중남미

A New Emerging Power

Latin America in general and Peru in particular have been known for decades as lost opportunities. Countries endowed with exceptional resources and great potential have been regularly plagued by over-inflation, political coups, financial crises which hampered a sustained growth and produced high-polarised societies with some of the worst social imbalances. In the last years, however, all this has come to an end; in a world where the global demand is for 75% fuelled by emerging economies (IDB, 2011), Peru can be considered by all means a rising star.

The fourth-largest country in Latin America (after Brazil, Argentina and Mexico), Peru has immense natural resources which development has recently started.  The country has been performing at an average of 5% increase of GDP during the last ten years and the economic fundamentals look promising for a sustainable growth.

One of the most impressive features of Peru’s economy is represented by its openness, particularly remarkable for a Latin American country. Its trade-to-GDP ratio is almost 50%, one of the highest of the continent, and the FDIs have experienced in the last decade an astonishing growth, passing from US $ 7.4 billion in 1997 to US $18.8 billion in 2009 (Forbes, 25 May 2010).

Another remark can be done by looking at the first three trading partners, the USA, China and Europe, accounting for approximately half of the total external trade. This is another important difference with its neighbours, which are trading more locally.

Minerals and the mining sector account for  60% of Peru‘s export and for almost the totality of the FDIs in the country. Peru is the first world producer of silver, having overtaken Mexico in 2008 (USGS 2009), the second of copper after Chile, the third of zinc and tin, the forth of molybdenum and lead and the fifth of gold.
The rebound in commodities prices in the last years has been one of the principal factors of its astonishing performance.

The Asian Presence as an Engine of Growth

Peru is one of the most active countries in the Pacific Rim, and it makes no secret of the intention of becoming the Asian hub in Latin America. One factor to notice, and one strongly correlated to growth, is connections with the big economic powers of East Asia, China in primis but also Korea and Japan; being one of the very few countries to have signed a FTA (free trade area) with all three. These links make the country one of the most active in the Pacific Rim, especially since the start of the Garcia administration in 2006, outperformed in its negotiation activism only by Chile.

While resources represent the main reason for recent Chinese engagement in Latin America (Cheng, 2009), starting from the mining sector, the traditional links of China with Peru have certainly helped. The country is hosting the biggest Chinese overseas community in Latin America (the other big community is in Panama). Its presence can be traced back to the 1860s, where Chinese workers arrived to Peru as unskilled, low-wage labour (the so-called ‘coolies’). Currently, about 15-20% (statistics vary on this point) of Peru population can claim Chinese origin, while Lima still boast a barrio chino (Chinese quarter) and dozens of chifa restaurants. Since it has started its “Going-Out strategy” China’s presence in Peru has been growing exponentially, in particularly in the mining sector, where FDIs amount at about 99% of the Chinese total in the country.

Furthermore, Chinese investments in the sector are projected to reach $10 billion over the next five years (Peruvian Times, 5 August 2011), investing in copper, iron and gold mining development.  One of the most important corporations active on the territory is the Aluminium Corporation of China (Chinalco). Chinalco is currently involved in the biggest investment in the country, the development of the Toromocho copper mining concession, obtained by the acquisition of Peru Copper, one of the last Peruvian independent mining company. The Chinese corporation will invest US $2.17 billion in Toromocho, which according to some sources (BBC News, 21 September 2008), has the potential to become the largest copper mine in the continent. According to the feasibility study, the estimated reserves amount in 1,526 million ton of minerals, copper in first place, but also silver and molybdenum; the perspective output is about a 210,000 metric tons of copper for the first ten years, starting in 2012, when the mine will enter in production, and will remain active for three decades (Reuters, 3 March 2009).  Chinalco is not the only Chinese mining company actively developing mining assets in Peru, and which has bought assets from local mining companies. There are as well a Chinese consortium led by Zijin Mining Group, China’s biggest gold miner, and including Tongling, a copper miner, and Xiamen C&D, a trading and property conglomerate; Zijin bought in 2006 Monterrico Metals in Peru, and with it the Río Blanco mining project. While some problems have plagued Chinese investments in the country (see after), the returns have been noteworthy for the resource-hungry Asian country. Also, great expectations are attached to the implementation of China-Peru Free Trade Area, signed in 2008, and entered into effect on March, 1 2010.  As for the agreement, China has abolish direct duties on about 61% of Peruvian export, and according to some estimation (Andina State News, 5 May 2010), up to 94% of Peruvian export will benefit in a way or in another from this treaty. The remaining 30% of duties will be gradually eliminated in the following ten years. The bilateral trade has registered a growth of 17% in 2010, and, as Peru will continue to impose duties on array of sensitive products (a total of 592 items, including textiles, apparels and footwear among them; El Comercio, 10 April 2010), the net effect of the agreement looks beneficial for the Latin American country.

