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Viewing cable 07LIMA3498, PERU'S CONSUMER BOOM

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Reference ID Created Released Classification Origin
07LIMA3498 2007-10-25 17:29 2011-08-25 00:00 UNCLASSIFIED Embassy Lima
VZCZCXYZ0012
RR RUEHWEB

DE RUEHPE #3498/01 2981729
ZNR UUUUU ZZH
R 251729Z OCT 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 7200
INFO RUEHBO/AMEMBASSY BOGOTA 5204
RUEHBR/AMEMBASSY BRASILIA 7634
RUEHBU/AMEMBASSY BUENOS AIRES 3147
RUEHCV/AMEMBASSY CARACAS 0853
RUEHLP/AMEMBASSY LA PAZ OCT QUITO 1535
RUEHSG/AMEMBASSY SANTIAGO 1560
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
UNCLAS LIMA 003498 
 
SIPDIS 
 
USTR FOR BHARMAN 
USAID FOR LAC, EGAT, JKUNEN 
TREASURY FOR MMALLOY 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
DOE FOR GWARD/SBROWNE 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EINV PE
 
SUBJECT: PERU'S CONSUMER BOOM 
 
1. Summary:  Peru's macroeconomic performance is converting into a 
broader based consumer boom.  Growing demand is marked by a diverse 
range of goods and services led by construction, sales of 
electronics, new cars and domestic appliances. Consumer credit is 
also expanding exponentially The increased level of consumer 
spending is not limited to the top echelon of Peru, but spreading to 
lower classes as well. Increased domestic consumption is expanding 
beyond Lima to the coastal cities.   End summary. 
 
2.  Peru's macroeconomic performance has been stellar for the past 
60 months. Since the Fujimori administration in the 1990s, exports 
and foreign investment have been keys to the country's economic 
success. Recent government figures show poverty declining, yet the 
consumer boom in the last two years has been equally impressive. Not 
only has consumer spending increased among the upper class (class 
A), but spending is up in classes B, C and D, particularly on 
domestic appliances.  The boom has been accompanied by an increase 
in consumer credit. 
 
GROWTH IN THE PROVINCES 
----------------------- 
3. There are signs that major provincial cities are sharing in the 
growth.  Bank loans grew 129 percent in the provincial towns in the 
last five years, more than tripling the Lima rate of 40 percent, 
according to the Superintendency of Banks, Insurance, and AFP (SBS). 
Over the past few years, provincial towns have been increasing their 
representation in the micro-loan market, to just over 20 percent. In 
addition, shopping malls, backed in part by Chilean investments, 
are expanding into lower-middle class areas and provincial cities 
such as Trujillo, Arequipa, Chiclayo, and Piura. 
 
CONSTRUCTION SECTOR LEADING GROWTH 
---------------------------------- 
 
4. The construction sector alone has shown a growth level tha is 
set to top 15 percent this year.  According to Peru's Central 
Reserve Bank, $2.8 billion million was invested exclusively in the 
real estate sector, so far in 2007. In 2007, new investment in the 
construction sector so far was up 372 percent from (last year, last 
period), topping $139 million, from $29 million. According to Capeco 
(Peru's constructors association), the sector is projected to 
account for 2 percent of total GDP for Peru. 
 
 
SALES AND IMPORTS UP, AS PRICES FALL 
------------------------------------ 
5. Purchases of domestic appliances, particularly in the C and D 
classes, are up. Sales of television sets, ovens, refrigerators, 
radios, dishwashers, and microwaves have been strong   as prices for 
some goods have declined by 30 percent so far this year. Peruvian 
domestic appliance sales are $750 million this year, up 20 percent 
from last year.  Within the first seven months in 2007, domestic 
appliances and electronics sales grew at a rate of 25 percent, 
according to the Superintendencia Nacional de Administracisn 
Tributaria (SUNAT), Peru's tax and customs agency. According to 
Javier Butrsn, the president of the Domestic Appliances and Chamber 
of Commerce Committee in Lima, indicated that Christmas sales of 
domestic appliances will be approximately $170 million, up 13 
percent this year as compared to last year.  Purchases of these 
products will be particularly strong in provincial towns such as 
Trujillo, Piura, Chiclayo and Arequipa, which have experienced 
recent commercial development. 
 
