Over the last few months we have seen ongoing strength in South America with regards to economies such as that in Peru which continue to grow at rates which European countries can only dream of at the moment. As a consequence the number of expats considering a move to Peru and the number of expats in Peru continues to grow but why is the country now all of a sudden registering on the radar of the expat community?
The attractions of Peru
While many people would look towards the South American economies a whole and potentially dismiss the changing economic environment in Peru this would be incorrect and grossly unfair. Peru is a country which has again, like so many South American countries, changed dramatically over the last few years in relation to political stability and the economy. We will now look at potential reasons why you would consider a move to Peru and what it has to offer.
When you take into account the fact that South America is a very prosperous area at the moment, in direct comparison with Europe, the performance of the Peruvian economy which is expected to grow by 7% in 2011 has been outstanding. This compares very favourably to growth of 4.3% in the area as a whole and the predictions for 2012, albeit reduced from the 2011 figure, are again much higher than the average expected for the area.
Official statistics would indicate that Peru is expected to grow by around 5% in 2012 in economic terms and while much of the expected growth will depend upon a stable Europe and a stable America there is no doubting the underlying strength of the Peru economy. It is rather unfortunate that the country is looking to push ahead at a time when the rest of the world, outside of South America, is really struggling to make ends meet. Issues outside South America may also result in credit lines being reduced which will at some point impact international investors who have been more than happy of late to look at Peru as a potential “safe haven” for their funds.
If there is one thing which is becoming more and more apparent it is the fact that Central American and South American countries are more than happy to work together for the good of the region. Indeed there are a number of ongoing trade talks and a free-trade agreement is expected to come into place in 2012 which will benefit the whole region. Some countries in the area have been accused of protectionism which in many ways arose because of the difficult economic and financial times in years gone by. However, if the region is able to pull together now and into the future then this bodes well for the region, the overall economy and some local economies will benefit more than others.
Even though many experts are more than happy with the free trade agreements already in place for 2012 many also expect further close-knit relationships to develop in the short, medium and longer term. It would be wrong to suggest that countries such as the United States of America do not play a major part in the economy of the region but there is no doubt that their influence has been reduced from years gone by. Collectively the integration of South American and Central American economies also gives the area a much greater standing on the international stage and will eventually entice more investment and more companies to the region.
There was political change in Peru earlier in 2011 with the new government coming in on the back of a number of promises, which to be fair they have progressed with over the months. Industries such as mining have been the backbone of Peru for some years now and while the sector still plays a major role in the economy perhaps more investment and more attention should be forthcoming from the authorities. The trade talks which we mentioned above have also reflected very well on the incoming government even though they were instigated some time ago.
We are starting to see a number of patterns emerging in South America and Central America where political stability has led to economic stability which has led to significant overseas investment. This overall stability in the region and in individual countries has led to an increase in confidence which has attracted investors and expats. New blood and new money to the region is always good news and the authorities are more than happy to encourage overseas investors and expats to consider Peru as their future homeland.
The Gringos Forum has a number of contributors who have a great interest in the region and indeed one contributor has highlighted the fact that despite the financial meltdown in the UK and Europe, a number of banks in Peru were effectively given the “thumbs up” by the Moody’s rating agency. While a number of people are fairly puzzled as to why the financial situation in Peru is so strong while Europe is on the downturn this is very much a return on the investment in time and money made by the authorities over the last few years.
Unfortunately, if the Eurozone and the Euro were to come crashing down there would be no area in the world which would be isolated from the fallout. The worldwide banking system and the worldwide credit system would literally come to a crashing halt and investment in companies and economies will at best be “put on ice”. It is hoped that the European authorities will be able to steer their way through these troubled waters but many investors are on red alert for the impact this may have in other areas of the world.
The work done by the governments of years gone by has had a positive impact upon the overall standing of Peru in the worldwide trading arena and as such the authorities are now more than happy to entice companies from the US and Japan. As we touched on above, overseas investment and overseas companies will not only benefit the Peruvian economy directly but will also improve the country’s standing in the region and bring in new skills and new funding. The very fact that the authorities are confident enough to entice companies from Japan and the US is a very positive factor going forward and one which should not be under played.
