role these types of Swedish products would have in the Peruvian market.

The demand of this type of machinery for these industries is definitely going to grow, these sectors are emerging very fast so there is a big chance for Swedish pumps, drills, vehicles, etc. Hence, it is important to define a strategy in order to promote these products and reach potential clients in Peru.

For example, motor vehicles for transportation of goods (M. Vehicles) didn’t had a significant growth from 2006 to 2009. These products didn’t even appear in the top 10 ranking of imported products from Sweden. Nevertheless, by 2010 there was a tremendous enhancement of their imports reaching a growth of 330%. For 2011, there has been an increase of 270% compared to 2010 in the imports of vehicles. In other words, nowadays there is a positive trend for Swedish motor vehicles in Peru.

Road tractors of semi-trailers (R. Tractors) are the second most important Swedish export to Peru. In 2008 exports grew 328% compared to 2007 and after a slight slowdown due to the crisis in 2009, in 2010 Swedish exports of these goods to Peru rose above 250%. For 2011, there was a 147% growth and it is expected to maintain this tendency for the coming years.

Even though Front-end shovel loaders (S. Loaders) haven’t experienced a significant increase in the last years as the other main products, they have got a continuous and stable positive trend and has always been part of the top 10 ranking of Swedish exports to Peru.

Other self-propelled machinery for scraping, excavating and for other purposes (Machinery) as the S. Loaders, have always been part of the Top 10 ranking. However, in spite of the little exported amounts from 2006 to 2009, its worth mentioning that from 2009 up to 2011 there has been a 636% growth in their exports. Hence, there is a high possibility that these goods may become promising Swedish exports to this part of the region.

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94

Other drill bits expect the diamond bits (drill bits) as well as the other products have always been in the Top 10 ranking. Their exports however don’t represent a meaningful quantity (US$ 13 million) for 2011. Between 2006 and 2011, these goods have got a 280% growth in their exports.

Other interesting products are the air or vacuum pumps (pumps) that for 2011 only appeared in the Top 10 and from 2006 to 2010, their share was very little and didn’t represent an important product in the Swedish exports. However, from 2010 to 2011, exports rose 13,025% which means the exported value grew from US$ 0.08 million for 2010 to US$ 10.5 million for 2011.

Turbo-jets, turbo-propellers and other gas turbines appeared in the Top 10 only in 2008 with US$ 23.8 million and in 2011 with US$ 17.026 million. There hasn’t been a regular tendency but according to the latest report of October 2012, they are in the Top 10 with US$ 15.5 million. It’s worth highlighting that the exports of these goods aren’t regular across the year, but only in February, that means the rest of the year exports are zero.

Mineral or chemical fertilizers, nitrogenous didn’t appear in the top 10 ranking for 2011, however for 2009 and 2010 they did, reaching respectively US$ 10.8 and US$ 7.7 million. Furthermore, from January to October 2012, the Swedish exports of these goods to Peru reached US$ 22.08 million currently taking the 2nd place and will definitely become an important Swedish export for the year.

Swedish exports of electrical apparatus for switching or protecting electrical circuits, or for making connections to/or in electrical circuits for 2010 were US$ 8.2 million. For 2011, exports decreased considerably below the US$ 7.0 million but for 2012, exports have increased slowly reaching US$ 9.7 million.

Finally, imports of paper and cartons are growing in Peru. For 2011, imports were US$ 258 million, 20% more than 2010 owing to the strong domestic demand. Although the main suppliers are regional countries, approximately 7% came from Finland, so there can be an opportunity for the Swedish paper to increase its presence in the Peruvian market.

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

95

Peruvian Imports Regime and Peru-EU FTA Tariff benefits a. Peruvian Imports Regulation and Procedures i. General Aspects

According to law, every person who has a Single Taxpayers Register number in Spanish (RUC) or Company’s ID number may do an import15, 16. The only types of imports that are not permitted are the goods classified as prohibitive and restrictive.

However, restrictive goods may be allowed only if the company or natural person obtains an especial permission by the Government or by the Ministry of a determined sector.

ii. Import Regimes 1.

Import for Consumption

2.

Re-import in the same condition

3.

Temporary admission for re-export in the same condition

In this type of procedure, goods for consumption are allowed to enter Peruvian territory after the payment or guarantee deposit, as well the payment of custom duties and other applicable taxes, charges or fines.

This type of procedure allows the earlier definite exported goods to enter Peruvian territory without payment of customs duties and other type of taxes, provided that exported goods has undergone any type of transformation, improvement or repair abroad, otherwise it is not subject to the export benefits hereof.

This procedure allows goods to enter Peruvian territory with relief from payment of customs duties and other taxes or charges. If any applicable to the import for consumption, provided that such merchandise can be identified and is intended to be re-exported to a certain destination within a fixed term, no modification of these conditions are allowed.

iii. Types of Import dispatches

There are two types of dispatches depending on the amount and the nature of goods: 1. Samples without commercial value which don’t exceed US$ 1,000 or goods which don’t exceed US$ 2,000 are subject to the Simplified import dispatch.

