Peru country brief
Introduction
Australia and Peru have a friendly relationship and cooperate in a number of regional and multilateral forums. Australia re-opened its embassy in Lima in September 2010, demonstrating its commitment to enhancing engagement with Peru and with Latin America generally. Peru has an embassy in Canberra. Australia and Peru work together in the Asia-Pacific Economic Cooperation forum (APEC) to promote greater liberalisation of trade and investment and to enhance regional integration. Australia hosted APEC in 2007, Peru in 2008. Australia and Peru are members of the Forum for East Asia Latin America Cooperation (FEALAC), and Peru formally joined the Cairns Group in 2007, in line with its interest, shared with Australia, in achieving greater liberalisation of agricultural trade.
Political overview
Background
Peru is a republic headed by a president directly elected for a five-year term, and who may be re-elected for a non-consecutive term. Incumbent President Alan García was elected in 2006 and will leave office following presidential elections in 2011.
The President appoints a “president” and members of a “Council of Ministers”, the country’s principal executive body. The legislature consists of a single 120-member chamber and can be dissolved once during a presidential term. Peru is divided into 24 administrative departments plus the constitutional province of Callao. Departments are divided into provinces, which are in turn sub-divided into districts. Provincial and district-level officials are popularly elected. The judicial hierarchy includes provincial and departmental courts and is headed by the Supreme Court in Lima.
Political outlook
Peru held the first round of presidential elections on 10 April 2011. No candidate received an overall majority which triggered a run-off election to be held on 6 June between the two leading candidates; left-wing candidate Ollanta Humala (31.7 per cent) and centre-right populist and daughter of a former President Keiko Fujimori (23.5 per cent). The winner will succeed García, who defeated Humala in June 2006. García had replaced Alejandro Toledo, who narrowly beat him in the 2001 presidential election which was held after former President Alberto Fujimori fled to Japan after being charged with human rights and corruption charges. Fujimori was subsequently extradited to Peru from Chile in 2007. García was also president from 1985 to 1990, during what is generally regarded as a difficult period, marked by hyper-inflation, a decline in living standards and a rise in domestic terrorism. (President García was barred from running for a consecutive term in 2011.)
Regardless of the presidential outcome, Humala’s Gana Perú party will have the greatest number of seats in the incoming congress, followed by Fujimori’s Fuerza 2011 party, while outgoing President García’s APRA may have as few as four seats.
In his second term, President García, governing without a congressional majority, built on the macroeconomic reforms of his predecessor, including market liberalisation and the implementation of policies designed to attract foreign investment.
Peru has an active and dynamic political scene with fluctuating coalitions, no dominant individual parties and sharp social divisions. The economic recovery since 2001 has had a strong positive impact in reducing extreme poverty, currently estimated at 34.8 percent, and this is likely to continue so long as sound macroeconomic measures are maintained. The Shining Path terrorist movement, which was responsible for a violent uprising throughout Peru that reached its peak in the late 1980s and early 1990s, still exists as splinter factions in remote areas, although their activities are believed to be driven largely by drug trafficking and other criminal activities.
Economic overview
Peru economic fact sheet [PDF]
Economic and trade policy directions
Since the 1990s, successive governments have sought to restructure Peru's economy, dramatically improving the government's fiscal position. Peru is currently enjoying its longest expansion on record, with low inflation, a solid external position and declining indebtedness ratios. Public expenditure has been reduced through the abolition of subsidies and the privatisation of state-owned companies. Trade barriers have been cut, direct subsidies to exporters and domestic producers have been eliminated and equal treatment has been granted to foreign and domestic investors. The tariff system on imports comprises three rates: zero per cent, 9 per cent and 16 percent, with a weighted average tariff of around 3.2 per cent.
Peru has taken an active approach to joining the global economy through regional integration and a commitment to pursuing bilateral free trade agreements (FTAs). Peru has concluded negotiations on FTAs with Chile, United States, Singapore and Canada. It also has a protocol on acceleration of the liberalisation of trade in goods and trade facilitation with Thailand. The 2006 United States-Peru “Trade Promotion Agreement” (PTPA) entered into force on February 1, 2009. FTAs with Canada and with Singapore were signed in May 2008.
