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Focus on: PeruGrant Thornton International Business Report 2013
30 million inhabitants
200businessinterviews
US$200bngross domestic product
Focus on: Peru 2
Introduction
Focus on: Peru
Peru is a rapidly developing economy of more than 30 million people. In 2012, its GDP was approximately US$200 billion, making it the 50th largest economy in the world and seventh largest in Latin America.
Drawing on data sources such as the Grant Thornton International Business Report (IBR), the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Peru, and more than 12,500 globally, over the past 12 months.José Luis SarrioGrant Thornton PeruPartner and International Business Centre directorT +511 615 6868E [email protected] W www.grantthornton.com.pe
19%
17%
8%
6%
44%
15%
9%5%
44%
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0
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Economyexpanded by
5.1%in Q3-2013
Focus on: Peru 3
The Peruvian economy has doubled in size since the turn of the century, fuelled by demand from China for its raw materials, with growth averaging over 6% per annum in the lead-up to the global financial crisis. As China rebalances away from investment towards consumption, the economy is set to slow although growth rates are expected to remain robust at more than 5% per annum. Gold accounts for 38% of exports while copper (7%), zinc (4%), lead (4%) and iron (2%) are also important. The United States and China are key trading partners.
Focus on: Peru
• the economy expanded by 5.1% in Q3, up from 3.9% in Q2 and level with the Q1 result
• the economy recorded a small trade surplus of US$4m in September, but the deficit for the first nine months of the year stands at US$932m, compared with a surplus of US$3.6bn for the same period in 2012
• exports declined by 9.4% year-on year-in the first three quarters of 2013 to US$30.95bn with both volumes and prices of key commodities sliding
• total imports grew by 4.2% year on year over the same period to total US$31.89bn, led by growth of 8.9% in consumer goods driven from Lima where spending remains robust
• the headline inflation remains fractionally above the 1-3% target range but the BCRP reduced its benchmark interest rate to 4% in November.
Key indicators
EconomyExport destinations
United StatesChinaSwitzerlandCanadaJapanOther
ChinaUnited StatesBrazilChileEcuadorOther
Source: Observatory of Economic Complexity (2013)
Import originations
19
%
17
%
8%
6%
44
%
15
%
9%
5%
44
%
16
%
0 1 2 3 4 5 6 7
20
13
201
42
01
520
17
20
16
201
8
5%
11
%
forecast growth5.3%
in 2013
forecast growth6.0%
in 2014-15
Focus on: Peru 4
Focus on: Peru
The economy is expected to expand by 5.3% in 2013, down from 6.3% in 2012 due to a significant decline in exports. However, growth is forecast to accelerate to 6.0% in 2014 and 2015 as external conditions improve, domestic demand remains robust, private investment picks up and exports improve.
Privates consumption growth is forecast at 5.3% in the short to medium-term, supported by relatively high employment and wage growth in Lima. Gross fixed investment is expected to expand by 10.0% in 2013, slowing slightly to 8.5% in 2014.
Exports are likely to receive a boost from improving external conditions and a number of large mining-sector projects that are due to come on stream in 2014. Export growth of just 0.5% in 2013 is expected to accelerate to 6.0% in 2014, 6.4% in 2015 and 8.0% in 2016.
Despite significant pressure from the left, the government is likely to maintain a pragmatic and centrist policy stance which should ease fears among the private sector over a radical change of direction. There is also a potential US$15bn portfolio of large infrastructure projects due start at the end of 2013 that should boost both private and public investment.
The business operating environment remains friendly with Peru second in Latin America to Chile, and 24th overall, in the Global Dynamism Index 2013. Public finances are robust, supported in October by the passage of a fiscal responsibility law and strong reserves should help smooth out any exchange rate volatility.
Economic outlook
Forecast GDP growth and inflation (%)
Source: EIU (2013)
Consumer price inflation
Real GDP growth
19%
17%
8%
6%
44%
15%
9%5%
44%
16%
0
1
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3
4
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7
2013 2014 2015 20172016 2018
5%
11%
expect76%revenues
to rise
are planning59%to invest inplant andmachinery
Focus on: Peru 5
Business growth prospects
Focus on: Peru
Peruvian business confidence slipped to net 74% in Q3, down from 98% at the start of the year. Business leaders remain the most optimistic in the region, ahead of Chile (52%) as the Latin America average slipped to 38% in Q3.
Declining optimism in the health of the overall economy is feeding through to business growth prospects. On average, net 76% of Peruvian businesses expect revenues to climb over the next 12 months, down from 78% in 2012. However, expectations are above the Latin America average of 69%. Profitability expectations have also declined from last year, with net 66% expecting an increase in 2013 compared with 72% in 2012.
Investment in plant & machinery remains elevated pointing to expansion of the economy’s long-terms growth potential. Net 59% of businesses expect to invest over the next 12 months, slightly down on the 2012 average (62%) but ahead of Chile (50%) and the Latin America average (47%). Expectations for R&D are also strong: net 47% expect to increase activity in this area, compared to 37% across Latin America.
