PERU TEXTILES Alberto Hart Peruvian Embassy London, 2 December 2008 Good morning ladies and gentlemen. My name is Alberto Hart, Head of Trade and Investment at the Peruvian Embassy and it gives me pleasure to welcome you to Peru Textiles, a presentation on Peru’s vibrant textile sector. We know your time is precious so we will keep it brief and simple. What we are going to do today is show you why you should choose Peru as your next sourcing partner. First I will outline briefly the economic strengths of Peru before proceeding to the strengths of its clothing and apparel industry. After the presentation we will have the chance to hear from Hernan Balcazar, CEO and owner London-based Wall Luxury Essentials, an importer of Peruvian product. We close today’s event with a traditional Pisco Sour cocktail, Peru’s national drink and an opportunity to see some samples of our product. Alberto Hart Peruvian Embassy London, 2 December 2008

Where is Peru? We begin with a little geography. Where is Peru? Peru is often perceived as a far-laden, exotic, destination. Of course this is great for tourism but it overlooks the strong business that have developed with Europe and the UK. It also overlooks some of the advantages of its geographical position for world trade. We are going to show why it is much closer to home than you think.

World cultural heritage Natural beauty and diversity When you think of Peru, what do you think of? Typical images of Peru: Impressive mixture of spectacular panoramas and renown archaeological sites. Machu Picchu and the city of Cuzco, ancient capital of the Incas. Traditional folkloric image of andean peoples. The Amazon, one of the most important biospheres in the world: Peru’s rivers give birth to the Amazon and almost two thirds of the country is covered by rainforest. But it is also an energetic and modernizing country, one that has been achieving greater levels of development and positioning itself as one of the most attractive emerging markets. Modern textile industry? In the west (U.S. and Latin America) Peru’s textile industry is already well known and trade links are well established. But for us it is a very exciting moment as Europe is beginning to discover its potential. World cultural heritage Natural beauty and diversity A leading emerging market? Modern textile industry??

Why Peru? Why now? Dynamic, fast-growing and resilient economy, even in spite of credit crunch 9.2% growth in 2008, 7% in 2009* Booming exports, diversified markets Strong private and public investment, bustling domestic demand Least exposed Latin American economy to the financial crisis** Disciplined monetary and fiscal policy Ample international reserves Centre stage in 2008 to two major world summits APEC, LAC-EU) Although no country can escape the current financial and economic downturn, Peru is expected to hold up well in the following years thanks to some key factors: First, it has diversified its export markets, which means it less dependent to slowing growth in specific markets. Europe (27%), Asia (25%), Latin America and the Caribbean (21%), U.S.A. (20%), the rest (7%). Second, it has ample international reserves that reached US $33.15 billion by the end of October. This is almost equivalent to the country's total foreign debt and means it can meet any outstanding liquidity commitments should it become necessary. Third, Peru's banking system is less vulnerable to the global financial turbulence because of its lower dependence on short-term external finance and greater share of long-term maturity finance vehicles. This guarantees the execution of investment commitments in the critical short run. In addition, Peru has really hit its stride in 2008. Just last week it played host to the annual APEC Summit (Asia-Pacific Economic Cooperation Forum) for the first time in its history and welcomed 21 heads of state to our country, as well as the numerous CEOs that participate in the parallel business summit. Peru is only one of 3 Latin American members of this important organization, comprised of the major economies of the Pacific Rim, including the U.S. and China. Earlier this year, in May, we hosted the Latin America and Caribbean – European Union Summit, in which we had an even greater number of heads of state. The investment that has gone into the preparations for both events has given the economy a major boost in these hard times. *IMF projections **UBS bank research

Why Peru? Why now? 8 years of sustained economic growth Attractive investment destination Investment grade (Standard and Poor’s, Fitch’s) ‘Rising star’ of emerging markets manufacturing Relative low inflation Strong currency Here we see Peru’s sustained economic growth in the last 8 years, which really took off after 2002. It is also one of the most attractive investment markets, with a stable and favourable legal framework. This has allowed it to attract major levels of FDI. In 2008 FDI flows reached US$ 8 billion dollars. Investment will be key to offsetting the impact of the world slowdown, with major projects in energy, mining, construction, telecommunications and manufacturing programmed for the period 2008-2010. FDI is expected to reach US $35.51 billion dollars. Peru is considered a rising star according to PricewaterhouseCoopers latest EM20 Index, which ranks emerging markets on how attractive they are for manufacturing and services investment. The Peruvian Central Bank actively fights inflation and it has been kept quite low in recent years (last year it was 1%). However, as the economy is booming, strong internal demand growth coupled with external factors (rise in food and petrol) led to a 5.8% projected inflation for the year (IMF). However, as prices for commodities and energy have subsided so has inflation. The IMF anticipates inflation at 3.5% in 2009. The Peruvian Nuevo Sol, our national currency, has been one of the strongest currencies in the world in recent years. As a matter of fact it appreciated so much that for some time it did worry the Government whether it would affect export competitiveness. But thankfully its been kept at a strong but competitive rate. It is currently trading at around S./ 3 soles to the dollar. 5