Peru is a member of the Andean Community Customs Union and has signed partial preferential trade agreements with Cuba, Argentina and Brazil. It is negotiating FTAs with China, and the EU. Peru, along with Australia, Malaysia, Vietnam and the United States, is negotiating an expanded Trans-Pacific Strategic Economic Partnership (TPP) agreement (between New Zealand, Brunei, Chile and Singapore). The agreement is seen as a potential pathway to advancing broader Asia-Pacific regional economic integration.
Economic outlook
Peru has experienced recent impressive economic growth in recent years, and bounced back from a low of 0.9 percent GDP growth at the height of the financial crisis in 2009 to 8.3 percent in 2010. Higher economic growth has been largely supported by mining and construction activity. Diversification into non-traditional exports, investment growth and strong consumer confidence and rising employment rates has also supported this recent trend. President García’s economic policies have been characterised by fiscal discipline, inflation-targeting, a managed float of the currency and investment in infrastructure and social programs.
Peru’s economy does, however, remain closely affected by trends in the US, its largest export market. Minerals account for 60 per cent of total merchandise exports, exposing the economy to global commodity price fluctuations. While a slowdown in the US economy may constrain exports, this may be offset by rising strong demand from Asia, which is now the destination for around 30 per cent of Peru’s exports.
Bilateral relationship
Australia’s increasing engagement with Peru is demonstrated by the re-opening of the Australian embassy in Lima in September 2010. (Peru maintains an embassy in Canberra and a Consulate-General in Sydney, and the Peruvian congress reactivated its Peru-Australia Parliamentary Friendship League in 2004.) Australia and Peru share significant interests and cooperate internationally in areas such as the environment, fisheries management and international law enforcement.
A number of Australian ministers and senior officials visited Peru for APEC meetings in 2008, including Prime Minister Rudd, Foreign Minister Smith, Trade Minister Crean and Parliamentary Secretary for Early Childhood Education and Childcare McKew. Peruvian Foreign Minister Belaunde and then-Trade Minister Araoz visited Sydney in 2007 for the APEC Summit and Ministerial meeting. Trade Minister Ferreyros, then Vice-Minister for Foreign Trade, visited Australia in 2010.
In September 2007, at the Sydney APEC meeting, Peru and Australia signed a bilateral cooperation arrangement covering mining and energy.
The Australian Bureau of Meteorology has signed a memorandum of understanding (MOU) with its Peruvian counterpart, the National Meteorology Service, to facilitate, inter alia, cooperation on research into the El Niño climatic phenomenon.
In 2006 Australia and Peru signed an MOU on cooperation in education, and educational ties are growing; more than 2270 Peruvians enrolled for study in Australia in 2010 and there are agreements between Edith Cowan, Griffith, Canberra and La Trobe universities and Peruvian counterparts.
Australia’s Peruvian community consists of around 6,300 Peru-born persons (2006 Census). In 2006, around 25,000 Australians travelled to Peru for short stays of less than twelve months, mainly for tourism.
Bilateral economic and trade relationship
Australia's commercial ties with Peru are modest but continue to grow steadily. The increasing importance of Peru as a trading partner was demonstrated by the Australian Government's decision to open a Consulate-General (managed by Austrade) in Lima in 1999. The relationship is enhanced by Peru's attractiveness as a destination for mining investment and exports of mining services and equipment. Australia's commercial presence in Peru has more than trebled since 2004 to around 64 companies, assisted by the presence of the embassy in Lima.
In 2009-10 merchandise trade between Australia and Peru totalled approximately $263 million. This dropped slightly to $254 million in full-year 2010. Major Australian merchandise exports (2009-10) ($84 million) included machinery and parts, milk and cream, good vehicles and soap and cleaners. Major merchandise imports (2009-10) ($180 million) from Peru included zinc and lead ores and concentrates, animal feed and animal oils and fats. Trade in services has improved significantly, totalling $119million in 2009-10 (including education exports of $71 million), and is up from $62 million in 2007.
