APEC Forum on Human Resources Development 2010 Peruvian Economy Report Chiba, Japan November 17 19, 2010

Transcription

1 APEC Forum on Human Resources Development 2010 Peruvian Economy Report Chiba, Japan November 17 19, 2010 Author: Daniel Torres General Directorate of Micro and Small Enterprises and Cooperatives Ministry of Production of Peru Content: I. An overview of the Peruvian economy and the role of the micro and small enterprises in its growth. II. Strategic actions of the Ministry of Production for the productive development of micro, small and medium enterprises (MSMEs) and industry. III. Case: Growth with Quality A program for good manufacturing practice and management I. An overview of the Peruvian economy and the role of the micro and small enterprises in its growth. The Peruvian economy has shown an impressive growth performance in recent years. It had an average GDP growth by 6.7 percent between 2002 and Last year, Peru was one of the countries whose economy did not contract but continued to grow moderately by 0.9 percent. According to the World Bank, it surpassed the Latin American average growth, which was -2.3 percent, and is expected to grow by nearly 8 percent in 2010 and by about 5.5 percent in the medium term. 1

2 Comparison among Peru, Latin America and three regional economies Gross Domestic Product (percentage change ) Latin America and the Caribbean Brazil Mexico Chile Peru Source: International Monetary Fund, World Economic Outlook Database, October : estimated. In ten years, between 2000 and 2010, the Peruvian economy has grown nearly 80 percent. In that period, for example, large companies (those that billed more than $20 million per year) went from 500 to 900. The projections of key macroeconomic indicators for the next two years are as follows: Key macroeconomic indicators (annual percentage change) Real GDP (percentage change) Domestic demand Private consumption Private investment Public spending Exports Annual inflation (percentage) Exchange rate (LCU/US$, end period) Fiscal balance (% of GDP) Source: Apoyo Consultoría 2

3 In addition, if we have a look by sectors, according to Apoyo Consultoría (an important advisory firm in Peru), for the next two years, hydrocarbons, construction and industry would be the sectors with the most relevant growth. Projections by sectors (annual percentage change) GDP Mining Hydrocarbons Construction Industry Commerce Services Source: Apoyo Consultoría The forecasts for all sectors are positive, but they will grow up at different rates: More than 15% Personal care (import) Retail 10% - 15% Turism (tourists arrivals) Metalwork (production) Construction materials (production) 6% - 10% Agribusiness (export) Construction (production) Food and beverages (sales) Health (household spending) Fishing (production) Petrochemicals derivatives (production) 0% - 6% Electricity (production) Textile garments (export) Mining (production) Source: Apoyo Consultoría 3

4 The outlook for the Peruvian economy is auspicious for the next two years: employment has grown and, because of this, the consumer credit is going up; the business optimism and the consumer confidence make us anticipate strong growth in consumption and private investment in the medium term. The most dynamic component of private spending over the next two years will be private investment to grow 12% on average. It is expected to reach unprecedented levels: US$40,000 million/year investment mainly in mining and hydrocarbons, nearly US$3,000 million from that sum would be invested in infrastructure, retail and electricity. Therefore, greater investment flows promote growth and better jobs with a positive impact on household consumption. The economy is expanding in a context of prices stability (inflation at 2.5%). The attractiveness of the Peruvian economy for foreign investors has been evident in recent years. Companies such as SAB Miller, Scotiabank, HSBC, Dubai Ports, Direct TV, Inkia Energy, BBVA or Makro, have set up their offices in Peru and many of them have been operating since The recent released Global Competitiveness Index , published by the World Economic Forum, reports on the upward march of Peru in the ranking with another five-place progression to 73 rd place from 139 economies. The economy has improved a total of thirteen places since 2007, mirroring its impressive growth performance in recent years, with improvements notably in labor market efficiency (up twenty-one places, to 56 th ) and, to a lesser extent, in infrastructure quality (up nine places to 88 th ) and higher education and training (up five places to 76 th ). Despite the progressions in some areas, the Peruvian economy ( ) faces some challenges that must be addressed going forward, including improving the poor institutional environment (96 th ), upgrading the quality of and access to the educational systems at all levels (111 th for primary education and 76 th for higher education and training), and reinforcing the capacity to absorb technology and generate innovation (ranked 74 th and 110 th for technological readiness and innovation, respectively) 1. So it is evident that there is still a lot to do. For example, from the 21 APEC economies, Peru has the penultimate position in the Global Competitiveness Index: 1 World Economic Forum - Global Competitiveness Report , page 48. 4

