Politics and the economy in Peru:

Beyond the coming elections

Hugo Santa Mara, Ph.D.
Chief Economist
APOYO Consultoria
www.apoyoconsultoria.com
contactaSAE@apoyoconsultoria.com

Politics and the economy in Peru: Beyond the coming elections

Among the top performers in Latam

A resilient economy
Politics is very complicated
Presidential elections have a moderate
short run effect on the economy
Growth perspectives and challenges
ahead

Peru is among the top performers in the region

LATAM: GDP

LATAM: INFLATION 1/
(Annual % change)

(2000=100)
280

98

260

88

240

78

Peru

220

68

200

58

180

48

160

38

140

28

120

18

100

80

-2

2000

2002

2004

2006

2008

2010

2012

2014

Peru
2000

Source: IMF

2002

2004

2006

2008

2010

2012

2014

1/ End of period.
Source: IMF

Economic growth and social progress

7,000

PERU: GDP PER CAPITA

PERU: POVERTY

(US$)

(% of population)

6,585

70.0

6,000

60.0

5,000

50.0

4,000

40.0

3,000

58.7

30.0

2,428

22.7

2,000

20.0

1,000

10.0

0.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: BCR

Source: INEI

New and bigger markets

PERU: CEMENT CONSUMPTION

PERU: RETAIL SALES

(Million MT)

(S/ Million from 2007)

11

17,900

x3

x 3.5

4
5,230

2004

2014

2004
2014
Source: SMV, companies, BCR, APOYO Consultoria

Source: INEI

PERU: NON-TRADITIONAL AGRICULTURAL AND

LIVESTOCK EXPORTS

PERU: NEW VEHICLE SALES

(Thousand units)

(US$ FOB Million)

187
4,400

x 12

x5
800

16

2004

2004

2014

2014

Source: Araper

Source: Veritrade

Economic growth across sectors

REAL GDP BY ECONOMIC SECTORS
(Index 2004=100)
300
280
260
240
220
200
180
160
140
120
100
80
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Total GDP

Metal mining

Non-primary manufacturing

Construction

Commerce

Services
Source: BCR

Politics and the economy in Peru: Beyond the coming elections

Among the top performers in Latam

A resilient economy
Politics is very complicated
Presidential elections have a moderate
short run effect on the economy
Growth perspectives and challenges
ahead

Resilience: still growing after all these shocks

PERU: GDP

Between 2013 and 2015:

(Real % change)
12.0

Copper price

10.0

- 41%

8.0
6.0

Gold price

- 37%

4.0
2.0

Foreign Direct
Investment

- 42%

0.0
2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: BCR

Source: BCR, Bloomberg

Peru endured the different shocks without fiscal support

GENERAL GOVERNMENT TOTAL EXPENDITURE
(Real % change)
12.0

2013
2014

10.0

WEIGHTED FISCAL STIMULUS 1/

2015

(% of potential GDP)

8.0

0.8
0.6

6.0

0.6
0.4

4.0

0.4

2.0

0.2
0.0

0.0
Chile 1/

Mexico 2/

Peru

Colombia 3/

- 0.2

1/ 2015 is the Central Government total expenditure.

2/ Total budget expenditure.
3/ 2015 is an estimate.

- 0.4

Source: BCR, Dipres, Secretara de Hacienda y Crdito Pblico, IMF

- 0.6
FISCAL BALANCE

- 0.8

(% of GDP)
2013
2014
2015

1.5
1.0

- 1.0
2013

0.5

2014

-0.9
2015

1/ The weighted fiscal stimulus is an indicator of how the fiscal stance is

impacting on the economic cycle, taking into account public expenditures
multiplier effects on the economy.

0.0
- 0.5
- 1.0

Source: BCR

- 1.5
- 2.0
- 2.5
- 3.0
- 3.5
- 4.0
Chile

Mexico

Peru

Colombia 1/

1/ 2015 is an estimate.

9
Source: BCR, LatinFocus

Politics and the economy in Peru: Beyond the coming elections

Among the top performers in Latam

A resilient economy
Politics is very complicated
Presidential elections have a moderate
short run effect on the economy
Good
growth
perspectives
business opportunities

10

and

Politics is based on individuals and not on political

organizations

VOTES RECEIVED BY TRADITIONAL POLITICAL

PARTIES IN MUNICIPAL AND REGIONAL ELECTIONS

NUMBER OF PRESIDENTIAL CANDIDATES

(%)
100
90

91

89

93

25

93
92

20

80
70

19

20

69

15

60

14

15

13

50
40

19

30
5

28

12

20
10

10

37

19

1963 1966 1980 1983 1986 1989 1993 1995 1998 2002 2006 2010

1963 1980 1985 1990 1995 2000 2001 2006 2011 2016

Source: Jurado Nacional de Elecciones (JNE)

Source: Jurado Nacional de Elecciones (JNE)

11

Result: Political fragmentation of authorities

Peru

25 regions
22 different political colors

Regions,
provinces
and
municipalities execute more
than
60%1/
of
public
investment.
1/ 2012-2015 average.
Source: BCR

