Provincial prospects: Move towards industrial parks may spur decentralisation

A topic receiving much attention of late, decentralisation of Peru’s production sector could soon be realised, benefitting the nearly two-thirds of the country’s population who reside outside of Lima. As limited space for growth in the capital is spawning initiatives from the public and private sectors, consolidating infrastructure via programmes to promote industrial parks will be necessary for this productive shift, which in turn would generate more jobs and development in some of the country’s more vulnerable rural areas.

History

Introduced as a 2001 campaign promise by former president Alejandro Toledo, political decentralisation led to the establishment of three levels of government – central, regional and municipal – as a way to balance the social and economic hierarchy traditionally centred in Lima. However, this systematic separation is often the basis for development holdups since many regional and municipal governments lack adequate personnel, which can cause bureaucratic delays for private and public investment projects. Complicating this scenario, land has tended to be poorly managed, proving a major deterrent for industrial projects aiming to expand outside Lima.

Land Organisation

As the centre of Peru’s production, Lima’s metropolitan region generates around half of the country’s GDP. Industrial activity is concentrated in Lima for its easier access to markets and manual labour. But as urban growth continues, the borders between industrial and residential zones blur, lowering the value and efficiency of production and in some cases leading to environmental and social conflict.

“A major problem hindering both industrial growth and decentralisation is land organisation,” Johann Spitzer, director-general of economic studies at the Ministry of Production (Ministerio de la Producción, PRODUCE), told OBG. Chaotic urban growth, mainly in Lima but also in provincial capitals like Arequipa and Trujillo, has complicated the natural development of industrial lands.

Land prices are also a factor. According to a recent study by global real estate services firm Colliers International, 1 sq metre of industrial land in the eastern zone of Lima can cost up to $1200, while the lower end still registers prices with $160 per sq metre. This range compares drastically to areas in southern Lima like Chilca, where the lowest priced properties begin at $30 per sq metre, and Lurín, with the most expensive plots going for $280 per sq metre. The problem with these areas, especially Chilca, located some 65 km south of Lima, is the lack of water for industrial activity. Colliers suggests addressing this shortage with private initiatives to install desalination plants along the coast, which could be a cost-effective solution.

A main objective on the government agenda for 2013 is to reorganise land and establish plots for industrial use. Part of this plan involves increasing what Spitzer calls “regional attractiveness” of industrial production in the provinces. Despite the fact that PRODUCE is not in charge of land organisation, the issue is so vital to industrial growth that the ministry has incorporated it as official policy for 2013. In collaboration with the Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento, MVCS), the Ministry of Environment (Ministerio del Ambiente, MINAM), and regional and municipal governments, PRODUCE hopes to define industrial zones by the end of 2013 and usher in speedier development. To this end, in August 2013 the government passed the “Law promoting the development of techno-ecologic industrial parks” (Law 30078), which took effect in November 2013 to establish seven such zones. Spitzer is confident of the potential of regional zones, telling OBG that “there is still much to develop in the provinces.”

Key Destinations

Outside Lima some major regions have expanded over the past decade, most notably in areas already connected to ports and highways with larger urban conglomerates. Along the northern coast, regions like La Libertad and Ancash are on this track, and in the south, Arequipa, whose regional capital of the same name is Peru’s second-largest city, will no doubt grow in the coming years. According to figures by the National Society of Industries (Sociedad Nacional de Industrias, SNI), the Arequipa region accounts for 6.2% of national industrial firms and is expected to expand following a pattern similar to that of Lima. Already, major industrial companies like the steel producer Aceros Arequipa and cement manufacturer Yura run consolidated operations in the region, providing mainly for the local construction industry but also exporting to neighbouring Bolivia and Chile.

The Periphery

Peru’s rural areas are also on the radar for development. One such case is in the central highland area of Valle de los Ríos Apurímac y Ene (VRAE), an isolated zone characterised by extremely fertile soil that is ideal for agro-industrial activities. “Cacao, coffee and tropical fruits basically sprout from the earth without having to be worked,” said Javier Dávila, project manager of SNI’s Institute for Economic and Social Studies. “This area has high potential but currently lacks infrastructure to develop production,” he told OBG.

A lack of roads, power and potable water plagues the VRAE area, contributing to conditions of extreme poverty. Additionally, as a peripheral area, much of the population is subject to violent conflicts with factions of Shining Path militants that have turned to drug trafficking. Yet despite these obstacles, the government is working on a strategy to develop different parts of the VRAE, emphasising training. It has already announced the installation of one of the state-run Technological Innovation Centre, part of an industrial teaching programme that operates centres in different parts of the country. The scholarship programme “Becas VRAE” also aims at providing students from the region with resources to pursue technical and university degrees (see Education chapter). “We need to integrate this area because it has historically been out of the register of the national and international markets,” Dávila said.

Going Greener

Before MINAM was created in 2008, environmental concerns were primarily focused on mining projects. But the new ministry has been putting pressure on manufacturing industries that produce toxic waste, like chemical production, leather tanning and textiles, requiring adequate drainage systems for sustainable practices. MINAM’s existence has also spurred talk of industrial parks as a solution to environmental and social conflicts.

A Place To Park

Although legislation to promote industrial parks was passed years ago, uptake was slow. Of the 19 industrial parks created with the help of former legislation, few have proven successful, such as one in Arequipa and the emblematic Villa El Salvador in southern Lima. However, the intention to breathe new life into the concept exists. In 2012, 20 companies announced the purchase of land in northern Trujillo to develop an industrial park, a project left pending due to infrastructure problems, mainly with water.

South of Lima many private initiatives have been working to develop industrial parks, especially in the energy zone of Chilca, where land is still inexpensive. The lack of easy access to facilities appears to be the major holdup in developing this zone, according to Dávila. “If a company moves 100 km outside of Lima, in many cases the workers will have to travel two and a half hours extra one way, contributing to unnecessary, additional stress for workers and eventually more costs for companies,” he told OBG. “A business is not going to increase its competitiveness if there is no quick access to its work site.” Regardless, Dávila vouched for firms that want to branch out further to peripheral areas of the city, as long as there is orderly urban development that allows them to sustain operations and supply human resources.

Technicalities

Disagreements between the state and private sector tend to revolve around industrial needs. While the government believes 10,000-20,000 sq metres is sufficient, many SNI associates need at least 50,000 sq metres, according to Dávila. SNI estimates that within the next 10 years industry in Lima will require around 15,000 ha to sustain growth patterns.

In February 2013 Congress made a leap by passing a bill to create techno-ecological industrial parks. The measure aims to foment cluster industries and cut down on environmental impacts by specifying zones strictly designated for production. Part of the bill’s requirements will include compelling regional and municipal governments to thoroughly prepare plots with running water and proper waste management systems before allowing industrial projects to operate.

To encourage development outside Lima, SNI has created a special permanent committee to assist, promote and implement a decentralised industrial layout. Part of the plan has included opening five offices around the country in regions where industrial production is becoming more important, such as Arequipa, Junín, La Libertad, Lambayeque and Moquegua. The association is also currently in discussions to acquire a concession for land in Huancayo, a district located in the central region of Junín, where member companies could develop an industrial park. Dávila told OBG that these projects consider the specific conditions of each region to determine what is needed to improve industrial production, since “not all regions have the same needs.”