The annual Peruvian business conference CADE wrapped up on Friday, and executives at the event seemed to be much less upbeat about the Andean country than in recent years.
A survey by pollster Ipsos Peru highlighted that far fewer of the participants in the event this year believed that Peru was on the right path.
The survey, which was published by financial daily Gestion, said that 52% of participants believed Peru was progressing, compared to 27% who believe it is going backwards.
However, compared to previous years, that figure is quite low. In 2013, 84% of the business participants believed Peru was progressing, while in 2012 that figure was at 89%. In 2013, only 3% thought that Peru was going backwards, while in 2012 none of the participants thought that Peru was backpedalling.
There are likely many reasons for the declining confidence. At the top of the list is possibly Peru’s changing economic landscape. The country has gone through a decade of robust economic growth thanks to strong tailwinds from Chinese demand for copper and other raw materials that Peru exports.
That demand has dropped, however, and as a result, Peru’s economy has gone from growing at annual rates of about 6% or higher to an expected 3% expansion this year, with recent months seeing growth as low as 0.3% year-over-year. Many economists expect an improvement next year, but they also agree that the country probably won’t experience the same favorable international scenario again for years.
Almost 80% of those surveyed in the poll said the government can support the economy by reducing permitting delays to shore up investments, promote public-private partnerships, and combat corruption.
Added to the weakening economy is the ongoing corruption, with high profile cases that have brought down several regional governments and created a growing sense of insecurity and crime.
The survey says that 86% of business leaders at CADE think the government should focus on combating corruption, followed by 70% who point to the need for development of infrastructure and 68% who want improved security.
CADE, which brings together the country’s leading business executives and investors, was held this year in Paracas on the coast south of Lima.
Corruption is rampant in Peru, especially at the local mayor level. I have found most of of the local mayors have no idea how to manage their budgets, let alone provide essential services. If a mayor is caught stealing public funds, they just pay some of the money back, without any other penalties. In the town i live in near Cusco, we have municipal water pressure for 3 to 4 hours a day. There are water projects under construction , but they never seem to get finished.
In Peru electric power costs about 3 times the rate in United States. The internet is very slow and expensive. Land line telephone service is only for local calls, and not connected to the cellular system. I pay 44 dollars a month for 5 gigabit, wireless internet from NEXTEL. Cellular service varies from 35 cents to 50 cents a minute. One of my sons in the United States just bought a new smart phone, the phone plan, unlimited phone calls within the United States and Canada, with unlimited high speed internet, costs 70 dollars
a month. The phone company has run fiber optic cables all the way down the valley from Cusco. No one knows what year it will be put into service.
For the average Peruvian to borrow money from any one of the local banks is very difficult. The average interest rate is about 24% , for those with good credit. That includes giving land or a house for security. In more developed countries, a business loan is about 6 to 8 %, a house or land mortgage about half of that .
Peru has many resources, an intelligent and hard working population. Peru should have been in the first world status 50 years ago. The accepted level of corruption, the lack of infrastructure, from public services to a credible banking system has held the country back. A few years ago, i was in Vancouver Canada with my youngest son. He was amazed by the level of commerce in Vancouver. A large city with modern transportation , world class universities, just a fun place to visit. I told him there was not much difference between Canada and Peru. Similar size populations and resource based economies. The difference is that Canada had a hundred years of reasonably good government and Peru did not.
Hopefully the business leaders and the few politicians who care about their country will find a way to restructure Peru in a positive way. They have their work cut out for them. Many old political and business cartels have deep roots in Peru. As one dear old lady in Cusco told me about 10 years ago, the laws here in Peru are the way they are, because that is the way we want them. She was from an old family that is deeply imbedded in the local power structure, since the time of the conquest. She said one day, this is a conquered land, these are a conquered people. Very sweet old lady to talk to though.
The little old lady said it the way it is. The haves in Peru have a wonderful life and do not want to see their way of life change.