Adding value: Capital and intermediate goods push national production

A shift towards industrial development is propelling a number of Latin America’s leading economies. As one of the frontrunners, Peru has caught on to the trend of moving away from primary product dependency, discovering the benefits of establishing a healthy balance between manufacturing and commodity exports. The results are evident in domestic development with the creation of jobs and increased buying power, conditions that are laying the foundation for an emerging middle class. The advantages of adding value industrially have been espoused by government officials, who are seeking private sector participation to improve productivity.

Performance

As one of the most important economic segments, Peru’s manufacturing sector made up nearly 16% of GDP in 2012, displaying year-on-year (y-o-y) growth of 1.32%. The sector continued to expand at a rate of 1.42% during the first half of 2013. Despite unfavourable external conditions, mainly in Europe and the US, which have to some extent decreased the demand for primary products exported by Peru, the steadiness of non-traditional manufacturing has helped keep overall growth on track, diversifying both products and markets. During the global economic downturn of 2009, only a fraction of Peru’s industrial segments were displaying positive results. However, since then, this position has been steadily improving.

Over 2012, primary manufacturing, which includes products such as fishmeal, meats, sugar and metals, dropped 6.5%. This was due in part to seasonal conditions, as fishing, traditionally an important extractive activity, experienced a number of climatic problems, lowering production levels drastically in comparison to the previous year.

However, the spectrum for non-traditional activities, including products with added value, grew by 2.76% largely thanks to the positive performance of capital goods (31.55%), intermediate goods (4.99%) and consumer goods (0.28%). In the first six months of 2013 primary manufacturing declined just 0.1% y-o-y, while non-primary manufacturing rose some 1.7% y-o-y, according to the Ministry of Production (Ministerio de la Producción, PRODUCE). In the non-primary manufacturing segment, intermediate goods are a key driving force, registering 4% growth y-o-y in the first half of 2013.

Production Surge

Johann Spitzer, former director-general of economic studies at PRODUCE, told OBG that goods related to electricity, energy and mining are in high demand and will continue to grow, boosting national production figures. Internal construction activities, mining and energy projects are leading the consumption of these products, with electric panels being some of the most sought after. On the external market front, goods related to electricity control and management are being exported primarily to the US and Ecuador. The metal-mechanics industry has benefitted most from this demand and is expected to continue expanding as new opportunities present themselves (see analysis).

Body Build

Products related to automobile bodies and vehicle assembly registered growth of 26.83% in 2012 and 5.7% y-o-y for the first half of 2013. Although Peru is not likely to fully develop an automobile industry, much assembly activity is taking place locally and has strong prospects, according to Javier Dávila, manager of the Institute for Economic and Social Research (IEES) at Peru’s National Society of Industries (Sociedad Nacional de Industrias, SNI), a private sector association that represents companies across virtually all industrial activities.

Cars and buses arrive in the form of chassis (frame, wheels and machinery of a motor vehicle), which is then used as the base for assembly. As Peru continues to modernise, this sub-sector has been growing, with increasing numbers of vehicles for cargo and mass transport purposes, said Dávila. In terms of exports, many larger passenger vehicles go to neighbouring countries like Chile and Colombia.

The favourable performance of intermediate goods has been sustained in large part by the production of cement, lime and plaster, which increased 11.8% in the first half of 2013. As an industry with a multiplying effect, construction continues to benefit a wide range of local industries, such as producers of cement, steel, glass, plastics and glues. The demand for cement propelled production by nearly 20% in 2012, a rate likely to drop somewhat in 2013 while remaining strong as major construction projects continue in the areas of housing, malls and highways and related segments (see Construction & Real Estate chapter). Dominated by a relatively small group of companies, the industry is currently using around 70-75% of its installed capacity, according to Dante Carhuavilca, chief of SNI’s IEES. Many of the major players are therefore looking to expand operations by adding new plants or enhancing existing ones, among them Unión Andina de Cementos, Cementos Pacasmayo and Yura.

