Peru’s minister of finance, Alonso Segura, was appointed to the role in September 2014, replacing his former boss, Luis Castilla, who had held the post since July 2011. A 44-year-old with degrees from both Peru’s Pontificia Universidad Católica and the University of Pennsylvania in the US, Mr Segura assumes his role as steward of Peru’s economy at a key moment in the country's history.
With an average growth rate of more than 6% over the past decade, Peru has been the envy of many more modestly performing South American economies. However, by June 2014, that growth had appeared to have stalled with the country's economy increasing by only 0.3% compared with June 2013, a worrying number given the country’s accustomed rate of expansion. By October, Peru’s central bank had revised down its growth projection for 2014, from 4.4% to 3.1%, and predicted 5.5% growth for 2015.
Mr Segura therefore has the tricky task of assuring international investors that there will be continuity in Peru’s economic growth, while at the same time replacing Mr Castilla, who was considered by many to be the most powerful member of president Ollanta Humala’s cabinet. Mr Segura a sat down with fDi in Peru's capital, Lima, to discuss the country's economic prospects and the role FDI will play in its economy.
Q. What are the most important projects in the infrastructure and energy sectors in Peru, especially with regards to foreign investment in the country?
A: Of the two largest projects, in terms of infrastructure it is the second line for Lima's metro, which has an investment value of more than $5.7bn and is a co-financed public-private partnership [PPP] project, and, in terms of the energy sector, it is the southern gas pipeline, which is a self-sustainable PPP and has an investment value of $4bn with a maintenance operation of about the same amount for 30 to 35 years.
These are the largest, but we have a very large portfolio of projects. We have the airport of Chinchero in Cusco [costing] about $500m, and we have several other projects in the pipeline. What we want to do now is build social infrastructure through PPPs, particularly in the health and education sector, so in the next few months we are going to start awarding some hospitals and groups of schools through PPPs.
We have ports, we have another group of airports, transmission lines, hydroelectric plants… there’s a huge portfolio. Some of them are self-sustainable, some of them are co-financed.
Q. What do you think the impact of the Gasoducto Sur Peruano project [involving the construction of a gas pipeline in the south of the country] is going to have on Peru both in terms of domestic supply of energy and also in terms of exportation?
A: It has different objectives. The first brings us energy security because right now about 40% of Peru's energy matrix comes from the Camisea pipeline. If you run into trouble with the Camisea pipeline, there is no alternative. So this will give us an alternative to bring gas to the coast.
But [this project will also provide] cheap energy to industrialise the southern part of the country, the southern highlands, which are some of the poorest regions of the country. So it also has this development objective. It will also allow us not only to ensure energy over the long term, but also to export it.
One thing to keep in mind is that we have a balanced energy matrix, and we will continue to have one in the future. We have cheap natural gas, but we also have the potential to develop hydroelectric energy... so we will have clean energy for the foreseeable future.
Q. Can you tell us about the significance of the new Lima metro in terms of foreign investment?
A: The subway is fundamental, and it is critical that we continue developing the subway system in Lima. We have already started studies for a third line. They are very large projects, so we are aware of what our fiscal constraints are. Since these projects have a very large component of government participation, we cannot just launch them every year, so this is a gradual approach. This will modify the picture of transportation in Peru and save people [a lot of time].
Q. How is awareness within the government about the need to diversify Peru's economy away from a concentration on mining?
A: Copper production [is growing], and will double by 2017, so that’s huge. Gold production – our second [largest] export – is declining because our large mines have a decreasing quality of the mineral right now, but in terms of the volume of exports they’re going to increase substantially through to 2017.
We have been diversifying the economy, [but] we need to keep on diversifying more. For 10 years – up to 2011 – there was double-digit growth in prices for our main commodity exports, and yet the share of non-traditional exports didn’t drop, which means that they too grew at double digits for more than a decade.
We assume that prices are slowly going to continue trending downwards, so we need more than ever to find alternative engines of growth. That’s what we’ve been working on, and we are doubling our efforts. We have two or three broad efforts towards that [which include] improving the competitiveness of the country's economy.
[There is] a national production diversification plan [coordinated by the minister of production and] a competitiveness agenda that basically looks into how to best to diversify the economy and increase productivity, and to make better use of our free-trade agreements and the preferential agreements we have signed.
The second one is a fight against excess costs [charged] to the private sector, basically combating red tape and increasing efficiency. The third is looking more into the country and smaller companies and regions and how to tackle the low productivity outside of Lima, to look into what kind of government action could tackle market failures or government failures.
We are very aware that we need to improve upon our human capital, that is why we are prioritising and refocusing our projects towards an increasing share of education and health. For our future growth potential, we needed a better educated and healthier population.
Q: There has been a lot of coherence between different governments in Peru and their approach to foreign investment in the country. Do you envision that consistency continuing?
A: Yes. At the national government level there is a conviction and awareness across all the major parties that this has been the model that has served Peru well. We have reduced poverty over the past decade from 55% to 24% [and] the middle class is growing significantly. In general, there’s awareness that these economic policies based on attractive investment are a way to generate employment and reduce poverty.
Q: The economic development of Peru has been above the average for South America for many years, but lately it has not been as energetic as many people had hoped. What steps is the government taking to address that?
A: We faced a perfect storm. There was an external shock [the dip in commodities prices], which was particularly [challenging] for Peru because of the composition of our exports. There was an almost 9% decline in [exports] over the first half of 2014. We’re going to face headwinds, the question is: for how long?
We had adverse weather conditions, such as the El Niño phenomenon, which affected fisheries significantly and some agricultural staples. And then we had some problems with mines. Our biggest copper mine, Antamina, is going through a vein of lower quality mineral which is expected to last about year, and that decreased production by about 20%. And Toromocho [copper mine] found some problems with the quality of its mineral and it has been dealing with that. But we expect this all to be normalised by early next year, so you will see an upward tick in production again.
Many things are normalising, but that’s just the short-term [outlook]. We also need to keep pushing for reforms, and what measures we can work on to foster the recovery of private investment, consumption, etc. We have a short-term agenda, but also an agenda that improves the efficiency of the economy. Potentially the growth of Peru is still very high. We are working towards pushing it up [further], hence the competitiveness agenda and hence the diversification plan.