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Seven Growing Economic Sectors Which are Ripe for Investment in Peru

1. Peru’s Food Industry: An Opportunity to Savour

Peru´s gastronomy is widely recognized, making it a top destination for foodies around the globe, who are usually looking for attractions beyond Machu Picchu. In 2019, Peru was chosen the best culinary destination in the world by the World Travel Awards. This was the 8th time that Peru received such recognition. In Lima, the country´s capital, you may find some of the world’s top eateries; from Astrid y Gastón, the iconic restaurant from Gastón Acurio -the renowned chef who helped establish Peru as a gastronomic powerhouse. His dining empire includes restaurants such as Tanta and Chicha. The former has eight branches in Lima, two more in the capital’s airport and one in the country’s second-largest city, Arequipa. The Chicha brand has two restaurants, located in Arequipa and in the historic city of Cusco. This city was once the capital of the Inca Empire and remains the gateway to Machu Picchu, Peru’s main tourist attraction and UNESCO World Heritage site since 1983.

Still, Lima offers the greatest variety of restaurants, which include some of the best in the world. For example, Maido was chosen as Latin America’s Best Restaurant in 2019, 2018 and 2017. Maido, along with Central, the highly-rated eatery of chefs Virgilio Martínez are in the top ten of the list of The World’s 50 Best Restaurants in 2021.

2. Tourism: Beyond Machu Picchu

The country is also an attractive destination for high-end travellers who can enjoy unique experiences such as a picnic in the desert, a cruise on the Amazon River, an expedition through the Inca trail or a luxury train travel with incredible mountain views on the Belmond Andean Explorer. High-end tourists – referred to as those who enter Lima’s Jorge Chavez airport with a tour agency and spend more than USD 4,000 during their stay – represented 1.9% of visitors to Peru in 2019, around 50,909 people.

The crown jewel of Peru’s tourist attractions, Machu Picchu, has reopened to the public following its closure during the pandemic. It achieved coveted carbon neutral status in August. Besides, Peru has been internationally recognized as a safe and easy place to travel. For example, it has been awarded the Safe Travel Stamp 2020 for Machu Picchu, Miraflores, Tarapoto and Alto Mayo, and the Best Sustainable Destination 2020 for the Colca Canyon in Arequipa – one of the world’s deepest canyons.

In addition, the organization of the World Travel Awards – WTA, prizes considered the Oscars of tourism, has awarded Peru the recognitions in 3 categories: ‘Best Culinary Destination in the World’, ‘Best Cultural Destination in the World’ and Machu Picchu as ‘Best Tourist Attraction in the World’ on repeated occasions.

For tourists pursuing healthy lifestyles, Peru stands out in Latin America as a destination for Wellness Tourism. An international wellness tourist spends 53% more than the average visitor. Meanwhile, a local wellness tourist spends 178% more than the local average. To suit this particular type of traveller, Peru offers over 500 hot springs or thermal energy points, with 147 of them registered in the national inventory of touristic resources.

According to fDi Markets, between 2010 and 2019, tourism in Peru generated more than USD 1.3 billion in foreign direct investment and more than 8,000 direct jobs.

Over the past five years (2016-2020), Peru ranks third among the countries that received the most FDI for the Hotel and Tourism sector in Central and Latin America, surpassing neighbours such as Chile, Argentina, Costa Rica and Ecuador. For example, Selina Hotels (Panama) has invested over USD 504 million across eight projects, which have created over 3,221 direct jobs.

3. Textiles: From Raw Materials to Luxury Garments

Peru is the country in Latin America with the lowest trade barriers, competitive labour costs and the highest growth prospects in this promising sector. It is one of the most bio-diverse countries in the world, which means it can produce a great variety of textile fibres from different origins. This is supported by numerous sea ports and airports, placing Peru at the top of the textile production chain.

Clothing and footwear sales in Peru will become, along with Chile’s, the region’s fastest-growing in over the next five years (2021-25), registering a 10.7% growth, according to Euromonitor International 2021.

Between 2015 and 2020, the largest number of FDI projects in the textile sector was concentrated in Mexico, Colombia and Peru. According to fDi Markets (2021), Peru ranked third among Central and Latin American countries for projects undertaken in the region. It concentrated 76 of the 865 projects in total. According to fDi Markets (2021), between 2010 and 2019, the textile sector generated USD 1 billion in foreign direct investment and more than 11,500 jobs.

The Peruvian textile sector has a comparative advantage as it is considered to be a full package industry, meaning it is vertically integrated from the supply of raw materials to the end product. It produces two of the most in-demand luxurious fibres in the world: alpaca wool and cotton. This has enabled Peru to produce garments for the most important brands in the world: Lacoste, Polo Ralph Lauren, Tommy Hilfiger, Gap, Armani and Nike, among others. The Better Cotton Initiative (BCI), the world’s largest cotton sustainability programme, includes Peruvian cotton producers, fashion brands and textile producers.

Beyond the Pan-American highway, Peru offers an extensive road network with 20 other roads connecting various regions of the country. Peru also has the best basic services costs in the region. In a recent 2021 analysis of electricity tariffs for industrial consumption, Peru was found to have one of the lowest and most stable tariffs in recent years. Regarding water services, tariffs based on a 15 cubic meters per month consumption, historically position Peru with the lowest tariffs in comparison to other countries in the Latin American region. These two factors improve the profitability of setting up a textile investment in Peru, according to Osinergmin, Peru’s mining watchdog and IBNet Tariffs in 2021.

4. High Technology: Peru as a Software and IT Services Hub

Peru is ahead of other countries in the region in terms of internet connectivity and commerce. According to Statista (2020), Peru ranks fifth for internet users with over 24 million of them, well above Chile, Ecuador and Guatemala. It also ranks fifth for internet penetration, above Brazil, Colombia, Bolivia and Panama.

