Economía Magazine spoke exclusively with Gabriel Natividad, economist and professor at the University of Piura, who gave his point of view on important economic issues facing Peru.
How would you describe the current state of the economy in terms of job growth and investment?
I would focus on the aspect of private investment. I think that when we review the macroeconomic figures for Peru, in the Bulletin of the Central Reserve Bank of Peru, we see that private investment is at one of its lowest points in recent years. Therefore, if we want to think about the growth of Peru, we have to think about how private investment is doing, and we are at a very low level. Private investment corresponds to how companies make business plans and investment plans for the coming years. If that fraction of GDP, which represents private investment, is small, is falling or is not growing as it should, then it is not good news for Peru. Therefore, my first assessment is that, if the fraction of GDP dedicated to private investment is not so high and is at historic lows, we should be worried. On the other hand, if we think about what is beginning right now, a new political regime in the United States, a new president, a Senate and a House of Representatives that is in the majority of the president, the government situation in the United States must be very different from what we have this year. So the big question is, could the United States benefit Peru in its economic growth? Knowing the United States as I do, it is good news for Peru that there is an increase in productivity.
The remittances that come from the United States to Peru, the country partly receives foreign currency and partly receives money from abroad thanks to these currencies that Peruvians are sending, the United States is one of the main countries where we find remittances to Peru, these remittances represent billions of dollars for Peru. Therefore, one can predict that these will not fall if the United States continues to grow. Peru should expect remittances equal to or better than those of recent years, so there is a first reason not to be worried and even look to the coming years with good hope. The second reason is that the United States imports Peruvian products that are useful and basic for them and that will not be replaced by a trade war or a tariff change.
There is talk of a take-off of aerospace engineering in Peru. The United States is betting on the development of an aerospace project in Piura. What can you tell us about this and what influence would it have on the Peruvian economy?
In the United States, it is a very important issue for two reasons: economic and geopolitical. From an economic point of view, the world requires safer, faster, and more reliable communication, so having more satellites is vital for the United States and for countries like China. Perhaps in Peru we do not have a powerful offer of satellite services, but in the future we could have one. The geopolitical reason is that, unfortunately, the world is still driven by considerations of peace and war; in a war, satellite communication is very important, which is why it is an important industry for the United States and for the world, so if there is interest in this industry in Peru, it can be beneficial for professionals, because they will have a counterpart that will be interested in their services. Now, is it the most urgent or necessary career in Peru? I do not see it that way; there are many areas of knowledge and the economy that require Peruvian talent.
What are the main internal risks facing the Peruvian economy, taking into account the political context?
It is a key question because it links to private investment. If companies do not invest because they see that there is a lot of risk and little expected profit, then it becomes a risk factor. Peru is institutional stability. How stable is our framework, how favorable is it for investment? One risk for Peru is that during the next year there will be political disputes or an unattractive environment for investment; if companies do not have workers who can go safely to their workplaces, companies will be less productive. There is a link between having better citizen security and greater business productivity. Another risk is that the institutional issue is not resolved in some industries such as mining. If mining competes with informal mining and there are still problems on that side, then there will not be an incentive for other investments.
The last risk is a little more medium or long term. In our country there are many young people of 17, 18, 19, or 20 years old who are thinking of going abroad as soon as possible. There has always been a need to go abroad, but not to this extent. This is a risk, because our country is becoming depopulated. There are people with good talent who could invest in Peru. If the people who are emigrating to study do not plan to return and bring that knowledge here, we will be left without the human talent that could lead companies.
Given that we are in an increasingly globalized world, how exposed is Peru to commodity prices or to any economic slowdown in a world power?
Peru is clearly exposed. I have done some research that has been published in my book “The Company in Peru”, on how this link between Peru and the world through the price of minerals and metals has been something that has reactivated different Peruvian areas. There is a link, Peru benefits when the price of metals is high, when we see that there is really better exportation and a greater inflow of capital to benefit Peruvian mining, which is linked to other sectors. However, naturally, like all risks, there is a benefit when it rises, but there is a loss when it falls; therefore, we must be prepared for this drop in the price of commodities.
Peru suffers every time there is a negative cycle, which implies that we must learn to develop other areas of exportation and diversify a little more. The company will really be the one to make those decisions, a company that finds business and investment opportunities in Peru, that are less dependent on the volatility of world markets, that finds investment expectations and prospects. There are many opportunities like that, but you have to take risks.
In this context, what are the main challenges to attracting more foreign investment?
Investment will come when there is a potential for profit, and in fact in Peru in general the figures have been very dark. As a university professor for many years I taught things that were more or less scattered in areas of knowledge linked to business, when I was able to investigate all those sources and add unpublished data to have a complete investigation, I published my book, which covers many aspects of investment: productivity, demand, financing, management, which can be a very useful introduction for those who are thinking of investing. To invest you have to know, to do so you have to read, ask and hire a consultant who will help you develop business plans. It is also necessary that the basic factors that we have here are oriented towards investment, for example, that people who have a level of training are compatible with investment.
If our compatriots are looking for a short-term business and do not want to commit to a more serious project, then we have a kind of dissociation, we need people available to work and invest in projects of 5 or 10 years, we have the human talent latent. Universities and young people need to be alert to these opportunities and to continue training to be ready when these investment projects come out. For example, in the last two months there has been a lot of talk about Chancay, that it is a great place of investment opportunity, with international trade; it should be part of a Peruvian plan, not a foreign one; a Peruvian plan to see how to build around Chancay and for the related industries to benefit from greater merchandise traffic. Is there currently an investment plan to turn Chancay into a great opportunity for Peru? Perhaps there is, but I have not seen it. In fact, there are several criticisms that the institutions or the mechanisms are not reasonably prepared for greater investment. There is a lot of work, this does not fall from the sky.
Speaking of Chancay and the entire APEC context, what economic growth projections would Peru have in two or three years, since it is also said that this would be a regional economic hub ?
The logistics aspect is not my specialty. Regarding the impact of a hub , a port serves to bring in and out merchandise and it is not obvious to me that China will increase or that other countries will increase or decrease their trade with Peru. That does not depend on whether there is a bigger or smaller port, that depends on how much demand there is here in Peru, the demand will depend on the wealth and income of Peruvians; on the other hand, Peruvian exports will depend on whether the products are valued abroad. My answer is more long-term. If the Port of Chancay comes to steal business, to put it informally, from Callao, then what Chancay earns will not be earned by Callao, so there is no gain. If it becomes a hub , from a logistical point of view we would have to see how that leads to a greater volume that leaves room for Peru.
In the end, what matters is that Peru produces more. If it is going to produce more thanks to the fact that there is a new hub where more ships and more merchandise pass through and they can leave some of that as added value, it will be magnificent. But it is obvious that having only a port, without having trains, roads, or industry near that port is necessarily beneficial; so we have to take this with a grain of salt and see where the exact projections are on how this port can benefit Peru.