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Introduction:
The focus in the Latin American region is usually monopolized by the big three economies of
Brazil, Mexico, and Argentina. However, this study is to show the potential of Peru in the Latin
American region. Peru is a resource rich country that now has the sound political and economic foundations to continue to grow and become a player in the world economy. However, Peru has a long history of dealing with political, economic and social issues. These problems continue to make many countries overlook the potential of Peru as a regional and possibly international powerhouse economy.
This study will utilize a PEST analysis of Peru. The analysis will outline the political, economic, sociological, and technology foundations of Peru. The focus of the analysis will be to show how
Peru has set these foundations for companies around the world to identify potential opportunities for foreign direct investment in Peru. The analysis will disprove the historical evidence to show many companies and countries the potential of Peru. This analysis will seek to end the skepticism that remains even though Peru is one of the fastest growing developing economies in the world and has experienced the most growth of any economy in the Latin American region in the first decade of the 21 st
century.
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Companies that invest in Peru now and in the near future will reap the rewards as the Peruvian market continues to grow and mature.
Political:
Peru is a constitutional republic that has seen its share of political instability in the second half of the 20 th century. The Peruvian government had numerous concerns with the four primary being hyperinflation, corruption, drug-trafficking, and the terrorist group Shining Path. These issues threatened the fragile democracy that was established. However, Peru persevered and the majority of the struggles of the past have been reduced. Lessons from the past have led to a strong and well established government to lead the country successfully through the 21 st
century.
Here is quick overview of the path to Peru’s present government. Democracy was restored to
Peru in 1980 with the election of Belaunde Terry. President Terry focused on denationalizing industries and encouraging foreign direct investment in the petroleum industry.
2
Alan Garcia was nominated in 1985 and through economic mismanagement led the country to hyperinflation from
1988-1990. Alberto Fujimori followed and along with dealing with hyperinflation he focused on eliminating major problems with terrorism, drug trafficking, and corruption.
3
He had some success with the major problems by reducing the threat of the Shining Path and drug trafficking but in 2000 resigned from office due to corruption and human rights violations.
4
Following
Fujimori was Alejandro Toledo who applied stringent austerity measures to Peru while also
1 Daremblum, Jaime. "From Lima To La Paz â OpEd." From Lima To La Paz
2 "Peru." Infoplease. Infoplease
3 Ibid
4 Ibid

3 breaking away from the popularity of nationalized industries by privatizing part of the electricity industry to a Belgian company.
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A series of political scandals caused Toledo’s approval ratings to plummet and in 2006, Alan Garcia won the election again despite his last term, which left the
Peruvian economy in shambles. Garcia however continued the growth of the 2000s in Peru and acted quickly to corruption scandals that affected his cabinet. Lastly, the current president is
Ollanta Humala whose focus is to continue the economic growth and focus on reducing the high level of poverty within the country.
6
The government has been improving international relations in the 21 st
century. Under Garcia there was new energy to improve Peru’s international relations and economic relations.
7 There was an emphasis on promoting free trade and democracy and to be a model for other countries in the region to follow. Peru hosted two international summits in 2008 and the OAS general assembly meeting in 2010.
8
In 2009, Peru implemented free trade agreements with the United
States and China, its two major trading partners.
9
This emphasis on improving international relations has lead to greater investment and trade that could continue to grow as the new relationships begin to mature.
Government involvement in the economy has been continuous. The Humala government is implementing an economic stimulus of almost 2% of GDP to keep the Peruvian economy growing.
10
The measures implemented are infrastructure-heavy projects that have boosted growth in three crucial industries in Peru: construction by 14 percent, retail by 8.9 percent, and manufacturing by 1.3 percent.
11 The stimulus has also been effective in increasing investor confidence that coupled with the growth in the mentioned industries has boosted the estimated
5.5% GDP growth for 2012 to 6% in the first quarter of 2012.
12
The ability of the government to adapt and mold to the ever changing environment in Peru shows the power of perseverance. The government is now established to be able to focus on improving the aid to the development of the other three foundations of the country’s economy, social, and technology. It has already shown this ability by its implementation of an effective stimulus and promotion of free trade with major economies.
Economic:
5 Ibid
6 Ibid
7 "Background Note: Peru." U.S. Department of State.
8 Ibid
9 Ibid
10 Quigley, John. "Peru’s Public Works Boom Drives Faster Economic Growth."
11 Ibid
12 Ibid