12

Result: Political fragmentation of Congress

COMPOSITION OF THE PERUVIAN CONGRESS

July 2011

December 2015
11

37

36

9
7

21

7
47

9
27

12

12
7

6 parliamentary groups

10 parliamentary groups

22 Congressmen per group (avg.)

14 Congressmen per group (avg.)

13

The current elections

19 candidates and a very confusing process

Front runners

Vote intention (March 2016)

Keiko Fujimori

35%

(Fuerza Popular)

Julio Guzmn

17%

(Todos Por el Peru)

Pedro P. Kuczynski
(Peruanos Por el Kambio)

Alfredo Barnechea
(Accion Popular)

Alan Garca

7%
5%
4%

(Alianza Popular)

Source: GFK

15

Voting intentions up to March 2016

VOTING INTENTION NOVEMBER 2015 MARCH 2016
(% of respondents)

Front runners

Other candidates

35%

17%

5%
4%
4%

7%
4%
November

December

2015

January

2%
November

March

2016

December

2015

January

March

2016

Pedro Pablo Kuczynski

Julio Guzmn

Alejandro Toledo

Csar Acua

Keiko Fujimori

Alan Garca

Vernika Mendoza

Alfredo Barnechea

Source: GFK

16

Exercise without Guzmn and Acua

MARCH 2016: VOTING INTENTION WITHOUT GUZMN AND ACUA 1/
(% of respondents)

37.7

10.1
6.7

Keiko
Fujimori

Pedro
Pablo
Kuczynski

5.6

Alfredo
Barnechea

Veronika
Mendoza

4.5
Alan
Garca

1.7
Alejandro
Toledo

1/ Valid votes.
Source: GFK

17

32 days to election day but it is still too early to call the final
results

23%

20%

Decided their
election day.

Decided their vote one week

before election day.
Source: Ipsos Peru (August 2010)

vote

on

Source: Ipsos Peru (August 2010)

18

Second round scenarios up to March 2016

VOTING INTENTION SCENARIOS FOR THE SECOND ROUND
44%

K. Fujimori

Blank/invalid
No answer

34%

J. Guzman

15%
7%

45%

48%

28%

K. Fujimori P. Kuczynski

Blank/invalid
No answer

50%
23%

K. Fujimori A. Barnechea

20%

Blank/invalid

7%

No answer

23%
6%

13%

K. Fujimori

Blank/invalid
No answer

A. Garcia
32%
5%
Source: GFK

19

Politics and the economy in Peru: Beyond the coming elections

Among the top performers in Latam

A resilient economy
Politics is very complicated
Presidential elections have a moderate
short run effect on the economy
Growth perspectives and challenges
ahead

20

Presidential elections have a moderate short run effect on the

economic activity

PERU: PRIVATE INVESTMENT

(Real. % change)

PERU: CONFIDENCE TO INVEST

(Points)
70

Elections

40

Elections

Elections

Elections

60

30

50
40

20

30
20

10

10
0

-10
-20

-10

-30
-40

-20
I

III

2004

III

2005

III

2006

III

2007

III

2008

III

2009

III

2010

III

2011

III

2012

III

2013

III

2014

III

2015

III

2004

Source: Survey made to APOYO Consultoras SAE clients

III

2005

III

2006

III

2007

III

2008

III

2009

III

2010

III

2011

III

2012

III

2013

III
2014

III

2015

Source: BCR

21

Other factors seem to be more important for investment plans

FEBRUARY 2016: MAIN CONCERNS REGARDING CURRENT INVESTMENT
PLANS 1/
(%)

Domestic demand

54

World economy

50

Exchange rate

36

Financing cost

Elections

28

18

1/ Percentage of people that considered it very important.

Source: Survey made to APOYO Consultorias SAE clients

22

Risk of drastic changes to

the economic model is
limited

Institutional arrangements prevent significant changes to the

economic model

CONSTITUTION OF 1993
The government performs subsidiary entrepreneurial activities only under
legal authorization ()
Contractual terms cannot be modified by laws or any other disposition
Domestic and foreign investment are subject to the same conditions
The government guarantees the free possession and disposition of foreign
currency

Changes in the Constitution require broad and lasting political consensus.

24

Institutional arrangements prevent significant changes in the

economic model
Other investment protection mechanisms:

Free Trade Agreements and international treaties have the same legislative
hierarchy as the Constitution1/.

Peru is a member of the International Centre for Settlement of Investment

Disputes.

Most contracts have an arbitration clause.

Autonomy of Central Bank and Bank and Insurance Superintendence.

1/ Constitution of 1993: fourth final disposition.

25

What people think about the economic model

What changes would you like the next government to do?
(top three answers)
Regarding the economic model, would
you like the next Government to?

