Immediate impact: January - July 2020

There have been mixed impacts on entrepreneurial activity in Peru as a result of the COVID-19 pandemic. Some businesses have been strongly affected, while others have benefited. As a result of the mandatory quarantine and the subsequent gradual reopening of operations, entrepreneurs involved in manufacturing, tourism, transportation, real estate, construction, consulting services, education, entertainment, and the sale of luxury goods or consumer discretionary products have had their income reduced without changes to their fixed costs. This situation has left them without cash, forcing many of them to close their businesses.

The lockdown measures have affected not only revenues but also business operations. The difficulties in accessing raw materials, supplies and products have brought shortages. There have also been difficulties in dealing with reduced productivity in manufacturing activities. Additionally, the closure of schools has increased overall workload for employees with school-age children, in many cases affecting their performance.

Informality is another problem that has increased during the lockdown. Entrepreneurs who have seen their profit margins decrease have chosen to become informal (unregistered) so as not to risk their survival. Unemployment has pushed low-income citizens into the informal economy.

On the positive side, a large number of businesses from the sectors most affected by the pandemic have innovated as a response to the pandemic. For example, restaurants, cafes and bakeries migrated towards the sale of essential goods. Also, companies that were previously involved in manufacturing clothing or plastic products are now producing PPE (personal protection equipment such as face masks), while service or commercial companies have moved to marketing these types of product. Economic sectors that have seen some growth include groceries, health-related products, cleaning products, home entertainment, and information technology consulting, among others.

Another positive impact of the pandemic has been the acceleration of the digital transformation process. Many businesses have started to sell online. In fact, e-commerce in Peru has grown exponentially. The downside, however, is that, due to lack of logistics capacity and other factors, merchants have been unable to comply with delivery times, leading to many consumer complaints.

Immediate policy interventions: January - July 2020

The government has developed various measures to boost entrepreneurial activity. This has included programs to provide access to financing through preferential interest rates and grace periods in order to inject liquidity into companies, establish tax relief policies through extensions and tax breaks, and provide subsidies to company payrolls, among other benefits. The measures aimed at boosting (or avoiding the shock of) domestic demand have involved the granting of bonds to the vulnerable population, the release of resources from the Peruvian Compensation for Length of Service Fund (CTS), and exemption from withholding and extraordinary withdrawal of pension funds.

Future economic / policy outlook

Peru has been one of the hardest-hit countries in the Latin America region in terms of economic impact. The projections for Peru’s main macroeconomic indicators are quite disappointing for 2020. According to the International Monetary Fund, the country will experience a 14% drop in GDP. Furthermore, the Central Reserve Bank of Peru predicts that, in 2020, internal demand and private investment will decrease by 11.9% and 30%, respectively. Employment will also be greatly affected this year. In the capital city of Lima, unemployment will reach 14–18%.

Entrepreneurial activity is one of the main growth engines of Peru’s economy. An inadequate implementation of economic reactivation measures aimed at supporting enterprises or boosting demand could strongly affect the development of the business sector and lead to further deterioration in levels of economic growth, employment and poverty by 2021.