In the 15th century, the Incas built the incredible Macchu Picchu, a city 7,000 feet above sea level. Fast forward 600 years and the famous site draws in over one million tourists a year. As the most popular tourist destination in South America, Macchu Picchu has put Peru on the map.
But these days Peru’s reputation is evolving past tourism; with its growing GDP, increasingly stable government and natural resources, foreign companies are now considering Peru as a place to do business.
Recognizing the potential export opportunities for Canadian companies, Export Development Canada (EDC) recently welcomed a new Regional Manager, Rafael Castillo, to its Lima, Peru office.
“Peru has a lot of untapped opportunities and we think that Canadian capabilities match up very well with Peru’s development needs,” says Castillo. “So an important part of my job will be to connect Canadian suppliers with those opportunities.”
Every year the World Bank releases an ease of doing business ranking. This year, Peru ranked 35th (Canada ranked 16th), having risen 9 spots since 2013. Further, Peru comes in second among Latin American countries, sitting just behind Colombia.
“The Andean region is definitely a bright area of the continent. It continues to show solid growth, macroeconomic and political stability and growing middle classes – as a result it has been seeing more and more foreign direct investment,” says Ian Tobman, EDC economist. “In fact, over the past 10 years, foreign direct investment in Peru has gone from $2.5 billion to close to $9 billion right now.”
Canadian opportunities in Peru
Because it is rich in natural resources, Peru’s economy relies heavily on its mining sector. The Canadian Government estimates that there are currently 80 to100 mining supply companies in Peru. As a result, Canada has created a strong supply chain in the Peruvian mining industry, and many of them have seen significant growth since arriving.
But it’s the companies in the infrastructure, technology and renewable energy sectors that are now taking notice of Peru.
Right now, Peru’s infrastructure gap is estimated at about $70 to 80 billion. With a new Private Public Partnership (PPP) business model in place, the doors are open to foreign companies in the industry. Major infrastructure projects include a new metro system in Lima and the construction of the new Chinchero-Cusco International Airport. Major infrastructure opportunities include roads, transmission lines, the expansion of hospitals and schools.
“We’re working with seven different companies at the moment that are all making their way to Peru as part of a joint mission with the University of Ottawa,” says Roberto Requejo, Trade Missions and Marketing for the Canada-Peru Chamber of Commerce. “While they represent a small portion of the number of Canadian companies exploring the Peruvian market, the breadth of their work is indicative of the range of opportunities here.”
These seven companies include a technology company looking to develop a Long-Term Evolution (LTE) network solution for the mining industry (high-speed internet access for mobile phones and data terminals); a telecommunication company exploring mobile transaction platforms, and a security company exploring platforms for public safety and security. Many of the companies are looking to establish relationships with financial institutions and telecommunication companies in Peru.
“Companies are recognizing more and more that there are major opportunities here that Peruvian companies aren’t in a position to deliver on,” says Requejo. “For example, when it comes to the LTE network, we only recently acquired the technology, while North America has had it for years. So we are looking for companies from countries like Canada to help us develop the technology.”
Challenges for foreign companies
In Peru, social conflict is widespread. If you’re a foreign company doing business in the extractive sector, you are likely, at some point, to be faced with a local community that doesn’t support your presence.
“Companies are more aware of the importance of Corporate Social Responsibility and have been taking proactive measures to understand the issues of the local communities,” says Castillo. “The Peruvian Government understands the importance of investment in the mining sector so is helping companies work with these communities on a local level.”
Since 2002, Peru’s economy has grown at a pace of over 6 per cent a year, until last year due to a drop in commodity prices. Despite this, with a number of rapidly developing sectors, a Free Trade Agreement with Canada and an increasingly stable economic market, Peru’s stock as a country ready and willing to do business with Canadian companies continues to rise.