Investment in a growing Peru

Peru has experienced a significant and accelerated development in the last decades, growing at an average of 6% of its GDP for the last 15 years. Could you please elaborate on this regard? Please take into account the achievements as well as the challenges ahead, specifically in your sector.

Currently, the economy of Peru is undergoing significant change in its pattern of development. Peru is growing on a regional, decentralized level, which affects various sectors. The economy is no longer centered in Lima. For example, at the country’s northern coast there’s important agricultural development which allows for full employment in the area. The fact that least one part of Peru is facing a labor shortage is a great achievement, enabled by 15 years of sustained growth. The question and challenge that arises is how to apply this to the Peruvian economy in its entirety.

One of the difficulties we’re facing now with trying to propel this kind of decentralized growth in Peru is its geography. The country is mountainous and numerous geographical features make it complicated for different zones to connect and communicate. To address these obstacles posed by nature, the country’s promoting the use of e-money. Hopefully in one-and-a-half to two years, the Peruvian model of e-money usage, which aims to “level out the Andes,” will be functioning and widespread. E-money is naturally permeating, it spreads everywhere. As a result, no payment, bank access, or cash out will be difficult, regardless of where in Peru the transaction is done. The most interesting example of this kind of thing is the creation of paper money in England. Although at first people didn’t trust the innovation, the country continued to use paper money and thanks to this, it was the first country in Europe to construct industrial machinery. Something similar is happening here, it’s the most important innovation of the last three centuries and the positive results it will generate are beyond imagining. The fact of easier and stronger connection between regional economies will cause a spectacular drop in costs. 

Added to all of this, the increase in communication channels throughout the country will allow for greater civic participation, resulting in a more solid democracy. Strengthening the position of citizens involves demand for more rights. This demand for rights is not without conflict. One example is the emergence of socio-environmental conflicts in the mining area. The emblematic sites are Congo and Tía María. We maintain that what’s important is managing the conflicts, with the aim of reducing investment and operation costs and producing greater competitiveness. Various techniques have been developed in the country to incentivize conflict resolution. One proposed mechanism is applying the Equator Principles, a framework of principles whose objective is for banks to offer information to investors when they finance them, and, at the time when paperwork is signed, to make them comply with all of the requirements established in the principles, such as environmental norms, among others. The objective is to make investors conscious of existing risks so they can make decisions responsibly. Applying the principles to this type of operation is legally binding and will become fully enforced in March 2016. In this way, we have a mechanism that aligns the financial interest in reducing costs with the moral interest of acting well and obeying the law, strengthening our rule of law.

Will this directly affect the country’s investment climate?

Yes, within a reasonable amount of time we’ll see important improvements. For example, we’re forming a team of specialists in conflict mediation and resolution. Peru aims to reduce risks for both sides, that’s why, on the one hand, there are efforts to advise local communities about the risks of the mines, and on the other hand, the effort to work together with the banks. The largest and most important banks in the country, Banco de Crédito, Scotiabank Peru, BBVA Banco Continental, and Interbank, are all on board with the proposal and welcome it.

Up to this point we’ve taken up different projects for the growth of the Peruvian economy: regionalization, “flattening the Andes” through the use of e-money, and reducing mining risks. Another important topic to present is that we’re the star of microcredit. We’ve been ranking well for the past 5 or 6 years. We seek to get closer and closer to the lower end of the pyramid, making credit accessible for the people there. Our objective is to facilitate inclusion, but we want to grant this type of financing in a secure and regulated manner, without sacrificing control or security. To carry these requirements forward, we’re promoting the use of psychometric elements to identify which candidates are responsible or suited to implement the proposed projects. There are only two companies in the world who do this, who apply psychometrics to credit options. Although it’s in an experimental stage, we believe the use of these measuring elements will reduce the risk involved in loaning to first-time applicants. This is one example of the mechanisms we’re developing to drive microcredit.

You asked about formalization. This is an issue that has to do with the labor market. There’s no way to force an economy to employ more people than it can. This is a macroeconomic issue, which can lead to underemployment or an increase in the informal sector, and the only way to address this situation is to grow more quickly. Peru has displayed important growth in past few years, and to sustain it has opted for a macroeconomic policy of openness and pro-exportation, which allows for continued increase in production and sales. In addition to this, we’re promoting innovation and looking for new replacement angles, which would be a source for quality employment. The Peruvian population has all the characteristics to take advantage of and accompany this development; it is highly industrious, innovative, open to experimentation, it believes that hard work is the vehicle to success, it is committed and dependable. Sociologically, the country has transformed itself greatly, and this is an asset. Investors who come here will find investment groups that will give out reliable information, a bank that will tell them accurately about the state of things, and a government that won’t swindle them. Peru has established itself as a trustworthy country.