5 APEC Economies: competitiveness and growth 2010 Ranking GCI 2010 GDP percent change 2010 Singapore United States of America Japan Canada Hong Kong SAR Taiwan, China Australia Korea, Republic of New Zealand Malaysia China Brunei Darussalam Chile Thailand Indonesia Vietnam Russian Federation Mexico Peru Philippines Papua New Guinea Source: World Economic Forum - Global Competitiveness Index 2010 / International Monetary Fund. 2010: estimated. The economy of Peru can show great results, there is no doubt. But in terms of inclusive growth, the way is still long and there is a lot to do, much more than what have been done during all these years. The actual government started, four years ago, with a promise that now could reach. The nationwide poverty indicators in Peru have reduced significantly, with improved income and employment levels. In four years, between 2005 and 2009, the poverty rate fell from 48.7 percent to 34.8 percent, whereas extreme poverty declined from 17.4 percent to 11.5 percent. The target is to reduce poverty rate to 30 percent at the end of this administration, in July Inclusive growth must be understood from the premise that societies based on equality tend to perform better in development. For instance, countries with more equal income distribution are likely to achieve higher rates of poverty reduction 5

6 than very unequal countries. 2 According to the World Bank, to begin to understand what life is like in a country to know, for example, how many of its inhabitants are poor it is not enough to know that country s per capita income. The number of poor people in a country and the average quality of life also depend on how equally or unequally income is distributed. 3 So, to answer how income inequality affects poverty and quality of life in Peru, despite the growth of all these recent years, the economists would use Lorenz curve and Gini indexes. If we compare the Peruvian economy with another one that could have a similar level of GDP per capita in this year, the example will show that the incidence of poverty in Peru is higher. It s possible to understand the reason for this difference with the help of the next figure, which shows percentages of national income received by equal percentiles of individuals or households ranked by their income levels. Income distributed by population quintile in Peru and Serbia Source: World Bank World Development Indicators In Serbia, the richest 20 percent (quintile) of the population received about 4.1 times more than the poorest quintile, while in Peru the richest quintile received 15.2 times more than the poorest quintile. Compare these ratios with an average of about 6:1 in high income countries. In the developing world income inequality, measured the same way, varies by region: 4:1 in South Asia, 6:1 in East 2 United Nations Development Programme - International Policy Center for Inclusive Growth ( 3 World Bank, Beyond Economic Growth An introduction to Sustainable Development (WBI Learning Resources Series, Second Edition, 2004), page 28. 6

7 Asia and the Middle East and North Africa, 10:1 in Sub-Saharan Africa, and 12:1 in Latin America. 4 Lorenz curve and Gini indexes for Peru and Serbia In words of the World Economic Bank, the deeper a country s Lorenz curve, the less equal its income distribution. In the Peruvian case, that curve deviates from hypothetical line of absolute equality much further than that one of Serbia. This means that from these two countries, Peru has the higher income inequality. And, again, if we compare it with the APEC economies, this is the order: Income inequality in APEC economies, various years 4 World Bank, Beyond Economic Growth An introduction to Sustainable Development (WBI Learning Resources Series, Second Edition, 2004), pages

8 Details of income inequality in APEC economies APEC member economy Diference between the poorest and the richest quintiles Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% Distribution of income or consumption GINI index Japan Korea, Republic of Canada Indonesia Vietnam New Zealand Malaysia Australia Thailand China USA Russian Federation Philippines Hong Kong SAR Singapore Papua New Guinea Chile Mexico Peru Brunei Darussalam Taiwan, China Source: The World Bank World Development Indicators In this context, the micro, small and medium-sized enterprises (MSMEs) have had a key role in the growth of the Peruvian economy. In Peru, the MSEs are little more than 95% of all enterprises and account for around 60% of the EAP. In the last three years, they have grown 3.6 percent, and in 2009 would have employed about 9.5 million people. Last year, also, 97 percent of the 7,346 enterprises that exported were SMEs. Nevertheless, those exporter SMEs only contributed with the 12.2 percent of the exported value. Since those enterprises are the main engine of employment in Peru, one of the Government's priorities is to promote the proper growth and help them resolve problems that may hinder their expansion (such as lack of liquidity or cash for the 8

