The economy of Peru is solid and the fastest growing in South America since the beginning of the millennium until the COVID-19 pandemic. In fact, deceleration of economic growth in China has unfavorably impacted its export potential. Currently, trade with China accounts for a quarter of the total while trade with the US account for a fifth of the total. Nevertheless, the economy is growing again at low single digits. Moreover, most exports consist of commodities related to the mining sector, the fishing industry, agriculture and manufactured goods including textiles, clothing, chemicals and pharmaceuticals. The mining sector in particular is vital for the nation after accounting for roughly 40% of exports and 20% of GDP. By the same token, the fishing industry in Peru is the biggest globally after accounting for 10% of the world’s fish catch. Likewise, the fishing sector along with agriculture account for approximately 20% of exports and around 10% of GDP with services and manufactured goods holding the remainder of exports. Altogether, services account for 60% of GDP while manufacturing accounts for 10%. Similarly, the export of commodities account for a solid 30% of GDP and 40% of active employment. The remaining active employment is shared between services and manufacturing with services holding the lion’s share of the two. Overall, the country recorded a total nominal GDP of $ 268 billion in 2023 and $ 556 billion in 2023 as well when adjusted for purchasing power parity or PPP. Unemployment stands at mid-single digits and the poverty rate is one of the lowest inside the region at 20% of its total population of 34 million in 2023. However, there is widespread underemployment and hence low productivity per unit of labor. On the other hand, the country is booming in terms of national wealth with a stock market capitalization presently standing at 66% of GDP, the highest percentage regionwide having overtaken Chile since the pandemic. Many politicians and economists in Peru credit these positive economic results and performance to neoliberal reforms established during the presidency of Alberto Fujimori in a plan known as the “Lima Consensus” and led by the distinguished Peruvian economist Hernando de Soto. This plan is nothing more than an improved version of the previous “Plan Verde” instituted at the end of the first presidency of the late Alan Garcia consisting in boosting neoliberal reforms through decentralization while freeing private sector involvement in the economy including a strong national currency to attract foreign direct as well as foreign portfolio investment. Accordingly, during the two consecutive presidential terms of Alberto Fujimori, Peru attracted over $ 17 billion in foreign direct investments. The total stock of FDI stands at $ 127.93 billion as of December 31st, 2022 with inflows of $ 10.85 billion reported for 2022 alone according to Statista. Similarly, the country is now attracting heavy sums of foreign portfolio investment with the Peruvian Sol gaining value against the American Dollar as we speak after currently being the strongest currency of them all in Latin America. Among the measures instituted under the Lima Consensus, it is worth noting the lifting of price controls, balancing the fiscal budget by curbing deficit spending, freeing private sector involvement in the economy and intervening in the currency markets when necessary to maintain a strong national currency through a dirty float while combating inflation which peaked at 7,000% in 1990 during the first presidency of Alan Garcia, in a period known in Peru as the “Lost Decade”, where the Peruvian economy was stagnated including problems with leftist insurgent guerrillas with the most important of them all being the “Shining Path”.
Furthermore, Peru has a buoyant stock market currently attaining $ 177 billion in total capitalization. In fact, having surpassed the stock market capitalization of Colombia, the country trails Brazil, Mexico and Chile only. Chile, on the other hand, has suffered a loss of over 40% of its stock market wealth since the pandemic and partly due to the election of the incumbent left-leaning President of the Republic Gabriel Boric. As a result, Peru now comes close to the stock market capitalization in Chile after accruing tremendous gains recently since 2021. Overall, Peru has a household wealth of close to two times GDP at $ 519 billion in 2023 according to the UBS Group A.G. Similarly, the stock market capitalization at 66% of GDP is the highest percentage in the region, well above the Latin American average at 40% of GDP today. By the same token, Peru has healthy finances after recording a small trade surplus in relative percentage terms last year, a current account deficit of 2% and a fiscal deficit of 3% with the public debt currently standing at $ 94 billion or 35% of GDP. Foreign borrowings, on the other hand, currently stand at $ 86 billion or 32% of GDP. Presently, the country is a net debtor according to its net international investment position at -37% of GDP. Nonetheless, with Forex reserves standing at $ 73 billion nowadays, the country has a bulletproof shield with ample room to maneuver even if sailing through rough seas after taking into account the acute deceleration China is presently undergoing which is the biggest trade partner Peru has. Accordingly, Peru has established free trade agreements with some its most important trading partners including China, the US, Chile, Canada, Singapore and Thailand.
