OBG talks to President Ollanta Moisés Humala Tasso

Interview: President Ollanta Moisés Humala Tasso

How can the impact of the informal economy, which reduces tax revenue and deprives workers of their rights, be minimised?

OLLANTA HUMALA MOISES HUMALA TASSO: The informal economy is a problem of immense complexity and magnitude. As such, reducing the levels of informality demands various public policy changes that go beyond simple labour laws, social security and taxes. To this end, the government has prepared a number of strategies to encourage increased competitive employment with less informality.

To begin with, the government will pursue its role as a facilitator of formality by simplifying its administrative processes that allow such businesses to become formal. Additionally, the state will provide services and support, such as financing, training, technical assistance and technology transfer, to assist such informal businesses in their bids to formalise. We are currently developing strategies to make it more attractive to hire salaried, formal employees and to reinforce a culture of compliance. Additionally, we are considering a special tax regimen to limit the tax burden on small enterprises during their formalisation process.

We aim to grant tax benefits and privileges to those businesses that comply with labour regulation and respect the rights of their workers. This includes assistance in commercial activities, as well as incentivising partnerships with other companies and state enterprises to further open up markets and encourage their development. Finally, we aim to encourage independent informal workers to register with social security, while making it easier for microenterprises to register their workers as well. The effectiveness and scope of such activities will depend on effective coordination across various sectors and government bodies.

Is energy self-sufficiency realistic? If so, when and how could this be achieved?

HUMALA: Peru has such an immense level of diversity in its natural resources and energy sources that it is completely realistic to speak of energy self sufficiency. The government is working towards the goal of full and lasting energy supply, and one day we will have it.

It is important to highlight that we are not at present energy deficient. Current demand is about 5050 MW while supply is 7200 MW. We estimate that in the next 10 years internal demand for electricity will more than double, surpassing 10,200 MW. To ensure new demand is adequately met, while providing for proper reserve generation capacity, we will require a new supply of at least 6000 MW, which requires construction of new power plants, among other measures.

Over the past few decades, demand for energy in Peru has grown steadily alongside economic and population growth. However, if we compare energy consumption per capita to other countries in the region, Peru’s consumption rate remains below average. Currently, total energy consumption is comprised of 39% oil, 33% natural gas and associated liquids, 11% hydroelectric, and 17% biomass, coal and solar. Obtaining energy self sufficiency will involve a series of strategies currently being pursued, such as improvements to the regulatory framework and a tariff policy that does not disincentivise rational and efficient use of energy. As for electricity, we aim to diversify our energy sources to pursue the integrated development of energy inputs, and to improve upon transmission infrastructure for better coverage and distribution, especially to the rural population.

How is the government working to improve infrastructure and facilitate investment?

HUMALA: It is fundamental to develop social and productive infrastructure to expand GDP. Our government is aware that infrastructure development has a positive impact on economic growth and its distribution within the country. It is evident that there exists a direct relationship between investment, infrastructure, competitiveness and GDP growth. For every 1% that our road infrastructure expands, GDP grows by 0.218% as infrastructure expansion facilitates the development of additional productive enterprises. Additionally, such development positively and directly affects the quality of life for all, and these large-scale infrastructure works generate thousands of jobs.

To this end, my government is pursuing a comprehensive plan to promote investment. In the first 10 months of my presidency, we awarded the concessions for two projects of 10.15 GHz between Lima and Callao, as well as the construction of two thermoelectric power plans, one in Pucallpa and the other in Puerto Maldonado. In May 2012, we presented a portfolio of 26 projects worth over $10bn, in which we prioritised large-scale infrastructure projects in the transport sector, including highways, airports and ports, as well as in the energy and telecoms sectors. Additionally, we have identified investment projects across the 26 regions of the country worth more than $60bn, which will soon be promoted to national and international investors.

However, Peru must not only close the gap in infrastructure, but also improve upon other aspects, such as its institutions and governance, economic performance, business environment, innovation, sustainable use of natural resources, environmental preservation, and efficient health and education systems, which are the objectives towards which we are working.

How can agricultural productivity be improved?

HUMALA: Peru’s geographic and environmental diversity results in an economic and social dynamic that lends itself primarily to three types of agriculture: subsistence, small and medium commercial producers, and intensive export-oriented agriculture. Our agrarian policy focuses on improving the efficiency of our producers, especially those not technically advanced, through four development criteria: management, competiveness, inclusion and sustainability.

We are working to close the public investment gap, especially in the highlands. Starting in 2013, the MiRiego fund will finance $370m worth of public investment projects to improve hydraulic and irrigation systems. This fund will also be the axis through which the country implements productive projects, encourages associations and cooperatives among producers, facilitates the opening of markets, and encourages the efficient management of natural resources and food security. We will also continue assisting small and medium producers. This support will come in the form of financing, facilitating the formation of associations and rural management, assisting their coordination with regional, national and export markets, and improving their access to market and innovation services.

Are there plans to increase investment in research and development (R&D)?

HUMALA: This country has historically set aside very little money for science, technology and innovation, and it has lacked links between university research and the needs of the business community. The results of this are clear, as Peru’s investment in R&D stands at 0.14% of GDP. In Brazil and Chile, R&D makes up around 1% and 0.7% of GDP, respectively. These governments each spend 58% and 65%, respectively, of the total R&D investment in their countries, while in Peru that figure is around 28%. Thus, not only is Peru’s contribution to regional R&D low in absolute terms, but the state’s spend on R&D is also amongst the lowest in the region.

We are taking important steps to change this situation. We have made a big push with our scholarship programmes favouring the development of our human capital, and we are investing more directly in R&D. We are also restructuring the National Council for Science, Technology and Innovation, doubling its budget to PEN30m ($11.3m). Similarly, we created a PEN300m ($113m) fund for the development of science and technology, and we are giving financial incentives to companies that commit themselves to innovation.

Our goal is to increase R&D funding to 0.7% of GDP. Part of these funds will be used as complementary to the R&D spend by small and medium-sized enterprises, while the rest will be used to leverage venture capital in the sector and to finance other R&D activities.