Extensive free trade network Peru is an export oriented economy committed to free trade and greater market access as a means of development It has a network of free trade, preferences, and other arrangements with the world’s main trading blocs In the last decade Peru has established an extensive trade network, allowing it to integrate itself effectively into the world economy. It has or is negotiating agreements with its principal export markets. The three that stand out the most are: Peru-US Trade Promotion Agreement approved in January is being implemented, should be in force by 2009 Last week we signed an FTA with China, Peru’s second largest trading partner. Peru exported over US $ 3 billion in goods to China in 2007. Peru and Colombia are negotiating an FTA with the EU which hopefully should be finalized before the end of 2009. What matters here is textiles and I am glad to say that even without these agreements, Peru enjoys duty free access for most of its textile products to both the U.S. market (ATPDEA) and to the EU (GSP +). Due to its economic strengths and stability, Peru is one of only three Latin American countries that are members of APEC, the Asia Pacific Economic Cooperation forum.

The UK is much closer to Peru than you might think PERU – UK BUSINESS TIES Did you know? UK is the second biggest investor in Peru US$3.4 billion invested so far US$6 billion expected investment Bilateral Trade: US$ 378 million in 2007 First Latin American company to enter the main market at the London Stock Exchange was Peruvian There is a British Peruvian Chamber of Commerce in Lima: www.bpcc.org.pe All of these British businesses are active in Peru Did you know? According to the British Embassy, the UK is currently the second biggest investor in Peru (FDI), having recently surpassed the U.S. By mid-2008, UK investment reached US$3.4 billion. The Peruvian Embassy estimates that as much as US$ 6 billion could be invested by the UK in the following years. Total trade between both countries reached US$ 378 million in 2007. A Peruvian mining company, Hochschild, was the first Latin American company to enter the main market at the London Stock Exchange in 2006.

Peruvian Textile and Apparel Sector

Textiles is a strategic sector for Peru US$ 1.7 billion in exports Main driving force of manufactured exports Highest added value Leading source of employment Innovative and competitive industry Textile exports surged in 2007 to over 1.7 billion US$. It is the main driving force of manufactured exports Sector that produces goods with the highest added value. Leading force in job creation for the Peruvian economy. Over 10% of the population depends for family income on a job created directly or indirectly by the textile sector (jobs created directly = 350,000). Supply chain: For every directly created job there are three indirect jobs.

Main destinations of textile exports 2007 United States: 48% US$ 835 Millons United Kingdom: 1.5% US$ 24 Millions France: 2% US$ 27 Millions Spain: 1.5% US$ 24 Millions Italy: 3% US$ 50 Millions Venezuela: 23% US$ 403 Millions México: 1% US$ 19 Millions Colombia: 3% US$ 52 Millions Where does it go? Exports are increasingly diversified and European sourcing is on the rise. Nevertheless, the U.S. has continued to be the main export destination, absorbing 80% of our offer. Ecuador: 2% US$ 35 Millions Others 98: 12% US$ 210 Millions Chile: 3% US$ 51 Millions

Apparel exports to the EU and UK 16.6% Avg annual growth 13.5% Avg annual growth This slide shows you just how fast exports to the EU have grown, although we still consider it a largely untapped market. Only in the last 4 years these exports have nearly doubled. Peru is the biggest provider to the UK from Latin Ameriica Prendas de punto (capítulo 61): US$ 14 millions Prendas no de punto (capítulo 62): US$ 6.3 millones Oferta consolidada Camisas de algodón para hombres o niños (US$ 4.3 millones) Polos de algodón para hombre o mujer de un solo color (US$ 1.6 millones) Camisas de algodón, de punto, para hombre con cuello y teñido de un solo color (US$ 1.2 millones)

Main Peruvian Garment Exports Top Suppliers Top Products DEVANLAY TOPY TOP FRAMOR TEXTIMAX TRADING FASHION LINE SUDAMERICANA DE FIBRAS NETTALCO COTTON KNIT. MICHELL TEXTIL SAN CRISTOBAL TEXTILES CAMONES TEXTIL DEL VALLE AURA TEXTILES HIALPESA SOUTHERN TEXTILE NETWORK CREDITEX INDUSTRIA TEXTIL DEL PACIFICO Cotton T-Shirts Cotton Shirts Cotton Blouses Cotton Sweaters Cotton Tank top Baby Garments Woven pants for women Woven cotton shirts Knitted pants for women Synthetic T-Shirts These are some of the leading garment exporting companies. Bear in mind that there are close to 200 medium or large exporting companies. The leading 25 have significant export experience, an established clientele and comprehensive operations. For example, Devanlay, the Lacoste subsidiary, is this brand’s supplier to the U.S.; Topy Top is one of the biggest enterprises in Latin America and has over 4,000 employees, its own brand and major retail operations in Peru, Colombia and Venezuela; Textimax is a leading exporter with over US$ 120 million in sales projected this year. Ladies and gentlemen, we are talking about sizeable operations which are reliable and professional and meet the major international standards.

