Peru as a Sourcing Option

Raúl Saba de Rivero

Vice President, Textile Committee National Society

of Industries, Peru

PERU

Country of Opportunities

for Foreign Investment

RAUL SABA DE RIVERO CEO Texfina S.A. / Industria Textil del Pacifico S.A.

Vice President Textile Committee National Society of Industries Peru

ADVANTAGEOUS GEOGRAPHICAL LOCATION

We are located in the heart of South America and have a

beautiful and varied geography

•Peru has 29 million inhabitants. Peru has an extensive and mega-diverse territory strategically located in the central

zone of South America over one of the largest oceans on the Planet. With a total area of 496 223 sq miles (third largest

country in South America). We have 3 geographic regions: the Coast, the highlands (Andes), and the rainforest.

•The Andes Mountains link Peru with Ecuador, Colombia, Bolivia, Venezuela, Chile and Argentina through routes that tend

to follow the legendary Inca trails. Through the Pacific Ocean, Peru connects with APEC member countries – of which

Peru is a member - one of the most important, rich, and growing markets in the world.

•Peru is a country that features practically all of the planet's climates, with remarkable natural, mining, and power

resources.

Fuente: PROINVERSION

Peru is a country of many resources and of course many opportunities

Peru has unbeatable advantages for investment

Fuente: PROINVERSION

Due in part to these natural advantages, Peru is:

In Latin America, Peru is:

The leading exporter of asparagus and paprika in the world; soon the leading in grapes;

The leading producer of fish meal and oil;

The leading producer of Alpaca and Vicuña fibers;

The leading producer of silver world-wide,

An up-and-coming hydrocarbon exporter.

The leading producer of gold, zinc, tin and lead;

Second in copper, in addition to a leader in other metals;

Third largest country in South America and;

Second largest in area of natural forests.

One of the leading textile exporters (with articles of high value), it has great diversification in its exports;

It has larger biological richness and variety.

ECONOMIC REASONS TO INVEST

Peru's economy is one of the most solid in the Region and

the World

Peruvian GDP has been growing steadily for 10 years

•From January to December of 2011 the GDP increased by 6.9%, reflecting the optimal economic

growth in Peru.

•Reached US $ 176.728 million.

•In this way, and following the economic positive trend, the GDP over 2012 and 2013 is expected to

reach 6% per year.

•Growth rates are by far greater than the average in the Latin American region, as shown in the

following table: Fuente: PROINVERSION

Gross Domestic Product 2000-2011 (Billion US$)

•The economic outlook for Peru remains favorable for the coming years. Based on announcements

of new projects and investments, the expectation is of high growing rates of domestic consumption.

•The implementation of a stable and responsible economic policy, which has maintained continuity

through the succession of governments has generated confidence in the various economic agents.

Fuente: PROINVERSION

Economic Growth Rate Projections – Latin America: 2012-2014

(Annual Average Variation%)

•Private investment is growing and is very dynamic. During 2011, it rose 11.7%, reaching a value

close to U.S. $ 35.000 million.

•The expectation is that in the coming years investment flows continue the trend of expansion as a

result of Peru's good economic performance.

•Regarding foreign capital, the expansion continued in 2011, reaching a level of net foreign direct

investments of U.S. $ 7.548 million (21% of the total value of private investment), concentrated

mainly in mining, finance, communications, industry and energy, reflecting the growing strength of

the domestic market.

Fuente: PROINVERSION

Foreign Direct Investment Flows (In millions of US$)

•54% of registered foreign investment by 2011, came from Spain (20%), United Kingdom (20%) and

USA (14%).

•Regarding the distribution of contributions by sector of destination, 87% focused on mining (24%),

finance (18%), communications (17%), industry (14%) and energy (13%).

Fuente: PROINVERSION

Origin of foreign investment in Peru and Main Investment Items

The reduction of public debt as a percentage of GDP and the increase of NIR are

the most eloquent signs of the Economic Strength of Peru.

•Net international reserves in 2011 were U.S. $ 48.8 billion, equivalent to more than a year of

imports and more than 2 times the external public debt.

•The liquidity of the Peruvian economy is the highest, both regionally and internationally. It has a

significant support to scenarios of deteriorating external environment and restrictions on

international funding.

•Sustained reduction in the level of external debt, which has been reduced from 47% in 2003 to

about 22% of GDP in late 2011. Fuente: PROINVERSION

Net International Reserves

(Billions of US$)

Public Debt (% Of GDP)

*Al 7 de marzo del 2012 * Cifras estimadas

•With an average annual growth rate of 21% in the last decade, only in 2011, exports grew by 30%,

reaching U.S. $ 46.268 million.

•Registered imports totaled U.S. $ 36.9678 million .

•For 10 consecutive years Peru maintains a positive trade balance.

Fuente: PROINVERSION

Trade Balance (Million U.S. $)

•60% of Peruvian exports are based on mining products (copper, gold, molybdenum, silver and zinc,

among others). Approximately 10% is oil.

•That is the reason why we need more foreign investment aimed at generating added value, which

in turn helps to increase quality jobs.

•Agriculture, Fishing and Textiles, followed in importance. In the fishing sector, exports are mostly

flour and fish oil. Agricultural exports are noted for their growing diversification of both products and

markets. For textiles, about 70% are high value added garments.

Fuente: PROINVERSION

Exports by Sector (Million U.S. $)

Fuente: PROINVERSION

Peruvian Exports Main countries of destination 2011 (Million U.S. $)

•Of Trading Blocs, Americas, Europe and Asia, accounted for 97% of the value of our exports during

2011.