According to fDi markets, between 2016 and 2020, Peru had 37 foreign direct investment projects in Software and IT Services, which came mainly from Spain (12), the US (6) and Argentina (3), among others. Additionally, according to El Peruano (2020), between 2010 and 2019 the high technology sector generated USD 761 million in foreign direct investment and created more than 3,847 jobs.

Over a longer period, between 2003 and 2021, more than 170 foreign companies from the communications and software sector have made investments in Peru, offering necessary and essential supply to guarantee the development of an optimal digital ecosystem for businesses. Among those which stand out are Tata Consulting Services (which has been in Peru since 2010), Amazon Web Services, IBM and Google from the USA, and Belatrix Software from Argentina.

According to El Peruano, in 2019 there were less than 100 Fintechs in Peru, worth around USD 4 billion. However, by April 2021 that number had grown to more than 200, worth between USD 15 and 20 billion.

The effects of Covid-19 restrictions accelerated the digital transformation in Peru, as 55% of companies increased their 2021 budgets in this area.

5. Manufacturing: An Engine for Employment

In the second quarter of 2021, GDP in the manufacturing sector grew by 61% in comparison to the previous year. One of the sectors most affected by the pandemic, it is overcoming its final hurdle to recovery as the advancing vaccination drive is expected to stimulate growth and further opportunities for foreign direct investment, according to Peru’s statistics agency, INEI. In addition, compared to 2019, the average labour cost per manufacturing worker decreased by 12.34% in 2020, from USD 506.21 to USD 443.71 per month.

Some industries showing excellent productive performance were cleaning products such as detergents, dishwashers and soaps, as well as clothing garments such as pyjamas. Moreover, industrial exports recovered from the worst of the Covid-19 pandemic in September 2020, when agroindustry grew 16.9%, chemicals 12.9%, metal mechanics 5.3% and textiles 3.5%.

Incentives for industrial development continue in different regions of the country. For example, in the Amazon, VAT (value-added tax) has been waived for auto parts and engine imports until 2028. Moreover, in High-Andean zones, located 2,500 meters above sea level, tax exemptions on VAT, income tax and import tariffs have been implemented.

Conditions for manufacturing businesses have also improved since the slump in 2020. According to the Industrial Opinion Index (INOPI), since September 2020, the perception of business conditions in the sector have improved by 53.2%. This optimism was linked to the recovery of the mining and construction sectors.

Services for mining activities also entail interesting investment opportunities, as the mining sector represents 10% of GDP and 58% of total exports in Peru. There are at least 14 service groups with potential in this sector. Between 2018 and 2019, 12 FDI projects where established (9 of which were greenfield), worth USD 226.6 million. The regions of Ancash, Arequipa, Apurimac, La Libertad, Cajamarca, Junin and Lima offer opportunities for foreign investment in the services for mining subsector, as these are the Peruvian regions which produce the most minerals, mainly gold, copper and zinc, according to a Promperu study in September 2021.

The cities of Lima, Moquegua, La Libertad, Ica, Arequipa and Piura represent an opportunity for foreign direct investment in the manufacturing sector due to their closeness to potential markets, access to raw materials, availability of skilled labour force, and energy and water supply, as well as access to industrial scale waste collection and disposal. To the extent that these are coastal regions, logistical costs are also lower due to their proximity to maritime ports and industrial parks. As evidence of this potential, according to fDi Markets (2021), between 2011 and 2019 FDI in the manufacturing sector grew 85% annually.

According to the Ministry of Trade and Tourism, between 2017 and 2019, the number of companies in the manufacturing sector grew by an annual average of 2.1%, showing a strong business foundation for this sector.

6. Renewable energy: Investing in a Sustainable Future

Peru has ample renewable resources, from wind to hydro to solar power, to become an energy powerhouse in the region. It can produce green hydrogen at low costs and supply its domestic and international markets in the short and long run. According to fDi Markets (2021), between 2011 and 2020, the renewable energy sector generated USD 2.6 billion in FDI and created more than 10,100 jobs in the country.

In 2020 Peru reported 8 investments valued at USD 991.2 million, generating 1,224 jobs. This was the highest figure ever reported for a single year. In terms of labour costs associated to the implementation of solar electric power generation facilities, Peru ranked 2nd in South America with an average annual cost of USD 987,942, compared to USD 2,246,785 in the region.

On the other hand, it is expected that Peru’s electricity consumption will rise between 4% and 5% until 2023 and continue expanding at a steady pace in years to come as industrial penetration increases in the country.

7. Fishing for Human Consumption: A Growing Market

Peru is a major producer and exporter of fish and fish products; with one of the largest fisheries in the world, it is a major producer of fishmeal. It also exports fish for direct human consumption (2020 exports amounted to USD 2,867 million). Over the last five years, the main destination for these exports has been China, which concentrates 54% of total exports in this segment, followed by the US and Canada with 7% and 4%, respectively.

From 2016 to 2020, Peruvian fish landings for direct human consumption (measured in metric tonnes) showed a compound annual growth rate of 3.9%, mainly due to the growth of frozen and canned seafood categories, according to 2021 data on production in the fishing sector.Trout farming | © Pioneros Cine / PROMPERÚ

Over the last five years, the Peruvian market has been the largest consumer of fish in Latin America with an annual consumption per capita of 23.2kg. On average, Peruvians consume twice as much fish as Chileans and four times as much as Argentines. To this extent, consumption figures in the region may reveal a potential opportunity for Peruvian exports.

Source: Reuters