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Swiss Economic Cooperation and Development

Peru Country Strategy 2013-2016

Federal Department of Economic Affa i rs , Educat ion and Research EAER State Secretariat for Economic Affairs SECO

Peru 3

State Secretariat for Economic Affairs (SECO)

SECO’s Economic Cooperation and Development

Division is responsible for the planning and imple-

mentation of economic cooperation and develop-

ment activities with middle income developing coun-

tries, with countries of Eastern Europe and the

Commonwealth of Independent States (transition

countries) as well as the new Member States of

the European Union. It coordinates Switzerland’s

relations with the World Bank Group, the regional

development banks and the economic organizations

of the United Nations. SECO is part of the Federal

Department of Economic Affairs, Education and

Research (EAER).

The overriding objective of Switzerland’s interna-

tional cooperation is sustainable global develop-

ment that will reduce poverty and global risks.

Accordingly, SECO’s economic and trade policy

measures strive to integrate its partner countries

into the global economy and foster economic growth

that is both socially responsible and environmentally

friendly. The Economic and Development Division

bases its activities on its specifi c areas of compe-

tence and experience in promoting economic and

fi scal policy, urban infrastructures and utilities, the

private sector and entrepreneurship, sustainable

trade and climate-friendly growth. Special emphasis

is placed on issues relating to economic governance

and gender. SECO is headed by the State Secretary

Marie-Gabrielle Ineichen-Fleisch. SECO’s Economic

Cooperation and Development Division employs

100 people at headquarter and spends appro ximately

380 million Swiss francs per year. Ambassador

Beatrice Maser heads the division.

Editorial

Egypt, Ghana, South Africa, Indonesia, Vietnam, Colombia, Peru – all rapidly expanding economies on the threshold of global

market integration yet still facing the problem of poverty. These have been SECO’s priority countries since 2008 and, together with

Tunisia, they will remain the focus of our intervention over the next four years.

All of SECO’s priority countries are classifi ed as middle-income countries (MICs). As their role in the global economy expands, they

continue to gain in signifi cance, for example in providing global public goods. However, despite rapid growth rates in these coun-

tries, their development remains fragile. Poverty and social disparities persist, accompanied by other global challenges such as

urbanisation, infrastructure bottlenecks and unemployment.

Through its economic cooperation, SECO strives to integrate its partner countries into the global economy and to foster economic

growth that is both socially responsible and environmentally friendly. These approaches correspond to the main challenges facing

MICs. Middle-income countries are also important regional hubs of development for neighbouring States and serve as valuable

examples.

SECO’s activities are based on our many years of experience in international cooperation and our specifi c expertise in economic

issues. Whether we are seeking to strengthen economic and fi scal policy, expand urban infrastructure and utilities, support the

private sector and entrepreneurship, promote sustainable trade, or stimulate climate-friendly growth: all of our measures are

aligned with Switzerland’s foreign trade policy and the Federal Council’s foreign policy objectives.

In 2012 the Swiss Parliament passed the 2013-2016 Message on International Cooperation. For the fi rst time, all of the tasks in

international cooperation were presented in a single bill, incorporated into a joint, overall strategy. This has the overriding objective

of sustainable global development that will reduce poverty and global risks.

The present Country Strategy is based on the framework credit for economic and trade policy measures, as described in the afore-

mentioned Message. It is determined by our areas of expertise and comparative advantages and paves the way for our continued

efforts over the next four years. We fi rmly believe that, in doing so, we can support our partner countries on their development path

while also making a contribution to addressing global challenges.

Marie-Gabrielle Ineichen-FleischState Secretary,Director of SECO

Beatrice MaserAmbassador,Head of Economic Cooperationand Development SECO

4 Peru

Competent institutions allow effective and transparent public management.

AML/CFT Anti-Money Laundering / Combating the Financing of Terrorism

APCI Peruvian Agency for International Cooperation

APEC Asia-Pacific Economic Cooperation

ASEAN Association of South-East Asian Nations

CAF Andean Corporation Bank

CDM Clean Development Mechanism

CEPLAN National Strategic Planning Centre

CHF Swiss Franc

COOF Swiss Cooperation Office

CPC Cleaner Production Centre

CSR Corporate Social Responsibility

EFTA European Free Trade Association

EU European Union

FDI Foreign Direct Investment

FTA Free Trade Agreement

GDP Gross Domestic Product

IDB Inter-American Development Bank

IFC International Finance Corporation

ILO International Labour Organization

IMF International Monetary Fund

IPR Intellectual Property Rights

MDG Millennium Development Goals

MEF Ministry of Economy and Finance

MINCETUR Ministry of Trade and Tourism

ODA Official Development Assistance

OECD Organization for Economic Cooperation and Development

PEFA Public Expenditure and Financial Accountability Program

PENX National Export Strategy

PFM Public Financial Management

PPP Public-Private Partnership

SDC Swiss Agency for Cooperation and Development

SECO State Secretariat of Economic Affairs

SME Small and Medium-sized Enterprise

SOE State-Owned Enterprises

TBT/SPS Technical Barriers to Trade / Sanitary and Phytosanitary Measures

USD United States Dollar

WBG World Bank Group

WEF World Economic Forum

WTO World Trade Organization

Abbreviations Contents

Editorial 3

Abbreviations 4

1. Country context 6

1.1 Political situation 6

1.2 Economic and social situation 7

1.3 Bilateral economic relations 10

2. Development cooperation context 11

2.1 Partner country development strategy 11

2.2 Donor landscape 12

2.3 Lessons learnt from 2009-2012 14

3. Development challenges and SECO’s response 15

4. Financial resources 20

5. Results monitoring 21

6. Partner institutions 24

7. Statistical annex 25

Peru 76 Peru

1.1 Political situation

Political stability and economic growth: After

two decades of political turbulence, including a deep

economic crisis and a violent internal conflict, Peru

achieved relative political stability and exceptional eco-

nomic growth during the governments of Alejandro

Toledo (2001-06) and Alan García (2006-11).