41

Fight crime effectively

36

15

RADICAL CHANGES

Improve education
services

54
51

July 2014
Continue with the current economic model

Increase effectiveness in
fighting corruption

48

Make moderate changes

Make radical changes
N/A

Source: Ipsos Peru, Encuesta Nacional Urbana Rural, July 2014

26

Vote intention and the economic model

PRESIDENTIAL ELECTIONS: RESULTS AND VOTE INTENTION 1/

First round 2006

31%

First round 2011

48%

March 2016

85%

59%

32%

7%

Vote intention for candidates that

propose radical changes to the
economic model

Vote intentions for candidates that

propose
adjustments
to
the
economic model

1 / Valid votes (%) in the first round of presidential elections 2006 and 2011, and urban-rural survey made in the last week of
February 2016.
Source: ONPE, GFK

27

Voting intentions for Congress up to March 2016

COMPOSITION OF THE PERUVIAN CONGRESS 1/

(Number of seats)
Accin Popular

Alianza Para el Progreso

Alianza Popular

Peruanos Por el Kambio

Todos Por el Per

10
13
14
15
17
62

Fuerza Popular
1/ Simulation over valid votes.

Source: GFK, APOYO Consultoria

28

Politics and the economy in Peru: Beyond the coming elections

Among the top performers in Latam

A resilient economy
Politics is very complicated
Presidential elections have a moderate
short run effect on the economy
Growth perspectives and challenges
ahead

29

Peru: among the top performers in Latam in the upcoming

years
LATAM: GDP, 2016-2017 1/
(Real % change)
4.0
3.0
3.0

2.9
2.4

2.3

2.0

2.0
1.0
0.0
-0.5

- 1.0

-1.0
- 2.0

-1.8

- 3.0
Per

Mex

Col

Chi

Bol

Arg

Ecu

Bra

1/ Forecast made in February 2016.

Source: LatinFocus, APOYO Consultoria

30

Peru: no pending macroeconomic adjustments ahead

LATAM: AVERAGE FISCAL BALANCE, 2016-2017

LATAM: PUBLIC FINANCING NEEDS 2016

(% of GDP)

(% of GDP)

Chi

Per

-2.7

-2.5

Mex

-2.9

Col

-3.5

Arg

-3.9

Bol

-4.2

Ecu

Bra

16.1

5.5

-4.5

3.0

-7.5

Chi

Source: LatinFocus, APOYO Consultoria

9.0

9.3

Mex

Arg

6.5

3.9

Per

Col

Ecu

Bra

Source: IMF, APOYO Consultoria

31

Peru: there is still room to catch up

LATAM: GDP PER CAPITA 1/
(Index 2000=100)
780

680

580

480

Peru

380

280

180

80
1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

1/ Based on Purchasing Power Parity (PPP)

Source: IMF

32

Peru: market opportunities

1

Smartphone and pay-TV penetration are

low, but they are increasing very fast.

E-commerce is barely used.

E-commerce sales, 2013

Smartphone
penetration, 2014

Pay-TV
penetration, 2014

30%

20%

(US$ million)

Peru

Infrastructure investment through PPP

will double in the next five years.

International tourist arrivals, 2014

(Million tourists)

10.0
5.2

2020

China demands agricultural products in

which Peru is very competitive.
Chinese imports,
2014
(US$ billion)

Blueberries

1.4

Colombia

Peru receives fewer tourists than its

main competitors in Latin America.

Infrastructure investment through PPP

(US$ billion)

2015

2,500

800

3.0

3.5

5.1

9.6

Peru

Brazil

Argentina

Mexico

Peru has room for more fast fashion

stores.
Number of fast fashion stores, 2016

Peruvian
participation

19

4%

Peru

33

Colombia

21
Chile

Source: companies, UNWTO, Trademap, Osiptel, eMarketer, Euromonitor, Veritrade, Ositran,

Osinergmin, APOYO Consultoria

Challenges ahead

A good macroeconomic environment is necessary, yet

insufficient
PERU: GLOBAL COMPETITIVNES RANKING, 2015-2016
(Rank out of 140 countries)

Macroeconomic environment

23

Financial market development

30

Judicial independence

112

Quality of infraestructure

112

Business cost of crime and violence

129

Efficiency of legal framework in settling disputes

130

Quality of the higher education system

130

Burden of government regulation

133

Hiring and firing practices

133
Source: WEF

35

Challenges ahead

OECD: MAIN RECOMMENDATIONS OF THE

MULTI-DIMENSIONAL REVIEW OF PERU

Pending reforms need:

Reduce inefficiencies in investment and improve

quality in infrastructure and logistics.
Simplify complex and burdensome
regulation and reduce non-wage costs.

Political
leadership.

labor

Continuity
in
the
implementation and a long term
approach.

Improve the quality of essential public services

(health, education).
branches

and

Political consensus.

Implement a more effective taxation system and

improve progressivity in the tax system.

Improve governance of all

Government to tackle corruption.

dialogue

in

Source: OECD

36

Politics and the economy in Peru:

Beyond the coming elections
Hugo Santa Mara, Ph.D.
Chief Economist
APOYO Consultoria
www.apoyoconsultoria.com
contactaSAE@apoyoconsultoria.com