Peru country brief

Overview

As resource-rich countries bordering the Pacific Ocean, Australia and Peru enjoy a positive relationship which has expanded quickly in recent years. The mining and energy sectors, education and people-to-people ties form the foundation of Australia's relations with Peru. The two countries are also engaged in a wide range of international bodies, including APEC, the Pacific Alliance and the United Nations.

Reflecting Australia's commitment to enhancing its engagement with Peru and with Latin America more generally, Australia re-opened its Embassy in Lima in September 2010. Australia had first opened an Embassy in Lima in 1968, but closed it in 1986. The Peruvian government established consular representation in Sydney as early as 1930 and an Embassy in Canberra in 1963. Peru now maintains an Embassy in Canberra and a Consulate-General in Sydney. Australia and Peru celebrated 50 years of diplomatic relations in 2013.

The Republic of Peru is a large country on the west coast of South America with an area slightly smaller than that of the Northern Territory. Peru is dominated by three main geographical regions: the arid coastal area, the high mountains of the Andes running down the centre of the country, and the low tropical Amazon basin in the east. Peru borders Chile in the far south, Bolivia in the south-east, Brazil in the east and Colombia and Ecuador in the north. The name Peru is believed to have come from one of the first encounters between the Spanish and indigenous peoples of northern Peru, who when asked what the area was called said 'Virú', which was pronounced 'Peru' by the Spanish. Peru's capital is Lima.

Peru's population is approximately 31.9 million (2015). Spanish, Quechua and Aymara are the official languages. The main ethnic groups are indigenous (45 per cent), mestizo (37 per cent), European (15 per cent) and a small population of African, Japanese and Chinese. Roman Catholicism is the main religion, making up around 80 per cent and Evangelical Christians number around 12 per cent of the population.

Political overview

Background

From 1532-33, Spanish conquistadores led by Francisco Pizarro defeated the Incan empire that became part of the vice-royalty of Peru. The vice-royalty, the largest in Latin America, was created in 1542. Peru gained independence from Spain on 28 July 1821, following a proclamation by the leader of the independence struggle, Argentine Jose de San Martin. However, liberation was not completed until December 1824, when the Venezuelan Simon Bolivar, defeated a Spanish army in Junín and Venezuelan Marshall Antonio Jose de Sucre defeated a Spanish army at Ayacucho, ending Spain's rule in South America. Spain recognised Peru's independence in 1879.

System of government

Peru is a republic headed by a president directly elected for a five-year term. Under Peru's constitution, the president cannot stand for re-election for a consecutive term, but can do so at a later time. The legislature consists of a single 130-member chamber and can be dissolved once during a presidential term. The chamber is headed by a president whose term lasts one year. Peru is divided into 25 administrative regions and 24 geographical departments plus the constitutional province of Callao. Regions and departments are divided into provinces, which are in turn sub-divided into districts. Provincial and district-level leaders are popularly elected every four years and can be recalled by referendum. Regions hold political, economic and administrative autonomy. The metropolitan area of Lima, the capital city, is governed by a mayor, separate to the surrounding region. Congressional, provincial and municipal elections were held in April 2016.

The President, as head of government and head of state, appoints the head and members of a Council of Ministers, the country's principal executive body. The powers of the head, or president, of the Council of Ministers are similar to those of a prime minister. The judicial hierarchy includes provincial and departmental courts and is headed by the Supreme Court in Lima. There is a separate Constitutional Court which supervises the Constitution of the country.

Recent developments

In general, Peruvian politics is dominated by personalities rather than political parties. This results in a colourful and fluid political environment with changing coalitions. It can also lead to instability in Congress, with the legislature often unable to reach agreement on important issues such as appointments to key bodies. 

 Mr Pedro Pablo Kuczynski Godard (PPK) was inaugurated President of Peru on 28 July 2016. He won the second round run-off election on 5 June 2016 with 50.12 per cent of the vote to his contender, Ms Keiko Fujimori´s 49.88 per cent, a difference of just 41,438 votes (of 18.3 million ballots cast). Fujimori's Fuerza Popular party holds a strong majority in Peru's congress with 73 out of 130 seats, giving her significant influence over the legislative agenda. Kuczynski´s party (Peruanos por el Kambio (PPK)) has 18 seats in the new Congress.

