The devastating floods that have rocked Peru’s coastal regions will challenge what has already been a sobering year for the South American nation. Long before the “coastal El Niño” took effect in mid-March the Peruvian government had been downgrading growth forecasts, struggling with corruption allegations and looking at a potentially bleak 2017.
In the wake of the floods, Peru will need to rebuild both its economy and its infrastructure, but it may have found support from an old friend – the mining sector.
Last year, Peruvian president Pedro Pablo Kuczynski projected a growth rate of 4.8% for 2017, above average for South America. This optimism didn’t last too long however, before January was over that prediction had been cut by a percentage point to 3.8%. This cut came in the wake of the Oderbrecht scandal; when the Brazilian construction giant admitted to paying bribes to win contracts across Latin America.
These events were already creating political and economic turmoil in Peru when the floods hit in mid-March. Unusually warm water in the Pacific Ocean, off Peru, caused heavy rains on the normally arid coast, swamping many cities with inadequate drainage and destroying poorly built buildings. Rain in the Andes Mountains also triggered landslides, sending water and sediment cascading down the usually dry riverbeds, wiping out roads and bridges.
The Peruvian government has earmarked at least $800 million for reconstruction, which will include rebuilding nearly 200 bridges and repairing more than 3,700 miles of highway. Questions are already being asked if this will be enough and how long reconstruction might take. Many fear the disaster will further accentuate the effects of an economic crisis that will likely to take its greatest toll on the poorest Peruvians.
In the impending struggle for financial support and in the rebuilding process, the Peruvian people may have found help from an old friend - the mining industry. The historic mining destination has made great strides in recent years and was recently named Latin America’s most attractive mining destination in the Fraser Institute's Annual Survey of mining companies 2016.
"When considering overall investment attractiveness (policy and geology), Peru (28th) surpassed Chile (39th) this year as the most attractive jurisdiction in Latin America," the report reads. Investment has been growing quickly in recent years and the ranking itself will likely attract more investor attention to Peru’s mining sector.
Peru was the world’s leading producer of silver as recently as 2006, and has consistently ranked in the top five nations for production of gold, zinc, tin and copper, among other minerals. The South American country has been overtaken by more attractive mining destinations in the past decade, but its recent ranking is a sign of a real resurgence. In January, total mining production in Peru rose by 13.9% as a result of increased output from new mines and expansions. Most notable has been growth in zinc (11.3%), tin (18.1%) and copper (25.7%) production.
On March 5th this year, the Peruvian Government predicted mining investment to reach US$37 billion in the next five years, including exploration, exploitation and infrastructure, according to Deputy Mines Minister Ricardo Labo. Mining opportunities identified stand at around US$46 billion, of which US$14 billion will begin execution over the next two years. Importantly "this also includes equipment and social investment," Labo added.
The mining industry not only brings much needed cash flow into the disaster stricken nation; mining companies can also help directly by rebuilding infrastructure necessary for mining activities and local communities. Furthermore, as many people in Peru strive to rebuild their lives the jobs created by increased mining activity will be vital to reduce dependence and promote human freedom.
Peru has survived disaster before and it will again. The speed of rebuilding is vital to ensure normal life can be restored for those affected by the March floods. A rejuvenated mining sector can provide Peru with a much needed helping hand on its difficult road to recovery.
Ramsay Hall is a geopolitics graduate that combined his interest in the environment and politics for a career in the energy and mining sectors. Providing journalism and analysis, he covers the entire energy spectrum from oil and gas to renewables and smart technology. He has published reports, articles, and features in some of the world’s leading industry journals, including Oil and Gas Investor, Engineering & Mining Journal, and Power Magazine.