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Public-private partnerships to improve citizens’ quality of life

Interview - July 16, 2015

Peru’s construction sector and housing sub-sector do well during periods of growth – in general they grow more than the rest of the economy during those periods. But it’s also true that it’s a sensitive sector, and in periods of sluggish growth it’s a sector that gets very bitter, and for that reason requires additional public policy to bring it back to life. Milton Von Hesse la Serna, Minister of Housing, Construction and Sanitation discusses the development and advances being made in the sector with The Worldfolio. 

MILTON VON HESSE LA SERNA | MINISTER OF HOUSING, CONSTRUCTION AND SANITATION

The first question I’d like to discuss with you is related to the fact that Peru is going to be the host of a summit that hasn’t taken place in South America for 50 years. I don’t think that the growth of a country can be measured if not by the growth of its humanity. I’d like to know what this ministry has contributed to the economic growth and improvement of the country, and how the measurement of this growth in numbers plays out in quality of life improvements for its citizens.

Sure. I think the housing, construction and sanitation sector has been very important for the growth we’ve seen in the last 15 years in Peru.

Our economy is one that’s based in primary export activity, not just in minerals but also in fishing and agriculture.

Nevertheless, the development model needed a sector that would impact the rest of the economy. The primary export sector is a great catalyst because it has many indirect effects, but it’s not great at creating jobs.

On the other hand, the construction sector, which is related to these activities, has the virtue of creating jobs.

Since the beginning of the 2000s, housing policy and access to sanitation services have been more active areas than in the past.

We realized that if the development strategy didn’t consider housing access, it would delay bringing a source of wellbeing to the people, and also that we’d delay developing a healthy and sustained source of employment.

I’ve had the luck to work as a technocrat in five governments, and through that experience I’ve been able to see the evolution of this development model.

The construction sector and housing sub-sector do well during periods of growth – in general they grow more than the rest of the economy during those periods.

But it’s also true that it’s a sensitive sector, and in periods of sluggish growth, it’s a sector that gets very bitter, and for that reason requires additional public policy to come back to life.

Tell me a little about the ministry’s new projects, like the new subway line in Lima, the convention center, and the new city, Olmos.

Part of this government’s public policy is to improve all citizens’ quality of life. Even though Peru has demonstrated a lot of growth at the local and regional levels, we’ve come from a level of wellbeing marked by deficiencies.

That’s why, to ensure the sustainability of this process, we’ve tried to make these improvements more visible.

We think that there’s space to generate active public policy to contribute to the entire population’s access to services and to improve quality of life.

In the projects we’ve executed during this five-year period, we’ve had the Line 2 subway project, a project with the largest impact that Peru has had in many decades, and the Sur gas pipeline, which created so that people have access to clean and cheap energy.

And from the housing, construction and sanitation sector, we wanted to break with the city’s development dynamic that invaded instead of planning.

In that sense, we have a series of projects: on the one hand reconstructing the city of Pisco, and on the other we proposed the new city of Olmos, which will be presented for bidding within 40 days and will involve a large proportion of land being integrated into the agro-exportation process.

In that way, workers associated with this industry will have housing in a city with full access to services.

Tell me a little about the strategic focuses of this ministry.

This ministry has three focuses; all of them are intimately related. The first is water and sanitation.

It’s an area in which we’ve already invested more than 6 billion soles into and whose budget, by the end of the year, will have exceeded 10 billion soles.

What we do through our sanitation program is bring water to people as a right, as a source of life and basic element of public health.

The water access indicator had been stuck in the same place for almost a decade when we arrived in government.

With the investments we’ve made, the indicator has risen 10 percentage points, and we’re already exceeding 87% in the country as a whole.

In rural areas, which are traditionally the poorest sectors of the population, we’ve doubled access to water.

This problem isn’t only resolved with investment – we’ve also challenged ourselves to better manage water and sanitation companies, which in Peru are public.

And that’s why we’ve undertaken a modernization process with these businesses, which entails major participation with central government in municipal companies, a major capital offering, and which at the same time allows them to up their participation in decision-making with the goal of establishing strategic partnerships with the private sector.

