Peru - Summit Reports · “In Peru there has always been a connection between Inca Kola and the...

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Stability transforms economic hopes

WHEN PRESIDENT ALEJANDRO TOLEDOtook office this past July, many Peruviansfelt their country was not just turning apage in the history books; it was writingthe table of contents for a whole new volume. Peruvians saw the departure ofAlberto Fujimori as more than just theend of a decade’s rule that dwindled intomisgovernance and corruption. It wasone of history’s rare second chances towind up a system that has existed prac-tically since the country became inde-pendent in 1821, “characterized by au-thoritarian rule that has left 54% ofPeruvians living on less than two dollarsper day,” according to the Presidentof the Council of Ministers,Roberto Dañino.

But no matter how gladthey were to see the last ofFujimori (when the scandal-spattered president bolted toJapan and faxed back his res-ignation, lawmakers refused to accept it just so they could have the sat-isfaction of removing him from office), thereis no denying him some credit for what wasaccomplished in the early years of his pres-idency: ending Peru’s estrangement fromthe multilateral lending organizations, anddealing forcefully and successfully withrampant terrorism. After that came sevenfat years, followed by two lean ones in1998 and 1999, when the El Niño phe-nomenon played havoc with agricultureand the Asian crisis dried up some of Peru’smain export markets.

In the six months since his inauguration,President Toledo does not claim to haveturned the situation around. He says his

main priorities are “creating productive jobs,investing heavily in health, education andnutrition and rooting out corruption. We re-alize that in the globalized world in which welive, Peru has to compete for access to cap-ital. Political, economic and legal stability areall of vital importance in engaging with theinvestment flows that can launch Peru’sshort-term recovery, and lead to a period ofsustained growth. Our primary concern isattacking poverty, but we know we will neverget anywhere by patronizing its victims. Wewant to teach people how to fish, ratherthan serve them a fish dinner.” As Mr. Dañinoadds, “the main mission of the government

is the outright fight against poverty.”But what exactly has the gov-

ernment done by way of turn-ing these good intentions intoon-the-ground change? A typical example is that 50% of

all revenue from privatization ofstate companies is set aside and

used to build decent roads. AsTransport Minister Luis Chang says, “the

other day I was talking to some farmers whotold me they were being offered one sol,that is a third of a dollar, for a box of 15 pa-payas. Just transporting that to Lima orCallao would cost three times as much, andthe fruit would half spoil before it got there.But if a highway existed to cut travel timefrom 36 hours to eight, it would become aviable business for everyone concerned,farmers, shippers and exporters.”

In addition to the nitty-gritty issues, analysts say that President Toledo’s agendawill have to tackle the big issues such asstructural reforms, significant investmentin research, development and human cap-

ital, and creating public institutions that areuntainted by corruption and responsive topeople’s real needs.

Of course, all this requires major financing, and this will not be easy to comeby now that the world economic down-turn has cut growth expectations to 1%for the current year, as compared withlast year’s 3.1%. Deputy Minister for

Integration and International TradeNegotiations Alfredo Ferrero says that ifthe government gets it right, Peru can be-come competitive in productivity, cost-efficiency and with its know-how, partic-ularly in the textile, mining and fishing industries, and niche products taking advantage of the country’s more than 180micro-climates.

THURSDAY, NOVEMBER 29, 2001

STAND AND DELIVER Alejandro Toledo, President of the Republic of Peru.

POPULATION27,483,864

(July 2001 est.)

AREA496,200 square miles.Slightly smaller than

Alaska

CURRENCYPeru Nuevos Soles

(PEN)

EXCHANGE1 US$ = 3.34 PEN

CAPITALLima

GDP$123 billion (2000 est.)

purchasing power parity

RESOURCESNatural resources

include: copper, silver,gold, petroleum, timber,fish, iron ore, coal, and

phosphate

INDUSTRIESThe country’s industriesinclude: the mining of

metals, petroleum,fishing, textiles, clothing,

food processing,cement, auto assembly,

steel, shipbuilding,metal fabrication

FACTS &FIGURES

PeruRepublic of

HAVING WEATHERED RECENT GLOBAL ECONOMIC DIFFICULTIES BETTER THAN MANY OF ITS NEIGHBORS, PERU’S CHALLENGE NOWLIES IN ATTRACTING FOREIGN INVESTMENT TO ITS KEY INDUSTRIES

Thepresident’s

priorities are toinvest in health andeducation, and tofight corruption

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CAREFUL WITH THE ENVIRONMENTRESPECTFUL WITH COMMUNITIESMINDFUL OF THE BEST CORPORATE GOVERNANCE

EXPLORATION IS OUR EXPERTISE!

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LARGEST PRECIOUS METALS MINING COMPANY IN LATIN AMERICA

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ATPA extension vitalto Peruvian tradeCURRENTLY UP FOR REVIEW BY THE U.S. CONGRESS,THE ANDEAN TRADE PREFERENCE ACT (ATPA) ALLOWS OVER 6,000 PERUVIAN PRODUCTS TO ENTER THE U.S. AT ZERO TARIFFS

START A CONVERSATIONabout U.S.-Peruvian relationsthese days and before too longit is bound to turn into a dis-cussion of ATPA, the AndeanTrade Preference Act. The UnitedStates is the largest customer forPeru’s exports (30%) and pro-vides the Andean country withroughly the same percentage ofits total imports. Since 1991,ATPA has allowed all but a hand-ful of products from Peru, Bolivia,Colombia and Ecuador to enterthe U.S. market on zero-tariffbasis. This December, it must berenewed without change, re-newed and rewritten, orscrapped altogether.

