PERU: ECONOMIC OUTLOOK PERU: ECONOMIC OUTLOOK February 2012 The information contained in this document must be considered incomplete because it is merely a basis for an oral presentation. It must also be considered as a reference and cannot be interpreted as a recommendation for specific investment decisions. 0
PERU: ECONOMIC OUTLOOK I. THE PERUVIAN ECONOMY 1
PERU: ECONOMIC OUTLOOK The Peruvian economy in a regional context. GDP GROWTH 2000-2011 1/ GDP 2011 (Real % change) (US$ Billion) Brazil Peru 84 Mexico Colombia 57 Argentina Chile 54 Venezuela Brazil 47 Colombia Chile Bolivia 46 Peru 174 Latam 44 Ecuador Mexico 22 Bolivia 0.0 20.0 40.0 60.0 80.0 1,000 1,500 2,000 0 200 400 600 800 1,000 1/ 2011 is estimated. Source: IMF, APOYO Consultoría Source: IMF, APOYO Consultoría 2
PERU: ECONOMIC OUTLOOK Structure of the Peruvian economy. PERU: DOMESTIC DEMAND STRUCTURE, 2010 PERU: COMPOSITION OF PRODUCTION, 2007 (%) (% of Gross Value Added) Public consumption Manufacturing Services 18.0 9.2 40.5 Public investment 6.1 Agriculture 6.5 Construction Private 5.6 investment 20.6 Mining and Oil Private 15.6 consumption 64.1 Commerce Electricity and water Fishing 11.1 1.9 0.8 Source: INEI Source: BCR, APOYO Consultoría 3
PERU: ECONOMIC OUTLOOK Sound macroeconomic policy. WIGGLE ROOM INDEX 2012 (Room to ease fiscal and monetary policy - Maximum flexibility = 100) • Peru ranks 8th among 27 emerging economies in adequacy of monetary Saudi Arabia Indonesia and fiscal flexibility, according to The China Chile Economist. South Korea Singapore Russia Peru • Inflation targeting: the average Hong Kong Philippines inflation in the last 10 years has been Thailand Malaysia 2.5%. Colombia Mexico Czech Rep. Venezuela • Fiscal discipline: ratio of public debt to Taiwan South Africa GDP decreased from 45% to 20% in Hungary Argentina the last 10 years. Turkey Pakistan Vietnam Brazil • Trade openness: average effective Poland India tariff rate of approx. 2% and FTAs with Egypt economies that represent 60% of 0 20 40 60 80 100 world GDP. Source: The Economist 4
PERU: ECONOMIC OUTLOOK Politics: as always, very complicated. 2008: PERU: COUNTRY RISK 1/ International financial (Points) crisis. 900 End-2000: 800 2002: Fujimori resigns Election of Lula in 700 from presidency. Brazil. 600 500 400 300 200 2011: 100 Election of Ollanta 0 Humala. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1/ EMBIG+ spread. Source: JPMorgan, BCR 2001: 2006: Election of Alejandro Election of Alan García Toledo. Alan García in ballotage against makes it into the 2nd Ollanta Humala. round. 5
PERU: ECONOMIC OUTLOOK Despite shifting political situation, economic policy has been consistent. (1) • Features of the Peruvian political environment: • Lack of strong political parties with national reach. • Lack of continuity in Congress: majorities change significantly with each election. • Political landscape is fragmented on the regional level: regional political movements do not have a national scope. 6
PERU: ECONOMIC OUTLOOK Despite shifting political situation, economic policy has been consistent. (2) • Continuity in economic policy in the last 20 years. • The current president of the Central Bank served under the previous administration of Alan Garcia and was reappointed by Ollanta Humala. • The current Minister of Finance was vice-minister of Finance under the previous administration. • Other key institutions: competition agency, tax collection, regulators of public utilities maintain a technical profile and independence. 7
PERU: ECONOMIC OUTLOOK Current political scenario. PRESIDENTIAL APPROVAL IN THE FIRST AND FIFTH MONTHS CONSUMER CONFIDENCE IN LIMA 1/ OF EACH ADMINISTRATION 1/ (Points) (%) 65 70 First month 63 Optimistic range 59 60 Fifth month Average 2011: 55 points 60 55 57 54 52 55 50 40 50 32 30 45 20 40 10 Pessimistic range 35 0 30 Aug 2001 Jan 2002 Aug 2006 Jan 2007 Aug 2011 Jan 2012 J A J OJ A J OJ A J OJ A J OJ A J OJ A J OJ A J OJ A J OJ A J OJ Toledo García Humala 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Ipsos APOYO 1/ In Peru urban areas. 1/ As of January 2012. Source: APOYO Consultoría REGARDING INVESTMENT PROJECTS, WHICH MEASURES WILL YOUR COMPANY TAKE IN THE NEXT SEMESTER? (%) 70 Accelerate 60 Reduce 50 40 30 20 10 0 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2004 2005 2006 2007 2008 2009 2010 2011 Source: surveys conducted on APOYOConsultoría's clients 8