D E L V A

Incalpaca is a knitwear, outerwear and home manufacturer that employs camelid fibres of all four varieties, that is, from top left clockwise, Guanaco, Llama, Vicuña and Alpaca.

Polo Ralph Lauren, Jonathan Adler, (US) Clients: Polo Ralph Lauren, Jonathan Adler, (US) Christian Dior (France) Bay crews (Japan) Belpostel (Russia) Zambaiti Copertificio (Italy) Now Wayra is an interesting company. It works with Andean women in the highland region near Cerro de Pasco. These women hand knit home textiles of the highest quality. They produce baby garments as well. Some of their best known clientele includes Polo Ralph Lauren home and wear, Christian Dior, Baycrews in Japan and Zambaiti Copertificio in Japan.

From PERU to the World Alpha Shirt / Anne Fontaine / Antigua / Armani Exchange / Armani Jeans / Arturo Calle / Ashworth / Bloomcraft / Burberry / Calvin Klein / Christian Dior / Charles Tyrwhitt / Cutter & Buck / Divots / Donna Karan / El Corte Inglés / Fruit of The Loom / Gap / Giorgio Armani / Gear for Sports / Geoffrey Beene / Greg Izod / Norman / Guess / Hickey Freeman / Ike Behar / J.C. Penney / Lacoste / Land´s End / Liz Claiborne / L.L. Bean / Nautica / Oxford Shirtings / Perry Ellis / Philips Van Heusen / Ping / Polo Ralph Lauren / Sara Lee / Swiss Army / Tehama / Tommy Bahama / Tommy Hilfiger / Vantage / Woolrich / Zara So who sources from Peru? That is our clientele. From boutiques to major independent retailers to chain stores. Why do they source from Peru? The Peruvian textile industry delivers the Full Package. The main exporters I mentioned before have fully integrated vertical operations. When asked why they chose Peru most of these brands have pointed towards a few distinguishing marks: First, the high quality of the fibres: Pima and Tanguis long staple and extra-long staple cotton; fine alpaca, baby alpaca and vicuña fibres. Second, the attention and flexibility Peruvian manufacturing offers.

Infrastructure & Production

Production supply chain We have roughly two main production areas: A cotton producing coast and camelid fibre producing andean highlands. Pima cotton is grown in the northern coast (between Piura and Lambayeque); Tanguis is grown in the Ica region. Most of the cotton manufacturing also takes place in this central cluster, in the Ica region or in Lima, the capital. This may sound familiar to you but this was actually the area that was hit by a major earthquake last year. Though the textile industry was largely unscathed its workers were very much affected and some of the enterprises located in this area made significant contributions to the reconstruction efforts (Textileras de Chincha ayudaron con materiales de construccion para que la poblacion pueda reconstruir sus casas, dieron un bono económico para los niños). To the southern highland areas, where particularly around Arequipa, Peru’s second largest city, is located the main alpaca and vicuña clothing manufacture cluster. These businesses are supplied by several areas of cattle herders and provide vital employment to a range of persons living under difficult conditions in these impoverished areas.

PERUVIAN FIBRES COTTON ALPACA VICUÑA Peru has some of the finest textile fibres in the world. Vicuna, for example, is the world’s finest fibre. It is quite dear, as our friends next door at Loro Piana can tell you. Just one kilo of sheared Vicuña fibre costs around US$ 300 dollars. The animals are treated with the most care for sustainability. A Vicuña is sheared once every two years, yielding 350 grams of fibre each time. (micrones= diametro que tiene la fibra).

Peruvian Cotton Characteristics…. Better resistance to weather changes. Hand picked to get only best fibers. Soft and shiny. Yarn is very bright, Tanguis has a high degree of dye absorption. Peruvian Pima is spun from title Ne 50/1 up to Ne160/1 or 2. Peruvian Pima is the finest cotton in the world. It is better than US and Indian supima. Ladies and gentlemen, Pima cotton is only manufactured in Peru, due to the particular conditions of growth and harvest Tact is the key element. Peruvian pima has a softer touch than supima. This has been a key element of choice. For example, Lacoste’s prime and most expensive collection is manufactured in Peru, with pima cotton. Cuan fino es el hilado. El algodón pima que llega a 160 al 1 tanguis solo a 40 a 1. te da la finura de la tela, cuanto mas arriba, mas fino. Creditex 80 a 1. 160 a 2 – dos hilados que se unen y tiene silk feel.

