PARTNER-ATLAS
PERU
as a partner for securing essential natural resources and protecting the climate
01 — The key questions for the Partner-Atlas
RELEVANCE: What relevance does Peru have for Germany with regards to "securing essential natural resources and protecting the climate"?
Peru is an exception in Latin America in terms of its enormous wealth in resources and biodiversity. The third largest country in South America is characterised by three large landscape zones: the coast, most of which is covered by desert, the Andes and the jungle region. According to the World Resource Institute, Peru is one of only eight megadiverse countries in the world, possessing 84 of the 104 existing life zones. About 60 percent of the country is covered by rainforest, which means that the country has the largest share of the Amazon rainforest after Brazil.
According to the Ministry of Energy and Mining, Peru accounted for 10.7 percent of the world’s copper production, 10.8 percent of global zinc production and 11.4 percent of global silver production in 2020. Peru boasts the fifth largest reserves of gold and zinc, the second largest of copper, and the . On top of that, the country has deposits of quite rare raw materials such as lithium, silicon, germanium or indium, whose (export) potential has not nearly been fully exploited yet. This makes Peru one of the few polymetallic countries worldwide.
Peru keeps developing renewable energies as a climate-friendly use of resources. Currently, the country only has seven photovoltaic power stations. In 2019, almost 5 percent of total electricity output was generated by alternative energy sources (solar, biomass and wind). However, the country’s potential (especially in the field of photovoltaics, due to abundant sunshine in the north and south) is enormous.
The investment climate in the country has been promising in the last few years. This is ensured by unrestricted access to most sectors of the economy, free movement of capital, free competition, and open access to credit. Overall, the legal situation is still comparatively stable. However, the situation has been gradually changing since Pedro Castillo assumed the Presidency. During the election campaign and the first few months that the government was in office, there was much talk about a constitutional assembly and, linked to that, a potential nationalisation of mining resources. Since then, the government has moderated its economic policies and has promised to accept the fundamental legal rights and ownership rights of the mining companies. However, there are repeatedly heavy clashes between protesters and security forces that sometimes paralyse the important mines in and and cause severe economic damage. So far, the government has not presented any sustainable strategy for settling these social conflicts in the mining sector. This situation, including proposals for raising taxes in the and the renewed attempt by the government to convoke a , have noticeably undermined the confidence of international investors in the Peruvian market.
In addition, illegal gold mining represents a major challenge. Not just because of the resulting environmental damage in the Amazon region, but also because of the social and economic consequences, ranging from the destruction of important agricultural products to money-laundering by exporting gold, which benefits the drug trade. Here, too, the Peruvian state has so far lacked a coherent strategy to put a lasting stop to these illegal activities and to adequately contain their negative consequences.
WILLINGNESS: To what extent is Peru willing to work with Germany in realising this interest?
Peru is generally interested in working closely with Germany and Europe regarding the topics of natural resources and protecting the climate. The country has an extremely professional foreign service that pursues a clearly defined course in foreign policy, despite all the internal political turmoil. The country has been committed to multilateralism, international free trade and human rights. Peru is ready to assume responsibility in matters of climate protection. The country hosted the 20th World Climate Conference in Lima in 2014, for example, and has ratified the .
The use of renewable energies to protect the climate is gaining increasing importance in Peru as well. In 2019, Peru hosted the international energy conference, Sun World, anxious to present itself as an attractive place for private investment. Numerous German companies and institutions were represented, which reflects Peru’s interest in German expertise and in an intensified exchange of views. The German Chamber of Commerce in Peru has responded to this interest by offering several programs that facilitate the transfer of German expertise in the energy sector to .
STATUS QUO: How close is Germany and Peru's current cooperation in this area?
There is continuous cooperation between Peru and Germany on environmental matters. Germany supports the sustainable funding of nature reserves and helps several regional governments to build up expertise for managing natural resources and alternative development models for local communities. In 2014, even before the World Climate Conference in Lima, Germany and Norway set up a partnership designed to support Peru in protecting its tropical rain forests. In 2021, the partnership was confirmed and signed, for the first time, by the .
