Peruvian economy and Relations with AsiaHankuk University of Foreign Studies

Seul, Republic of Korea

Carlos Aquino, ProfessorSan Marcos National University, Lima, Peru

March 14, 2014E-mail: carloskobe2005@yahoo.com

Web site: http://carloskobe2005.wix.com/asianeconomyFacebook, Blog, Linkendin

Index

• I. Overview of Peruvian economy• II. Trade relations with Asian Countries• III. Investment from Asian countries• IV. Economic Cooperation• V. Conclusions

I. Overview of Peruvian economySource: http://www.proinversion.gob.pe/RepositorioAPS/1/0/JER/PRESENTACION_PAIS/PPT_Por

%20que%20invertir%20en%20Peru%20en%20ingles%202014_pptx.pdf

I. Overview of Peruvian economy

I. Overview of Peruvian economy

• Peru has the fastest growing economy in Latin America

• It has a sound macroeconomic environment, low inflation rate (2-3% per year), low public external debt (less than 20% of GDP), and high Foreign Exchange Reserves (65 billion dollars or 33% of GDP)

• It is a big turnaround from the 1980s, when hyperinflation, recession, and political instability were the norm.

• In 1990 began a series of economic reforms that opened the economy to the world markets, reduced participation of the state in the economy and attracted a lot of foreign investment.

• Barriers to trade were reduced, and Peru began a series of negotiations to have Free Trade Agreements with many countries.

• Political and social stability was achieved when the terrorist groups were eliminated.

• Peru engines of economic growth are external and internal markets, and private investment

• Exports are diversified, both in products and markets

• Import of cars have increased around 10 times, from 2000 to 2013

• There is a boom in the construction fo shopping malls, in real state.

• There is a friendly investment environment

• Peru is a middle income country, with a GDP per capita of 7,000 dollars (2013) and a population of 30 million people.

• It has achieved sustained growth of its economy in the last decade

• Increasing participation in the global economy• Strategic location in South Pacific• Vast natural resources and variety of climates• High potential growth sectors • As a member of the Pacific Alliance, with Chile, Colombia

and Mexico, Peru attracts foreign interest

• But still many challenges lie ahead• There is a need for improvement of physical

infrastructure• Also the improvement of educational standards is an

urgent task• Government spending capacity should be improved• And we need to give more value added to our natural

resources• For that we need also foreign investment and new

foreign markets

II. Trade relations with Asia

• For Asia refers to the region of East Asia, the Asian countries around the Pacific Rim.

• Peru has a long relationship with some of them, especially China and Japan.

• Peru was the first country in Latin America to receive large-scale immigration from China and Japan, from 1849 and from 1899

• Peru was the first Latin American country to establish diplomatic relations with Japan in 1873 and China in 1874

• From the 1960s Peru established diplomatic relationship with other Asian countries, for example with the Republic of Korea in 1963.

• But from the 1990s a concerted effort began to increase our relationship and trade with Asian countries.

• Embassies of Peru were opened in several Asian countries and Peru became a member of the APEC forum in 1998.

• A series of FTA with several of them were signed, first with China, then, Korea, Japan, etc.

• Peru now is negotiating with other 11 countries the Trans Pacific Partnership Agreement, TPP

• Peru is also a member of the PECC, the PBEC and the FEALAC.

• The Forum for East Asia and Latin American Cooperation, FEALAC, has 20 members from Latin America and 16 from East Asia.

II. Trade relations with Asian Countries

• Peru has benefited from strong external demand for its raw materials (and of the high price paid for them) .

• China became the biggest export market in 2011 and the biggest trade partner in 2012.

• But most of exports to Asia are raw materials.• China is the biggest buyer of Peru copper, iron ore, fishmeal, lead, etc.• Its influence in the Peruvian economy is very big, to the point that

Luis Miguel Castilla, Peru's finance minister said in october 2011 "the truth is I lightt a little candle every day and pray China’s growth doesn't fall“.

• Thanks to the FTAs with Asian countries increasing exports of agroindustrial products and fishery products are expected.