Raising The Glass

Glass production, which registered a growth rate of 9.75% in 2012, has especially benefitted from the construction boom. While large sheets of glass for windows and mirrors are used in buildings, much of Peru’s produced glass goes to beverage containers and medicine bottles, which are in high demand by the growing pharmaceuticals business (see Health chapter). Though glass production in the first half of 2013 grew by just 0.1%, the sector should remain stable and expand along with fervent construction activity.

However, the production of glass is insufficient for the level of internal demand and Peru imports a quarter of what it consumes, primarily for construction purposes, Carhuavilca told OBG. In 2012 China provided Peru with the majority of its additional glass needs, accounting for more than $56m free on board (FOB) value, trailed by the US and Colombia, with more than $24m and $15m, respectively.

At the same time, glass products related to several other industries, such as pharmaceuticals, have been produced in surplus and found export markets. Primary export destinations in 2012, especially for smaller medicine bottles, included Brazil ($9.9m), Colombia ($7.5m), Ecuador ($7m) and the US ($4.5m). There is no indication that the cost of imports may go up, but with high demand in two booming industries (construction and pharmaceuticals), strategies to expand glass production are high on the agenda. In the meantime, leading glass producer Owens-Illinois Perú has taken steps to incorporate Peruvians into the production chain, teaming up in 2002 with the non-profit Grupo Fundades in a recycling campaign to support industry needs. Scaling up this kind of sustainable practices could make a significant contribution to the industry’s dynamics.

Petrochemicals

Long on Peru’s agenda as an emerging industry, petrochemicals remains a viable local sector and is highly likely to be consolidated within the coming years. Plans include developing a major complex on the southern rim of the country to operate as a petrochemicals centre for the Pacific coast of the continent. The Camisea natural gas fields, which are located on the Amazonian side of the Andes Mountains, have sufficient resources to fuel this project for at least the next 20 years, which would benefit an array of local industries as well as facilitate a strong export element. One such industry is plastics, currently being imported in volumes ranging from between $1.5bn and $3bn in value annually, according to Carhuavilca.

Apart from the delay in constructing a major pipeline with which to transport gas from Camisea to the southern coast, a number of disputes over how much public investment should go into this project have arisen. Peru’s Society of Exterior Commerce (Sociedad de Comercio Exterior, COMEX), for example, recognises the industry’s potential but remains sceptical of the project. COMEX’s manager of economic studies and business consulting, Álvaro Díaz, told OBG that, “If a private investor wants to attempt the initiative, it would be very interesting indeed, but we do see a problem with the state financing a project that could pose many risks.” On the other hand, a study of the project has been carried out by the private investment promotion agency ProInversión. Óscar Chávez, senior economist at Lima’s Chamber of Commerce (Cámara de Comercio de Lima, CCL), believes petrochemicals development is inevitable and that private financing will kickstart the project. “The only factors that could deter private interest are social conflicts or members of Congress who oppose private participation,” he told OBG. “But there is a strong will to move ahead with the project and that includes private involvement.”

Food & Beverages

In 2012, the food production sector displayed solid growth of 12.65%. With internal economic prosperity rising, this sector should display further positive figures that accompany consumer habits. As the segment develops, the number of companies in this arena has begun to shrink due to mergers and acquisitions by larger enterprises. This has been visible in the food and beverage industries, particularly in the beer and dairy segments, which are dominated by foreign owners. For example, one of the most prominent Peruvian beer brands, Cusqueña, was sold in 2001 to Colombian Bavaria, which in 2007 merged with global leader SABM iller.

Within the vast industry of food production, SNI is working extensively to stimulate wheat processing, which is a traditional yet innovative business in Peru. Alejandro Daly, president of SNI’s Wheat Mills Committee, heads the Munay Pan (love bread) programme, a private initiative inaugurated in 2010 aimed at increasing bread consumption and developing sustainable practices along the production chain. “Munay” in Quechua, an indigenous language still prominent today, means “love”, underlining the fundamental cultural connection the programme aims to establish with bread production.

