ERUPTION OF ACTIVITY

Peru 2015 | ECONOMY | FOCUS: AREQUIPA

Long an economic center of Peru, Arequipa was well placed to exploit the commodities super-cycle where minerals mined in the region commanded record prices.

Although Arequipa is Peru's second-largest city by both population and economic scale, it is traditionally better known as a scenic mountain retreat. However, ten years of record-breaking growth fueled by a booming mining sector, as well as recent government efforts to encourage innovation, improve the business environment, and invest in infrastructure have brought the city new recognition as one of Latin America's up-and-coming investment destinations.

Arequipa has always been an important economic hub for Peru. However, the highly centralized nature of the Peruvian economy has meant that most industrial development has taken place in Lima, leaving the provinces far behind. Over time, Arequipa, located in an Andean valley, established its economy as a key trading hub for small-scale mining and traditional agricultural and textile products such as milk, quinoa, and alpaca wool.

The late 20th century saw the development of industrial-scale mining projects in Arequipa, catapulting the economy forward and positioning it to take advantage of the early-2000s commodities super-cycle, which saw record prices for a number of minerals mined in the Arequipa region. In the first half of the 2000s, Arequipa became the fastest-growing city in Latin America, and between 2002 and 2012, the city doubled its GDP.

In recent years, as commodity prices began to fall once again, the city has made significant strides in promoting a more diversified economy through reforms, tax incentives, and investments in infrastructure. Efforts to make the city a more attractive place to do business have paid off with a wave of new capital inflow to both traditional and non-traditional industries, including software and telecommunications. As a result, the city has begun to receive international recognition as a solid address for business. In 2014, it placed 30th on the América Economía ranking of the most attractive places to do business in Latin America, and 36th on the Índice de Atractividad de Inversiones (INAI) compiled by Colombia's Universidad Rosario.

One significant development for the city has been the growth of the software and technology sectors, with policy-makers coining the term “Silicon Arequipa" to describe the new wave of software start-ups in the city. A large part of these efforts has involved a push by the government to fund new computer science postgraduate programs to ensure that the region has the human capital to develop a technology industry. Currently, Arequipa has the highest concentration in Peru of people with postgraduate degrees in computer science from foreign universities. In order to further leverage this strength, the government has funded two new computer science programs, one at Universidad Nacional de San Agustin and the other at Universidad Católica San Pablo, recently named the best computer science program in the country.

The city now has around 50 active software companies and over the past decade, the Arequipean software industry has grown from generating $132 million annually to around $310 million. Over the same period, software exports grew from $9 million to $38 million. A major step forward for the software sector in Arequipa was the decision by BCP, Peru's largest bank, to locate its software development centre in the city, creating 300 jobs in the software segment. The city also garnered additional attention in 2013 when a former Google programmer decided to move to Arequipa to found Zuriel Corporation, a company that develops web and mobile apps. According to Carlos San Roman of Adecco, a major driver of growth for the city's software industry over the coming years will be business process outsourcing (BPO), which will allow Lima-based companies to subcontract software services to specialists in Arequipa.

Apart from technology, the regional government of Arequipa is looking to promote further development in industries such as tourism and agriculture, which have been the traditional mainstays of the city. A large part of this effort includes working to improve the environment for doing business through regulatory changes and infrastructure investments. In an interview with TBY, the mayor of Arequipa, Alfredo Zegarra Tejada, explained that; “We need to foster a greater sense of confidence among investors in the city and its public institutions." The mayor highlighted that the city has improved the speed at which it issues business permits, but that work remains to be done.

One of the major challenges identified is the lack of sufficient transport and telecommunications infrastructure. However, this looks set to change, with a recent government announcement of around $1 billion to be invested in road and telecommunications infrastructure in the city, including the renovation of the airport.

The mayor also highlighted efforts to promote the development of the tourism sector. Arequipa has long been known for its strength in tourism. The city is known as “the White City" for the unique, volcanic, sillar stone from which the majority of its buildings are constructed. It has also been recognized as a UNESCO World Heritage site. The government is now investing a further $16.4 million in restoring tourist sites. These efforts are already bearing fruit, with the mayor recently announcing that two international hotel chains will be investing around $10 million to develop hotels in the historic centre of the city.