The new President, Ollanta Humala, took office

on 28 July 2011: One of the priorities of the current

government of Peru is to reduce poverty, while main-

taining economic stability and generating more inclusive

growth. Despite Peru’s economic growth and substan-

tial progress made with regard to poverty reduction,

poverty and inequality remain widespread. In fact, 60%

of the rural population still live below the poverty line

and do not have access to public services of adequate

quality, such as in the areas of healthcare, education

and water and sanitation.

Social inclusion as a major policy goal: Against

this backdrop, President Humala has defined social

inclusion as the key issue on the policy agenda for his

government’s five-year term. As a first important step in

this direction, a Ministry of Social Inclusion was created.

Through this new ministry, in charge of all relevant

social programmes (e.g. a basic pension for elderly

people, child-care programmes, scholarships for poor

students, etc.), the government seeks to expand the

social safety nets and thereby complement the current

development model of economic openness in places

where there is little potential for a productive livelihood.

Social conflicts as a major political challenge:

One of the most important political challenges of the

new administration relates to the management of social

conflicts. In the past five years, social conflicts and

protests, mainly linked to a booming extractive industry

sector, have increased dramatically. While the Office of

the National Ombudsman registered 97 social conflicts

in 2006, well over 200 such conflicts were reported by

the end of 2011, many of these in relation to mining

projects. Despite the adoption of the long-awaited law

on prior consultation of the local population, the central

government has thus far not been able to effectively

deal with the respective demands. The arising conflicts

are closely linked to the virtual absence of the state in

rural areas and a variety of stakeholder interests, often

further complicated by the involvement of illegal actors,

including informal miners (gold), smugglers and drug-

traffickers.

Decentralization as a major institutional task: A

further pending challenge closely linked to the issue of

social inclusion and peace is related to the far-from-

completed decentralization process started in 2002. The

process has slowed down in recent years, although a

gradual transfer of responsibilities from central govern-

ment to sub-national levels has taken place. Today,

regional and local governments are − at least partially

− responsible for the provision of basic social services

and for a significant proportion of public investment in

basic infrastructure in areas such as education, health,

water and sanitation, waste management, public trans-

port, and security. Thus, 40% of the national budget

is currently executed at sub-national levels (compared

to 25% in 2002). Still, very little systematic action has

been directed so far at strengthening and modernizing

regional and municipal governments, thus undermining

the capacity of local governments to securely deliver key

public services linked to social inclusion and security.

Additional pending challenges worth mentioning include

the fight against widespread corruption, drug trafficking

and money laundering.

1. Country context

1.2 Economic and social situation

A decade of solid growth: As a result of prudent

macroeconomic policies as well as a favourable external

environment characterized by high commodity prices,

the Peruvian economy has been one of the top perform-

ers in Latin America since 2000. After an average growth

rate of almost 9% between 2001 and 2008, Peru was

one of the few countries in the region to still record

positive growth amidst the financial crisis. In 2010, the

Peruvian economy had already fully recovered. Official

projections for 2012-2014 forecast an average growth

rate of 6.0%. Downside risks are mainly related to a

potential international crisis and uncertainties regarding

investments in the extractive industries due to rising

social conflicts. On the fiscal side, Peru has a fiscal bal-

ance rule to limit the overall public sector deficit to a

maximum of 1% of GDP. Though the rule was waived

between 2009 and 2010 to accommodate for counter-

cyclical fiscal stimulus measures, the Fiscal Stabilization

Fund, supplied by fiscal surpluses, had accumulated USD

6.7 billion by the end of 2011. Monetary policy is closely

coordinated with fiscal policy so as to maintain eco-

nomic stability. The largely respected inflation policy

band of 1-3% has led to one of the lowest core inflation

rates in the region. While international reserves con-

tinue to rise, the public debt-to-GDP ratio is expected to

further decline from its 2011 level of 21%, already one

of the lowest worldwide. The outstanding performance

of the Peruvian economy has also contributed to con-

tinual growth in FDI inflows.

Peru is an exemplary representative of an open

economy: Peru has considerably increased participa-

tion in the world economy in recent years, both through

unilateral tariff reductions and as a result of free trade

agreements negotiated with its main trade partners,

including the US, China, EFTA, EU, Chile, Singapore,

Canada, Japan, South Korea and Mexico. Thus, by

next year, 96% of Peruvian exports will be covered by

An improved business climate allows for a thriving private sector.

Peru 98 Peru

preferential market access arrangements. Furthermore,

Peru has strengthened its cooperation with APEC in line

with Peru’s vision of a trans-Pacific friendship between

Asia and South America, with Peru playing a central role.

Finally, Peru is participating as a negotiating country of

the trans-Pacific Partnership Agreement – a free trade

agreement currently being negotiated.

Important challenges remain: Despite some very

noteworthy economic policy achievements and a bright

economic outlook in general, Peru’s development con-

tinues to face substantial challenges:

Informality/low tax basis: Even if Peru is among Latin

America’s top ranked countries in the Doing Business

index (second only to Chile), informality in Peruvian busi-

ness is still among the highest in

the region (approximately 60%),

and eight out of ten workers are

informal. Main explanations for

this widespread informality refer

to high administrative barriers,

the burdensome labour and tax

Export growth model based on natural resources:

Peruvian exports have quadrupled in the past decade

(almost doubled in the period 2009-11). However, 70%

of exports stem from non-renewable, extractive indus-

tries (60% mining). Apart from the resulting sensitivity

to changes in commodity prices and the ensuing impact

on natural resources revenues, the importance of the

extractive sector also presents important sustainability

challenges, related to the sectors’ potential environmen-

tal impacts (water, CO2, biodiversity), its limited job

creation capacity, its weak links with local economic

sectors, and the resultant social conflicts. Around 20%

of exports relate to agro-products (asparagus, mangos,

garlic, bananas, coffee, cacao, etc.), fishery and (few)

wood products. The main sustainability issues here

relate to the limited added value, overfishing, illegal

logging and, in the case of agro-exports − probably

most importantly − unregulated use of limited water

resources.

