Background About Our Work in Peru

About Peru

Peru has experienced high economic growth in the last decade and the country has notably been one of the fastest growing economies in the Latin America and Caribbean region. Between 2005 and 2014, the average GDP growth rate was 6.1%. However, the Peruvian economy has begun to slow down in the recent years, with 2.5% growth in 2014 and a 2.9% growth rate estimated for 2015. The decrease is mainly a consequence of unfavorable external conditions, a decline of internal confidence in the economy, and a reduction of private investment in Peru. For 2016 and 2017, economic growth is expected to progressively recover to an average growth rate of approximately 4%.

Economic growth has led to an equally significant increase in per capita income and a reduction in the poverty rate by 36% in six years. Although rapid growth rates have taken place throughout the country, the highest rate of growth (6.6%) has happened in the arid coastal areas, where the largest cities are located. The capital city of Lima, for example – the second largest desert city in the world –, is where about a third of the country’s population lives and much agricultural and mining activity takes place. Only 1.76% of Peruvian water resources are available in the coastal area, where more than 60% of the country’s population is concentrated. By contrast, the rainforest regions of the Amazon Basin have approximately 98% of the water resources, but are home to only 10% of the population.

The National Water Authority (ANA), part of the Ministry of Agriculture and Irrigation (MINAGRI), has recently prepared important water resources planning documents, such as the National Water Resources Plant and six river basin management plans completed with the support of the World Bank and the Inter-American Development Bank, that identify potential supply gaps and other issues (e.g. water quality) and estimate investment needs for $45.7 billion by 2035. It is clear that the government alone cannot raise this sum; innovative solutions and partnerships with the private sector are also needed.

Water Challenges

Nationwide, Peru is abundant in water – at least in terms of available freshwater per capita. Yet, it is currently suffering water stress and scarcity because most of its industry and almost 70% of its population lives in arid desert regions on Peru’s Pacific coast, while much of the bountiful supply of freshwater is located in the sparsely populated Amazon basin.

In addition to this geographic discrepancy, acute water shortages in Peru are expected to worsen because the tropical glaciers in the Andean region are quickly retreating due to climate change. Furthermore, rapid urbanization in Lima, sustained economic growth and increasing per capita water use are placing severe pressure on water resources. Finally, pollution from untreated domestic discharges, unregulated mining operations and other sources have jeopardized the water quality; as a result 60% of the country’s water resources are reportedly ‘unusable’.

Increased economic activity and income are likely to increase the demand for water and the discharge of pollutants under a business as usual trajectory. On the other hand, a richer population will also demand higher environmental quality. As the economy continues to grow, competition for a scarce water resources between urban users, agriculture, industry (including mining) and the environment could potentially worsen dramatically.

Peruvian policy makers and private investors will have to face an important trade-off when reconciling the need to substantially reduce the infrastructural deficit in the country and, at the same time, avoiding severe indebtedness, major environmental liabilities, social conflicts, and providing effective responses to close the water gap.