Country Risk: Peru

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Location and Size

Peru is the third-largest country in South America and is approximately three times the size of California. It borders on the South Pacific Ocean, between Chile and Ecuador.

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Government

Peru is a constitutional republic. Branches include:

• Executive: President Pedro Castillo, two Vice Presidents, and a Council of Ministers led by a Prime Minister
• Legislative: Unicameral Congress
• Judicial: Four-tier court structure consisting of Supreme Court and lower courts.

Legal System

The Peruvian legal system is based on a civil law system. Peru accepts compulsory International Court of Justice (ICJ) jurisdiction with reservations.

The Peruvian judicial system is often very slow, and decisions are difficult to predict and enforce. The competence of individual judges is said to vary substantially, and allegations of corruption and outside interference in the courts are common.

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People

• Population: 31,331,228
• Population growth rate: 0.94% (2022 est.)
• Languages: Spanish (official), Quechua (official), Aymara, and a large number of minor Amazonian languages
• Literacy: 94.2% (2022 est.)
• Ethnic Make-up: Indigenous (45%), mixed background (“mestizo”) (37%), European (15%), African, Japanese, Chinese, and other (3%).
• Religions: Roman Catholic 60%, Christian 14.6%, other 0.3%, unspecified 21.1% (2017 est.)

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Economy

Peru’s economy, one of the most dynamic in Latin America, has shown strong growth over the past five years.

Despite the strong macroeconomic performance, underemployment and poverty have stayed persistently high. The economy also continues to be excessively dependent on world commodities prices, which has impeded its diversification. The pace of development has also suffered from infrastructure shortcomings, extensive poverty and inequality, heightening social and political tensions, and from the difficult business environment.

The international financial turmoil should have limited impact, as Peru’s economic growth rests on relatively solid foundations with domestic demand constituting the main economic driver. Investment will be boosted by the second phase of the Camisea natural-gas field, several major mining projects and the free trade agreement with the United States.

Leading Markets (2022): China 26.5%, US 15.2%, Switzerland 5.2%, South Korea 4.4%, Spain 4.1%, India 4.1%

Leading Exports – Commodities: Copper, gold, zinc, crude petroleum and petroleum products, coffee, potatoes, asparagus, textiles, guinea pigs

Leading Suppliers (2022): China 22.3%, US 20.1%, Brazil 6.0%, Mexico 4.4%

Leading Imports – Commodities: Petroleum and petroleum products, plastics, machinery, vehicles, iron and steel, wheat, paper

Top Industries: Mining and refining of minerals; steel, metal fabrication; petroleum extraction and refining, natural gas; fishing and fish processing, textiles, clothing, food processing

Top Agricultural Products: Asparagus, coffee, cotton, sugarcane, rice, potatoes, corn, plantains, grapes, oranges, coca; poultry, beef, dairy products; fish, guinea pigs

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Comparative Economic Indicators – 2022

*2022 Estimates
Data from CIA World Factbook

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Credit and Collections

Dispute Resolution

• Collection Experience: Fair-Good
• Exchange Delays: 3 months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: sight draft

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Risk Assessment

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Business Climate

The business climate in Peru is generally attractive. Foreign trade has been extensively deregulated in recent years, state interference in free trade is minimal and the present government is continuing many of the business-friendly policies of previous governments.

Private investment into Peru is also rising and becoming more broad-based now that Peru has obtained investment grade status. However, the poverty afflicting more than half the population has been a source of political and social instability. The number of strikes and violent protests continues to rise.

Economic Freedom: According to the 2022 Index of Economic Freedom, Peru’s economy is 66.5% free, making it the world’s 51st freest economy. Peru faces significant challenges, particularly in labor freedom, property rights, and freedom from corruption. The slowness and unpredictability of the courts have led to allegations of corruption, but corruption is not as serious as it is in other countries in the region.

Infrastructure: Infrastructure in Peru is poor both by regional and international standards.

Tariffs and Customs: Tariffs are levied on certain imports. However, 48.5% of all imports enter the country duty-free and most non-tariff barriers to trade have been eliminated.

Companies planning to do business in Peru should note that corruption in Peruvian customs is not a major issue compared to many other countries in the region. Making the customs administration more efficient and fair continues to be a priority, as the present administration seeks to improve the business environment.

Regulatory Environment: Although reducing barriers to trade, establishing faster customer procedures and improving dispute settlement processes has improved the regulatory environment, many foreign companies still cite regulatory issues as constraints for their business operations in Peru.

Property Rights: Secured interests in property are recognized, in principle. However, the Peruvian judicial system is often very slow to hear cases and to issue decisions.

Conversion and Transfer Policies: There are no restrictions or controls on payments, transactions and repatriation of profits. The Peruvian government guarantees the freedom to hold and dispose of foreign currency. All restrictions on remittances of profits, dividends, royalties, and capital have been eliminated. Exporters and importers are not required to channel foreign exchange transactions through the Central Reserve Bank of Peru, and can conduct transactions freely on the open market. Anyone may open and maintain foreign currency accounts in Peruvian commercial banks. U.S. firms have reported no problems or delays in transferring funds or remitting capital, earnings, loan repayments or lease payments.

Corruption: In several surveys, corruption has been reported to be a major obstacle for business operations in Peru. The difficulties experienced when trying to deal with Peru’s extensive bureaucracy has led some companies to make use of facilitation payments or to contract local agents whom they hope can expedite business transactions. However, since companies can be held accountable for corrupt behavior performed by agents on their behalf, they are advised to conduct extensive due diligence when investing in or doing business in Peru.

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Business Protocol

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