Vulnerability to climate change: Peru is one of the

countries most affected by and vulnerable to climate

change. The Peruvian Southern Andes have become a

regular location of extreme climate events, causing irre-

versible damage to the energy, agriculture, fishery and

forestry sectors. Inherent conditions, such as poverty

and inequality are structural factors that increase human

and nature’s vulnerability to climate change impacts.

regimes and the lack of fiscal culture in general. As a

consequence, tax revenues reach only 15%, which is

considerably lower than in other emerging economies in

the region, such as Chile and Uruguay, where tax

revenues represent between 20% and 30%.

Need to deepen the financial sector: In general,

Peruvian banks are well-capitalized, liquid and profita-

ble, and would be prepared to financially support a

strong expansion of the real economy. The microfinance

sector is internationally recognized as very advanced

and innovative. However, some microcredit providers are

highly politicized and do not have adequate governance

structures to ensure their independence and impartiality.

In addition, access to finance remains limited for SMEs,

especially in the Andean and Amazon regions outside

Lima. Bank penetration in Peru is still low when compared

with other emerging market countries. Bank savings-to-

GDP ratios in other emerging market countries in the

region, like Chile and Brazil, are 2.5 to 3 times larger

than in Peru. Peru’s outstanding credit has increased in

recent years, but with 24% of GDP (2009), the rate is still

considerably lower than in neighbouring Chile (73%).

Informality in Peruvian business is still among the highest in the region.

Integrated urban planning leads to sustainable public infrastructure and reliable services.

Peru 1110 Peru

1.3 Bilateral economic relations

Solid institutional basis: With an agreement on

the promotion and mutual protection of investments

(1991), the entry into force of a comprehensive EFTA

free trade agreement in July 2011 and the signing of

a double-taxation treaty in September 2012, bilateral

economic relations between Switzerland and Peru are

well established. Aside from improved market access for

goods and investments, the free trade agreement also

contains provisions in other areas, including intellectual

property rights, public procurement, cooperation and

competition. The agreement will allow Peru to improve

its competitiveness and to strengthen its attractiveness

for investors from EFTA countries.

Bilateral relations are expanding continuously:

Economic relations with Switzerland have been steadily

growing over the last years. According to Peruvian sta-

tistics, Switzerland is the second

most important export market

for Peruvian products, with gold

accounting for 97% of the total

(USD 5.9 billion in 2011). Since

gold trade is not accounted for

in the statistics of the Swiss Fed-

eral Customs Administration,

from a Swiss perspective, Swit-

zerland traditionally has a posi-

tive balance of trade with Peru.

The main Swiss export products

to Peru are machines, pharmaceutical products, preci-

sion instruments and chemical goods (CHF 114 million

in 2011), while the bulk of non-gold imports from Peru

(CHF 47 million in 2011) are agricultural products. With

regard to Foreign Direct Investment (FDI), Swiss firms

rank among the most important investors in Peru, mainly

due to substantial investments in the extractive sector.

Other important Swiss industries represented in Peru are

the service sector (e.g. banking, insurance, logistics,

inspections), mechanical and electrical engineering, as

well as the food, pharmaceutical and chemical industry.

2.1 Partner country development strategy

National Accord: In an effort to overcome the

institutional crisis in the aftermath of the increasingly

authoritarian Fujimori Regime, the Toledo administra-

tion proposed a National Accord (Acuerdo Naciona)

in 2002, by which all relevant political, religious, civil

society and private sector leaders agreed on the main

development goals and principles. This agreement cov-

ers a set of 32 state policies based on four pillars: (1)

democracy and rule of law; (2) equity and social justice;

(3) competitiveness and (4) an efficient, transparent and

decentralized state. For each policy, general and specific

targets for the short, medium and long term where

defined up to 2021.

Bicentennial Plan: As a direct result of the National

Accord, the National Strategic Planning Centre (CEPLAN)

was created in 2005. In view of the Republic’s 200th

anniversary in 2021, CEPLAN has formulated a “Bicen-

2. Development cooperation context

Skilled Peruvian farmers contribute to quench the worldwide thirst for sustainable agricultural products, such as certified coffee.

Non-traditional export products, such as asparagus, provide new opportunities

The Agreement will allow Peru to improve its competitiveness and strengthen its attractiveness for investors from EFTA countries.

tennial Plan”, which was finally announced in March

2011. The Plan established six strategic objectives: (1)

people’s rights; (2) access to public services; (3) state

and governance; (4) economy, competitiveness and

employment; (5) natural resources and the environment;

(6) regional development and infrastructure. From these,

the Bicentennial Plan sets specific goals and action lines,

such as to double the country’s per capita income to

USD 10,000, to reduce the poverty rate to less than

10%, and to bring the country’s extreme poverty rate

down to 5% by 2021.

President Humala’s Road Map: The government plan

for 2011-16, known as the Road Map, is fully in line

with the development goals and objectives established

in the National Accord and the Bicentennial Plan.

The Road Map covers all relevant policy areas, placing a

special emphasis on the subject “growth with social

Peru 1312 Peru

inclusion”. The plan aims to (1) provide equal access to

basic services, employment and social security; (2)

reduce extreme poverty with the emphasis on rural

poverty; (3) prevent social conflicts by increasing the

credibility of public institutions; and (4) improve the sur-

veillance of potential environmental damages. Among

other things, the government plan foresees the creation

of new social programmes such as a basic pension for

elderly people without other provision (Pensión 65), a

state-run childcare programme (Cuña Más), scholar-

ships for poor students (Beca 18) and a medical support

programme in remote rural areas (SAMU). All these pro-

grammes will gradually introduce a performance-based

budgeting system developed by the Ministry of Economy

and Finance (MEF), to which all public institutions in

Peru have adhered. The Road Map further defines a

range of macroeconomic goals, such as a sustained

annual growth rate of 6% and a public debt rate below

15% of GDP. Other ambitious objectives include increas-

ing access to water and sanitation services in urban

areas to 92% and 88%, respectively; ensuring national

energy security through reliable, clean and affordable

energy (primarily based on gas and hydropower); pro-

moting SME formalization and doubling the number of

exporting SMEs; doubling the total amount of exports

and tripling the amount of non-traditional exports; and

increasing the number of tourists by 75% (to 3.5 mil-

lion) by 2016.

