Piura’s Potential for UK plc in Peru

August 15, 2019

There are two things that everyone knows about Peru’s economy: it’s Lima-centric and mining-dependent. And it has been for centuries. But in recent years that’s started to change. New sectors have sprung up in Peru, led by the exponential growth of the export of non-traditional agricultural crops, such as berries, grapes, asparagus and avocado. That’s sparked an economic boom in the coastal regions with places like Ica, in the south, and Piura and Trujillo in the north, spending the agricultural windfall on shopping centres, houses and services. As a result, international firms in Peru are now starting to expand outside of Lima and establish regional distribution centres, sales points or outlets in the provinces.

One of Peru’s fastest growing regions is Piura, in the north of the country. According to the Peruvian Economic Institute (IPE by its Spanish acronym) Piura grew 6.2% in 2018, faster than the national figure of 4.0% and Lima province’s expansion of 4.6%. Piura’s growth was mainly driven by construction, agriculture, hydrocarbons and manufacturing. It’s the mix of these different economic motors that makes Piura so strategic, explains Juan Pablo Caminati, CEO of Parque Industrial Piura Futura (PIPF), a new industrial park on the outskirts of the province’s eponymous capital city. “The province is supported by a diverse range of economic drivers, with fishing and logistics in Puerto Paita, phosphate mining in the interior, hydrocarbons with the Talara refinery and agroindustry in the new export crops, such as mango, lemon, grape and blueberry that are being produced along the coast. In recent years in Peru the completion of massive irrigation works that bring water from the Andes to the coast, have supported a booming agroindustrial sector.”

Julio Velarde, Governor of the Central Reserve Bank of Peru, believes this sectoral diversification is one of the most important trends shaping the country’s economy.In recent years a continuing process of diversification has taken place. Non-commodity exports grew tenfold, to $13.2billion in 2018, which represents 5.9% of GDP, from just $1.2billion in 1994, which was 2.8% of GDP at that time. Peru is expected to continue diversifying in the coming years by expanding the agricultural frontier. Currently there are a number of agricultural infrastructure projects that could increase agricultural lands by 70%.”

Strategic location

Economic theory dictates that as these new industries and provinces grow in importance international companies will have to venture out of Lima to win a share of the booming business. In practise it can be hard for these firms to pinpoint where they should set up base in the interior of the country. Caminati believes PIPF has a strategic location.

“The agriculture boom has turned Puerto Paita into a distribution hub for the agro-exports that leave in reefer cargo. That means Paita processes the agricultural produce of the whole northern sector, from Trujillo to the north. That’s especially important for PIPF because we are situated by the major motorway interchange that handles all of the cargo heading towards the port from the north or the south of Peru. It places our park at the centre of a crucial trade corridor. Any traffic heading to the cities of northern Peru, or even on to Ecuador, passes by us on the Pan American highway. Likewise, traffic in the opposite direction, heading south to Lima, also goes past our park.”

It places our park at the centre of a crucial trade corridor…

You might expect a CEO to talk up his own industrial park’s location, but international firms have already started to move into PIPF. For example, Emergent Cold, one of the world’s fastest-growing cold chain solutions companies, is building a facility to produce individual quick frozen (IQF) fruit at the park and provide cold storage services for several industries from Piura. David Palfenier, Emergent President for Latin America believes the growing importance of Peru’s non-traditional agriculture sector made it a good strategic fit for the company. “With this investment, Emergent adds Peru’s impressive fruit exports to its growing network of global services.”

But it’s not just fruit and veg logistics firms moving into the park. It’s also attracted important anchor clients, such as Divemotor, the Peruvian distributor of Mercedes Benz, Transportes Rodrigo Carranza, Peru’s largest terrestrial cargo logistics operator and Euromotors, the Peruvian distributor of Audi, plus Japanese firms such as Komatsu-Mitsui and Toyota-Hino. “Typically, firms are attracted by the park’s strategic location and excellent facilities”, says Caminati. “So that suits firms that are looking to distribute or sell to the fast-growing economy of northern Peru. The high amount of traffic passing through the interchange gives our clients access to an enormous pool of potential clients.”

Managing risk

Peru’s economy has grown for 20 consecutive years, gradually becoming one of the most modern and dynamic in the region. Yet in some surprising areas it still lags the rest of Latin America. For example, industrial parks, which have been commonplace in the rest Latin America for more than half a century, are a new phenomenon in Peru. As a result, PIPF is the first, and only, industrial park in Piura. That means businesses looking at the strategic northern province must decide if they want to be inside the park or go it alone.

“If you build your own industrial facilities outside of a park, you are exposed to far more risk”, says Caminati. These risks range from financial to physical he explains. “One of the key benefits of our park is flexibility. So, we offer build-to-suit units, for clients that don’t want to invest the capex or time on building a new installation themselves. These units can then be rented for a ten-year period. We also offer lots of land that can be rented or bought, so our offer is very flexible. Even the ‘simple’ lots of land come with all the permits needed for clients to build upon them, with installed connections for electricity, sewage, drinking water and fibreoptic.” The last point is key, because as you will have read elsewhere in the report, the bureaucracy of Peru’s local governments can be tortuous.

Peru’s economy has grown for 20 consecutive years, gradually becoming one of the most modern and dynamic in the region…

Indeed, PIPF has gone out of its way to protect park users from any potential legal problems. “Our clients have judicial security inside the park because the zoning we have from the municipality cannot change for 50 years. If you are outside the park then the municipality has the legal right to change the category of your property – ie from industrial to residential – if its town planning priorities change. Our zoning is I-1 and I-2, which allows for commerce, processing plants and light industry. We have already completed the environmental impact assessments for these industries so that there can be no future complaints against our clients’ business practises.”

Caminati is also aware that some firms may be wary of handing over money to a new industrial park. So all client funds received go directly to a trust administered by an international bank, that ensures the capital is only used for developing the project. There is also protection from more mundane threats, such as flooding, fire and theft. “Our lots have a concrete brick surface area, which is important because it’s the only material that can withstand Piura’s rainy season. Lots also come with storm resistant drainage systems, which is very important in an area that can be hit by the El Niño weather phenomenon. Finally, we have invested in an independent fire detection system and a thorough external security system.”

Britain is already the largest foreign direct investor in Peru but there is room for UK plc to expand its footprint in the country. Indeed, HM Ambassador to Peru, Kate Harrisson, is pushing for “a wider range of British businesses take advantage of the opportunities here”. The Ambassador has already made several official trips to the northern coastal provinces “where many of the berries and grapes being grown end up in British supermarkets”. UK firms looking for a strategic foothold in northern Peru, should take a closer look at Piura.