SEATTLE, Washington — Peru is a country that lines the southeast border of South America, historically known for its wealth of natural resources in the form of precious metals and minerals. Despite having many propitious trading commodities, the nation failed to attract enough foreign investment and build the necessary infrastructure to thrive economically. For years, Peru languished in fiscal turmoil and had by many measures, one of the worst-performing economies in the world. On a macro scale, this is rooted in Peru’s political instability; lack of transportation facilities, the depletion of deposits in mining areas and a lack of mineral processing sites. These factors have contributed to the depreciation of the country’s currency. The work and creative insight of several organizations, both foreign and domestic, were key to poverty eradication results in Peru.
Poverty in Peru
The country’s economic failure trickled down to adversely affect Peruvian citizens, especially those in mountainous regions. Poverty has disproportionately afflicted rural areas of the country, which is home to many indigenous populations. Women have also been disproportionately harmed, often bearing the weight of both household tasks and agricultural labor to nurture their families while the husband seeks opportunities for sustainable income. Above 50% of rural residents are recognized as living below the national poverty line. Over time, people looked to migrate to urban centers, mainly the capital city Lima. However, in the mid-2000s, the tides began to turn a bit more positively. The percentage of Peruvians living below the poverty line diminished from nearly 60% in 2004 to just above 20% in 2018. Median income per capita increased 1.5% annually from 2011 to 2017.
USAID: Initiatives for Poverty Eradication in Peru
Foreign aid from the United States has been a chief contributor to the growth of poor communities in the country. Innovations within the country’s domestic infrastructure both financed and developed by USAID include BOT concessions and the PRA program, helping to lift the poor rural communities of Peru into higher market engagement.
BOT (Build-Operate-Transfer) Concession
According to USAID’s website, Peru has made tremendous strides in facilitating rural access to markets with the organization’s help. From 2001 to 2011, improvements were noted in travel time from poor rural districts to the nearest city, the market prices of agricultural land and the affordability of housing. This can be attributed to the enrichment of roads and ports, which was a successful objective of the BOT concession program. A BOT concession is when the government leases out a road or a port to a private company to be maintained and operated during an allotted time period. This incentivizes the company to upkeep the road at a high standard because its profit model is based on tolls and fees, which can only be obtained if people are able to safely travel on these roads. The investment is worth the initial loan debt if the company can end up making a profit. After the allotted period has expired, the company cedes ownership of the road or port to the government. The BOT concession program aligns the goals of both private investment and public interest to achieve safer, more efficient travel.
PRA (Poverty Reduction and Alleviation) Program
USAID saw potential in the struggling sector of agriculture, with local producers and farms, that if remedied could bring economic relief to impoverished communities in Peru. Its approach was innovative because it did not tread the familiar path of simply giving additional funding to suppliers of goods in order for them to expand or improve production. The organization noticed that local buyers, such as grocery stores and exporters, did not have a stable relationship with smaller suppliers due to the supplier’s diminutive and unreliable production. This resulted in buyers that were forced to purchase goods from larger national corporations, further tanking profits of local suppliers and contributing to the market stagnation of poor areas.
The PRA program focused on consolidating partnerships between buyers and smaller suppliers with connections to rural communities. The site describes USAID’s role as “an honest broker” to bridge the gap between these two parties and maximize revenue for both. For example, PRA mediated the relationship between Piscifactoria, a trout-processing company, and SAIS Tupac Amaru, a farm, by convincing Piscifactoria to invest in the rehabilitation of the farm’s ponds. This improved the farm’s quality and efficiency of production and subsequently raked in more profits for Piscifactoria by way of selling more than the capacity its own ponds could maximally produce. It was a turning point for the company, increasing sales by $5.8 million and creating 550 new jobs. PRA created these symbiotic bonds between buyers and suppliers, often investing in companies that employed unskilled labor and lifting those people above the poverty line. Overall, this interconnectivity between previously languid networks was a forward-thinking solution that should be imitated in other poverty-stricken areas across the globe.
USAID’s Inspirational Impact in Peru
USAID has infused innovative initiatives into an economy that was stagnant. While poverty in Peru has not been eliminated, these contributions have not only made tremendous differences but also paved the way for alleviating poverty in other areas of the world as well. Creating powerful networks between local suppliers and buyers like grocers and distributers is something that can be applied anywhere. The same goes for a government leasing program that incentivizes companies to build quality roads and ports, while not fully privatizing the sector. Peru now classifies as a middle-income economy and the wealth disparity between rural and urban communities continues to shrink. USAID continues to assist poverty eradication in Peru through initiatives in various ssectors. Organizations like the Sustainable Development Goals Fund and IFAD have taken USAID’s lead in establishing programs in the country that work on a micro-scale, investing in households, farms and creative industries. Sustaining these efforts will be vital to lifting every citizen out of poverty in Peru.
– Camden Gilreath