Why the Belt and Road Initiative is important for Peru?

One of the biggest problems of many countries in Latin America, like Peru, is the inadequate infrastructure, especially of roads and railroads. According to the World Economic Forum Global Competitiveness Report 2017-2018, Peru is in 108th place in quality of roads and in 87th place in quality of railroads infrastructure (of a total of 137 economies analyzed). This creates many problems, among them, the logistics cost for doing business in Peru due to inadequate transport is high.

Also, as Peru has a complicated geography, with the Andes Mountains dividing the country in the coastline facing the Pacific Ocean and the Amazon region, this means that the country is not well connected and many products and natural resources from the Amazon region and from the Andes region for example are not being shipped to the coast and also not exported. Because of that, compared to the coastal cities that have a middle-income status, the Amazon and the highlands regions in Peru are still poor.

In this respect China, which has developed fast in the last 40 years thanks to, among others things, a well-developed network of roads and railroads, can offer an interesting lesson for Peru and could cooperate with it in solving the problem of having inadequate roads and railroads. This scheme could be part of the Belt and Road Initiative that the Chinese government is proposing to Latin American countries.

This scheme presents several opportunities and challenges. For example, If Peru begins the construction, with Chinese help, of a needed railroad network the opportunities will come not only with the benefits of achieving a fast, cheaper and better communications and transport system, but the construction of the railroad itself could encourage the development of steel industry in Peru that could supply the railway rails and even the development of some train carriages, under the guidance of Chinese companies, or by the Chinese companies themselves that could set up operations in the country. Chinese companies have the technology, the resources and the experience for doing that.

Among the challenges is how to get the proper finance for that. In this regard, there is the experience of the bi-oceanic railway proposed by China to link the Pacific and Atlantic Ocean in Peru and Brazil. This proposal has not obtained yet a favorable answer from neither government, and in Peru case the question was how to finance the big cost that the project would have meant for Peru, projected to be around $30-35 billion. Another challenge is how to involve not only the government but the private sector of the country to finance the project.

The important thing is that Peru should formulate policies to be able to take advantage of the Chinese Belt and Road Initiative. This would involve the participation of various sectors of government. One way is by taking advantage of the Integral Strategic Partnership with China, which includes a Free Trade Area (FTA) and the Strategic Dialogue on Economic Cooperation between both countries.

In addition, recently the minister of foreign affairs of Peru was in China where he met with his Chinese counterpart to see aspects related to the Integral Strategic Partnership and how to energize it. In this sense, Peru's participation in the initiative could help fulfill the plans and strategies that this integral association seeks. In the visit to China the ministry of foreign affairs presented proposals to China for investments in the manufacturing sector, energy, the modernization and construction of new ports, and the upgrading of the existing FTA between both countries.

As it is known the Belt and Road Initiative is not only about building physical infrastructure but also about having a greater trade, investment, people exchange and financing. In this regard, there are other sectors in which Peru could participate in the initiative, such as cultural and academic exchanges for knowledge and mutual understanding, to train business experts on China, who know its language and its culture.

Likewise, the initiative offers the opportunity for Peruvian scientists to have access to the technological knowledge of China, which went from being a predominantly agrarian country to an industrial giant in the almost 40 years of economic reforms, which is now oriented toward the production of technology and goods with high added value.

There are already 8 Latin American countries who have signed a Memorandum of Understanding regarding the Belt and Road Initiative, Peru is not among them, something it should consider.

Maria Osterloh Mejia is a researcher at the Institute of Andean Political Studies.

The opinions expressed here are those of the writer and do not represent the views of China Daily and China Daily website.