11/08/12 | Publicado por: rogerguillen | Categoría General
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This paper seeks to identify how the Peruvian government is helping to the attractiveness of the country as a destination for foreign investment and the same way seeks to identify how the Peruvian government is undermining the country's attractiveness. In both cases, there is a succinct analysis that will clarify the impact and effect of the initiatives proposed by the Peruvian government from different perspectives. It also demonstrates a number of alternatives related to the intrinsic characteristics as natural comparative advantages and political advantages of attraction that could be used to invite foreign investment.
2. Analysis of current situation
Peru in recent years has had a good performance in managing its economy with sustained growth for eight consecutive years; however, it´s still necessary to develop a set of guidelines to consolidate this growth in order to go hand in hand with the development of the domestic market. The success of this good performance is largely based on promotion mechanisms that currently exist in the Peruvian government to promote and increase the attraction of foreign investments, in that sense; we will present an analysis that covers the following topics: the legal perspective, specialized agencies, incentives, stability and economic growth, “Marca Perú” and geographical position.
Legal Perspective
The legal framework for foreign investment is supported under the Political Constitution of 1993, the Foreign Investment Promotion Law approved in August 1991, that establishes clear rules and security for the development of foreign investments in the country, this law is complemented by the Law for the Growth of the Private Investment the Regulations of the Private Investment Guarantee Systems, approved by Supreme Decree Nº 162-92-EF; as well as modifying regulations. The State guarantees the legal stability to foreign investors and to the enterprises where they invest, through the subscription of agreements with law-contract status, and abide by the general provisions on contracts established in the Civil Code. (ProInversion, 2011).
The Political Constitution offers a set of guidelines that guarantees the foreign investments without restrictions, in most economic activities. However, foreigners may not acquire mines, lands, woods, water, fuels, energy sources, within fifty kilometers from the borders, except in case of public necessity, likewise a principal local partner for investment in radio and television as well as air transport is required. Here are these guidelines:
(a) Free private initiative exercised in a market-based social economy.
(b) Freedom of work and engaging in business, trade and industry.
(c) Definition of the subsidiary role of the government in economic activity.
(d) Free competition and prohibition of restrictive practices and the abuse of dominant or monopolistic positions.
(e) Freedom to engage workers.
(f) Powers of the government to establish guarantees and grant securities by means of contract law.
(g) National treatment.
(h) Right to submit controversies arising from contractual relationship with the State to national or international arbitration
(i) Freedom to hold and dispose of foreign currency.
(j) Inviolability of property and establishment of conditions for exceptional causes that empower expropriation, specifically, in-advance cash payment of a fair-value; equal treatment on taxation matters; and the express acknowledgement that no tax may have confiscating effects.
The next table resumes the guarantees of legal stability agreements that also support the foreign investments and the enterprises that will receive the investment. It is important to mention that a minimum investment of US$ 5 million in any economic sectors and US$ 10 million for hydrocarbon and mining sectors is required. The validity of these conditions is for 10 years and in case of concessions, the term is according to the contracts life (Max. 60 years).
Table 1
Guarantees Granted by the State
Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Incentives
In this section we will present a table resume for each of the following topics: (a) steady tax regime and (b) Special Regime of VAT Anticipated Recovery.
Table 2
Tax regimes
Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Table 3
Investments Incentives
Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Specialized Agency
Peru has a specialized agency that has been created as strategic ally for the promotion of investments in order to boost Peru´s development. It is called PROINVERSIÓN, the Peruvian Investment Promotion Agency, and as part of its duties, PROINVERSION is in charge of elaborating, proposing and executing the national policy on the treatment to private investment, according to the economic plans and the integration policy also PROINVERSION registers foreign investment; handles and subscribes legal stability agreements.
Economic growth
Peru is starring in a renewal process, sustained economic growth and consolidation within the world map. There has been an improvement in the participation of new industry sectors, increased spending, and investment in civil infrastructure and tourism. The next graphics show how the numbers support and safeguard the foreign investments.
Figure 1. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Figure 2. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Figure 3. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Figure 4. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Figure 5. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Figure 6. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Geographical Position
Peru is located in the western central coast of South America and this location facilitates its projection as regional business hub. Peru has the largest city in the region with 9 million inhabitants and its main port Callao, is in process of extension. Peru is a country with a territory that has almost every climate on Earth, with significant natural resources, mining and energy.
“Marca Peru”
As part of the strategy to promote the country abroad, it was decided the construction process of the Country Brand Peru, with the aim of promoting those business sectors with greater international exposure: tourism, exports and attracting investment in this sense, was developed PERU brand design, this logo represents our identity symbolized by the word PERU, the red color represents our flag and the spiral form of the letter P represents all the cultures that contributes to form this great country.
Agreements
Peru has signed Bilateral Investment Treaties (BIT) and Free Trade Agreements that underpin its liberalization policy. It has also signed agreements to avoid dounle taxation with Brazil, Chile and Canada.
Figure 7. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
Figure 8. Note. Adapted of “Peru: Investment opportunities” ProInversion, 2011
3. Alternatives to improve
Although Peru has grown steadily in recent years and its economic numbers support these results, there are two internal problems that may have a crucial impact to the outside. These problems are severe inequality and a weak government, which appears to exist only in Lima (Levitsky, 2011). These internal problems causes social unrest in the provinces, according to the latest report of the People Advocacy, Peru has 227 social conflicts, environmental conflicts occupy 51.5% (117 cases) from the total conflicts in April, followed by conflicts over issues of Local Government with 10, 6% (24 cases), and conflicts of Government Affairs with 10.3% (23 cases).
Table 4
Social Conflicts According to Type
Note. Adapted from “Social Conflicts Report nº 87” adjuntía for social conflict prevention and governance. People Advocacy (2011)
In my opinion, I propose the following alternatives to resolve these problems:
(a) Promote trade agreements that promote industrialization and development of agriculture and agribusiness.
(b) Latin American integration, especially the Andean integration with Chile, Colombia, Ecuador and Bolivia, will promote a new type of relations between countries globally.
(c) It is necessary to fight corruption in the government, the fight against corruption should be part of a social contract for peace building in the nation so it will help to atract foreign investors.
(d) Peru is a country that has natural resources in the highlander and the jungle, in these areas, farming and livestock are the livelihood of many families, while mining companies pollute rivers and large tracts of land for cultivation , the inhabitants of provinces will be in disagreement with foreign investors, so it is necessary to respect enviromental policies.
4. Conclusion
Peru has an excellent opportunity to continue to grow steadily over time thanks to foreign investment. The legal framework, economic growth, geographical position, country promoting initiatives and free trade agreements, ensure investors place their capital in this land rich in natural resources. This economic growth must also reach the provincies of the country with social inclusion policies and respect for the environment.
REFERENCES
Social Conflicts Report nº 87” adjuntía for social conflict prevention and governance. People Advocacy (2011)
Peru: Investment opportunities” ProInversion, 2011
Steven Levitsky: “No veo una crisis política prolongada tras la elección”. Taken from http://larepublica.pe
