HELLO HIGHWAY

Peru 2017 | CONSTRUCTION & REAL ESTATE | FOCUS: INFRASTRUCTURE

With dwindling commodities revenues, the private sector is innovating ways to pay for and build infrastructure projects.

One of the main challenges facing the country is the need for more robust modern infrastructure. After a decade of rapid expansion, economic growth has slowed in the past few years, falling to 2.4 and 3.3% in 2014 and 2015, respectively. However, this isn't a death sentence for the Peruvian economy; on the contrary, many believe it creates new sectors with the potential for investment. Jorge Von Wedemeyer Knigge, President of the Lima Chamber of Commerce, said as much in his interview with TBY, noting “there is considerable potential to invest in the economy and the main opportunities are in infrastructure development. … There is strong potential to [privatize services,] opening opportunities to construct roads, railways, metros, and distribute energy to other countries." Careful strategic investment and coordination between government and industry should strengthen the nation's infrastructure and allow for much-needed foundational improvements that will help Peru remain a flourishing global economy in the years to come.

One of the key goals of infrastructure improvements is to allow for greater economic diversification. The Organization for Economic Cooperation and Development (OECD) writes that “poor diversification of the [Peruvian] economy" is one of the country's biggest “constraints to sustainable and inclusive development." Mining is Peru's biggest industry and the source of much of the economic growth of the past decade, but recent signs point to diminished growth in the near future. Although the industry had a strong 2015, which culminated in record-breaking growth in December, falling demand for raw minerals has led to commodity prices dropping in recent years. Accordingly, some expansion projects have been delayed over concerns over the long-term viability of the industry.

Here, improved infrastructure can fill the gaps. Fast and reliable transportation and distribution networks are lacking in the provinces outside of Lima; the OECD calls this “low connectivity" a significant barrier to economic development. By allowing increased access to natural resources beyond minerals and ores, generating human capital through increased access to basic services, and allowing for faster and more reliable movement and communication, investment in transportation infrastructure will reap great rewards over the long term. This theme has come up repeatedly in TBY's interviews with Peruvian industry leaders. Vicente Magaña, CEO of ABB Peru, stressed the company's desire to increase its presence in the infrastructure sector. “We own, in terms of highly automated ports, more than 60% of the market share globally," he said. “We've targeted infrastructure" José María Margalef, General Manager of Gas Natural Fenosa, concurred, explaining that Peru has great potential in the natural gas sector but lacks the infrastructure needed for generation and wide-scale distribution. “Peru is still poor in energy infrastructure… it is missing distribution mediums and some power plants.[With natural gas] the country will have a higher growth in energy technology but it will need the infrastructure."

There is room for growth when it comes to digital and telecommunications infrastructure as well. Rolando Toledo, General Manager of Yachay, a telecommunications firm, explained that “here in Peru, in the last five years, digital infrastructure has been increasing because we were one of the latest countries to have users connected to the mobile network. … In the last five years, the national fiber-optic backbone has been developing." Digital infrastructure is every bit as key as physical in a global environment that is rapidly becoming ever more interconnected. Increased access to telecommunications is key to increasing the level of human capital in the country. A 2015 OECD country review of Peru explains that “education and skills are a major weakness… Peru's education outcomes suggest that the quality of its education is a major barrier." Bringing education and the necessary skills to the provinces will generate a new wave of skilled workers able to adapt to the global marketplace.

Some of the needed projects are already underway. Telefonica, the largest cellular provider in Peru, announced at the 2016 Mobile World Conference its plans to invest PEN5.7 billion in digital development projects over the next two years. The company, which has spent more than PEN22 billion on telecommunication infrastructure development since its inception in 1994, hopes to reach 22 million people with its project. Long-term projects such as these take vision and planning, but the rewards are tremendous. As the Peruvian economy becomes ever larger and more developed, a robust and interconnected modern infrastructure will be essential to helping it meet its full potential.