1

I. GENERAL INFORMATION

 What is the location of this country?

Western South America, bordering the South Pacific Ocean, between Chile, Bolivia, Brazil, Colombia, and Ecuador.

10 00 S, 76 00 W

 Are the borders with neighbors safe and secure? Chile and Ecuador rejected Peru's November 2005 unilateral legislation to shift the axis of their joint treaty-defined maritime boundaries along the parallels of latitude to equidistance lines which favor Peru; organized illegal narcotics operations in Colombia have penetrated Peru's shared border; Peru rejects Bolivia's claim to restore maritime access through a sovereign corridor through Chile along the Peruvian border.

 Are its neighbors of any economic significance? Peru’s neighbors account for 35.8% of its import economy; Brazil 8%, Ecuador 7.4%, Colombia 6.1%, Argentina 5.1%, Chile 5.1%, and Venezuela 4/1%. Chile is the only country that accounts for Peruvian exports to neighboring countries at 6.6%.

 What can we glean from this country’s history (stability, economic prosperity, social cohesion, etc.)? Peru’s recent history has yielded an unstable model of governance. Poor reforms and continual reliance on authoritarian measures brought a slump in the late 1990s for Peru’s economy. 2001 saw Peru’s first democratically elected president of Native American ethnicity, Alejandro Toledo. In 2006 the former president during the 1985-1990 term, Alan Garcia returned to office. Though his first term was less than successful his return promised improvement in social conditions and maintenance of fiscal responsibility. Peru has been torn by guerilla warfare for decades and still suffers from revolts and localized power shifts making it an unstable region for serious economic growth and social cohesion.

 How favorable is the country’s climate (moderate, cold, hot, mixture)? Peru’s climate is predominately hot; however, it is varied between two extremes of tropical conditions in the east to arid desert in the west. Temperatures are temperate to frigid in Peru’s East/Central alpine geography of the Andes Mountains.

 What are the key natural resources in the country?

The major natural resources of Peru are copper, silver, gold, petroleum, timber, fish, iron ore, coal, phosphate, potash, hydropower (water), and natural gas. 2

 Are there opportunities to explore and better utilize some of the natural resources in this country?

According to the U.S. State Department the mining industry in Peru is the fastest growing and most untapped industry in the entire economy. Under the umbrella of natural resource exploration and utilization is the prospect for natural gas, crude oil, mineral mining and chemical based products. The mining industry leads and will continue to drive Peruvian economic growth. In 2005, mining activity represented 6% of GDP and over 60% (US$ 9.8 billion) of total exports. Products include copper, gold, iron, lead, silver, tin, and zinc. Currently, Peru is the fifth destination for exploration after Canada, Australia, the U.S. and Russia. http://www.buyusainfo.net/docs/x_1578617.pdf

Population

 What is the total population of this country?

28,674,757 (July 2007 est.)

 What is the age structure?

0-14 years: 30.3% (male 4,427,080/female 4,271,390) 15-64 years: 64.2% (male 9,267,642/female 9,150,816) 65 years and over: 5.4% (male 734,533/female 823,296) (2007 est.)

 What is the population growth rate (birth and death rates)?

Growth Rate: 1.289% (2007 est.) Birth Rate: 20.09 births/1,000 population (2007 est.) Death Rate: 6.21 deaths/1,000 population (2007 est.)

 What is the net migration rate?

-0.99 migrant(s)/1,000 population (2007 est.)

 What is the life expectancy at birth (male and female)?

Total population: 70.14 years Male: 68.33 years Female: 72.04 years (2007 est.)

 What are the major and influential ethnic groups in the country?

Amerindian 45%, mestizo (mixed Amerindian and white) 37%, white 15%, black, Japanese, Chinese, and other 3% 3

 What are the major and influential religions in the country?

Roman Catholic 81%, Seventh Day Adventist 1.4%, other Christian 0.7%, other 0.6%, unspecified or none 16.3% (2003 est.)

 What are the major/official languages?

Spanish (official), Quechua (official), Aymara, and a large number of minor Amazonian languages

 What is the rate of literacy (male and female)?

Definition: age 15 and over can read and write Total Population: 87.7% Male: 93.5% Female: 82.1% (2004 est.) https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html

Economy in General

 What is the country’s GDP in terms of purchasing power parity (PPP) and per capita?

GDP PPP: $181.8 billion (2006 est.)

GDP Per Capita: $6600 (2006 est.)

 What is the country’s labor force (also classify by occupation)?

9.21 million (2006 est.) Agriculture: 9% Industry: 18% Services: 73% (2001) https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html

 What is the rate of unemployment?

7.2% in metropolitan Lima; widespread underemployment (2006 est.)

 What is the population below the poverty line?

54% (2003 est.)

 What is the inflation rate? 4

2.1% (2006 est.)

 What is the rate of public debt (i.e. internal and external)?

33.8% of GDP (2006 est.)

 What are the country’s budgetary allocations (i.e. revenue and expenditure)? revenues: $25.5 billion expenditures: $25.18 billion; including capital expenditures of $1.8 billion for general government, but excluding private enterprises (2006 est.)

 What is the country’s industrial production growth rate?

7% (2006 est.)

 How much is the country exporting and importing?

Exporting: $22.69 billion f.o.b. (2006 est.) Importing: $15.38 billion f.o.b. (2006 est.)

 Who are the country’s trading (imports and exports) partners?

Export Partners: US 31.1%, China 10.8%, Chile 6.6%, Canada 5.9%, Switzerland 4.6% (2005) Import Partners: US 18.2%, China 8.5%, Brazil 8%, Ecuador 7.4%, Colombia 6.1%, Argentina 5.1%, Chile 5.1%, Venezuela 4.1% (2005)

 What are the country’s major imports, exports and other natural resources?

Exports: copper, gold, zinc, crude petroleum and petroleum products, coffee, potatoes, asparagus, textiles, guinea pigs Imports: petroleum and petroleum products, plastics, machinery, vehicles, iron and steel, wheat, paper

 Is the country receiving any foreign aid?