Digging deeper on a macro level, Latin America has accrued gains in its household net worth of $ 2.4 trillion within a span of less than two years since the end of 2021. Consequently, the region went from just over $ 12 trillion in national wealth then to close to $ 15 trillion in 2023. Altogether, the region has a household wealth of close to 2.5 times GDP after reaching approximately $ 6 trillion in total combined economic output in 2023. Topping the chart worldwide having gained the most in absolute terms are Russia, Mexico, India and Brazil. Likewise, the biggest losers having lost the most in absolute terms are the US, Japan, China, Canada and Australia. Overall, Latin America is an outlier after experiencing a staggering net increase of 20% in its national wealth while North America and developed Europe suffered losses amounting to $ 10.9 trillion within the same time frame in question. The Asia-Pacific region including the so-called “Tiger Cub Economies” consisting of Indonesia, Vietnam, Thailand, Malaysia and the Philippines experienced losses of $ 2.1 trillion as well. All these figures come from the Global Wealth Report 2023 gathered and published by the UBS Group A.G. since taking over the distressed Credit Suisse Group A.G. last year, a defunct investment banking multinational from Switzerland that collapsed in 2023. In addition, the growth in Latin America comes from a 6% average currency appreciation regionwide against the American Dollar with the Uruguayan Peso, the Costa Rican Colón, the Brazilian Real, the Peruvian Sol and the Mexican Peso presently leading the chart without ignoring also a surge in real property values and an increase in retail bank deposits throughout the region. In similar fashion, doing a David and Goliath comparison, the stock market in Latin America is roughly one twentieth the size of the one in the US now while the bond market is approximately one tenth the size of the one in the US according to the Securities Industry and Financial Markets Association or SIFMA. In fact, two publicly-traded American companies alone by themselves reach the entire stock market capitalization of all Latin America combined according to Bloomberg L.P. which are Microsoft Corporation and Apple Corporation. These two American companies operate in the technology sector and are part of the “Magnificent Seven” technology giant stocks, the other ones being Nvidia Corporation, Alphabet Corporation, Amazon.com Corporation, Meta Platforms Corporation and Tesla Corporation. All told, the stock market wealth in America stands at almost 190% of GDP today. Nevertheless, Latin America is an emerging and fast-growing regional economy while the US is not, albeit growing in low single digits as we speak. Similarly, distressed Venezuela has turned the tide and is now growing again at mid-single digits after having lost over 75% of its economic output when the crisis began in 2015 including the emigration of close to 8 million of its nationals since the establishment of “Chavismo” but more pronounced since 2015. Usually, emerging markets experience higher economic growth than matured ones in relative percentage terms while stock market values trade at lower multiples to earnings.
Moreover, one sector worth emphasizing after being strategic to the development of Peru is mining. Currently, Peru is the second largest net exporter of copper, zinc and silver globally. Likewise, Peru is also the third largest net exporter of lead and the fourth biggest producer of tin worldwide. Other metals mined in its territory include gold, iron ore, coal, boron and molybdenum. The country also has abundant deposits of phosphate and potash on its soil. In addition, the country is self-sufficient in its oil consumption exporting a small volume quantity of it while exporting plenty of natural gas after having massive reserves of the gas fossil on its ground. By the same token, the country is self-sufficient in its electricity consumption while exporting a substantial supply of it to neighboring Ecuador. Altogether, the Peruvian state allows the private sector, both foreign and domestic players, to participate fully in the mining industry while taxing them heavily and collecting juicy royalties from them accordingly. The petroleum and natural gas sector, on the other hand, is fully owned by the government through the state-owned company known as Petróleos del Perú S.A., better known as Petroperú. Overall, two multinational copper miners with a heavy presence in Peru and worth mentioning after running vast copper mining operations include the listed Mexican concern known as Grupo Mexico S.A.B. de C.V. and the listed American multinational known as Freeport-McMoRan Copper & Gold Corporation, the third and second biggest copper miners globally respectively. Grupo Mexico actually controls its Peruvian operation while letting locals participate in it after trading in Peru and known as Southern Copper Corporation, an operation that also trades as an ADR on the NYSE under the ticker symbol (SCCO). By the same token, Newmont Corporation was until recently present in Peru as well running an operation shared with Compañía de Minas Buenaventura S.A.A before selling at a profit its economic interest in it. The operation in question is known as “Yanacocha” and is the single largest gold mine in terms of production on mainland Latin America. Similarly, the Peruvian economy has minted four fortunes deriving the bulk of their net worth from mining. These fortunes are the extended billionaire Brescia clan, billionaire Eduardo Hochschild, the Benavides Ganoza brothers and the Ferreyros clan. The extended billionaire Brescia clan commands a fortune of around $ 4 billion having reached a peak of $ 6 billion before the pandemic and shared among ten relatives including the matriarch Ana Maria Brescia Cafferata who remains single, has never married and up until recently ranked by Forbes as well. The clan owns two mining operations, one owned in full and producing staple metals found in great quantity on Peruvian soil including copper, silver, zinc, and lead known as Compañía Minera Raura S.A. The other mining operation being the third biggest tin extraction operation globally known as Minsur S.A. with sales reaching $ 1 billion while trading in Peru. In the same manner, billionaire Eduardo Hochschild controls a precious metals mining operation known as Hochschild Mining PLC and domiciled in London, an operation listed in the LSE and founded by his deceased great uncle. In similar fashion, the Benavides Ganoza brothers control an inherited and listed mining operation known as Compañía de Minas Buenaventura S.A.A. The latter extracts gold, silver, zinc, lead and coal while trading in Peru and here in the US as an ADR on the NYSE under the ticker symbol (BVN). The Ferreyros clan, on the other hand, possesses the exclusive rights to sale, finance the purchase and service the whole lineup of machinery and equipment manufactured by Caterpillar Corporation in America to be used on Peruvian ground. They are in fact one of the biggest dealers worldwide of Caterpillar holding a monopoly for the entire country, a position only matched by billionaire Kerry Stokes in Australia if I’m not mistaken.
