Photo : D.R.
Despite the crisis, the Peruvian economy is continuing to thrive. In 2008, the country demonstrated one of the highest growth spurts worldwide, with a 9.8% increase in its GDP compared with the previous year. The congestion of world trade nevertheless affected the sound health of this South American country in the first months of 2009: +2% in growth according to the figures communicate by the INEI, the Peruvian statistics institute.
True, the crisis may have an impact on trade exchanges, but available liquid
assets, public as well as private, have still allowed constant progression in production levels to be maintained for almost eight years. The INEI even foresees a recovery in the second quarter this year, bringing the national economy up by + 4% in 2009. Liquidated and monitored public debt, a balance between budgetary and international reserves, and a high level of private savings allow the Peruvian financial system to dampen the effects of the world crisis.
The economy support plan proposed by President Alan Garcia demonstrates this confidence in the face of the current situation. The tax policy encourages exports and private investment, notably to finance significant infrastructure projects that generate jobs. “Peru is fairly confident and is thinking strategically ahead to the post-crisis situation,” observes Martine Lebacq, Manager of the Franco-Peruvian Chamber of Commerce. However, the policy of Alan Garcia, favourable to foreign direct investments (FDI) has not escaped criticism. Certain accuse the President of selling off the country’s natural riches and not paying attention to indigenous populations.
The Peruvian executive recently roused the anger of Amazonian populations by generously attributing vast concessions to foreign companies interested in petrol fields at the north of the country.
Promoting FDIs
This economic openness is not new. At the start of the 1990s, the rise to power
of Alberto Fujimori marked the return of Peru to world trade. In 1991, a law promoting FDIs was adopted, radically modifying the framework governing foreign investments. The Fujishock programme launched in 1990 was the new face put on for foreign companies: simplifications in administration, tax and customs, non-discriminatory treatment of FDIs, and guarantee and protection mechanisms have brought economic stability and cut risks, in order to attract more and more liquid assets. FDI stock has risen from 6.3 to 17.9 billion dollars between 1996 and 2008 (from 4.5 to 13 billion euros), according to the figures of the Private Investment Promotion Agency (Proinversion). The same government agency estimates progression from last year as amounting to 13.5%. The IMD Business School ranks Peru in 37th position in its ranking of the world’s most competitive countries for 2009, and the second Latin American nation after Chile.
The main backers of the country are Spain (with 23% of the total of FDIs),
the United Kingdom (19%), USA (15%), the Netherlands (7%) and its Chilean neighbour (6%). Telecommunications and the mining sector are the two main destinations of these financial flows, with respectively 20% and 19% of the total FDI figure. “The textiles sector also offers interesting prospects for foreign investors, due to the richness of fibres present in Peru – cotton, alpaca and vicuna – and an exporting know-how,” states Martine Lebacq.
The Lacoste group has furthermore made the strategic choice of Peru for setting up its subsidiary Devanlay, aimed at the North American and European markets. Another French company, the petrol company Perenco, is on top in terms of investments, after signing a three-year mining contract exceeding one billion dollars. The South African Goldfields, the Italian-Spanish Endesa, the Chinese-British HSBC, the German Deutsche Bank, the Japanese Pan Pacific Copper and the Arab DP World have also invested significant proportions of their capital in the Peruvian economy. The liberalisation of public infrastructure sought by the current government frees up major markets in telecommunications and transport. Interested by the mineral potential in regions of the Andes and Amazon, China seems ready to invest over 5.5 billion dollars, in other words over 3.9 billion euros, in the next five years, announced Luis Giampietri, Vice-President of Peru. The rapprochement between the Chinese and Peruvian economies is intensifying, following the signing of a free trade treaty between the two nations in April. Following Chile, Chinese companies are intending to extend their presence on the Pacific coast to Peru, a gate to the Latin American continent.
An openness ratified by treaty
China is not the only nation to have negotiated a free trade agreement with Lima. The United States, Canada, Chile, Thailand and Singapore conduct trade with Peru without customs barriers. Currently underway are negotiations for free trade treaties with Japan, South Korea, Mexico and the European Union.
The government has even set a target: “We foresee that 95% of international exchanges will be regulated by free trade treaties,” recently stated the Minister of Foreign Trade, Mercedes Araoz, adding that “in times of crisis, openness reduces risk.”
The government’s strategy is clear and can be summed up in the slogan chosen during the campaign for the treaty with the United States: “The more we sell outside, the more jobs inside.” Boosting the export of the country’s cultural products to energise the weak potential of the domestic market is the idea underpinning the signing of these treaties.