PERU: ECONOMIC OUTLOOK 2012 Forecasts – Base scenario BASE SCENARIO - MACROECONOMIC INDICATORS 1/ (% annual change) 2010 2011 2012 I. Real Sector (% change) GDP 8.8 7.0 5.3 Private consumption 6.0 6.3 5.3 Private investment 22.1 11.9 4.0 Public investment 26.5 -16.9 30.0 Exports 2.5 7.6 4.0 Dependent employment 2/ 4.2 5.4 4.0 II. Macroeconomic balances Fiscal balance (% of GDP) -0.5 1.6 0.2 Trade balance (US$ Millions) 5,873 6,750 7,849 Net international reserves (US$ Millions) 44,105 48,816 51,500 III. Monetary variables Inflation, CPI (%) 2.1 4.7 3.0 Exchange rate, eof (S/. per dollar) 2.81 2.70 2.65 1/ Forecast from 2011 onwards. Forecasts made in December. 2/ Employment in companies with over 10 employees. Source: BCR, APOYO Consultoría 9 OR
PERU: ECONOMIC OUTLOOK II. INVESTMENT FRAMEWORK AND OPPORTUNITIES 10
PERU: ECONOMIC OUTLOOK Peru is among the 20 most attractive economies for foreign direct investment. TOP HOST ECONOMIES FOR FDI IN 2011 - 2013 1/ (Total of responses) 90 80 70 60 50 40 30 20 10 0 1/ Number of times the country is mentioned as a top FDI priority by respondent TNCs. Source: UNCTAD 11
PERU: ECONOMIC OUTLOOK Framework for private investment. • Local and foreign investment are subject to the same treatment. • Tax stability contracts. • Investment in public service infrastructure can be deducted from taxable income. • No restrictions to profits remittances, dividends, and financial resources. • Income tax rate: 30%. • Value added tax rate: 19%.
PERU: ECONOMIC OUTLOOK Investment in Peru – recent large scale projects. Private-public Concessions Private investment partnerships • Southern Pier at Callao Port • Pampa Melchorita liquefied • Interoceánica sur (Peru- natural gas plant Brazil highway) • 2008-2010 • 2007-2010 • 2006-2012 • US$360 million • US$3,000 million • US$2,000 million
PERU: ECONOMIC OUTLOOK World-class companies already operating in Peru. Infrastructure Mining Others
PERU: ECONOMIC OUTLOOK Investment opportunities: the catch up effect. REAL GDP PER CAPITA: PERU, COLOMBIA, AND CHILE 1/ (1980 = 100) PER CAPITA GDP 280 (US$) 260 240 Country 2011 2015 1/ % chg. 220 200 Brazil 11,270 14,130 25.4 180 Chile 12,820 14,970 16.8 160 Colombia 6,810 9,240 35.7 140 Mexico 10,240 12,370 20.8 120 Peru 5,510 7,780 41.2 100 Ecuador 4,740 6,000 26.6 80 Bolivia 2,250 2,930 30.2 60 1/ Forecast. 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Colombia Chile Peru Source: Latinfocus, IM F, APOYO Consultoría 1/ 2011 is estimated. 2012 and on are Source: IMF, APOYO Consultoría forecast.
PERU: ECONOMIC OUTLOOK Investment opportunities: catch up in various products and services. MORTGAGE LOANS IN LATAM- 2008 FINANCIAL INTERMEDIATION RATIO 1/ (%) (% of GDP) 20.0 80.0 16.0 60.0 12.0 40.0 8.0 20.0 4.0 0.0 0.0 CHI BRA COL PER VEN MEX ARG Chile Mexico Colombia Brazil Peru Argentina 1/ Banks' loan volume / GDP. In 2010. Source: CEIC, regulatory agencies Source: Morris CONSUMER GOODS RETAIL BY CHANNEL, 2010 1/ (%) NEW VEHICLE SALES, 2011 (Per 1 000 people) 25 100 15 14 16 15 17 80 20 14 27 45 60 15 67 76 40 71 10 56 20 39 18 10 5 0 Argentina Brazil Ecuador Peru Bolivia 0 Modern channel Traditional channel Others Argentina Chile Ecuador Colombia Peru Venezuela 1/ 2010 for Argentina, Brazil and Bolivia; 1S2011 for Ecuador and 3Q2011 for Peru. Source: Araper, CEIC, media, public statistic institutions of each country Source: Kantar Worldpanel, APOYO Consultoría 16
PERU: ECONOMIC OUTLOOK Investment opportunities: infrastructure gap. INFRASTRUCTURE INVESTMENT GAP, 2008 (US$ millions) • Current legislation promotes private investment in infrastructure: private- Sector Gap 2008 % public partnerships, concession processes. Transportation 13,961 37.0 Water & sewage 6,306 16.7 • Fiscal resources are available: public Electricity savings amount to US$5,600 million. 8,326 22.0 Natural gas 3,721 9.9 • Access to external financing: low levels Telecom. 5,446 14.4 of public debt and investment grade. Total 37,760 100.0 Source: IPE 17
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