5 key questions you should ask (and I answer) if you plan to invest in Peru

Investing in Latin America can be a troublesome experience for many foreign companies or individuals: Language, culture, institutions, the legal and regulatory frameworks, the political turnarounds are usually hard to understand or to cope with.

Peru has a lot of potential as an investment destination in the Latam Region.  The economy has been growing steadily in the last decade and it has been highly resilient to the influence of regional political trends favoring a comeback of state investment or stronger intervention.  President Humala, as an initial leftist candidate in the 2011 elections, with very radical economic proposals to return to a state controlled economy and basically opposing to free trade agreements, was elected mainly because he promised he would embrace the free economy scheme that has ruled Peru since the 90's.  The next presidential and congress elections in Peru will take place in May, 2016.

President Humala's government has been much troublesome at the political front.  Many analysts and oppositors have criticized him for lack of leadership, poor decision-making and communication skills.  However, all those allegations do not prove as the actual causes for the slow growth figures in the last two years, since most of the countries in the Region have experienced such a problem, mainly due to lower prices of minerals, the most important source of income for Peru.

However, investment decisions cannot be made based on a simple short-term political outlook.  Long-term investments, aside from a core business sustainability assessment, must consider the climate structural factors that need to be addressed in order to evaluate their actual business environment viability.

Thus, we believe these are the questions you, as an investorshould ask yourself before making an investment decision in Peru:

1. Is the economic outlook for Peru good long term?  My answer is yes.  Peru will continue in a growing trend and with a good potential for sustained growth based on its resources and potential for new economic activities.

2. Is the political climate a real jeopardy for long term private investment in Peru?  Basically no, but the nature and level of risk will depend on the activity you want to invest on.  Mining, energy and oil are among the activities more highly questioned (as in many other countries worldwide).  A very careful risk analysis and pre-investment plan should be developed in order to minimize problems.  Other activities, like telecom, infrastructure, industry, commerce, tourism, entertainment, have a great long term outlook, although some of them are increasingly competitve.

3. Could Peru end up being another country where there is a total lack of stability over foreign private investment?  If Peru ever had the chance to become another Venezuela, it was under the current presidential term.  President Humala reached the government as the biggest anti-system candidate and threat.  A Venezuelan President Chavez ally, his initial program ("The Great Transformation") promised to change the Constitution, renegotiate free trade agreements and return to a state ruled economy.  However, to reach presidency he embraced a radical change of speech and offerings. Many Peruvians thought he would not abide by his late promises, but if he ever had any intention of doing so, he was badly punished by the public opinion.  This has been the stiffest test of the Peruvian economic foundations and I doubt there will be any change in the forseeable future.

4. What are Peruvian biggest hurdles for a safe and stable private investment?  Clearly, informality, lack of institutional stability and judicial predictability are the more complex problems.

5. What can I do to overcome these problems? Clearly, the right organization with the right talent will do the difference.  Within any organization structure, the right "eyes and ears" should be contemplated.  A Legal - Regulatory - Corporate Affairs management team that provides a thorough and integrated understanding of the Peruvian business and regulatory environment and opportunities is essential in a country like Peru.  More than being a mere support function to business objectives, it should be regarded as a key strategic player and partner in order to align core commercial results to a sustainable growth need within a country with a highly volatile and an increasingly competitive environment. Additionally, Interaction with authorities, decision-makers and regulators require skills that are not easily found even with local lawyers, considering that a corporate speech and its reflecting values, principles and policies are to be carefully followed and complied with.