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.
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.
FDI 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.