“This sort of initiative represents a shift in the industry because different parts of the production chain are no longer working separately, but rather coming together, improving the final products and increasing competitiveness,” Daly told OBG.

Local Flavour

Capitalising on the gastronomy boom, many of the bakers involved in the segment are producing gourmet breads by incorporating the use of traditional Andean grains, such as quinoa, quihuicha and cañihua. Daly said this adds value to bread. “In all the Andean countries bread has a cultural importance and we want Peruvian bakers to feel proud of their products,” he added.

AlaCena is one of the major brands in Peru that sells products with a strong identity message. Indeed, the marketing strategies used by brands such as AlaCena illustrate how many food products are influenced by concepts of national identity and an appeal to patriotism. Owned by Alicorp, the brand began by selling mayonnaise before moving into other more typical Peruvian staples, such as sauces made of rocoto (a spicy small red pepper) and huancaína (a typical yellow cream normally eaten as an entrée with potatoes and hardboiled eggs). Before these products came on the market, most Peruvians consumed homemade mayonnaise, increasing the risk of salmonella, Daly pointed out.

Related products that have also been demonstrating impressive figures as of late include crackers and cookies, goods that Peru exports to more than 35 countries, many of which are located in the region – like Ecuador and Colombia, which account for 37% and 22%, respectively, of these exports. Overall, exports of crackers grew by 4% in 2012, amounting to $41.1m, according to Peru’s National Superintendence Office for Customs and Tax Administration (Superintendencia Nacional de Aduanas y de Administración Tributaria, SUNAT).

However, since Peru imports most of its wheat (90%), primarily from Argentina (58%), Canada (21%), and the US (13%), the industry may encounter slight setbacks in the near future. According to business intelligence firm Lanworth, a branch of Thomson Reuters, wheat and corn production in the US will decrease by more than 1m tonnes in 2013 due to unfavourable climatic conditions. While the US represents a relatively smaller source of imports for Peru’s wheat consumption, the threat serves as a reminder that dependence on external conditions could severely affect production.

Textiles & Clothing

Textile production is one of the industries on the downswing of late, decreasing by 9.7% y-o-y from January to August 2013, according to PRODUCE. Much of this slower pace is due to lower demand in the US and Europe, which are prime markets for Peruvian fabrics.

However, the industry is attempting to remedy this situation by searching for new, closer, alternative markets, such as Venezuela, which imported more than $276m worth of Peruvian textiles between January and October 2013, according to figures from PromPerú, the country’s trade and tourism promotion agency. While many higher-end garments went to Venezuela – including products made of alpaca and pima cotton – the total Venezuelan market for Peruvian textiles is only a fraction of that in Europe or the US. Given that clothing exports were worth more than $1.5bn in 2012, going forward the industry will be looking to expand aggressively into new markets to compensate for the decline in sales to traditional foreign outlets.

Colombia is also gaining prominence as a new export market. In March 2013 the Colombian government put into force Decree 074, which introduces an ad valorem duty on textiles and garment imports of 10% of the product value, plus $5 per kilo. Mostly a measure to protect local manufacturers and combat contraband, the decree does not apply to products arriving from countries with which Colombia maintains trade agreements nor from members of the Andean Community, which includes Peru. Sector specialists in Peru see this as an opportunity for the local industry to get back on its feet.