2.2 Donor landscape

Aid focus: According to the Peruvian Agency for

International Cooperation (APCI), in charge of official

non-refundable development aid, the aid flows are

mainly focused on Millennium Development Goals no. 1

(eradication of extreme poverty and hunger), no. 7 (envi-

ronmental sustainability) and no. 3 (fight against HIV/

AIDS, malaria and other illnesses).

Declining importance of donor support: Due to

Peru’s transition to middle-income country status in

recent years, the importance of international develop-

ment cooperation has dropped in both nominal and

relative terms. While the amount of non-repayable

development aid (executed) declined from USD 0.5 bil-

lion to USD 0.375 billion in the period 2007-2009, Peru-

vian GDP grew from USD 93 billion to USD 127 billion,

lowering the development aid share of GDP from 0.54%

to 0.29%.

Bilateral and private aid: Official bilateral aid

amounted to 46% of total aid in 2009, while private aid

represented around 42%. In 2009, the largest bilateral

donors were, in order of volume: Spain, US, Germany,

EU, Italy, Switzerland, Belgium, Canada, South Korea,

Japan and Sweden. For the coming years, it can be

expected that the debt crisis in Europe and the US will

lead to a further decline of bilateral development aid.

For instance, the European Commission announced

that, given the need to focus on poorer countries, eleven

middle-income countries − including Peru − will no

longer be part of its 2014-20 ODA budget, but will

instead become part of a regional support scheme. On

The Road Map places a special emphasis on growth with social inclusion.

the other hand, it is probable that emerging donors,

such as South Korea, Brazil and China, will gradually

increase their aid to Peru. In 2011, China positioned

itself as a bilateral donor with a non-refundable coop-

eration for USD 3 million in areas such as health and

education. However, the bulk of China’s development

assistance takes the form of economic investment, con-

centrated mainly in the extractive sector.

Multilateral assistance: Representing only 12% of

total ODA (2011), multilateral agencies are of lesser

importance in Peru. Among the main multilateral donors,

the World Bank Group (WBG) has recently finalized its

Country Partnership Strategy (CPS) for the period 2012-

2016. This defines four strategic objectives: (1) Increase

access and quality of social services for the poor; (2)

Connecting the poor to services and markets; (3) Sus-

tainable growth and productivity; and (4) Improved pub-

lic sector performance for greater inclusion. The new

CPS will give the government more flexibility than the

previous partnership and is tailored to Peru’s status as a

middle-income country. The overall credit volume and

thus the importance of the WBG in Peru have decreased

over the past few years. In the case of the Inter-Ameri-

can Development Bank (IDB), the portfolio in Peru con-

sists of USD 1 billion. The main sectors are transporta-

tion, state modernization, energy and education.

Another key player among the development banks is the

Andean Corporation Bank (CAF). During 2009, CAF

approved USD 2.29 billion for operations in Peru, of

which 57% accounted for sovereign risk operations.

CAF has a strong presence in the transportation sector,

among others.

Donor coordination: In 2005, APCI created a donor

forum (foro de donantes) as a coordination mechanism

between the Peruvian government and donor countries.

This forum serves as an instrument to reconcile interna-

tional cooperation interventions with national policies

and supports efforts towards greater effectiveness, effi-

ciency and transparency in the context of the DAC Guid-

ing Principles for Aid Effectiveness. In addition, there are

specific donor coordination mechanisms, such as in the

case of decentralization or Public Finance Management.

Its rich cultural heritage and beautiful landscapes make Peru a prime tourism destination.

Peru 1514 Peru

2.3 Lessons learnt from 2009-2012

SECO’s new country strategy for Peru builds on the

2009-12 strategy, which proved to be relevant and in

line with Peru’s national development strategies. In this

period, SECO was able to substantially consolidate its

programme in the areas of trade promotion, macroeco-

nomic support and public finance management. In addi-

tion, after years of planning, SECO has finally started the

implementation of its urban infrastructure programme,

most notably with an important project in Chiclayo,

which will act as a model for other emerging cities in

Peru. The programme was completed with interventions

targeting improvements to the general investment

climate. Throughout its operations, SECO has always

sought to accompany its programme by a targeted pol-

icy dialogue with national and sub-national governments.

Several important lessons can be drawn from the imple-

mentation of the Country Strategy 2009-12:

Remain flexible: Flexible, efficient and tailor-made

technical assistance mechanisms, rather than financial

resources, have been extremely appreciated by local

counterparts and can make an important difference to

big donor agencies, which often suffer from complex

and thus slower internal decision-making processes.

Combination of multi-bi cooperation: The strategy

of complementing bilateral projects with multilateral

partnerships has proved appropriate and should be fur-

ther extended. While support to multilateral technical

assistance strengthens SECO’s role and leverage in the

policy dialogue, bilateral assistance enhances the impact

of multilateral measures through better adaption to the

local context, complementary follow-up measures and

local networking in general.

Regional presence: In the context of increased decen-

tralization, it is crucial to have a strong regional pres-

ence and work directly with sub-national governments

and other local economic actors. Policy dialogues at

the national level are structured differently and need

to be complemented by policy dialogues at regional

and municipal levels. Also, the need for capacity building

is much more pronounced in the regions than in the

capital.

Consequent use of synergy potential: As can be

seen in the case of SECO’s programme in the city of

Chiclayo and the regions of San Martin and Cusco, for

instance, SECO’s projects of different operational divi-

sions and under the various business lines have a strong

complementarity, which is not always self-evident. Such

synergy and cooperation potential should be sought

more systematically, during implementation as well as

already at the project development stage, e.g. by adopt-

ing a more programmatic approach and considering

joint interventions.

Partnerships with private companies: Public-pri-

vate partnerships (PPP) and other direct and indirect

alliances with private companies should be further

strengthened in light of the increasing importance of

FDI and the private sectors’ manifold potential develop-

ment impacts in terms of job creation, product innova-

tion, employees and provider training, etc. Such partner-

ships can substantially leverage SECO’s interventions

and enhance their sustainability. However, potential

risks related to such cooperation need to be carefully

assessed prior to engaging with private-sector partners.

