Peru-Pest Analysis

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  • Topic: International trade, Peru, Alberto Fujimori
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  • Published : April 14, 2012
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* MAN 6930
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* October 3, 2011
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* PEST ANALYSIS: PERU
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* POLITICAL ENVIRONMENT
* Over the past 10 years, Peru has experienced great political change following the impeachment of President Alberto Fujimori in late 2000, on accounts of bribery and corruption. Since then, former Presidents Alejandro Toledo and Alan Garcia as well as current President Ollante Humala have significantly decreased bribery and corruption, stabilizing the political climate and allowing for economical growth to take over. * For the first half of the decade, Peru’s volume of trade increased by 172.5 percent, from US$14,324 to US$39,036 million, which increased the Peruvian economy and made Peru a more attractive country for investment. Several trade agreements also have contributed to this expansion such as: 2009 Peru-United States Trade Promotion Agreement. This guarantees Peru permanent preferential access to the United States market, consolidating investment policy and opening economic activities to investors and professional experts as well as establishing a judicial mechanism for settling trade disputes between the two countries. In April 2011 Peru signed a free trade agreement with the European Union that is estimated at €500 million in duties alone and will expand markets on both sides, eliminate tariffs in many industries and reduce technical barriers to trade. In the last five years Peru has also ratified trade agreements with China, Australia and Canada. * ECONOMICAL ENVIRONMENT

Peru’s currency is the “Nuevo Sol” which has been steadily growing against the Dollar for the last 7 years with a minor fluctuation in 2009. In 2001, the Nuevo Sol was at a rate of 3.52 per US dollar while today, the current exchange rate is 2.78 per US dollar. Economists speculate that the Nuevo sol will stabilize at 2.71 for 2012. Until 2010, the Peruvian government injected US $10 billion in private investment, (domestic and foreign investment), in mining and energy sectors. Major mining companies such as Peru Copper, Inc, Xstrata, Las Bambas, Monterrico Metals, Inc, and Rio Tinto represent 17-21 percent of the Peru’s GDP. Unfortunately, with a growing market sector in the mining industry but stagnant living conditions, many Peruvians have turned to illegal mining, bulldozing and extracting more than 16 tons of gold a year from the country’s rivers and forest. Illegal mining, consequently, accounts for up to 25 percent of Peru’s total mining. * Peru has signed double taxation agreements with most South American countries as well as Canada and Sweden. As a member of the Andean Community, Southern Common Market and World Trade Organization, Peru maintains duty free zones and preferential customs duty margins with its fellow members. Taxation in Peru includes all of the following: Sales Tax Law is 17 percent over the value of the operations but a two percent tax rate is added for the Municipal Promotion Tax rate making every taxable operation subject to a 19 percent tax rate. Luxury goods can be taxed anywhere between a 10 and 125 percent tax rate on CIF depending on the goods imported. On September 22, 2011 the Peruvian Congress approved legislation that would add a special tax on mining to companies with and without legal stability contracts based on operating income. Both foreign investors and local companies with foreign investment can apply for tax agreements which is limited to income tax at the rate during the time of the agreement and are allowed to keep records in foreign currency under certain provisions While Peru’s main export is coffee, primarily organic coffee, other major exports include copper, gold, fishmeal, petroleum, zinc, textiles, apparel and asparagus. Since 2001, coffee revenues have nearly doubled with income increasing by 12 percent in 2010. National companies such as market giant Coinca Caffe contributed to Peru’s 2010 export turnover that...
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