• Trade with East Asia represents a third of Peru total trade

PERU'S EXPORTS TO ASIAN MEMBERS OF APEC (IN MILLION OF DOLLARS) (FOB VALUE) *Year1994

Source: Aduanas del Perú: http://www.aduanet.gob.pe/aduanas/informae/2012/generales/ExpoImpoPorContiZonaPais.htmlPROMPERUSTAT http://www.siicex.gob.pe/promperustat/frmRanking_x_Pais.aspx (For data before the year 2000)

Country/Economy 1993 1997 2003 2006 2010 2011 2012World Total 3,344.40 6,741.75 8,939.82 23,431.43 35,073.25 46,386.03 45,846.18

Australia 14.99 16.31 53.12 38.25 117.5 115.35 99.50

South Korea 59.36 91.50 176.34 545.27 894.9 1,696.09 1,545.35China 140.84 490.06 676.96 2,267.27 5,425.9 6,972.64 7,848.97

Philippines 31.99* 47.96 11.06 44.89 123.41 109.75 55.23

Hong-Kong 28.60 68.82 30.31 42.14 78.5 93.24 96.54Indonesia 32.62* 36.33 22.67 30.08 36.61 61.49 101.18

Japan 299.04 473.57 391.16 1,229.76 1,790.4 2,174.76 2,575.33Malaysia 57.33* 59.77 5.51 7.17 8.43 6.75 27.68

New Zeeland 1.50 - 3.72 7.59 13.5 18.63. 25.82

Russia 9.90 9.48 14.18 25.61 57.9 78.80 88.43

Singapore 1.68* 11.96* 16.15 4.59 6.66 7.94 21.46

Thailand 11.71* 36.23 26.71 65.43 98.10 264.76 234.06

Taiwan (Chinese Taipei)

118.78 159.11 147.28 415.03 293.0 365.28 261.10

Vietnam 1.62* 2.56 10.64 35.51 63.89 77.72 90.43

TOP 10 PRODUCTS EXPORTED TO KOREA, 2012 9 main products: 96% of total

Source: ADUANAS DEL PERU: file:///C:/Documents%20and%20Settings/pc%201/Escritorio/subPartidasPorPaisDestino.html

PRODUCT MILLION OF DOLLARS FOB

Total 1,545Lead ore and concentrates 485Copper ores and concentrates 470Zinc ore 213Silver ore 156Copper cathodes 42Copper "Blister" 41Coffee 30Cuttlefish and squid 27Pota 27Fresh grapes 8

• Imports from Asia have increased a lot, specially from China

• China is the cheapest source of many manufactured goods.

• Products before sourced from Japan are being procured now from China and Korea

• Cheap Chinese goods has generated some complaints by local producers and antidumping duties have been imposed to some Chinese goods

IMPORTS OF PERU FROM MAJOR ASIAN COUNTRIES MEMBERS OF APEC (IN MILLION OF DOLLARS, CIF)

Source: Aduanas del PeruCountry 1993 1997 2003 2006 2010 2011 2012World Total 4,024.55 7,716.79 8,428.51 20,464.21 27,910.70 37,891.00 42,150.68

Australia 17.35 33.09 28.12 67.52 75.07 111.1 133.0South Korea 99.42 230.25 277.72 522.34 1,044.25 1,497.2 1,647.6

China 90.43 195.92 646.54 2,474.22 5,115.3 6,364.7 7,802.9Philippines 11.06 9.79 12.04 22.9 27.4

Hong Kong 12.29 17.04 15.19 16.59 22.80 15.8 20.5

Indonesia 40.00 59.42 120.96 221.1 245.1Japan 303.62 417.99 367.40 790.39 1,336.96 1,314.4 1,499.9Malaysia 57.77 118.73 160.44 207.0 206.9New Zeeland

45.95 - 16.20 22.40 56.47 68.1 119.0

Russia 15.28 21.92 56.36 136.35 183.42 513.0 334.2Singapore 22.23 27.50 38.45 50.83 60.00Thailand 32.10 86.55 372.28 443.7 452.1Taiwan 60.16 112.05 133.58 258.40 327.80 442.1 461.7Vietnam 4.69 19.73 52.50 102.4 113.1

TOP 10 PRODUCTS IMPORTED FROM KOREA, 2012Source: ADUANAS DEL PERU: http://www.aduanet.gob.pe/aduanas/informae/2012/importacion/principalesSubpartidasPaisOrigen.html

