Peru - Foreign investment



The British were the first to gain prominence as investors in Peru, when they took power the railways in payment of debt to Peruvian bondholders in 1890. They developed oil fields and a long distance telephone and cable service. In the mid-1950s, Swiss, German, and Canadian interests became active in the transportation and communication services. Private US interests ventured capital and technical aid to all sectors, especially the oil and mining industries. The fishing industry from the beginning was fostered by the United States. Private companies operated tuna fleets in Peruvian waters, as well as canneries.

Between 1959 and 1961, following passages of industrial development laws and the signing of an investment guarantee treaty with the United States, under which private US investors could obtain federal risk insurance against currency inconvertibility, total foreign investment almost doubled, rising from $686 million to $1,274 million. US investments continued their rapid growth rate until the 1968 coup, after which Peru's military rulers pursued a nationalist course, characterized by selective expropriation of foreign-held interests in sectors such as mining, finance, and infrastructure. In addition, a variety of strictures were placed on the uses of foreign capital, as well as on the relative proportion of foreign-to-local control. US-linked firms were the hardest struck by these measures, causing a strain in relations. In February 1974, a US-Peruvian agreement provided a compensation schedule for properties taken over during 1968–73. At the end of 1973, the US investment column stood at $793 million, less than half of the total a decade earlier. Private investments in the 1970s continued to lag, although some new funding was being advanced in mining and petroleum. From 1977 through 1980, net direct capital investment totaled only $177 million, or less than the total for 1981 ($263 million), the first year after the restoration of civilian rule. In 1984 and 1985, after the economic slump, net direct investment was $89 million and $53 million, respectively.

After 1980, the official attitude toward foreign investment changed substantially. The 1979 constitution guarantees protection of private property, whether Peruvian or foreign, and permits foreign jurisdiction for international financial contracts. The agency responsible for foreign investment is the National Commission of Foreign Investment and Technology (Comite Nacional de Inversion Extranjera y Tecnologia, or CONITE). In late 1986, the Andean Group relaxed its regulations on foreign investment; this change was expected to benefit Peru. About 1,000 foreign companies were represented in Peru in the 1980s, either directly or through subsidiaries or affiliates.

The trade and investment climate in Peru has improved significantly since President Fujimori assumed office in July 1990. Foreign investor confidence in Peru should be maintained with Fujimori as the key element in sustaining capital inflows. The Foreign Investment Promotion Law, and the Framework Law for Private Investment Growth outlined the government's support for privatization and foreign investment in 1991. From 1991 to 1997, privatization sales totaled over $7 billion, most of which came from foreign investors. There are no restrictions on remittances, but there is a mandatory affirmative action program for Peruvian employees. Activities in Export Processing Zones are tax and customs duty exempt for 15 years.

In 1998, total foreign direct investment (FDI) stock totaled about $7.3 billion. FDI inflow to Peru in 1998 was over $1.8 billion, up from nearly $1.7 billion in 1997, and then peaked at $2.3 billion in 1999. Due mainly to political turmoil and uncertainty in the country, FDI flows to Peru fell to $681 million in 2000. In 2001, FDI flows increased to $1.1 billion, and in 2002 were approximately $2 billion. The major sources of FDI have been Spain (particularly in telecommunications), the United States, and the United Kingdom (in the energy and industry and mining sectors). Cumulative FDI as of 2002 was over $10 billion.

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