Presentation on the OECD Territorial Review of Peru More information: http://www.oecd.org/publications/oecd-territorial-reviews-peru-2016-9789264262904-en.htm

1. TERRITORIAL REVIEW OF
PERU: A REGIONAL
APPROACH TO ECONOMIC
AND TERRITORIAL
DEVELOPMENT
José Enrique Garcilazo
Head of the Rural Unit, OCDE
Governance and Territorial Development
March 16th, 2017

2. 1. OECD Territorial Review of Peru
2. OECD’s approach to regional development
3. Main Findings Peru TR (diagnosis)
4. Policy challenges
5. Key recommendations
Presentation outline

3. Regional urban and rural policy in
OECD countries
Regional
Development Policy
Committee (RDPC)
WP Urban Policies WP Rural Policies WP Territorial Indicators
The OECD Regional Development Policy Committee is a unique
committee that discusses regional, urban and rural development
policies at an international level.
Based on work of Regional Development Policy Committee past 20 years
 Principles on Effective Public Investment (March 2014)

4. Process
• Part of the Peru OECD country Programme
• Approved by Regional Development Policy Committee on April 22nd 2016 in Paris
• Peru accepted to participate as an invitee to the RDPC Committee
• TR presented by the SG at OECD Peru Forum on 14th October, 2016
• Deputy Director presented findings at GORE on 7-8th November, 2016
• National Strategic Planning Centre (CEPLAN) coordinated NTR of Peru
• Participation from 6 peer reviewers : Canada, Colombia, Chile, Spain, Mexico, US
• Missions to 4 regions: Arequipa, Cajamarca, San Martin and Lima (departamento)
Four main Chapters
1. Regional Development trends and statistics
2. Implementing a regional approach to national economic development
3. Urban and rural development policies
4. Enabling a regional approach: governance and financial reforms (MLG and
decentralisation)
Territorial Review of Peru

5. OECD regional development policy
OECD promotes ‘place-based’ policies focusing on:
• Use of regional specific assets (or create absolute advantages to
stimulate competition & experimentation across regions)
• Create complementarities among sector policies at the regional
(or local) level
• Use of multi-level governance mechanisms for aligning objectives
& implementation

6. Promoting growth in all regions
Broader
based
growth
Good for Equity:
access to services
and to economic
opportunities
Good for Public
Finances:
chronically
underperforming
regions can
impose substantial
costs on public
finances
Reduce
Vulnerability to
shocks: greater
diversity of activity
and thus lower risk

7. Contributions to aggregate depend on a
few hub regions…
…the fat tail is equally important -- if not more -- to aggregate
growth…

8. Regions have different growth factors
depending on their level of development
Growth
drivers/bottlenecks
Lagging (>75% of
national average per
capita GDP)
Intermediate (75-100% of
national average per
capita GDP)
Leading (>100% of
national average per
capita GDP)
Human capital/skills:
presence of very low skilled
√√√ √√ √√√
Infrastructure and
accessibility
√√√ √√ √
Labour-force mobilisation:
PR & ER
√ √√
Innovation activity:
patents, R&D spending,
employment in knowledge-
intensive sectors
√ √√ √√√
Agglomeration effects:
density of population,
density of GDP
√ √√ √√√
Quality of government √√ √√ √√
Fragmented governance
Bottleneck for productivity
√ √√ √√√

9. The paradigm shift in regional policy

10. Human capital
formation
Business
environment
Innovation
Regional growth
and convergence
At the regional level
Infrastructure
provision
Policy
responses
Towards a multidimensional approach

11. 1. OECD Territorial Review of Peru
2. OECD’s approach to regional development
3. Main Findings Peru TR (diagnosis)
4. Policy challenges
5. Key recommendations
Presentation outline

12. Republic of Peru
Large land area: 19th largest country
in the world - only four OECD
countries (CA, US, AUS, MX) have
larger land mass.
Low population density : at only 24
people per km2 , similar to low density
countries ( SW and CHI)
Growing Population : 31 million: 13th
largest in OECD. Growth is 1.32%
compared 0.65% in OECD - young
population demographic dividend’
Spatial structure: Three natural geographic areas: coastal, highlands, and jungle. Socio-
economic conditions tend to be better in the coastal region. These different areas are also not
well connected and have vastly different levels of infrastructure and service provision

13. Peru’s recent performance has been
strong and reduced poverty
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
PercentagechangeinGDP
Brazil China OECD members Peru
Strong growth performance : Since
2000 GDP growth has averaged 5%
above 2% in the OECD. Inflation over
2002-14 was low and averaged 2.7%.
Disciplined macroeconomic framework
and promote open trade.
Despite progress gap is still considerable
in labour productivity (USD 14043)
 three times lower than OECD average
(USD 48 449),
 half of Turkey (USD 29 342).
 poverty rates halved since 2001 to a
level of 23% in 2014,
 extreme poverty fell 25% to 5%
Key areas of progress:
• Modernising agriculture (26%) against 5.6%, with low level of productivity
• Diversifying economy (mining employing 1.5% of LF)
• Reducing high levels of informality: WB about 50% of LF information with low productivity
GDP growth

14. Terms of trade have been degrading
Dependence to a limited number of
products creates strong vulnerabilities
to shocks particularly in markets where
Peru is a price taker.
Policy implications:
• Peru requires to diversify its economy to reduce vulnerabilities of its economy
Terms of trade of Peru compared to OECD average and
LAC average
Peruvian exports show high dependence
on raw material, particularly mining
products: 75% of exports from mining and
agriculture