$491 million (2002) External Debt: $27.93 billion (30 June 2006 est.)

 What is the country’s exchange rate (local currency) against the major world currencies (US dollar or British pound)?

Nuevo sol per US dollar - 3.2742 (2006), 3.2958 (2005), 3.4132 (2004), 3.4785 (2003), 3.5165 (2002) 5

II. STRUCTURAL FACTORS Government

 What type of government does the country have?

Constitutional Republic

 Who are the governing authorities in this country?

The Chief of State is the President who is also the Head of Government for Peru. The Presidency is followed by two Vice Presidents and a Prime Minister who does not exercise executive power.

 What are the various arms of the government?

The government is divided into three branches; The Executive, Legislative, and Judicial Branches.

 What are the administrative divisions?

Peru is divided into twenty-five (25) Regions and one (1) Province.

 When did this country attain independence?

Peru gained independence from Spain on July 28, 1821.

 Is the country politically stable?

From 1990 until 2000 Peru’ saw a progressive turn around at the hands of then President Alberto Fujimori who helped to revitalize Peru’s economy and to curtail guerilla violence. However, the end of Fujimori’s term saw the President relying increasingly on authoritarian measures leading to his immanent ouster in 2000. A caretaker government was implemented until Alejandro Toledo’s election in 2001. In 2006 Alan Garcia returned to the presidency twenty-one years after his first election in 1985 with promises to focus on social issues, economic balances, and fiscal responsibility. Though Garcia’s term from 1985-1990 left much to be desired from his administration, he plans to increase relations with key trade nations such as the United State and Brazil as well as introduce a democratic pro-free trade path model for business development. Peru’s government shows progress, though slow, over the past decade in developing business opportunities and squelching guerilla violence which remains an issue in some of the isolate areas of the nation, especially along the Colombian-Ecuadorian border region.

Macroeconomic Situation – Monetary Policy

 Are there any inflationary tendencies in the country? 6

The inflation rate in Peru is 2.1% as of 2006. The rate is viewed as stable and is proving consistent over the past few years. The core inflation as of September 2007 was recorded at 2.15% showing little to no fluctuation. There is little prospect for large inflationary fluctuation in the Peruvian economy in the near future.

 What are the current interest rates?

As of September 28, 2007 the current interest rates are as follows: 11:00 a.m. 5.00% Close Day 4.93% Acc. Month 4.97%

 What are the current fluctuations/changes in currency exchange rates?

Nuevo sol per US dollar – 3.2742 (2006), 3.2958 (2005), 3.4132 (2004), 3.4785 (2003), 3.5165 (2002). Due to the progress in Peru’s economy and the obvious growth in its national currency the projected changes in currency exchange rates are positive.

 Who controls the rate of inflation and interest rates?

The rate of inflation and interest rates for Peru are controlled by the Central Reserve Bank of Peru which is headed by a Governor Julio Velarde, Deputy Governor Carlos Raffo with a board of four directors.

Macroeconomic Situation – Fiscal Policy

 How much tax do people and businesses pay to the government in order for it to meet its expenditure?

Businesses pay an average of 41.5% of their annual gross profit in taxes to the government. The public debt is 32.6 % of the annual GDP as of 2006. https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html http://www.doingbusiness.org/ExploreTopics/PayingTaxes/Details.aspx?economyid=152

 How much tax do foreign nationals/expatriate staff and foreign businesses pay to the government?

While exact ratios of tax expenditures paid by foreign nationals, expatriate staff and foreign businesses to the government of Peru are unavailable due to contextual inconsistencies, the average foreign business operating in Peru can expect to pay no less than 41.5% of its annual revenues to the Peruvian government in the form of taxes. http://www.doingbusiness.org/ExploreTopics/PayingTaxes/Details.aspx?economyid=152

 Does the government have a fiscal deficit currently? 7

Peru’s fiscal deficit according to the World Bank At-A-Glance (2006) report is .2% of GDP which translates as an estimated $36.3 billion USD/year. http://devdata.worldbank.org/AAG/per_aag.pdf

 From whom does the government borrow money from in order to offset its fiscal deficit (issuing bonds, getting foreign aid, etc.)?

The predominate assistance programs in Peru are financed through the International Monetary Fund, World Bank and the Interamerican Development Bank.

Gross Domestic Product (GDP)  What is the country’s GDP (purchasing power parity), GDP (official exchange rate), and GDP (real growth rate)?

GDP (PPP): $181.8 billion (2006 est.) GDP (OER): $76.09 billion (2006 est.) GDP (RGR): 6.5% (2006 est.)

Extent of the Rule of Law

 What is the state of the country’s stability in terms of enforcement of laws and contracts?

Peru is not particularly stable in the legislative sector. Enforcement of laws relies heavily on a case by case scenario and is influenced by high levels of corruption in the public arena. The outcome of court ruling is often unpredictable. While there are specific practices and procedures for contract inception and enforcement, there is little continuity in application.

 Does the country guarantee individual political rights and civil liberties?

Technically the government guarantees individual political rights and civil liberties. However, due to the high levels of corruption in the private, public, and political sectors, these rights are rarely dependable and depend upon case by case scenarios for adherence.

 Does the country allow individual ownership of property and thus guaranteeing private property rights?

The country does allow individual ownership of property, however, the guaranteeing of private property rights is not always plausible. The process to procuring property rights is lengthy and tedious. Property rights are a category under economic challenges which face Peru’s development. Constitution of the Republic of Peru Section I; Chapter I; Article 2.16.

 Are intellectual property rights respected and protected in this country? 8

Under Section I; Chapter I; Article 2.8 of the Constitution of the Republic of Peru; Every individual has the right to freedom of intellectual, artistic, technical, and scientific creation, as well as ownership of such creations and the profits derived therefrom. The government provides access to culture and promotes its development and dissemination. http://www.idlo.int/texts/leg6577.pdff

 Is there freedom of expression and free and independent media?

Under Section I; Chapter I; Article 2.4 of the Constitution of the Republic of Peru each individual has the right to expression and freedom of independent media. http://www.idlo.int/texts/leg6577.pdff

 Does the state guarantee security of people and assets from theft, kidnapping and terrorism?

