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Peru Infrastructure Report 2012
Business Monitor International, Dec 2011, Pages: 65
BMI View: H1 2011 elections in Peru have played havoc with an otherwise strong growth market. The presidential elections both saw construction work halted in the run-up and uncertainty in the aftermath, as left wing candidate Ollanta Humala was elected. However, with Humala moving more central and therefore not threatening private investment, we anticipate a resumption of activity and interest in what has the potential to be a strong growth market. Between 2012 and 2016, we are forecasting annual average growth of 7.3%.
An attractive project pipeline, combined with receeding concerns over the business environment, have the potential to see Peru’s infrastructure sector draw significant interest. Strong demand for infrastructure, which will be crucial to Peru’s future economic growth, has resulted in strong government support for infrastructure investment. Peru has been very keen, in particular, to attract private investment into the country.
Strong growth outlook is based on:
- Billions of dollars is being ploughed into Peru’s mining sector, putting pressure on the country’s existing infrastructure and creating huge demand for new capacity. Mining is typically both electricity- and water-intensive; this is placing a strain on existing infrastructure, which in turn is threatening mining activity. Therefore investment into desalination plants, expanded electricity supply and more reliable transmission and distribution is crucial to the sector, as well as the country’s economy.
- The power sector is seeing increased interest in renewables, with wind power and biomass, in particular, attracting attention. As developed markets cut back subsidies and incentives, Latin America is seeing growing interest from renewable developers. Peru desperately needs to diversify its electricity mix away from hydropower, and renewable seems to be a popular choice.
- Peru has a large concession pipeline, orchestrated by private investment agency ProInversion. The agency has a significant pipeline of infrastructure concession due to go to market in the next year, including four ports, airports, power infrastructure and desalination plants. The agency in itself is a good omen for the potential to attract investors. Although some delays have been seen in tendering thus far, substantial interest has been noted, and therefore we anticipate a successful tendering process once projects go to market, unlocking significant investment.
- The populist mandate of new Presidential Ollanta Humala had threatened to damage Peru’s business environment, which has made great strides in recent years. However, Humala has moved further right since coming to power, and has engaged with the private sector in a positive way. Therefore the immediate concerns in the aftermath of his election have mostly receded.
- Tied to the new President’s mandate will be the focus on poverty reduction and improving the distribution of wealth. Although this is most likely to see government expenditure pick up, with a focus on social handouts, it could also see GDP per capita grow in a more equitable way, which would boost demand for basic utilities. Improving rural electrification and access to water will drive industry value creation.
Business Monitor International's Peru Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Peru's infrastructure industry.
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