How should MNCs interpret PPK’s resignation in Peru?

On March 23, Vice President Vizcarra was sworn in as Peru’s new president after the embattled Pedro Pablo Kuczynski (PPK) resigned on March 21. He resigned due to a corruption scandal on the eve of the impeachment vote that was scheduled in Congress on March 22. President Vizcarra will continue to implement pro-investment policies and help streamline investments in the key sectors of infrastructure and mining. Because the country avoided early elections, pro-growth policies should continue.

Martín Vizcarra is a pragmatic politician. Educated as an engineer, with Vizcarra MNCs should expect a more careful, technocratic head of state who might be able to streamline investment in mining and infrastructure, the two key drivers of Peru’s economy in 2018.

In this new scenario that is unfolding in Peru, MNCs should take the following actions:

  • Consider targeting construction firms and industries that would benefit from large investments in mining and infrastructure in 2018
  • Work with your market intelligence team to identify which regions of the country stand to benefit most from robust copper activity
  • Conduct client segmentation and pricing analysis to capture potential opportunities in regions benefitting most from surging copper output

What to pay attention in the short-term

Political uncertainty should start abating in Peru because the constitutional order has been respected after PPK’s resignation. Consequently, MNCs should pay attention to four key elements in the short-term:

  • President Vizcarra’s new cabinet members: Martín Vizcarra’s first task would be to put together a cohesive cabinet that does not receive a lot of pushback from the larger opposition party in Congress, Fuerza Popular (FP), led by Keiko Fujimori. For the moment, FP has signaled that it is willing to cooperate with the new president to re-establish confidence in the economy and guarantee governability. President Vizcarra stated that his cabinet members will be announced in eight days.
  • Political reshuffle within FP: The rift between the Fujimori brothers, Kenji and Keiko, seems to be increasing after Keiko’s loyalists released the videos that forced PPK’s resignation and involved Kenji in a bribery scheme. Kenji is expected to be investigated after the infamous videos that showed him alongside his cronies trying to bribe FP’s congressman with the aim to vote against PPK’s impeachment process. In a weekend message, Kenji said that “…he is willing to cooperate with any investigation” signaling that he is willing to testify against his own sister and leader of FP. A political reshuffle, or turmoil in FP, would make it harder to pass any legislation in Congress, but it could also help President Vizcarra consolidate his position because Peruvians from all sectors seem willing to flip the page of PPK’s tumultuous presidency.
  • Investment into copper production and mining: Copper production and investment in the mining sector will continue to increase on the back of recovering copper prices, averaging US$ 6,173/Mt in 2017, generating more revenues for the state amid a low-inflation environment and improved consumer spending. Copper production increased 3.9% YOY in 2017 to a record-setting 2.44 million tons.
  • Infrastructure spending: In 2017, the PPK administration struggled to execute its budget amid constant political struggles with opposition forces, particularly from FP. Under a Vizcarra administration, infrastructure spending will increase via private investments and public-private partnerships, generating jobs and consumption. Peru’s government is expected to allocate US$ 2.2 billion in contracts to rebuild damaged infrastructure and construct facilities for the Pan-American Games.

FSG effectively considered PPK’s ousting or resignation as its base-case scenario in our LATAM Regional Outlook for 2018 and Peru Market Spotlight reports. Our team will continue to track developments in Peru as the new president and its cabinet take over the government, and how it is impacting the local economy. For more in-depth briefings, clients can consult these reports, and contact their Client Services Director.

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