the inequality gap in peru.

This is impactful veins, where we are trying to make our own positive impact on the 🌍

Here is what we will cover today: 

• some numbers

• the informal economy

• how companies & people can do more

What is your first thought when you hear Peru? It is most likely one of these three things: Machu Picchu, ceviche, or social unrest. 

Social unrest has been making headlines, and it's not without its reasons. Let’s try and unpack this story. 

let’s look at the data.

Before the COVID-19 crisis, the Peruvian economy experienced two decades of unprecedented economic growth that doubled gross domestic product (GDP) per capita. The region averaged a 3.6% real GDP growth rate between 2004 and 2021, but Peru registered an average real GDP growth of 6.6% prior to a downturn year in 2013.

As Peru’s GDP increased, their poverty experienced a dramatic decrease as well.

People coming out of poverty is something we can all get behind. But the global pandemic, well, was global. And Peruvians got hit extra hard by the lockdowns.

The workforce is quite different from developed countries as it is mainly informal.

Just prior to the pandemic in 2019, informal jobs comprised roughly 72% of jobs. In 2021, that percentage increased to about 77%. Let that sink in. Almost 80% of jobs are informal.

You may be used to waking up every other Friday and checking your bank account to see if you were paid. With informal work, that steady pay check is not guaranteed. Perhaps the business or individual that agrees to pay for your services may not be able to until someone further down the chain pays for theirs. If they are “not satisfied” with your work they could try and pay you less than agreed upon or just flat-out refuse to pay.

As governments around the world forced lockdowns, many informal workers found themselves back below the poverty line. With the additional stress of inflation on Peruvian’s disposable income, years of progress were eroded.

a growing & slowing economy.

But let’s take it back a few steps. Why did Peru’s official poverty rate decline from 58.7% in 2004 to 20.2% in 2019? What is even more interesting is that in 2013, 23.9% of its population was under the poverty line. So from 2013 to 2019 poverty only decreased by 3.7%. Most of the progress was made prior to 2013.

Economic growth was the main factor behind poverty reduction (85.1%), with the remaining being accredited to redistribution (14.9%).

The long-term positive trends in household welfare took a sudden hit in 2020 due to the COVID-19 pandemic. The economy shrank by 11 percent, marking the most significant decline in the past three decades, and the most substantial economic contraction in Latin America that year. Peru had one of the highest per capita mortality rates globally, with 6,000 deaths per million. This crisis erased over a decade's worth of progress in reducing poverty within a single year. In 2020, the national poverty rate soared to 30.1%, while extreme poverty surged from 2.9% in 2019 to 5.1% in 2020.

However, Peru was experiencing problems hindering growth prior to the pandemic. With six presidents in the last seven years, the political uncertainty resulted in a lack of progress and a deteriorating confidence from foreign investors.

Born in Puna, Cajamarca, Peru, many people viewed Pedro Castillo as the elected candidate for the rural people. Someone outside the system that will provide a voice to the many. A real shakeup in the government.

President from July 28, 2021 to December 7, 2022. He faced three impeachment proceedings with protests taking place following the second failed impeachment. However, on December 7th, 2022, he attempted to through a self-coup and called for the formation of an assembly to draft a new constitution. They shut that down by impeaching and removing him from office that same day and was detained for sedition and high treason. Pro-Castillo protests broke out as he was succeeded by Vice President, Dina Boluarte. 

But that is a whole article in itself, the political drama and corruption scandals of Peru. But going back to the strong GDP growth from 2004 to 2013. 

What gives? 

Well there is an interesting article written by Jan Lust that you should take the time to read. 

“Mining in Peru: Indigenous and Peasant Communities vs. The State and Mining Capital”

As we showed above, there was some impressive growth in Peru prior, but Lust points out that there was also strong growth in basic social expenditures like education, social & community assistance and healthcare. In 2003, those expenses were roughly US$2 billion. Ten years later, they increased by more than 300%. 

What also increased significantly over that time was the amount of Peruvian exports and foreign direct investments (FDI). In 2000, FDI was about US$12 billion and by the end of 2013, it had grown to US$22 billion. 

And of those exports and FDI, I am sure you can guess which sectors contributed the most. But here is a table so you don’t have to guess.

So foreign investment and the exportation of Peru’s resources showed a positive correlation to GDP growth as well as a reduction in poverty. But they also experienced an increase in protests and blockades.