15. The economy has low levels of
diversification
Peruvian openness strategy has a
diversification of the economy with the
development of new types of exports.
Nonetheless, the weight of traditional
exports remains high
Peru’s diversification is low and
concentrated in products with very low
sophistication levels. 9% of exports
were low-technology exports and only 3%
were medium-technology products.
Policy implications:
• Better inclusion in the global GVCs and go up the value chain in its production
• Focus on productivity in non-tradable sector
Economic Complexity indicator
-1
-0.5
0
0.5
1
1.5
2
Index
2012 1990
Integration in the GVCs remains at the
lower end of supply chains, as a
provider of primary products to other
countries

16. • Complement macro, structural, industrial and social policies
• Subnational policies should focus on enabling factors for
development
– (a) skills, (b) innovation, (c) infrastructure/accessibility, (d) private sector
• Holistic approach to (a) urban and (b) rural development to better
integrate sectoral & top down initiatives to the needs of places
• Improve efficiency of public investments:
– Aligning budgets with planning
– Strengthen regional dimension and capacities
– Better coordinate vertically and horizontally
– Governance reform is key for performance of cities and non-tradable productivity
• Placed-based approach:
– Promote bottom-up development processes with scale effects
– Focus on value-added activities,
– Diversify overall economy through regional specialisation
Regional policies will be key to lift
productivity and improve wellbeing

17. The over-dominance of Lima is a key
feature of Peru’s economic geography
Contribution to Gross Value Added,
by region (2007-2013)
Over dominance of Lima
• 8.5 million (9th largest when compared
with OECD countries) close to 1/3 of
the national population, and 48.1% of
GDP, contributed above 50% of Peru
growth
• Country not taking advantage of the size
and scale of Lima, which is affected by
problems of informality and overcrowding
(e.g. 70% of the land area of the capital is
considered informal)
Lack of secondary cities : not fully taken
advantage of Lima or act as a buffer
• Arequipa, second biggest city is smaller
than 1/10 of the size of metropolitan Lima
(969 thousand versus 9.8 million)
• They need to act as pop. buffer but also
as engines for growth within their regions
– generally underperforming
Key Policy Question:
How to “Get Cities Right”
 Implications for national growth
 Agglomeration benefits and productive services
 Coordinating transport, spatial planning and
housing at FUA scale are key
 Rural – urban linkages: tradable and NTA

18. High regional disparity in terms of
growth and productivity
Policy implications:
• Adapt policies to the needs of regions based on their characteristics and level of
development through a place based approach.
There is evidence of catching up
amongst Peruvian regions in terms of
GVA growth per employee
Labour productivity per employee by region in Peru
Nonetheless, productivity levels are very
uneven across Peruvian regions.
Some regions have even further fallen
behind

19. High levels of disparity in well-being
outcomes
Poverty levels and basic unmet needs show great disparity across regions.
Pockets of poverty are concentrated
Share of population in monetary poverty and share of population
with at least one basic unmet need, 2014
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Population in monetary poverty Population with at least one BUN

20. Bottlenecks reveal strong regional
disparities: Human Capital
Illiteracy rate and poverty
incidence by department,
2014
Inequality in illiteracy have persisted and are strongly correlated to inequalities
University education and poverty
incidence by department, 2014

21. Bottlenecks reveal strong regional
disparities: Infrastructure
Regional density of road infrastructure, 2014 (km of road/ thousand km of area)
Road density shows strong levels of inequality between regions. Some of it is due to
the size of regions. Nonetheless, only eight regions have more than 50% of paved
roads connecting provincial capital to regional capitals

22. Bottlenecks reveal strong regional
disparities: Innovation
Proportion of businesses by size, 2013
Size of firms has significant impact over innovation activity: microenterprises are
much less likely to innovate, and more likely to have short value chains and low-
skilled workers with poorer quality products.
Size of businesses Proportion of total businesses
Large 0.55%
Medium 0.17%
Small 4.6%
Micro 94.6%

23. Overall quality of governance
indicators are low in Peru
Quality of governance has strong incidence on regional growth. An integrated
approach to regional development also depends upon effective coordination
across levels of government and within sectors and governmental agencies
Quality of governance indicators, 2014

24. Deconcentrated agency or partnership
(RDA) at a macro-regional scale:
a) Develop skills and technical capacity of
regional governments (taskforce model)
b) Support subnational governments to better
integrate strategic plans with fiscal
frameworks and investment strategies.
 Only 9 regions (out of 24) have done Concerted
Regional Development Plans
 Room exists for better linking effectively with budget
prioritisation
Recommendations: Developing a
comprehensive regional policy

25. c) Communicate strategic priorities of regions to
national government, and ensure priorities inform
budget and planning cycle (& vice versa).
 Vertical coordination- how priorities of national
ministries are included in planning and policy cycle at a
subnational level (and vice versa)  menu approach.
 Centralised productive diversification approach,
opportunity for Peru to learn from more bottom-up,
place based approach (e.g. smart Specialisation)
d) Integrate investments and program delivery at
regional and macro-regional scale, with improved
coordination across national ministries.
e) Evaluate and monitor departmental and
municipal level planning to ensure plans are
effective and aligned with the national system of
strategic planning.
Recommendations: Developing a
comprehensive regional policy

26. f) Undertake a stocktake of existing regional
definitions across national ministries and develop
harmonized statistical definitions.
g) Develop a framework and set of indicators for
measuring multi-dimensional wellbeing at a regional
level that aligns with the OECD Better Life Index.
h) Incorporate the measurement of GDP at the scale of
regions and functional urban areas into Peru’s national
accounts.
i) Develop an agreed set of environmental and land-use
indicators at the regional level
Recommendations: Improve the
system of territorial statistics

27. THANK YOU
Joseenrique.garcilazo@oecd.org
http://www.oecd.org/gov
http://www.oecd.org/gov/regional