The Bush administration sup-ports having ATPA extended andexpanded to cover exports cur-rently excluded under theact–principally garments and tex-tiles. But approval is far fromcertain in Congress,where members arecareful not to tread onthe toes of agribusi-ness interests athome. ForeignMinister Diego GarcíaSayán argues that, “allthe Andean countriestaken together could not pro-duce more than 1.4% of overallU.S. textile imports, and much ofthat is in specific high-end, non-mainstream wool and cotton va-rieties. If those exports were todouble, it would make a world ofdifference for us.”

The Vice President andMinister of Industry, Tourism,Integration and InternationalTrade Negotiations, Raúl Diez

Canseco Terry, adds that theATPA debate is particularly im-portant in the light of the forth-coming introduction of the FreeTrade Area of the Americas(FTAA). “The Bush administra-tion is going to push to haveFTAA ready by 2005, whichmeans that Peru must prepare

its whole economy inorder to become an

exporting country. Sofar, Peru has had aprotected andclosed economy

and ATPA representsan important step to

enable us to adjust to thisnew environment.”

ATPA was created as an in-centive for crop substitution, en-couraging countries to eradicatethe cultivation of the coca plantfrom which cocaine is made.Washington has praised Peruvianauthorities for their success. AsDeputy Minister for InternationalTrade Alfredo Ferrero notes, “nocash crop anywhere in the worldis as profitable to grow as the

coca bush.” Opening up U.S.markets to goods has helpedoffer Peruvian farmers alterna-tives, and one out of every fourasparagus eaten in the UnitedStates is grown in Peru.

According to Jaime A. GarciaDiaz of the American Chamberof Commerce, U.S. investmentin Peru, while substantial, is perhaps not everything it shouldbe. “Even so, in asset terms,Americans are the main in-vestors, with $8 billion tied upin the country. A U.S. companygot the last major privatization,Electroandes, paying a 90% pre-mium over the minimum bid.”

In addition to trade and in-vestment, the United Sates hasprovided Peru with over $1.3billion food, and disaster reliefaid since 1990, while USAID’sfood assistance has reached1.7 million Peruvians. Other pro-grams offer financing and tech-nical know-how for improvingpublic health facilities and im-plementing environmental safe-guards in the mining industry.

Final ly, most of the two million Peruvians who live out-side their country of birth(around 10% of the population)are in the United States. “Wesee these people as Peruviansworking in a different settingfor their country’s future,” saysMr. García Sayán. “Many werebusiness professionals who fledan insurgency that cost 25,000lives and inflation running up-wards of 7,000% back in the1980s. We would like to en-courage all of them to stay intouch, contribute their input onthe direction the country shouldbe taking, and maybe eventu-ally consider bringing the ex-perience they have acquiredback home. We certainly coulduse it.”

RAÚL DIEZ CANSECO TERRYMinister of Industry, Tourism,Integration and International TradeNegotiations Coca-Cola makes gains in Inca territory

THINGS GO better with Cokein Peru too. So well in fact thatthe U.S. company’s division inPeru, Coca-Cola Peru, has aconsumer market penetrationin the South American countryof 90%, which is no small featconsidering that Peru is tradi-tionally a nation of fresh fruitdrinkers, or considering thecompetition it had to overcometo chalk up those figures.

For some 65 years, the bigname in the Peruvian cola industry has been Inca Kola, abrand name with as much of a foothold on the Peruvian psyche as Coca-Cola has inthe United States.

“In Peru there has alwaysbeen a connection betweenInca Kola and the happy timesin a person’s life, and that association has been passedon through generations,” notesRodolfo E. Salas, country manager for Coca-Cola Peru.

So after years of pitchedmarketing battles, executives

from the two companies shareda Coke and an Inca Kola andagreed in 1999 to join forcesand get on with the businessof selling soft drinks.

“The truth is that it was an arduous competition for years,”Mr. Salas recalls. “The joint effortwas the best alternative, becausethe process of eating each otherup prevented both of us fromexpanding the category.

“This is a business that re-quires us to visit our clients twoor three times a week,” adds

Mr. Salas. “And this frequencymeans we need a large num-ber of trucks and salespeople.Now we have been able to ex-pand at a faster rate and im-prove our system of routes.”

Mr. Salas takes pride in thefact that Coca-Cola Peru andthe bottlers play an importantsocial role in the country.Creating employment and rais-ing funds for relief programs forthe less fortunate, and for thosewho have suffered economicsetbacks, are just a couple ofexamples, he explains.

“The secret is that Coca-Cola does not try to present it-self as an American companythat happens to be in Peru, butas a company of Peruvians thathas its headquarters in theUnited States. And that’s some-thing that’s especially impor-tant for us. We understand thatwe are neighbors in Peru, andso we have to take an activerole whenever we can as partof our civic duty.”

RODOLFO E. SALASCountry Manager for Coca-Cola Peru

MAKING ITS MARK Coca-Cola has joined forces with Inca Kola in Peru.

Oneout of every

four asparaguseaten in the United

States is grown in Peru

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Diversifying a growing economyA KEY MEMBER OF THE ANDEAN COMMUNITY AND THE ATPA REGIONAL TRADE AGREEMENT, PERU NEEDS TO DIVERSIFY ITS EXPORT BASE TO IMMUNIZE THE ECONOMY FROM PRICE FLUCTUATIONS

PERU’S NEW government hastaken a strongly pro-active stanceregarding transnational economicintegration, linking the nation firstwith its immediate neighbors, thenon a regional and continental basis,and ultimately as part of a networkthat spans the entire hemisphere.

According to Deputy Ministerfor Integration and InternationalTrade Negotiations Alfredo Ferrero,“it is impossible for any country tomake progress and create em-ployment unless there is trade. Inthat respect, Peru’s potential hasnot yet been fully realized.”