CREDIT CARD USE ON THE RISE 
--------------------------- 
6. Both the middle class and portions of the lower class are gaining 
access to the credit market.  After airfare, Lima citizens are using 
credit cards to buy domestic appliances, electronics, and clothing. 
Total credit card transactions jumped to $1.88 billion in June 2007, 
a 32.9 percent increase from the same period last year, according to 
ASBANC (Peru's Banking Association).  Consumer credit card usage for 
June 2007 totaled $1.58 billion, an amount that more than doubled 
the $ 701 million used in 2004 during the same month. Saga Falabella 
and Ripley, large Chilean department stores, entered this market 
aggressively through their financial arms, accounting for about 40 
percent of the market for several years. Since the introduction of 
credit services by Financiera CMR, formerly Banco Falabella in 1995, 
they have amassed more than 1.2 million clients. According to APOYO 
Publications the banking arm of Saga Falabella accounts for 21 
percent of credit card holders in Peru. Financiera Cordillera, 
previously Banco Ripley, represents 16 percent of credit card 
holders in May 2007. 
 
7. Some warn that the controls on credit card issuances are too 
loose.  Juan Jose Marthans, former Superintendent of Banks and 
Insurance, told us he thought the issuance of credit cards has 
become "excessive." Nevertheless, credit  cards are being offered to 
the C and D populations, and default rates are comparable with those 
in the United States and Chile.  Statistics show that credit card 
users in the C and D segments have 3-4 cards as opposed to the A and 
B classes, which have 1-2. According to Juan Carlos de la Fuente, 
General Manager at Banco Sudamericano, classes C and D are using 
credit cards to finance basic goods like groceries, while classes A 
and B are using credit cards to pay for on-the-spot purchases 
(gasoline or eating-out, etc.)and major expenditures (i.e. 
travel)sometimes paid in installments. 
 
8. Cell phone purchases have also risen sharply over the past few 
years. Cell phone sales were $52.3 million in July 2007, up from 
$21.9 million the July before. Cell phone usage has also shown a 
major increase. The most drastic increases occurred in rural areas 
outside of Lima such as Huancavelica, Madre de Dios and Pasco where 
cell phone usage increased 2,337 percent, 2,077 percent and 1,870 
percent, respectively. 
 
INTERNET USAGE: PERU BEATS COLOMBIA 
----------------------------------- 
9. Internet usage has been increasing during the last couple of 
years. Out of the total 6.1 million estimated internet users in 
Peru, 1.53 million internet users were added in the last two years. 
Peru is significantly higher in both total internet usage and as a 
percentage, at 21.1 percent of the population's internet users, than 
its neighbors Colombia (15.8 percent), Ecuador (8 percent), and 
Bolivia (5.1 percent). Internet cafes, ubiquitous in Peru's main 
cities, can now be found in small towns all over Peru. According to 
Maximize consulting company, computer imports rose to $321 million 
in 2007, up 16.1 percent from last year. 
 
TARIFFS DOWN AND NEW CAR SALES UP 
--------------------------------- 
10. Recent consumer trends indicate new car sales and imports are 
growing drastically. Overall new car sales grew 54 percent in July 
when compared to last year. The same was true for the new family 
models (i.e. station wagons and sedans), where sales increased 38.6 
percent in the same period.  Commercial demand accounted for the 
majority of sales at 79.1 percent.  During the 1980's the government 
prohibited the importation of vehicles and only Nissan, Toyota and 
Volkswagen brands were available, which had assembly plants in the 
country. When vehicle imports were allowed, customs duties on new 
automobiles were extremely high, approximately 30 percent.  During 
the Fujimori years (1990-2000), Peru imported second-hand Japanese 
cars rather than buying new vehicles. 
 
COMMENT 
------- 
11.  Until just after the April 2006 general elections, the favorite 
claim of the political forces that oppose free market policies was 
that Peru's vigorous growth had not trickled down to the lower 
echelons of the country's society.  While much of the good news is 
limited to urban and coastal areas, lower income segments of the 
population are indeed sharing in the growth.  Shopping malls are 
flourishing in parts of Lima which only ten or fifteen years ago 
were still shanty towns, victims of poverty and often terrorism. 
There is serious work left to be done in and east of the Andes, but 
this consumer-driven boom is helping improve the standards of living 
of a growing urban lower middle-class segment of Peruvians.