Broadband Boosts Business Performance and Access to Credit in Peru
Access to universal and meaningful broadband internet is a must for boosting economic growth and reducing the digital divide in Latin America and the Caribbean. It can also boost access to finance for the most excluded segment of the credit market: micro, small, and medium-sized enterprises (MSMEs). A recent study supported by IDB and IDB Invest analyzed the effects of broadband expansion on the credit market in Peru, finding that smaller firms with limited credit histories benefited the most.
How sustainable infrastructure can decide Peru’s future
Last March, Peru experienced extreme weather conditions in the north of the country. This resulted in numerous physical, economic and human losses with costs associated at over US$3 billion, or 0.5% of GDP.
Planning for reconstruction, the country found itself at a crossroads: it could focus solely on meeting immediate construction needs or rebuild with a long-term vision. The latter option, to adapt the new infrastructure to the uncertainty of weather conditions, represents an opportunity to incorporate sustainability in highways, bridges, water distribution and management systems, as well as to leverage public-private partnerships and rebuild Peru’s economy to compete in the global market.
The government of Pedro Pablo Kuczysnki has launched a reconstruction plan called “Reconstruction with Changes” which has two phases. The first seeks to invest up to US$3 million in immediate reconstruction and resettlement. The second, projected to last five years, focuses on the development of modern, climate-resilient public works that represent an additional investment of US$6 billion.
A private sector opportunity
A large part of infrastructure losses is absorbed by private markets, and for this reason the private sector has a lot to gain from reconstruction. For example, a new highway can allow products to reach their markets more quickly, lowering the cost of doing business for companies.
The private sector not only benefits from reconstruction. It could also be part of its development. Estimates from the World Economic Forum suggest that for every dollar of public capital that is mobilized to close the infrastructure gap, five dollars of private capital should be mobilized. However, financing alone is not enough.
Key tools for reconstruction
IDB Invest (formerly known as Inter-American Investment Corporation), the IDB Group’s private sector arm, has experiences in technical assistance that can serve as a reference for Peru. In Mexico’s Port of Manzanillo, we found ways to adapt the design of the port to unpredictable weather conditions. This included ensuring reforestation and measuring the port’s carbon emissions. We made sure that the terminal operators have the tools and training necessary to replicate the environmental assessments every year.
We also use the Envision methodology, developed by Harvard University’s Zofnass Program for Sustainable Infrastructure and the Sustainable Infrastructure Institute. The methodology focuses on quality of life, leadership, resource allocation, the natural world and climate, and risk. The tool has helped our clients measure sustainability, particularly during project planning and design phases.
Environmental and social safeguards promote minimum quality in infrastructure investments. In June 2014, during the review of a loan to a local cement plant, our environmental models predicted atypical rains in Asunción, Paraguay. Our environmental specialists needed a contingency plan. When flooding occurred, the plant mitigated damage although there were some construction delays. The project’s sponsor recognized the importance of the environmental safeguard measures and invested in additional water studies, new internal routes with barriers and protected storage facilities.
[clickToTweet tweet="For every dollar of public capital in #infrastructure, US$5 of private capital should be mobilized" quote="For every dollar of public capital that is mobilized in infrastructure, five dollars of private capital should be mobilized" theme="style1"]
Corporate governance safeguards and attention to integrity also strengthen infrastructure sustainability. Although Latin America is a middle income region, two-thirds of its countries fall in the bottom half of Transparency International’s “corruption perception index.” According to this organization, 26% of Peru’s population has been the victim of corruption. IDB Invest maintains the highest standards of integrity, and we are confident that with our support for the RCC we will reduce this rate.
Finally, investments in sustainable infrastructure can attract institutional investors. Investing in socially and environmentally responsible companies is increasingly considered a fiduciary responsibility and a means for increasing the value of company assets over the long term. We have witnessed the interest of such investors when we presented sustainable and bankable investments. The Reventazón hydroelectric dam in Costa Rica and the Campo Palomas and Colonia Arias wind farms in Uruguay have been pioneer projects in attracting financing from local institutional investors. In Peru, we seek to leverage local money and our capacity to advise public-private partnerships to attract more local stakeholders.
