2

Executive Summary

•  Peru’s population growth in relation to its GDP reflects a rapid increase in the GDP per capita; and its consumption still presents large space for growth

•  Since the 1980s, Peru has demonstrated some political stability, with a growing democracy and openness towards the world, but 2011 elections presents risks

•  Economically, Peru has been presenting a strong stability, with GDP growth above and consumer price increases below those of some of its closer peers

•  FDI in Peru has augmenting substantially over the past years, mainly due to improvements in regulations for investments

•  Politically and economically, Peru presents high potential for investments, but the country still presents social risks that should be considered prior to investing

Rodrigo R. Coutinho

3

Content

1.  Demographic characteristics

2.  Political conditions

3.  Economic performance

4.  Investment environment

5.  Conclusion

Rodrigo R. Coutinho

4

•  Peru is the 3rd largest country in South America, after Brazil and Argentina; major cities are Lima (capital) – which accounts for ~48% of the country’s GDP -, Arequipa, Chiclayo and Cuzco

•  High population growth between 2000 and 2008 (~20%), but recent stable and lower rates – ~1.1% per year, what might lead to a decrease in the population

•  Ethnic groups: Indigenous (45%), mixed background – mestizos (37%), European (15%) and others (3%)

1. Demographic characteristics

Peru’s population growth in relation to its GDP reflects a rapid increase in the GDP per capita; and its consumption still presents large space for growth

Source: Pyramid research; Merril Lynch; US Department of State.

56.8 61.4 69.7

79.5 93.0

109.0

162.3

26.7 27.1 27.5 27.9 28.4 28.8 31.5

2002 2003 2004 2005 2006 2007 2013 GDP Population

60 57

36

13

61 65

42

17

71

58

43

19

Mob. Phone Land Line Cable TV Internet 2006 2007 2008

•  Household final consumption expenditure has increased on avg. 4.4% in the 1998-2008 period; 8.4% in 2007, and 8.7% in 2008

•  The country is subdivided into Litoral (Western arid coastal plains), Altiplano (central rugged Andean mountains) and Floresta (eastern lowlands with tropical forests – Amazon basin)

Population (MM) and GDP (%) – 2002-2013 Selected goods penetration in Peru

CAGR GDP: 10.1%

CAGR population: 1.51%

Rodrigo R. Coutinho

5

•  Alejandro Toledo was elected in 2001 and became in power until 2006

•  He consolidated democracy, signed a Trade Promotion Agreement with the US, and led an impressive economic boom which decreased poverty by 5.6%

2. Political conditions

Since the 1980s, Peru has demonstrated some political stability, with a growing democracy and openness towards the world, but 2011 elections presents risks

Political movements in Peru since 1985

Source: Economist Intelligence Unit; US Department of State.

1985

1990 1995

2001 2006

•  Amid inflation, economic hardship and terrorism, in 1985, Alan Garcia Perez became the first democratically elected President of Peru in 40 years

•  In 1990, after 2 years of hyperinflation (1988-1990), and increasing terrorist threat by Sendero Luminoso, Alberto Fujimori, a relatively unknown mathematician was elected

•  He implemented drastic economic reforms to tackle inflation, privatized state-owned companies, removed investment barriers, improved public finances and combat terrorism

•  However, his 2 terms (1990-2000) were marked by his “auto-coup” in 1992 and corruption; on the beginning of his 3rd term in 1990, he resigned and exiled in Japan

2011

•  In 2006, Alan Garcia was re-elected President, defeating Ollanta Humala, left-wing candidate, with close relations to Chavez from Venezuela and Morales from Bolivia

•  During his term, he signed trade agreements with the US, Canada, Singapore and China, and begun negotiations with Korea, Japan, the EU, and others

•  For 2011, the two candidates leading the poll are from the center-right or right wing – Ms. Keiko Fujimori with 22% and Luis Castaneda with 21%

•  It tends to be no major changes in politics for the upcoming years

•  However, Ollanta Humala, defeated by a narrow margin in 2006 may run, which increases uncertainty over political stability in Peru

Rodrigo R. Coutinho

6

•  Exports 2008: USD 31.2 billion: USA (18.6%), China (12%), Switzerland (10.9%)

•  Imports 2008: USD 27.7 billion: USA (18.9%), China (13.4%), Brazil (8.2%)

•  Unemployment rate fell from 9.4% in 2003 to 7..5% in 2007

•  Total debt to GDP has decreased from 147.3% in 1988 to 53.7% in 1998, 26.9% in 2007 and to 22.1% in 2008

3. Economic performance

Economically, Peru has been presenting a strong stability, with GDP growth above and consumer price increases below those of some of its closer peers

GDP growth in % [2007-2010]

Source: The World Bank Group (Doing Business); LAVCA (Latin American Venture Capital Association).