The negotiated settlement of afestering border dispute withEcuador has helped reactivate theAndean Community trade groupand allowed Peru’s goods to access a 100 million-strong mar-ket in Bolivia, Colombia, Ecuadorand Venezuela. Peru has also con-cluded an agreement with Chilethat progressively reduces and willeventually eliminate tariffs on bothcountries’ goods.

With its largest trade partner, theUnited States, the Andean TradePreference Act, currently up for re-view by the U.S. congress, allows6.200 Peruvian products to enter theU.S. at zero tariffs, but unfortunatelydoes not cover key items such as

Spanish presence revitalizesPeruvian telecomsU.S. BUSINESSES eyeing opportunities in Peru would beadvised to take a close look atSpain, which is currently thesource of most of the foreign in-vestment coming into LatinAmerica.

The Spanish telecommuni-cations giant Telefónica, for ex-ample, invested more than $3.2billion in Peru between 1994and 2000. By the year 2003, themultinational plans to add an-other $1 billion to that total.

The company’s Peruviansubsidiary, Telefónica del Peru,has spearheaded the parentfirm’s huge expansion drive inthe country since it won a pub-lic tender during Peru’s privati-zation of the industry’s twostate-owned operatorsENTEL and CPT in1994.

Since then,Telefónica del Peruhas added nearly amillion fixed lines tothe country’s tele-phone network and hasincreased the number of mo-bile phone clients from 21,000to 973,065. And, according toTelefónica del Peru Chairman ofthe Board Alfonso Bustamantey Bustamante, the companyplans on being a leader in Perufor the long haul.

“Telefónica obtained a 20-year contract and every fiveyears its progress on promisedinvestments and goals for ex-panded services is revised. Italready passed one revision ofthe contract, which also givesus exclusive rights as the coun-try’s long-distance and local op-erator for five years,” Mr.Bustamante explains.

He also points out that thelong haul means bringingPeru up to date as far as datatransmission and telephonedensity are concerned, whichcurrently runs about seven

lines for every 100 inhabi-tants while the average insimilar countries ranges from14 to 20 per 100 people.

“We have a clear advan-tage to tap into the

huge opportunitythat this presents,”Mr. Bustamantepoints out. “Wehave access to

state-of-the-arttechnology thanks

to the size andstrength of our parent com-pany and its huge presencein the world (some 50 coun-tries). So we can develop ourown technologies and wehave the resources to acquireothers.”

ALFONSO BUSTAMANTEY BUSTAMANTEChairman of the Boardof Telefónica del Peru

SHEAR STRENGTH Peru’s leading position in sectors such as textiles, fish meal and gold willenable the country to take full advantage of the ATPA trade agreement, if passed by U.S. Congress.

INTER-NATIONALREACHThanks to theinvestment ofSpanishoperatorTelefónica,Peruviantelecoms iscatching up interms of datatransmissionand telephonedensity.

resolution, tariffs. And, as such, itis a key part in the configuration ofthe entire state.”

As the country must rely on itsoutput on primary products, itsoffer has to be diversified (53% ofexports are minerals and oil) to im-munize the economy from marketdistortions and price fluctuations.

“Fish meal, gold and com-modities sell themselves. All one hasto do is to see that they enjoy fairand equal market access. But there

Telefónicadel Peru has

added a millionfixed lines to the

telephone networksince 1994 textiles. Consolidating and strength-

ening all of these arrangementshelps lay the groundwork and qual-ify Peru for a post at the starting gateif the Free Trade Area of the Americasgets off the ground in a few years’time. As Vice President Raúl DiezCanseco Terry has to acknowledge,“globalization is calling the tune, andwe have to dance to it along witheveryone else.”

Nevertheless, the vice-presidentsays, there is no getting aroundthe fact Peru has never been muchof an export-oriented country. Ona per capita basis, its exportsamount to barely $240, while forCosta Rica they total $1,800 andin Chile, which has roughly thesame population as Peru, $1,040.Mr. Ferrero’s view is that trade in-volves much more than just com-modities and manufactured goods.“It means services, investments,exports imports, transportation,tourism, agriculture, dumping,competition policy, intellectual prop-erty rights, market access, dispute

are a number of products that Peruis well placed to develop for the ex-ternal market. We need a fair dealfrom our partners, but we also needexportable goods to take advan-tage of it,” Mr. Ferrero says whilenoting that Peru produces only 700of the 6,200 product categoriesthat are entitled under ATPA.

The private business communityhas been nodding its approval atthe professionalism and serious-ness of President Toledo’s eco-nomic team. The policy guidelinesthat his administration has pre-sented get a thumbs-up from CON-FIEP, the National Federation ofPrivate Industry, though its president,Julio Favre Caranaza, cautions thattime will be needed for them toshow results. “The worst that couldhappen is for people’s pent-up frus-trations to give rise to unrealisticexpectations. But we definitely thinkthat in 2002, the economy cangrow 5-6% and by the followingyear, everything will be in place fora 7-8% steady growth.”

ALFREDO FERRERODeputy Minister for Integration andInternational Trade NegotiationsT

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A N A T U R A LL E A D E R

At Minera Yanacocha, we believe we have a goldenopportunity to promote development andenvironmental awareness throughout Peru. In ourrole as the nation’s premier mining enterprise, wetake the utmost care to protect the environment–ournation’s most valuable asset–and encourage positivesocial change.

