OBG talks to Jose Graña Miro Quesada, Chairman, Graña y Montero

Interview: Jose Graña Miro Quesada

Given the infrastructure deficit across the board, where should the state’s priorities lie?

JOSE GRAÑA MIRO QUESADA: It is difficult to identify priorities when the infrastructure deficit is so dramatic. Priority should be given to projects that are key to maintaining continued and consistent growth. While the economy has been growing impressively over the past decades, investment in infrastructure until now has not been sufficient to maintain this level of growth.

Strategically, the most important need is for investment in electricity, as this is essential for long-term sustainability. However, where the lack of infrastructure is most notorious, and where the public feels it the most, is in transport. Substantial investment has been seen in ports and in highways, but without adequate investment in transport infrastructure in urban centres, especially Lima, the impact of this spending does not reach the people. There needs to be more coordination and collaboration among municipalities, regional governments and the national government to ensure such projects are as effective as they can be.

How much do rising land prices and the lack of proper zoning affect large-scale projects?

GRAÑA: Land prices in Lima and throughout the country have risen dramatically, and one of the principle reasons is that land is not being developed quickly enough due to excessive bureaucracy. In Lima, two additional obstacles that are significantly inhibiting growth are zoning and the lack of water infrastructure.

Lima is a very different city from what it was years ago when many of the current residential and industrial zones were drawn. Natural growth has outpaced the speed at which areas have been redrawn, and this is largely due to a lack of long-term planning. Today, certain areas that continue to be designated as industrial zones no longer make sense, but the process to rezone land is long and arduous.

Peru’s housing deficit is approaching 2m homes and that will be filled only by large-scale housing projects that for the most part have not yet been undertaken. In large cities like Lima, the only tracts of land that realistically could hold such large-scale residential projects lie in these industrial zones. Rezoning processes must be simplified to facilitate these projects.

In terms of water, the issues are administrative, as well as a lack of resources. The logical solution would be to privatise the state- and municipal-owned water companies, which is politically impossible. Thus state and private actors need to find strategies that work within the current framework, which will require a rise in prices. In the long term coastal cities must diversify their resources, which will take two possible forms – either concessions bringing water from the jungle and highlands regions, or desalinisation plants along the coast.

In what ways has financing for large-scale infrastructure projects evolved?

GRAÑA: Due to sustained growth in many Latin American countries and strong international bond markets, financing for large-scale projects in Latin America has evolved substantially and for the most part is no longer an issue. However, there continues to be a lack not only in project management but also in project creation.

In Peru, there are simply not enough projects designed and approved by the government as laws continue to grow more complex, and the shortage of infrastructure projects is due to this rather than a lack of funds. Many of these regulations come from periods in which public spending had to be reined in due to a lack of money, but they are no longer relevant today.

Additionally, while many regulations were created to discourage corruption, they have had a mixed effect. Excessively complex regulations are often the cause of corruption. Worse, an overemphasis on uncovering corruption, rather than fixing a broken system, has led to a fear among officials at all levels of the government of signing off on projects lest allegations of corruption come back to haunt them. Rather than eliminate corruption, such regulations have slowed development.