ExportWise - Summer 2008 - Peru: A New Era of Opportunities
By Bruce Gillespie
With one of the stronger economies in Latin America, Peru is a market with significant opportunities for Canadian companies; particularly in light of the recently signed Canada-Peru Free Trade Agreement.
Although Peru may be best known for Machu Picchu, the lost city of the Incas, the country’s burgeoning economy, and its mining and extractive industry in particular, make it an attractive market for Canadian companies.
“Peru offers a playing field that is very welcoming to either investors or exporters, and in the past 20 years, they’ve strengthened their economy to the point where it is almost investment grade,” says Stephen Benoit, EDC Regional Manager for the Andean and
Caribbean Regions.
Peru, a democratic republic, is home to approximately 28.4 million people, 72 per cent of whom live in urban areas. In 2006, the country’s Gross Domestic Product (GDP) was USD 93.4 billion, which is expected to grow by an average of 4.5 per cent in the medium term, while inflation is expected to settle at about 2.5 per cent.
The country enjoys healthy consumer confidence, increasing employment and positive growth. Economic activity continues to grow mostly as a result of strong investment in projects in the mining and oil and gas sectors but is also due to strong housing construction and public infrastructure spending.
“Peru today is a very stable country in which to do business,” says Benoit, noting that Canada is its fourth-largest investor, concluding almost $2.5 billion in two-way trade in 2007.
Open for trade 
The recent Canada-Peru Free Trade Agreement (FTA) will provide greater market access for a number of Canadian agricultural products, paper products and equipment. More than 90 per cent of tariffs on both countries’ exports will be eliminated.
Provisions on cross-border trade in services will also benefit Canadian business in a variety of sectors, including mining, energy and professional services. The agreement has also achieved greater stability, transparency and protection for investors, providing a more receptive environment for the rapidly growing stock of Canadian investment in Peru.
“The FTA opens up a significant number of opportunities because the legal environment will be easier to understand,” says Benoit, “and Canadian companies will have the comfort of having a signed agreement as an extra layer of protection for doing business there.”
Even before the conclusion of free trade negotiations, Benoit says Peru was serious about attracting Canadian business and investment.
The government had established a foreign investment protection act that meant foreign investors could expect fair and equal treatment under the law, which paved the way for free trade negotiations.
EDC also has an agreement with the Corporación Financiera de Desarrollo S. A. (COFIDE), one of Peru’s major financial development agencies. A deal signed in January 2007 initiated a cooperative program to identify and develop investment projects of mutual interest.
In particular, the agreement identified possibilities for Canadian capital in support of Peruvian public and private projects in municipal and transportation infrastructure projects, medical and scientific facilities, refinery and mining projects, power generation and information and telecommunications and security projects.
Benoit says COFIDE is one of two national banks that can manage trust funds, which is increasingly important as the Peruvian government continues to explore decentralization. As regions undertake their own infrastructure projects, they are funded by trust funds.
“EDC is working right now on a mechanism for those municipalities to assume some form of foreign debt using these trust funds as securitization,” says Benoit.
Active mining sector
As is the case in Canada, the Peruvian economy gains much of its strength from the extractive sector, which includes exploration and mining operations. According to Jon Baird, Managing Director of the Canadian Association of Mining Equipment and Services for Export (CAMESE), the rejuvenation of the sector in Latin America as a whole began about 20 years ago, when governments and economies in countries such as Peru began to stabilize and terrorism was brought under control, all of which was essential to a healthy extractive industry.
“Very few exploration projects actually result in finding mines. So, it’s a long-term exploration effort that’s required. Once you start to build a mine, it may be 10 years before you get your money back, so when there are those kinds of instabilities, mining shies away.”
While Peru is known for its gold – it accounts for 42 per cent of Latin American gold production, and it is the world’s sixth-largest gold producer, slightly ahead of Canada – Baird says the country has an excellent endowment of other mineral deposits as well, including copper and zinc.
In addition to opportunities for mining companies in Peru, there is also strong demand for supplying and servicing those companies.
“Peru, like most developing countries, cannot supply a modern mining industry,” explains Baird. “Modern mining needs high productivity, so it needs goods and services that are reliable and low-cost, so there’s great opportunity for Canadian mining suppliers.”
What’s more, he says Canadian mining companies and suppliers are well-regarded for their commitment to corporate social responsibility practices, which enhances their positive image in Peru and around the globe.