Net percentage of businesses expecting an increase (next 12 months)
Revenue
Profits
Investment
R&D
Source: Grant Thornton IBR 2013
6652
5947
7669
4737
Net percentage of businesses optimistic for the economic outlook (next 12 months)
Source: Grant Thornton IBR 2013
19%
17%
8%
6%
44%
15%
9%5%
44%
16%
30
40
50
60
70
80
90
100
Q4-11 Q1-12 Q2-12 Q4-12Q3-12 Q1-13
5%
11%
Q2-13 Q3-13
19
%
17
%
8%
6%
44
%
15
%
9%
5%
44
%
16
%
0 1 2 3 4 5 6 7
20
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201
72
016
20
18
5%
11
%
19
%
17
%
8%
6%
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%
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%
9%
5%
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%
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%
0 1 2 3 4 5 6 7
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20
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5%
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%
Latin America
Peru
Latin America
Peru
constrainingbureaucracy
businessgrowthplans
talent is aa lack of
challenge
Percentage of businesses citing factor as a constraint on growth
PeruLatin America
ICT infrastructure
2015
Regulations & red tape
2041
Lack of skilled workers
24 32
Shortage of orders
18 24Transport infrastructure
18 24
Shortage of finance
11 21
Focus on: Peru 6
Focus on: Peru
Business growth constraintsBusiness leaders in Peru feel empowered to grow their operations in comparison with peers across the region. A lack of skilled workers is the most pressing growth constraint in Peru (see next page) but at 24% this is well below the Latin America average (32%), rising to 40% in Brazil.
Bureaucracy, in the form of regulations and red tape, is cited by a fifth of business leaders (20%) in Peru, level with Chile, but under half the Latin America average (41%) – which is driven up by the comparative struggles of peers in Argentina (45%) and Brazil (52%).
A shortage of finance is an issue for 18% of businesses in Peru, compared with 24% across the region with peers in Argentina (50%), where various capital and foreign exchange controls are in place, suffering most in this regard.
Infrastructure concerns are low on a regional comparison but the proportion citing poor quality transport options as a constraint on growth is higher than the global average (14%). Just one in ten cite a lack of demand, compared to one in five regionally.
Source: Grant Thornton IBR 2013
PeruLatin America
65
49
43
31ratios todependency
rise from2030
Focus on: Peru 7
Net percentage of businesses reporting/expecting increased hiring
Focus on: Peru
The labour market Without the right people to drive a vision forward, an entrepreneur cannot achieve scalability in his or her businesses. The best people not only increase productivity, but can also save a business time and money and dynamic companies around the world go to great lengths to attract them. It is a concern therefore that a lack of skilled workers emerges as the key constraint on business growth prospects faced by business leaders in Peru (see previous page).
While this challenge is being faced by just a quarter of local businesses, compared with closer to a third in Latin America and across the world, upskilling the labour force is key to Peru’s opportunity to benefit fully from the its demographic transition – a one-off boost to growth as the proportion of people of working age rises (and peaks) relative to the proportion of dependents (those too young or old to work). The transition has already transformed the age structure of the Peru’s population, with the working age share of the population rising by 5.7 percentage points in the decade to 2011. However, the UN estimates that the dependency ratio will bottom out in around 2030, after which point the proportion of people of working age (15-64) will begin shrinking relative to the proportion of the population (0-14 and 65+) they have to provide for, potentially weighing on Peru’s growth trajectory.
The good news as Peru looks to put these young hands to work is that businesses are hiring: net 49% of local businesses hired workers over the past 12 months, well above the Latin America average (31%). This has helped the unemployment rate, which average 8.4% in previous decade, to fall to 5.8%. Hiring plans also remain robust: net 65% of businesses plan to hire workers over the next 12 months, well above the Latin America average of 43%. And Peru also ranks tenth globally for the dynamism of its labour force according to the GDI 2013, driven by labour productivity growth of 3.7% in 2012.
Source: Grant Thornton IBR 2013
Past 12 months Next 12 months
Working age share of total population (%)
Source: UN Population Division (2013)
19%
17%
8%
6%
44%
15%
9%5%
44%
16%
50%
55%
60%
65%
70%
1970 1980 1990 2000
5%
11%
2010 2020 2030 2040 2050 2060 2070
© 2013 Grant Thornton International Ltd.
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to theirclients and/or refers to one or more member firms, as the context requires.
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IBR 2013 methodologyThe Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally.
The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors in businesses with 20-149 employees in Peru. Q3 data is drawn from 3,300 interviews globally (50 in Peru) conducted in September 2013. 2013 data is drawn from over 12,500 interviews (200 in Peru) conducted between November 2012 and September 2013.
To find out more about IBR, please visit: www.internationalbusinessreport.com.
Dominic KingGrant Thornton International LtdGlobal research managerT +44 (0)207 391 9537E [email protected]
Lorena BernalesGrant Thornton PeruMarketing directorT +511 615 6868E [email protected]