In addition, a bilateral agreement on raw materials has been in place since 2015, which includes binding provisions on actions to improve energy and resource efficiency and to make the Peruvian raw materials sector more environmentally friendly and socially acceptable. Globally, similar agreements exist only with Kazakhstan and Mongolia. In addition, a memorandum of understanding between the Federal Agency for Raw Materials and the Peruvian State Geological, Metallic and Metallurgical Institute (INGEM- MET) has existed since 2018, which aims at developing a joint strategy for exploiting mainly rare raw materials.
POTENTIAL: What is the potential for strengthening the partnership between Germany and Peru in this area?
There is still enormous potential for bilateral cooperation in the field of resources and climate protection. Despite all the political turmoil, Peru has so far been a macroeconomically stable country with good conditions for foreign investment. To date, only around 20 percent of the land available for mining in Peru has been developed, of which only around 6 percent is currently being exploited. A study published by the United States Geological Survey in 2020 shows that more than 80 million additional tons of Canada’s Fraser Institute, which regularly compiles attractiveness ratings for the various mining regions, ranked Peru 42nd out of a total of 77 regions and countries .
The country is faced with the challenge of making its mining activities ecologically and socially sustainable. This requires strong international partners like Germany, which should try to engage in a practice-oriented and targeted investment partnership, in order not to be left behind by strategic competitors like China in the race for raw materials. It is worth mentioning that Peru has made efforts to build stronger international networks in foreign trade. It is a founding member of the Pacific Alliance, which also includes Mexico, Colombia and Chile, and which plans to integrate Latin America more closely into the economic structures of the Pacific region. The new President Pedro Castillo, however, is still leaving the question open of whether he wants to keep strengthening multilateral economic relations or lobby for Peru’s withdrawal from international agreements.
The Covid crisis left its mark especially in the mining industry: the production and export of raw materials have declined significantly. Government investments dropped by 60 percent in April 2020. Thanks to the pick-up of the economy, the mining sector recovered quickly, boosting production of copper by 6%, gold by 10%, .
Due to the Presidential elections, the exchange rate of the Peruvian Sol dropped to a historic low and, in July and November 2021, crossed the threshold of . While the exchange rate has meanwhile stabilised, the country has been suffering since early 2022 from the highest inflation since 1998, driving up prices for . The situation has been exacerbated by external events such as the war in Ukraine and the resulting higher fertiliser prices. The government has not proposed any coherent programme for mitigating the impact of these price increases on the population. The decision to raise the minimum wage from 930 Soles (c.a. 228 Euros) to will only help a minority of Peruvians, because more than 70% of the working population work in the informal sector.
POLICY RECOMMENDATION: What in German foreign policy has to change in order to fully exploit this potential?
German foreign policy has rightly recognised Peru as an important partner in the raw materials sector. The cooperation can, however, still be enhanced, especially when it comes to sharing experience based on common values. Compared to other potential partners who possess a similar wealth of raw materials, there is, generally speaking, high willingness in Peru to implement aspects of sustainability in its mining policy, whatever the challenges. This applies specifically to labour and environmental standards, to which Peru is more open than large parts of Africa or Asia. Important keywords in this context are security, competitiveness and resource efficiency.
Given the tensions in Peruvian domestic politics, German foreign policy can help raise people’s awareness of how important it is to develop solutions that are based on a long-term view. In this way, Germany can create incentives for investing in sustainable projects, thereby keeping Peru as an important international partner, even under President Pedro Castillo.
Nicole Stopfer heads the KAS Regional Programme Energy Security and Climate Change in Latin America.
Dr. Robert Helbig heads the KAS Office in Peru.
Sebastian Grundberger heads the KAS Office in Uruguay.
Last update: 8 May 2022
02 — Foreign Office
Contact:
Foreign Office Peru
Av. Larco 109 2do. piso
Miraflores
- E-Mail: kasperu@kas.de
- Phone: +51 1 41 66 100
04 — The region
Latin America
CHILE
The strategic partnership between the EU and Latin America was established as part of the first European Union, Latin America and the Caribbean (EU-LAC) Summit in June 1999. The principle underlying the strategy and the subsequent association and partnership agreements with individual countries and regions on the South American continent was the assumption that the EU and the countries of Latin America are united by many shared values and interests.