This is a critical moment, but Peru is well positioned to convert its losses into opportunities. Investments in sustainable infrastructure are the only guarantee for building a more inclusive, less vulnerable, and more competitive future in the 21st century.
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The Floods of 2017: How can the private sector mitigate the impact of natural disasters
There are many theories to explain the current trend of increasing frequency and magnitude of extreme events, but it seems obvious that there is a correlation with increasing average temperatures. Many argue that the world is already experiencing the consequences of climate change and that even if the increase on average world temperature is kept under 2 degrees Celsius, countries will have to adapt to a wider range of natural disasters.
During 2017 the world witnessed the occurrence of severe floods from China to Canada. As we wrote this article, Italy was facing its second season of severe flooding. Latin America and the Caribbean was no exception, and Peru was particularly affected by this phenomenon. The floods in the Andean country destroyed 115,000 homes, leaving almost 180,000 homeless, over 110 people were killed, more than 350 were seriously injured, and over 2,500 kilometers of roads have been devastated.
The region is particularly vulnerable to the occurrence of floods as it is the most impacted by El Niño. Additionally, due to its high urbanization rate, the impact of floods to cities and urban infrastructure are often devastating. While estimates of necessary annual investments to manage floods in the region vary, given the constraints on fiscal spending, the full burden of this cannot be met by governments alone. Therefore, the private sector has a key role to play, that involves both the development of software as well as hardware.
Insurance: A key software for mitigation
On the soft side, alternatives to avoid or mitigate the impact of severe floods include flood insurance, payment for environmental services, better flood assessment and warning systems, ecosystems planning, and zoning, among others. All these services can be provided by the private sector through the development of policies and adequate incentive frameworks.
For example, unleashing private sector insurers to offer products in Latin America is no easy task but it can bring about a stream of benefits. Insurance is a fundamental component in any strategy of adaptation to natural disasters. As illustrated in a paper by the Global Facility Disaster Reduction and Recovery, flood insurance:
Increases resilience against residual risks that cannot be prevented or mitigated
Incentivize engagement and investment in risk mitigation measures
Reduces pressure on the fiscal budget from natural disasters
Private sector participation is driven by a complete shift toward risk-based rates, and more accurate mapping which in turn provide correct economic incentives both in urban as well as in rural areas (agriculture in particular).
The private sector can apply innovation and technology to improve early warning systems. The earlier we can identify where storms are likely to hit, the better we can target efforts to minimize damages. In the Netherlands, for example, Siemens has created the concept of “smart levees” by implementing a monitoring system that uses sensors to gauge water pressure, temperature and shifting water profiles. This allows the identification of stretches of levees that are at higher risk of being breached.
Innovative solutions for better hardware
With respect to hardware, the most obvious opportunities relate to retrofitting and developing infrastructure that is more resilient, and can better perform under extreme conditions. The vulnerability of existing infrastructure was evident during the occurrence of natural disasters in 2017, and the private sector can bring capital, innovation, management systems, and technology. Following hurricane Maria devastation in Puerto Rico, Tesla’s Elon Musk, offered to green and revamp energy generation in the island through the installation of solar systems and high-tech batteries.
Bold ideas and innovation will be necessary to assist Latin America and the Caribbean in adapting to the impacts of climate change. In doing so, a vital role of governments is to develop policies and regulatory frameworks that allow the creation of new business models and provide incentives for companies to invest on climate smart infrastructure. For instance, building and financing (public/private) business models for urban drainage transformation in megacities represents a gigantic opportunity to foster investments that will significantly improve the quality of life of millions of urban residents in the region.
At IDB Invest we can draw lessons from our vast experience in the region that combined with disruptive technologies, and a menu of financing instruments can offer unique value propositions to our clients. We embrace the opportunity to work with private companies all over Latin America and the Caribbean in the development of innovative models that can contribute to better management of floods and other natural disasters in our countries.
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The impact of female participation in agribusiness is one of the highest in the global economy. Women laborers produce between 60% and 80% of food in developing countries, and around the world there are about 1.6 billion women laborers, according to the United Nations Food and Agriculture Organization (FAO).