Plentiful natural assets fuel economyTHE DEVELOPMENT OF PERU’S HUGELY PROMISINGMINING INDUSTRY CONTINUES APACE, WITH PRIVATEINVESTORS SET TO PLAY A FULL PART

U.S. taps into Peruvian richesMINERA YANACOCHA, LOCATED IN NORTHERN PERU, IS CENTRAL AMERICA’S LARGEST GOLD MINING COMPLEX, WITH PROVEN RESERVES TOTAL-ING SOME 37 MILLION OUNCES

MILLIONS OF YEARSago the soar-ing peaks of the Andes thrust throughthe surface of the planet and broughtwith them the gold that was later tobe cherished by the Incas as the tearsof the gods. These and other min-eral deposits today provide Peruwith 45% of its export earnings and20% of overall government revenues.Some 6.5% of the country’s GDPcomes straight out of the ground.

Peru is the world’s second-ranked silver producer, third in zinc,tin and lead, fifth in copper andeighth in gold. On its own list of rev-enue sources, gold comes first, fol-lowed by zinc. But as the Ministerfor Mining and Energy JaimeQuijandría Salmón acknowledges,there are aspects of the mining in-dustry that cannot be measured inmoney terms, such as generatingemployment in remote areas andits ability to attract key infrastructure,particularly transportation and com-munications networks.

“Unfortunately, being a primarycommodity exporter, Peru is espe-cially vulnerable to international pricefluctuations. Mining, however, hasseveral advantages, not least ofwhich is its ability to generate for-eign currency,” says PresidentToledo. Still early into his adminis-tration, privatization plans are main-ly focusing on the oil and natural gassectors, although very large miningtenders have been awarded, suchas the Pierina gold mine and theAntamina copper-zinc operations.U.S., Mexican, Australian, Canadianand Japanese firms have all takenup sizeable stakes in the industry.

The mining sector emerged remarkably unscathed from the re-cession of 1998-99, which saw themeltdown of Peru’s Asian marketsand commodity price turmoil. In2000, mining grew by 7%–thestrongest performance of any sin-gle sector of the economy.Interestingly, much of that upward

GOLD MINING in Peru is cen-tered in the rich Yanacocha golddistrict in the northern part ofthe country, and is the site of acomplex of five gold mines andseveral major processing facil-

Peruvian market and we hope thatthey will expand their activities.”

But at the end of the 1990s, evenas output and revenues were soar-ing (and perhaps precisely becausethey were) the Fujimori administra-tion took a series of moves that dis-mayed prospective investors andveteran operators alike by rewritingcontracts and raising royalties.

The $9 billion that had been chan-neled into the industry over the pastdecade began to trickle off, and$300 million earmarked for explo-ration was put on hold. SaysPresident Toledo, “I’ve told my min-ister to come up with a law that offers every incentive to encourageexploration for new petroleum andmineral deposits.” Mr. Quijandría in-sists that legislation now in theworks will contain ironclad guaran-tees “that will attract the $1 billionwe need to see pumped into thesector over the next five years.”

ALBERTO BENAVIDESQUINTANAPresident of Buenaventura

ROQUE BENAVIDESGeneral Manager ofBuenaventura

A WEALTH OF RESOURCES As part of its process of economic liberalization, Peru is activelyencouraging the participation of foreign investors in its hugely profitable mining industry.

ities all operating under thename of Minera Yanacocha, ajoint venture mining operationthat marked the first foreign in-vestment in Peruvian mining inmore than 20 years. The two

main stakeholders of LatinAmerica’s largest gold produc-ing mining complex are the U.S.company Newmont (51.35%) andCompania de Minas Buenaventura(43.65%).

Last year, before constructionof Minera Yanacocha’s fifth openmine pit was complete, produc-tion was a whopping 1.8 millionounces, and there is a lot morewhere that came from as proven

reserves are in the range of 37million ounces.

“There’s no question that wehave great potential, but we needstable conditions in order to attract capital over the long term,”notes Carlos Santa Cruz, gen-eral manager of MineraYanacocha. “In ourcase, four years agowe were talkingabout a mine thathad a potential lifespan of seven oreight years, nowwe’re talking about asmany as 20 years at the current rate of production, andeven more if we continue ex-ploring the area.”

Mr. Santa Cruz says the mainsecrets to the mine’s successare, of course, its huge depositsof gold, silver and other miner-als that are ripe for mining, butalso the smooth working relation-

ship between Newmont andBuenaventura, and the specialcare Minera Yanacocha takesconcerning environmental issues.

“There has been a process oftechnology transfer that hasworked exceptionally well since

the beginning. The combi-nation of Newmont’s

know-how and thelocal personnel hasgelled so well thattoday we have a fun-damentally sound

operation,” Mr. SantaCruz says. “Wherever do-

mestic capabilities fall short, webring know-how in from whereverwe have to. If Newport has thesolution, it is provided toYanacocha and in this way wehave been advancing, and turn-ing this company into one thatis much more efficient.”

The Buenaventura miningcompany holds titles to at least

momentum came from gold.Though world prices were listless,gold output climbed sharply by14.3% and 3.8%, thanks to theconsolidation of large-scale mega-projects, before falling off in the firsthalf of the current year. Other non-ferrous minerals also did extreme-ly well and seven of the biggestcompanies posted revenues of over$100 million. Investment flows areanother indicator of the prevailing cli-mate in the industry. The CompaniaMinera Antamina channeled $100million to build a new port and orepipeline terminal at Huarmey, whilethe Anglo-American Group put up$827 million for its open-pit copperproject at Quallveco. As Mr.Quijandría confirms, “there are lead-ing U.S. companies operating in the

CARLOS SANTA CRUZGeneral Manager of MineraYanacocha

Lastyear, MineraYanacocha’s

production reachedan impressive 1.8

million ounces

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WINDOWS OF

OPPORTUNITY

IN A WORLD

OF TRADE

At the heart of the dynamic Latin American market andwith ties to both Asia and North America, Peru is poisedto become the region’s most versatile exporter. Thanks tothe efforts of the Vice Ministry of Integration andInternational Trade Negotiations, Peruvian products arefinding their way into an ever-greater number of countriesaround the world.

