Brian A. Nichols, US Ambassador to Peru, discusses how economic and commercial ties have deepened with the 2009 entry into force of the US-Peru Trade Promotion Agreement. The volume and diversity of trade in both directions has grown with two-way trade almost doubling from $9 billion in 2009 to $16 billion in 2014. Peru is a participant, along with the United States, in the Trans-Pacific Partnership negotiations.
If we take a look at the economic performance of Peru in the last five years, we cannot understand it without taking into account the impact that the free trade agreement (FTA) with the United States has had on the openness of Peru’s market and economy. From your perspective, how has this agreement contributed to the openness of Peru, the liberalization of its economy, and the relations between both economies?
I think the US-Peru FTA was a huge step forward in terms of setting the stage for increased investment in Peru, diversifying Peru’s product mix, and increasing agricultural trade in particular. We have seen a significant increase in non-traditional exports to the United States, but in particular the FTA has strengthened the agricultural sector in both directions.
When you look at products like avocado, asparagus, blueberries, and grapes, those were things that were not a significant part of the US market before, and have grown since the FTA.
There has also been a steady increase in US interest in Peru in terms of investment and in terms of tourism. Last year, we had 450,000 American tourists visit Peru. Many of those people came to see Peru’s great world-class sites like Machu Picchu – obviously the most famous – but also the fabulous restaurants and the great hotels. When I look at the FTA, the service sector in Peru has grown significantly and the opportunities for visitors and tourists have increased dramatically throughout the country.
In terms of the effect of the FTA on Peru, it has provided a great lever to spur the protection of the environment, to strengthen labor rights, and to promote sustainable reductions in poverty. When you look at where Peru is today, poverty is at its lowest rate ever and has fallen by more than half over the last 20 years. Now poverty is about 22%, which is a substantial decrease. Despite the lower growth rates of the last two years, the poverty rate has continued to decline.
In which areas would you like to move forward in terms of economic and political ties between both nations?
The biggest thing on the agenda right now is the Trans-Pacific Partnership (TPP) negotiations. I am sure that you and your readers have followed that closely. Peru is one of the five countries in this hemisphere that forms part of that negotiating process: Canada, the United States, Mexico, Peru and Chile.
The opportunities for Peru in terms of being a regional trade hub in South America are enormous! When you look at the geographic location, the cost of labor here, the openness of the government to free trade, I think that it all makes Peru extremely attractive from a global standpoint. Peru has FTA’s spanning the globe, but none is as important as the TPP will be when it is concluded.
So you think that this will boost the economy, and reverse the current slowdown?
It will certainly be another springboard for Peru to grow, and when you couple that with the Pacific Alliance you have a great opportunity to strengthen growth in the region and to attract investment. The Pacific Alliance meeting had 32 observing nations at the July meeting in Paracas, Peru, coming from places as far as Morocco, Singapore, Korea, and South Africa, and they increased the number of official observers to 42.
That is all a sign that this is a grouping that is attracting worldwide attention. When you partner that with the FTA – that includes emerging economies like Vietnam or far away but important economies like New Zealand – and links them to this hemisphere, it is really exciting for investment in the private sector here.
I also think that one of the things we see in our relationship with Peru is a focus on things like education, social development, and protection of the environment, which is all extremely important to Peru’s future in terms of sustainable growth and the welfare of its people. So we are extremely glad to partner with Peru.
What is the most distinctive aspect that you would like to stress about Peru if we compare it with other countries of the region?
One of the things that I find most compelling about Peru is its commitment to democracy. This is the country where the Inter-American Democratic Charter was signed, it has been a strong proponent of freedom of expression, free speech, and the government of Peru has been active in international forums, like the Organization of the American States and the United Nations, in promoting those shared values that are enshrined in the UN charter and the OAS charter.
What is the added value that some US private companies based on Peru are bringing to every sector of this economy?
I think a great example of that is Camisea. The Camisea gas fields are just 11 years old now. These are gas fields that provide half of Peru’s energy and, when you look at the US participation in them, it has been tremendous.
You have Hunt Oil as one of the primary partners in terms of the gas exploration at Camisea; GE compressors compressing the gas and sending it down the pipeline; and when it arrives at one of the electric plants here, the Fenix power plant in Chilca – which I had the honor of inaugurating – is another US investment. Then it goes to Luz del Sur, which is a US company, to be distributed in the Lima metropolitan area. It provides Peruvians with some of the cheapest gas and electricity in this hemisphere.
The opportunity that this gives Peru in terms of economic growth and one of the key drivers of the progress that this country has seen over the last decade in particular has been cheap energy.
What does an investor or a company from the United States ask this embassy when they want to invest here in Peru?
I think Peruvian opportunities are enormous, and what we see from US investors and the number of trade missions we have had – we just had a great trade mission from Idaho, from Florida, about alternative fuels and renewables led by the Undersecretary of Commerce for International Trade, for example – all of those have seen Peru as a great market for investing, with tremendous opportunities. And what they are looking for is transparency, clear rules, opportunities to do business with other key private sector partners, and also the opportunity to work with the government on some of the major infrastructure and extractive industry projects that are on the table here in Peru.
When you look around the playing field here, there is tremendous interest and tremendous confidence in Peru as a country where the fundamentals remain very strong. So despite the slower growth in the last year, and into this year, people do see Peru as a long-term winning bet. And when you compare the countries across the hemisphere, Peru continues to have one of the strongest economic performances. You look at some of the other countries, which I will not mention, but they have much lower growth, even zero growth and negative growth. Peru continues to have positive growth, interesting opportunities in different areas and a workforce that continues to be very affordable and increasingly talented and well educated.