Another long-time presence in Peru (since 1899, being the largest Japanese community in Latin America after Brazil)  and one of the first foreign investors in term of presence and amount of money poured in the country. Japan has on the contrary seen its importance declining in the last fifteen years, due to a series of national and international reasons. However, the country seems now determined to regain the lost ground; in June 2011 negotiations have been finalised for the establishment of Japan-Peru FTA that should grant it analogous privileges than to China, and protect their marine concessions on the Peruvian continental economic zone. The agreement will scrap around 99% of the existing tariff in ten years time. On the same time, Japanese investments in Peru have registered a strong rebound especially in the mining sector, reaching a total of 6 US $ billion in 2011 (Agencia Peruana de Noticias, 11 February 2011).

The most recent presence among the Asian countries are the Koreans, which have showed, here as in neighbour countries as Bolivia, a remarkable activism.  In August 2011 the FTA between Peru and South-Korea signed in March has come in effect, with the same provisions of the FTA with Japan; it is expected to double to US $ 6 billion bilateral trade in 2012. An analogous increase is expected for the 100+ Korean companies already operating in Peru, which currently have invested 1.6 US $ billion in mining and energy development, making Peru the second biggest destination in Latin America  for Korean investments after Brazil. Ambitious plans are also in preparation, with the Korea National Oil Corporation (KNOC) that has already earmarked 2.5 US $ billion in oil exploration and SK Energy that has committed 482 US $ million in gas exploration projects in northern Peru provinces (Korea JoonGang Daily, 1 August 2011).

Challenges Ahead

Peru’s growth is due to continue. Forecasted GDP growth for 2011 is 7.5% and will remain consistently higher than the continent’s average, driven by foreign investments and sustained rebound on commodities exports.

While the perspectives look bright for Peru, there are some formidable challenges awaiting on its road to development.

First of all, is the recent political change at the top. In spring 2011, the leftist Humala has replaced Garcia as Peru’s elected president. The incumbent has so far reassured the international market that the policy of openness and protection of foreign investments and Peru’s commitments will not be reversed; still, there is some uncertainty, given the political affinity of Humala with Chavez (president of Venezuela) and Morales (president of Bolivia). The following months will most likely clarify the political outlook but the possibility, even remote, of a u-turn will remain.

Another important concern regards the very fact of Peru’s amazing resource-led growth. This is known in literature as “resource curse argument” (Olters, 2007) and “the Dutch Disease”, a phenomenon which causes the real exchange rate increasing in an economy rich in natural resources, eventually damaging its economic growth. Another problem is related to international competition for the resources themselves, which have brought high political instabilities in several countries and even violent conflicts and civil wars. This is by all means not inevitable. Some states have admirably managed to escape it, and the best example for Peru comes from neighbouring Chile, which has its economy strongly dependent on the copper export even more than Peru’s.  Still, Chile has constituted a stabilisation fund with copper’s revenue, The Copper Stabilisation Fund, established in 1985, then substituted in 2007 with the Economic and Social Stabilization Fund (ESSF). With it, the country has successfully used the assets during the contraction of the financial crisis of 2008 to avoid a collapse in the domestic economy, while also investing abroad with its sister SWF (Banco Central de Chile, 2011).  The adoption of such policies would allow Peru to stabilise its growth and to focus on investment in badly needed infrastructures in similar circumstances. A strong Chilean presence in the country main sectors will help with best practices in governance and economic policy.

Even on the Chinese side, no matter all the money with has been poured to the country, problems exist and present some formidable challenges. A substantial part of the huge mining projects has turn sour. The big Toromocho mine will need the relocation of a small town, which consent has yet to be obtained and disputes are growing. And this is happening in a lot of other cases as well, as Chinese companies enjoy an infamous reputation since the iron ore mine Shougang Hierro Peru, which started operations in 1992 and failed to fulfil its commitment to development toward the Peruvian state. The accusations against them are generally related to poor environmental standards and health and labours practices at unacceptable levels and they have to be solved if Chinese business has to make progress in the country.

Linked to the mining sector, but on a more general scale, there are serious environmental issues, which have already created social unrest and health threats. Peru has one of the largest rainforests in the world and the intensive mining and oil and gas activities, even if less aggressive than in other countries, have damaged the environment and recently exerted a substantial strain on some areas. While logging is still under control and deforestation for timber exploitation has not reached yet dangerous level, not the same can be said for gold mining, mostly of alluvial nature, and the new gas and oil exploration in the northern provinces.

Finally, the impressive development should not lead to forget the poverty level still very high on the country, with almost 35% of the population still below the poverty line (CIA World Factbook, 2009). The HDI (Human Development Index), a better index of the GDP/capita when assessing quality of life and population’s wellbeing, is only 0.788 for Peru, and the country only ranks 79th out of 179 countries. The challenge of raising living standard of rural populations and poverty eradication efforts seem the best guarantee toward stability and sustained growth.
 

References

Cheng, J, (2006) ‘Latin America in China's Contemporary Foreign Policy’, Journal of Contemporary Asia, Vol. 36(4), pp. 500-528
CIA World Factbook (2010) Peru: Country Profile, available at https://www.cia.gov/library/publications/the-world-factbook
IMF (2011) World Economic Outlook 2011, available at www.imf.org
Olters, J.P (2007), “Old Curses, New Approaches? Fiscal Benchmarks for Oil-Producing Countries in Sub-Saharan Africa”, IMF Working Paper, n. 107/2007
USGS (2009) Peru: country fact, online at www.usgs.gov.us