Peru’s Economy – A Brief Overview
Situated in the West of South America, Peru is a country which has managed to escape the challenges and political instability some of its neighbouring countries have had to face, and as such, has been able to create a flourishing economy. The Peruvian economy grew by 3.1 percent in 2019, with a further 4.8 percent growth forecasted for 2020. As of 2019, Peru has a GDP of $254 billion, placing it as the 39th largest economy in the world and the sixth largest economy in Latin America.
How Has Peru’s Economy Achieved Growth?
In order to identify the factors driving economic growth in Peru, it is important to look at both the long and short-term economic policies of the government.
Policies in Place for Long-Term Growth
Peru’s economic growth has been supported through investment in long-term projects such as infrastructure and education. Infrastructure spending has helped improve transport logistics, making it easier for businesses to source goods and services quickly and cheaply, enhancing the overall economic environment in the country. Likewise, investment in education has played a major role in the development of Peru’s economy. Peru has seen steady improvements in literacy rates and university enrolment, setting it up to have a highly educated workforce that fuels economic growth in the long-term.
The Policies That Have Driven Short-Term Growth
The government has also implemented several ‘short-term’ policies that have had a significant impact on Peru’s economy. Notably, these policies have focused on increasing investments and reducing poverty. As such, the government has supported investment into sectors such as mining and energy, as well as agriculture. Additionally, the government has invested significantly in programs to reduce poverty in Peru, benefitting both citizens and businesses by creating a more vibrant consumer base with more disposable incomes.
The Role of Free Trade Agreements
The Peruvian government has also used its participation in free trade agreements to drive up economic growth. It has signed the US-Peru Trade Promotion Agreement, the Trans-Pacific Partnership, and the Pacific Alliance. These have enabled Peru to benefit from being part of an integrated global marketplace, boosting foreign direct investment, market access, and general economic prosperity.
Challenges Facing Peru’s Economy
Despite the successes of its economy, there remains a number of challenges facing Peru.
Political Instability
One of the main challenges facing Peru is the political instability that has plagued the country for many years. This includes the 2019 overthrow of President Martin Vizcarra, as well as the ongoing impact of the Fujimori-era government. Such instability creates a sense of uncertainty which can slow down the rate of investment, leading to a slowdown in economic growth.
Environmental Factors
Another challenge faced by Peru’s economy is its limited natural resources, as well as the effects of climate change. Peru is a tropical country and as such is prone to extreme weather and flooding, which damage infrastructure and disrupt trade. Additionally, Peru suffers from deforestation due to land-use and logging, which can impact soil fertility and the stability of river eco-systems.
Currency Instability
Finally, a third challenge faced by Peru is the volatility of its currency. The Peruvian Sol has been particularly unstable in recent years, with large swings in value, creating further complications for businesses and investors.
Opportunities in Peru’s Economy
Despite the challenges faced, there are a number of opportunities available in Peru’s economy.
Tourism
One of the most promising paths of development for Peru is the tourism industry. Peru offers a combination of breathtaking landscapes and a rich cultural heritage. Such a combination has made it one of the most sought-after tourist destinations in South America, with it attracting 28 million visitors in 2019.
Technology
Technology is also starting to play an increasingly prominent role in Peru’s economy. The Peruvian government is investing heavily in the industry, as it looks to develop a range of technologies and services that can improve the efficiency and transparency of public services. Additionally, businesses are now starting to become more tech-driven, with a focus on analytics, automation and cloud-based services.
Sustainable Development
Finally, Peru is investing heavily in sustainable development and renewable energies with a focus on eco-tourism and green business practices. This has the potential to create significant job opportunities in the country, while also creating an industry that promotes environmental sustainability.
Peru’s economy is flourishing with a focus on long and short-term investments, as well as participation in several free trade agreements. However, as with all countries, it also faces a number of challenges, such as political instability, environmental issues, and currency volatility. Nonetheless, Peru also has several opportunities it can take advantage of, in particular, in the tourism and technology industries, as well as the development of sustainable business practices.