Almost one million refugees from Venezuela, boycotting neighboring states and a highly complex stalemate in the national congress are unsettling domestic and foreign investors. This article aims to put the various political and economic events around Latin America into perspective and to point out why Peru should be targeted as a potential destination to invest in more than ever.
Let’s start with the situation in Venezuela:
Since the country, with the world’s largest oil reserves, fell into an economic recession at the beginning of 2014, more than five million locals have now taken the plunge. And as long as the disliked President Nicolas Maduro is not stopped, the five million could easily turn into 7 or 8.
To hold back the enormous hyperinflation, which could reach 10,000,000% by the end of the year, Venezuela has gradually fallen into debt in recent years to countries such as Russia and China. A debt mountain impossible to repay has piled up which results in Russia and China having no interest in the political downfall of Maduro. More likely they continue using the oil rights assigned by Maduro and import the black gold at a ridiculously low price. The world is watching.
Consequences for Peru:
Of the almost five million refugees from Venezuela, Peru has taken in about 900,000. In contrast to Brazil or Colombia, however, Peru has opened its borders much more selectively. The majority of entry permits were limited to qualified workers that according to a study by the World Bank, will contribute to GDP growth of 0.23% (around 500 million) in 2021.
Let’s continue with the recent waves of demonstrations that are spreading like wildfire across the continent. Starting with the protests in Chile in mid-October due to a threatened fare increase of the Metro de Santiago. Shortly afterward in Quito, Ecuador, when President Lenin Moreno wanted to undo fuel subsidies to reduce the national debt. Now also in Bolivia (electoral fraud) and Colombia (possible changes in the minimum wage, pension and tax reforms and privatization of state-owned enterprises), which are fed up with the increasing inequalities in Latin America.
Whether left or right, the population has had enough of the empty promises of its statehouses. The big problem that caused all these demonstrations is called neoliberalism. A political practice, highly prone to corruption, that Latin America has been practicing for years. In a nutshell, the privatization of public services such as health care and education practically prevents the lower classes from advancing socially. The attempt to reduce national debts also weighs on the shoulder of the lower class, as the above-mentioned examples show. The gap between rich and poor is continuously widening.
Peru in a political issue?
Finally, let’s talk about the situation in Peru, where a political fiasco is taking place at the moment. After months of power struggles between the executive and legislative branches over anti-corruption reforms, President Martin Vizcarra dissolved the congress at the beginning of the month. He accused the deputies of delaying and concealing tactics to cover up corruption scandals. The opposition, on the other hand, shortly thereafter claimed unconstitutionality and appointed an interim president. After only one day, however, she announced her resignation. Mostly due to the fact, that Vizcarra enjoys the support of Peru’s people and military. One thing is clear, however, trust in the Peruvian government has been shattered and new elections have to be held quickly. As the streets demand “All must go!”.
Consequences for Peru:
Although the current political uncertainty is holding back many investors at the moment, it is not going to last for a long time, as new elections will take place at the beginning of 2020. Should these elections succeed in defeating a large part of the country’s corruption, Peru will be one of the secret favorites for Latin America’s economic development.
In summary, all three of the current developments in Latin America underline Peru’s attractiveness as an expansion location. Qualified workers from Venezuela, crisis-prone neighboring countries and upcoming elections will all positively contribute to the country’s economic development in the coming years.
By partnering with local market expert’s companies can optimally prepare themselves for this impending turnaround and target Peru as an investment or expansion destination, contact Ongresso for a free consultation.
Market Entry Consulting Intern
As a Market Entry Consulting Intern, I have a variety of responsibilities: to assist in client correspondence, client consulting, internal communications, marketing strategy, content creation, and sales/business development for the DACH-Region as well as US and Canada.