In the context of increased decentralization, it is crucial to have a strong regional presence.

SECO plans to address the development challenges

identified in the previous section by supporting Peru’s

sustainable and regionally balanced growth and the

country’s integration into the global economy in order to

fight poverty and promote social inclusion. To achieve

this overall goal, SECO has identified four objectives,

which are aligned with the Peruvian development objec-

tives discussed in Chapter 2.

Objective 1: Competitive private sector

Challenge: Economic activity in Peru remains very

much concentrated in Lima and some coastal areas. In

other regions, private sector development is generally

hampered by low rates of productivity and competitive-

ness. These are mainly due to a high degree of informal-

ity, a lack of technical and managerial capacities as well

as limited access to financial services, especially in the

case of SMEs. Such shortcomings also have a negative

impact on producers’ and SMEs’ capacity to access

international markets and the diversification of the

Peruvian export sector in general.

Focus: By directly working with private-sector associa-

tions, companies and farmers, and in close coordination

with the competent public entities, SECO has gained

ample experience in reducing informality and enhancing

productivity, innovation and thus competitiveness. SECO

will strive to foster entrepreneurship both at SMEs as

well as at farmers’ level, with a view to encouraging

new businesses start-ups and formal job creation.

Another line of intervention will aim at improving access

to finance for SMEs and producers outside Lima. This

should lead to an expansion of economic activity in dif-

ferent regions of the country. To this end, SECO will

make an effort to strengthen local financial intermediar-

ies, through both capacity as well as institution building.

A third focal area under this objective will be to

strengthen the Peruvian export sector and its access to

foreign markets. Here, attention will be paid not only to

quality improvements, innovation and product diversifi-

cation, but also to linking different actors in the supply

chain through the establishment of dialogue platforms

and export networks.

3. Development challenges and SECO’s response

Contribution to Peru’s country development ob-

jectives: SECO’s interventions under this objective will

contribute to the goal of the Peruvian government to

increase private sector investments and to improve

access to credit. Moreover, it will support the govern-

ment’s target of continual export growth.

Proposed SECO measures:

Capacity building and vocational training on

key managerial skills and in financial literacy

Sensitization and technical assistance with

regard to good corporate governance and corpo-

rate social responsibility

Development of new and innovative financial

products through seed funding and technical

assistance (e.g. via Swiss Investment Fund for

Emerging Markets, SIFEM AG)

Export value chain development and promo-

tion of Peruvian products in potential export mar-

kets through participation in international fairs

and the organization of sellers/buyers mission, in

coordination with Peruvian export promotion

institutions

Institution and capacity building in the fields

of sustainable tourism and destination manage-

ment, working with public and private tourism

promotion entities

Support the development and implementation

of national sector strategies, such as the National

Export Strategy 2013-2021 (PENX)

Peru 1716 Peru

Objective 2: Sustainable integrated urban infrastructure

Challenge: Due to persistently high poverty rates in

rural areas, urban centres in more prospering areas

exhibit an unsustainable, widely uncontrolled growth

pattern, putting enormous strain on urban infrastruc-

tures such as water supply, sanitation,

energy, waste management or transport

facilities. Apart from constituting a serious

threat to both the environment as well as

human health, this situation also prevents

economic development by restraining pri-

vate investment, business start-ups and thus

also job creation.

Focus: SECO has substantial know-how in

the promotion of appropriate and integrated

infrastructure solutions as well as in devel-

oping financially viable operating arrangements, estab-

lishing partnerships between private and public sector

actors, for instance. Building on this experience, the

main focus of SECO’s programme under this objective

will be on interventions in two closely related areas. On

the one hand, SECO will support the establishment of

sustainable urban infrastructure, to grant the provision

of reliable, cost-efficient, environmentally friendly, and

climate-change-resilient services in key areas such as

waste management, water and sanitation. On the other

hand, SECO will focus on the development of an inte-

grated urban infrastructure, encouraging the adoption

of a broader urban planning vision with the ultimate

aim of creating an attractive place to live and work.


Strengthening of public utilities in selected

emerging cities

Promotion of environmental technologies in

the areas of waste and wastewater management

serving as a model for other Peruvian regions

through technical assistance and direct financing

Promotion of integrated water resources man-

agement approaches required for the safe and

reliable provision of urban water supply and sani-

tation services

Strengthening of legal and regulatory frame-

work to enable the establishment of effective

management structures and adequate tariffs

Technical assistance to support trans-sectorial

urban planning processes, leading to transparent

and prioritized infrastructure development

Strengthening of the financial position of

emerging cities to enhance their ability to invest

in infrastructure

Urban centres exhibit an unsustainable, widely uncon-trolled growth pattern.


jectives: Measures foreseen under this objective will

support the government’s goal of enhancing environ-

mental governance at a central, regional and local level.

More specifically, SECO’s measures in the field of urban

infrastructure will assist Peru in achieving its objective of

enhanced wastewater treatment, recycling and sustain-

able solid waste handling.

Objective 3: Sustainable management of natural resources

Challenges: Peru’s economic growth model is largely

based on the extraction of non-renewable natural

resources and the export of selected agricultural and

fishery products. Often, the benefits of these activities

are distributed unequally, and sustainability issues and

therefore the long-term viability of the model are not

or only insufficiently taken into consideration, fuelling

social conflict. As Peru is particularly vulnerable to the

adverse impacts of climate change, issues such as

resource efficiency and climate change mitigation have

to become an important part of the industrial develop-

ment strategy, and innovative solutions need to be

offered to the private sector.

