Peruvian economy stuck in middle income trap – 07/06/2021 – Latin America21

In 1992, James Carville, Bill Clinton’s campaign strategist, hung a poster at his head office with three messages: “Change vs More of the Same”, “Don’t Forget Health Care” and “It’s the economy, stupid “. Bill Clinton would end up popularizing the talk about economics, because the phrase, as a politician, is compelling: the electorate tends to worry about the health of their economy.

The most tangible indicator of economic strength is the level of employment. The capacity of a government to generate jobs remains the fundamental fact which predicts its potential for success or failure.

In the case of Peru, its economy is mired in what is called a middle-income trap, which means that this country does not have a supply chain that absorbs human capital from various high-productivity industries. But then, in Peru, what do we live on?

53% of the Peruvian economy is based on the service sector, according to the latest Statista report for the year 2020. Restaurants, hotels, shops, taxis and similar activities represent more than half of the country’s gross domestic product. This sector is the largest employer in a country with high levels of informality (over 70%), a fact that has a clear correlation with this phenomenon. Everyone sells what they can and how they can.

By 2024, 58% of Peru’s economically active population is expected to work in the service sector. With the restrictive measures imposed on citizens due to the pandemic a year ago and the crisis generated by political polarization during the elections, we know in advance that another period of political and economic uncertainty is looming and that ‘it will mainly affect this predominantly vulnerable sector. .

As long as informality persists, perverse incentives that prevent greater sophistication in the development of this segment, and job insecurity, the service sector seems doomed to stagnation. In this context, it is imperative to generate mechanisms to increase formalization, growth and productivity.

The highly heterogeneous service sector is labor intensive, especially in countries threatened by the middle income trap, such as Peru, and it indefinitely delays postponing automation that would increase productivity.

To solve part of this problem, we highlight the good practices carried out by Spain, through public institutions that promote the technicalization of foreign trade, such as ICEX Spain Export and Investment, an entity that has generated alliances between producers Spanish regional players and the main international players in the logistics sector, as is the case with Amazon, to position themselves as premium brands.

Some of the companies benefiting from the ICEX sell volumes of several hundred thousand euros per month and have fewer than five employees, as e-commerce has enabled them to reduce their costs.

Peru must strengthen its various production chains with bureaucracies that go beyond supporting producers to international competitions and fairs, and generate agreements that allow them to sell larger volumes thanks to designations of origin and with certified quality, i.e. in blocks and for the international sector premium.

At Amazon we can see today that, thanks to the joint management of producers and exporting companies, there is a section called “Products from Spain”, which shows the best of this country, and whose main buyers are at overseas, generating productivity improvements thanks to the entry of foreign currencies such as the British pound sterling, which is the main buyer of this section of Amazon.

Discussions between presidential candidates and their respective proposals often resemble shopping lists: they list wishes and we rarely hear or read how such promises will be kept, as citizens usually do not need more details. in this regard.

From an economic point of view, we know that there are few means of increasing productivity: the technological shock or through the training of the working population and its education oriented towards certain industries.

If we add to this the precarious level of aptitude of the Peruvian workforce, the outlook is difficult to say the least. For example, according to the OECD’s PIAAC (International Program for the Assessment of Adult Skills), less than 0.5% of Peruvian AEPs have minimum working skills and less than 1% have minimum logical math skills for work.

So, with a million new people joining the workforce between 2020 and 2024, you have to ask yourself: where and under what conditions will they work? What will they produce? In which industries will they contribute? How do they fit into a productive strategic structure? Are collaboration and knowledge transfer feasible?

We could, for example, include large global distributors like Amazon, to generate a channel with greater productivity and guarantee a better future for this million people, with jobs paying above the subsistence level, avoiding the under- employment and fostering new businesses.

It is obvious to say that, in order to be able to export, one must have good relations with other countries and a globalist vision of the economy. Therefore, it is disheartening to hear electoral proposals aimed at closing trade borders in order to generate endogenous industrialization processes that have already proved ineffective in increasing productivity and improving human capital.

In Peru, unfortunately, the vocation to propose public policies without any factual basis abounds and those who lose, as always, are those who have the least. So, in order to improve the level of Peruvian political discussion, we recall the sentence with which this article began, but with a change: it’s work, stupid.

www.latinoamerica21.com, a plural media committed to disseminating critical and truthful information about Latin America.

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