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 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.

According to the Ministry of Energy and Mining, Peru was responsible for 11.8 percent of the world’s copper, 11.6 percent of zinc and 15.5 percent of silver production in 2018, putting it in second place worldwide. Peru holds the fifth largest reserves of gold, the third largest of copper and zinc, and the largest reserves of silver in the world. As such, Peru is one of the few countries possessing reserves of multiple metals. In addition, rare raw materials such as lithium, silicon, germanium or indium are present in the country, the (export) potential of which has yet to be fully exploited.

There is constant expansion in Peru of renewable energies as a climate-friendly use of resources. The country currently has only 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.

There is a promising investment climate in the country. This is ensured by unrestricted access to almost all sectors of the economy, free movement of capital, free competition in the country, and open access to credit. Overall, the legal situation is comparatively stable. Illegal gold mining and the associated environmental damage (especially in the Madre de Dios Amazon region) represent a major social and environmental challenge. The Peruvian state has thus far lacked 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 on these issues. The country has an extremely professional foreign affairs office, which, despite all the internal political turmoil, pursues a clearly oriented foreign policy. The country is committed to multilateralism, international free trade and human rights. Peru is ready to assume responsibility in the area of climate protection. For example, the country hosted the 20th World Climate Conference in Lima in 2014.

The use of renewable energies to protect the climate is also gaining importance in Peru. Peru hosted the international energy conference, Sun World, in 2019, with the aim of attracting private investments. Numerous German companies and institutions were represented, which shows Peru’s interest in German expertise and in a greater exchange of views.

STATUS QUO: How close is Germany and Peru's current cooperation in this area?

There is ongoing cooperation between Peru and Germany on environmental matters. In 2011, the two countries signed an agreement to protect the forests in the face of climate change.

In addition, a bilateral agreement on raw materials has been in place since 2015 which includes binding measures to improve energy and resource efficiency and to make the Peruvian raw materials sector more environmentally friendly and socially acceptable. Beyond this, comparable 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 and aims at a joint strategy for tapping 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 is a macroeconomically stable country with good conditions for foreign investments. 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. Canada’s Fraser Institute, which regularly compiles attractiveness ratings for the various mining areas, ranked Peru 14th out of a total of 83 examined areas and countries in 2018 (second only to Chile in Latin America).[i] However, the country is faced with the challenge of making its mining activities environmentally and socially sustainable. That requires strong international partners like Germany.

The country is also faced with the challenge of making its mining activities ecologically and socially sustainable. That requires strong international partners like Germany. It should be noted in this context that Peru is striving to form stronger international networks in the area of foreign trade. It is a founding member of the Pacific Alliance, which also includes Mexico, Colombia and Chile, and which is also striving to include Latin America in the economic structures of the Pacific region.

At the same time, the effects of the coronavirus crisis are particularly noticeable in the mining industry: production and the export of raw materials have declined significantly. Government investments decreased by 60 percent in April 2020. Compared with other countries in the region, Peru has been able to start from a stable position, thanks to many years of strict fiscal policy, and approve a considerable economic aid package. Finally, a four-stage plan for the reactivation of the Peruvian economy provides for the early return to mining and projects of national interest (such as in the gas and oil sector). Although the Peruvian stock exchange suffered losses, the exchange rate of the Peruvian sol against the US dollar remains stable. It remains to be seen how much the Peruvian economy will be affected by the coronavirus pandemic in the long term.

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. However, the cooperation can be further expanded, especially in the exchange of experiences based on common values. Compared with other potential partners who have a similar wealth of raw materials, Peru is generally very willing to consider sustainability with regard to mining, whatever the challenges. This pertains in particular 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 does not decisively fill this gap, it will leave the field open to countries like China, which pursue completely different geostrategic interests.

It is in the interests of German foreign policy for the country to develop sustainably and with the involvement of all sections of the population via socially and environmentally responsible mining. In this way, Germany can not only maintain Peru as an important international partner, but also prevent the emergence of populists, who complain particularly about what they see as mining’s lack of development impact on the poor sections of the population.

Sebastian Grundberger heads the KAS Office in Uruguay; Nicole Stopfer heads the KAS Regional Programme Energy Security and Climate Change in Latin America.

[i] https://www.fraserinstitute.org/categories/mining [13/01/2020]

PERU

  • Population: 32,971,854
  • Capital: Lima
  • Interest: Securing Essential Natural Resources and Protecting the Climate
  • Region: Latin America
  • Potential partner countries: Argentina, Bolivia, Brazil, Chile, Costa Rica, Ecuador, Colombia, Mexico, Peru

04 — The region

Latin America

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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
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MEXICO

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
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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. 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
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URUGUAY

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
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BRAZIL

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
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