Ministerio de Industria, Turismo, Integración y Negociaciones ComericalesInternacionales (MITINCI)

Breaking the tariff barrierOFFICIALS CALCULATE THAT GETTING TEXTILES UNDER THE ATPA FENCE WOULD ALLOW PERU TO INCREASE COTTON CULTIVATION FROM 54,000 TO 250,000 HECTARES OVER FIVE YEARS

PERU’S TEXTILE INDUSTRYappears to have everything goingin its favor, starting with 15 straightyears of steep growth. Productionof finished garments accounts forthree-quarters of all output, andhas been increasing by an average22% annually to become the coun-

JUAN FRANCISCO RAFFOChairman of Textil SanCristóbal

TEXTIL SAN CRISTOBAL plant in Chincha, one of the most advanced textile factories in South America.

ten other mineral mines through-out the country, but the firm’spresident, Alberto BenavidesQuintana, acknowledges that itwas Buenaventura’s discoveryof the gold and silver deposits inYanacocha, along with its part-nership with Newmont, that sig-naled the rebirth of the Peruvianmining industry.

“It was believed that in Peruall the good deposits had alreadybeen discovered and that noth-ing new was going to be found.So when Newmont, in associa-tion with Buenaventura, discov-ered Yanacocha, it immediatelysparked the interest of a host ofnew investors,” Mr. Benavidesrecalls.

Buenaventura also has theadded distinction of being oneof only two Peruvian companiesto be traded on both the Limaand New York stock exchanges.General manager RoqueBenavides says corporate gov-ernance has brought many ad-vantages to Buenaventura,above all showing that 50 yearsof technical and operational per-formance has its rewards.

“The difference in Buenaventurais that the company’s growth hasessentially been a product of itsown exploration efforts and notthrough mergers and acquisitions,”he stresses.

try’s fourth-ranking source of exportrevenue, while contributing overhalf a billion dollars to its GDP.

Most of the sector’s restructur-ing and expensive equipment up-grades were undertaken about adecade ago, so companies’ debtburden is well within manageable

parameters. In addition to the prod-ucts’ high value-added compo-nent, around 80% of total outputwinds up in the United States. What,then, appears to be the problem?

Put the question to any one ofthe more than 380 firms operatingin the sector and you will receive

Continued on page 6

ject to an average tariff of 20%, ris-ing to 31% for Peru’s star alpacafiber. Yet these same goods account for a piddling 0.66% oftotal U.S. textile imports worth $53billion, says Peruvian Vice PresidentRaúl Diez Canseco Terry, so it is hardto argue a case for this being un-welcome competition.

“The United States wouldscarcely notice the difference, butit would have a tremendous im-pact here, creating 120,000 newagricultural jobs and as many morein manufacturing, not to mention giving farmers an incentive tochange over from growing the cocaplant, from which cocaine is made,to cotton. All you need is a marketfor what you grow.”

Officials calculate that gettingtextiles under the ATPA fence would

exactly the same answer: it isabout obtaining preferential ac-cess to the U.S. market soPeruvian textile products cancompete on equal footing withMexico’s, which enter the UnitedStates duty-free under NAFTA.

As things stand at present,textiles with a made-in-Peru labelare excluded from the ATPA pref-erential trade agreement and sub-


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Continued from page 5

allow Peru to increase cotton cul-tivation from 54,000 to 250,000hectares over a five-year period. Atthe present time, Peru buys aroundhalf the cotton it uses to make thesetextiles from the United States.

Relying to a large extent on itsown materials has allowed thePeruvian sector to structure itselfwith a high degree of vertical inte-gration, from fabric weaving to finalassembly. Although some 50Peruvian companies can boast annual sales of $1 million or more,the government is actively encour-aging smaller businesses to lookabroad for opportunities by offer-ing them training in internationalmarketing techniques, quality con-trol and other essentials.

What about prospects forPeruvian fabrics in the rest of theworld? Of the 20% of output thatdoes not get shipped to the UnitedStates, E.U. countries take 17%.Since 1990, Peruvian textiles havebeen exempt from import duties inEurope.

As chairman of Textil SanCristóbal, a company that has ex-tensive dealings with major brandson both continents, Juan FranciscoRaffo is in a position to give an assessment. “Our sales break downalmost exactly the same as at the national level, so although the aggregate markets are roughly thesame size, I would say there is abig difference in consumer spend-ing patterns. Then there is the factthat other countries such as Portugaland Turkey, have been granted thesame favorable treatment that wehave, but they are closer at handand can beat us on freight costs.”

U.S. feels the quality of Peruvian fabricPERU IS STREAMLINING ITS ALREADY COMPETITIVETEXTILE SECTOR BY INVESTING HEAVILY IN HUMAN RESOURCES AND UP-TO-DATE TECHNOLOGY

The cream of the cropPERU POSSESSES SOME OF THE WORLD’S MOST LUCRATIVE CASH CROPS. A FAR-REACHING PROGRAMIS NOW AIMING TO REJUVENATE THE COUNTRY’S AGRICULTURAL AND FISHING INDUSTRIES

PERU’S DYNAMIC textile indus-try is currently gearing up for whatmay be the sector’s most impor-tant opportunity ever for massivegrowth. The upcoming congres-sional vote in the United States onwhether to renew and expand theAndean Trade Preferences Act toinclude textile will not make orbreak the already thriving industryin Peru, but it would surely repre-sent an important boost.

