Country Evaluation - Peru

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COUNTRY EVALUATION

PERU

MASTER OF INTERNATIONAL BUSINESS

MAN 6930 – INTERNATIONAL BUSINESS SEMINAR

SPRING 2016

Analysis prepared by FRANCISCO RUBIO

Professor: DR. SUMIT KUNDU

Due date: 02/19/2016

PESTL ANALYSIS

Political Environment

• Peruvian President Ollanta Humala from the left wing party “Gana Peru” started his mandatory in July 2011 for a five-year term.

Since democratic restoration in 1979 after alterations between democracy and authoritarian rule, nowadays Peru’s Government is conformed to an Executive, Legislative, Judicial and other autonomous organisms, elected by citizens exercising their political power. (Heritage Foundation, 2015)

• With an estimated population of 31 million, Peru traditionally focuses on a collectivist nature, emphasizing in the success of the entire group rather than the individual. As globalization advances, Peruvian culture is drifting towards one more centered on the individual. (IBEIXI, n.d.)
• One of the main Peruvian Government challenges is in relation to organized crime. Peru is one of the main producers of coca, and despite a great effort by the government and police, the country has become one of the leading manufacturers worldwide. (Insight Crime Organization, 2013)
• Several trade and treaties to avoid barrier and doubles taxations:

• Andean Community: avoids double taxes between Bolivia, Colombia, Peru, and Ecuador, so activities are taxed in the country where the activity was completed.
• Free trade agreements with the US, China, Chile, Mexico, Singapore, South Korea, Japan, Canada, EFTA Countries, the EU, Panama, Costa Rica and Venezuela.

• ALADI (Latin American Association for Integration): Argentina, Brazil, Paraguay, Uruguay, and Cuba. (PWC, 2015)

• Peru’s taxation issues are mainly about Added Value Tax (18%) and Income Tax, which is the same as the National Corporation’s tax at 28%. (PWC, 2015)

Economic Environment

• The Official currency is the Nuevo Sol and operates as managed float regime having a Peruvian Central Bank, which intervenes only for stabilization purposes.
• During the last decade, Peru has been one of the region’s fastest growing economies together with Paraguay, Bolivia, and Uruguay. Gross Domestic Product (GDP) in the third quarter of 2015 expanded by 0.5% more than the last quarter. Peru’s has an averaged GDP Growth Rate of 1.41 percent from 2002 to 2015 with a little inflation context of 2.9% average. (The World Bank, 2015)
• The service sector contributes to the origin of the GDP by nearly 60%. Telecommunication and financial services are the main divisions of the service sector, accounting for 40% of the industry. (Graph 1, Chart 1) (Trade Economics, 2015)
• Strong Foreign Direct Investment (FDI) in the last decade register USD 12.2 billions of inflows, being among countries like Spain, United States, and the United Kingdom, leading in Latin America during 2015. The FDI inflows for 2015 were 10.2 billion.  FDI is divided with nearly a quarter in the mining sector and 50% in the financial, communication and industry sectors. (Focus Economics, 2016).

Peru’s FDI inflows to GDP rank 43 out of 25 countries (Open Market Index), obtaining a score of 3.6. In the first place appears Honk Kong with a 5.5 score. (ICC, 2013)

• Peru’s principal imports consist of 11% crude and refined oil, 24% trucks, buses, industrial machinery and equipment, being China (23%), United States (17%) and Brazil (6%) its key partners. (The World Bank, 2015)
• Exports that dropped in Nov 2015 by 12.5 percent consist mostly of commodities such us: copper (19%) and gold (17%). Main exports partners are The United States, China, and Chile. (Graph 2-3) (The World Bank, 2015)
• Peru has obtained it’s rating rate (BBB+ / Stable) enabling the attraction of multinational corporations with the subsequent increase in jobs and decreasing poverty leading to an improve of social wellbeing. (EY, 2014/2015)

The Financial sector has undergone gradual modernization, and credit to the private sector has increased, and so, foreign ownership in this area is growing. (Chart 2-3) (The Heritage Foundation, 2015) 

Social - Cultural Environment

Peru is a young country with more than a quarter (28.32%) of the population under 15 years, with a high rate of growth of 1.1% annually. The economically active population corresponds to 73,57% where the 6,4 percent of the inhabitants is under 65 years old with a life expectancy of 72 years average. The country also has a literacy rate of 87.73 percent.