9 normal course of business), as well as providing access to training and technical assistance to help them grow. Before explaining the strategic actions that the Peruvian Government has implemented in this field, let s try to explain how and how much the SMEs are. Peruvian law defines micro enterprises as those that have from one to ten employees and annual sales up to the amount of 150 tax units (UIT by its Spanish acronym), which means about US$193,000. The small enterprises are those that have from one to 100 employees and annual sales up to the amount of 1,700 tax units (UIT), which means about US$2.2 million. It seems easy to identify all the micro and small enterprises with these two parameters (number of employees and annual sales), but it is really complicated, not only due to the great number of informal enterprises, but also because of two reasons: the information about the annual sales is confidential (only the responsible agency for tax collection has access to this information which is barred from disclosure), and there is a lot of production units that could qualify as micro enterprises, but they are not indeed. Let s see the numbers: According to the National Household Survey (ENAHO by its Spanish acronym), in terms of the numbers of employees, there are 6.4 million of production units that could be considered as micro or small enterprises. Nevertheless, in that group are included 2.9 million people with independent activities (such as plumbers, gardeners, etc.), and they wouldn t be considered as SMEs. So, the universe of micro and small enterprises would be reduced to 3.5 million (formal and informal, urban and rural) but, again, including subsistence and self-employment businesses, which (in theory) would not be part of the target market to be considered as beneficiaries of the Peruvian Government programs. The Economic Census 2008 (CENEC by its Spanish acronym) reported 684,540 establishments (urban; formal and informal) that informed having between one and 100 workers. This would be the nearest number to the real size of the SMEs market. 5 National Institute of Statistics and Informatics (INEI by its Spanish acronym). 9

10 Regarding the number of formal enterprises, in urban and rural areas, is necessary to consult another source, the National Superintendence of Tax Administration (SUNAT by its Spanish acronym). According to this public agency, in 2009 there were 1.1 million of micro and small enterprises, but only 277,692 had sales of more than 13 tax units that year ( approximately US$16,800 of annual sales). Finally, in order to access to legal benefits, micro and small enterprises are conditioned to be included in the National Register of Micro and Small Enterprises (REMYPE by its Spanish acronym). And according to this record, which is administered by the Ministry of Labour and Employment Promotion, only 95,980 enterprises are registered to date. So, in an effort to represent graphically these data,mse group is shown as follows: Segmentation of micro and small enterprises According to the Economic Census 2008, the majority of micro and small enterprises were located in Lima, capital of Peru (35%), Arequipa (7%), La 10

11 Libertad (6%), Junín (5%), Piura (5%) and Puno (5%); this means that only six cities of its 25 regions had 63% of total SMEs in Peru by And if we compare those percentages with the data of the National Register of Micro and Small Enterprises (REMYPE),the percentages to date are similar: Lima (48%), Arequipa (8%), La Libertad (6%), Lambayeque (5%), Piura (4%), and Cusco(3%). From the total of enterprises registered in the REMYPE, 89% are micro and 11% are small enterprises. And the distributions by activities are as follows: REMYPE by sectors (November 5, 2010) II. Strategic actions of the Ministry of Production for the productive development of micro and small enterprises and industry Until October 2008, in accordance with Law 28015, the Ministry of Labour and Employment Promotion was responsible for defining national policies for the promotion of MSEs and coordinating with public institutions and private sector the main activities in order to contribute to the growth of those enterprises. With Law (October 22, 2010), these functions were transferred to the Ministry of Production. However, the administration of the National Register of Micro and Small Enterprises (REMYPE by its Spanish acronym) remained under 11