Under Sections I-III of the Constitution of the Republic of Peru the government guarantees the security of people and assets from theft, kidnapping and terrorism. http://www.idlo.int/texts/leg6577.pdff

 What is the legal climate and what legal protections currently support commercial transactions in this country?

Under Section III, Chapter I, Articles 58-60 of the Constitution of the Republic of Peru private enterprise is fully protected by the government based on adherence to the laws of entities operating in the commercial sector. http://www.idlo.int/texts/leg6577.pdff

III. INTERNATIONAL TRADE AND COMMODITIES

 Are international companies permitted to export to this country?

According to the Constitution of the Republic of Peru international companies are welcome to export to Peru as the nation seeks to bolster its international investment climate while at the same time protecting its assets and the assets of foreign companies. Section III, Chapter 1. http://www.idlo.int/texts/leg6577.pdf

 What is the average and longest time (in days) to clear direct exports through customs?

The process of clearing direct exports through customs in Peru takes an average of seven (7) documents, twenty-four (24) days, and five-hundred and ninety ($590.00 USD) USD. http://www.doingbusiness.org/ExploreTopics/TradingAcrossBorders/

 What is the average and longest time (in days) to claim imports from customs? 9

The process of claiming imports from customs in Peru takes an average of eight (8) documents, thirty-one (31) days, and six-hundred and seventy ($670.00 USD) USD. http://www.doingbusiness.org/ExploreTopics/TradingAcrossBorders/

 What is the percentage of firms that export directly from this country?

US 25.5%, China 11.9%, Canada 8.4%, Chile 5.9%, Japan 5.4%, Switzerland 4.1% (2006) https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html#Econ

 What is the average time (in days) firms spend in meetings with tax officials?

On average, firms spend four-hundred and twenty-four (424) hours dealing with tax officials. http://www.doingbusiness.org/ExploreTopics/PayingTaxes/

 What are the country’s custom requirements and import duties?

Peru imposes 4% duties on 37% of the items on its tariff schedule (2,603 codes largely covering capital goods, intermediate goods and components); 7% duties on 2% of the items (122 codes); 12% duties on 43% of the items (3,029 codes); 20% duties on 11% of importable items (762 codes covering mostly textiles, footwear, and some agricultural products); and 25% duties on 5% of the items (316 codes mainly agricultural products). The non-weighted average tariff is 10.2% (including surcharge), down from over 60% in mid-1990. Most imports are also subject to a 19% value added tax, as are domestically produced goods. In addition, an excise tax (ISC) is applied to certain products such as automobiles. There are no quantitative import restrictions. http://web.ebscohost.com/bsi/pdf?vid=6&hid=103&sid=6260aedf-36de-46f5-9260- 3408b803e425%40sessionmgr104

Customs procedures are almost completely automated. Collections have more than tripled since 1991, despite dramatically lower tariff rates. A Customs Law was promulgated in April 1996 to consolidate these reforms. Beginning May 25, 2004 goods shipped to Peru do not require the pre-shipment inspection (PSI). This is because the Peruvian Customs service is now in charge of import valuation. The PSI system was adopted in the 1990’s to combat chronic under- invoicing and required all imports above U.S. $5,000 FOB to be inspected before shipment. The importer paid up to 1% of the FOB value of the goods to cover the cost of the valuation. Three private international companies, Bureau Veritas, Cotecna, and SGS (PSI companies) were authorized to conduct pre-shipment inspections for Peru. The Peruvian government adopted the WTO Customs Valuation Code for 50% of the tariff codes on January 1, 2000, and the remaining half on April 1, 2000. http://web.ebscohost.com/bsi/pdf?vid=6&hid=103&sid=6260aedf-36de-46f5-9260- 3408b803e425%40sessionmgr104 10

 What export goods/products are prohibited from this country?

The exportation of used clothing and footwear to Peru is prohibited barring the exception of donated items which are exempt from this regulation. Importation of some insecticides, fireworks, and toxic waste are restricted. Imports of used cars more than five years old and used buses and trucks more than two years old are prohibited. Used tires are also prohibited. Imports of goat, sheep, and venison, and their products from the United States are banned due to scrapie disease. Imports of remanufactured goods will be permitted once the U.S.-Peru Trade Promotion Agreement is ratified and implemented. http://www.buyusainfo.net/docs/x_1578617.pdf

 Are there reports of fraudulent activities about business in this country?

The reports of fraudulent business practices in Peru are minimal and overshadowed by the focus on the government transparency and corruption. However, Peru is one of four nations worldwide participating as a pilot country in the G8 anti-corruption and transparency initiative. This initiative along with Peru’s relatively strong regulatory situation strengthens investment security and perceptions of long term stability. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#fortyfour

 What is the best way (i.e. cheapest) to send goods/products into this country?

Due to the number of documents needed to import goods via air services (airway bill or bill of landing) the cheapest way to import goods into Peru is through sea port shipping. Due to the proximity of the nation’s capitol, Lima, to the Pacific Ocean the shipping process is much more efficient as the infrastructure is greatest to support import and distribution to the rest of the country in said city. Also, over 30% of Peru’s population resides in and around Lima which adds incentive to shipping by sea as the distribution of products is more developed and streamlined through Peru’s port authority and is central to the nation’s largest consumer base. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#distributionandsaleschannels

 What are the absolute and comparative advantages in terms of goods/products in this country?

The U.S. has a strong competitive edge in the plastics and petrochemical industry in Peru. These industries in Peru are not developed enough to support the demand for plastics both in consumer goods and industrial use. Therefore, the import of raw materials (i.e. petrochemicals) and development of industry (i.e. plastics manufacturing and chemical processing) will remain a highly lucrative market for United States investors as well as local Peruvian economic growth. This industry will not only answer the local demand but create sustainable jobs at a lower cost than the import of a finished product. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#ch4 11

 Does this country have any regional trade agreements on tariffs and trade?

