Before the outbreak of the pandemic, Peru danced between light and shadow economically. The first decade of the 21st century was characterized by steady growth, largely due to robust macroeconomic policies and the commodity boom.
With enviable growth figures and a rising middle class, the Andean country has experienced remarkable change. The country's prosperity grew by an average of 6% annually between 2004 and 2014, making it the highest in South America. As the second decade progressed, however, the dissonances became more visible.
With the Covid-19 pandemic, the differences that exist in Peru have become clear. Outside the capital, the population faces greater challenges on fundamental issues such as public goods and services. Inland, private investment is lower, which has prevented the creation of high-potential jobs in the region. In the first five months of 2023, GDP fell by 0.5% due to political uncertainty, social unrest and the occurrence of disasters. Other limitations that the Peruvian market has had and that directly impact private investment are the informality of land ownership. The lack of complete records weakens institutions and impairs the transparency of titling processes. In addition, Peru is one of the countries most affected by climate change.
Development of GDP in Peru (2016-2022) World Bank
To contribute to the recovery of the Peruvian economy, the report “Creating Markets in Peru: Country Diagnosis of the Private Sector” by the International Finance Corporation (IFC) and the World Bank provides recommendations to promote private investment in the country and reduce the economic gaps and the Promote Peru's development with a sustainable vision.
This study addresses the challenges of the Peruvian economy, focusing 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 to the World Bank and the IFC.
Manuel Reyes-Retana, IFC Regional Director for South America© Victor Idrogo / Ic—nica (© Victor Idrogo / Ic—nica)
“The strategy for Peru and the region focuses on three main themes,” says Manuel Reyes-Retana, IFC regional director for South America. “The first is sustainability. Everything that has to do with climate change is a central part of our global strategy. Peru is no exception. The second is inclusion, and I don't just mean financial inclusion, but also water, sanitation, health, education, communications, digital services and vulnerable sectors. The third point is productivity. Low productivity is in itself a reflection of deficiencies in aspects such as infrastructure, telecommunications and transport,” he explains.
Peru has more than 3,000 kilometers of coastline and diverse ecosystems, making the country more vulnerable to climate change. The IFC and World Bank study aims to boost private investment in more inclusive and climate-friendly economic activities that can accelerate economic recovery, but in a sustainable manner, over the medium term over four to five years. “Over the last 10 years, IFC has invested around $2 billion in Peru. We estimate that we can invest between $1.5 billion and $2 billion over the next four to five years. Unlike commercial or financial investors, our investments are countercyclical. We are not the type of investors to withdraw when we see risk or low growth. On the contrary: what motivates our investments is the impact.”
The private sector in Peru has received support from the IFC in various areas. From financing and advice for infrastructure development to support to strengthen the capacities of regional and local governments, as in the case of the shared value platform Moquegua Crece, an alliance with shareholders of the mining company Quellaveco, as well as the Moquegua regional government. In addition, credit lines exist with banking institutions to support micro, small and medium-sized enterprises, with a focus on the financial inclusion of women and the migrant population.
The diagnosis produced by the IFC highlights reform recommendations in three directions: increasing the investment effectiveness of subnational governments, reforming land and labor markets to facilitate investment, and reforms to reduce informality and promote access to low-income jobs. Quality.
In the coming months, the International Finance Corporation will strive to promote nature-based business activities in the Amazon, with sustainable forestry activities and ecosystem protection activities financed through broad development of the carbon credit market.