Attitude toward Foreign Direct Investment
The GOP seeks to attract investment -- both foreign and domestic -- in nearly all sectors of the economy. Several high level Peruvian officials, including the Minister of Economy and Finance, the Central Bank Governor, and the Executive Chairman of the Lima Stock Exchange attended global business conferences and toured several countries in 2015 and early 2016 in an effort to attract foreign investment. Some of these tours were organized and sponsored by In Peru, a private industry organization (http://inperu.pe). Peruvians and Americans benefit from the United States-Peru Trade Promotion Agreement (PTPA) which entered into force on February 1, 2009. Since entry into force, total trade (exports and imports) between Peru and the United States expanded significantly from USD 9.1 billion to USD 13.9 billion. The PTPA establishes a secure, predictable legal framework for U.S. investors operating in Peru. The PTPA protects all forms of investment. U.S. investors enjoy in almost all circumstances the right to establish, acquire, and operate investments in Peru on an equal footing with local investors.
Other Investment Policy Reviews
The World Trade Organization (WTO) published a Trade Policy Review on Peru in 2013. The WTO commented that foreign investors receive the same legal treatment as local investors in general, although foreign investment on maritime services, air transport, and broadcasting is restricted. The report also noted that the Peruvian government promotes public-private partnerships to build infrastructure and spur economic growth, with tax exemptions and low-cost financing available for domestic and foreign investors alike.
Peru aspires to become a member of the Organization for Economic Cooperation and Development (OECD). On February 5, 2015 the GOP announced the start of an 18-month study to identify economic, social, and political “bottle necks” that could hamper Peru’s OECD membership aspirations. The government noted that the study would act as a “roadmap” for Peru’s goal to achieve membership by 2021 and highlighted education as an example of a key area that Peru must improve. According to the OECD, Peru dedicates only 2.8% of GDP towards education compared to the OECD average of 5.6% of GDP. As a result, Peruvian 15 year olds achieve education results equivalent to 12 year olds in OECD member countries. The result of this lack of investment in education is a chronic shortage of skilled labor in Peru. The OECD published the Initial Assessment of its Multi-Dimensional Review of Peru in October 2015, finding that in spite of economic growth, Peru “still faces structural challenges to escape the middle-income trap and consolidate its emerging middle class.”
Laws/Regulations on Foreign Direct Investment
The 1993 Constitution grants national treatment for foreign investors and permits foreign investment in almost all economic sectors. Under the Constitution, foreign investors have the same rights as national investors to benefit from investment incentives, such as tax exemptions. In addition to the 1993 Constitution, Peru has several laws governing foreign direct investment (FDI) including the Foreign Investment Promotion Law (Legislative Decree (DL) 662 of September 1991) and the Framework Law for Private Investment Growth (DL 757 of November 1991). Other important laws include the Private Investment in State-Owned Enterprises Promotion Law (DL 674), the Private Investment in Public Services Infrastructure Promotion Law (DL 758), and specific laws related to agriculture, fisheries and aquaculture, forestry, mining, oil and gas, and electricity. Article 6 of Supreme Decree No. 162-92-EF (the implementing regulations of DLs 662 and 757) authorizes private investors to enter all industries except investments in natural protected areas and manufacturing of weapons.
The GOP has passed several laws and related implementing regulations aimed at encouraging private investment, such as two important decrees in 2008. The first was a legislative decree containing the Law on Public-Private Partnerships (PPPs). The second decree presents a priority list of projects for PPPs. Congress passed a law to reform regulations that would make PPPs less bureaucratic and more transparent, thus more attractive to foreign companies, in March 2014. Among these public-private partnerships are major infrastructure projects of national importance and upgrades to existing projects: Salaverry maritime port project, Quillabamba thermal power plant (Cusco region), liquid petroleum gas (LPG) transport system (from Pisco to Callao), lines three and four of the Lima and Callao Metro system, water supply to Lima and related headwater works, distribution system of natural gas via pipeline networks (Apurimac, Ayacucho, Huancavelica, Junin, Cusco, Puno, and Ucayali regions), rural broadband installation (optical fiber transportation networks and access networks), and connections to three existing 220 kV power transmission lines.
The GOP created the Private Investment Promotion Agency, ProInversion, in 2002, based on an existing, similar agency. ProInversion has completed both privatizations and concessions of state-owned enterprises and natural resource-based industries. Major recent concession areas include ports, power generation facilities, electrical transmission lines, oil and gas distribution, and telecommunications. Project opportunities are available on ProInversion’s Project Portfolio page, available at: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30.
In September 2015, Peru published a legislative decree modifying regulations on public private partnerships (PPPs). The law establishes new investment committees, emphasizes evaluation reporting, and creates opportunities for submission of unsolicited proposals for national-level projects. ProInversion will share its project development responsibilities with other government stakeholders, including the Ministry of Economy and Finance.