Alpaca properties… * Thermal: 5 times warmer than sheep’s wool. * Resistance: 3 to 4 times more resistant than wool. *High resistance to flammability. * Fibre:17 different natural colors, little wrinkle, high brightness. * Touch: smooth, comfortable Alpaca and Baby Alpaca are Peru’s major leading woollen fibres and compete directly with Cashmere. I should clarify, just in case, that by Baby Alpaca we do not mean that the wool comes from an Alpaca calf, but rather this indicates a type of cut or area from which the wool is sheared. The finest fibre is taken from the animal’s backside and called Baby Alpaca. Fibre taken from the groin area is often a bit thicker, and is used mainly for home and decorative textiles like throws and sheets. Alpacas and Vicuñas represent an important part of the Peruvian national identity. The manufacture of textiles is a millenary ancient tradition and some of the oldest and most elaborative decorative pieces are currently touring through the world’s major museums. These pieces here of the Paracas culture, near Ica, date from about 500 A.D. Millenary tradition

OPERATION CAPABILITY We produce cotton and are vertically integrated from spinning to garment production. We provide a finished product. Wages are competitive: an average of S/. 550 soles or $170 dollars approximately.

Peruvian Competitive Industry Competitiveness. Key advantages: luxury fibres (pima, tanguis y alpaca); full package (we can provide from the design of the fabric to the design of the garment itself). R and D: The Peruvian industries are constantly innovating fabrics by mixing, testing, generally experimenting everything imaginable with the raw material. (For example, one business has recently developed an ultraviolet fabric with the use of marine algae and cotton). Some of the innovations include: Silk and alpaca for an incredibly soft feel; Bamboo and Baby Alpaca; Pima cotton and Baby Alpaca. One key advantage: Fast lead times. Though they may vary somewhat from enterprise to enterprise, the leading ones can get the product out, from the time the order is placed in 6 weeks to port of entry. Experienced and carefully trained staff. Manufacturers go to great lengths to provide intensive training to their workers. They invest in the human resource. Modern technology. As exports have grown the industries have continued to expand to meet output, through larger factories and capital good adquisitions.

INTERNATIONAL STANDARDS: CERTIFICATIONS Prove it? Certifications: Organic Exchange and Eko  organic; BASC (free of drugs and terrorist equipment), Wrap (social responsibility, no child workers); SGS (ISO 9000)  all manufacturing procedures are met diligently. There is already a supplier of Peruvian organics: Peru Naturatex (Fairtrade y organic). Creditex, can do organic, so can Alpesa.

Who certifies? So who certifies? In your information pack you will find the details of the 7 major certification agencies that operate in Peru.

INSPIRATION DESIGN FASHION We also have a capacity for design: The top pictures are from John Galiano, who was inspired in a trip to Peru to pursue andean designs. The bottom three were shown at the latest Prêt a Porter catwalk and are alpaca woollens.

Showcasing to the World

www.perumoda.com

Activities Inaugural Gala Night Business Presentations International Seminars Contest “Young Fashion Creators” Runway “Press Tour” for invited international journalists Tendencies 2008 exhibition 400 exhibitors, manufacturers of clothing, footwear, jewellery home textiles, inputs and service providers . 850 representatives from the world’s fashion industry, chain stores, wholesalers, catalogue boutiques, specialized, agents and designers. (NAFTA 40%, Latin America 35%, EU 14% Asia 2% and others 2%) 34

PERU MODA International Calendar… Prêt a Porter – Jan, Paris France Play Time – Jan, Paris France Moda Manhattan - Jan, New York USA Intermoda – Jan, Guadalajara Mexico Magic – Feb, Las Vegas USA Material World – April and Sept, Miami & Los Angeles USA PERU MODA - April, Lima Perú Colombiamoda -July, Medellin Colombia Magic- Aug, Las Vegas USA Globaltex – Sept, Los Angeles USA Prêt a Porter – Sept, Paris – France Berlin Sapica– Sept, Guadalajara Mexico

How do I source from Peru? The Peruvian Embassy can put you in direct contact with a specific enterprises that may interest you (contact details in information pack) Promperú can arrange a visit to Peru, meetings with the exporters and factory tours Based on your requirements we can match your needs to the most suitable suppliers Peru Moda provides an ideal opportunity to grasp the variety on offer of the Peruvian textile industry, we’ll invite you!* If you prefer to use an agent there are Peru based agencies (recommended contact details in information pack) Incatextiles is a London based agency that has been in close contact with the industry

Many thanks…! www.promperu.gob.pe