Before the arrival of the pandemic, Peru danced between lights and shadows in economic matters. The first decade of the 21st century witnessed steady growth, driven primarily by robust macroeconomic policy and the commodity boom.
With enviable growth figures and a middle class that was taking off, the Andean nation underwent a notable transformation. The country's wealth grew 6% on average annually between 2004 and 2014 and was the highest rate in South America. However, as the second decade progressed, the dissonances became more visible.
With the covid-19 pandemic, the differences that exist in Peru were highlighted. Outside the capital, the population faces greater challenges in basic issues such as public goods and services. In the interior, private investment is lower and this has stopped the creation of jobs in the region with great potential. In the first five months of 2023, GDP fell 0.5% due to political uncertainty, social unrest and the occurrence of disasters. Other limitations that the Peruvian market has had and that directly affects private investment is the informality in land ownership. The absence of complete records weakens institutions and takes away transparency from the titling processes. Furthermore, Peru is one of the most vulnerable countries to climate change.
In order to contribute to the recovery of the Peruvian economy, the report Creating Markets in Peru: Country Diagnosis of the Private Sector of the International Finance Corporation (IFC) and the World Bank, presents recommendations to encourage private investment in the country, reduce economic gaps and promote the development of Peru with a sustainable vision.
This study delves into the challenges of the Peruvian economy and focuses on four fundamental axes to achieve the country's development: agriculture, tourism, aquaculture and digital economy. It suggests that these sectors must adopt sustainable practices, which are fundamental for the World Bank and the IFC.
“The strategy for Peru and the region focuses on three major themes,” says Manuel Reyes-Retana, IFC regional director for South America. “The first is sustainability. Everything that has to do with climate change is central to our global strategy. Peru is no exception. The second is inclusion, and I don't just mean financial inclusion, but water, sanitation, health, education, communications, digital services and vulnerable sectors. The third is productivity. Low productivity is in itself a reflection of deficiencies in aspects such as infrastructure, telecommunications and transportation,” he explains.
Peru has more than 3,000 kilometers of coastline and has varied ecosystems that make the country more vulnerable to climate change. The IFC and World Bank study seeks to boost private investment in more inclusive and climate-smart economic activities, which can accelerate economic recovery, but in a sustainable manner, in a medium term of four to five years. “Over the last 10 years, IFC has invested around $2 billion in Peru. In the next four or five years, we estimate that we can invest between 1.5 and 2 billion dollars. Unlike commercial or financial investors, our investments are countercyclical. We are not the type of investors who pull back when we perceive risk or low growth. On the contrary, what motivates our investments is impact.”
The private sector in Peru has had support from IFC in different areas. From financing and advice for the development of infrastructure to assistance to strengthen the capacities of regional and municipal governments, as is the case of the shared value platform Moquegua Crece, an alliance with shareholders of the mining company Quellaveco, as well as the regional government from Moquegua. There are also lines of credit with banking institutions to support micro, small and medium-sized businesses, focusing on financial inclusion for women and the migrant population.
The diagnosis made by the IFC highlights reform recommendations along three lines: increasing the effectiveness of subnational governments to invest, reform in the land markets and labor market to facilitate investments, and reforms to reduce informality, promoting access to jobs. quality.
In the coming months, the International Finance Corporation will seek to promote business activities linked to nature in the Amazon region, with sustainable forestry activities and ecosystem protection activities financeable with a broad development of the carbon credit market.
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