12 the responsibility of the Ministry of Labour and Employment Promotion because of the registered data, regarding the workers of MSEs and their rightful complaints. In the Ministry of Production, this job is in charge of the Viceministry of Micro and Small Enterprises and Industry, and aims to promote sustainable development of MSEs and industrial companies with a focus on transformation of resources, encouraging greater competitiveness and added value. To improve the competitiveness of MSEs, the Viceministry works on the basis of four pillars: innovation, enterprise development, quality and partnership. Also, takes action in regulation, institutional strengthening and environmental sustainability. The Viceministry develops different programs (products and services) for the different enterprise segments (with emphasis in the MSEs): Developing products for each segment 12

13 Next, you will see some programs and services provided in each strategic area: Innovation Innovate Peru FIDECOM (a research and development fund for competitiveness). It promotes two areas: production innovation and knowledge transfer. RED CITEs (Technological Innovation Centers): 14 agencies in seven regions. They provide technical and productive training, technical assistance, laboratory tests, research and product development, seminars and support. Enterprise development Services platform for MSEs: a group of services developed for helping the enterprises to grow (support for formalization, training and technical assistance, and assistance regarding how to sell to the Government: o Service modules Mi Empresa: six agencies in Lima and 17 in regions; mobile service modules in different districts and public institutions such as the National Superintendence of Tax Administration (SUNAT by its Spanish acronym), the National Superintendence of Public Registries (SUNARP), the Ministry of Labour and Employment Promotion, and municipalities. o MSEs Thursday Business: monthly workshops on these issues: finance, formalization, quality, how to sell to the Government, cooperatives, partnership, and factoring. o Grow MSEs 1 (Crece mype 1): 28 brochures on these issues: finance, formalization, quality, how to sell to the Government, cooperatives, and partnership. o Grow your Business Program: 14 partworks journal publishes by Peru21 and workshops in the business school IPAE. o Training and technical assistance: work with 17 regions in different sectors (wood and carpentry, leather and footwear, textiles, agribusiness, food, tourism and gastronomy. o President s Awards for MSEs: the highest Government s recognition to MSEs that have succeeded in different productive activities and are examples of entrepreneurship, effort and enterprises development. 13

14 Quality Grow with Quality Program: a program for good manufacturing practices and management that is funded by the Belgian Development Agency (BTC). Partnership National Cooperative Plan: a program for promoting and developing cooperatives (mass actions), and a competitiveness program for cooperatives (training). Strengthening supply chains: work with various chains, including Pisco, wood-furniture, textile and camels, information technology, metalwork, and derivatives of milk. Even more, with the Law 29289, Law on Public Sector Budget for the year 2009, the Government ordered the creation of the Strategic Program Increasing Productivity of MSEs, which is in charge of the Ministry of Production. The program s primary goal is to increase the productivity of MSEs by achieving the following objectives: Goal: To increase the productivity of MSEs Objective 1: Skilled employees Objective 2: MSEs get capital investment Objective 3: MSEs apply modern management practices Objective 4: MSEs have modern scientific and technological bases Workers increase their productive technical skills MSEs increase their access to capital MSEs develop a culture of partnership MSEs increase their modern management practices MSEs have access to technology transfer MSEs increase their knowledge of IT MSEs adopt innovative technology to improve their production processes 14

15 This program will focus on MSEs that have annual sales between 25 and 800 Tax Units (UIT by its Spanish acronym), which means an amount around US$90,000 and US$3,060,000. These enterprises, in the Ministry of Production s opinion, are able to generate accumulation and increase their productivity with government support. On the other hand, the program focuses on developing the following business sectors: food processing, clothing manufacturing, leather manufacturing and related products, wood production and wood manufacturing, metalwork, furniture, accommodation and food services (hotels and restaurants), other manufacturing industries. Finally, in order to address the increased number of MSEs, the program is developed in the regions with the highest concentration of companies. These cities are, on the coast, Lima, Callao, Lambayeque, Piura and La Libertad; in the mountains, Arequipa and Junín; and in the jungle, Loreto. III. Case: Grow with Quality Certification Program It is a new training and technical assistance program that is aimed at achieving good manufacturing practices and management and is funded by the Belgian Development Agency (BTC). The Program will select 40 small enterprises from the manufacturing sector according to their characteristics and potential. Grow with Quality will last ten months and cost around US$ 5,000; 75% of that cost will be funded by the Belgian Development Agency, and the selected companies will only pay the other 25%. The goal is to certificate the 40 MSEs. Background This project was proposed after the discovery of three events that may bore no apparent relationship. The first was la low numbers of international certifications of the Peruvian enterprises. According to the last ISO Survey 2009, Peru was one of the Latin American countries with less quality certification ISO 9001:2000/2008. Up to the end of December 2008, at least 982,832 ISO 9001:2000 certificates had been issued in 176 countries and economies. The top ten countries for this ISO 15