PPK succeeds President Ollanta Humala (centre-left party, Gana Perú) who in turn replaced President Alan Garcia in 2011. Garcia succeeded Alejandro Toledo in 2006. Toledo had been elected President in 2001 following the conclusion of a provisional government led by Valentin Paniagua. Paniagua's government had lasted eight months following former President Alberto Fujimori's flight to Japan after he was charged with human rights and corruption offences.  Alberto Fujimori was subsequently extradited to Peru in 2007 and is currently serving a 25-year jail term. Keiko Fujimori is Alberto Fujimori's daughter.

Macroeconomic reform, market liberalisation and the implementation of policies designed to attract foreign investment began during the Fujimori era and marked the administrations of Toledo, Garcia and Humala during the period 2001-2016.

President Kuczynski's Government's "Vision 2016-2021" for Peru is based on four pillars: Opportunity, Public Security, Employment and a State Closer to its People. The Government's priorities are infrastructure investment, a modern and sustainable mining sector, improved health and education services, reduced corruption, a professional police and judiciary, reducing the informal economy, less red tape and increased government efficiency.

In terms of infrastructure development, the Government's focus will be on developing transport infrastructure (roads, rail, airport and ports), energy (gas pipelines), telecommunications (high-speed internet access) and water management (including in export-oriented sectors and urban water services). To achieve a modern and sustainable mining industry, President Kuczynski seeks international investment. Managing social conflict around mining projects has been, and continues to be, a key preoccupation for the Kuczynski Government, as it was for previous administrations. Foreign investment in the mining sector has grown steadily in recent years, despite unrest.

Peru's strong economic recovery since about 2001 has sharply reduced poverty - in 2014, around 22.7 per cent of the population was living in poverty, down from 42.4 per cent in 2007.  This downwards trend is likely to continue in the years ahead as long as the economic consensus is maintained.  However, despite strong economic growth in recent years, large regional disparities persist.

Some remnants of the Shining Path terrorist movement, which was responsible for a violent uprising throughout Peru in the late 1980s and early 1990s, still operate in remote areas, with the highest concentration located in the Valle de los Rios Apurimac, Ene and Mantaro (VRAEM) in the south central Andes. The small numbers of adherents to the organisation are now more involved in drug-trafficking and other criminal activities.

In 2012, Peru surpassed neighbouring Colombia as the world's largest producer of coca leaf, the raw material for cocaine. Peru has since stepped up eradication aggressively, such that coca production in 2014 was at its lowest level since 1998. In 2015, the Peruvian Government decided to stop eradication in the VRAEM and encourage farmers to grow alternative crops such as coffee and cocoa. Peru now produces less cocaine than Colombia. Violence related to the illegal production and transport of narcotics remains an issue, particularly in several coca producing areas and in some of Peru's northern coastal cities.

Foreign Policy

Peru shares its borders with Ecuador, Colombia, Brazil, Bolivia and Chile. Peru's relationships with its neighbours are generally cooperative, increasingly so with those countries which are part of the Pacific Alliance (Mexico, Colombia and Chile in addition to Peru). Support for greater regional integration in Latin America is an important priority for President Kuczynski. However, Peru and Chile have been in dispute over territory. On 27 January 2014, the International Court of Justice issued its final judgment over a longstanding maritime border dispute between Chile and Peru, ultimately requiring Chile to cede territory. Both countries have agreed to abide by the ruling. In 2015, Chile and Peru entered into a new territorial dispute for a triangle of desert north/north-east of Punto Concordia, Chile. The case is yet to be resolved in The Hague.

Peru has publicly supported Argentina's position over the dispute with the United Kingdom on the Falkland Islands. It has also mediated in the land-border dispute between Bolivia and Chile.

