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Peru: More than Machu Picchu and Ceviche

 

Special to the Miami Herald

The beginning of the 21st Century represents a period of impressive economic growth for Peru. Latin America’s fifth-largest country by population, Peru is a resource-rich nation. And like its Latin American neighbors, Peru has seen dramatic growth due to increased global demand for raw materials.

Generally, the Latin American region is expected to average about 3.5 percent growth in 2013, and Peru is on track to grow at more than 6 percent.

Growth in the Peruvian economy is attributable to a variety of external and internal factors. Externally, the global demand for raw materials – particularly in the mining sector – is driving economic growth. Internally, Peru has achieved macroeconomic stability with wise fiscal spending, external debt reduction and running government surpluses.

Generally, Peru’s economy is geared toward international trade. In 2009, Peru entered a free-trade agreement with the United States. Currently, Peru, the European Union, and Colombia are in the last stages of their own free-trade agreement, provisionally in force since March. Additionally, Peru has a number of other free-trade agreements, particularly with its neighbors and throughout Asia.

Diverse Economy

The Peruvian economy is diverse, although driven primarily by commodity exports. Trade and industries are centered in Lima, while timber and mining are located in the country’s interior. On the coast, the fishing industry dominates with Peru producing nearly 10 percent of the world’s catch. As a country with diverse geographic and climactic zones, Peru is also able to export a variety of agricultural goods.

Peru’s openness to global trade, however, makes it susceptible to changes in the overall international economy. In 2013, slowing global demand for raw materials, particularly from China, could temper growth. Conversely, if economic conditions in the United States and Europe improve, Peru and Latin America could exceed expectations.

Peru’s Constitution

The basic legal structure for foreign investment in Peru was formed in the 1990s with the 1993 Constitution, the Private Investment Growth law and the Investment Promotion law. Under the Peruvian Constitution, foreign investors have the same rights as Peruvian investors, including benefiting from investment incentives, such as tax exemptions.

Some exceptions to Peru’s relatively free foreign investment climate include legal exclusions of foreign investment in naturally protected areas and weapons manufacturing. Additionally, Article 6 of Legislative Decree No. 757 requires that Peruvians be the majority shareholders in companies operating in industries such as media and transportation.

Furthermore, under the Peruvian Constitution, foreigners cannot hold titles to mines, lands, forests, waters, or fuel or energy sources within 50 kilometers of Peru’s international borders.

Decentralization

Since the 1990s, Peru has undertaken a major decentralization campaign to spur economic growth and foreign investment. However, Peru’s commercial and bankruptcy laws are difficult to enforce in the country’s judicial system, and occasionally laws are passed to protect particular debtors.

As such, local and international arbitration institutions have been created to handle Peruvian investment and business disputes. Moreover, free-trade agreements provide legal frameworks for foreign investment. Such agreements have also improved the legal framework for protecting intellectual property rights – although enforcement mechanisms remain weak.

Recently, a number of legal disputes between foreign investors in the mining industry and local communities have garnered national and international attention. Peruvian President Ollanta Humala recently signed into law a requirement that the government should consult with local communities before approving mining projects.

One of the most intense fights involved Minas Conga, a gold and copper extraction project awarded to the firms Newmont (from the U.S.) and Buenaventura (from Peru). Investors in the mining industry must therefore be aware of these potential conflicts with local community governments.

Overall, Peru is one of the economic success stories of the developing world, increasingly attracting foreign investment. As with all international ventures, investors should seek legal assistance in navigating Peru’s business regulations.

Robert Kiss is an associate attorney at Diaz Reus and Targ, a Miami-based international litigation law firm representing dealmakers around the world with a focus on emerging markets. For more information, visit www.diazreus.com.

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