It’s a process that this government has started and that we hope, by the end of our term, will have created five well-established modern companies and linked to a public-private model.

The second strategic focus is on housing access. We started our term with a quantitative deficit of around a half million residences that we should have had built.

Throughout our term and up to the end of last year we’ve finished with 140,000 homes sponsored.

By the end of this year we should be at 200,000 homes sponsored and we’ll finish our term with at least 250,000 sponsored for the poorest sectors of the population.

I have here a book with ministry memos from last year, and you can see that the two most important programs, Techo Propio and Nuevo Crédito Mi Vivienda [My Housing New Credit] exceeded 50,000 last year.

We did more last year than previous governments have. This year, we’ll exceed 60,000.

We also have the challenge of overcoming the qualitative deficit, which is to say that in Peru there are a million and a half residences that don’t meet basic living conditions.

That’s why we have various programs that endeavor to improve quality of life: in the rural sector we have a national housing program, which began this year and for which, at the end of this year, we’ll have 8,000 new homes in rural areas with two basic characteristics – they’ll be earthquake proof and have temperature regulation.

Another program that we implemented last year structurally reinforces housing on the outskirts of Lima so that they will be more resistant in case of an earthquake.

The third focus has to do with the environment that families live in. For that we have strategic projects like the new cities of Olmos and Belén, the rebuilding of Pisco, a national neighborhood improvement program, which consists in paving roads and sidewalks, some emblematic buildings like the convention center, and the Tambos program, which helps bring public services to dispersed groups of people.

This third focus is the most diverse because it concentrates on improving quality of life.

You said something very important, that this government has established public-private alliances. This implies having legal security and a stable arena for investment. How do investors see Peru and why do they decide to come here and not to other countries?

Look, all of our housing public policy rests on the private sector. For example, the Techo Propio [Own Roof] program is a subsidy to the demand whose total ends up in a construction company that chooses the beneficiary. Obviously, the State makes sure that companies are serious and have letters of certification so that they don’t defraud people or deliver products that don't comply with the agreed quality criteria.

Also, for the Mi Vivienda [My Housing] credits, the credits that people take out channel private business into housing.

The sanitation sector is still primarily under State management, although our water and sanitation company SEAPAL has already reached agreements with the private sector.

I would say that around 30% of SEAPAL’s turnover corresponds to a public-private contract.

The State understands that public policy implies safeguarding our role as subsidizer.

The private sector must lead growth and the State should partner with the private sector, that is to say, facilitate growth and level the playing field so that all lenders play with the same advantages.

All of this is a given in our global and regional framework for integration.

In what areas would you like to see more investment by US companies here in Peru?

In reality, there’s very little direct US investment in the sector. North American companies haven’t presented themselves en masse in the country, as many Spanish and Brazilian companies have.

I think that in the US capital you’ll find a space with clear, transparent and stable rules to do business.

In the water and sanitation sector, the technology applied is related to European and Asian technology and less with technology originating in the US.

So, we have another important space here for US investors.

You have a close relationship with the World Bank, don’t you?

Well, I worked there, in the water and sanitation program that the World Bank proposed for the region; I also managed it at one point.

They help us a lot, really. They finance public projects, contribute with technical assistance, and they do it through a regulatory framework that allows us to more healthily formalize property in Peru.

We have a very close relationship with the World Bank. The same bank came to Lima to supervise the convention center so the summit participants, people who decide the economic future of the world, feel comfortable and can deliberate in the best conditions possible.

Lastly, what is your vision for Peru in 2050?

That’s a complicated question. Peru is such a dynamic country that if you’d asked me the same question 10 years ago, I wouldn’t have been able to answer with the country’s actual configuration in mind.

Probably that the city of Lima will be better integrated to the North-South axis, but also better configured on the East-West axis.

I would like to see a much more vertical Lima, as opposed to the horizontal growth that we’ve had up until now.

And hopefully with more green space than we do now. 

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