Peru needs to regain business confidence to invest in manufacturing - industry group

Peru's government needs to do more to gain local businessmen's trust before they invest more in manufacturing, led by steel and precious metals refining, according to the country's largest industrial association.

Manufacturing, which probably contracted in 2014, may grow 3% in 2015 if the economy expands 5% according to a government target, said Luis Salazar, president of the national industries society (SNI).

More government measures are needed to eliminate bureaucratic obstacles, such as permitting delays for new investment projects, Salazar said. The political situation will also have an impact as 2015 will be dominated by campaigning prior to general elections in April 2016, he said.

"A great deal will depend on what the conditions are. We need to generate confidence so that private industry becomes dynamic again," Salazar told local newspaper Gestión. "The government is trying to accelerate public spending and that will help spur the economy, but we need private investment to grow."

Manufacturing contracted 1% through the first 10 months of 2014, as precious and non-ferrous metals refining declined 2.7% on falling refined zinc exports to the US and jewelry contracted 7%, according to the national statistics institute Inei. Iron and steel output rose 5.6%.

The slowdown in economic growth in 2014 was largely due to a poor fishing season, a decline in spending by regional governments and a clampdown on illegal gold mining, in addition to lower metals prices, said Guillermo Arbe, chief economist at Scotiabank Perú.

Peru will see a change in its investment scenario over the next three quarters as the economy focuses more on infrastructure concessions than on mining projects, Arbe said. Projects awarded over the past two years will add 1-2 percentage points in GDP growth from 2015-19, he added.

"The drop in minerals prices had a major impact on investor confidence," Arbe told local newspaper El Comercio. "Since 2014, the mining cycle has begun a downward trend and there are no other projects like the ones we saw in the past because there are no incentives to create them."

Metals export revenue dropped 18.2% to US$16bn through October 2014 on slumping copper, gold and silver prices, according to the central bank.