•40% of exports went to the Americas, Europe was responsible for 31% and Asia 26%.

•This concentration is explained by a successful trade liberalization policy as we can see below:

Fuente: PROINVERSION

Peruvian Exports as Trading Blocs - 2011 (Million U.S. $)

In addition, we have 32 bilateral Promotion Board

and Investment Protection Treaties

Fuente: PROINVERSION

Textiles and Apparel investments in Peru are very attractive for many reasons

We are an integrated production chain

Raw Cotton Wool and Fine Animal Hair Livestock (Alpaca Vicuna)

Polietielenglicol, caprolactam, cellulose, etc.

Cotton Wool and Fine Animal Hair Man Made fibers

Cotton Yarns Wool and Fine Animal Hair Yarns (Vicuna Alpaca)

MMF Yarns

Cotton woven and knit fabrics

Wool and Fine Animal Hair woven and knit fabrics

(Vicuna, Alpaca)

MMF woven and knit fabrics

Cotton Apparels Wool and Fine Animal Hair Apparels (Vicuna, Alpaca)

MMF Apparels

Agricultural Sector

Livestock Sector

Petrochemical and Chemical

Industries

Production of textile and clothing sector focuses on the use of:

Cotton Wool Fine Animal Hair Chemical Inputs:

Polyester, Viscose,

Cellulose.

Peruvian economy supply chain

500.000 direct jobs

1'500, 000 Peruvian families

depend on the sector

2.7% of share of GDP

U.S. $ 2 billion in foreign exchange

from exports more than S /. 200 million in

domestic taxes

$ 800 million invested in last 5

years

23.400 companies

13% stake in Total Production

Manufacturing

Many companies

17.518 Apparel

Companies

5.873 Textile

companies

Fuente: Ministerio de la Producción – Censo Industrial 2007

Participation in GDP

(PBI 2011: US$ 176.728 million)

The textile and apparel industry is a major manufacturing activity ... but this is

by farming cotton and may be more important if diversifying the use of other

textile materials.

Fuente: BCRP

Location of the manufacturing companies

•70% of the producers of cotton are concentrated in Lima Industrial, Ate and La

Victoria, and 30% in Piura, Trujillo, Arequipa and Ica, mainly.

•80% of the production of woolen cloth and fine hair are concentrated in Arequipa and

the remaining 20% in Lima and Huancayo.

Otras Ciudades Otras Ciudades

Otras Ciudades

Lima Arequipa Lima, Ica

Fuente:IEES – S.N.I.

The textile industry is very dynamic in investment in

machinery and equipment

Fuente: Sunat Elaboración: Comité Textil de la S.N.I.

12 3 4 5 6

Textile Sector status

The sector most beaten: CRISIS & Unfair Competition

Fuente: Produce, INEI

... And the fastest recovered!

Index variation of annual manufacturing production

non-primary manufactur Textile goods Apparels

After a significant drop, cotton production is

recovering

Cotton harvest in Peru

Textile Exports

RAUL SABA DE RIVERO

Non- traditional exports are recovering ...

Fuente: BCRP

Textil and Apparel Exports

Fuente: SUNAT

Evolution of Exports by group of countries

48%

37%

10%

5%

67%

17%

8%

8%

2.8v

1.6v

Fuente: SUNAT

(Millones de FOB US$)

(Toneladas Métricas)

Evolution of Exports by group of countries

Textile Exports

67%

14%

12%

6%

79%

11%

8%

2%

Apparel Exports

Fuente: SUNAT

Evolution of Exports by group of countries

(Millones de FOB US$)

(Millones de Unidades)

47%

41%

9%

3%

6%

45%

47%

3%

Textil and Apparel Exports USA

(311,6 millions inhabitants.)

Fuente: SUNAT

Apparels

TEXTILES

Mayor apparel products exported to UNITED

STATES

Fuente: SUNAT

(Millions FOB US$) Cotton T’shirts Men Cotton knit Shirts

Women Cotton knit Shirts Cotton and FAH Sweatshirts

But what about exports by type of

fiber?

Apparel and Textile Export by Type of Fiber

(% FOB and Metric Tones)

Fuente: SUNAT

69% of textiles and apparel exported to the world was cotton- based, but in volume cotton represented 41%, meaning that we are firmly aligned to market segments with higher value added.

Cotton participation in Textiles and Apparels

Exports by Market (%FOB and Metric Tones)

Fuente: SUNAT

Analyzing this information for target markets, more than 80% of exports to the United States are based on cotton textiles and apparel, both in value and volume.

Conclusions

There are many advantages for investing in Peruvian Textile and

Apparel: Duty Free for exports to U.S. and all major international markets.

Just a few hours from the U.S. We have an excellent tradition in cotton production, the ability to produce textiles of high added value is in our genes, comes from the ancient Incas.

We are a vertically integrated industry, with a high level of know how.

This allows us to develop more design-based collections. We offer full packages.

We are the leading producers of alpaca and vicuna.

For the last 10 years, our textile exports have grown at a rate of 10% per year.

Even though the international crisis is not over, again in 2011 Peru reached US$ 2 billion in textile exports.

Finally, we cater to major successful brands around the World:

Brands catered by our industry

Giorgio Armani Christian Dior Liz Claiborne Swiss Army

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PERU

Country of Opportunities

for Foreign Investment

RAUL SABA DE RIVERO Thank you for your attention