Incoming Concerns

Imports also play a large role in determining industry conditions. While trade associations such as COMEX maintain that Chinese clothing imports do not harm local industries, Mario Fiocco, General Manager of La Victoria Fábrica de Tejidos de Punto and president of SNI’s Clothing Committee until April 2013, believes the situation is concerning, although not the sole cause of the sector’s problems. Fiocco stressed that in 2012, 90.8% of the 273.5m imported clothing units came from China, amounting to $375.63m in cost, insurance, and freight (CIF), a figure equivalent to 75% of the sector’s total CIF value. In November 2013 it was reported that sales in Gamarra, Lima’s garment district, had fallen 50% y-o-y since July of that year, and merchants had lost nearly one-third of the market to Chinese imports, which are on average 40% cheaper. According to Peru’s Customs office, Chinese-made garments replaced some 237m Gamarra items between 2005 and 2013.

“Some clothes are sold for one to three cents for a dozen, prices that defy reason,” Fiocco told OBG. SNI’s Textiles Committee manager Martín Reaño agreed, but highlighted that not all garments imported from China are of poor quality, an idea he describes as “a myth we need to challenge.” The fundamental issue, according to Reaño, is that China “dumps” remainder units in Peru, creating unfair competition. Peru’s National Institute for the Defence of Competition and Intellectual Property Protection recently began investigating whether a portion of Chinese imports are being dumped and thereby altering open market trade. According to Fiocco, Peru’s clothing industry also faces problems of contraband garments crossing its borders.

Branded Value

Both clothing and textiles specialists agree that the country’s textiles sector needs more brand names to add value to products and strategically position them in different markets. Peru already has several brands bringing attention to the high-end segment, such as Michell, Mentha & Chocolate, Grupo Inka, and Michelle Belau (MB), which market higher-end clothes for women. Kuna is another brand that has successfully explored international designs while using traditional high-quality wool and alpaca material to stamp a Peruvian label on its products. “We need to create more of our own brands for internal sales, but we must also keep in mind the export market, beginning with other Latin American countries and then gradually entering the global market,” Fiocco told OBG.

Gaining Ground

Small-scale companies are beginning to participate much more in the export market as well (see analysis). While in 2008, small companies contributed only 18% to clothing exports, by 2011 that share rose to 38%. From January to September 2013, small-scale firms captured 35% of the pie, while medium-sized companies contributed 22% and large businesses 43%. Fiocco believes these figures are representative of a trend. “Small companies are growing because they produce less in terms of quantity, but many are entering the more sophisticated market. However, much of this production is still for other brands,” he told OBG. “We are just beginning to develop brands in the high-end segment as we should be doing,” Reaño told OBG. “The brand is everything. If we provide quality designs, services and an overall value in our brands, we will gain confidence and loyalty among clients.” But not everything should be directed at the high-end market. Reaño emphasised the importance of creating brands accessible to consumers from lower socioeconomic levels, since those are large markets. “These lower segments are precisely where the main problems of Chinese potential come into play,” he said. One company that has already caught on to this trend is Topitop, which targets primarily the mid-range market both in Peru and Venezuela.

Regardless of downturns in the industry, Fiocco and Reaño remain optimistic for future growth, especially considering the long tradition of textiles in Peru. “We have textiles in our genes,” Reaño told OBG, stressing that the tradition dates back to the Paracas culture, a pre-Inca society that flourished from 700 to 200 BCE in Peru’s modern-day southern coast. “To date no one has been able to fashion a textile product as skilled as some of the cloth preserved from the Paracas culture, where you can find 300 threads per square inch in a piece of fabric.”

International Trade

Since 2009 Peru has been establishing free trade agreements (FTAs) with some of the world’s most important economies, a strategy that has been vital for the country’s recent growth. Partners like the US, Canada, and China have been stimulating trade dynamics, whereas newer agreements with countries like Singapore, South Korea, Japan, Mexico and Costa Rica add much diversity to the external market. A long anticipated FTA with the EU took effect in March 2013, which includes 27 more countries with which Peru now enjoys preferential trade conditions. Although some of these European economies face considerable economic instability, the FTA represents a landmark achievement and is expected to benefit transatlantic trade in the years to come. Industrial and agricultural products, for example, will enter the EU free of tariffs.