In January 2002, the five member countries of the Andean Community agreed to establish an Andean free trade zone, a common external tariff (CET), and a customs harmonization policy by January 2004. The CET agreement established a unified tariff schedule that was to come into effect at the end of 2003. Peru and the other Andean Community members have agreed to postpone, once again, until January 1, 2006 the implementation of the CET. Negotiations with Chile began in 2005 to accelerate and broaden the reduction of tariffs possibly leading to an FTA (Federal Trade Agreement). Also, a finalized bilateral trade agreement with the United States is pending due to both U.S. and Peruvian Congressional approvals which overshot the proposed January 1, 2007 inception deadline. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#ch4

 Is any privatization of state industries and corporations taking place at this time?

The Peruvian government focused heavily on privatization between the years of 1991 and 2005 which say privatization revenues totaling $9.4 billion, of which foreign investors were of the vast majority. However, since 2005 the Peruvian government has ceased aggressive privatization efforts and prospects for future direct privatizations are not encouraging. The government has consequently shifted to a strategy of promoting multi- year concessions as a means of attracting investment into major projects. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#twentyseven

 What are the requirements for firms that want to take part in the privatization process?

The 1993 Constitution guarantees national treatment for foreign investors. The Peruvian government does not screen foreign direct investment nor does it require foreign investors to register their investments. Foreign investment does not require prior approval, except in banking (and domestic investment as well, for regulatory reasons) and defense-related industries. Foreign investors are advised to register with ProInversion to obtain the guarantee that they will be able to repatriate capital, profits, and royalties. Foreigners are legally forbidden from owning majority interest in radio and television stations in Peru; nevertheless, foreigners have in practice owned controlling interests in such companies. In addition, under the Constitution, foreign interests cannot "acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources" within 50 kilometers of Peru's international borders. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#twentyseven

 What is the procedure/cost of closing a business in this country? 12

The process of insolvency in Peru takes 3.5 years and costs 7.0% of the business’ estate. The recovery rate of bankruptcy is 31.3 cents on the dollar. http://www.doingbusiness.org/documents/2006-Latin_America_Caribbean.pdf

IV. FINANCIAL AND CAPITAL MARKETS

 Is financing available for exports to this country?

Local competition for financing in Peru has become intense due to the Central Bank limit on the amount that Peruvian pension funds can invest abroad. Local competition for lending has been fueled by falling interest rates which have dipped below those in New York and London for creditworthy companies, and local banks have increased sophistication. Major investment projects have been carried out mainly by the private sector since 1999. The three major banks involved in this area are Banco de Credito del Peru, Banco BBVA-Continental and Citibank.). Foreign companies obtain financing from their countries of registration/or multilateral development banks such as World Bank Group or IMF. However, even when multilateral development banks do not partake in financing, companies seek to buy U.S. equipment and other goods and services. Some projects have been structured with simultaneous or subsequent financing from the local capital market (e.g. corporate bonds). http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#fiftyseven

 What banking services are available in this country (e.g., loans)?

According to the U.S. Department of State; “Trade financing is available to the Peruvian purchasers of U.S. goods and services through their local banks. U.S. suppliers of goods and services also have access to the Export-Import Bank of the United States (Ex-Im Bank), which offers loans and loan guarantees to U.S exporters and to the foreign purchasers of U.S. goods and services.” Customer deposits carry deposit insurance financed by commercial bank contributions to an insurance fund. The amount is adjusted quarterly on the basis of the wholesale price index. http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/CCG_4632/$file/X_2 075845.DOC#fiftyone

 Who regulates the banking sector?

The banking sector in Peru is regulated by the Central Reserve Bank of Peru. http://www.bcrp.gob.pe/bcr/ingles/index.php?lang=en

 How stable are both the stock and bond markets in this country?

Peru’s stock and bond markets have shown marked trends of increased stability over the past seven years. From December 2005 to June 2007 the stock market rose in revenues well above the average for Latin American stock markets. The final report from Latin 13

Focus economic statistics show Peru reaching over $200 USD growth above the average for Latin American markets. http://www.latin-focus.com/latinfocus/countries/peru/perstock.htm

 What are the past trends in both the stock and bond markets?

Over the past ten years Peru’s stock and bond markets have maintained a slow but steady increase in revenue. In December 2001 until June 2002 Peru’s stock markets maintained a steady average worth just below $50 USD until it began its steady increase in December 2002 jumping over $260 USD in market growth in the next five years. http://www.latin-focus.com/latinfocus/countries/peru/perstock.htm “Risk premiums on Peruvian bonds on secondary markets reached historically low levels in late 2004, reflecting investor optimism regarding the government's prudent fiscal policies and openness to trade and investment.” https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html#Govt

 Is the capital market free from political manipulation?

With Peru’s slump in privatization, marked investor optimism, low rate of inflation, and increasingly sophisticated banking system the capital market shows a high level of independence from political intervention. Along with the Constitution of the Republic of Peru and the country’s involvement in international transparency policies the risk of capital market manipulation by government officials is perceived as moderate to low and shows signs of further improvement. https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html#Govt http://www.doingbusiness.org/documents/2006-Latin_America_Caribbean.pdf

 What are currency exchanges and inflationary tendencies like in this country?

Peru’s constitution guarantees free convertibility, holding, and disposal of foreign currency. All restrictions on remittances of profits, dividends, royalties, and capital have been eliminated, although foreign investors are advised to register their investments with ProInversion (as noted above) to ensure these guarantees. Currency exchange and inflationary tendencies are positive in Peru. Due to the strong, steady decrease of inflation rates as well as the rapid sophistication and development of Peru’s local banking system the tendency of each sector is to remain steady. With government reforms and international investment confidence there is little tendency for major negative shifts in either exchange rate decreases or inflationary increases. http://www.buyusainfo.net/docs/x_1578617.pdf

 Does the corporate world have confidence in the capital market?

