[translations idioma=”ES” url=”https://archives.rgnn.org/2013/11/11/peru-sigue-siendo-un-pais-pobre”]
PERU. Alberto Arispe is the CEO and founder of Kallpa Securities SAB, a renowned trader in Peru. He also writes one of the most successful blogs on Semana Económica, the web portal of the country’s most respected business magazine. In his blog, he analyzes the evolution of the domestic financial market, the economic development of Peru and which shares are likely to perform better, among other financial issues.

On this occasion, and as part of ROOSTERGNN’s series titled “Peru’s economy,” he spoke with the bilingual agency about how his view on the Andean country’s economic future. From his perspective as an entrepreneur and stock market analyst, he moreover gives insight into which reforms he believes should be carried out to accelerate local growth.

How is the Peruvian economy currently performing?

Alberto Arispe: We must begin by analyzing the two fronts that affect the economy: the internal and the external. The external part cannot be controlled; what happens in the US or in Japan is something that Peruvian leaders cannot control. What they can do is to take proper precautions so that the international downturn has less of an impact in Peru. The Government of Peru has the responsibility of handling the internal front. The Peruvian economy has to grow through more investment and higher productivity. Although less so than before, Peru is still a poor country (25.8% of Peru’s population lives in poverty), so there is plenty of room left to grow through more investment. The per capita consumption of soap, shampoo and food, amongst other goods, is still far below international standards. As poverty is reduced, there will be more room for consumption to grow and many companies will benefit from it. As long as the government maintains an economic policy conducive to investment without hampering it, as it has been for the last 10 years, and as long as it maintains the legal certainty that there will be no changes in the rules, I think private investment rates can continue to grow in double digits.

If things go well, how much could economy grow in the following years?

We can aspire for a growth of 4% to 5% per year, assuming there is no meltdown in the world over the next five years. However, it is not as easy as leaving things on autopilot: the economic policy managers need to keep their strategy aimed at investment, although not everyone understands this concept.

President Ollanta Humala, for example, after two years in office, seems to have understood this only recently. At first, he did not believe in this idea and therefore, business confidence levels fell at the beginning of his government. It is not about leaving things as they are. It is about promoting the country and attracting investors, not about making decisions that threaten private property. In other words, it is about being friendly towards capitalism and investment.

Is the public sector playing its part?

The minimum basic measures are being taken in order for private investment to progress. We must speed up projects and offer more incentives. If we want to grow more and to reduce poverty faster, the state has to make reforms that would not only increase private investment but also improve the quality of life of Peruvians. However, that means taking bigger steps, which that must been done by a strong government as these reforms are much harder to implement. I think they should be pro-market.

What reforms should the state make?

The first and foremost should be the restructuring of the state itself. We must make radical efforts in this context. Not only must the salaries of state officials be increased, as they are currently much lower than the country’s average, but also a better system must be established and staff should be motivated. Good employees must be rewarded and bad ones must be punished. This must be a reform approved by Congress, which is difficult to accomplish. Although there will be people who will go out to protest these reforms, because they will change the status quo, it must be done regardless.

The second necessary reform is to make labor costs flexible. I believe this because I created my own company and I have all my employees on staff. I too am guilty of having unfair competition with the informal sector [part of the economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP)], which is a great obstacle to growth. Greater efforts should be targeted towards reducing this. The State seeks to strangle formal companies while the informal ones are not dealt with. In the private sector, you have to pay an employee 15 salaries per year, and 9% of the annual salary goes to Essalud (social security), in addition to their regular insurance. When someone is fired, he must be paid a monthly salary for every year he worked at the company and you have to send him three memos before you fire him. He can leave whenever he likes but you cannot fire him whenever you want.

The third major reform that needs to be implemented is to reduce the role of the government in the economy. A lot of state enterprises should be sold, since they are currently more of a burden than a help. Among these are several energy enterprises, for example, PetroPerú oil, and the water company, Sedapal. The state should not be doing business work: it must first fully focus on its core business, which is tendering, education, and health. This goes hand in hand with the first point.

Finally, I think taxes should be reduced. For example, companies that reinvest profits could pay less taxes. The consumption tax should also be reduced, which Chile has done very well. When there is abundance, you can redistribute wealth, but when there is no abundance, we must first generate the wealth in order to later distribute it. If we can achieve all this, the country will grow at a rate of 7% to 8% per year.

What are the prospects for the end of 2013 in economic terms? What does 2014 look like?

2014 and 2015 are going to be good years because three large mining projects are coming into force: Toromocho (of the mining company China Chinalco), the expansion of Cerro Verde (of Sumitomo Metal Mining Company and Minas Buenaventura) and the expansion of Antamina (of BHP Billiton and Xstrata). Las Bambas, another big project of Xstrata, will start in 2016. They will increase GDP by one or two points. In this context, if the country keeps doing well, we could grow 7% or 8% in the coming years. If we simply continue on as we are, we will only grow 6%. Hence, the challenge the government is facing is to encourage mining exploration so that by 2018 and beyond, new projects can enter the market.

Revenues generated from mining should also be properly invested, something that has not been done so far. The case of the province of Cajamarca, for example, is deplorable: they do not have the basic services they should because they have not invested their money properly.

What is your assessment of the performance of the Lima Stock Exchange (BVL) this year?

The BVL has had a very fluid year and its index has fallen nearly 20%. It is one of the global markets that has fared the worst because about 40% of the index is composed of mining companies that have not performed well this year. The mining companies of the world have been heavily burdened since commodity prices have fallen as a result of the slowdown in China, although it seems that this is already beginning to stabilize. On the other hand, mining costs have risen dramatically in recent years and now, they are trying to reduce them. I think it can get better. The stock market should recover within the year.

— Translation: Tania Carril.