According to SUNAT, although exports in 2012 decreased by 1% compared to the previous year to $45.95bn, non-traditional exports increased by 9.2%, representing a strong segment that has been growing steadily since 2009. Nevertheless, during the first half of 2013, total exports continued on a downward swing, contracting by 11% y-o-y with both traditional and non-traditional segments affected, according to a report by the Ministry of Economy and Finance (Ministerio de Economía y Finanzas, MEF). This contraction includes dips in volume (-7.3%) and price (-4%). At the same time, MEF estimates that at least the volume of exported goods will recuperate in the second half of 2013, expanding by 6.3%.

Short-term projections also provide a positive outlook, for example with a total yearly export value forecast to top $55bn in 2016, 22% more than in 2012. MEF estimates exports to rise by an average of 9.8% per year from 2014-16. This increase has been attributed by observers mainly to mining commodities.

Foreign Effects

The overall positive trend for the manufacturing industry is visible in the increase in the number of jobs being created by exporting activities and generating a cycle of internal movement, Díaz explained. “The prosperity brought in by foreign currency has sparked commercial activities that are destined for internal consumption,” Díaz told OBG. This effect can be seen in activities such as the current real estate explosion and the success of retail businesses, he added.

Expanding The Circle

Already a member of Asia-Pacific Economic Cooperation (APEC), Peru continues to look at Asian economies with high hopes and is currently participating in negotiations over the Trans-Pacific Partnership Agreement, a major accord involving countries from the Americas, Asia and Oceania. This agreement will open trade doors to several countries with which Peru has had little preferential contact, such as Malaysia, Vietnam and Brunei Darussalam. Peru aims to explore trade relations with emerging economies, in particular with Pacific Asian and Arab countries, Díaz told OBG.

Important negotiations are also taking place with India, which COMEX believes should represent a priority market on the commercial agenda. India is the world’s third-largest economy in purchasing power parity and as such, could become an important market for Peruvian exports. “The characteristics of India’s population lead us to believe this FTA would open up a huge opportunity to export goods that we are beginning to produce in larger volumes,” Díaz said. In general, non-traditional industries would benefit the most, including agriculture, fishing (for direct human consumption) and metallurgy. Authorities from both countries have officially decided to begin negotiations of the trade agreement, although dates have yet to be announced and the process will likely take much of 2014 to mediate.

Reactions & Reception

However, cotton producers in particular will resist the FTA with India, as the industry will be directly affected. Concerns have been boiling for years within the cotton industry, where government subsidies were stripped in 2013 in an effort to force competitiveness onto production practices, which many view as somewhat delayed. “Peru has an absurd law prohibiting the use of genetically altered cotton for heightened efficiency. We cannot use improved cotton to reach levels of production similar to Jordan, India, Egypt or even Colombia. In this sense, local producers do indeed have a handicap because they are not prepared to develop a strong industry,” Díaz told OBG.

General consensus exists among industry specialists that Peru could make better use of its current FTAs. The main issue to improve upon is transportation infrastructure, including better highways, airports and ports. Peru’s leading seaport, Port of Callao, is controlled by the National Port Authority, which has brought in private participation, principally with two operators – APM Terminals and Dubai Ports World. Both have helped to modernise operations and improve infrastructure. Still, COMEX believes that by 2020 bottlenecks will begin to take shape in the transportation of goods from the port towards interior areas of the country.

“Callao is already full of containers, with its avenues often full of trucks, and if trade increases and grows, which it should, current operations will not be able to sustain commerce,” Díaz told OBG. At the same time, shipping regulations must be re-evaluated as well. Díaz pointed out that transporting goods by ship from port to port within Peru is prohibited. “In order to optimise commerce, the country must develop measures to allow coastal trade along its shores for the internal market, which would also alleviate highway traffic,” he told OBG (see Transport chapter).