Due to the influx of foreign direct investment between the years of 2005 and 2006 (grossing over $1.2 billion USD) in Peru the confidence perception by the corporate world [especially the US] is high. The United States is ranks as Peru’s second largest 14 investor economy with an estimated $2.3 billion USD invested in 2006 following Spain’s lead with 33% of Peru’s incoming investment revenue or $4.7 billion USD. http://www.buyusainfo.net/docs/x_1578617.pdf

V. INVESTMENT IN HUMAN CAPITAL (PEOPLE)

 What kind of healthcare system is in place in this country?

The healthcare system in Peru is being reviewed by local and international development agents including the U.S. Agency for International Development (USAID). However, for the time being the healthcare system in Peru is highly centralized around the Peruvian government and is only readily accessible to urban communities. The issues behind Peru’s healthcare system and the needs of its people are extensive. Recent studies show that the bulk of health services and protocol are left up to individual doctors and the state has influence on healthcare is poorly defined. http://www.abtassociates.com/Page.cfm?PageID=40174

 How much do companies invest in terms of medical insurance for their employees?

Local companies in Peru invest very little in health care due to the high costs of insurance and services causing challenges for employees with health needs. Due to low wages, high poverty levels, and the highly centralized healthcare system Peruvian businesses cannot necessarily afford quality healthcare for their employees if it is indeed accessible. Communities in the Andean highlands have little to no hospital or medical clinic access where such services for communities in the coastal lowlands nearer the urban center of Lima are more accessible. Accurate and up-to-date statistics regarding average investment ratios in healthcare for Peruvian companies is not available at this time. http://www.abtassociates.com/Page.cfm?PageID=40174

 What is the literacy level in this country?

Total Population: 87.7% Male: 93.5% Female: 82.1% (2004 est.) https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html#People

 How much do companies invest in education and training of their employees?

On average there is a marked increase in company interest regarding employee education and training in Peru. In March of 2004, Peru’s president Alejandro Toledo announced the signing of an $18 million USD loan with the Inter-American Development Bank to invest in job training for youth between the ages of 16 and 24. This loan is projected to provide relevant industry education and job training to over 46,000 Peruvian youths from 15 low-income communities. Other foreign aid organizations such as OECD and IMF have supported investment projects for job training and education. Also, some U.S. based universities have launched partnering programs to help educate and train future leaders and professionals in Peru, of which are Regent University and Florida State University. http://www.iadb.org/news/articledetail.cfm?language=english&artid=1535&arttype=pr

 What is the rate of employment and unemployment in this country?

The rate of employment in Peru is 7.2% in metropolitan Lima; widespread underemployment (2006 est.) Though investor confidence in the Peruvian markets has risen in the past decade and yielded higher foreign investment 54% of Peru’s population remains below the poverty line. https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html#Econ

 What is the wage structure (i.e., highest paid, minimum wage, etc.)?

The minimum monthly wage in Peru is 500 soles or $156 USD. Based on the nation’s constitutional work week standard of forty hours/week this translates as $.62 USD per/hour. The margin between the minimum wage paid employees and the Peruvian upper class is very large with the highest paid individuals representing high ranking government officials, bank officials, and international investment representatives. http://www.livinginperu.com/news/3371

VI. DEVELOPMENT IN INDUSTRY/SERVICE SECTORS

 What are key industry/service sectors in this country?

The leading industry in Peru is mining. According to the U.S. State Department: “The mining industry leads and will continue to drive Peruvian economic growth. In 2005, mining activity represented 6% of GDP and over 60% (US$ 9.8 billion) of total exports. Products include copper, gold, iron, lead, silver, tin, and zinc. Currently, Peru is the fifth destination for exploration after Canada, Australia, the U.S. and Russia.” http://www.buyusainfo.net/docs/x_1578617.pdf Also, due to this boom in mining and exploration activity demand for high tech. mining equipment has dramatically increased. The market for mining equipment has been stabilized by Peru’s economic stability as well as international prices for raw natural resources that have sparked the increase in international exploration. The mining and mining equipment industries are followed by the construction and construction equipment industries. This boom has been stimulated by strong economic growth as well as local and international investment in infrastructure development.

 What opportunities/niches exist in these industry/service sectors?

The key opportunities in the two major industries (mining and construction) are the production and import of industrial chemicals. The need for refined chemicals, plastics, and rubbers is high as the Peruvian market is driving high profile infrastructure projects 16 and mining exploration. Also, the need for high tech. industrial equipment puts outside investors at an advantage to capitalize by brokering manufacturing and import deals with Peruvian companies as well as the Peruvian government. Due to the low level of privatization and the fluidity of Peru’s import processes, outside investors have the opportunity to develop a strong presence in this highly lucrative market.

 Are there any untapped or growing industry/service sectors?

One growing industry that has yet to be seriously engaged by outside investors is the pharmaceutical industry. Due to the growing interest in health care by the Peruvian government this sector is slated for increased government funding as well as foreign direct investment. The opportunities in pharmaceuticals lie in manufacturing and distribution. The natural resources are more readily available for raw material, however, the manufacturing industry as well as distribution for quality pharmaceuticals is yet to be developed. This leaves a large margin of the Peruvian population (mainly in the Andean highlands and rural areas) without access to even simple medicinal products. http://www.buyusainfo.net/docs/x_1578617.pdf

 How is the competition in these industry/service sectors?

Competition for import is high; however, the local development of these industries in terms of manufacturing and distribution has been slow regardless of the marked economic improvements of the Peruvian economy. Independently financed manufacturing projects could prove highly lucrative due to the lack of manufacturing and technology sectors in Peru. This fact, coupled with rapidly growing markets could prove to be a strong base for supply chain investment as the sector for raw material import is already strong, the resources do exist for industry development. http://www.buyusainfo.net/docs/x_1578617.pdf

 Are there any undergoing projects/programs (governmental or quasi- governmental) in the country that foreign firms can pursue with assistance from both internal (i.e., banks, government, foundations, etc.) and external funding (i.e., World Bank, IMF, etc.)?