It will be interesting to see how the authorities attract overseas investment as there will need to be some kind of tax incentive to invest in the region. However, if the economy grows as quickly and strongly as many people expect then any proposed tax incentives would be insignificant in the medium to long term with a potentially massive return on the investment.
Demographics of Peru
Many people may not be aware that Peru is a multi-ethnic country which has seen its population makeup change dramatically in years gone by. Indeed there have been enormous reductions in the population when for example hundreds of thousands of people died in the 1500s due to infectious diseases brought by explorers to the region. As with so many South American countries the first language in Peru is Spanish although countries such as the UK, France, Germany, Italy and China have significant representation across the land. Therefore it is perhaps no surprise that more and more expats are now looking to move to the region buoyed by the fact that they are likely to come across people from their former homeland at some point.
It is also interesting to see that the Chinese population in Peru has been there since around 1850 something which should help the authorities to attract the attention of Chinese investment and Chinese companies in the short, medium and longer term. The country itself now has a population of around 30 million people and despite declines in the population between 1950 and 2000 this is expected to increase to around 42 million in 2050.
The culture of Peru
As with so many South American and Central American countries the culture of Peru is dominated by Spain, American and other European ethnic groups. There is also a large influence from the African and Asian population which brings together the multi-ethnic and multicultural society which we mentioned above. The country is particularly strong in food and drink, literature and like so many other countries in the region it has something of an energetic and a lively social background.
When you bear in mind the size of Peru in relation to for example the UK it is amazing to find the mix of cultures and ethnic groups and how they are blended to bring the country together. The basic attractions of a comfortable lifestyle have always been there for the expat community but it was the political and economic instability of years gone by which concerned many people.
Inflation and the cost of living
The annual rate of inflation increased to 4.64% in November compared to 4.2% in October and while these figures are well above the Peruvian central bank target rate of between 1% and 3% it is not as bad as it looks. Obviously the rate of inflation will have a direct impact upon the cost of living in Peru but on the whole this compares favourably to the area and European countries in general.
The cost of living in Peru does vary widely from place to place and as you would expect the more central employment regions of the country are the most expensive in relation to property, goods and services. However, if you’re willing to stick to a budget and indeed willing to be reasonable with regards to your social life and eating out then the cost of living in Peru will probably be cheaper than you would expect. Again, like so many other countries in the region, if economic prosperity continues and inflation remains higher-than-expected this will impact upon the cost of living which will rise. However, the hope is that as the economy blossoms then the increase in the cost of living will be more than covered by an increase in general income and general wages.
The future of Peru
The main economic sectors in Peru are agriculture, fishing, mining and the manufacturing of textile products. These areas have been very prosperous over the last few years and indeed the stability afforded from the political scene and the economic scene has reflected very well on the international scene. The country has one of the strongest economies in the region and while inflation is a little higher than the authorities would have hoped for, the economy is still booming.
When you also take into account the fact that the authorities are actively pursuing international investors and expats to the region it will come as no surprise to learn that more and more the country is registering on various expat radars. It is still seen as a developing country but it is one which has shown significant strength during a very difficult worldwide economic period. While obviously the country cannot swim against the tide forever, if the European economy deteriorates further, but as and when the worldwide economy picks up Peru is well-positioned to take advantage.
We recently discussed the question of whether South America and Central America are fast becoming the Europe of old for the expat market. Historically the vast majority of expats have moved to Europe although recently, after the demise of the worldwide economy and in particular the European economy, a number are now looking towards South America as a potential home for the future. International investment and international visitor numbers are on the up and the new Peru government is actively attempting to attract overseas corporate entities.
When you also take into account the multi-ethnic and multicultural background to Peru we start to get a picture of a country which is changing, a country which is growing and a country which has more and more attractions for expats. Whether some of these expats and international investors will wait until the European financial situation has been resolved remains to be seen but there are certainly more attractions today with regards to Peru than perhaps there have ever been.