Peru participates in a wide range of international and regional fora, including the UN, the WTO, the Organization of American States (OAS), APEC (of which Peru is the current chair), IMF, the World Bank, the Union of South American States (UNASUR), the Forum for East Asia-Latin America Cooperation (FEALAC), Andean Community of States, the Community of Latin American and Caribbean States (CELAC), and the Pacific Alliance, for which Peru was the July 2015-July 2016 pro-tempore President. Peru was a non-permanent member of the UN Security Council in 2006 and 2007. Peruvian diplomat, Javier Perez de Cuellar, served as UN Secretary General from 1981 to 1991.

The Peruvian government has good relations with the United States, which is Peru's second largest trading partner and main partner in efforts to combat drug trafficking and the Shining Path. The United States and Peru have had a Trade Promotion Agreement [essentially a Free Trade Agreement (FTA)] in force since February 2009.  In March 2013, the Peru-EU FTA entered into force.

Indicating the importance of Peru's bilateral relationship with China, Mr Kuczynski's first international visit as President was to China. China and Peru established diplomatic relations in 1971 and a strategic partnership in November 2008. They have had a free trade agreement in force since March 2010. China is Peru's largest trading partner. Bilateral trade was US$15.7 billion in 2013, with Peru's exports to China worth US$7.3 billion. In 2014, China also became Peru's main supplier of capital goods and leading investor, with $14 billion invested. Chinese investment is particularly growing in Peru's mining sector. Chinese-owned and Australian-managed mining company, MMG Ltd, operates the Las Bambas project in Cotabambas, located in the Eastern Andes (Apurimac region) of Peru. It is expected to produce 400,000 tonnes of copper per year in the first five years of production, making it one of the top three copper mines globally. Over its anticipated 20-year mine life, Las Bambas will also produce gold, silver and molybdenum.

Peru and China also conduct security and defence cooperation. Since 1998, Peru and China have hosted visits by high-level military officers. Chinese Premier Li Keqiang visited Peru in May 2015 to further strengthen the two countries' comprehensive strategic partnership. This was the first visit by a Chinese head of government in 20 years.

Bilateral relations

The relationship between Australia and Peru has expanded quickly since Australia re-opened its Embassy in Lima in 2010. The key areas of interest include mining and energy, education, tourism and people to people links.

In November 2011, Australia and Peru signed a Memorandum of Understanding (MOU) to promote Bilateral Consultations and Cooperation. Australia and Peru have had a bilateral Investment Promotion and Protection Agreement since 1997. The Australian Bureau of Meteorology has an MOU with its Peruvian counterpart, the National Meteorology Service, to facilitate cooperation on research into the El Niño climatic phenomenon, among other topics. In April 2012, Australia and Peru signed an MOU on Development Cooperation. An Air Services Agreement between the two countries is close to finalisation.

Australia and Peru work together in a number of international fora, including the United Nations.  In the WTO, the Cairns Group and APEC, Australia and Peru cooperate to promote greater liberalisation of trade and investment and to enhance regional integration. Australia hosted APEC in 2007, Peru in 2008. Peru is the 2016 Chair of APEC.  Both countries are part of the group of twelve APEC members who negotiated the Trans Pacific Partnership Agreement, which was signed in February 2016 in New Zealand. Australia and Peru are members of the Forum for East Asia-Latin America Cooperation (FEALAC), and Australia is an observer to the Pacific Alliance.

Both governments wish to work more closely together and after a period of few high-level visits, there are now regular exchanges at senior levels of government.

In July 2015, Foreign Minister Julie Bishop visited Paracas, south of Lima, to represent Australia at the 10th Summit of the Pacific Alliance, in the margins of which she also met Peruvian Foreign Minister Ana María Sánchez and Education Minister Jaime Saavedra. At that Summit, Ms Bishop announced Australia would be funding three education projects for Pacific Alliance countries. The first of these projects was implemented in 2015 by the Australian Department of Education and Training. The second is under implementation, also by the Australian Department of Education and Training, and will provide Pacific Alliance countries with vocational training in the transport and logistics sector.

