Countries have discovered for centuries that manufacturing industries can bring economic prosperity. Those who industrialize tend to enjoy higher productivity and exports, more innovation, and better jobs. Peru is already on its way. Manufacturing exports have grown dramatically over the last two decades. But so far, Peru’s economic growth has remained reliant on mining and other extractive sectors. It’s time to diversify.
Establishing special economic zones in Peru that attract investors to produce and export higher-value goods can help Peru transition to a sophisticated manufacturing economy.
Manufacturing as an Engine of Growth
Manufacturing industries become synonymous with economic development for a reason. Manufacturers provide jobs not only in factories but also across the supply chain. Manufacturing production generates demand for services like logistics, engineering, IT, and accounting.
Successful manufacturing sectors can mean:
- Higher-wage jobs
- More productivity and innovation
- Development of local suppliers
- Diversification of the economy
- Stronger exports
Moving up the value chain helps countries earn more money from their natural resources, but it also provides an outlet for sustainable growth that isn’t as subject to swings in commodity prices.
Countries that develop their manufacturing sectors provide their citizens with more opportunities and upward mobility.
Special Economic Zones
Special economic zones (SEZ) provide parks and facilities where businesses can operate under customs, regulations, and structures designed to promote investment and exports.
Special economic zones frequently offer:
- Tax incentives
- Customs efficiency
- Efficient permitting
- Modern infrastructure
Better access to ports or other transportation
Special economic zones make it easier for companies to operate, which encourages more investment in the countries and begins to jumpstart industrialization.
“In today’s hyper-connected world, industrial competitiveness depends not only on costs but also on efficiency.” – Manjiv P. Singh
Countries such as China have built entire industries within SEZs. As Jeff Cheng, founder of SEZ consultancy Prime Aster, explained to American Reporter:
“China began building SEZs in the late ’80s, which attracted investment. These inflows encouraged technology transfer, enabled exports, created jobs, and helped China become the factory of the world.”
Costa Rica also used special economic zones to attract manufacturers. The Central American country successfully encouraged multinationals to invest in medical devices, life sciences, electronics, and other high-value industries.
Building Foundations for Success
China and Costa Rica offer examples that Peru and other countries can learn from. However, they also highlight that incentives alone are never enough.
Successful special economic zones require:
- Investment in education to provide workers
- Strong infrastructure
- Strategic marketing to attract investors
As long as Peru can provide the support that businesses need, special economic zones in Peru can bring investors looking to broaden production outside of China.
Why Now? Economic Zones Are Evolving in Peru
Peru is no stranger to economic zones. Previously, programs such as CETICOS existed. Later, they were replaced by Development Zones, known as ZEDs. More recently, Peru enacted reforms to allow for more private-sector led economic zones. The government has taken steps to make it easier for investors and companies to develop their zones.
American Reporter recently reported:
“Designed under public-private principles, promoters have more flexibility in selecting a legal structure and business model. Zone promoters can now be constituted as limited liability companies,” explains Bosshard.
Economic zones have been in Peru for years. Now they’re adapting to fit the needs of today’s investors.
Private Economic Zones are Here
Increased private-sector participation in special economic zones is a worldwide trend. Private economic zones are becoming more common for several reasons:
- Privately built zones often have infrastructure available faster.
- Private companies allow for professional park management.
- Privately developed zones operate under market-driven investment strategies.
This means that special economic zones in Peru have the potential to attract investors as they have companies that want to develop zones tailor-made for their needs.
Time to Double Down on a Competitive Advantage
Peru has many attractive qualities that can help it successfully encourage exports through special economic zones.
Locational Advantages
Situated on the Pacific Coast, Peru is primed to engage in trade with North America and Latin America while also having easy access to Asia.
Peru has invested in ports, logistics, and other transportation infrastructure to help support exporters.
Free Trade Agreements
Not only does Peru border Latin America and the Pacific, but its network of free trade agreements is also one of the most robust in Latin America. For those looking to access new markets, producing in Peru can give companies an edge.
Natural Resources
Peru has plenty of natural resources, including minerals, agricultural products, and more. Rather than exporting these raw materials, special economic zones in Peru can help companies move further down the value chain and produce finished goods.
Economic Stability
Peru also has the advantage of macroeconomic stability. When investors choose a country to invest in, they value stability and certainty.
Encouraging Manufacturing Industries
While Peru has many advantages, there are still areas of concern that need to be addressed if the country wants to capitalize on manufacturers looking for somewhere new to produce.
Infrastructure
Logistics, transportation, and even utilities will need to keep up with increased production.
Workers
Peru also needs to make sure it has workers that are trained to meet the needs of today’s advanced manufacturing. That means investing in education. Peru could also benefit from creating vocational training programs tailored to the needs of companies investing in special economic zones.
Efficiency
Countries that make it easy to do business win. Investors don’t want to spend years waiting for permits and licenses to start production. Simplifying processes and ensuring companies can predictably navigate investment requirements will be important to Peru remaining competitive.
Peru is not the only country trying to attract manufacturers. Regions like Asia are heavily promoting their own economies. To stand out from the crowd, Peru needs to understand its strengths and continue investing in them.
Opportunity Industries
With all that being said, what industries are most likely to take advantage of special economic zones in Peru? Here are few industries that have prospects of succeeding.
Advanced Manufacturing
Anything technology-related could do well in Peru from electronics to automation to manufacturing equipment.
Medical Devices
Can Peru follow in the footsteps of Costa Rica? Only time will tell. But there is opportunity for Peru to encourage growth in medical technology production.
Agribusiness
Thousands of acres of farmland are devoted to agriculture in Peru. Why not begin producing more finished goods domestically?
Mining Equipment and Services
Mining is a large part of Peru’s economy. Given the demand for mining equipment and technology, perhaps some of those items could be produced in Peru.
Renewable Energy and Clean Technology
More and more companies are making sustainable products. Peru could position itself as a prime location to manufacture these products.
Jobs and Economic Growth
When done right, special economic zones in Peru can provide more jobs for citizens. They also allow countries to diversify their exports.
Economic zones can:
- Attract foreign direct investment
- Create better jobs
- Support local businesses
- Increase exports
- Support innovation and technology
- Grow other regions outside of Lima
- Lead to government revenue generated by increased economic activity.
Growth breeds opportunity. Industrial parks can become a source of continuous innovation as companies work to provide the best product at the best price.
Looking Beyond the Tax Breaks
Tax incentives don’t develop industries. They’re just one piece of the puzzle. Countries need stable infrastructure and capable workers, and they need to market themselves to potential investors.
Building an industrial park takes years, but the benefits could be felt for generations.
Special Economic Zones Can Help Lead the Charge
There is no silver bullet for economic growth, but special economic zones in Peru can provide a great start. By encouraging investment and production in target industries, Peru can develop a more robust and diversified economy.