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Economy / Jobs

Chart: Peru’s cities need to find alternatives to mining

It would be fair to say that, in terms of its natural resources, Peru won the lottery. It’s sitting on veins of copper, gold, zinc, and silver, which, we probably don’t need to tell you, are pretty good news for a country’s economy.

For the past four years, in fact, Peru’s GDP has grown at an average of 7 per cent annually, and since 2004, poverty levels have halved from 50 per cent to under 25 per cent, according to the Peruvian Association of Banks. It’s also been ranked second only to South Korea by Wall Street experts for its ability to resist shocks to the economy – literally sitting on top of a massive source of wealth probably helps.

However, mining is an incredibly labour-intensive industry, and Peru can’t sustain this level of growth forever. Over the past 50 years, its population increased by 73 per cent, massively inflating its working age population. Over the next 20 years, however, it’s only expected to increase by 12 per cent. As today’s population gets older, the number of those who can work labour-intensive jobs won’t increase at the rate it has done for the past half century. 

As a result, economists warned this year, the mining industry can only expect to carry on at its current levels for another 15 years. At the Gold and Silver Symposium earlier this year, economist and politician Pedro Pablo Kuczynski said “Peru, demographically, has its best years ahead of it. But it’s only 15 years, so we can’t lose even a single day.”

The solution? Cities are trying to diversify their economies away from mining. Here’s a chart comparing the mining and manufacturing sector in a few of the largest ones:

Share (%) of manufacturing, mining and utilities in total GDP. Source: CityMetric Intelligence.

Lima, Peru’s largest city and its industrial and financial centre, already had a pretty diverse economy, in which mining and manufacturing only accounts for around 20 per cent of its GDP. The city produces large amounts of textiles, agricultural products (they apparently make an awful lot of fish oil tablets) and food, which account for most of its mining and manufacturing sector – even if the metals market crashes, Lima’s economy should survive.

Arequipa, on the other hand, is one of the most mining-reliant in the country (it’s in the top four Peruvian regions for exports of silver, copper and gold). But since 2008, the graph shows it’s diversified into something that isn’t manufacturing. Turns out, that something is IT. David Chandler, an ex-Google developer, recently set up his new company, the Zuriel Corporation, in Arequipa, and Silicon Valley companies like Zagile have also set up operations there. Companies are attracted by the city’s professional population and the nine universities offering technical subjects.

Country-wide, there are plans to install a massive fiber-optic system in 2016, which would make it possible for Peru’s other cities to expand their IT sectors, too. IT is far less labour intensive than mining or manufacturing – and that’s good news for Peru’s aging population.
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