Carlos Paredes, committee member CADE Executives 2024reflects on the structural challenges that Peru faces to boost private investment and improve productivity. Paredes highlights that an oversized and inefficient State limits the economic development of the country.
If the terms of trade are so high, why isn’t private investment more dynamic?
The answer is that the determinants of private investment are several and it is not only the expected profitability that is reflected in mineral prices. There are other determinants, such as the perception of political risk or the instability of the rules of the game. I think both risks are very high at this time. There is uncertainty regarding what may happen in 2026 or what politicians may say regarding mining investment. Unfortunately, we have a track record of not respecting the rules of the game.
Are these the only risks that explain the situation of private investment?
Furthermore, there is the issue of property rights, which is another very important institution for private investment. In Peru it is verified that this is not respected as it should be. There is also another risk which is that of citizen insecurity such as that which occurs with illegal mining. The fact that various actors can do whatever they want, outside the law, prevents more investment. If in Peru we could demonstrate that the law is respected, the story would be different. All of this explains why we are not taking advantage of this golden opportunity that we have in front of us.
What explains why there are authorities that condition investment on the payment of a bribe?
There is a lot of heterogeneity among authorities in the regions, provinces and districts. I think there are people who are very sensible, neutral, and others who clearly should not be in authority, because they are corrupt, do not know the law and do not have a long-term vision for their community. So, where those bad elements prevail, it is more difficult to promote good investment. The authorities have been elected to uphold the law, promote well-being and prosperity under the existing legal system, but there are many authorities who do not understand that this is their role.
How can we reverse this situation?
We have a market economy framework which is a big part of what is needed. We have a country with very great natural advantages to invest in agriculture, mining, energy and infrastructure. The investment in Chancay has just demonstrated this. We are a country with 34 million inhabitants that has a great capacity to produce and demand products and services that can be provided by new companies or the expansion of companies in Peru. We desperately need investment, so what is preventing it if the legal framework is there? The problem is making it happen. Everyone believes that the problems can be solved with a new law, but we have plenty of rules. I believe that we have expanded the State too much and we have a bureaucracy that, perhaps to find a sense of existence, creates rules and regulations that, instead of helping to generate value in our country, what it does is hinder.
There are some ideological opinions that point out that we must find new engines of growth for the economy, so we must stop promoting mining. What is your opinion?
We must take advantage of all the opportunities we have with the limited human resources we have. Peru is a mining country, but it is also an agricultural and fishing country. There are many activities that Peru can develop based on which to grow and generate more prosperity for its inhabitants. Mining is very important and is what has the capacity to attract greater investment flows in the short term. In the case of oil, which I know well, too. You can attract a lot of investment in oil in the Amazon, which is consistent with the care of the environment and the social promotion of the inhabitants of Loreto. We can carry out those activities and have a set of other activities taking place simultaneously in the same geographical area. Let’s not leave aside those that present us with greater opportunities in the short term, which for me is clearly mining and modern agriculture.
Can we grow only with investment?
There are two main elements for economic growth: the increase in the capital stock (investment) and the growth of productivity. That is, how do I make the factors of production capital and labor more productive? And the answer is by removing the existing overregulation. The State has to comply with providing quality public goods and services, justice, security, education and health. This is what would allow private companies to dedicate themselves to producing more private goods and services, but we are constantly dealing with issues of corruption and insecurity, with a State that is not conducive to productivity growth.
What other aspects are needed to improve productivity?
There are also other elements. I was recently in the Port of Chancay. It is very interesting what could come to us, even though it has not cost us a cent, unlike the Talara refinery. But we are going to have enormous problems due to the lack of complementary public infrastructure that, for example, makes it possible to make a greater volume of trade with Brazil viable in the short term. The State should have a planning role; determine whether or not a complementary railway network is needed. That role of foresight, planning and coordination is what is missing.
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