Focus: SECO’s experience has shown that the integra-

tion of environmental and social sustainable issues into

production does not need to jeopardize commercial

viability. On the contrary, a solid reflection on sustaina-

bility issues leads to a reorganization of working pro-

cesses and resource efficiency, which also increases

overall competitiveness. SECO will thus continue to fos-

ter more sustainable production processes in both the

industrial and agricultural sectors and encourage recy-

cling of waste products. On the other hand, SECO

aims at strengthening the framework conditions and

promoting market mechanisms for climate protection,

e.g. emissions trading. In addition, SECO will work with

national and regional authorities as well as with the pri-

vate sector to increase transparency and the efficient

use of financial flows stemming from the extractive

sector.


Capacity building to promote resource-effi-

cient industrial production processes

Development and provision of financial instru-

ments to encourage private sector investment in

resource-efficient production methods

Promotion of private voluntary standards in

agro-forestry and extractive sectors

Promotion of transparency with regard to

extractive industry concession agreements and in

the use of revenues stemming from these

Technical assistance to support sector-wide

climate mitigation measures and Peru’s participa-

tion in the international emissions trade

Mobilization of private capital for forestry and

climate change mitigation options


jectives: Through the proposed measures, SECO will

support the government of Peru in its goal to increase

the introduction of environmentally friendly production

processes and to boost exports of sustainably produced

goods. Interventions will also contribute to the stated

national objective of substantially reducing greenhouse

gas emissions generated by land use and land use

change.

Peru 1918 Peru

Modality mix

SECO’s programme will be implemented in line with

the principles of Aid and Development Effectiveness.

SECO will seek to align its programme with the govern-

ment’s priorities and to harmonize it with other donors’

activities. SECO’s support will be channelled through

both bilateral and multilateral and/or multi-donor pro-

jects and programmes. In the case of the latter, thematic

sub-accounts to multi-donor trust funds have proven a

good option to ensure leverage while still being able to

shape processes and have visibility. Where appropriate,

cooperation and partnerships with the private sector

will be promoted to enhance the prospects for financial

viability and increase the leverage of interventions.

SECO’s programme will be reinforced by policy dialogue

with key government partners. Whenever possible, SECO

will use country systems in order to foster ownership

and effective institutions. To ensure effective develop-

ment cooperation, SECO is committed to building

capacity and interacting closely with public and private

actors. Building on the encouraging experiences in the

city of Chiclayo and the regions of San Martín and

Cusco, SECO will strive to systematically build comple-

mentarities and use synergy potential between pro-

grammes and projects under the different objectives

mentioned above.

SECO’s activities are complementary to those of other

Swiss cooperation actors, particularly those of the Swiss

Agency for Development Cooperation (SDC). The SDC’s

activities in Peru and the Andean region under its global

programmes business line focus on the topics of water

and climate change. SECO and the SDC will continue to

exchange information on planned interventions in order

to ensure the identification of synergy potential and

avoid duplication of efforts.

Economic governance and gender as cross-cutting issues

The reinforcement of economic governance in the

partner countries is an essential component of SECO’s

support for the integration of partner countries into the

global economy and the promotion of sustainable eco-

nomic growth. Economic governance comprises all insti-

tutions, regulations, judiciary systems and norms that

promote the effectiveness, non-discrimination, legiti-

macy and accountability of economic activity and there-

fore contribute to combating corruption. The majority of

SECO’s interventions strengthen good economic gov-

ernance at public and private levels.

SECO sees gender equality as an important element of

poverty reduction and improving economic prospects of

partner countries. No projects should place either

women or men at a disadvantage. The gender dimen-

sion is integrated into project design and implementa-

tion, where it can contribute to the greater effectiveness

of SECO’s projects.

Objective 4: Effective and transparent public economic governance

Challenges: Peruvians’ trust in their public institutions

is generally low. The state is perceived as widely absent

or ineffective. According to the WEF competitiveness

report for 2011-12, the top three factors limiting Peru-

vian competitiveness − corruption, inefficient govern-

ment bureaucracy and burdensome tax regulation, all

major barriers to private sector-led growth − are closely

linked to poor governance. Public management capacity,

transparency in decision-making and accountability to

citizens is generally even lower at sub-national level. In

a context of increasing decentralization and transfer of

competences and financial resources to sub-national

levels, this becomes a major threat to development and

social peace.

Focus: SECO’s interventions in this respect can be

divided into two broad areas, one focusing on the

strengthening of economic and financial policies, and

the other on the improvement of the general framework

conditions for private-sector development. The former

will strive to build capacities in public finance manage-

ment so as to improve budget stability, increase the

accountability of public institutions and enhance trans-

parency in public decision-making processes. With

regard to private-sector framework conditions, SECO

aims to contribute to an improved general investment

climate through the strengthening of policies and regu-

lations in areas such as taxation, competition, or intel-

lectual property. The principal counterparts under this

objective are government authorities, both at central

government as well as the sub-national level. Whereas,

in the case of central government, high-level technical

assistance will be of particular importance, such support

will need to be complemented by substantive capacity-

building measures at regional and local levels. In regions

that do not benefit from large tax revenues from the

mining industry (cañón minero), decentralized budget

support can be considered a valid option (e.g. San Mar-

tín region).


jectives: SECO will assist Peru in achieving its goal of

maintaining its solid financial position while continually

improving the financial management of the public

administration. Measures are also aligned with Peru’s

objective of providing sound financial-sector framework

conditions and improving the general investment cli-

mate at national as well as sub-national level.


Technical assistance in the area of monetary

policy and analysis (macroeconomic accounting &

statistics, macro-prudential supervision, capital

control strategies, international reserve manage-

ment)

Strengthening financial sector supervision and

regulation framework through capacity-building

measures, including support towards an improved

AML/CFT strategy and the establishment of a

regional training centre for financial intermediaries

Improvement of public finance management

and fiscal decentralization, supporting results-

oriented budgeting and expenditure at central,

regional and municipal level through technical

assistance and capacity building

Institution building, technical assistance and

capacity building to enhance transparency with

regard to extractive industry concessions and to

promote fair and effective tax policies in that sector

Targeted business environment reforms in

areas such as competition policy, IPR, e-govern-

ment, inspections, customs administration, tax

simplification, etc.

Peru 2120 Peru

Peru benefits from abundant biodiversity, but is also very vulnerable to climate change impacts.