This sixth Latin American economy sets out to gradually take out the continent’s pole position when the crisis comes to an end. The treaty currently being negotiated with the European Union is a hub of great expectations. “With the system of generalised preferences, over 700 products are entering the European market without paying customs duties,” specifies Martine Lebacq. The issue of “novel foods” is also raised, products that undergo drastic export restrictions due to their non-conformity with the food security norms set by the EU. Peruvian exporters are hoping that European countries will update their list of such foods. “We make significant efforts to improve the quality of our products, in exchange we expect support from Europe,” explains Romulo Fernandez, President of the Council of Micro, Small and Medium-Sized Companies (Compymep). Last spring, France, Spain and Germany took steps in this direction by lifting bans striking the lucuma, a fruit that grows on the heights of the Andes. Other products with strong export potential may be affected, such as the maca or yacon edible plants, which already are readily found on Asian store shelves. On this note, Asian countries, which already have established solid trade links with Peru, are expected to become increasingly involved in the Peruvian economy. Atthe start of the year, negotiations opened up for a treaty with Seoul, that offers great prospects. The Korean Ambassador to Lima, Han Byung-Kil, recently declared that “trade exchanges between Peru and South Korea should exceed 5 billion dollars, or 3.6 billion euros, by 2011.” As for China, export specialists say that it is set to become Peru’s main trade partner in 2010, taking over the United States.
According to the prognostics of the Peruvian Head of State, Yehude Simon, direct Chinese investment should more than double in the next 5 years and reach 15 billion dollars, or 11 billion euros, around 2015.
Sustainable tourism
The PENTUR, the national strategic plan for tourism implemented by the Peruvian government several months ago, has chosen to highlight the more ecological and responsible model of community rural tourism. Indigenous communities grouped into cooperatives allow travellers to come and share the daily life of inhabitants for several days, for a handful of sols, the Peruvian currency. Offering an alternative to fishing and agriculture, this solidarity-based tourism aims to put a stop to the rural exodus and help preserve the ancestral customs dear to the Peruvians. Based in Cuzco, Nicole de Cartagena created, along with her son and husband, the travel agency Puka Nina. Her catalogue notably offers a five-day excursion to the village of Capachica, on the edge of Lake Titicaca. “Visitors are welcomed, according to the Incan custom, by the village chief and are then included in community activities, such as fishing or preparing meals,” explains this French expatriate. Staying with locals occasionally raises a few problems. “It sometimes happens that tourists complain about a slight lack in comfort,” she admits. Sleeping at the edge of the Titicaca, covered by a warm alpaca blanket – this can only be Peru!
Port and airport projects
In the Peruvian capital, two infrastructure projects are considerably modifying the face of port and airport installations: the Lima Cargo City terminal which opened in May this year near the Jorge Chavez Airport, and the new southern quay of the Port of Callao, foreseen for 2011. Peter Ander Moores, President of the Lima Chamber of Commerce, explains the importance of these projects for Peru: “Conceived as the most important air logistics centre in Latin America, the creation of Lima Cargo City will surely contribute to the development of the Lima economy, as well as the national economy. Lima Cargo City hosts all the sector leaders, and this will allow Peruvian products to be transported in optimal conditions to foreign markets. This project corresponds to the image that Peru wants to show: that of an exporting country. The construction of the southern quay of the Port of Callao obeys the same objectives, not only by increasing cargo capacity, but also by significantly reducing costs for the companies that will use these facilities. These two projects are of vital importance for our country.”
A view of the ocean
Peru is an important geo-strategic point for trade with Latin America. Situated at the centre of the subcontinent and edged by 2,414 kilometres in coastline, it offers
a major arrival and departure port for goods. This said, the country only has one international port, based at Callao, several kilometres from the capital Lima. Alone, it concentrates over 75% of Peruvian exports. However, traffic is still modest, notably due to the fact that post-Panama ships are not catered for, and occupies only 8th place in the rank of Latin American ports. For those wishing to boost international exchanges, modernising this port has become a priority. This will become a reality following the concession granted to Dubai Ports World to build a new ultramodern cargo quay. Work should begin in the second quarter of 2010 and the southern quay should be operational in April 2011, according to DP World managers. This new terminal will allow increasing the current cargo capacity of Callao by 75%, states project leaders. Almost 500,000 containers per year will be able to be loaded, thanks to 24 port cranes spread out over a site covering around 215,000 m2. The water depth allows the latest container ships to be docked here. This ambitious project is expected to cost 646 million dollars or 466 million euros, according to the Peruvian Ministry of Transport. As for the cost of the concession, DP World is to pay between 2 to 3 million dollars per year (between 1.4 and 2.1 million euros) to the Peruvian State. The aim of the project developers is to make Callao into a leading South Pacific port and to overtake the great Chilean rival of Valparaiso. For the government agency Proinversion, “Peru should become a commercial hub in the region by 2013”. The country is therefore going all out to further this project: the government, which granted the concessions, announces a total investment of 568 million dollars, or 410 million euros, to modernise seven other ports, including three situated on fluvial axes, allowing access to what some are already calling the future inter-oceanic corridor: the Amazon River.
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