Latin America’s economies are growing at exponential rates and foreign investments are flooding into the region at rates never seen before. As the fifth largest economy in the region, Peru contributes a lot to this success. However, although it has a strong economy, there is a lack of adequate infrastructure in the country.
The government is now dedicating time, money, and resources to improving this sector. Foreign investors and businesses in the industry are looking to gain from these improvement plans. With macroeconomic stability and consistently positive economic growth rates, foreigners and businesses are gravitating towards Peru’s investment market.
Historical infrastructure woes
Peru’s infrastructure problems stem from far back. For years, the country had poor access to adequate roads, bridges, and passes nationwide. Cities were well connected, but small towns and regions had little to no access to the rest of the country. Ultimately, this perpetuated poverty and economic disparity in disconnected regions of the country.
In 2016, the government acknowledged these problems and started to make plans for reparations and improvements. Total, the country pledged over US$33 billion to improvements. However, as they were planning and implementing these changes, disaster struck the country. In March of 2017, ten times the normal rainfall fell over the country’s landscape, prompting severe flooding and landslide. Countless roads, homes, and the central railroad were all destroyed as a result. Focused on safety and recovery, the government postponed efforts to improve national infrastructure. Since, the country has been dealing with the repercussions of the natural disaster and doing little in terms of infrastructure repairs and innovations. However, this is starting to change.
Moreover, issues relating to bribery derailed efforts in late 2017 to improve the country’s roads and bridges. Now, the government is working to repair, not only the infrastructure, but also its reputation.
Peru’s plan for the future
In 2018, the government started planning and setting aside funds again for infrastructure improvements. Initial plans covered repairs, getting the cities affected back to normal, liveable conditions. The future holds blueprints for more intense infrastructure changes and repairs and preparing them for future natural disasters. With the third-worst roadways in Latin America, experts estimate it will take a total of US$160 billion to mitigate Peru’s disparity between economic advancements and national infrastructure standards.
A formal plan is being drafted and will be presented to officials in the coming weeks. Included in these plans is a US$2 billion project to construct a new road that runs through Peru’s capital, Lima, and connects two major highways. Moreover, the country hopes to improve the conditions of the widely-used Longitudinal de la Sierra highway. Stretching over five years and totaling an astonishing US$27 billion, the government hopes it will improve domestic economic exchange. Bringing wealth and access to cities is a crucial step in Peru’s continuing economic success story.
Foreign investors have a handful of opportunities laid out in front of them. The market is electric with government bonds purchases as result of the recent motivation and plans. Aside from government bonds, foreigners can invest in construction companies in the region, natural resource enterprises, and civil and industrial engineering businesses. Additionally, since the plan will pan out over a prolonged period of time, the longevity of returns on investments will increase.
With these projects, Peru also started talking about the possibility of outsourcing or partnering with countries in Asia to get the job done.
Incentives for investment
Given the seemingly turbulent nature of Latin American economies, foreign investors and businesses can be hesitant to take that first step into the market. Over time, governments, especially Peru’s, realized they had to incentivize investors to entrust in them their money. To start, the government implemented the ‘Obras por Impuestos’ agenda. Companies that invest in or construct public projects, like improving roads and infrastructure, don’t have to pay corporate taxes.
Moreover, the government is considering changing other tax break laws and plans, so as to further incentivize companies. Capital gains taxes could be getting cut in the months to come.
Not only should investors be motivated by tax incentives, but also the prosperity of the industry. Experts say construction and infrastructure sectors will continuing growing at steady and compelling rates for many years to come. Because there is so much work to be done, the prosperity and profitability of the industry will continue to generate jobs, revenue, and positive economic activity and trading of services.
Get started on your road to success
Peru shows economic promise and growth in a handful of industries. With government support and plans to improve construction and infrastructure in the country, foreign investors and businesses have a guaranteed market.
The team at Biz Latin Hub can help you tap into this up-and-coming market. For help with legal, accounting, recruiting, and/or commercial representation, reach out to us at [email protected]. Start paving your road to success with the help of Biz Latin Hub today.