SECO’s interventions under this strategy will be

financed through the Swiss Framework Credit for Inter-

national Cooperation 2013-16. The allocation of funds

to individual countries, programmes and projects will

depend on the identification of suitable interventions,

the absorption capacity as well as the efficiency and

effectiveness of the cooperation with the relevant part-

ners in each country.

Accordingly, the following information on planned com-

mitments for the four-year period of this strategy is

indicative only. It cannot be considered a firm commit-

ment or claimed as such by the partner country. This

information serves merely as a basis for the forward

spending plans that are reviewed each year. Actual

disbursements will depend on various factors, such as

changes in the project portfolio and the framework con-

ditions of the partner country.

The following table provides an overview of SECO’s

economic cooperation strategy for Peru for 2013-2016,

including monitoring and evaluation indicators at the

outcome level and alignment with the Peruvian develop-

ment objectives.

The monitoring and evaluation indicators are selected

examples; the success of implementation of this country

strategy will be measured in relation to the projects

implemented by SECO. The different projects agreed

upon will contain some of these indicators. This will

make SECO and the Peruvian partners accountable with

regard to what has been achieved by the projects imple-

mented in the framework of this country strategy. It is

not SECO’s intention to measure Peru’s development

objectives as a whole.

4. Financial resources 5. Results monitoring

SECO’s overall objective for Peru Support Peru’s sustainable and regionally balanced growth and its integration into the global economy to fight poverty and promote social inclusion.

Main objectives of SECO’s interventions

Contribution by SECO’s programme Peru’s country development objectives

Objective 1: Competitive private sector

… with access to finance and global markets

• Improved access to long-term finance for SMEs, e.g. through innovative financing instruments and PPP

Selected indicator: Type and number of new financial products created and respective demand; number of jobs created and retained in SMEs

• More efficient working processes of producers and SMEs improve their productivity and promote their international competitiveness

Selected indicators: Number of producers with higher net income; number of producers/SMEs that enter new markets

• Strengthened entrepreneurship promotes the creation of new businesses and enhances success of existing ones

Selected indicator: Number of companies supported that receive a loan

• Increase of private investment level and improvement of access to credit

– By 2014, private investment increases to 22% of GDP

• Continual growth of the export sector – Between 2012 and 2014, exports grow on

average by 7.9%

Commitment for Peru 2013-2016CHF 75 million*

The approximate distribution of funds foreseen

among the four objectives is as follows:

1. Competitive private sector 25%

2. Sustainable integrated urban infrastructure

30%

3. Sustainable management of natural resources

15%

4. Effective and transparent public economic governance

30%

* Peru also benefits from regional and global initiatives financed by SECO. When these measures cannot be earmarked to a specific country, they are not accounted for in the financial projections mentioned above.

Peru 2322 Peru



Objective 2: Sustainable integrated urban infrastructure

… to address challenges in relation to rapid growth of emerging cities

• Strengthening of public utilities and improvement of the legal and regulatory framework to improve water supply as well as waste and wastewater management

Selected indicators: Number of people with access to improved public utilities; volumes (m3) of wastewater treated

• Improved planning methods and financing strategies support integrated urban infrastructure development

Selected indicator: Number of successful pilot projects that can be replicated

• Improvement of urban infrastructure towards increased sustainability

– By 2021, 100% of urban wastewater is treated and 50% is reused

– By 2021, 100% of municipal solid waste is properly handled and disposed of

• Improvement in environmental governance – By 2021, 100% of regional governments

implement climate change mitigation and adaptation strategies

– By 2021, 100% of public entities implement the National Environmental Plan

Objective 3:Sustainable management of natural resources

… to promote long-lasting growth, prevent environ-mental degradation and mitigate climate change impacts

• Environmental reforms promote sustainable and climate-friendly energy supply and industrial production

Selected indicator: Reduction in CO2 emissions (t)

• Respect of sustainability standards in interna-tional commodity trade increases Peruvian trade in certified natural and agro resources

Selected indicators: Volume (USD) of certified products traded; number of jobs created or maintained

• The creation of incentives (financial and market mechanisms), particularly in the area of climate change mitigation, contributes to protection of the environment.

Selected indicators: Number of users of new mitigation solutions and financing mechanisms; reduction in CO2 emissions (t)

• Increased transparency with regard to extractive industry concession agreements and the use of revenues stemming from these

Selected indicator: Degree of public access to key financial information

• Increased commitment of the business sector to environmentally friendly production processes

– By 2021, 40% of medium-sized and large mining and energy companies are implement-ing an environmental management system

• Growth of exports of sustainably produced goods – 80% increase in organic production areas by

2021 compared to 2008.

• Implementation of climate change mitigation options

– 100% reduction of greenhouse gas emissions (compared to 2000) generated by land use, land use change and forestry by 2021



Objective 4: Effective and transparent public economic governance

… to promote stable and favourable economic framework conditions and accountability to citizens

• Economic reforms and improved financial policy lead to a transparent fiscal policy and a more reliable administration of public finances

Selected indicators: Number and type of successful reforms; key PFM indicators according to PEFA methodology

• Enhanced regulation and supervision of the financial sector contributes to a stable, diversified and competitive financial market

Selected indicator: Number and type of relevant measures implemented

• An improved business environment and good regulation promote competitiveness

Selected indicators: “Doing Business” Indicators; number and type of reforms

• Maintenance of solid financial position and continual improvement of financial management of the public sector

– By 2016 tax income reaches 18% of GDP – Results-oriented budget methodology is

widespread within public sector institutions as of 2016

• Provision of sound financial sector framework conditions

– By 2016 the accounting of Treasury transac-tions has improved as a result of automation of processes and technical capacity building of regional treasurers.

• Improvement of the general investment climate – Provinces are increasingly implementing

online services to open new businesses

The strategy will be monitored on an annual basis, with

the following purposes:

Institutional learning: Documentation and repli-

cation of best practices or lessons learnt

Monitoring of relevance, topicality, efficiency and

effectiveness of SECO’s programmes and projects

(and corrections/adaptations where necessary)

Accountability:

• between the field and headquarters

• to the public

• to the partner country

SECO’s strategy is aligned with the development strat-

egy of the partner country. Therefore, the annual country

strategy monitoring also seeks to verify that SECO’s

portfolio does indeed contribute to the achievement of

the partner country’s development goals. Adaptive or

corrective measures will be implemented if major

changes occur in the country context or development

goals.

