Posted: January 2, 2013 |  AUTHOR: KEN FOX | CONTACT ME

 

I am excited to share my thoughts and observations from a recent trip to Peru. When one mentions Peru-we typically think of its history—the capital of the Inca Empire, visits by the Spanish explorer Francisco Pizarro, their confrontations with the Incas and Spanish dominance. Peru has also been known as a poor country, with decades of extreme left wing and right wing authoritarian governments and brutal insurgencies waged by groups such as the Shining Path and Tupac Amaru. Not anymore.

Peru’s economy posted a remarkable 8.8% growth in 2010, followed by a 6.9% growth level in 2011. The growth rate for 2012 is estimated to be at least 6%. The country is rich in: gold, silver, lead, oil and zinc. “Peru has matured politically to the point where analysts and investors are beginning to talk about another regional powerhouse creeping up alongside Brazil.”

Select Key Metal Global Production Rankings (based on tonnage)

Rank Gold Silver Copper Zinc
#1 China Mexico Chile China
#2 Australia Peru Peru Peru
#3 U.S. China U.S. Australia
#4 Russia Australia China U.S
#5 South Africa Chile Australia Canada
#6 Peru Poland Indonesia India

Sources: Wikipedia, The Silver Institute and U.S. Geological Survey (USGS)

These key metals generated most (60%) of Peru’s exports in 2010.They also helped create jobs and investment.

Asparagus and artichokes comprise important components of the agricultural exports.

Exports to China have risen steadily and helped Peru’s economy growth. The two countries signed a free trade agreement that went into effect in March 2010. This facilitated China to become Peru’s biggest trading partner. China’s direct foreign investment (FDI) in Peru is among the highest in Latin America.

Source: UN’s Economic Commission for Latin America and the Caribbean

Tourism represents an important growth driver for Peru, but has limitations. Tourism represents only 3% of the country’s GDP (WEF, 2009) compared to much higher levels in Petra, Jordan, Angkor Wat, Cambodia and the Pyramids of Egypt which are used to generating 6-9% of GDP. Part of this limitation is Peru’s reliance on one major attraction, Machu Picchu. Typically, most tourists who visit Peru do not explore the rest of the country. Most (73%) enter Peru via Lima, fly to Cusco and then proceed by train to Machu Picchu, and then leave. Only 20% of the international tourists stay and visit the next most popular sites, Areqipa and Lake Titicaca.

The number of tourists allowed to enter Machu Picchu is limited by the need to preserve the site. Currently, the maximum daily number of tourists allowed to visit Machu Picchu is 2,000 people. Machu Picchu is currently saturated as a tourist destination.

One feather in the country’s tourist cap is the annual 2013 Dakar Rally, which will start just south of Peru’s capital, Lima on January 5, 2013 and end in Santiago, Chile on January 20. This annual, off track, endurance road race started in 1978 from Paris, across the Sahara Desert to the Senegalese capital of Dakar, in Africa. It was later moved to South America due to security reasons. The race will follow a 5,205 mile (8,377 km) course over deserts, mountains and plains, across Argentina and along the South American coast to Chile’s capital, Santiago. The head of Peru’s Tourism Bureau estimates the rally will generate about $300 million U.S. dollars in revenue for Peru alone.

Peru is also experiencing a gastronomic boom, reflected in the increasing number of restaurants opening in its major cities, and publicity generated for its cuisine.

Peru does have its problems, including poor infrastructure in the interior and corruption. However, taxes on mining have increased from 7% to 30%, and one half of that revenue is being distributed to Peru’s regional governments. The hope is that decentralization will be favorable for the country. Local farmers in La Encanada, Peru were protesting in August 2012 over water that would be drained by the largest planned gold mine, Conga. The consortium owning it, whose majority owner is U.S. based Newmont Mining Co., says it will build four reservoirs to replace the fresh water lakes. The farmers and local elected officials aren’t persuaded. Resistance to the project has been fierce, so it has been slowed, if not placed on hold, until the water issue is resolved.

Final Comments:
Peru and especially Lima needs a public relations campaign. My son kept asking me in Lima if Peru is a third world country. We were warned of pick pockets in Lima, and buses looked antiquated. Yet, we felt comfortable walking around in Peru, especially in Cusco. Machu Picchu was wonderful, but Peru needs to better promote its Inca heritage. The food served in country was also pleasing. We were told Peru has hundreds of varieties of potatoes and even visited a chocolate factory in Cusco. A future Cusco Airport is planned in the surrounding mountains. It is needed, based on the very busy airport and apparent lack of enough gates for incoming flights. We found the people of Peru very friendly, the hotels beautiful, historic and very accommodating. As a tourist, I recommend visiting the country. And by the way, enjoy a Pisco Sour (alcoholic drink) while visiting.

References:
1. Latin America’s Surprise Rising Economic star, The Christian Science Monitor, January 5, 2010
2. Peru: Riding China Coattails, Emerging Market Musings, December 21, 2011
3. UN Ups Outlook for Peru’s GDP, Lowers Regions Forecast, October 3, 2012 (Peruvian Times)
4. Peru’s Tourism Cluster, Institute of Strategy and Competiveness, 2010
5. 2013 Dakar Rally will Start from Peru the First Time in its History, Autosport.com, March 21, 2012
6. Peru’s Conga Gold Mine Project Opposed by Local Farmers, Huffington Post Green, August 29, 2012.

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