Currency Concerns

The fluctuating value of the dollar has become a significant factor in the export and import markets. In 2012 Peru’s Association of Exporters voiced concern over the low value of the dollar, asking the government to allow exporters to pay taxes in dollars, a request that was denied. Peru’s Central Reserve Bank has already taken interventionist measures to decrease exchange rate volatility, having purchased more than $3bn between August and November 2012 to prop up the dollar value against the local currency, the nuevo sol.

Labour

The moves to produce more competitive products have intensified the need for a greater number of qualified personnel, especially on the technological front. From the private sector, SNI runs training programmes for a broad range of industrial activities through its National Service for Industrial Training (Servicio Nacional de Adiestramiento en Trabajo Industrial, SENATI). Operating for more than 50 years, this programme is designed to meet the needs of both company and worker.

However, according to research conducted by SNI, employee turnover hovers around 30%, and so SNI believes that more vigorous initiatives will be necessary to match trained staff with suitable jobs.

Clothing production relies heavily on manual labour, directly employing around 400,000 operators and indirectly around 1m workers. These figures represent nearly 25% of the manufacturing sector’s labour force, according to Fiocco. As competition increases, training of professionals will become a vital factor for the industry, both on design and technical levels. “In clothing production, the machine represents only 30% of operations. The person, who possesses both ability and technique, makes up 70%,” Fiocco told OBG. “Behind every sewing machine is a worker who ensures the product is finished well.”

As for gender representation in the labour force, textiles and dressmaking may be the sector where the balance is most equal. However, further down the production line, one fundamental job is virtually dominated by women. “The selection of Alpaca fleece in Arequipa has traditionally been reserved for women,” Reaño told OBG. “This practice has been passed down from one generation to the next and the women who work there are specialists in organising the colours and quality of fibres.”

In 2012 the minimum wage in Peru increased from PEN675 ($254) to PEN750 ($282) per month. However, this rise has not had a significant impact on the industrial sector since most salaries in the segment tend to be higher in the first place, closing 2012 with an average income of PEN1273 ($479) for manufacturing workers. According to SNI, this represents an increase of about 50% from 2005 to 2012, which the association views as normal since annual inflation rates have remained around 2-3%.

Labour Regulations

A combination of recent labour regulations could also raise production costs. One such regulation aims to improve occupational health by requiring large companies to include specialist doctors on their staff. While Dávila views issues of work safety as essential, he believes that carrying out this measure is impossible since there are not enough doctors trained in occupational health. He also pointed out that the current law can make CEOs liable to prosecution for accidents, such as those caused by defective machinery. At the end of 2012 Congress passed a General Law for Disabled Persons geared at improving social inclusion. The bill requires companies with more than 50 employees to ensure that at least 3% of their staff are people with disabilities. However, the new legislation does not clearly define disabilities or the number of disabled Peruvians. Dávila told OBG, “No one disputes the importance of regulations regarding personnel in the industrial workplace. But we need to reach some sort of agreement because there are limits to what is actually possible.” According to Dávila, these regulations are currently being discussed and efforts made to find the most efficient and effective channels to apply them. Some companies already include disabled workers on their staff. The clothing company La Victoria Fábrica de Tejidos de Punto, has for 30 years employed deaf workers, who today make up 20% of the staff. “The results have been incredibly positive and these workers end up being the most loyal over the years,” he told OBG.

Under One Roof

Another big change in labour came in January 2013 when authorities established a National Superintendent’s Office for Labour Inspection (Superintendencia Nacional de Fiscalización Laboral, SUNAFIL), administered by the Ministry of Labour (Ministerio de Trabajo y Promoción del Empleo, MINTRA). This entity aims to increase oversight and efficiency by concentrating all inspection efforts under one entity. However, several contradictions regarding this initiative concern analysts at SNI, in particular the fact that part of SUNAFIL’s financing comes directly from the fines it imposes, which could be prejudicial to its inspection criteria. Dávila also stressed that many inspectors are union members and that the new institution will give them considerable discretionary powers.