Peru 2524 Peru

The following data from the respective years are

based on statistics from the World Bank and other inter-

national bodies, including the IMF1, the World Economic

Forum, the ILO and the UNDP.

7. Statistical annex

1 International Monetary Fund, World Economic Outlook Database, April 20122 Lending rate minus deposit rate (%)

Strengthened Integration in the World Economy*

2008 2009 2010

Exports of goods and services (E) (% of GDP) 27.1 26.5 23.6

Imports of goods and services (I) (% of GDP) 26.5 23.6 19.7

FDI (net inflows, BoP, current USD) (millions) 6.924 5.576 7.328

Sustainable Growth* 2008 2009 2010 20112012

(proj.)2013

(proj.)

GDP per capita (current international USD) 4.403 4.370 5.205 5.782 6.069 6.470

Real GDP growth (annual %) 9.8 0.9 8.8 6.9 5.5 6.0

Global Competitiveness Index (rank) – – 78 73 67 –

External Debt Stocks (% of GDP) 27.2 28.7 23.1 – – –

Government Gross Debt (% of GDP) 25.2 28.4 24.6 21.6 20.7 19.8

Gross Capital Formation (% of GDP) 27 21 24 – – –

Inflation, average consumer prices (annual %) 5.8 2.9 1.5 3.4 3.3 2.6

Domestic credit provided by banking sector (% of GDP) 18.8 18.6 18.0 – – –

Interest rate spread2 20.2 18.2 17.4 – – –

SECO continues to work with both local and interna-

tional partners in the public and private sectors. In par-

ticular, SECO will work with the following partners

depending on the thematic priority:

6. Partner institutions

Abbreviation Institution

Local partners

BCP Banco Central del Perú

INDECOPI Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual

MEF Ministerio de Economía y Finanzas

MINAM Ministerio de Medio Ambiente

MINCETUR Ministerio de Comercio Exterior y Turismo

PROMPERU Comisión de Promoción del Perú para la Exportación y el Turismo

PUCP Pontificia Universidad Católica del Perú

SUNAT Peruvian Tax and Customs Authority

VIVIENDA Ministerio de Vivienda, Construcción y Saneamiento

Swiss partners

EMPA Federal Material Testing Laboratory

IPI Swiss Federal Institute for Intellectual Property

SIFEM Swiss Investment Fund for Emerging Markets

SIPPO Swiss Import Promotion Programme

Swisscontact Swisscontact Foundation

International partners

EBRD European Bank for Reconstruction and Development

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit

HEID Graduate Institute of International and Development Studies

IDB Inter-American Development Bank

IFC International Finance Cooperation

ILO International Labour Organization

IMF International Monetary Fund

ITC International Trade Centre

IUCN International Union for the Conservation of Nature

KFW Kreditanstalt für Wiederaufbau

PPIAF (WB) Public Private Infrastructure Advisory Facility

PIDG Private Infrastructure Development Group

UNCTAD United Nations Conference on Trade and Development

UNIDO United Nations Industrial Development Organization

UNDP United Nation Development Programme

WB World Bank

* Missing data due to one of the following reasons: – Depending on source, no projections available – Statistics collected only on perennial base – Data for the respective year not yet available

Peru 2726 Peru

Notes

Improvement of Economic Governance* 2008 2009 2010 2011

Ease of Doing Business (rank) 62 56 36 41

Trade Across Borders (rank) – 91 53 56

Governance Indicators of the World Bank: 4

a) Government Effectiveness (%) 44.7 42.1 47.4 –

b) Regulatory Quality (%) 60.7 64.1 66.5 –

c) Rule of Law (%) 23.6 30.3 32.2 –

d) Control of Corruption (%) 51.5 46.9 50.2 –

3 A value of 0 represents absolute equality, and a value of 100 absolute inequality. 4 Percentile rank indicates the percentage of countries worldwide that rate below the selected country. Higher values indicate better

governance ratings. 5 The GDP data have been compiled for individual countries at market prices in local currency and annual rates. These data have been scaled

up/down to the price levels of 2000 and then converted to US dollars using the yearly average exchange rates of 2000 or purchasing power parities (PPPs).

Improvement of Environmental Conditions* 2008 2009

CO2 emissions / population (tonnes per capita) 1.21 1.32

Share of renewable energy of TPES (%) 23.9 26.5

Energy use per unit of GDP(tonnes of oil equivalent per thousand US dollars)5

0.08 0.08

Reduction of Disparities* 2008 2009 2010 2011

Gini index3 49 49 48 –

Unemployment rate (%), labour force survey 8.4 8.4 7.9 7.5

Poverty headcount ratio at national poverty line (% of population)

36.2 34.8 – –

Improved water source, urban (% of population with access)

90 – 91 –

Improved sanitation facilities, urban (% of population) 36 – 81 –

Electrification rate (%) – 85.7 – –

* Missing data due to one of the following reasons: – Depending on source, no projections available – Statistics collected only on perennial base – Data for the respective year not yet available

Imprint

Federal Department of Economic Affairs,

Education and Research (EAER)

State Secretariat for Economic Affairs SECO

Holzikofenweg 36

CH-3003 Berne

Phone +41 31 324 09 10

www.seco-cooperation.ch

[email protected]

Editing/Coordination:

SECO Cooperation

Graphic Design/Concept:

Casalini, Berne

www.casalini.ch

Project Photos:

SECO/Antonio Escalante

Cover: Thomas J. Müller/SPDA

Copies may be ordered from

[email protected]

Phone +41 31 324 09 10

Berne 2013

Federal Department of Economic Affa i rs , Educat ion and Research EAER State Secretariat for Economic Affairs SECO

swiss economic cooperation and development – peru country ... · in 2012 the swiss parliament...

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