With a stable and growing economy, a burgeoning middle class and a modern legal and regulatory framework, Peru has become one of Latin America’s most attractive markets for global trade. How can Canadian companies capitalize on this opportunity?
Canadian businesses coming into Peru are backed by the Canada-Peru Free Trade Agreement.
Peru is among the easiest places to do business in Latin America and the Caribbean, according to the World Bank Group.
There are no restrictions for foreigners holding company shares in Peru, and no minimum capital investment requirements.
Five market experts share their knowledge:
“It’s key to know the country and speak the language, know the market and the players. Network, network and network.”
Where will Canadian businesses find the greatest opportunities in Peru?
The mining sector is of the greatest interest for Canadian companies that have the related knowledge, equipment and specialized machinery. Infrastructure is also very big; Peru has an infrastructure deficit of $100 billion, especially in regards to upgrading roads, airports, power grids and water systems. In oil and gas, Peru is expanding its energy matrix and right now there is a conversion happening in from liquid fuels to natural gas.
What surprises foreign businesses most about Peru?
They are pleasantly surprised at all the incentives the Peruvian government has put in place to attract foreign investors. For example, mining companies may enter into tax stabilization agreements that will remain unchanged for a certain number of years. Also the corporate income tax rate in Peru will be reduced progressively from 30 per cent in 2014 to 26 per cent in 2019.
What key advice can you offer Canadian businesses?
It’s key to know the country and speak the language, know the market and the players. Network, network and network. Meet with specific industry associations and plan your trip around functions hosted by local chambers of commerce – in Peru, they tend to have a luncheon once a month. Ask your Canadian lawyer to suggest a legal counterpart in Peru, or perhaps your accountant can set up a meeting with an agent.
“The process for bringing a product to Peru is not as cumbersome as distribution in other countries.”
Are there best practices for establishing relationships in Peru, especially for SMEs with limited resources?
I think a visit to the market is essential and is key to any successful exporter. That’s true for any market, but in Latin American and Peruvian markets even more so because partners here want face-to-face. So come down and visit. It’s also very useful to have a local representative who can promote, advocate and follow up on purchase orders and any questions your buyers may have.
Are there particularly effective strategies for bringing products into this market?
The process for bringing a product to Peru is not as cumbersome as distribution in other countries. In general you need a distributor and a local contact to help you navigate registration of your company and product. But there are challenges in that you are competing against many other exporters, such as those from the U.S., the UK, China, Spain and France. You need a compelling product, backed by a strong marketing strategy.
How strong is the Canadian brand in Peru?
Canada is very well respected in Peru. It is seen as a leader with a high level of expertise across a range of sectors, but especially in the extractive sector. Companies here are also starting to pay attention to the quality of our technology and we are noticing growing interest in clean technology, in particular. In sum, we see a clear and growing alignment between Canadian know-how and products and Peruvian demand, and this is strengthened by Canada’s reputation as a stable and reliable partner.
“If you offer competitive salaries, it is easy to find good people. Strong English skills would, of course, require premium pay.”
How easy or difficult is it to find qualified talent in Peru?
In Peru you always read about the lack of qualified talent. But in fact, we have a good supply of English-speaking, qualified candidates – more so than in Chile and Colombia. If you offer competitive salaries, it is easy to find good people. Strong English skills would, of course, require premium pay.
In some countries, foreign companies find it hard to compete with large local employers. How does Peru compare?
There are plenty of highly successful Peruvian and multinational companies in Peru. Recent university graduates tend to go straight to well-known companies, whether they’re Peruvian or foreign. So if you are looking for an accountant, for example, you will be vying for candidates who want to work for companies like PwC and will require a higher salary than going market rates.
What should Canadian companies know about employment and wages here?
Peru requires companies with less than 10 employees to pay 14 salaries a year. This works out to 12 months’ salary, one month paid vacation, and a bonus equivalent to one month’s salary. Employers also need to deposit one year’s salary into an escrow account as a retirement benefit, which the employee receives when he leaves the company. Also, if you fire an employee without legal justification, you have to give him the equivalent of one-and-a-half of his yearly salary.
“The regulations governing exports and foreign direct investment in Peru are quite stable. There are no discriminatory laws that work against foreigners, and there is a strong export-import promotion regimen.”
How would you describe Peru’s business environment for foreigners?
The regulations governing exports and foreign direct investment in Peru are quite stable. There are no discriminatory laws that work against foreigners, and there is a strong export-import promotion regimen. In Peru, there is also free disposal of foreign currency and free right to make foreign remittances of profits, royalties and gains. It’s not hard to get money out.
So getting products through customs isn’t that difficult?
If you know the rules you should have no problems. Customs regulations are not as protectionist as in other countries, such as Brazil for instance. Customs forms are also not very complicated. We also have customs warehousing rules that allow goods to be stored without having to pay additional customs duties, provided the goods are in Peru only temporarily. This makes Peru an ideal entryway for goods destined for other Latin American markets.
Beyond mining, energy and infrastructure, what other industries offer promise for Canadian firms?
Tourism and the housing industry could be quite attractive to Canadian companies. We have a huge deficit of housing in Peru and Canada has a lot of experience in pre-fabricated homes. There are also opportunities in consumer goods, such as tea and homeopathic products.
“Oil and gas and other large infrastructure contracts present substantial bribery risks to foreign investment in Peru.”
How would you characterize the risk of corruption in your region?
Peru is ranked 60th out of 199 countries on the 2016 TRACE Matrix, which measures business bribery risk, reflecting a moderate risk of intensive government interaction, regulatory burden and expectation of bribes. Although not as troubled by corruption as some of its neighbouring countries (after Chile, Peru is ranked lowest risk in South America), corruption is still prevalent in certain areas of Peru’s public sector.
During electoral cycles, for example, illicit funds from drug trafficking are commonly funnelled into campaigns. Some political parties have elected officials with alleged drug connections, and several candidates in the 2016 Peruvian presidential race were implicated in corruption scandals.
How do these risks affect Canadian businesses?
Favouritism by government officials in awarding contracts, a complex bureaucracy and an extremely weak judiciary all present a difficult environment for foreign companies to navigate away from bribery risks when conducting business in Peru. Since facilitation payments are not criminalized under Peru’s penal code, this is also an area that impacts foreign business, particularly for those companies subject to more restrictive regulations under the UK Bribery Act and Canada’s Corruption of Foreign Public Officials Act.
In particular, oil and gas and other large infrastructure contracts present substantial bribery risks to foreign investment in Peru. Because infrastructure projects can take years, the level of risk is compounded by the number of opportunities to receive requests for improper payments.
How can Canadian businesses guard against these corruptive practices?
The fact that there are no restrictions in Peru on the type of currency and/or the place of payment of intermediary fees makes it easier for companies to bribe government officials through the use of third parties. As such, companies should be fully aware of who they are working with and conduct risk-based due diligence on all third party intermediaries. Companies can work with TRACE Certified companies, which have completed a rigorous due-diligence process and anti-bribery training.
Companies may wish to refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
In addition, the Canadian Trade Commissioner Service in Peru offers assistance to Canadian companies operating there.