Serious infractions can receive fines of up to PEN740,000 ($278,700) while minor ones can cost up to PEN185,000 ($69,700). MINTRA has publicly declared that large companies complying with regulations need not worry and that the initiative aims to establish more formality among small-scale operations. The previous inspection system covered only about 20% of companies, according to MINTRA. Still, Dávila said the risk remains in generating a climate where regulations are poorly implemented.

Conflicts

Land organisation remains a major source of social conflict that deters investments and production in the sector, especially in extractive industries like mining. The International Labour Organisation’s (ILO) Convention 169, ratified by Peru in 1994 but only fully put into effect in 2012, states that indigenous communities must be involved in the decision-making process of public works or private investment projects that directly affect them. Also known as the Prior Consultation Law, the convention’s vague definition of indigenous peoples complicates development in a country such as Peru, which has a large and diverse indigenous population residing in the Amazon, the Andes Mountains and even along coastal flatlands. Disputes have arisen over the Cañariaco mining project, located in the northern Lambayeque region, where around 90% of the population identifies itself as Quechua, one of Peru’s largest indigenous groups whose language is the second most spoken after Spanish.

Another heated conflict is centred on the Toquepala mine, which has been run by Southern Copper Perú in the Tacna region for the past 52 years. Informal dialogue between the company and the community has decreased tensions. However, the use of such methods to resolve conflict worries some observers. Gabriel Aguirre, chief of economic analysis at Lima’s American Chamber of Commerce, said that the dialogue’s irregular nature falls outside the scope of the project, which could eventually harm future investment. “These conversations have taken a direction that is evading the institutional process of negotiation in terms of consulting the [local] population and community,” he told OBG. “We are worried since there are no clear rules being established as to what a company should expect when preparing to negotiate with a community.”

Government Initiatives

Of the six fundamental issues addressed in the government’s strategic industrial plan for 2013, infrastructure is one of the most pressing matters, according to PRODUCE’s Spitzer. Although in theory PRODUCE should not assume duties in the area of public works, the lack of infrastructure in areas ranging from highways to water management and territorial organisation affects industrial development (see analysis).

Also on the government’s agenda is increasing human capital. Spitzer told OBG that while SNI’s privately funded SENATI initiative has yielded positive results, similar government-sponsored programmes are still lacking in this area. State-run Technological Innovation Centres cover certain smaller industrial activities, such as leather tanning, which is of little interest to larger private entities. However, these initiatives need to be improved, Spitzer argued. The current draft of government plans seeks to identify areas where industrial production needs improvement, that will in all likelihood include private sector involvement. To address the lengthy bureaucratic procedures, especially those involving local and municipal governments and which often delay investment projects, Peru’s president of the Cabinet of Ministers (presidente del Consejo de Ministros, PCM) has taken on a more proactive role. Through meetings with business associations and companies, the PCM has begun carrying out various consultations to identify the main investment deterrents. CCL’s Chávez views these actions as a positive development and told OBG that as an institution, the CCL is requesting that the results of the initiative be considered and eventually become state policies that would transcend government administrations.

Outlook

External conditions have affected Peru’s economic growth, although not significantly, an indication of strengthened industries and the introduction of more national products to local and external markets. External trade has been a successful formula, positioning the country internationally, and internal demand remains strong thanks to large development activities such as construction, mining and energy projects. A growing middle class is also driving domestic demand, reflected by positive performance of fast-moving consumer goods.

Growth will depend on several factors, including the opening of new external markets, product diversity and internal demand. The main setbacks include poor infrastructure, unqualified labour and bureaucratic procedures – all challenges that will require the coordinated efforts of a range of institutions. Although these issues are not likely to be overcome quickly, there is an encouraging range of private and public initiatives aimed at ensuring that Peru remains a prominent partner for private investment.