There are a handful of textilecompanies in Peru that stand to gainconsiderably with the expandedlegislation. Topping the list,of course, are those thatexport extensively tothe U.S. wherePeruvian quality anddependability is wellknown among U.S. in-dustry leaders.

The largest player inPeru’s most important industry isCreditex, a fully integrated companythat produces top quality finishedproducts and fabric for export world-wide. Some 87% of its sales, how-ever, are earmarked for the U.S.market despite restrictive importtariffs as high as 21%.

The secret to its success, saysCreditex CEO Frederick Horny, isthe quality of its cotton. “The dif-ference is basically in the fiber withwhich we work, pima cotton. Thereis a very high demand for it world-

JUST LIKE Peru’s large mining in-dustry, the country’s agriculture sec-tor, which accounts for some 15%of GDP, has the potential for bring-ing home the gold. Indeed, PresidentAlejandro Toledo’s administrationstresses that agribusiness holds thekey to job creation and economicgrowth.

And since the industry has beenlagging behind in recent years, thereare plenty of opportunities for in-vestors to cultivate. Both analystsand farmers agree that the countryneeds to get to work on identifyingits strengths, attracting investmentin new technology and pushingopen the door to new markets if itwants agriculture to become an im-portant player of the export sector.

“We only have so many hectareswith which to work, and so we haveset some pretty simple goals thatfocus on about seven traditionalcrops,” explains Agriculture MinisterAlvaro Quijandría Salmón. “We can-not go back to the old way of doingthings, and if we don’t find a way tomake these crops more profitable,the agriculture sector will languish.”

Thus, the current administrationhas embarked on a far-reachingprogram to attract investments andimprove agro-industry technology.

GEORGE R. SCHOFIELDCEO of Universal Textil

JUAN RODOLFOWIESNER CEO of Austral

JUAN BAUTISTA ISOLADE LA PEÑAManaging Director of Textimax

MANUEL FLORESPresident of Topy Top

FREDERICK HORNYCEO of Creditex

POULTRY HOUSE of San Fernando, a leading group in the food business in Peru.

wide and especially in the U.S.,where a huge marketing advan-tage for wholesalers and retailersis being able to say that their prod-ucts are ‘made with Peruvian pimasoft light cotton’. There are notmany companies in Peru that workwith pima besides us.”

Peru’s Universal Textil has some50 years’ experience in the in-dustry and is a leader in the useof synthetic materials that it mixesand matches into fabrics under itsown registered brand names. It isone of the few formal and well-

organized companies in thesector that successfully

targets the domesticmarket.

But according toUniversal Textil CEO

George R. Schofield,“for the last 18 years we

have been exporting to theUnited States on a regular basis.The possibility to grow in the do-mestic market is very low.”

Juan Bautista Isola de la Peña,managing director of Textimax S.A.would be one of the first to agree.A whopping 99% of his 10-year-old company’s products are ex-ported to the United States. “It allgoes to the U.S., and I’m con-vinced the U.S. is the natural mar-ket for Peru. The possibilities theAmerican market can offer us arefar superior to developing the LatinAmerican or European market.”

Textimax has a sewing capac-ity of around 650,000 pieces permonth, and as a vertically inte-grated factory with complete con-trol of the entire process, from yarnspinning to finished garment. It isable to give its clients–which includeseveral top-of-the-line brands in theU.S.–just what they want in termsof quality, cost and delivery.

The Peruvian textile companywith the catchy name of Topy Topbegan selling its own brand

throughout Latin America in 1995,and in 1997 began exporting pres-tigious brands under the contractmanufacturer system, includingThe Gap, Old Navy, Zara, Puma,Reebok, Billabong and others,mainly to the U.S. and Europe.

“Nearly 70% of our produc-tion is for export,” Topy Top pres-ident Manuel Flores explains.“Most is earmarked for the U.S.market, but for some of ourclients, like Guess, DK and Zara,we also send to Europe and somegoes out to Chile and Venezuela.”Topy Top owns a modern indus-trial complex in the capital Limathat houses about 1,000 employees.

Textil San Cristobal is countingon honing its competitive edgethrough investment ($20 million

over the past four years into itsChicha and Lima plants) and innovation, organizing its 3,000-strong work force into autonomoustask groups, using systems analy-sis techniques to rationalize pro-duction flows, and offering its em-ployees incentives based on

teamwork rather than individualperformances. “The country hastwo great advantages, unique natural fibers and a skilled workforce,” says Mr. Ruffo, whose firmlast year posted annual sales of $55million, $40 million of which wasgenerated in the U.S. The

quality anddependability ofPeruvian textile is well known in

the U.S.

“By spurring investment, we couldtriple production of non-traditionalagro-industry products within fiveyears and compete with countrieslike Chile, which has a strong ex-port base,” Mr. Quijandría predicts.

And that has been one of the se-crets of the Avicola San Fernandopoultry company, which last year in-vested $7 million to purchase ma-chinery and to boost production ofprepared foods that also includespork products. “We are preparingto become huge exporters,” ex-plains general manager Alberto N.Ikeda when asked about the multi-million dollar investment. “We already export to Colombia,Venezuela, Ecuador, Mexico, CentralAmerica and Japan, and a lot of theinvestment went into making ourplants meet ISO standards.”

The company sells directly toconsumers in Peru at five of its ownstores as well as other supermar-ket chains. It is also the exclusivesupplier of chicken for KFC andBurger King in Peru.

Peru’s huge fishing industry hasdone its fair share of propping upagribusiness exports at a rate of$1.2 billion per year, or about 20%of the country’s total exports. Thefishing sector leader is without a

doubt Austral, with its fleet of some50 vessels and manufacturing ca-pabilities that make it a regionalleader in the production of cannedfish and high-tech fishmeal and oil.