In February 2015, Environment Minister, the Hon Greg Hunt MP, visited Lima for talks with his counterparts, while the former Speaker of the House of Representatives, the Hon Bronwyn Bishop MP, led a parliamentary delegation to Peru in January 2015.

In December 2014, Australian Minister for Foreign Affairs, the Hon Julie Bishop MP, and the former Australian Minister for Trade and Investment, the Hon Andrew Robb AO MP, visited Lima for the climate change Conference of the Parties (COP20) and a program of bilateral meetings.

In 2001, the Australian Government established the Council on Australia-Latin America Relations (COALAR) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, COALAR has been active in promoting business, education, tourism and cultural links between Australia and Latin America. For updates on COALAR activities and information on the annual grants program, follow COALAR on Facebook.

People to people links

Peruvians have been in Australia from at least the late 1800s, with the 1901 census indicating 28 Peruvians in Australia at the time. Migration from Peru to Australia remained low until 1986, when numbers emigrating from Peru to Australia grew into the hundreds-per-year. Australia's Peruvian community consists of around 8,440 Peru-born persons (2011 Census). More information can be found at the Department of Social Services Community Information Summary page.

Peru is Australia's 71st largest inbound market by visitor arrivals. In 2015, there were 3,500 short-term arrivals from Peru, an increase of 12.7 per cent on the previous year. Over the last five years, the average annual growth rate in arrivals from Peru was 7.8 per cent.

Nearly 40,000 Australians visited Peru in 2015, the majority for tourism. This number caps impressive annual increases, averaging over 15 per cent per year in 2011-2012 and 2013-14. The increase reflects the growing business and tourism ties between Australia and Peru.

In 2006, Australia and Peru signed an MOU on cooperation in education. Institutional educational ties are strong and growing. Many Australian Universities (including Edith Cowan, Griffith, Canberra, Tasmania, Queensland, Adelaide, Macquarie and La Trobe) have agreements with their Peruvian counterparts. As at December 2015, there were 1,600 Peruvian students enrolled to study in Australian educational institutions (year to date). Australia was selected in 2012 to be the first country to host post-graduate Peruvian students sent abroad on full scholarship by Peru's National Scholarship Agency, PRONABEC. Australia is now the most popular English-language destination for these scholars. The education cooperation MOU will be renewed in 2016.

Since 2011, Peru has participated in the Australia Awards Fellowships Program. A total of 54 Peruvians have received Fellowships, which have given them practical training in Australia on a range of topics, including planning and implementing public private partnerships (PPPs), education policy, water resource management and sustainable mining.

Development assistance

From 2010 to 2014, Australia provided $100 million in official development assistance to Latin America, including 254 Australia Awards scholarships. Peru received 19 Australia Awards Scholarships. To support sustainable economic development in Peru, Australia contributed $2 million toward the SALTA project that provided 100,000 female micro-entrepreneurs with information on financial literacy and business development. The project was implemented in partnership between the Australian Government and the Inter-American Development Bank.

Australia's regional aid program has now ended, though some activities that have already been funded will continue until 2017.

Economic overview

At a glance

For the latest economic data refer to the Peru economic fact sheet [PDF 32 KB]

Economic outlook

Since the 1990s, successive governments have sought to restructure Peru's economy, dramatically improving the government's fiscal position. Peru enjoyed a decade of expansion, with low inflation, a solid external position and declining indebtedness ratios. Its GDP expanded at an average annual rate of 6.5 per cent over the ten years to 2013. Public expenditure has been reduced through the abolition of subsidies and the privatisation of state-owned companies. Trade barriers have been cut, direct subsidies to exporters have been eliminated and equal treatment has been granted to foreign and domestic investors. Diversification into non-traditional exports, investment growth, strong consumer confidence and rising employment rates also supported growth. Easing the social unrest surrounding large-scale resource projects is seen as key to confirming Peru as a strong investment destination for new mining projects.

