Peru’s Post-Pandemic Potential
By Paulo Pantigoso, Managing Partner, EY Peru
Peru was badly hit by coronavirus. According to Financial Times analysis of excess deaths it had the world’s most fatal outbreak on a per capita basis. The severity of the pandemic in Peru caught many analysts by surprise, as it is one of the best-run economies in Latin America. Sadly Covid-19 revealed some of the country’s fundamental structural flaws – in particular economic informality. However, there are some positives we can take from the crisis. The response of companies across the private sector, both in providing emergency medical aid, but also in finding innovative ways to keep working, suggest Peru will have a strong 2021.
Why Peru suffered
There were a lot of errors in public health policy, but I think that happened in many other countries too. One factor that really exacerbated the pandemic here was Peru’s high rate of economic informality. 72% of the workforce is informal and during the pandemic most of these people had to leave their houses every day to earn the money they need to survive. That undermined the efficacy of the lockdown. The Peruvian government actually put together one of Latin America’s most comprehensive economic and social support packages, with around $255 for each of the poorest 3 million Peruvians. But it was difficult to distribute because most of the recipients didn’t have bank accounts. Instead people had to queue at banks, which is exactly what you want to avoid during a pandemic.
One factor that really exacerbated the pandemic here was Peru’s high rate of economic informality…
Another ‘hidden’ weakness that proved significant was that in Peru around 10 million houses, which is roughly 50% of the total, do not have a refrigerator, making it impossible to store meat or fish and forcing people to buy daily. Even worse was that 6 million of the 32 million Peruvians don’t have running water. This problem is mainly in the remote, rural areas although around 2 million people living in the poorest parts of Lima also lack clean water. So that was an additional factor driving people onto the street and undermining the lockdown.
When the pandemic first hit, our primary goal was to ensure the safety of our staff. Since the 16th of March EY Peru has had 99% of our employees working from home. We are well positioned because all of our workers have a laptop and good internet connection, which isn’t the case for most Peruvian companies. By eight months after the lockdown began, we had managed to get about 15% of them back to the office. They must have a medical certificate and also a signed affidavit from our internal medic, so it’s a lot of extra expense and paperwork for us, but we do it because some of our staff work better from the office and want to return.
Once the safety of our employees was secured, we began adapting to the new normal. We are accelerating our digital skills, for example, we now offer a free online MBA to all of our 1,800. employees. That is an initiative that comes from EY’s global headquarters. Here in Peru we are also integrating more with regional EY partners, for example we have been working with EY in the US. We are keeping our focus on data analytics and big data but our improved capability means we can do more of it ourselves in Peru. This is especially important now that audit procedures will be more based on analytics. We need to reimagine the audit as we can’t physically visit clients’ offices. For example, the International Accounting Standards Board has accepted that a continuous video recording, tagged with the GPS, especially for inventories, will be accepted for audits. That shows how we can use technology to find a way around the current challenging situation.
EY Peru is working hard to offer new services – indeed we will hire more than 130 data analysts, consultants, auditors before the end of 2020. In a sense we were fortunate that we had already been focusing on digital services for more than a year – the pandemic has forced us to accelerate that process. The challenge with digital solutions is to make them valid for audit purposes. We need to be sceptical because, unfortunately, you can sometimes uncover fraud. However, I am optimistic about the impact that these digital solutions can have.
Informality is one of Peru’s weak points and means the formal private sector is smaller than it should be. But one advantage is that years of economic growth have attracted the best international companies, while raising local standards, so the formal firms that do exist are serious players. During the pandemic we saw the advantages of having good local and foreign companies. In the worst moments of the crisis, the private sector responded with oxygen and emergency medical supplies. For example, at EY we have donated an oxygen plant to a public hospital in Lima that didn’t have one. It wasn’t just us, lots of firms in the private sector, especially mining companies and banks, made plenty of generous donations. Everything from face masks to food parcels were being donated to Peruvians by companies during the pandemic. Now, we are also trying to support education. EY supports Crea+ which is a local NGO that is promoting several donations with impacts on education at the north of Peru and in other regions. We recently donated 250 tablets for a rural school, to help the children there receive a better education.
In the worst moments of the crisis, the private sector responded with oxygen and emergency medical supplies…
According to the Peruvian Government’s official statistics the mortality rate is 3.8%, with almost 34,000 deaths by October 2020. However, if you look at excess deaths compared to a historical average it would appear that we’ve had 80,000 Covid-19-related fatalities. If that second number is true, and we use the international mortality rate of around 0.5% then we can estimate that 16 million Peruvians were infected, with most being asymptomatic and untested. There were regions in the Peruvian Amazon that were really hard hit at the beginning of the crisis but now it’s estimated that 94% of people there have had it, so there is herd immunity. That represents also the half of the Peruvian population as of October 2020, and maybe because of this, we would expect a lower impact in the short-term, which also could better boost a revamp of our economy.
A positive point within this entire crisis is that the country, from the public to the private sector, and even the population have been driven to make a digital leap, which I am sure would not have been achieved in any other circumstance and allows for greater opportunities. Of course, after such an economic hit, there will be growth as the economy reopens, and Peru is expected to have the highest growth in the region in 2021, but that is just a mathematical reaction to such a big fall. Until there is a vaccine, things will remain difficult. Some potential upside could come from our presidential election this year.