Peru Roundtable 2016: Public-Private Partnerships for Sustainable Economic Development – Conclusions
16 Oct 2016
Lima – On July 28 Pedro Pablo Kuczkynski took charge of the presidency of the Republic of Peru, after narrowly defeating Fuerza Popular candidate, Keiko Fujimori.
After years of sluggish economic growth – mainly due to the fall in commodity prices and subsequent slowdown in government-back projects – Kuczynski’s victory generated a wave of optimism among the public, the private sector and the international community. Every change of administration comes with multiple challenges, especially given the current regional and global economic and political turmoil. Additionally, the previous administrations’ failure to achieve many of its goals during its five-year rule resulted in a cooling of the relationship between the public and the private sectors.
Since 2012, Oxford Business Group (OBG) has conducted macroeconomic research on Peru through annual conversations with more than 300 CEOs and presidents of companies operating in the country, as well as public officials. During that timeframe, OBG has observed the gradual rift developing between the government and the pri-vate sector.
OBG identified the need to regain trust in public institutions in order to enhance socioeconomic development, and capitalise on more than a decade of progress, and the opportunities that result from the country’s current economic and political stability relative to the region.
To facilitate this dialogue OBG organised a roundtable event – together with its partners EY and Grupo Invertir – that would aim to stimulate open discussions and joint efforts between the public and the private sectors, ultimately having a pos-itive impact on the country’s growth prospects. With this premise in mind, OBG’s “Peru Roundtable 2016: Public-private synergies for sustainable economic development,” took place on August 24th at the EY auditorium.
The panel was formed by Mario Alvarado, General Manager of Graña y Montero; Eduardo Torres-Llosa, General Manager of BBVA Continental; Carlos Gálvez, President of the Mining, Petroleum and Energy Society; César Peñaranda, Executive Director of the Institute of Economy and Business Development of the Lima Chamber of Commerce; and Juan Pablo García Bayce, General Manager of Gerdau Siderperú.
In front of an audience of more than 65 company presidents, general managers, government repre-sentatives and congressmen, the panel expressed its high hopes for the next five years and praised the leadership that the new administration has shown since taking office.
Furthermore, the panel urged all parties to work on further enhancing public-private cooperation to guarantee sustainable development. With this goal as the key subject of discussion, the pan-ellists shared their ideas to meet the goals the country has set for the coming five years. Some of the main suggestions from the panel included:
- Since its inception, ProInversión has played a fundamental role in attracting private investments into large project developments. Nevertheless, guaranteeing greater efficiency, as well as higher capacity to respond to the country’s development needs and bottlenecks, is key, which could be enhanced if ProInversión had a higher degree of autonomy and responsibility, similar to that of any ministry.
- The success of large project implementation and development will be highly dependent on the creation of more PPPs, and more specifically on the ability to promote selfsustaining projects, which would guarantee competitive prices. It is equally important to highlight the role that large international financial institutions play in financing PPP projects. Local banks lack the long-term capacity to finance large projects, and trying to do so would be a mistake. Hence, local banks should secure financing from foreign banks through six- to eight-year loans, which would then be re-financed through bond issu-ances.
- Successfully executing the South Peruvian Gas Pipeline –co-financed through a syndicated loan by more than 20 domestic and foreign international financial institutions - would help promote syndicated loans as an attractive option to finance the works the country needs for its fu-ture development.
- The decrease of Peruvian exports has been accurately linked to the fall in commodity prices. However, the significant decrease of Total Factor Productivity (TFP) across sectors is often overlooked as a reason behind contracting export levels, when it has in fact dwindled exports. Tackling the factors that limit productivity growth must be a priority for the new government. These include: high informality, government red tape and social conflicts in mining, hydrocarbons and energy. Minimising the impact of these three is-sues could be the key to ensuring greater produc-tivity of Peruvian companies and improving their international competitiveness.
- Greater transparency and soundness of the state’s administration at all levels are imper-ative to guarantee good use of public resources. Therefore, the private sector calls for the possi-bility to demand audits of all public institutions to guarantee that the state places the country’s in-terests before territorial or personal interests. The panel also estimated that decreasing the number of districts and regions would help improve the administration of public resources. Furthermore, improved and greater communication between different public institutions is needed to overcome the challenges posed by a high degree of territorial administrative division. Such challenges include lack of transparency, as well as high levels of bureaucracy and corruption.
- Some 87% of private mining companies and 95% of private hydrocarbons companies meet all trans-parency standards and requisites, and are sub-ject to audits. In light of the increasing number of social conflicts over the last five years, which has hindered the capacity to execute projects, all actors in these two sectors should be subject to audits – including NGOs – to ensure that their ac-tions are not motivated by political agenda.
- Sustainable long-term growth greatlydepends on improving education. It is imperative to provide the right tools that allow schools, technical institutes and universities to prepare pro-fessionals that are ready to compete in a knowl-edge-based economy.
- Tackling informality is also a task for the private sector. Private companies should demand and guarantee that their suppliers, clients, employees and partners act under the scope of the formal economy.
- Global political and economic uncertainty triggered by the Brexit vote in the UK, the US presidential campaign, the prospect of the Federal Reserve raising interest rates and the stagnation of China’s growth all contrast with Peru’s wave of optimism following President Kuczynski’s election victory. To capitalise on the country’s bright prospects, the private sector considers improving the institutional framework key to decreasing investment costs, the level of bureaucracy, as well as enhancing competitiveness. This is especially important if Peru wants to climb up the World Bank’s Doing Business ranking.