“Peru is perhaps the richest fish-ing country in the world, with some2,500 kilometers of Pacific coastthat extends some 200 miles intoopen seas,” notes Austral CEO JuanRodolfo Wiesner, who adds that re-cent outbreaks of disease that haverestricted meat consumption in theworld, especially in Europe and partsof Asia, mean consumers are turn-ing to animal protein from the oceanas a basic alternative.

“We believe that the fishing sec-tor is going to have an even brighterfuture within the next few years,” Mr.Wiesner says. “And we see a fundamental change evolving in thebusiness side of the activity that webelieve will spark interest and resultin more foreign investment in the industry.”

From our computerized design programvia our sewing room all the way toworld markets, the life of a top-qualityTopytop garment is as complete as theworkmanship behind its production.

Av. Santuario 1325 Zárate, San Juan de Lurigancho, Peru Tel: (00511) 459-0126, Fax: (00511) 459-0106, E-mail: [email protected]


7


Tel.: (51-1) 242-3000 · Fax: (51-1) 242-3393E-mail:[email protected]

www.mira-park.com · www.orient-express.com

ORIENT-EXPRESS HOTELS, PERU

Un santuario para el alma

HOTEL

MONASTERIO

Selling Peru’s thousandyear-old cultureINVESTMENT IS NEEDED TO MAKE ONE OF LATINAMERICA’S MOST NATURALLY AND CULTURALLY DIVERSE COUNTRIES MORE TOURIST-FRIENDLY

First-class hotels offerperfect welcomePERU’S IMPRESSIVE HOTEL INFRASTRUCTURE,ALONG WITH THE LEGENDARY HOSPITALITY OF ITSPEOPLE, HAVE ENABLED TOURISTS TO SHARE IN THECOUNTRY’S MANY TREASURES

MARIA DEL ROCÍOVESGASecretary-General of PromPeru

F. RAMIRO SALASBRAVODeputy Minister for Tourism

LUIS E. GÓMEZDirector of Country Club Lima Hotel

FILIP BOYENGeneral Manager of Orient-Express Hotels, Peru

ONE AREA of its tourism infra-structure that Peru can alreadybe justly proud of is thePeruvian people’s genuine hos-pitality. That pleasant charac-teristic, which never falters even

THANKS MAINLY to the Incas andtheir knack for building to last, Peruhas always been entitled to its pinon the world map of tourist desti-nations. In fact, visitor numbers hadbeen growing steadily by over 20%annually since the terrorism prob-lem was brought under control inthe mid-1990s, and were ap-proaching 600,000 in 2000 untilpolitical unrest led to cancellations(particularly by Japanesevisitors), and slashedgrowth to half of whathad been expected,to 8.3% for the year.

A simple recoverywould bring Peru anestimated $1 billion inrevenue, just over 4% ofoverall GDP. But President Toledosays he intends to significantly in-crease the number of visitors by thetime his term is up in 2006. He hasset up a new ministerial-level entity, the National Tourism Council,and proposed to exempt foreigntourists from the 18% sales tax ontheir bills for food and lodging, andpossibly internal transportation out-lays as well.

Why the special emphasis ontourism? The government is awarethat its components favor his larger

THE COUNTRY CLUB LIMA HOTEL, a member of the Leading Hotels of the World,located in San Isidro.

Continued on page 8

social goals as it brings in foreigncurrency, and creates direct andindirect employment at all skill lev-els. More importantly, tourism turnstransportation infrastructure defi-ciencies into immediate prioritiesand exerts a powerful decentraliz-ing force on the economy. In Peru,moving economic activity awayfrom the big urban centers and intothe hinterland is a big political issue,

not least of all for the presi-dent, whose childhood

was spent in the coun-tryside.

“Tourism is abarometer of any given

country’s political andeconomic stability,” says

Vice-President Raul DiezCanseco, who also holds theCommerce, Tourism and Industrycabinet portfolio. Air links, espe-cially from the United States, are stilla major problem, though Lima air-port was recently put under privatemanagement in a bid to get it mod-ernized. Road links through somountainous a country are majorheadaches.

Large-scale investment in infra-structure will therefore have to gohand-in-hand with promotion anddiversification of the offer if the pres-

idential goal is to be met, notes theDeputy Minister for Tourism, RamiroSalas Bravo. “You can have theprettiest spot in the whole world,but it won’t do you a bit of good ifthere’s no way of getting there.” Mr.Salas believes Peru needs to emphasize the multiplicity of its attractions: wildlife, nature and eco-tourism, the Amazonian rainforest,mountaineering and extreme adventure sports, an incredibly richindigenous culture. Offer visitors alittle bit of everything, and it couldgo a long way, in his view.

And, of course, you have Peru’sarchaeological heritage, which ismore than just Cuzco and MachuPicchu. The ruins at Kuleap, deepin the northeastern jungle, are no lessmagnificent for being seldom seen.Mr. Salas comments: “think of Egyptand you think of the pyramids butthe pyramids aren’t Egypt. By thesame token, there’s much more toPeru. It’s a series of cascading cul-tures and civilizations, from the Nazcaand Paracas that pre-date the Incas,to their modern day Quechua-speaking descendants.”

PromPeru is the agency taskedwith promoting the country in orderto attract investment in tourism,while carrying out market surveysthat will help to orientate policy-making in both areas. Its secretary-general, Maria del Rocío Vesga,agrees with Mr. Salas. “All our re-search indicates Peru is perceivedas a historical-cultural destination.Not for its beaches, not for eco-tourism, not for adventure trekkingor new-age mysticism. What makesus different from Mexico or Egyptis that here, the past is not past.We see our only real competitionfrom Guatemala, where they havedeveloped this idea very intelligently,we want to position Peru as anotherplace where a vibrant and colorful1,000-year-old culture is still verymuch a way of life.”

under the most difficult of con-ditions, is what makes a visi-tor’s stay in one of the coun-try’s hotels a memorableexperience.