Peru’s economy was the largest growing in the Latin American region during the decade.
13
It experienced an average annual GDP increase of 5.75%. In 2007 and 2008 Peru experienced
Chinese levels of growth at 8.9 and 9.8 percent respectively. During the global financial crisis in
2009 it remained positive at .9% and then bounced back in 2010 to 8.8%. In 2011, the economy slowed to 6.9% and is now expected to be 6% for 2012 this however makes it the fastest growth rate in the region.
14
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Foreign direct investment in the Latin American hit its highest level in 2011 at $153.4 billion.
15
FDI in 2012 is estimated to remain steady at close to $150 billion. FDI is still developing in Peru with inflows at only $7.66 billion. However, these inflows place Peru in 5 th place garnering more investment than Argentina, which is the third largest economy in the region.
Peru has gained recognition for ease of business and safe investment from political risk rankings.
Peru is currently ranked 41 st
in the World Bank’s 2012 Ease of Doing Business Index.
16
This ranking makes it 2 nd
to only Chile in the region. The World Bank also designated Peru the 9 th safest country from political risk.
17
These rankings should only improve the outlook of investment in Peru in the future.
Social:
Peru has a growing population that since 1950 has increased 200% and is now at 29.8 million people.
18
Peru has had success on some of the social issues that affect the population of the country. The strength of the government and the growth of the economy are the main components that have driven this success.
The greatest success in the social realm has been combating the national poverty rate, which is down from 53% to 31% in the last decade.
19
This decrease marks the success of the economic changes to a free market implemented by the government that over the decades had lead to protests due to preliminary layoffs and cutbacks on social welfare. As the government continues to drive economic growth and the economic stimulus focuses on infrastructure-heavy projects poverty should continue to decrease in the decade to come.
Another success of Peru has been its ability to reduce the once powerful terrorist organization
Shining Path to a shadow of its former self. With the capture of Florindo Flores in February of this year the Shining Path has been relegated to the VRAE area.
20
It is estimated that some 400 combatants are still active in the area and have revived the coca trade as their primary source of
13 Daremblum, Jaime. "From Lima To La Paz â OpEd
14 "Background Note: Peru." U.S. Department of State.
15 "UN's Eclac Sees Latin America FDI Steady At $150 Bln In 2012." Online.wjs.com.
16 World Bank, “Economic Rankings”
17 Daremblum, Jaime. "From Lima To La Paz â OpEd
18 "Peru Population." Peru Population.
19 Daremblum, Jaime. "From Lima To La Paz â OpEd
20 "One down." The Economist.

income.
21
Many Peruvians strongly oppose the Shining Path due to the violence and destruction from the 1980s and early 1990s. President Humala has moved more troops into the VRAE area and hopes to see the end of the drug trafficking and what remains of the ruthless organization.
22
Much like seeing the defeat of Al Qaeda in the United States the defeat of the Shining Path in
Peru would be a public victory for the government. It would bring an end to a source of social tension that has been around for decades.
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Technology:
Peru’s infrastructure is advancing at a rapid rate. With increased investment in the mining and gas industries underway increasing the capacity of the existing infrastructure has been crucial to optimize mining and gas facilities.
23 Peru already has an extensive transportation system of highways, ports, railroads, and airports to handle increased traffic.
24
However, there is a continued need for desalination and electricity due to the high usage at mining facilities.
25
Peru is seeing an increase in interest by renewable power developers.
26
Peru is reaching its limits on hydropower and its natural gas production is still a couple of years from development so renewable power seems to be a popular choice.
Peru is increasing its telecommunications capacity rapidly as well. Success started in 1993 when the industry was privatized and now is experiencing growth from internet to radio and TV.
27
As of 2010 34.3% of the population uses the internet.
28
There are over 15 internet providers in Peru and a large variety of television and radio stations.
29
Mobile phones is another growing industry that is dominated by Movistar Peru with over 66% of the market share.
30
The government placed duties on Movistar Peru to increase its reach to rural areas of the country following its merger in
2004.
31
Conclusion:
This analysis of Peru was aimed at showing the potential of the country to foreign direct investment. By breaking down Peru into the four foundations of the PEST analysis it reveals the various opportunities that businesses and countries could use to gain the confidence of making capital investment decisions to enter the market as it continues its rapid growth.
21 Ibid
22 Ibid
23 "Research and Markets: Peru Infrastructure Report 2012 - Between 2012 and 2016, Annual Average Growth of
7.3% Is Forecasted." Reuters.com.
24 "Peru Infrastructure." Peru Infrastructure.
25 Research and Markets:Peru, Reuters.com
26 Ibid
27 "Peru Infrastructure." Peru Infrastructure.
28 “World Development Indicators”. Google
29 "Peru Infrastructure." Peru Infrastructure.
30 "Peru Population." Peru Population. Trading Economics
31 Ibid

The political outlook of Peru is very promising. The strong leadership in the presidency and central bank and involvement of the people makes Peru the model of a democracy led free market economy in Latin America. The support by the government for increased investment in
Peru’s industry and excellent use of stimulus funds to keep investor confidence makes the environment for companies to enter into Peru very safe. With the ease of doing business at 41 entering Peru outright may not be the best course of action but by working with the government and acquiring one of the still publicly owned companies in the various industries would achieve better results.
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The economic outlook of Peru continues to pass expectations. The most recent surprise of bumping GDP growth to 6% from the predicted 5.5% shows that Peru’s economy is durable even as developed nations continue to struggle. Foreign direct investment into the mining industry and growing gas industry will only continue to spur the economic growth of Peru for years to come.
Peru has made headway in the social issues that it has struggled with for decades. Poverty is at an all time low and the Shining Path are all but eradicated. With continued diligence by the government and the economic growth poverty should continue to decrease. Companies entering the market quickly and that can localize their operations and support local communities could gain a competitive advantage in consumer loyalty over companies that enter the Peruvian market later on.
Peru is modernizing quickly and expanding its infrastructure capacity to support the increase in economic growth and exports. The support for renewable energy in Peru to complement the hydropower plants could create a large market for renewable energy developers.
Telecommunications firms and logistic companies could also see the potential of the market due to the planned increase on exports. Social media could also become a popular marketing arena as the number of internet users increases in the country.
Companies that enter the Peruvian market could see massive growth very quickly as the country continues to experience economic growth. The country may be small at only 29.8 million but with the foundations that are set and with proper management Peru will quickly become one of the stronger economies in the Latin American region. Peru’s history may concern entrants but from the problems it dealt with the country has emerged stronger and more secure than ever before. Companies should act quickly to enter the market at the beginning of Peru’s development for once the surprise of Peru’s success disappears it will become a highly competitive and saturated market just like Brazil and China before it.

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. Reuters, 27 Apr. 2012.
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