Peru’s open investment regime and abundance of natural resources make it an attractive investment destination, particularly in the mining sector. A bilateral Investment Promotion and Protection Agreement entered into force in 1997. The majority of the Australian companies with offices in Peru are involved in the mining sector. The list of Australian companies in Peru includes ALS Chemex, Pasminco Explorations, Rio Tinto, BHP Billiton, Burns Philp, Amcor Packaging, Orica and Downing Teal as well as a number of other companies involved in mining services. Australian investment is estimated at A$1.7 billion (with more than A$3 billion in new projects pending), placing Australia among Peru’s top 10 investors, accounted for largely by the BHP investment in the Antamina copper mine, Xstrata’s investment in Las Bambas and Tintaya mines and Rio Tinto’s mining project La Granja.
Export opportunities
Australia’s Trade Commissioner in Lima is responsible for Austrade’s activities in Peru, Colombia, Ecuador and Venezuela. Export opportunities exist in mining, infrastructure (energy, airports and traffic systems), agribusiness and the food sector (sugar, dairy and gourmet foods, agricultural equipment, genetics and veterinary products), environmental management, medicaments, education, tourism, fashion, sporting and surfing goods, gaming equipment and other services.
Mining
Mining is a vital foreign revenue earner for Peru, which is one of the world's top seven mining countries and Latin America's leading producer of lead, silver, zinc, tin and gold and number two in copper. It holds third place in global mining exploration investment following the announcement of $35 billion to be invested in the next 5 to 7 years. Australia can play a key role in providing of mining goods and services and as an investor. There are numerous new projects already approved with Australian companies highly competitive as engineering consultants and/or suppliers of future goods and services. Australian-designed mining locomotives, slurry pumps and mineral processing control systems have been successful in the Peruvian market for a number of years. There are sound opportunities for exports of mining services, equipment and technology in underground and open-cut applications.
Education
Enrolments of Peruvian students in Australian institutions continue to grow strongly. Peru is now Australia’s third largest source of international students from Latin America, with 2,270 students enrolled to study in Australian institutions during 2010. (This will have an impact on Australia's future business ties with Peru as these students graduate and go into business and government. Australia and Peru signed a memorandum of understanding on cooperation in education in 2006. Recent visits by education institutions have highlighted the opportunity for Australian education services, both for studies in Australia and courses delivered in Peru.
Meat
Australian companies can now export both refrigerated and frozen beef to Peru. This follows the decision by the Peruvian quarantine agency, SENASA, in mid-2004, to approve the import of Australian bovine meat to Peru. A protocol between Peru and Australia on Kangaroo meat is well advanced.
Trade successes
Surf fashion
Billabong exported over A$5 million worth of surf fashion to Peru alone in 2006. This is impressive given the cheap cost of textiles and the large amount of pirated and copied brands sold in Peru. It sponsors riders in international surfing championships and is identifiably Australian. Austrade Lima will lever its positive image to introduce other Australian surf brands to the market.
Alpaca fleece
While only exported in very small quantities Australia's top-quality alpaca fleece is being sold to Peru where it is transformed into garments and sold to Asia.
Australian dairy exports allowed into Peru
Following a visit to Australia by Peruvian quarantine officials in February 2000, Peru agreed to allow the export of Australian dairy products to Peru. Since that time, the level of Australian dairy exports to Peru has increased significantly. In 2007, Australia exported around A$6.3 million of dairy products to Peru.
Australian mining software dominates Peruvian market
With the rapid expansion of the mining industry in Peru, exports of Australian mining software have flourished. It is now estimated that two thirds of the mines in Peru run Australian specialist mining software and this is set to increase as more Australian companies become active in the sector.
Major Events
Australia Business Week
In late January each year, the Australian Consulate-General in Lima holds its Australia Business Week event which highlights Australian goods and services. The event culminates with the Australia Day reception and attracts sponsorship from local and Australian businesses and significant local media.
Expo Australia
Australian Consulate-General in Lima hosted Expo Australia in September 2008 – a multi-sector exhibition featuring over thirty education institutions, wine companies, tour operators and exporters of surf fashion and consumer goods.
Extemin
Extemin is a mining exhibition held biennially in the Peruvian provincial city of Arequipa. In 2009, 35 Australian companies exhibited their mining equipment, software and services on the Austrade Pavilion.
Updated May 2011