The Peruvian government has placed a high emphasis on various infrastructure projects including development and road maintenance. These projects can be financed through the Interamerican Development Bank which is offering S/.50 million ($156,000.00 USD) for such projects. Also there are two strong housing construction and construction equipment projects in effect in Peru. These are the Mi Vivienda and Techo Propio projects. These projects are also projected to steadily increase the demand for construction equipment. http://www.buyusainfo.net/docs/x_1578617.pdf

VII. TECHNOLOGICAL INNOVATION AND ADVANCEMENT

 Does this country invest in Research and Development? 17

Due to the lack of well developed infrastructure, especially in the areas of roads, telecommunications, power supply and manufacturing the Peruvian government has focused its major investment projects in these sectors. While research and development are key areas of interest for outside and bilateral investors, the needs for infrastructure development and international investment take president.

 How much do companies invest in R&D or technology?

Due to the lack of information regarding specific independent company investment statistics in Peru the average company investment in research and development is hard to project in terms of net values. However, due to the growing economy and key product and industry growth, the market for research and development is ripe and will grow in coming years to be a major sector for investment opportunities.

 How skilled are the employees in terms of technological know-how?

In regards to technological know-how the average Peruvian employee’s skills are low. Most organizations invest in technical skill development; however, the lack of technological advancement has created a gap in quality technology training. Due to the growth in specific industries with high demand for advanced equipment and manufacturing processes, companies are starting to invest more in technological training which in turn increases the demand for research and development. http://www.buyusainfo.net/docs/x_1578617.pdf

 How is technology transferred in this country (e.g., through technical journals or conferences, industrial espionage, licensing or marketing agreements, co-development agreements, training or exchange of personnel, commercial transactions or patents, or through cross-national exchanges among components of multinational enterprises)?

Technology, for the most part, is transferred through marketing and co-development agreements across industries. Due to the strong demand for technological advancement in light of rapidly increasing economic stability and outside investor confidence there is a need for open and rapid dissemination of technological intelligence. While industrial espionage is often a factor regardless of the economy, it is perceived as low in Peru as patents and intellectual property are well protected by constitutional law. Multinational enterprises have a strong presence in technological advancement in Peru as many major development projects are spear-headed by international investment banks and foreign investors. Many of these investors are developing programs and seminars in specific industries which are made available to workers and organizational leaders of local businesses. http://web.ebscohost.com/bsi/pdf?vid=3&hid=109&sid=e21f3bb4-2356-45dd-8eab- 122e6ae236a4%40sessionmgr109 http://web.ebscohost.com/bsi/pdf?vid=9&hid=16&sid=9346e288-ab3a-40db-b34e- a1298a08fc95%40SRCSM1 18

 How is intellectual property (patents, copyrights, trade secrets, know-how, etc.) transferred?

Intellectual property is protected under Peruvian constitutional law and therefore patents and copyrights are common. However, due to the slow judicial system and poor rule of law across certain sectors in various districts most intellectual property is transferred through trade-secrets (especially among foreign investors and private firms) as well was insider know-how. http://web.ebscohost.com/bsi/pdf?vid=3&hid=109&sid=e21f3bb4-2356-45dd-8eab- 122e6ae236a4%40sessionmgr109 Peru belongs to the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). It is also a signatory to the Paris Convention, Bern Convention, Rome Convention, Phonograms Convention, Satellites Convention, Universal Copyright Convention, the World Copyright Treaty, the World Performances and Phonographs Treaty and the Film Register Treaty. http://web.ebscohost.com/bsi/pdf?vid=9&hid=16&sid=9346e288-ab3a-40db-b34e- a1298a08fc95%40SRCSM1

VIII. PUBLIC INVESTMENT IN INFRUSTRUCTURAL DEVELOPMENT Telecommunication

 How long (in days) does it take to obtain a telephone connection in this country?

There are no published statistics regarding exact time frames for obtaining a telephone connection in Peru. However, according to information provided by OSPITEL, availability of connectivity depends on the district of operation. A telephone connection in the urban areas on the coast (especially in Lima) should only take a matter of two to three business days after all transactions and forms are finalized. Connectivity is far more scant in the rural areas and Andean highlands where there is often little to no infrastructure to support phone lines. There is, however, a growing market for cellular mobile technology in Peru with a reported 8.7 million lines in 2006. Many companies now offer very competitive rates and decent coverage for cellular phone services. Again, geographical location plays a prevalent role in access and coverage due to the extreme differences in elevation in the country’s interior and eastern regions. http://web.ebscohost.com/bsi/detail?vid=3&hid=16&sid=9346e288-ab3a-40db-b34e- a1298a08fc95%40SRCSM1

 Are electrical outages and surges common?

Electrical outages and surges are not necessarily common. The power grid infrastructure is becoming increasingly more sophisticated and developed in the urban areas around the capitol, Lima. However, power supply availability in the country’s rural areas are less reliable. The threat of natural disaster also factors in when concerning power outages and surges. The powerful August, 2007 earthquakes centered ninety miles south of Lima 19 caused major damage to the power supply girds throughout the nation. However, maintenance response proved adequate and repairs were made relatively soon after the incident.

 What percentage of the value of sales is likely to be lost due to electrical surges?

Viable and reliable current information is not available regarding the statistics of sales in terms of value lost due to electrical surges. However, due to the low percentage of electrical surges and outages in the more developed areas of Peru serious losses in sales value are not likely.

 How reliable (speed and consistency) is the internet system?

Internet connectivity in Peru has become increasingly sophisticated in terms of reliability and speed. In 2006 879,331 people were reported to be connected to the internet as apposed to the 661,984 in 2005. With major internet providers catching on both availability and consistency are becoming more and more reliable. http://web.ebscohost.com/bsi/detail?vid=3&hid=16&sid=9346e288-ab3a-40db-b34e- a1298a08fc95%40SRCSM1

 What percentage of firms/people use the web/internet to interact with clients/suppliers?

Over seventy-percent of small and medium enterprises operating inside Peru are using the internet to interact with clients whereas almost one-hundred percent of large multinational corporations engaging in internet business activities regularly. http://web.ebscohost.com/bsi/detail?vid=3&hid=16&sid=9346e288-ab3a-40db-b34e- a1298a08fc95%40SRCSM1

 Do companies advertise through radio and television in this country?