China, the United States, and Switzerland are Peru's largest export destinations, and its economy will continue to be affected by economic conditions in these markets. In 2014, minerals and fuels accounted for 50 per cent of total merchandise exports, exposing the economy to global commodity price fluctuations. Hence the slowdown in the US and Asian economies (particularly China's decreased demand for Peru's commodities) has constrained Peru's exports, leading to the sharp fall in Peru's GDP growth to 3.3 per cent in 2015 and 3.7 in 2016.

The Economist Intelligence Unit anticipates that Peru will retain its business-friendly policy framework in 2016-20. The end of the commodities supercycle and the presence of a productivity-limiting business environment (e.g. a complex tax regime, a rigid and under-skilled labour force, corruption, limited infrastructure) mean that growth in 2016-20 will be weaker than in the previous decade. The coming on stream of the Las Bambas and the Toromocho copper mines is expected to boost growth to 4.4 per cent in 2017-18. But as domestic investment eases, this is anticipated to fall to 4 per cent by 2020. Nonetheless, Peru's growth is anticipated to remain among the highest of any major Latin American economy.

Over the last decade, Peru has been very active in regional integration and pursuing bilateral FTAs, including with Chile, the United States, Singapore, China, Korea, Japan, Mexico, Panama, Costa Rica, Canada and the EU.   Peru is a member of the Andean Community Customs Union and has signed partial preferential trade agreements with Cuba, Argentina and Brazil.

Peru has been a strong driver in the development of the Pacific Alliance, a trade liberalising pact between Peru, Chile, Colombia, and Mexico. Australia was admitted as an observer to the Pacific Alliance in 2012 and was represented at the 2015 Summit in Paracas, south of Lima, by Foreign Minister Julie Bishop.

Bilateral economic and trade relationship

Australian investment is the most important feature in Australia's commercial ties with Peru. Australia's commercial presence in Peru has increased significantly with nearly 90 Australian companies now represented in Peru.

Bilateral trade is modest but continues to grow steadily. In CY 2015, merchandise trade between Australia and Peru totalled A$220 million. Merchandise exports to Peru totalled A$80.7 million and included specialised machinery and parts, civil engineering parts and equipment, prepared additives for mineral oils, and measuring and analysing instruments.  Major merchandise imports from Peru to Australia totalled A$139.6 million and included animal feed, vegetables, animal oils and fats. Trade in services totalled A$167 million in CY 2015.

Peru's open investment regime, stable government and abundance of natural resources make it an attractive investment destination, particularly in the extractive sectors. The expanding tourism sector has also seen Australian investments.  Education is another area which Australian institutions are targeting.

However, for now, the majority of the Australian companies with offices in Peru are involved in the mining and energy sector. We estimate Australian investment in Peru sits at around A$5 billion, which makes Australia the fifth largest foreign investor in Peru's mining sector.

Trade and Investment

Australia's Trade Commissioner in Lima is responsible for Austrade's activities in Peru, Ecuador and Venezuela. Austrade helps companies take advantage of opportunities to export goods and services to Peru and assists Peruvian companies interested in investing in Australia.

Austrade priorities for Peru are mining, water, infrastructure, oil and gas, education, agribusiness and sports. Australian companies are already investing and doing business in Peru in some of these sectors through a subsidiary or stake in a project. Austrade is also working to promote investment opportunities in Peru to attract new Australian players in these sectors.

For information on doing business and opportunities in Peru please see the Austrade Peru Market Profile.

Mining

Mining is vital to Peru's development and accounts for 12 per cent of Peru's GDP, 57 per cent of its total exports and 24 per cent of all foreign investment in Peru.

Mining revenues have largely financed the reduction in Peru's poverty rate from around 42.4 per cent to around 22.7 per cent in the seven years from 2007-2014. In 2015, Peru was the seventh largest mining producer in the world. It is currently the world's third largest producer of copper, zinc and tin and the fifth largest producer of gold.  Peru has the world's largest reserves of silver and leads Latin American reserves in lead and zinc, second for copper and molybdenum. In exploration, Peru ranks seventh in the world attracting 5 per cent of the total global exploration budget - in 2014, US$623 million was spent on exploration.