Clearly, there are different interpretations of terminology like ‘inclusive economic growth’ and ‘sustainable resource development’. Many local communities were still not satisfied as they made their voices heard on a global scale. Social expenditures by the Peruvian State failed to eliminate the protests and blockades.

Lust points out that the communities are not fighting to strengthen their negotiation position or pay. It is not to ensure employment at the mine or to receive a larger payment or royalty. Governments struggle to meet their demands because these communities live in sensitive ecosystems and they would choose clean water and land over money and questionable promises.

Mining requires water and lots of it. Extracting water from water basins can lead to changes in the location of the sources of water. As well as the quality and volume of the water flows. Mining practices can result in contaminated water for local communities or even no water as water becomes displaced.

This Vice News video provides an informative map near the end (9:20), showing you just how serious the problem is with contaminated drinking water in Peru.

how did this all happen?

Who is to blame? Is it the government? Foreign mining companies? Peruvian-owned companies? Artisanal miners? All of the above?

The issues seem to be clear. If communities choose clean drinking water over this great “economic driving activity”, well shouldn’t countries and governments around the world respect that? It is their land after all right?

There was a turning point. In the 90s under the leadership of President Alberto Fujimori, policies favouring mining and corporate interests started to lay the foundation. (It would be worth your time to look into Fujimori. He is known for more than these policies). 

But such policies most definitely helped incentivize foreign investment as we showed at the beginning of this article. But it came at a cost.

Another key thing to mention is the Land Law of 1995, which set the principles allowing the transfer and acquisition of land that was previously subject to restrictions and regulations. This combined with other economic and mining-related policies contributed to the expansion of mining activities and social issues that are prevalent today.

Before the 90s, Lust notes that mining concessions occupied 1.8% of the “Peruvian territory” and by 2008 that grew to 70%! This especially affected Andean regions which many were not considered indigenous and therefore not subject to the continued restrictions. The doors were busted wide open and Peru was open for business.

If you think about the Andes, these are complex and sensitive ecosystems. Gravity only goes one way and if there is a mining operation at a higher elevation you can assume that there would be a ripple effect further downstream.

The outrage could not be ignored and following a decline in commodity prices, corruption scandals, protests and blockades, and eroding confidence from foreign investment resulted in slower GDP growth than prior to 2013. 

So what more can be done? What can mining companies do to work with the communities?

The first thing is if the local communities are not interested because it will directly affect their overall well-being, then leave them be.

Easier said than done when there is gold in the mountains.

a goal without a plan is just a dream.

We can hope there will be a top-down change, but Peruvians have long lost hope and the bottom-up change is proven to have more friction and is a little messy.

But local community voices are starting to be heard.

Everyone has a vote. Whether it’s through our voice, dollars, or fingers.

There are numerous factors to consider regarding ESG factors in the mining and resource sector. But if you’re a part of, invested in, or considering investing in a publicly traded mining company that has operations in Peru, don’t be afraid to ask management the hard questions. 

Ask about their workforce and if they are contractors or on the payroll. Unfortunately with such a high percentage of informal work, there is a good chance operators are using contractors and those contractors hired subcontractors and those subcontractors hired subcontractors. 

Who is responsible if workers don’t get paid? That line can get blurred very quickly without proper labour laws in place.

If a mining company is really serious about the well-being of its workforce, it should put as many people on the payroll as possible. 

Strict environmental impact assessments need to be adhered to. This change will come as more and more people around the world continue to make their voices heard.

As a potential investor, stay clear of jurisdictions you’re not familiar with and are not able to visit and properly assess. If you are fortunate enough to take a site tour of a Peruvian operation. Pay attention to the graffiti. Ask your driver what it says. Many frustrated individuals tag their thoughts & feelings.

You can place your vote with your dollars by donating to charities and non-profits or simply choosing not to invest.

Maybe you can use your fingers and write something like this article. If you’re busy like many people are, do your part and share this article if you think your social circle would gain some value from it.

Corruption is not isolated to Peru. There are multiple factors at play. An informal economy, difficult-to-change mining laws, securing foreign investment, sensitive ecosystems rich with valuable resources, and the well-being of rural communities. Despite all these factors, ensuring economic prosperity is the goal of many countries around the world but where you see social unrest, there is a good chance it is due to economic inequality and when people feel their voices are not being heard.

We will leave you with this food for thought. You may call it corruption if it happens in Latin America or Africa. In developed countries, we call it lobbying.

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