2. When goods exceed US$ 2,000, the importer has to submit the Single Customs Declaration or in Spanish (Declaración Única de Aduanas or DUA) and it is subject to a Definite Import Dispatch. Moreover, during this process it is mandatory the presence of a customs broker. The cost of the customs broker is between 1% and 2% of the FOB price.

iv. Customs Control

Goods are required to undergo Supervision when new goods FOB value exceeds US$ 5,000, or second-hand goods FOB value exceeds US$ 2,000 or there are automotive vehicles. Nevertheless, goods that entered Peruvian territory under Temporal Admission Regime or goods that belong to diplomatic missions aren’t required to undergo this Supervision.

Supervision costs made by the companies in charge must represent a maximum of 1% of the merchandise FOB Value and a minimum rate of US$ 250. This procedure must be made by a customs broker and after the first stage; goods are required to undergo one of the three controls selected by Customs Control System (SIGAG in Spanish). These are the following: 1.

2.

3.

Green channel: Document review and physical control of goods are not required.

Orange channel: Only document review is required.

Red channel: Document review and physical control are required.

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

96

v. Import Tax Regime 1.

Ad Valorem Tax:

2.

Selective Excise Tax:

This import tax or more commonly known as tariff is based on the CIF import value which may fluctuate between 0%, 6% and 11% in Peru.17

Goods which are specified in the Appendix III and IV of the Supreme Decree n°821 are subject to the Selective Excise Tax (in Spanish: Impuesto Selectivo al Consumo ISC). Good rates for items such as petrol or related products are between 23% and 118%; sodas, mineral waters, alcoholic beverages, automobiles, beer and cigarettes have 10%, 11%, 12%, 25% and 30%. Tax base: CIF value plus tariff duties.

3.

Value Added Tax or Sales Tax:

4.

Municipal Promotion Tax:

5.

Specific Variable Tax:

6.

Anti-dumping and Countervailing Taxes:

7.

IGV (Value Added Tax) Perception:

Every imported good is subject to the Value Added Tax or Sales Tax known in Peru as the IGV or Impuesto General a las Ventas, which is a 16%. The tax base is the CIF value plus all the other tariff duties and other import taxes.

Imports made by industrial companies established in the borders and in the jungle are exempt of this tax.

Imported goods which are subject to the Value Added Tax are also subject to the Municipal Promotion Tax (in Spanish Impuesto de Promoción Municipal IPM) which has in general 2% rate for all products and 18% for imported goods that are exempt of Added Value Tax established by Decree n°25980. The tax base is the CIF value, tariff duties and other import taxes.

There are some food products which are subject to a specific variable tax and it depends on the product. These products are certain types of milk powder, butter, sugars and rice.

Whenever a product menaces national production, anti-dumping taxes will be applied to these imported products. The countervailing taxes are for direct or indirect subsidized products that may affect the national production as well. The tax is based in the FOB value registered in the Commercial Invoice and the tax rate will depend upon the case.

This regime applies to final import operations that are taxed with the VAT, and does not apply to import operations exempt from VAT. The operation costs are calculated from the CIF value plus all the taxes levied on imports and, if applicable, anti-dumping and countervailing duties. These costs may be as follows: 10% for importers who make an operation for the first time or have suspended their activities temporally.

5% for importers who import second-hand goods.

3.5% for importers who are not in these cases.

The following comparative chart shows the different import costs before and after the FTA with the EU comes into force. This example assumes the import of a general product without restrictions or dumping costs, which are not generally charged to European products and for importers that has done more than one import. It’s worth highlighting that FOB and Freight & Insurance as well as the other costs are only referential values.

Costs FOB Freight & Insurance CIF Ad Valorem (6% CIF) IGV (16% CIF + AV) IPM (2% CIF+ AV) Tax Rate for Customs Clearance (TRCC) Anti-dumping (% FOB) IGV Perception (3.5% CIF+AV+IGV+IPM+ TRCC) Other (storage, transport, etc.)

TOTAL

Import Cost before FTA

Import Cost after FTA

10,000 500 10,500 630 1,780.8 222.6 30 460.7 100 US$ 13,724

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

10,000 500 10,500 1,680 33.6 30 428.5 100 US$ 12,772

97

b. Peruvian offer to EU products When the Free Trade Agreement comes into force, EU products will have noteworthy tax benefits. This is because most of the Swedish exported products to Peru belong to the “immediate” category, which means as soon as the agreement comes in force, these products will have 0% custom duties. For example:

i. Peru offers an immediate or in a 5-year tax reduction to almost 86% to the EU products such as motors, vehicles, machinery parts, chemical products, lubricants, whiskeys, food products, food for animals, among others. ii. The following tables show the Peruvian offer to the EU products and the tax relief by sectors18,19: 1.

