Only 4 out of 10 entrepreneurs expect to increase their investments this year

Only 41% of Peruvian business owners plan to increase their investments in fixed assets in 2024, compared to 7% who expect to even decrease their capacity for this year, according to the latest report of the Peruvian Confidence Index, prepared by Vistage.

The evaluation, carried out with the 116 members of Vistage Peru —general managers and business owners, mostly considered medium-sized— during the first quarter of 2024, shows that the year began with a slight recovery in confidence that allowed a balance of 124 points to be recorded.

“This represents a 13-point increase compared to the previous quarter and one of the highest levels of business confidence since the Covid-19 pandemic occurred,” says the Vistage Peru document.

However, this recovery has not been enough for the surveyed entrepreneurs to bet on spending more capital. Although 56% say that the country’s economy will be better than a year ago in the next twelve months – 80% even consider that the first quarter of 2024 was the same or better – 53% say they will not increase their investments.

What did recover until March of this year (inflation closed the first quarter of 2024 at 3.05%, very close to the target range of between 1% and 3%) is confidence in domestic consumption: although most entrepreneurs do not think about multiplying their investments, 78% consider that their companies’ turnover will be favorable until December.

“The expansion of manufacturing, led by construction and mining, inflation containment and a less intense El Niño phenomenon than projected are some of the reasons that explain this assessment,” the report states.

Faced with growing uncertainty about investing in fixed assets, the entrepreneurs and CEOs surveyed by Vistage Peru are betting on redirecting this additional income to hiring more workers.

Only 15% said they might reduce their payrolls, while a significant 55% expected to hire more staff at least through March of this year. At least 30% of employers have guaranteed that they will not carry out any purges.

This statistic is consistent with the 71% who expected their business profitability to increase over the next nine months of the year, compared to 22% who did not expect a greater impact than that noted in 2023.

But the first half of the year is already over, so Peruvian entrepreneurs have less room to reactivate their businesses or reconsider their investment risk.

According to Antonio Castillo, general manager of the National Society of Industries (SNI), this reluctance to invest is due to political factors that could be offset by GDP growth of close to 4% in May.

However, he believes that this growth is still very limited to the primary sector – manufacturing industry – and therefore does not believe that it will be “sustained over time” as long as the development of other sectors with a good direction, such as mining and construction, is not guaranteed.

“The political situation in April and May was complicated, but whether you like it or not, for companies the level of inventories was reduced, as shown by the BCRP. And it has done so in a significant proportion due to the reduction in inflation. This gives us a good signal along with employment, although it is not yet adequate,” Castillo points out.

SMEs still haven’t found a way out

Mypes Unidas del Perú believes that 2024 cannot be worse than last year, but there are still some headwinds such as a lack of formal employment that reduces the predictability of domestic consumption. The organization also does not see high hiring expectations for micro and small businesses, except for campaigns.

“Unlike large companies, micro-entrepreneurs measure their expectations based on their income and sales volumes. That has not yet recovered after a very strong recession last year. And we must also remember that this growth comes from a negative year, we are not starting from scratch. [rebote]”, says Daniel Hermoza, director of Mypes Unidas.