Can copper prices and nearshoring revive Peru’s economic dynamism?

LIMA – Many predicted that politics would not jeopardize Peru’s growth performance, until it did. After Peru was Latin America’s leading economic player for more than a decade, with an average per capita growth of 5% between 2001 and 2013, a political crisis that began in 2016 has resulted in seven presidents in a period of only two full presidential elections. while growth has come to a standstill. Even more difficult to understand is the recent turn that Peruvian politics has taken, moving further away from public opinion and generating a general distrust of democracy.

As Peru benefits economically from what appears to be a new copper supercycle, and from its bid to become a port hub overlooking the Pacific Ocean, some are wondering whether economic overperformance could once again put politics in the backseat and pave the way free up for a period of economic and political reform, as happened in the early 2000s. Is that really possible?

Another unexpected political turn

President Dina Boluarte is currently facing a new political crisis, with a third impeachment bid and a coming constitutional challenge from the attorney general’s office. For now, the right-wing majority supports her, but as the 2026 elections draw closer, lawmakers will be tempted to ensure their own survival and turn their backs on her.

Meanwhile, the right and left in Congress have joined forces in an attempt to rewrite the constitution that former President Alberto Fujimori (1990-2000) drafted in the 1990s, seeking to remove some of the strong powers given to the 1992 Constitution. president had granted, to be transferred to Congress, but without turning Peru into a parliamentary system. Efforts are also underway to undo reforms in the areas of the rule of law, education and labor, fiscal discipline and, more recently, meritocracy in the civil service. These actions undermine the role that the current constitution has played in bringing about rapid growth. Also troubling is Congress’s decision to fill key democratic institutions with loyal officials, undermining the checks and balances necessary in a democracy.

The copper super cycle, the port and China

But the copper supercycle and the upcoming opening of eight ports overlooking the Pacific Ocean – including the port of Chancay, built by China’s Cosco Shipping Ports Ltd and Peru’s Volcan SA, a mining company – could prove to be a boon, despite the concerns that this will not be the case. gives the impression that Peru is working with China and distancing itself from the US

From 2004 onwards, and after a long period of political confrontation, Peru also benefited from high commodity prices and managed to sustain a period of rapid growth, implement structural reforms and dampen political confrontations. Could this happen again?

As a commodity-based economy with the world’s second largest copper reserves after Chile and one of the lowest extraction costs, Peru should broadly benefit from the current commodity price boom. Our estimates show that 60% of real GDP variance is explained by commodity price cycles. The Ministry of Mines has identified around US$55 billion worth of mining projects (about 20% of GDP), of which only US$5 billion will be developed over the next two years, but if the super cycle can boost the development of these projects, the economy will can grow quickly. The fact that these projects are located in poor areas – without access to public services, roads or other infrastructure – opens up the opportunity for the government to benefit the population in these areas and reduce the conflict between the provinces and Lima, which resulted in the election of former President Pedro Castillo.

To achieve this virtuous circle, three things must happen that have met with strong political resistance in the past. A new profit-sharing agreement must be made between miners and communities. The government should implement a simplification reform that would allow accelerated approval of most of these mining projects. And efforts must be made to formalize the large number of informal or illegal miners who create unfair competition – and pollute rivers and the Amazon.

That this is happening at a time when Peru could become a port hub in the Pacific could provide the country with a unique opportunity and lead to nearshoring of the Southern Cone. Most of the attention has been on the $3.5 billion port of Chancay and Chinese investments in many sectors in Peru. It is claimed that the new port could serve China’s military objectives and that Peru could become China’s satellite country. That President Boluarte will visit China in June and that Chinese President Xi Jinping has confirmed his visit to Peru in November to inaugurate the new port adds to the speculation.

According to official information, Peru shipped 3 million TEUs (twenty-foot equivalent unit containers) in 2023, of which 88% were shipped from the two ports of Callao. With the new Callao ports, that number should increase to 5.6 million, surpassing other regional ports such as Manzanillo in Mexico and Balboa in Panama.

To take full advantage of the logistics around these ports, the government is proposing a free economic zone (FEZ) between Chancay and Callao, integrating the port of Chancay with the two Callao ports and the new Callao airport. This should result in new infrastructure connecting these ports and the airport, partly developed by the government, partly by the private sector.

With these developments, Peru could become a port hub in the Pacific Ocean, attracting shipping from neighboring countries such as Chile, Ecuador and Colombia. Even Brazil has indicated that it wants to take advantage of Peru’s strategic position and use these ports to shorten shipping times to Asia.

The US has sent several senior officials to investigate why Peru tends to favor China. Peru’s policymakers have been pragmatic in their foreign relations with China – their main trading partner – and the port development allows them to capture trade between Asia and Latin America. The real surprise is that the US, a preferred trading partner and a partner with shared values ​​with Peru, has not invested in similar developments.

While China could benefit by guaranteeing the raw material supply needed for its industries, the real benefit to Peru is to trigger the relocation to Peru of Asian industries that export to the US – targeting high-tech Asian companies, suppliers of American high-tech companies, which find moving to the US expensive and can benefit from Peru’s trade openness and large number of free trade agreements.

Can economic overperformance dampen politics?

The deinstitutionalization and undermining of the 1992 Constitution are a handicap and will make it more difficult to revive the rapid growth of the 2000s. But it is also clear that Peru had experienced periods of overachievement even before the 1992 constitution. The truth is that Peru rarely faces such a favorable external environment as it does now. Long-term investors, such as those in mining and infrastructure, severely underestimate political instability. If Peru elects a reasonable government in 2026, the economy can move forward and put politics aside. It seems the country will soon get another chance to confront its social backwardness and dysfunctional politics.

Tags: buyer, Dina Boluarte, nearshoring, Peru

The opinions expressed in this piece do not necessarily reflect those of Quarterly America or its publishers.