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    Latin America Reports

    Peru Investment Plan to Boost Demand

    As government debts grows smaller, revenues will rise, and a broad new spending plan should boost further growth.

    Peru Investment Plan to Boost Demand
    Growth in the Peruvian construction industry is expected to expand.
    Charles W. Thurston , Latin America Correspondent04.15.20
    Peru expects to witness economic expansion averaging 4.4 percent over the next few years, with a rise to five percent by 2023, according to the Ministry of Economy and Finance (MEF). As government debt grows smaller, revenues will rise, and a broad new spending plan should boost future growth.

    This government spending plan will be echoed by new private sector investment – including public-private partnerships – that is expanding faster than the gross domestic product (GDP).

    Peruvian officials hope to maintain the economy at a growth rate of at least five percent in order to continue to modernize the country.

    Between 2002 and 2013, Peru was one of the fastest-growing countries in Latin America, with an average GDP growth rate of 6.1 percent annually, according to the World Bank.

    As the economy recovers its former pace, the demand for paint and coatings should rise by several percentage points over GDP expansion.

    This seems likely both for the industrial and architectural segments. The rise in investment and consumer spending will not be affected by inflation, which is holding at less than two percent per year.

    National Infrastructure Spending Plan

    The planning policy for the targeted growth in Peru was formulated in July 2019 as the National Plan for Competitiveness and Productivity (PNCP), which set out 52 national infrastructure projects that are expected to cost about
    $30 billion.

    The PNCP expects “…greater private investment in infrastructure projects, such as the ($6.5 billion) Lima and Callao Metro Line 2, the General San Martin Port Terminal, the expansion of the Jorge Chavez Airport, among others.

    On the other hand, the continuity of execution of large mining projects (including the $5.3 billion Quellaveco mine, as well as Mina Justa, and the Toromocho mine expansion) will favor this recovery.” 

    Mining, construction and transportation are the key industries that are expected to add most to GDP growth.

    Mining alone is expected to attract some $12.5 billion in new investment according to Banco Bilbao Vizcaya Argentaria (BBVA).

    Construction Key to New Growth

    Similarly, growth in the Peruvian construction industry is expected to expand at an annual average of 5.2 percent, according to GlobalData Analyst Dariana Tani.

    Peruvian construction investment could increase to $36.6 billion by 2023, up from $28.7 billion in 2018, according to GlobalData.

    Apart from infrastructure construction, close to $450 million worth of retail malls and other facilities are being developed by the private sector, the PNCP notes.

    Housing construction also will expand thanks to new government-backed mortgage lending.

    In Lima alone, about 17,000 new homes were expected to be added last year, a rise of about eight percent from the year-earlier result, the PNCP indicates.

    During the first half of 2019, over $1 billion in new real estate developments were announced, including close to 100,000 square meters of new office space, the plan divulged.

    While corruption in government and industry delayed the onset of several infrastructure projects, a change of leadership at MEF is now expected to usher in
    new growth.

    In October, María Antonieta Alva, 34, became the Minister of MEF. She holds a Master’s in Public Administration in International Development from the Harvard Kennedy School of Government, and a BA in Economics from Universidad del Pacífico, in Peru.

    There is some concern that the coronavirus could dim growth in Peru this year, but the impact of new investment may be greater, noted Francisco Grippa, the Principal Economist of BBVA Research in Peru, in a recent interview with the Andina news agency.

    “There are positive factors that must be taken into consideration such as public investment, which may attenuate the coronavirus effect. Lately, public investment is growing quite significantly and increased more than 50 percent in the first two-month period,” Grippa told Andina.

    Paint & Coatings Demand to Expand

    Thus the industrial segment of the paint and coatings market should benefit most from the new infrastructure spending, but housing and other commercial projects should boost architectural segment demand as well.

    The paint market in Peru including all segments is estimated at around $375 million and is expected to be growing faster than GDP.

    While premium segment architectural paint has grown with higher per-capita income, new consumers also are coming into the market rapidly, driving greater demand for economy-segment products.

    “We saw a jump from medium and high categories towards the cheapest ones. Consumers are looking for price points,” said Diego Pacheco, the commercial manager of Chemifabrik, which produces Gamax brand paint, in an interview with El Comercio, in March.

    “That was precisely one of the reasons that motivated the Pacheco family to choose a new brand, ColorMax, aimed at this segment,” Pacheco said. The Gamax brand retains about 15 percent of the Peruvian paint market, he added. While the company primarily sells through hardware stores and home improvement chains, plans are to launch company-owned paint stores for retail sales later this year, he noted.

    About 70 percent of the sale of architectural paint in Peru is in hardware stores, which number about 4,500 in the country, Pacheco told El Comercio. Chemifabrik recently spent some $200,000 to expand its production facility in Santa Anita.

    Gamax competes with Qroma, the Peruvian paint market leader. Qroma now has 10 brands in Peru including American Colors, CPP, Tekno, Fast, Paracas, Jet, Uniquímica, Teknoquímica and Abralit. Another domestic producer, Ceresita announced plans in November to move some production to Quilicura, Chile.

    Among other competition in the Peruvian market are international brands like Sherwin-Williams, which has four paint stores in the country. 
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