A snapshot of business risks in Peru
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Peru was one of the fastest-growing economies in Latin America between 2002 and 2013, driven by sound fiscal and monetary policies and by growth in services, mining, and manufacturing. Between 2014 and 2019, growth slowed to an average of 3.1%, mainly due to lower commodity prices and a slowdown in private investment. The Covid-19 pandemic has significantly impacted Peru’s economy, with GDP decreasing by 11.1% in 2020. In 2021 the economy surpassed pre-pandemic levels, with a growth of 13.3%. The outlook for 2022, however, is forecasted to be between 2 and 3%.
Legal Protections for Investors
Peru has a strong legal structure to protect foreign investors´ interests. The Constitution and associated legal framework guarantee private property rights, the fulfilment of contracts, free capital transfer and remittance of earnings, unrestricted access to internal and external credit and unrestricted access to most economic sectors, with only a few exceptions, related to national security, for both national and foreign companies. In practice, implementing this legal framework and red tape remains challenging. Peru ranks 76th out of 190 countries in the World Bank’s Ease of Doing Business.
Joining the OECD is a priority for Peru. In late January 2022, the OECD invited Peru, together with five other countries – including regional counterparts Argentina and Brazil – to start the accession process. Peru’s response was enthusiastic, with President Castillo referring to Peru’s existing collaboration with the OECD and commitment to its values and standards based on the successful implementation of the ambitious Country Programme (2014-16).
Political analysis
Peru is a constitutional democratic republic with a multi-party system. Under the current constitution of 1993, the President is the Head of State and government, elected for five years without the possibility of running for immediate re-election. The President designates the Prime Minister and the rest of the Cabinet. There is a 130-member unicameral Congress elected for five years, with a one-term limit. Bills may be proposed by the Executive or the Legislative Branches, and they become law after being passed through Congress and enacted by the President. The Judiciary and the National Electoral Board are independent institutions. Voting is compulsory for all citizens between the ages of 18 and 70.
Bribery and corruption
Transparency International lists Peru as the 8th most corrupt country in South America and 109th place worldwide in the Corruption Perception Index for 2021 (published January 2022). With a score of 38, Peru falls by two points but remains relatively stagnant on the index since 2012. The Peruvian Comptroller General’s Office estimates that around 15% of the 2019 public budget was lost through corruption and public sector misconduct (CGR, 2020).
Recent years have been marked by significant corruption scandals in Peru linked to the Brazilian construction giant, Odebrecht. All former Peruvian Presidents since 2001 are or have been under investigation for corruption or money laundering in almost all cases related to the Odebrecht case. The most well-known case is the Olmos Irrigation Project.
Intellectual property – Peru
Regulation of intellectual property rights in Peru is subject to international treaties such as the Paris Convention (industrial property), the Berne Convention (copyrights) and Decision 486 of the Andean Community (industrial property). These treaties are complemented by local regulations covering industrial property and copyright matters. The national office for intellectual property and registrations is known as INDECOPI. Intellectual property rights are also subject to protection under Peruvian criminal law. The same legal principles for regulating industrial property in Peru apply to all countries in the Andean Community (Bolivia, Colombia, Ecuador and Peru). All industrial property rights require prior registration to be valid in Peru, and they do not grant international protection except in other countries within the Andean Community.
Consequently, it is advisable to have a valid registration of intellectual property rights in Peru. Procedures related to trademarks and other distinctive signs, including registrations, infringement and oppositions, have an estimated six months (or even more, depending on the case’s complexity). In the case of patents, these terms can extend to two years and more. A backlog of unexamined patent applications is allowed in Peru within one year counted from the filing date abroad. Copyright and related rights regulation in Peru is based on the main principles of the Berne Convention.
Authors and copyright owners may start infringement actions before national authorities without prior registration. Peru has a significant market of piracy and counterfeit products that affect trademark and copyright owners. Even when Peru has local regulations for border measures and intellectual property protection against piracy, authorities such as the police and prosecutors need to strengthen compliance and national enforcement.
Climate / Sustainability
Peru is in the top 10 of the most biodiverse countries in the world, and it hosts over 70% of the world’s total biodiversity, including over 2,000 species of fish, 1,736 species of birds, 500 species of mammals and 300 species of reptiles, and 10% of the worldwide species of flora.
However, illegal logging and mining have impacted the preservation of natural areas. The deforestation rate increased 37% in 2020, amounting to 2’636,585 hectares of tree cover loss between 2001 and 2020, resulting in 53% of total greenhouse gas emissions.
Climate change has also affected Peruvian ecosystems as forest fires have increased from 338 in 2000 to 7,922 in 2020, while 51% of glaciers have been lost. On the other hand, the man-made climate impact is concentrated in the capital city, Lima, accounting for 58% of emissions from vehicles.
Peru has solid environmental legislation to combat these adverse effects, including the National Environment Policy to 2030. As such, local authorities must propose alternatives to solve issues such as the loss of biological diversity – due to deforestation, illegal and informal activities – deterioration of environmental quality, and increased risks and impacts from natural and anthropic hazards in the context of climate change.
The government has shown the intention to prioritize climate action, although the policy’s details are pending. Some key announcements include accelerating the transition to renewable energy and establishing a special tax regime for the aquaculture and forestry sectors.
There are also many opportunities to bundle infrastructure and climate action as the government, with UK’s support, is planning to incorporate sustainability indicators into its National Infrastructure Plan. Moreover, after the issuance of its first tranche of sustainable bonds for US$ 4 billion, also attained with UK support, there could be more space for mobilising private investment to low-carbon infrastructures, like mature PPP projects from the National Infrastructure Plan, sustainable projects linked to the Agrarian Reform, or even green investment linked to the forestry sector.
Human Rights
Peru actively and consistently supports the rules-based international system and is a proponent of human rights. Their Constitution states that all people have the right to equality before the law and that no one may be discriminated against because of national origin, race, sex, language, religion, opinion, socio-economic or another status. But the country faces several domestic human rights challenges. A National Action Plan had galvanised the positive movement, but the Covid-19 pandemic and political turmoil in recent years have exacerbated institutional challenges in protecting and defending human rights.
Source: UK Government
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