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Peru to promote industrialization to diversify its economy

Peru to promote industrialization to diversify its economy

Posted by Juan Gavasa on January 06, 2014

Beginning next year, about 40,000 medium-size enterprises will be able to increase in scale thanks to the industrialization process driven by the Peruvian SME Society (SPP). Those beneficiaries represent 5% of the around 800,000 medium-size firms operating in the country, mainly from the manufacturing and services industries. Domestic manufacturing, textiles and footwear are key sectors as they create the most jobs and the most demand abroad. This program is part of a thorough strategy Peru’s government is unfolding to strengthen industry and diversify its economy.

There is a widely held notion that countries rich in natural resources tend to suffer from the so called “Dutch disease,” when abundant foreign income windfalls from primary exports appreciate local currency up to a point that imported products become more competitive in local markets, thus hurting local non-primary industries. During the last decades, the boom in commodity prices and growing demand in emerging economies led many Latin American countries to lean towards their comparative advantages and concentrate in primary exports. That strategy allowed them to overcome the 2008 global financial crisis successfully by controlling inflation, boosting local demand and attracting foreign investment, however the downside was a lag in manufacturing activity.

According to the Economic Commission for Latin America & The Caribbean (ECLAC), the region increased its primary exports’ share from 41.1% in 2001 to 60.7% in 2011. In Peru, the world’s third largest copper, silver, zinc and tin producer, sustained price hikes made mining and oil and gas exports increase their share from 51.2% of total exports to 69.3% of total exports over the same period.  Meanwhile, the stake of manufactured items’ exports declined from 19.85% in 2003 to 15.43% in 2012, with textiles undergoing the most dramatic drop from 9.1% to 4.7%.

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