Peru and Foreign Direct Investment - Critical Thinking Example

Peru is a country endowed with extensive natural resources and numerous opportunities to be among the developed countries with one of the biggest economies in the world. However, this is not the case. The country has had a history of instability socially, economically, and politically with fluctuations between periods of growth and those of deep recessions. Political instability has also been an issue with several coup de tats and conflicts and warfare with neighbors resulting in the loss of lives as well as of huge sections of the country which translates to the loss of the natural resources in those regions. To redeem the economy of the country, one of the key strategy should be attracting more foreign direct investment (FDI) which is a worldwide driver of economic growth.

Currently, the rate of foreign direct investment in Peru is carried out but at minimal rates. Some of the sectors that have an element of foreign investment are in agriculture, telecommunication, and mining. However, the proportion needs to be raised, and opportunities opened up in other sectors. The following are some recommendations on areas that require improvement.

Some of the industries in which foreign direct investment can be applied include in the infrastructure sector, telecommunication, agriculture, and mining. Perus infrastructure remains low by international standards despite the country increasing its investment in recent years. This is as a result of lack of structural transformation, and the issue remains a major concern. The National System of Public Investment (SNIP) in charge of planning was a rigid and complex system. Involving a foreign investor in this sector is likely to bring the infrastructure of the country to the international standards. This is because the investors sole attention will be on the project.

Telecommunication sector has open opportunities for foreign investment. With the government reviewing the telecommunication law from 1988 to encourage new entrants and improve competitiveness, the sector is open to foreign investors. Currently, the sector is dominated by three companies which are largely concentrated in the urban areas. Incorporating a company that penetrates the rural areas would solve the issue of equal distribution of services in all the regions of the country which is good for the growth of the economy.

Agriculture is another sector in which Peru is naturally endowed. The countries soils and climate are known to be favorable for the production of varieties of fruits, more than 4000 varieties of potatoes, cotton, herbal medicines, and many other agricultural products. Unfortunately, this sector has not been fully exploited by the locals. For example, organic products are underdeveloped. Perus best strains of cotton were used to produce fine clothes by international brands. Encouraging foreign direct investment in the various agricultural sectors will ensure that the sector is modernized, leading to increased output and therefore, boost the economy.

Finally, mining is yet another sector in which foreign direct investment would do a great deal in improving the economy of Peru. The mining law of 1992 promotes foreign investment in the mining sector. There had been foreign companies that had invested in this sector, but their relationship with the locals ended up crashing leading to their closure. The closure led to a loss of US$ 8 billion which was a major drawback to the economy. The government should encourage re-investment in this sector while working on the best ways to maintain the interests of all the stakeholders, that is, the investors and the locals.