- Population: 19.450.953
- Capital: Santiago de Chile
BRAZIL
Brazil is the largest country in South America, the fifth-largest country in the world, and the largest economy in Latin America. It also accounts for more than 60 percent of the Amazon tropical rainforest, the world’s largest, and includes a large proportion of renewables in its energy mix. The country’s geographical location, size, economic significance and the importance of preserving its natural resources in the fight against the global climate crisis all underpin the central role Brazil plays in ensuring and maintaining global climate, energy and food security.
- Population: 212.559.417
- Capital: Brasilia
COLOMBIA
In the context of the competition between political systems involving Russia, China and the western democracies, Colombia is of significant strategic importance to Germany and to Europe as a whole, both as a partner in values and as a regional anchor of stability. In terms of population size, economic power, geographical size and wealth of resources, it is one of the most important countries in Latin America.
- Population: 50.882.891
- Capital: Bogota
MEXICO
In connection with organised crime, drug trafficking, and the infiltration of the state by criminal groups, Mexico – a regional leader and member of the G20 – is facing major challenges that affect both internal and regional security. In view of the cross-border effects of organised crime in Mexico, which extends far beyond the American continent, migration from Central America and other regions of the world through Mexico towards the USA, the significant economic potential as a manufacturing base offering a well-qualified workforce and privileged access to the US market via the North American Free-Trade Area, Mexico is of great importance for the stability of the region.
- Population: 128.932.753
- Capital: Mexiko-Stadt
COSTA RICA
Costa Rica generates nearly 100 percent of its electricity consumption from renewable energy sources. The country is also considered a leader in nature conservation. More than 25 percent of Costa Rica’s land is devoted today to nature conservation areas. With its Decarbonisation Plan, adopted in 2018 with an implementation deadline of 2050, the country is setting important standards and leading the way both regionally and internationally. Currently, the Environmental Commission of the Costa Rican Parliament is working on a bill that would officially ban oil and gas exploration and extraction in the country. Against this backdrop, Costa Rica can undoubtedly be considered a major player when it comes to safeguarding significant resources and protecting the climate.
- Population: 5.185.625
- Capital: San José
PERU
Peru is an exception in Latin America in terms of its enormous wealth of resources and biodiversity. The country has three large landscape zones: the coast, most of which is covered by desert, the Andes and the jungle region. According to the World Resource Institute, Peru is one of only eight megadiverse countries in the world, possessing 84 of the 104 existing life zones. 76 percent of the country is occupied by rainforest, which means that the country has the largest share of the Amazon rainforest after Brazil.
- Population: 32,971,854
- Capital: Lima
MEXICO
Mexico is the second-largest economy in Latin America, and is a member of the G20, the OECD and the WTO. After the USA and China, the European Union is its third-most important trading partner. Given its geographic proximity to the US and the economic, cultural and social interrelationships between the two countries, especially as part of the successor to NAFTA (North American Free Trade Agreement) which came into force in July 2020 – the Tratado comercial entre México, Estados Unidos y Canadá (T-MEC) – Mexico plays a special part in this economic context.
- Population: 128,932,753
- Capital: Mexico City
COLOMBIA
According to official data from the Colombian migration authorities, approximately 1.8 million of the more than 4 million Venezuelan migrants are currently in Colombia.Commuters and so-called “transit migrants“ are not included in these statistics, which means that their actual number is probably even higher.
- Population: 50,882,891
- Capital: Bogota
URUGUAY
In comparison to other Latin American countries and despite its modest size, Uruguay serves as a model in view of its impressive political and socio-economic achievements . In a region that is not always stable, the country can look back on a long democratic-republican tradition with functioning institutions and a diverse media landscape. According to the latest edition of The Economist‘s Democracy Index, Uruguay is currently the most democratic country in Latin America and is ranked 15th worldwide.
- Population: 3,473,730
- Capital: Montevideo
BRAZIL
Brazil is the largest economy in Latin America and, with a GDP of approximately 1,5 trillion US dollars, is one of the most important emerging markets in the world. The country has a domestic market of 214 million inhabitants and is rich in natural resources.
- Population: 212,559,417
- Capital: Brasilia