Third Party Event

12 Dec 2017

Lima, January 2018: Despite the political challenges that faced Peru in 2017, the year ended on a positive note for Peruvian exports, the value of which reached $44.9bn, the highest figure since 2011. Continuing this upward trend, estimates for 2018 suggest a 13.2% increase on 2017 numbers.

The country’s goal is to double exports by 2021. Key to achieving such a goal is reaching $50bn in exports in 2018, which would represent a new record for the Andean nation. However, a number of obstacles faced by exporters must be overcome in order to meet such goals.

Under the premise of identifying obstacles and the steps needed to meet the 2018-21 export goals, Oxford Business Group organised a roundtable under the title “Keys to Enhancing Peruvian Exports”. The roundtable was formed by six experts representing the main exporting sectors, and discussed the private sector’s views on the matter in front of more than 80 CEOs and export managers, at EY’s auditorium on December 12, 2017.

The panellists included Juan Luis Kruger, CEO of mining company Minsur; Juan Varilias, president of the Association of Exporters of Peru (ADEX); Adriana Giudice, general manager of fisheries company Austral Group; Rosario Bazán, general manager of agro-industrial company Danper; Paolo Sacchi, CEO of transport company Ransa; and Mauricio Chirinos, administrative manager of alpaca company Michell y Cía.

The discussion was moderated by Gonzalo Zegarra, executive director of the economic publication Semana Económica, and featured speeches from Paulo Pantigoso, country managing partner of EY Perú; Luis Torres, director of exports at the Ministry of Trade and Tourism; and Oxford Business Group. 

Room for improvement

Peru’s increasingly competitive market is seeing the exchange of goods, services, capitals and people intensify. This translates to increased competition, and innovation starts to play a key role in strengthening productivity and allowing the country to diversify its portfolio of exportable goods.

The country’s pool of natural resources is vast, and its policies to enhance innovation are ambitious when compared to others in the region. However, there exists a perception that funding programmes are not being adequately used.

Furthermore, social conflicts and the lack of legal stability pose a determining obstacle for large-scale and long-term investments. These factors, together with high logistics costs attributable to the country’s infrastructure gap, represent the main challenges faced by all exporters in Peru, and are a barrier to investments.

The politicisation of mining is one of the main challenges that the sector faces, together with overregulation: between 2007 and 2017 the sector went from working under 27 to 220 laws.

For the fisheries industry, the main obstacle has to do with non-traditional exports. Further challenges are a lack of innovation, inefficiencies and weather factors such as the flood caused by El Niño that hit Peruvian coasts during the first quarter of 2017. The climate phenomenon caused delays in the operations of the Marine Institute of Peru’s (IMARPE) winter research cruise, delaying the input the Ministry of Production uses to establish fishing quotas. As a result, fishing quotas were established at 1.4m tonnes, an amount considered too low by the sector. 

Additionally, 2017 saw an unusually high proportion of juvenile fish due to the decrease of water temperature caused by an equatorial Kelvin wave and low-nutrient waters, forcing the sector to anchor their boats and wait for conditions to change. An additional challenge for the sector is the fact that craft fishermen lack adequate infrastructure to compete in demanding markets. 

In regard to the agro-industrial sector, the shortage of qualified human capital is the biggest challenge affecting the sector’s competitiveness. The sector is also in need of water dams that can provide sustainability to irrigation projects to be developed in the next 20 years. Furthermore, the sector must improve how it studies and understands climate change and its impact on the country in the short, medium and long term.

For the textile industry in general, and the alpaca segment in particular, the main challenge is understanding the markets to which it exports, as well as finding new niches. Alpaca producers, and other sectors with production hubs outside of Lima, are forced to incur excess costs due to the fact that most ports outside of Lima lack the capacity to dock container ships, impelling producers to export through the capital´s Callao port.

The location of the Callao port is, in fact, one of the main obstacles to the growth of Peruvian exports, given the lack of space available to increase its warehouse capacity. This, combined with the lack of container frequency in ports such as Matarani, hampers export growth.

8 strategic moves

Based on the challenges herein addressed, Peruvian exporters identified the following keys to enhance export activity: 

1.    COMPETITIVENESS BODY. A competitiveness council that is comprised of all exporting industries is necessary. The enhancement of public-private relations can help industries move forward in competitive matters, and social inclusion is key to strengthening the country’s human capital. A cooperative approach between government, companies and universities would help improve the country’s vision for innovation, scientific investigation and tech investments.

2.    INTERNATIONALISATION. Peruvian companies must identify their differentiating factors and incorporate competent professionals who will allow them to grow abroad. Companies that lack the financial capacity to open offices outside Peru should be able to share offices with fellow businesses or with Peru’s Foreign Trade Office (OCEX). Establishing free or affordable warehouses at export destinations is also fundamental to inviting small and medium producers into global export chains. 

3.    PROMOTION. Peru needs a national development strategy that integrates investment attraction policies, sectorial executive groups, special economic zones and new strategies for the promotion of exports. 

4.    LOGISTICS COSTS AND INFRASTRUCTURE. Bridging the infrastructure gap is key to reducing logistics costs. Exporters need greater access to ports, the development of new ports, a Cabotage Law, roads that connect the main urban areas with secondary ones, and natural resources and collection points. The cost of container transportation should also be decreased to facilitate access to global markets for small and medium producers.

5.    CHINA’S URBANISATION AND THE AUTO INDUSTRY. Peru’s capacity to keep up with global demand, and more specifically, with China’s demand for metals, will determine the country’s success in meeting its export goals. China consumes 55% of all the metals produced worldwide. Hence, the more copper Peru produces, the higher the volume of its exports, especially considering the process of urbanisation of Tier-3 cities in China and the estimated growth of electric vehicle sales – high consumers of copper – in the next five years. Likewise, the auto industry will continue to demand larger volumes of zinc, steel and tin. For agro-exporters, exploiting the potential of the Chinese market must become a priority, considering that the Asian nation’s food imports only represent 5% of the global total, but forecasts expect an increase to 20% in the coming years.

6.    RULE OF LAW. The state must take on a more active role in remote areas of the country in order to decrease the number of social conflicts. The private sector cannot and must not replace the state. It can, however, be a catalyst of development, but never should it take on the role of the state.

7.    CLIMATE CHANGE. It is important to continue investing in the development and revival of knowledge and technology to strengthen competitiveness and better understand the impact of climate change on the Peruvian economy.

8.    NICHES. Strengthening exports is highly dependent on the ability to understand consumers, increasing the client base and developing new markets. 

Ricardo Miranda Hernández-Mora, senior editorial manager of Oxford Business Group in Peru, contributed to the writing of the summary and conclusions.