Companies in Peru advertise predominately through popular media with spots on television and radio commercials. Where infrastructure is lacking for televised and radio advertising, organizations revert to more traditional methods of advertising such as billboards and print media. http://web.ebscohost.com/bsi/detail?vid=6&hid=16&sid=9346e288-ab3a-40db-b34e- a1298a08fc95%40SRCSM1 Broadcast stations included 273 AM, no FM, 140 TV, 144 shortwave. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0007)

Physical Infrastructure

 What are the roadways and railways like (i.e. tattered, smooth, safer, etc.)? 20

Peru’s government along with the Interamerican Development Bank has begun an aggressive development initiative to improve the quality of roadways and railways with the hopes of attracting foreign investors for these projects. As of Spring, 2007 roadways in urban areas are perceived as fair and in need of moderate maintenance. However, roadways in the more rural districts of Peru suffer from various natural hazards such as erosion and are perceived as poor and in some areas primitive. The railway system in Peru is well developed on an inter-city basis. However, much maintenance is needed in the more remote destinations of the country in order to streamline distribution and travel. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0083)

 Is the country accessible by water (sea or ocean)?

Lima's port of Callao services most shipping. Of country's seventeen deep-water ports, most in northern Peru. Five main river ports. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0007)

 Are the airports and harbors safe and secure?

In 1991 Peru had 201 usable airports, 36 with permanent-surface runways. Jorge Chávez International Airport near Lima principal international airport. The airports and harbors are relatively safe for import and export activities as well as international travel. Relative taxes, service and holding fees apply for port usages and holdings. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0007) http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0083)

 Are there water supply failures (if so, how often)?

In the developed districts around Lima and other urban centers the water supply is fairly reliable. The rural districts suffer from poorer water quality and access and some communities do not have any developed water supply systems. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0076)

 Which mode of transportation is cheapest and most reliable in various regions of the country?

While the price of oil and gas continue to fluctuate in world markets, the most economical and reliable mode of transportation in Peru is automobile across all regions. Due to the poorly develop roadway and railways systems many parts of Peru are neither readily nor cost-effectively accessible. The public transportation system is limited to urbanized areas. Bus systems are considered to have low efficiency and railway systems are, for the most part, poorly managed. http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+pe0083)

IX. FOREIGN DIRECT INVESTMENT (FDI) 21

 What are the business opportunities in this country?

The business opportunities in Peru range from infrastructure and development investment, import and export investment, manufacturing of industrial equipment, natural resource exploration, mining and drilling, industrial chemical manufacturing and import, pharmeseutical manufacturing and import, cellular and wireless technologies, research and development, health care management, private insurance providers, agricultural export, transportation, and tourism. These opportunities are becoming more and more competitive as Peru’s economic stability increases and investor confidence in the Peruvian market, especially United States investors, increases. http://www.buyusainfo.net/docs/x_1578617.pdf

 Can foreign companies currently invest in the country and are they allowed to own property?

Foreign companies are given the right and encouraged by the Peruvian government to invest in the country; especially in the transportation and infrastructure development sectors. Foreign companies are entitled to ownership of property under the same legal freedoms that are available to Peruvian citizens. According to the Constitution of the Republic of Peru; Concerning property, foreigners, whether individuals or corporations, enjoy the same fights as Peruvians except that they may in no instance invoke special situations or diplomatic protection. However, within a distance of 50 kilometers from the border, foreigners may not acquire or own for any reason mines, land, forests, water, fuel or energy sources, either directly or indirectly, individually or in partnership, under penalty of surrendering that acquired right to the government. http://www.idlo.int/texts/leg6577.pdf

 How difficult/expensive is it for foreign companies to register to do business in this country?

Registration requirements for starting a business in Peru can take a maximum of thirty days provided all pertinent registration and licensure docurments are submitted on time. The cost of registering a business is on average $384 USD depending upon necessary licensures, registration fees and building permits (if needed). http://www.doingbusiness.org/ExploreTopics/StartingBusiness/Details.aspx? economyid=152

 Who can I contact to find investment opportunities?

Multilateral development institutions such as WorldBank, IMF and Interamerican Development Bank each have ongoing development projects operating in Peru that are open to outside investment. Contact information for representatives from any of these organizations is readily available through their respective internet websites. WorldBank- www.WorldBank.org IMF- www.IMF.org 22

Interamerican Development Bank- www.iadb.org One of the most reliable reference points for investment opportunities within the country regarding industry specific projects and companies is the U.S. State Department. By visiting their website at www.state.gov one can access their market research database and find the most comprehensive and up-to-date market analyses including investment opportunities available to the public.

U.S Department of State (U.S. Embassy Lima, Peru) Unit 3730 APO AA 34031 Ambassador J. Curtis Struble Adam Shub, Economic Counselor Hal Howard, Economic Officer Marcos Mandojana, Economic Officer Miguel Yepez, Economic Specialist Tel.: (511) 434-3000 Fax: (511) 434-4095 Website: http://usembassy.state.gov/lima/wwwhmain.html

U.S Department of State (Washington, D.C.) 2201 C Street N.W., Room 5906 Washington, D.C. 20520 Barbara Thomas, Peru Desk Officer Email: [email protected].: (202) 647-3338 Fax: (202) 647-2628 Website: www.state.gov

 What types of licenses/work permits are required and what is the time frame for them to be obtained?

To start a business and employ workers in Peru there are many licenses and permits necessary for legal operations. In general these licenses and permits are; Documents of incorporation (authorized by an attorney and signed by shareholders) (30 days), proof of 25% capital deposit in a bank (1 day), notarize and stamp accounting books (1 day), stamp payroll books at the Ministry of Labor and Social Promotion (5 days), Tax Card or Registro Unico del Contribuyente (Taxpayer Identification number, RUC) (1day), Certificate of Compatibility (6 days), Technical Report of Approval (5-15 days) and Municipal License (30 days). http://www.doingbusiness.org/ExploreTopics/StartingBusiness/Details.aspx? economyid=152

 What is the percentage of ownership/shareholding allowed/permitted for foreigners?