5.7 4.2

-2.7

3 4.7

3.2

-1.7

4 7.5

2.5 -0.3 2.5

8.9 9.8

1.5

5.8

2007 2008 2009 2010

Peru

Colombia

Chile Brazil

•  GDP 2008: US$ 127.8 billion (up 9.8% from 2007)

•  GDP: manufacturing (15.5%), agriculture (7.6%), services (55.1%), mining (5.7%), construction (5.9%), and others

•  Natural resources: copper, gold, silver, zinc, lead, iron ore, fish, petroleum, natural gas and forestry

•  Agriculture: coffee, cotton, asparagus, paprika, artichokes, sugarcane, potatoes, rice, banana, maize, poultry, milk, etc.

Consumer price increases in % [2007-2010]

3.6

5.7 4.8

4.1 4.4

8.7

2 2.3

5.5

7

4.6 3.7

1.8

5.8

3.2

2

2007 2008 2009 2010

Colombia

Chile

Brazil

Peru

Rodrigo R. Coutinho

7

•  According to World Investment Group, Peru appears as the 5th destination for Brazilian FDI outflows – following Argentina, Mexico, Angola and Chile

•  Peru (with 9 payments) is below average Latin America & Caribbean (33.2) and OECD (12.8) with regard to taxes

•  Regarding trading across borders, Peruvian cost to export is cheaper (US$ 875 per container) than Latin America & Caribbean (US$ 1,244) and OECD (US$ 1,090); and its cost to import (US$ 895) is also cheaper than the other two (US$ 1,481 and US$ 1,146, respectively)

4. Investment environment

FDI in Peru has augmenting substantially over the past years, mainly due to improvements in regulations for investments

Source: United Nations Conference on Trade and Development; World Investment Group; LAVCA.

1,943

3,467

5,491

6,924

4,760

36 0 66 736 396

1995-2005 2006 2007 2008 2009 FDI Inflows FDI Outflows 33 46 46 49 50 53 54 57 58 63 75 76

Dominican Republic El Salvador

Argentina Panama

Peru Costa Rica

Uruguay Colombia

Mexico Trinidad & Tobago

Brazil Chile

FDI in Peru in USD MM [1995-2009] Annual Scorecard on PE & VC Environment in Latin America and Caribbean - 2009

•  Peru in 2009 is one position better than in 2008; mainly due to specific regulations and programs approved in 2008 to foster the development of domestic private capital funds industries

•  Peru presents a high-quality accounting standards and moderately high openness to inward portfolio investment and corporate governance

•  Peru is ranked 56 in the “Doing Business 2010 Rank” from the World Bank; up 9 positions from its 65th place in 2009; and is ranked

Rodrigo R. Coutinho

8

•  Peru offers a fast-growth economic situation based on trade and investments, and a recent stable political environment

•  Peru has several trade agreements signed - with the US, European Union, Asia Pacific Economic Cooperation (APEC) and MERCOSUR -; and is studying agreements with Chile, Mexico, Thailand and Singapore;

•  Peru has agreements for the promotion and protection of investments (BIT) with 29 countries of Europe, Asia and LatAm

•  Peru presents high potential for investments in:

•  Tourism – Cuzco, Machu Pichu, lake Titicaca, Amazon forest, etc.

•  Metal mining: copper, gold, molybdenum, silver, zinc, etc.; big mining companies have been granted concessions for exploration of mining projects – Rio Tinto, Xstrata and Vale.

•  Manufacturing: natural resources whether mineral or agro farming (e.g. long fiber cotton and the alpaca fine fiber)

•  Forestry, fishing, hydrocarbons and chemicals, textiles and clothing, jewelry, metallurgy, services, etc.

5. Conclusion

Politically and economically, Peru presents high potential for investments, but the country still presents social risks that should be considered prior to investing

Forecasted economic growth - conclusions

Source: ProInversion – Private Investment Promotion Agency - Peru

•  Peruvian economy is not yet very diversified; thus, it is very dependant on commodity international prices

•  Peru presents considerable differences (political, economical and social) between Lima (capital) and other provinces of the country

•  Social movement activity is an inherent risk in Peru – movements have increased in recent years around opposition to extractive industries (mining and hydrocarbons sectors), and there have been several violent confrontations over 2009

•  Permanent conflicts between government, who stimulates the production of rice in the jungle, and farmers, who prefer to plant coke, with higher returns

•  Terrorist group Sendero Luminoso,, who manifests against government, still present risk to the country:

•  It is recently after support from rural population (farmers)

Opportunities Risks

Rodrigo R. Coutinho

9

Rodrigo R. Coutinho

Mobile: +1 (917) 344-0512

E-mail: rodrigo@rodrigocoutinho.com

New York | NY Rio de Janeiro | RJ