Australian companies are playing important roles in the provision of goods and services and increasingly as investors. While larger miners such as BHP Billiton and Glencore (formerly Xstrata Copper) have been involved in Peru for many years, Australian 'juniors' are establishing project offices in Peru. Examples of companies such as Latin Resources, Metminco, Minera Gold, Laconia Resources and Minera IRL are present. Australian global engineering firms such as Worley Parsons, Ausenco and SKM have also opened offices in Peru. In addition, numerous Australian technology companies have recently established a presence to target the mining industry. Educational institutions such as University of Queensland's Sustainable Mining Institute (SMI) are actively developing relationships with Peruvian counterparts. SMI was instrumental in the establishment of Peru's Mining Centre for Excellence.

Peru's demand for energy is supplied by its abundant thermal and hydro resources, sourced from well-developed operations throughout the country. Peru will be seeking investment to further harness its hydrocarbon wealth to expand energy exports. In parallel, it will continue to develop its current low-base of non-conventional renewable energy projects.

Peru's gas sector is less well developed compared to the mining sector.  There are a handful of Australian companies active in Peru's gas sector, including Karoon Gas and Woodside.  Karoon has investments in offshore and onshore oil exploration activities. It is planning to conduct Peru's first ever deep water drilling exploration program and has identified potential resources which could contain up to 3 billion barrels of oil equivalent. Woodside owns a 35 per cent interest in an onshore block which is currently undergoing exploration activities. Last year, Woodside's partner Pluspetrol concluded seismic surveys in the Block.

Former Queensland Premier, Peter Beattie, led a high-level mining services business mission to Peru in April 2012.  Former Trade and Investment Minister, Mr Andrew Robb AO MP, visited Peru in December 2014. Peru has sent its Minister and Vice Minister for Mining to Australia in the past few years to attend the Latin America Down Under (LADU) mining conference, which up until 2016 was held annually in Sydney. In 2016, LADU was held in Perth from 17-18 May.

Every two years, Peru hosts a major mining Expo and Convention - Extemin and Perumin. 25 Australian companies participated in the Austrade-managed Australia pavilion at Extemin in 2015 as well as in 2013.

Agribusiness

A protocol between Peru and Australia on kangaroo meat is in place; as is an agreement on beef serosa. Ovine genetics can also be exported to Peru from Australia.

High-level visits

In 2016, Prime Minister Malcolm Turnbull and Minister for Trade, Tourism and Investment, Steven Ciobo, are expected to participate in the APEC Economic Leaders' Meeting and the APEC Ministerial Meeting, respectively.

In July 2015, the Minister for Foreign Affairs, the Hon Julie Bishop MP, visited Paracas to represent Australia at the Pacific Alliance Leaders' Summit.

In February 2015, Environment Minister, the Hon Greg Hunt MP, visited Lima.

In January 2015, the former Australian Speaker, the Hon Bronwyn Bishop MP, led a parliamentary delegation to Peru.

In December 2014, the Australian Minister for Foreign Affairs, the Hon Julie Bishop MP, and the former Australian Minister for Trade and Investment, the Hon Andrew Robb AO MP, visited Lima.

In May 2013, the Peruvian Mines and Energy Minister, Jorge Merino, visited Australia, and Peruvian Vice-Minister for Mining, Guillermo Shinno, visited Australia in May 2012 and again in May 2014. A delegation of seven Peruvian parliamentarians also visited Australia in May 2014, hosted by the Australian Parliament.

During 2008, when Peru last hosted APEC, a number of Australian ministers and senior officials visited Peru for meetings, including then Prime Minister, the Hon Kevin Rudd MP, then Foreign Affairs Minister, the Hon Stephen Smith MP, then Trade Minister, the Hon Simon Crean MP and then Parliamentary Secretary for Early Childhood Education and Childcare, the Hon Maxine McKew MP.

Last updated 14 November 2016

Last Updated: 11 November 2016