Under the Constitution of the Republic of Peru, foreigners can fully own a business and are subject to no restrictions in regards to shareholding. The strong emphasis on foreign investment and the decline in governmental privatization has paved the way for a free market where free enterprise is encouraged and protected. 23

http://www.idlo.int/texts/leg6577.pdf

 Is insurance available for business activity in this country? Insurance is available through local and national banks in Peru as well as investment insurance through multilateral development organizations pertaining to development projects. However, the private insurance sector is still developing and private insurance companies are thin on the ground. There are thirteen insurance companies regulated by the Superintendency of Banks, Insurance and Pension Funds Administrators (known by its Spanish initials, SBS) making these firms the most reliable in handling business insurance matters.

 Are this country’s banks participating in commercial transactions?

Peru’s financial system has modernized very rapidly and paved the way for many opportunities in commercial transactions. As of December, 2006 there are eleven commercial banks in Peru with many of the forty-one municipal and rural banks offering incentives for commercial investment. http://www.buyusainfo.net/docs/x_1578617.pdf

 What is the legal climate and what legal protections currently support commercial transactions in the country?

The legal climate in terms of protections supporting commercial transaction in Peru is fair on a global monitor comparative scale. Transparency in regulating systems is moderate with the biggest barriers facing businesses being; U.S. firms have complained that SUNAT's aggressive behavior and interpretation of law are often contrary to the spirit of the law and intent of government policies, complicating normal business operations. The remuneration of SUNAT employees is determined, in part, by the theoretical tax liability they uncover in audits. Businesses point out that SUNAT's retroactive reinterpretation of regulations and laws, its levying of disproportionate fines, and initiation of full company audits when companies request a refund or legal revaluation of assets for depreciation purposes, create additional investment and trade barriers. http://www.buyusainfo.net/docs/x_1578617.pdf

 Is there any income or sales tax in place?

Corporate income tax in Peru equals 27.4% of the organization’s profit. The sales tax in Peru is 19% with the VAT standard rate being 17% and the Municipal Sales Tax being 2%. http://www.doingbusiness.org/ExploreTopics/PayingTaxes/Details.aspx?economyid=152 A foreigner is resident if staying in Peru for two years (disregarding absences of less than 90 days). Income tax is charged at progressive rates of 15%, 21% and 30%; non- domiciled individuals pay tax at a flat rate of 30%. Dividends received from resident companies are subject to a final withholding tax of 4.1%. 24 http://www.deloittetaxguides.com/index.asp? layout=countrySnapshotDtt&country_id=630000063&rf=0

X. CULTURAL AND SOCIAL FACTORS

 How compatible is the social culture with corporate culture in this country?

The Peruvian people are a very old culture with many conservative traditions. However, due to the recent increase in economic stability and government investment in development projects the culture is reacting with enthusiasm toward business endeavors, technological innovation, and international trade. The compatibility between the social and corporate cultures in this country are simpatico as the prospect of economic advancement increases the quality of life for the working class.

 Do people/employees have a dichotomy between modern work ethics and their own ethnic/tribal values?

The Peruvians are an industrious people with a strong work ethic and a marked growth of interest in development. Even in the face of low wages, long hours and a string of weak, socially unaware administrations they have proved resilient and committed to benchmark development goals and economic progress.

 In general, what are the attitudes of the people/employees toward work, risk and being an entrepreneur?

The 2006 Global Enterprise Monitor study rated Peru as “the most entrepreneurial country in the world with 40.2 percent, the highest percentage of adults engaged in early-stage entrepreneurial activity….based on opportunity, not necessity.” http://www.buyusainfo.net/docs/x_1578617.pdf

 What are their attitudes and worldview toward social mobility, and concerning entrepreneurial culture and opportunities for advancement?

Peruvians, for the most part, have a high regard to social mobility and have shown a desire to increase focus on fiscal and social responsibility in re-electing president Alan Garcia in 2006 with the prospect of improving Peru’s social condition. http://www.state.gov/r/pa/ei/bgn/35762.htm

 How important are income, wealth and material goods to the people/employees as compared to other aspects of life (such as leisure, time with family and friends, etc.)?

Income is highly important to the people of Peru, however, not for the purpose of increasing wealth and possessing material goods. Due to the lack of infrastructure and the poorly developed rural areas, Peruvians are more concerned with necessities and provision than leisure and material goods. Although, leisure time and activities are 25 enjoyed, this highly collective culture focuses more on income for family wellbeing than for personal comfort and gains.

XI. COUNTRY’S FORECAST

 What is this country’s economic forecast based on past trends and current conditions?

Based on past trends and current conditions of the Peruvian economy the future is bright for economic development. After multiple decades of fledgling administrations, economic instability, faltering international trade arrangements and poor economic policies Peru has learned many lessons. Through increasing investor confidence across multiple industries the Peruvian market is slated to increase in value and gain in FDI as a percentage of GDP. Due to the lack of infrastructure in some areas coupled with the high percentage of opportunities for international firm engagement Peru is on track for major development projects. The government’s focus on investing in development as well as benchmark programs through multilateral development banks bodes well for the investment climate, employment opportunities, training and technological advancement, as well as import and export opportunities. The increasing sophistication of Peru’s banking system helps secure investors and stabilize project financing. The low level of privatization and steady downward trends in inflation rates prove that Peru is on a track for economic growth and success.

 What impact will current political, economic, environmental, etc., conditions have on commercial/investment in the country in the near/long term future?

If the current political climate maintains the trend of infrastructure development, improved social conditions, lower interest rates, increased employment opportunities, investment in technological advancement, regulatory transparency and economic growth the commercial investment in Peru should only grow. Each step toward improved development the government takes as it partners with organizations like the World Bank and Interamerican Development Bank raises the confidence level of foreign investors and increases the chances for cross-sector growth. http://www.state.gov/r/pa/ei/bgn/35762.htm http://www.state.gov/r/pa/ei/bgn/35762.htm