Peru is one of the fastest growing economies in Latin America. Its economy has been expanding at a startling speed, with an annual average GDP growth rate of 5% over the last two decades. The staggering rate of economic growth has been fueled by a commodities boom and a significant influx of foreign direct investment into the country´s commodities sector. This has generated solid tax and royalty revenues that have underpinned a staggering growth in public investment. It has also fueled the expansion of Peru´s middle-class, causing domestic consumption for a wide range of consumer goods to take off. In this article I will explain why and how investors can take advantage of this extraordinary growth story.
Macro-economic Indicators Bode Well For Strong Future Growth
Peru´s macro-economic indicators tell us a story that not only indicates a history off extraordinary growth, but also shows that growth is set to continue for the immediate future. Over the last decade Peru´s average annual GDP growth rate has been over 7%, and as the chart below illustrates even during the global financial crisis its economy grew at a staggering rate of over 8%.
Source data: Banco Central de Reserva del Peru.
This economic boom has also seen savings and investment surge over the last decade, with national savings growing by almost 7% to now be 23% of GDP, and investment has surged by almost 9% to now be around 27% of GDP. Furthermore, as the chart below illustrates, the majority of that growth in investment has been from the private sector.
Source data: Banco Central de Reserva del Peru.
This indicates that the majority of that investment is coming from the creation of new businesses and the expansion of existing businesses, creating new jobs and further driving domestic consumption.
Capital expenditure has almost doubled over the same period to account for 5.7% of GDP, and the majority of these capital expenditures are made up of public investment.
Source data: Banco Central de Reserva del Peru.
This rapid growth in investment and capital expenditure can be attributed to the country´s commodities boom and the stupendous increase in foreign direct investment. Over the last decade foreign direct investment has exploded almost nine fold to just over $12 billion in 2012, as the chart below shows, which in itself was a 51% increase year-over-year.
Peru Net Foreign Direct Investment
Source: United Nations Economic Commission for Latin America and the Caribbean.
All of these factors are stimulating domestic consumption, the expansion of Peru´s middle-class and the demand for credit, further fueling Peru´s economic boom. This leaves investors with the question of how to access this economic miracle without investing directly in Peru via the local stock exchange the Bolsa de Valores de Lima.
Investment Opportunities
There are currently two Peruvian companies that have ADRs listed on the NYSE:
