HELLO HIGHWAY
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.
HELLO HIGHWAY
TABLE OF CONTENTS
Interview
Diego de Osma Ayulo, President of the Board of Directors and Chairman, Omnia Medica (Grupo de Osma)
TBY talks to Diego de Osma Ayulo, President of the Board of Directors and Chairman of the Board of Omnia Medica (Grupo de Osma), on introducing novelty, successful human resource management, and company goals for 2016.
read articleInterview
Jesús Tamayo Pacheco, Chairman, Supervisory Agency of Investment in Energy and Mining of Peru (Osinergmin)
TBY talks to Jesús Tamayo Pacheco, Chairman of the Supervisory Agency of Investment in Energy and Mining of Peru (Osinergmin), on the country's mining safety regulations, the largest energy project in Peru, and the body's future projects.
read articleInterview
Luis Andrés Montes Bazalar, Technical Secretary, Fund for Investment in Telecommunications (FITEL)
TBY talks to Luis Andrés Montes Bazalar, Technical Secretary of the Fund for Investment in Telecommunications (FITEL), on IT connectivity in Peru, challenges facing the sector, and increasing IT inclusion.
read articleInterview
Gonzalo Martin Ruiz Díaz, President, Telecommunications Regulatory Agency of Peru (OSIPTEL)
TBY talks to Gonzalo Martin Ruiz Díaz, President of the Telecommunications Regulatory Agency of Peru (OSIPTEL), on the state of telecoms in Peru, the role of the private sector in extending coverage, and the country's performance compared to regional counterparts.
read articleInterview
Edgar Patiño GarridoEdgar Patiño Garrido, President, National Port Authority (APN)
TBY talks to Edgar Patiño Garrido, President of the National Port Authority (APN), on the role of Peru's ports in the economy, the impact of the Panama Canal expansion, and efforts to tackle crime at ports.
read articleReview: Doing Business
Off the rock, the roots of prosperity
Despite the momentary slowdown from a dip in commodities prices, Peru remains just as promising a place to do business as any in Latin America. Diversification away from minerals, revamped special economic zones, and the narrow, unexpected victory of a Wall Street savant and committed infrastructural reformist mean that Peru looks to 2017 with bright eyes.
read articleReview: Legal
Rewarding Ends
Cesar Candela, Partner at Zavala Hernández & Candela Jara Abogados, discusses the role of investment in Peru's economic growth and how in order to raise funds it has established a stable and appealing legal framework for national and foreign private investment.
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