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Poor areas of Peru see higher sales and more jobs
The Peru Poverty Reduction and Alleviation program (PRA) experienced an up-tick in exports, investments and jobs in 2004, and project staff say agreements in trade and infrastructure will reshape market access in 2005 and beyond.
“I am particularly proud of PRA’s achievement in the four coca valleys where we were able to dramatically increase client sales from $2.2 million in fiscal year 2003 to $3.6 million in 2004,” said PRA Chief of Party Douglas Tinsler. “That’s an increase of 64 percent in real terms in just one year.”
In a major boon for the USAID-funded project, sales for PRA-supported business totaled $29.4 million and surpassed annual targets by 19 percent. In all, PRA-supported businesses generated 2.8 million person-days of employment in 2004, equivalent to 14,000 full-time jobs, representing a 41 percent increase over 2003. Thirty-nine percent of those employed were women. New investments attracted by PRA-supported businesses rose to $2.1 million in 2004, an 88 percent increase. Although this represents a significant improvement over previous years, Tinsler noted that more needs to be accomplished to achieve self-sustaining growth.
The PRA project is a poverty alleviation program that uses business development and market access principles to link products with consumers. The project pre-positioned 10 economic service centers (ESCs) in corridors with strong economic potential and high rates of poverty, producers from the country’s interior could connect to markets of all kinds: local, coastal, and beyond. Former PRA Chief of Party Jim Riordan helped develop the demand-driven and private-sector led approach. Riordan says the process is nothing more than a “return to business basics,” recognizing that “demand pulls supply” and that farmers must think in terms of “producing what they can sell, rather than selling what they produce.”
“The logic of what ESCs actually do is fairly straightforward,” said Riordan, currently a director with Chemonics’ LAC region. “To reduce poverty, you need to generate jobs. To generate jobs, you need to boost sales. To boost sales, you need to access markets. To access markets, you need to identify buyers. Although local businesses may have to address a slew of supply problems to satisfy those buyers, starting with the buyers and working backwards has been the key to PRA’s success.”
Today, each center has an average of 40 clients representing large and small enterprises, agricultural production associations and individuals alike. Those 40 clients then outsource portions of their work to reach micro and small producers.
Businesses are sometimes compelled to move into PRA corridors because labor may be cheaper and greater possibilities exist to expand production. In other cases, relocation is for technical reasons. With Songroses, for example, PRA recommended that the rose-growing enterprise move operations from Peru’s coast, where roses grow six months out of the year, to more appropriate climatic conditions in the highlands, where roses grow for 10 months. Although the new location requires increased transport costs, the higher costs are offset by cheaper, more abundant labor in the area because permanent highland residents, not migrants, do the work.
These days, Songroses is prospering thanks in part to PRA’s advice. In turn, the receiving community has jobs, long-term economic security, and is looking forward to infrastructure improvements that can follow private sector growth.
A decrepit roads system has dogged Peru for centuries and hampered economic development. In 1991, Peru had 1 km of road per capita compared to 301 km per capita in neighboring Chile. In 2003, USAID introduced the Public-Private Sector Participation (PPP) infrastructure finance component to PRA. With the agreement, PRA assumed the role of arranging infrastructure investments for the Government of Peru, hoping to attract private sector capital financing to free up scarce public-sector resources for other priority uses.
“The two initial transport PPP concessions will not only help leverage more than $240 million in direct private investment,” said Mauricio Gutierrez, a Chemonics senior manager providing technical support to PRA PPP strategies, “but will also guarantee that more than 1,100 miles of road are properly maintained over a 20- or 30-year concession period.”
In the past year, PRA’s PPP team has worked with GOP to design and implement three transactions: the 960-kilometer Amazon North Road, the 864-km Amazon Central Road, and a rural electrification project. Once the road projects are complete, they will represent 18 percent of the national asphalted highway network, integrating the coast, the mountains, and jungle, and connecting Peru to Brazil, the region’s largest economy.
Since its inception, PRA has focused on clients and products with export potential. Overall, 42 percent of PRA sales, valued at $10.8 million, were exported in fiscal year 2004, representing a 27-percent increase over 2003. PRA’s principal export products are coffee, flowers and plants, trout, and gold jewelry. Valued at $4.1 million in fiscal year 2004, 37 percent of these products were exported to the United States. Tinsler expects U.S. exports to occupy a larger and larger part of the PRA portfolio with the expected signing of a Free Trade Agreement between Peru and the United States during 2005.
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