Peru Infrastructure Report 2007

The Peruvian construction industry is one of Latin America's most consistent performers. In September 2006, the industry reported growth of 14.5% on the back of ongoing infrastructure activity. Further, a much-needed rise in the housing construction in Peru is on the cards. BMI's newly released Peru Infrastructure Q406 Report forecasts the average construction growth rate to remain around 7.6%, during the 2006-2010 period. Total government capital investment is expected to reach US$13.7bn over the 2006-2010 forecast period.

In the third quarter of 2006, Peru's economy accelerated at an 11-year high of 8.5%. It was thrust forward by the buoyant fishing, construction and manufacturing sectors. Increasing private consumption in the country is a reflection of booming consumer confidence. The newly elected government, under President Alan Garca, has promised to increase public sector spending while keeping a tight watch on fiscal deficit. The government plans to initiate over US$800mn worth of road and highway projects over the next two to three years. Major Peruvian infrastructure projects on the anvil include the US$7bn Tacna Port on the coast of southern Peru, the US$2.2bn LNG plant in Pampa Melchorita, the US$1.6bn Camisea Gas Project, the US$617mn Muelle Sur terminal at the Callao port and the US$500mn construction of liquefying plants to transfer natural gas to Peru's provinces.

However, endemic evils such as unemployment, domestic crime, poverty and corruption are resulting in low business confidence, deterring foreign investment in Peru. Threats of a slowdown in export growth and a tighter monetary policy are expected to lead to a minor deceleration from 2007 onwards. Importantly, an over-dependence on mining exports subjects the economy to fluctuations in world prices. Moreover, the ambitious policies of the newly re-elected president pose a risk of overheating that could eventually lead to a recession.

Peru ranks fifth among its regional peers on BMI's Business Environment Rankings for the Americas region. The nation scores high on 'anticipated potential' but lags on its political situation and competitive environment. However, Peru is a nation illustrated by stable macroeconomic fundamentals and a sound monetary policy that are expected to enable it to ride the storms of political uncertainty. The free trade agreements with Chile and the US are also expected to open new doors for the nation's economy. Peruvian construction industry is expected to grow strongly to about US$8.5bn by 2010, contributing over 6% to the nation's GDP.