LatinFinance - January/February 2013 - 31

Peru

It pushed through another law this
December that will allow the state to over
in concession an alternative pipeline. A
number of other proposals, including
another pipeline, were presented and then
dropped. Analysts warn that government
indecision could ward off further
investment.
The Peruvian Economy Institute, a local
think-tank, says that instead of jumping
from proposal to proposal, the government
should design a comprehensive strategy
for use of natural gas resources because
“technical incapacity has not allowed us
to take advantage of the immense gas
assets we possess … The reality is that the
government hasn’t gotten anything right.”
The government will also have to
resolve the now ﬁve-year old plan to
modernize the Talara reﬁnery operated
by Petroperu. The cost of the project
has ballooned from $1.5 billion to an
estimated $3.4 billion. It would increase
production to 95,000 barrels/day –
still a very small capacity – and allow
the reﬁnery to comply with clear-air
regulations.
In the tourism sector, which the

government says will be the second biggest
source of foreign income after mining in
a few years’ time, there are concerns that
bureaucratic blockades could delay an
estimated $2 billion in investment in hotels
alone to meet rising demand. Total hotel
investment in the past three years stands
at $1.23 billion.
“We need to eliminate red tape so that
a hotel project does not take three years to
develop,” says Carlos Canales, head of the
National Chamber of Tourism.
Tourist arrivals in Peru have been
growing at double digit levels for the
past few years and grew by 15% in 2012.
Canales says growth could be close to 20%
in 2013. Tourism revenues increased from
$2.5 billion in 2010 to $3.3 billion in 2012.
Canales is looking for state money to
promote tourism to lure new airlines to the
country. A prime target is Turkish Airlines,
which has direct ﬂights to Brazil and, more
recently, Argentina, because it opens up
routes for new arrivals from China, eastern
Europe and Russia.
The government, while recognizing
concerns in the key sectors, maintains the
administrative changes will streamline

bureaucracy and make investment easier.
Infrastructure is top of the
government’s list. The private Association
to Promote Investment in National
Infrastructure estimates $50 billion in
infrastructure investment is needed
over the next ﬁve years to sustain a 6%
annual growth in GDP. The government
is pushing public-private partnerships
and has retooled legislation that allows
companies to invest in infrastructure in
lieu of paying taxes.
Castilla says the government is
aware that the infrastructure gap “may
turn out to be a bottleneck for growth”
and is focused on improving PPPs and
streamlining capacities for project
approval and management.
“We are trying to outsource more
responsibilities to the private sector and
streamline permits and licences that tend
to make investments in this sector more
cumbersome,” he says. “We want to work
towards stabilizing our public investment
at 6% of GDP and use public investment to
leverage private sector participation, not
only in infrastructure projects but also in
terms of improvements in services.” LF

decentralized – almost two-thirds of our
public investment is done by either local or
regional governments – but we are faced
with a serious lack of capacity. So capacitybuilding is very important.
We need to upgrade our civil service by
making it more merit-based and increase
wages to be able to compete with the
private sector to keep and attract talent. We
need to be more aggressive in outsourcing
of certain services that can be provided
by the private sector through PPPs and
seriously tackle corruption.
The fourth area, which is the main
challenge, is to have broader-based growth
and reduce the gaps that we still have in
our country. Peru is a country of contrasts,
we have booming urban area where 70% of
the population lives, but we have rural areas
where 30% of the population lives, where
poverty is way above the national average.
The social cohesion objective is critical.

Castilla: Yes, deﬁnitely. Now we have a
high investment rate by Latin American
and for our own standards, close to 2627% of GDP as an investment ratio. Our
private investment has been growing by
double digits – at 15% this year. I think
there is momentum with investment, but
the challenge is productivity gains. We
have made some progress, but it you
do a comparative analysis of the levels
of productivity in Peru vis-à-vis more
successful countries in Asia, there is still a
ways to go.

but we also have many ideas and a
deﬁcit of capabilities to close that
gap. We are working on capabilities
to turn ideas into projects: some
capabilities are missing. We are trying
to outsource more responsibilities to
the private sector and to streamline all
the permits and licenses that tend to
make investment in this sector more
cumbersome. We are conscious of this:
we want to work towards stabilizing
our public investment at 6% of GDP.
We will use that public investment to
leverage private sector participation, not
only in infrastructure projects but also
in terms of improvements in services.
This is important because infrastructure
is not just roads or subways or airports
or energy lines – we also have gaps
in services, in schooling and health,
and for that we can also entice private
participation.

LF: So lack of progress on any one
of those would mean sub-6% growth?

LF: To remain competitive, Peru needs
some $50 billion in infrastructure
investment over the next ﬁve years. Is
enough being done to address this?
Castilla: More should be done, that’s
what we’re working on. We have a gap
that may turn out to be a bottleneck for
growth. And to address that, we are trying
to ﬁne-tune and accelerate the processes
for PPPs. There is a portfolio of projects

Interview by Taimur Ahmad. Read it in full
online: www.latinﬁnance.com

January/February 2013

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