Peru’s Growth Strong, but Difficult to Capture

Infrastructure bottle necks and the lack of a skilled workforce are hampering multinational growth prospects in Peru, where the currency is expected to appreciate and growth has slowed to a still-impressive 6.2%. In spite of these difficulties — and fears surrounding rising real estate prices — confidence remains high that the government can keep the economy growing.

South America’s fastest growing economy has slowed recently, exposing some of the difficulties multinationals are having in Peru. Rising consumer spending, a recent easing of political tensions, and an expected recovery in exports make Peru too attractive for many multinationals to pass up. However, labor and infrastructure difficulties are stifling some attempts to take advantage of the 6.2% growth. Problems faced by multinationals include:

  • Lack of a skilled workforce: More than 52% of employers in Peru are having difficulties finding skilled workers, according to a recent Manpower study. Some multinationals have even begun importing workers from abroad, in spite of Peru’s high unemployment rate. The government has responded by offering tax breaks to companies that provide training to workers.
  • Infrastructure bottlenecks: Many multinationals are finding it difficult to expand outside of Lima, due insufficient infrastructure. This makes scaling up operations difficult and concentrates short-term opportunities in the capital city. Throughout the country, housing prices have tripled since 2007, as rising real wages, a burgeoning middle class, and a strong Nuevo Sol are pushing up demand for real estate. This has led to some fears of a correction.

One of the largest questions in the short term is: How will the Peruvian government handle an expected appreciation of the Nuevo Sol? The country is taking a variety of steps to bring down appreciation, including pre-paying debts, and many multinationals have confidence in the government’s ability to deal with these problems.  Close observers of the Peruvian economy will continue to monitor the government’s actions closely as they try to overcome bottlenecks while maintaining growth and stability.

 

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