So you continue seeing Peru as a magnet for investment within the region?
Oh, absolutely! And coming back to what I said about the TPP, the Pacific Alliance and the other FTAs Peru has, the country is well placed for growth in the future.
I would like to speak about some strategic areas where you have lots of cooperation. One is illegal mining; the other is a drug trade education programs.
In terms of illegal mining, we are cooperating very closely with the government of Peru to deal with the problem of illegal and artisanal mining. We have a comprehensive approach, and we are training police prosecutors and judges to deal with environmental crimes, particularly illegal mining and illegal logging. We are working with academics in the private sector to explore alternative technologies that do not involve the use of mercury in the alluvial mining process, which is incredibly important. We are working to provide alternative livelihoods and economic opportunities in those regions of Peru that are the poorest, particularly the Amazon region where both illegal mining and logging are problems.
We have a strong partnership between the US Environmental Protection Agency and its Peruvian counterpart in terms of looking at ways to deal with regulations and mitigation of the environmental damage caused by those problems. We are just now on the process of implementing an agreement we signed earlier this year on a trade transparency unit. That is something that the Department of Homeland Security supports, whereby the trade flows between Peru and the United States are analyzed in computers and you can detect illegal or illicit flows, so you know ‘Hey, there is something wrong going on here.’ If there is too much merchandise moving that is not justified by the analysis, you can find who is doing these illicit activities, whether it is gold, logging or narcotics.
Education and cultural programs represent one of the main areas of cooperation between both countries. Can you share with us the synergies between both countries in the education chapter?
We have a very, very extensive cooperation relationship with Peru. On education, I will mention a few of the things we are doing, which I think are very exciting. I had the honor of inaugurating the Peru-USA girls’ soccer team for high school students. It provides mentoring and athletic activity to high school girls. We are doing it jointly with UNICEF, with about 25 girls in La Victoria here in Lima. That is an exciting new project and one that we look forward to expanding in the future.
In terms of other education activities, we work through our Binational Centers to provide scholarships to Peruvian students to study English. We provide 200 scholarships for English studies. We also have something called the College Horizons Program, which prepares students who would not normally aspire to attend college, taking extra classes and training so that they can be ready to attend college. Of those who participate in the program, over 70% have gone out to college. This is from a group of people where really none of them would have gone to college.
We also provide scholarships to Peruvian public school teachers, about 200 of them, to study English, and we cooperated with the Peruvian Ministry of Education and sent 230 Peruvian high school teachers to the United States to learn English education at Arizona State University. President Humala mentioned this in his National Day speech, on July 28th, as one of the key achievements in education. We are very proud of that partnership.
We also have something called the 100,000 Strong in the Americas Program, which promotes exchanges between the US and countries in this hemisphere. One of the key supporters of that in the private sector is Freeport-McMoRan, which has a major presence in Peru and is a leading donor to that project here.
The Fulbright Commission is also here. I could talk for days about this! You may want to edit that (laughter). We have English Language Fellows who are in some Peruvian universities, ensuring that English language instruction is at the highest standard. We have also been working to promote contacts between Peruvian universities and US universities in education. We have a public-private partnership with CONCYTEC (the Consejo Nacional de Ciencia, Tecnología e Innovación Tecnológica), where our Naval Medical Research Unit, San Marcos University and CONCYTEC are working together to promote investigation into finding emerging drugs and technology that can help Peruvians and the world. We think it is a very exciting activity.
In terms of some of the other things that we are doing, we talked a lot about the environment and the connection with illegal logging and mining. But one other thing that I was very proud to be able to inaugurate is a program that allowed us to sell 8,000,000 carbon credits from the Cordillera Azul National Park that raised $11,000,000 that will be used to fund conservation in the park for the next 20 years. Our US Agency for International Development (USAID) brought together private sector partners with the Peruvian government to be able to commoditize and sell these carbon credits.
The global climate change efforts that we have here are also quite extensive. One of the most important in my view is in the area of mitigation, where we are helping communities in high-sierra areas deal with the melting of the glaciers that have fed their communities. This is probably the biggest threat to Peru in terms of climate change: glacier melt. Over 70% of the world’s tropical glaciers are in Peru. Here in Lima, if there is no glacier melt each year, there is not going to be water for half the year along the coast of Peru. If you look at where the population of Peru is, well, they live in cities on the coast, which are in the Atacama Desert, which is technically the world’s driest desert. So the reason why the Rimac River, which flows right through Lima, has water in it all year round is glacier melt. If there is no glacier to melt, there is no water. And bathing with sand is not a pleasant experience.
When you were appointed to this mission, what was the first thing that came to your mind about Peru?
I thought, ‘I am going back home!’ as this is where I started my Foreign Service career. I was assigned from 1989 to 1991, and it was a very difficult time in Peru’s history, but I really enjoyed it and appreciated the warmth and the friendliness of the Peruvian people, and to be able to come back here, as an Ambassador, was a great capping of my career. It was a pleasant surprise.
What is the message you want to send to the US audience?
Peru is open for business. This is a country of great economic opportunities, and one of the things that I have seen in Peru in the last 15 years is that every government here has been committed to promoting private sector growth. This is not a country where you see big debates about the broad framework of economic and social policies. This is a country where people might have differences over maybe some of the techniques, but not about the goals. This is a country that is committed to free trade, open markets, private sector-led growth, and also social inclusion, poverty alleviation, protecting the environment, and strengthening labor rights. Those are all positive things, and this is a country where I think the US private sector has a demonstrated record of great success.