Peru, poverty and some lessons for Hong Kong

September 09, 2011

Yes, I could write about the crisis rolling on in Europe, or the traumatic reliving of “9-11”, but these all seem a very long way away in Peru, where I have spent the past two weeks attending meetings of the APEC Business Advisory Council (ABAC).

Yes, Peru, like Hong Kong, is a member of APEC, the group of 21 Asia-Pacific economies – a sharp reminder of the reach of this forum, which has seen its importance explode since the crash in the global markets in 2008, and the floundering of the Doha Round of trade liberalization talks.

For those of us obsessively focused on developments in Asia, in particular China, and on a story of steady positive improvement over the past 30 years, a place like Peru is a sobering reminder of how things might be different.

On the face of it, few economies could be more different from Hong Kong than Peru. Almost-daily earthquake tremors, and frequent volcanic eruptions are a constant reminder of the power of nature and our own vulnerability. Visiting Arequipa and the south of the country at the northern end of the world’s driest desert, the Atacama, dust coats a grinding poverty that could match almost anywhere in Africa. They get in a year less rain than Hong Kong gets in an average spring storm.

Compared with Hong Kong’s complete reliance on imported foods, Peru is near-self-sufficient, with the tropical eastern parts of the country, rich in volcanic soil, providing fruit and vegetables that seem to have been on steroids – avocados as big as papayas, and papayas as big as watermelons.

Unlike resource-poor Hong Kong, Peru is teeming with natural resources – and these would be more important still had it not been for an unfortunate war with Chile in the 1880s that resulted in the loss of the copper- and nitrate-rich Tarapaca region on Chile’s border. Even today, Peru is the world’s third most important producer of copper, behind Chile and the US, with large mining industries also based on gold, zinc and lead. Offshore, it is the source of 10% of the world’s fish catch – most of it anchovy and jack mackerel which often end up as fish meal for China’s fish farms.

In contrast to Hong Kong’s strong steady growth and political stability since the 1970s, Peru has only in the past decade seen improvements. While Hong Kong was basking in the positive effects of China opening up to the outside world, Peru was one of the world’s most traumatized nations. Botched farm reform in the late 1970s gave birth to a fanatical Mao-influenced group called the Sendero Luminoso – the Shining Path – which terrorized the country until the early 1990s, and made it a no-go area for any tourist, foreign businessperson or investor

In the ‘80s alone, more than 200,000 families lost their homes, and tens of thousands were killed. It was only when the Shining Path’s fanatical leader Abimael Guzman was captured and imprisoned in September 1992 that normalcy gradually returned. And it was only in the early 2000s under President Alehandro Toledo that the country began to make serious headway.

But over the past decade, while Hong Kong has been buffeted by every kind of adversity, pulling the hope and ambition out of the lungs of so many Hong Kong people, Peru has roared ahead, recording stronger growth than almost any other South American economy. GDP growth and exports have grown by an average of almost 10% a year. This has lifted exports from US$5 bn in 2001 to more than US$35 bn in 2010.

Trade with Asia has been particularly important – and illustrates clearly the value of Peru’s membership of a group like APEC. Exports to Asia have risen by an average of 23% over the past decade, with China now Peru’s third largest export market. As a result, Asia now accounts for 28% of Peru’s trade, compared with just 18% in 2000.

But even a decade of growth cannot hide the still-formidable challenges Peru faces. Even though statistics suggest that Peru is a middle income country, with GDP per capita over US$5,000, windfall wealth from the mining industries disguise a massive gap between rich and poor – and a huge percentage of the population still below the poverty line. Around 30% of the population today lives in poverty – a large number, but so much better than the 50% recorded in 2004.

While Hong Kong does not share Peru’s “natural resources curse” – that countries heavily dependent on natural resource production are constantly vulnerable to world price fluctuations, and that natural resource extraction concentrates wealth in a small number of big business hands, and channels handsome tax earnings into the hands of often-corrupt government officials – it certainly shares Peru’s yawning rich-poor divide.

It is perhaps this rich-poor divide that brought the radical and once-militant Ollanta Humala to power as Peru’s new president just a month ago. President Humala’s victory has sent shivers through the business community and raised questions among international investors over whether Peru’s liberalizing development will continue. But after decades as a firebrand labour militant, voicing strong support for Venezuela’s President Chavez as Venezuela’s leader has taken more and more of his economy under state control, Humala claims he has learned pragmatism. His cabinet contains a large number of moderate and respected business figures. And this is perhaps why he made so big a point of welcoming the members of APEC’s Business Advisory Council.

Heaven forbid Hong Kong ever sees such a labour leader come to power, but there can be no doubt that the longer our rich-poor divide stays so wide, the danger exists of a destructive political chasm opening up that could inflict much harm, and jeopardize Hong Kong’s hard earned position as Asia’s leading business headquarter hub, and China’s primary conduit for fund-raising and international investment. Peru may be a distant and different economy, but we still can learn much from it.

* The translated Chinese version was published in Ming Pao on September 9, 2011.[ Back ]