FDI attraction strategies in Peru’s SEZ: Identifying constraints and optimal industries*

Abstract

Motivation

Peru has positioned itself as an attractive destination for foreign direct investment (FDI), yet the economic impact of its Special Economic Zones (SEZs) remains significantly underutilized. These zones currently contribute less than 1% of Peru's total exports – a stark contrast to regional counterparts which achieve approximately 40% export contribution. This underperformance reflects a critical gap between policy intentions and actual implementation outcomes, warranting systematic examination of constraining factors.

Purpose

This study identifies and critically analyzes the specific constraints that limit the effectiveness of Peru's SEZs in attracting FDI and proposes evidence-based policy solutions. The research addresses three interconnected questions: What institutional, economic, social, and technological barriers impede FDI inflows to Peruvian SEZs? What sectors offer the greatest potential for attracting foreign investment? How can targeted policy reforms enhance SEZ competitiveness and development impact?

Approach and Methods

We employed integrated PEST and SWOT analytical frameworks to systemically investigate barriers to FDI attraction. Data collection combined qualitative methods – including structured interviews with government officials, SEZ management authorities, and investment representatives – with quantitative analysis of trade data. Additionally, we developed a Present-Future (P-F) model combining revealed comparative advantage calculations with expert survey assessments to identify optimal target industries.

Findings

The analysis reveals three critical structural barriers: excessive concentration on low-value-added industries, insufficient infrastructure and trade facilitation, and poorly calibrated incentive frameworks. However, substantial opportunities exist for improvement through strengthened governmental functions and enhanced business environments. Natural resources and food-processing industries emerge as immediate priorities, while higher-value manufacturing sectors offer longer-term diversification potential.

Policy Implications

Successful FDI attraction requires shifting from broad incentives toward targeted, performance-based policies. Priority interventions include infrastructure development, human capital upgrading in SEZ regions, and sector-specific strategies leveraging Peru's comparative advantages. Coordinating SEZ policies with broader national industrial development plans is essential for generating sustained FDI inflows and inclusive economic growth.