Like other economies in Latin America that are reliant on mining activities, Peru has a lot to lose from a Covid-19-related global economic recession, especially with regard to its copper and zinc imports. However, the stable demand for gold, which is perceived as a safe-haven asset, may provide some crumb of comfort for the country.
Peru ranks 76th in the World Bank’s Doing Business 2020 report, but looks set to take a series of hits, as its agriculture sector will also be negatively affected by slowing demand, according to the UN Conference on Trade and Investment (UNCTAD) World Investment Report 2020.
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More positively, the Banco Central de Reserva del Perú, the country’s central bank, in an inflation report published in September, upwardly adjusted its FDI forecast for the year by $557m, to $2.1bn from $1.6bn. Before the pandemic hit, the projection was of a total of $5.6bn.
According to ProInversion, the investment promotion agency of Peru, this increase is linked to a smaller drop in private investment than expected in both mining and non-mining activities.
During the first half of 2020, foreign direct investment (FDI) flows to Latin America and the Caribbean decreased by 25%, the Investment Trends Monitor report by UNCTAD shows. Flows to Peru fell by 72%, with the suspension of mining projects leading to a decrease in FDI flows to the country of $1.3bn during the first half of the year. During the same period in 2019, FDI flows into Peru were $4.4bn.
Peru’s pre-Covid FDI boom
Prior to the Covid-19 pandemic, Peru had enjoyed a prosperous year in FDI terms, with flows going up by 27% in 2019 to a total of $8.9bn, mainly propelled by new equity investments that more than tripled to almost $3bn, according to UNCTAD.
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By GlobalDataFDI inflows to non-financial services picked up 30% of the share, growing by 16% to $2.8bn. Mining received a similar amount at $2.5bn, while the energy industry received $1.7bn. However, flows to the manufacturing sector accounted for only $734m.
Last year was also a prosperous one for mining in Peru, as companies boosted their processing capacity, with investments posting double-digit growth, but as the pandemic hits the mining sector worldwide and responsible investment gains ground, it remains to be seen how FDI in Peru will fare in a post-Covid world.
