Interview: Dionisio Romero
How can partnerships between corporations and small and medium-sized enterprises (SMEs) incentivise micro and small companies to formalise?
DIONISIO ROMERO: In Peru, 99% of businesses are micro and small enterprises. It is no coincidence that we are recognised as the most entrepreneurial country in the world. According to the “2015 Global Microscope on the Environment for Financial Inclusion” report, Peru has offered the best climate for microfinance and financial inclusion in the world for eight consecutive years. Nonetheless, it is necessary to continue promoting a domestic agenda of reforms with the aim of creating an enabling environment for entrepreneurs and reducing informality.
Currently, over 70% of the labour force is informally employed. In order to tackle this problem, we need to simplify and streamline existing regulations, which in turn will facilitate the formalisation of SMEs. At 18%, our sales tax remains too high and stands as a strong deterrent to formalisation. We could experiment with lowering it to 5% in the restaurant and food sector for a limited time period, and evaluate if there is an increase in formalisation.
What challenges is the industrial sector facing in terms of enhancing competitiveness?
ROMERO: According to the World Bank’s 2016 “Doing Business” report, Peru has lost competitiveness and is now ranked 50th out of 189 economies for ease of doing business. One of the main challenges that Peru faces is to strengthen the state’s capacities, transforming the public sector into a strategic partner for private firms. To attain that goal, any excessive regulation and bureaucratic barriers need to be dismantled. Also, if we want to achieve rapid economic growth, we need to close the large infrastructure deficit – which according to estimates currently stands at around $90bn – and enhance the quality of education. Peru consistently ranks last among the 66 countries that participate in the triennial standardised tests of the Programme for International Student Assessment.
Which sectors are best poised to benefit from recent free trade agreements, including the Pacific Alliance and the Trans-Pacific Partnership (TPP)?
ROMERO: Trade liberalisation, through the signing of multiple free trade agreements, has enabled Peru to gain tariff-free access to important world markets. Moreover, the country’s privileged geographic location in the south-eastern Pacific and growing interaction with broader associations such as the Asia-Pacific Economic Cooperation, the Pacific Alliance and the TPP, make Peru an attractive market for international investors and business. Over the past decade, the value of non-traditional exports, particularly higher-value-added agricultural products, has tripled. Likewise, increased air connectivity has generated sustained growth in inbound tourism, resulting in the arrival of 3.5m international visitors in 2015, compared to just over 1m in 2002.
How can the private sector play a role in improving the quality of the country’s workforce?
ROMERO: The country’s gap in educational infrastructure is calculated at PEN63bn ($20.1bn). A third of schools lack electricity, 40% have no running water and two-thirds lack internet. Narrowing this gap is a national priority, and the government is now joining forces with the private sector to address the challenge through the use of the Obras por Impuestos (Public Works for Taxes) initiative, which enables private firms to invest directly in infrastructure projects in lieu of tax payments. This mechanism facilitates the building of new public schools and the renovation of existing ones. The provision of high-quality education to Peruvians must be prioritised as the country’s most important public-private partnership effort.
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