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 of 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 11.8 percent of the world’s copper production, 11.6 percent of global zinc production and 15.5 percent of global silver production in 2018. Peru boasts the fifth largest reserves of gold and zinc, the second largest of copper, and the largest reserves of silver in the world.1 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 promising. 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 comparatively stable. It is to be seen whether this favorable investment environment continues after the election of the socialist president Pedro Castillo.
Illegal gold mining and the resulting environmental damage (especially in the Madre de Dios Amazon region) represent a major social and environmental challenge. So far, the Peruvian state has not developed a coherent strategy to deal with this.
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 Paris Climate Agreement in 2016.2
The use of renewable energies to protect the climate is gaining increasing importance in Peru as well. Peru hosted the international energy conference, Sun World, in 2019, 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 a greater 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 Peruvian businesses.3
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. This year, the partnership was confirmed and signed, for the first time, by the UK and the US.4
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 copper could be discovered.5 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 studied in 2020).6
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 include Latin America in 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 of the international trade agreements.
The Covid crisis has 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. Experts, however, assume that production will come back strongly, predicting growth of up to 3,1 million tons by 2024.7
Compared with other countries in the region, Peru was able to build on a stable base, thanks to many years of strict fiscal policy, and was able to adopt a remarkable economic aid package. A four-stage plan for the reactivation of the Peruvian economy set out a roadmap for the re-start of mining and projects of national interest (such as in the gas and oil sector), scheduled for May 2020.8 These sectors are crucial for the economic reactivation of the country.9
The Peruvian Sol to US dollar exchange rate has recently seen the Peruvian currency lose value in historic proportions following the Presidential elections. The Peruvian stock exchange has also suffered losses and is only recovering slowly. It remains to be seen what the long-term impact of the Covid pandemic on the Peruvian economy will be.
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 refers 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. If Germany, as a longstanding partner of Peru, does not decisively fill this gap, it will leave the field to countries like China, which pursue different geostrategic interests.
Especially in a politically tense domestic situation following the Presidential elections of 2021, German foreign policy can help people realise how important it is to develop solutions that are based on a long-term view. Germany can create incentives for investing in sustainable projects, thereby keeping Peru as an important international partner, even under President Pedro Castillo.
Peru’s efforts to develop the country sustainably, involving all sections of the population, through socially and environmentally responsible mining is in the interest of German foreign policy.
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: August 23rd, 2021
02 — Foreign Office
Foreign Office Peru
Av. Larco 109 2do. piso
04 — The region
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
In connection with organised crime, drug trafficking, and the penetration 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 extend 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 production location with 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: Mexico City
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. According to estimates by the Colombian Ministry of Foreign Affairs, the flow of migrants could increase to 3 million by the end of 2020, not including “transit migrants” or commuters.
- Population: 50,882,891
- Capital: Bogota
In comparison to other Latin American countries and despite its modest size, Uruguay serves as a model with its impressive political and socio-economic status. 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.
- Population: 3,473,730
- Capital: Montevideo
Brazil is the largest economy in Latin America and, with a GDP of approximately 2 trillion US dollars is one of the most important emerging markets in the world. The country has a domestic market of 210 million inhabitants and is rich in natural resources.
- Population: 212,559,417
- Capital: Brasilia