“A modern mining industry has to be safe and healthy – mining is no longer a pick and shovel industry,” says Baird. “Canadians going out into Peru and elsewhere in the world to invest apply Canadian standards to their activities so that the environment is properly protected.”
Steve Bozic, International Sales Manager for Mining Technologies International Inc. (MTI) of Sudbury, Ontario, says MTI will be focusing on the Peruvian market. MTI manufactures a wide range of mining equipment, from development and production drilling to rail haulage and underground loaders, and specializes in equipment for narrow vein operations.
“We believe that the South American market is the place to be, and there’s going to be lots of opportunities in this new mining market that we can work with in Peru and Chile.”
EDC has served many Canadian companies in Peru since the 1970s. It was a major lender for the giant Antamina mine in north-central Peru, one of the world’s largest deposits of copper-zinc ore, and arranged $650 million of political risk insurance, which at the time was essential to attracting bank participation.
Antamina is also notable for the respect the project sponsors garnered from World Heritage authorities and non-governmental organizations alike for their engagement of local communities and the care the project design demonstrated for the surrounding environment and people.
More recently, EDC has increasingly facilitated trade between Canada and Peru by providing Canadian companies, their foreign buyers and other foreign partners more than $500 million in financing and insurance in 2007.
Today, EDC is open with its full range of products in Peru and has strong relationships with key local banks and more than 110 Canadian companies operating in the region, including Teck Cominco, Barrick Gold, ScotiaBank and SNC-Lavalin, many of which
view Peru as their headquarters for the Andean region.
“We’re very comfortable with the market. This goes back to the economic stability present within Peru for the last number of years, matched by a political stability that makes it very appealing,” says Benoit.
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In 2007, two-way trade between Canada and Peru totaled almost $2.5 billion |
Other opportunities for Canada
Although the extractive sector has attracted the most Canadian interest and investment in Peru to date, there are several other sectors and niche markets that exporters and investors should consider, says Benoit. He notes that there is an infrastructure deficit of between $25 to $30 billion in Peru, which indicates significant opportunities for Canadians in roads, ports, airports, water, electricity and hydro.
“These are areas where Canada has some real strength, so it’s just matching up the right opportunity with the right
capabilities,” he says.
Benoit notes that Peru also has an under-developed oil and gas industry that is only now beginning to be explored with the increase in the price of oil and recent discoveries of heavy oil fields in nearby Colombia and Venezuela. “Colombia has been more aggressive in promoting oil and gas exploration, and some people are saying that Peru is where Colombia was three or four years ago,” he explains. As such, it is ripe for exploration and investment.
Yaa-Hemaa Obiri-Yeboah, Trade Commissioner for the Andean Region with Foreign Affairs and International Trade Canada, says Canadians are well-placed to do business in Peru. “Our corporate social responsibility plays a role in our competitive image. We’re certainly quite strong in terms of that in the mining sector, so we have a positive image in Peru, and I think that’s an asset,” she says.
In terms of entering the Peruvian market, Obiri-Yeboah says knowledge of Spanish is an advantage but that the trade commissioner’s office has locally engaged staff on the ground who are very good at assisting exporters and setting the scene in terms of what they can expect of working in Peru.
She says the Peruvian market is a friendly one to Canadians given how many Canadian companies operate there already. A local presence in the market is of the utmost importance in understanding the needs of Peruvian clients and understanding the business
climate. She recommends employing an agent or official representative to pursue market opportunities with the private and public sectors, as it will help in terms of language barriers, customs clearance and servicing requirements.
“Peru continues to be a very important market for Canada. We expect the free trade agreement to do a lot for Canadian companies and for Peru, resulting in prosperity for both countries.”
| The Canada-Peru Agreement on the Environment, signed concurrently with the Canada-Peru FTA, commits the two countries to pursue high levels of environmental protection and corporate social responsibility, and to develop and improve their environmental laws and policies. The agreement includes key environmental obligations which require both parties to enforce their domestic environmental laws effectively and to refrain from relaxing those laws in order to encourage trade or investment. Through this agreement, Canada is also committed to working with Peru to help protect and conserve biological diversity in a way that respects the interests of indigenous peoples and local communities. |
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Photo: © Mireille Vautier / Alamy
Photo: © REUTERS/Mariana Bazo