Peruvian offer to the European Union by category of products Category

N° of Lines

%

Peruvian Imp. from EU 2011 (K of US$)

%

Main Products

Immediate

5603

76%

3,290,534

80%

Vehicles, tractors, drilling equipment, parts, whisky, garments

3 years

48

1%

8,483

0%

Wines, beers, other beers, pasta

5 years

594

8%

308,779

8%

Medicines, perfumes, sparkling wines, chemical inputs, healthcare products

6 years

4

0%

888

0%

4x4 cars, assembled vehicles

7years

33

0%

33,123

1%

Papers and cartons, lamps

10years

941

13%

408,055

10%

Cars, medicines, 4x4 cars, other paper and cartons

12years

1

0%

7

0%

Prepared or preserved meat of bovines

15years

8

0%

7,743

0%

Buttermilk, milk, yogurt

17 years (10-year grace period)

8

0%

3,647

0%

Chesses

Partial

4

0%

0

0%

Bananas

10-year quota

6

0%

0

0%

Pork

15-year quota

2

0%

221

0%

Ice creams

15-year quota (8 year grace period)

3

0%

12,044

0%

Milk formula, products for children nutrition

17-year quota (10 year grace period)

14

0%

5,942

0%

Milk powder, evaporated milk

Quota

87

1%

2,323

0%

Other sugars, glucose, butter

Exclusion

14

0%

17,508

0%

Bird eggs, maize and wheat starches

TOTAL

7,370

100%

4,099,295

100%

CHAPTER N° 3 / Peruvian Imports and Swedish Exports to Peru

98

12 years

15 years

17 years (10-year grace period)

10-year quota

15-year quota

Quota

Partial

Exclusion

TOTAL

449 47%

48 5%

197 20%

0%

8 1%

112 12%

1 0%

8 1%

8 1%

6 1%

2 0%

3 0%

14 1%

87 9%

4 0%

14 1%

961 100%

4078 77%

0%

386 7%

4 0%

21 0%

777 15%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

5,266 99%

171 100%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

171 100%

905 93%

0%

11 1%

0%

4 0%

52 5%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

972 100%

5603 76%

48 1%

594 8%

4 33 0% 0%

941 13%

1 8 0% 0%

8 6 0% 0%

2 0%

3 0%

14 0%

87 4 0% 0%

14 0%

7370 100%

15-year quota (8 year grace period) 17-year quota (10 year grace period)

10 years

Total

7 years

Textile

6 years

Fishing

5 years

Non Agricutural nor Textil

N° of Lines % N° of Lines % N° of Lines % N° of Lines % N° of Lines %

3 years

Agricultural

Immediate

Sector/Category

Bibliography ACUERDOS COMERCIALES (2012) Página oficial de los Acuerdos Comerciales del Perú (http://www.acuerdoscomerciales.gob.pe/index.php?option=com_content&view=category&layout=blog&id=50&Itemid=73) (Accessed: 2.12.12) ANDINA (2012) CCL prevé que importación de equipos de transporte crecerá más de 60% este año (http://www.andina.com.pe/Ingles/Noticia.aspx?id=sqBVK39UIPQ=) (Accessed: 1.12.12) COMUNIDAD ANDINA (CA) (2008) Estadística de la importación de países de la Comunidad Andina (http://www.comunidadandina.org/estadisticas/series/rubro7.htm) (Accessed 17.01.12) COMEXPERU (2012) Página oficial de la Sociedad de Comercio Exterior del Perú (http://www.comexperu.org.pe/) (Accessed: 2.12.12) EXPORÅDET (2011) Offical Web page of the Swedish Trade Council (http://www.swedishtrade.se/sv/exportfakta/) (Accessed 4.12.12) MINCETUR (2012) Página oficial del Ministerio de Comercio Exterior y Turismo (http://www.mincetur.gob.pe/newweb/) (Accessed 2.12.12) LA REPÚBLICA (2011) Petróleo y gas natural: sustitución y desconexión (http://www.larepublica.pe/columnistas/cristal-demira/petroleo-y-gas-natural-sustitucion-y-desconexion-05-03-2011) (Accessed: 3.12.12) SUNAT (2012) Página oficial de la Superintendencia Nacional de Administración Tributaria (http://www.aduanet.gob.pe/aduanas/informae/estadisticasComExt.htm) (Accessed: 8.12.12) TRADEMAP (2012) Official Web page of Trade Statistics for international business development (http://www.trademap.org/) (Accessed: 5.12.12) WORLD BANK (2012) Official web page of Trade in services of the World Bank (http://data.worldbank.org/indicator/BG.GSR.NFSV.GD.ZS/countries) (Accessed 17.01.12)

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EMBASSY OF SWEDEN IN SANTIAGO DE CHILE Nueva Providencia (ex Av. 11 de Septiembre) 2353, 4 piso Torre San Ramón, Providencia, Santiago Casilla 16639 Santiago de Chile 9, Chile Telephone: +56 (2) 2940 1700 Fax: +56 (2) 2940 1730 E-mail: ambassaden.santiago-de-chile@gov.se Website: http://www.swedenabroad.com/es-ES/Embassies/Santiago-de-Chile/

CONSULATE OF SWEDEN IN LIMA Pasaje La Santa María 130 San Isidro, Lima 27, Perú Telephone: +51 1 442 8905 Fax: +51 1 421 3295 E-mail: info@consuladosuecia.pe Website: http://www.swedenabroad.com/Page____63649.aspx