PRODUCTS MILLION OF DOLLARSCIF VALUE

Total 1,647Vehicles greater than 1500 ccc 362Tv devices 140Vehicles of less than 1500 ccc 116Transport vehicles 41Vehicles of 1000 ccc 39Sections of iron or steel 36Machinery 36Cargo Vehicles 33Cement 31Other Vehicles 30

• As has been seen FDI to Peru increased a lot from 1990

• Up to June 2013 the Mining sector accounted for 24.3% of total FDI, Finance was second with 18.8%, then Communication with 17.6%, Industry with 13.9% and Energy with 11.7%

• China is becoming an active actor in the mining sector and will account for nearly a quarter of planned investment in this sector in the coming years

MAJOR INVESTORS IN PERU, 2012, CONTRIBUTION TO THE CAPITAL STOCK BY COUNTRY OF ORIGIN, (MILLION US$)Source: Proinversión

*Stock updated until December 2012. 1 / Includes British Dependencies and British Overseas Territories.

2 / Includes Overseas Territories http://www.proinversion.gob.pe/0/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=0&PFL=0&JER=1537

COUNTRY 2012 % ACCUMULATED PERCENTAGE

Spain 4,818.57 21.25% 21.25%USA 3,012.47 13.29% 34.54%South Africa 1,740.17 7.67% 42.21%Chile 1,643.90 7.25% 49.46%Brazil 1,334.91 5.89% 55.35%UK 1/ 1,314.93 5.80% 61.15%Canada 1,276.23 5.63% 66.78%Switzerland 934.65 4.12% 70.90%Mexico 897.90 3.96% 74.86%China 796.48 3.51% 78.37%Italy 733.51 3.23% 81.61%Colombia 569.32 2.51% 84.12%Holland 2/ 486.39 2.15% 86.26%Japan 436.79 1.93% 88.19%Norway 402.82 1.78% 89.97%Others 2,275.31 10.03% 100.00%TOTAL 22,674.35 100.00%

ESTIMATED PORTFOLIO OF MINING PROJECTS BY MAIN INVESTOR, January 2014Source: Ministerio de Energía y Minas: “Cartera estimada de proyectos mineros, Enero 2014”, page 3

IV. Economic Cooperation

• Peru receive some ODA from Japan and Korea, and is the largest recipient in Latin America of aid from those countries

• For ODA from Korea Peru in the year 2012 was the first country in Latin America with 8.87 million dollars, and was in the 14th place in the world

• There is a growing interest for Asia in Peru, specially for Korean and Chinese culture and language (there is a King Sejong Institute and several Confucius Institutes in Peru)

JAPANESE ECONOMIC COOPERATION IN LATIN AMERICA, 2009Source: http://www.pe.emb-japan.g o.jp/esp/cooperacion_economica.htm

Korea ODA to Latin America Source: Korea Eximbank, ODA Statistics Online DB

Source: http://www.odakorea.go.kr/eng.result.RegionCountry_

Continent Country 2006 2007 2008 2009 2010

Latin America and 

the Carebbean

Bolivia 4.5 8.66 5.23 1.84 1.66

Colombia 0.25 0.18 1.42 1.38 6.97

Dominica Republic 1.65 1.48 14.25 6.91 2.74

Ecuador 0.21 3.35 3.62 2.75 3.83

El Salvador 0.33 1.13 1.96 3.95 4.31

Guatemala 2.28 2.77 4.03 3.95 5.45

Haiti 0.03 0.15 0.72 0.43 5.54

Honduras 1.05 3.11 9.85 4.47 6.45

Jamaica 0.15 0.1 1.34 1.24 0.11

Nicaragua 5.61 9.08 9.07 14.84 5.6

Panama 0.43 1.93 -0.12 -0.34 -0.41

Paraguay 1.92 5.95 4.78 4.85 11.63

Peru 4.49 10.22 8.73 6.99 6.4

*

V. Conclusions

• There is a growing economic relationship between Peru and Asia

• One third of Peru trade is with Asia but this is an asymmetric relationship

• Investment from Asia is increasing.• Peru need develop value added goods for the Asian

market• There is a need to know better Asian markets.• The economic relationship will continue increasing

and with that also cultural links