Another sector worth emphasizing in Peru is agriculture in addition to the fishing industry. In fact, Peru is currently among the top five next exporters of avocado, blueberry, artichoke and asparagus around the globe. Similarly, the country is among the ten largest next exporters of coffee and cocoa as well as among the fifteen largest net exporters of potatoes and pineapple on the planet. Other crops cultivated, harvested and exporter from the republic include grape, sugar, rice, banana, cassava, palm oil, cotton and maize or corn. Potatoes, for instance, were a staple crop first cultivated since ancient times in Peru by indigenous civilizations native to the Peruvian land including the Caral-Supe, the Chavín and the Incas who established a long-lasting empire stretching along the Andes from the highlands of Chile to Ecuador and southern Colombia. The ancient Incas also practiced animal husbandry after domesticating the Llama and were the only pre-Columbian culture in the Americas besides the Chavín who knew metallurgy by smelting metals when including alloys in order to fabricate ornaments and artifacts. Moreover, in the fishing industry, Peru is the single largest net exporter of fish-meal and fish-oil after being responsible for 10% of the entire fish catch produced worldwide. Two Peruvian clans with a heavy presence in this sector include the extended Brescia clan and the extended, low-profile and old money Romero clan. The Brescia clan controls the biggest fish-meal and fish-oil operation globally known as Tecnológica de Alimentos S.A., also known by its acronym as TASA. This operation trades in Peru after being a blue chip there and generates over $ 3 billion a year in sales while possessing its own shipyard, about a dozen fish processing facilities and over one hundred fisher vessels operating in the Pacific Ocean. The Romero clan, on the other hand, consisting of the Romero Seminario brothers branch of the family operates a smaller fishing operation owned in its entirety known as Pesquera Centinela S.A.C. and concentrated in the same segments of fish-meal and fish-oil. Although not active in mining, the Romero clan participates also in other notable areas of incursion in Peru including commercial banking, textiles, real estate development, shipping, seaport terminal operations, warehousing logistics, the palm oil business, gas stations, convenience stores, food processing, oilseeds processing and the sugar business including ethanol distillation.
To conclude, Peru is indeed the fastest growing Pacific Puma. The “Pacific Puma Economies” consist of Mexico, Colombia, Peru and Chile. Although deceleration in China has taken a toll on the Peruvian economy, the country has what it takes to make up for it. In other words, Peru has enough resources at its disposal to successfully offset or hedge its exposure to the Chinese deceleration in question. Overall, the country recorded a nominal GDP per capita of $ 7,772 in 2023 and $ 16,132 of GDP per capita in 2023 as well when adjusted for PPP. Likewise, the country has kept a single digit inflation rate for over two decades now and its GINI coefficient for income distribution at 0.4 is one of the lowest across the region being lowest only in Uruguay and Cuba nowadays. In addition, the country maintains an investment grade sovereign credit rating by all three credit rating agencies with a stable outlook assigned by Fitch Ratings. In a similar manner, the nation is now growing again at low single digits annually. In sum, Peru has a bright future ahead if it continuous to embrace the free-market reforms outlined in the Lima Consensus no matter what the adversities placed in the global market affect its economic performance in a chain reaction macro scenario coined by renowned economists with expertise in the topic since the “1997 Asian Financial Crisis” as a contagion effect.