Gender equality in this sector is key, so much so that family-sized farm yields could increase by up to 30% if women had the same access as men to land and resources. In terms of retention and quality of employment, female representation is important and that’s why agribusiness companies are working to provide the same opportunities for men and women. One of them is DanPer in Peru, which employs more than 6,500 people and has about 7,000 hectares cultivated throughout the country.
[clickToTweet tweet="Women laborers produce between 60% and 80% of food in developing countries #equidadtotal" quote="Women laborers produce between 60% and 80% of food in developing countries" theme="style1"]
DanPer has been working on gender equality since its inception and, motivated by its desire to improve in this area, recently completed the EDGE certification process. This certification measures standards of equality and also supports companies to develop a work plan to establish improvements in the future. Today, they are the first agribusiness company in Peru that has this certification. Intrigued by the effects of gender equality on agribusiness, I asked Roger Carruitero, Central Manager of Human Capital Management at DanPer, about this experience:
In recent years, what changes have you seen in the treatment of women employees at the company, thanks to the implementation of gender equality practices?
For DanPer, sustainability is one of the main pillars for the advancement of our people, and we want to ensure that we provide the same opportunities to women and men. For this reason, when we saw the opportunity of measuring our gender equality and learning about other experiences, we seized it immediately. That is why we applied to the EDGE certification, with the support of the IDB Group.
EDGE has allowed us to strengthen our processes of managing people with an inclusive approach. By developing work plans and timetables with specific actions, we ensure the adoption of gender equality as a standard practice in our organization. So today we make use of inclusive language and adopt communication policies. In addition, this component is present in our selection, training, hiring and promotion of personnel. Finally, we encourage the participation of women and men in gender equality dialogues to monitor and measure our progress.
How have advancements made in gender equity helped the business?
EDGE certification has allowed us to strengthen the diversity of the company and reach a more competitive professional market, attracting quality human talent. Practices such as the expansion of the free services offered by our health service in processing plants and agricultural funds allow us to achieve greater welfare for our workers. Today, this center includes exclusive services for women such as gynecological checkups (including cancer screenings), obstetrics and pregnancy services that help us reduce absenteeism, desertions, and turnover levels. Thus we achieve greater well-being in our workers, who in many cases would have to go to hospitals where they would take longer to be treated.
The greater return on personnel, less absenteeism and a decrease in turnover allows us to be more productive, because we have personnel with greater experience and skillsets. This allows our collaborators to have higher incomes that are invested mainly in a better education for their children, many of whom manage to complete technical and university studies. This higher productivity, in turn, generates savings in recruitment, selection, transportation and clothing expenses that solve a significant part of the health budget.
What else would you like to see to increase the opportunities for gender equality in DanPer?
Today, our challenge is to ensure that every day more women have access to positions of power at the mid- to upper levels. For this we must undertake a number of actions, including ensuring that higher education institutions provide the agribusiness industry with a greater supply of graduates in careers whose approach is erroneously directed toward men. This will allow us to have more women applying for mid-level and executive positions in the areas of agricultural production. In the same way we hope to apply it to positions that require technical training, such as mechanics, truck drivers and hopefully tractor drivers.
Regardless, we must continue conducting training and awareness programs on gender equality and non-discrimination in all our headquarters. There is much to do and we are on the right track!
At DanPer, the benefits of gender equality are obvious. Today, as leaders in the field, they participate in events throughout Peru and abroad, where they share their model and seek to raise awareness of the importance of being systematic in adopting measures that reduce and eliminate gender gaps.
"Equality for women is progress for all," as Ban Ki-moon said, especially in an industry where equality could reduce world hunger by as much as 150 million.
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Sharing is caring: Two solutions for more sustainable living
Have you ever considered how much you use your most valuable items? A personal automobile, for example, is only used five percent of the time – even less in urban areas.
Fortunately, private and public sector actors are realizing how little we use individual items and proposing unique ways to be a bit more utilitarian, environmentally-conscious and community-oriented.
The key is sharing.