Although all Peruvian administrations since the 1990s have vowed to support private investment and abide by Peruvian laws, the GOP occasionally has passed measures that some observers have regarded as contravening legal principles. For example, the Garcia Administration in 2011 rescinded a Canadian company's rights to operate a silver mining project in Puno after violent protests opposing the project. The Canadian company delivered to the Peruvian Minister of Economy and Finance a Notice of Intent to submit a claim to arbitration under the terms of the Canada-Peru Free Trade Agreement in February 2014. Furthermore, President Ollanta Humala signed into law a 10-year moratorium on the entry into Peru of live genetically-modified organisms (GMOs) to be used for cultivation in December 2011. Peru also has implemented two sets of rules for importing pesticides, one for commercial importers, which is restrictive and requires importers to file a full dossier with technical information, and another for end-user farmers, which only requires a written affidavit.
Peru permits foreign business ownership, provided that a company has at least two shareholders and that its legal representative is a Peruvian resident. The process takes an average of 43 days and involves 11 procedures. An entrepreneur must reserve the company name through the national registry, SUNARP (www.sunarp.gob.pe), and prepare a deed of incorporation through Portal de Servicios al Ciudadano y a las Empresas (http://www.serviciosalciudadano.gob.pe/). The deed is then signed and filed with a Public Notary, with notary fees of up to 1% of a company’s capital, before submission to the Public Registry. The company’s legal representative must obtain a Certificate of Registration and tax identification number from the National Tax Authority. Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located.
All foreign investments must be registered with ProInversion, Peru’s investment promotion agency. Provinversion helps potential investors navigate investment regulations and provides sector-specific information on the investment process.
Under Peruvian law, registered small and micro-businesses are afforded benefits including tax breaks, access to credit, and protections for managers and workers. Forty percent of government purchases are reserved for these businesses. Microbusinesses are defined as those with maximum annual revenue of USD 165,000, and small businesses as those with maximum annual revenue of USD 1.5 million. Businesses register as small or micro online through the Ministry of Labor.
ProInversion also aims to attract investment in the following sectors: agricultural, construction, ground transportation, energy and mining, finance, health technologies, telecommunications, and travel. Information can be found on ProInversion’s website: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=0&prf=2&jer=5351&sec=22
Limits on Foreign Control and Right to Private Ownership and Establishment
The Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out any economic activity provided investors comply with all constitutional precepts, laws, and treaties. Exceptions exist, including exclusion on foreign investment activities in natural protected reserves and manufacturing of war weapons, pursuant to Article 6 of Legislative Decree No. 757. While long-term concessions are granted, the law states Peruvians must maintain majority ownership in certain strategic sectors: media; air, land and maritime transportation infrastructure; and private security surveillance services.
Prior approval is required in the banking (for regulatory reasons, and also applies to domestic investment) and defense-related sectors. Foreigners are also legally prohibited from owning a majority interest in radio and television stations in Peru; nevertheless, foreigners have in practice owned controlling interests in such companies. Under the Constitution, foreign interests cannot "acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources" within 50 kilometers of Peru's international borders. However, foreigners can obtain concessions and rights within the restricted areas with the authorization of a supreme resolution approved by the Cabinet and the Joint Command of the Armed Forces.
The GOP initiated an extensive, but not yet complete, privatization program in 1991 in which foreign investors were encouraged to participate. Since 2000, the GOP has promoted multi-year concessions as a means of attracting investment in major projects. In 2000, the government granted a 30-year concession to a private group (Lima Airport Partners) to operate the Lima airport. In 2006, the government granted a 30-year concession to Dubai Ports to build and operate a new container terminal in the Port of Callao. The terminal’s first phase became operational in May 2010. In 2006, the Swiss-Spanish-Peruvian consortium Swissport received a 25-year concession to manage nine of Peru's northern airports. In 2011, the GOP awarded the Argentine-Peruvian consortium Aeropuertos Andinos a 25-year concession to manage six of Peru’s southern airports. Also in 2011, the government granted a 30-year concession to a Danish-Peruvian consortium led by the Danish-based A.P. Moller-Maersk Group to operate and modernize the multipurpose northern terminal at the Port of Callao. On June 30, 2014 the GOP awarded a multi-billion USD concession for the Southern Gas Pipeline to a consortium led by Brazilian company Odebrecht. On June 2, 2015, the GOP awarded Spanish construction company Sacyr a 25-year concession to maintain 875 kilometers of the Andean Longitudinal Highway. The concession for line three of Lima’s metro is expected to be awarded in late 2016. The GOP continues to award multi-year concessions for various energy, natural gas, hydro-energy and irrigation, telecommunications, ports, sanitation, roads, and tourism projects.
The concessions process is challenging for U.S. and other international companies interested in bidding on projects. ProInversion, the government agency responsible for drawing up and competing PPP concession projects, has come under considerable criticism for its bidding process, deadlines, and ambitious timetables. As a result, U.S. and other international companies have shown limited interest in Peruvian PPP projects.
Screening of FDI
The GOP does not screen, review, or approve foreign direct investment outside of those sectors that require a governmental waiver (see Limits on Foreign Control).
The Institute for the Protection of Intellectual Property, Consumer Protection, and Competition (INDECOPI) is the GOP agency responsible for reviewing competition-related concerns of a domestic nature.