“I have just arrived in Peru

faced with the task of openingup a hotel and casino in abouta year, and assembling a teamof 500 employees. My numberone most pleasant surprise hasbeen the people,” says WilliamHulbert, general manager ofJW Marriott Hotel and StellarisCasino Lima. “I have found thatwhether it’s from the outsidegovernment or from the inter-nal business community, orfrom the people who are work-ing in the hotel, it has been veryeasy to bring this business toPeru. The people have wel-comed us and they’ve done sovery enthusiastically.”

The Marriott hotel networkhas about 2,000 sites world-wide, but of those, only 17match the quality standard ofthe JW Marriott in Lima. “There

PresidentToledo intendsto significantlyincrease the

number of visitorsby 2006

TTeexxttiimmaaxx manufactures high-quality clothing for a number of prestigious U.S. companies at its unique vertical production base in Lima. Get to know TTeexxttiimmaaxx, a growing presence in the U.S. garment industry.

Av. Huarochiri 151, Santa Anita - Lima, Peru. Tel: (511) 354-1068, Fax: (511) 354-0354 www.textimax.com.pe


8


[email protected]

WELCOME TO INVEST IN PERU

FOR FURTHER INFORMATION PLEASE CONTACTSUMMIT COMMUNICATIONS AT:

1040 FIRST AVENUE #395, NEW YORK, NY 10022-2902.TEL: (212) 286-0034 FAX: (212) 286-8376

E-MAIL: [email protected]

AN ONLINE VERSION OF THIS REPORT IS

AVAILABLE ATwww.summitreports.com/peru

Continued from page 7

is only one tier in Marriott thatis at a higher level and that’s RitzCarlton, which Marriott owns,”Mr. Hulbert explains.

The difference is in the qual-ity and size of the rooms andupgraded decor features likemarble, granite and carpetingimported from England. “Butthe most important thing of allis the level of service,” Mr.Hulbert stresses. “Because atthe end of the day, you canlook at everything and have ahotel with good curtains andcarpeting, but the service levelis where the customers put theiremphasis.”

Service and attention to de-tai l are also what sets theBritish-owned group Orient-Express apart. Its operationsworldwide include luxury trainsand cruises as well as hotels.In Peru, the Orient-ExpressHotels Peru chain owns threetop quality hotels: the MachuPicchu Sanctuary Lodge, lo-cated alongside the ancientInca citadel of the same name;the Hotel Monasterio Cuzco,originally built as a monasteryin 1592 in the heart of theAndes; and the Miraflores ParkPlaza, which includes threepresidential suites with their

own living and dining areas aswell as a jacuzzi, sauna andplunge pool. The Lima locationhas also earned the SmallLuxury Hotels of the World sealof quality.

For the more demandingtourists looking for tradition,quality and service, the newlyrenovated 74-year-old CountryClub Lima Hotel fits the bill per-fectly. This five-star classic isone of the few remaining luxu-ry hotels in the capital Lima thatdoes not belong to an interna-

International airline group aims highFOR OBVIOUS reasons, gettingtourists into Peru is one of thefundamental priorities of the cur-rent administration’s plans tomake the tourism sector a steadysource of foreign earnings andjobs. Special importance hasbeen placed on the newcomerLanPeru airlines, a subsidiary ofLanChile that has been operat-ing since 1999 with a handful ofdomestic flights, direct interna-tional routes to Miami and ser-vice sharing agreements withLanChile for flights to Los Angeles

and New York. The Lan group,however, has been operating inPeru for 73 years with annualsales topping $400 million.

“Currently we have around600 direct employees and are ex-panding our fleet and number ofroutes, which has allowedus to increase pas-senger traffic by120,000, or 40%more than the pre-vious year,” saysSergio PurcellRobinson, CEO ofLanPeru.

Internationally, Mr. Purcellsays LanPeru is working on build-ing up a South American re-gional hub that will eventuallyserve the United States. “We arealready flying to Miami, Los

Angeles and New York. Now weare developing routes into theCaribbean region. In fact, wehave opened offices in Mexico,Venezuela, Colombia, Ecuadorand Europe.”

He adds that special attentionis being placed on

Argentina, which is anatural market forPeru and one of thecountries with thelargest number ofpotential tourists for

Peru. “Right now,there are only two flights

a day between Lima andBuenos Aires, while there are 16a day between Santiago andBuenos Aires. The difference is abysmal and so the tourist potential is huge.”

tional chain, and therefore hasa uniqueness that epitomizesPeruvian tastes.

And while demand for hotelrooms is growing, so is thenumber of hotels and thatkeeps prices down. Which iswhy Luis E. Gomez, CEO ofCountry Club Lima Hotel, saysnow is the time to try out theelegance of his establishment.“We are not a cheap hotel,” henotes. “We are at the high endof the spectrum. and have astrong market of ‘luxury’ busi-ness travelers. But we believethat with this new governmentand its more open-minded out-look, there will be more andmore businessmen interestedin coming to Peru.”

WILLIAM A. HULBERTGeneral Manager of JW Marriott Hotel and Stellaris Casino Lima

LANPERU is a subsidiaryof LanChile, member of the ONE WORLD ALLIANCE.LanPeru connects Peru with the world’s most important cities.

TheLan group has

been operating inPeru for 73 yearsand has annualsales of $400

million

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