After political violence, Peru expects economic fallout | Business and financial news

Lima, Peru — The anti-government protests that killed dozens and inflicted body blows on some of Peru’s most critical sectors are beginning to subside, but they have taken their toll on the country’s economy.

Operations in the country’s copper-rich south are steadily increasing, and the iconic ruins of Machu Picchu, the nation’s crown jewel, are once again open to foreign tourists.

But for three months, vital highways were choked by boulders and burning tires, lucrative copper mines were crippled, and rail lines leading to the ancient Inca citadel, like much of Peru’s economy, were brought to a standstill amid shockingly violent demonstrations.

Analysts told Al Jazeera they see signs of a cautious restart in these key sectors as they examine the damage to a monolithic mining sector and the country’s iconic brand as a bucket-list travel destination. But months of unrest, a continued political standoff and threats of renewed protests will pose serious challenges to the country’s economic growth in 2023, they warned.

As a clearer picture of the economic fallout has emerged, they have said one thing is certain: more instability will hinder mineral investment and discourage tourism — economic engines that account for 10 percent and 3.9 percent of the country’s gross domestic product, respectively ( GDP).

“Our estimate for GDP growth in 2023 is 2.5 percent, with a significant downward bias,” Hugo Vega, an economist at BBVA Research Peru, told Al Jazeera by email. The effect of the political crisis in January alone subtracted about 0.3 percent from this year’s growth, he said. Incorporating February and March, plus the longer-term effect on tourism and overall investment, paints “a very challenging picture for the year as a whole”, he said.

Even in a country as affected by political chaos as Peru, which has endured seven presidents in seven years, the chaotic ascension of President Dina Boluarte in December, following the removal of her predecessor, Pedro Castillo, plunged the country into violence, which has not been seen for decades.

Despite a 77 percent disapproval rating, Boluarte has maintained a white-knuckle grip on power, and a deadlock between the executive and judiciary has stalled hopes of new elections this year, a key demand of protesters.

Impact on mining

Protests hit Peru’s mining and tourism sectors, both key revenue earners (Neil Giardino/Al Jazeera)

The unrest, which has left more than 50 dead, has been concentrated in the mineral-rich and strongly indigenous highlands, where huge copper reserves have enabled Peru to overtake China as the world’s second-largest producer.

In Apurimac, a region hit by recent unrest, campesino communities demanding the resignation of President Boluarte blocked a highway leading to the China-owned Las Bambas mine, which produces about 2 percent of the global copper supply, disrupted the transportation of materials. In neighboring Cusco, protesters set fire to workers’ homes at the colossal Antapaccay mine, which briefly halted operations.

While the extent of the impact on production was still unclear, experts noted a long history of social conflict between local communities and mining companies in the region – and that, assuming production held steady amid the recent unrest, there would be no temporary logistical problems due to of blocked highways. long-term damage to the sector.

“If you continue to produce, but you cannot get your product out, when there is a new opportunity, you export it and there is a rapid recovery in terms of the amount of exports and tax revenues,” said Carlos Monge, researcher at the Center for Studies and Development Promotion or DESCO. “(But) if you have to shut down the operation, then it is not easy to start that production again, because the value chain has broken down.”

The extractive sector, which accounted for 62 percent of Peru’s exports, fell 3.6 percent year-on-year in January, and there are concerns that continued instability would repel private investment, which last year totaled 5.4 billion .

But Monge and other analysts emphasized the mining industry’s resilience amid political turmoil, as well as copper’s critical role in a boom in electric vehicles.

“In general, there are two positive trends to look at: high prices and demand and the (clean) energy transition, which is heavily dependent on certain minerals. And one of them is copper.”

Tourism loss

Heading north from the mining corridor, the rugged Andes give way to the Sacred Valley, where the 15th-century Inca citadel of Machu Picchu was once again isolated from the world for almost a month.

Hits to Peru’s mining and tourism sectors will undermine GDP growth in 2023 (Neil Giardino/Al Jazeera)

Peru’s Ministry of Culture shut down the archaeological site in late January after highway blockades and damaged rail lines left hundreds of tourists stranded. The site was reopened to the public almost a month later.

Its closure was another blow to Sofia Arce’s boutique travel agency, Intense Peru, which sells personalized tours in the Cusco region.

“My business survived a pandemic and now this social crisis,” said Arce, 49. “Since the beginning of December, business went to zero.”

Arce closed 2022 with 63 percent of sales compared to 2019, a boom year for many tourism operators in Peru.

“(I)t probably won’t be until around 2025 or 2026 before we get back to 2019 levels. And that’s if there’s no more political crisis,” Arce told Al Jazeera.

From its spicy ceviche and pisco sour to the Amazon River and Rainbow Mountain, the country’s appeal to backpackers and luxury travelers alike brought in pre-pandemic highs of 4.4 million foreign tourists. But recent turmoil has hit the sector. At the national level, losses to tourism already amounted to $600 million. due to the political crisis, according to Peru’s Ministry of Foreign Trade and Tourism.

The hotel industry is particularly hard hit and is experiencing an 83 percent reduction in occupancy.

“We’re losing employees and we’re losing money,” said Jose Koechlin, founder of InkaTerra, a chain of luxury hotels in the Andes and Amazon.

His largest hotel, with 162 rooms, closed from December to February due to a lack of tourists. Koechlin said his staff of about 700 has been cut to a minimum, which has hampered the local economy.

But he remains optimistic, in part because of a major capital injection recently announced by Peru’s finance ministry, including about $130 million for the tourism sector alone.

“The downward curve has stopped. There are no more cancellations and now we are receiving reservations and guests.”

This week, communities in the Andes mountains have called for renewed anti-government strikes that will include highway blockades — troubling news for Sofia Arce, who is preparing to guide 24 tourists from the United States on a once-in-a-lifetime hike. the sacred valley.

For now, she said, no cancellations and no blocked highways.

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