The Business Year

Carlos Herrera

PERU - Economy

Red Tape Be Gone

Executive Director, ProInversión

Bio

Before his current position, Carlos Herrera served as the Director of Investor Services, also for ProInversión. He studied Economics at the Universidad San Martí­n de Porres, with an emphasis on the management of foreign investment and the development of strategies for the promotion of investment. He served as a functionary at the Ministry of Economy and Finance from 1973, with the prominent role of Secretary General of the National Commission for Foreign Investment and Technology (CONITE) from 1991 to 2002. He is an expert in international negotiation, and has led investment discussions with the US, Canada, Mexico, Japan, Korea, and in the Trans-Pacific Partnership agreement.

"Over the past few years we have awarded more than $15 billion in different projects."

How would you describe Peru’s economic performance in 2015?

Last year was not a good year for the global economy; nonetheless, Peru’s performance was above most other Latin American countries despite only having 3% growth. That was an improvement on the country’s 2.4% growth in 2014. What is significant is that this 3% was achieved because in 2H2015 there was a clear increase in the growth rate, especially in the last month of the year. In 2016, growth of 3.5 to 4% is expected, driven by the implementation of major infrastructure projects and the entry into production of new mines. The importance of commodities in our exports and the strong relationship with certain markets, such as China, has a huge influence on the performance of the economy. This is something that has to be solved over the coming years. Promoting the diversification of our economy is one of the challenges for the incoming administration.

Which sectors of the Peruvian economy should be diversified and bolstered?

We are rich in natural resources and that brings with it opportunities to develop our agro-industry—and not only agriculture, but agribusiness as a whole to turn Peru into a processor and supplier of food to other countries. Currently, the total agricultural land on the coast used for agro-exports is around 100,000ha. In the coming three or four years we will reach about 250,000-300,000ha because of new irrigation projects getting underway. For example, Chavimochic in the north involves around 60,000ha of new land, and Majes Siguas in the south is about 40,000ha. Those two projects alone represent 100,000ha of new land. The projects are beginning their construction phase now, which will take three years. We will probably be selling the land at YE2016, and it will come online within six years. But when we talk about national resources and food processing, we have to talk not only about the coast, but also the highlands and the Amazon region. In the highlands, our portfolio includes two portions the so-called Longitudinal of the Sierra, a road running from north to south all across the country. We have also called the tender for the implementation of an Amazon Waterway, which will help stimulate the economy of a large region of the country. There are also huge opportunities in activities such as our forestry and the wood industry, tourism, metal mechanics, and the construction industry. To realize this potential, we have to work on strengthening the infrastructure. This is not a small country and it is also challenging because of the geography, which strains our internal and external connectivity. Besides Callao Port, where DP World and Maersk are now working, we have Mota-Engil at Paita Port in the north, which is Peru’s second most important port. In the south we have Matarani Port with the local Romero Group. Nowadays, we are evaluating three unsolicited proposals coming from the private sector for the Salaverry, Chimbote, and Ilo Ports. There is an evaluation process for any unsolicited proposals to align them with the Ministry’s objectives, in this case the Ministry of Transport and Communications. For Chimbote, we will be issuing a Declaration of Interest in March 2016. At that point we will open up the information to the public and any other company will be free to compete with the proposal. We are always thinking in terms of competition, as that is best. We will be awarding this project during 2016, and depending on whether there is somebody interested in competing for it, the process will take several months. If no party expresses an interest in participating in competition with the proposer, we will award the project in May 2016. The Chimbote Port proposal relates to containers, and was presented by a large European company. The expansion of the middle class is driven the demand for homes and the expansion of the retail industry. That makes not only real estate an investment opportunity, but also promotes a whole chain of local suppliers throughout the construction industry. ProInversión has to continue working to develop infrastructure and public services and to promote productive investments working alongside with the regional governments.

How is ProInversión working to create and reinforce the synergies between the private and public sectors, and to promote projects based on the PPP model?

Over the past few years we have awarded more than $15 billion in different projects. These have mainly been in infrastructure. Nowadays, we are also working in education and health. The idea is to continue that trend. The Peruvian government has recently improved the regulations on PPPs in order to incorporate best practices recommended by OECD’s Principles for the Public Governance of PPP, to consolidate a clear, predictable, and legitimate institutional framework supported by competent and well-resourced authorities, to ground the selection of PPP partnerships in value for money, and to use the budgetary process transparently to minimize fiscal risks and ensure the integrity of the procurement process.

What are the main challenges a foreign direct investor faces when coming to Peru?

Peru has no external barriers to FDI, and has an open economy. We have established an attractive investment policy dating back to the 1990s. We have consolidated this policy with our free trade agreements. There are almost no restrictions on any kinds of economic activities, just a few on some professional services, but they are not important restrictions. We allow for the free movement of capital. Foreign investors have the same rights and obligations as local investors under our national treatment principle. We have to work on investment facilitation to eliminate the red tape that still exists, especially at the local government level. This is particularly the case in the interior of the country where we need to improve governance. We have to work with them to review the procedures for licenses and permits. We are looking to everyone in the world who wants to assume the challenge of Peruvian development. We do not have a geographical preference regarding the origin of our investors; we are open to everybody, but we want the best. We want the best operators for our PPP projects and we also want the top companies for each activity. This is the only way we can return to 5-6% growth levels. Peru will be able to recover this level of growth in the coming years, most likely after 2016. There is a strong macroeconomic basis for this growth because Peru’s fiscal policy is very clear and it will not change regardless of who is in power. The way forward for us is clear and there will not be any dramatic changes. Foreign companies can set up facilities in Peru in order to turn the country into a hub and an export platform in order to reach the markets that are opened up through our free trade agreements, including now the Trans-Pacific Partnership (TPP).

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