16 certificate were China (224,616), Italy (118,309), Spain (68,730), Japan (62,746), Germany (48,324), United Kingdom (41,150), India (37,958), USA (32,400), France (23,837), and Republic of Korea (23,036). The 2008 total represents an increase of 31,346 (+3%) over Peruvian certificates grew up 10% in 2008, from 621 to 688 and, in comparison with the economies of South America, just over Venezuela, Paraguay and Bolivia. ISO 9001:2000/2008 certifications South America Growth from end of 2004 to end Argentina Brazil Bolivia Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela Source: The ISO Survey Beyond the rankings and positions, this was an indicator or warming about the situation. So, next step was to have a look over the institutions to see if there was a culture of quality. That second fact observed was that the Peruvian National Quality System was not articulated and it was difficult to have a detailed diagnosis of the situation: to know about the regulatory framework and policies, the actors and their different roles, and mainly how the demand was: what were the thoughts of the business men and entrepreneurs about implementing a quality system in their companies (even more when Peru had signed important free trade agreements), their impediments to obtain a certificate and how many SMEs were looking for one. In order to measure the gap on all issues related to the Peruvian National Quality System, in early 2010 the Peruvian Government launched a multi-agency project funded by the Inter-American Development Bank (IDB) and developed by the Spanish Agency for Standardization and Certification (AENOR by its Spanish acronym). The Ministry of Economy and Finance (MEF) of Peru is the coordinating 16

17 body for the diagnosis and strengthening project, which is evaluating the institutional, technical, economic and human resources that are relevant in establishing a future vision and an action plan for the National Quality System of Peru in the coming years 6. The diagnosis hasn t be completed yet. But in that context, the Ministry of Production and the Belgian Development Agency decided to launch the Program Grow with Quality because there was a need to start to provide new benefits to the MSEs registered in the National Register of Micro and Small Enterprises (REMYPE by its Spanish acronym) through a kind of product (program) that could help them to promote a culture of quality inside the enterprises and to acquire good practices of management, manufacturing and quality product generation. Program features The Program has four stages: Stage Schedule Status Bidding From July 12 th to August 6 th, 2010 Completed Launch October 26 th, 2010 Completed Select enterprises From October 26 th to December 20 th, 2010 In process Implementation From January 16 to October 16 th, 2011 Pending Stage 1: Bidding The goal was to hire a consulting firm to be responsible for diagnosing, train, implement and certificate in good manufacturing practices and quality management to the MSEs that would be selected. This process took one around a month and the schedule for this part was as follow: Stage Schedule Public invitation (notice in newspaper) July 12 th, 2010 Query submission July 16 th, 2010 Answering queries and integration of the bases July 22 nd, 2010 Proposals July 27 th, This project has a multi-sectorial working group that tracks the progress of the consulting firm s work. Includes representatives from the National Institute of Competition and Intellectual Property (INDECOPI by its Spanish acronym), the Ministry of Production (with the General Directorate of Industry, the Directorate of Competitiveness and the Technical Offices of Technology Innovation Centers), the Ministry of Foreign Trade and Tourism, the Ministry of Health (with the Environmental Health Department and the General Directorate of Medicines, Supplies and Drugs), and the Ministry of Agriculture (with the National Service of Agrarian Health). 17

18 Opening of bids, evaluation and select consultant August 3 rd, 2010 Report August 6 th, 2010 This process concluded with the selection of the consulting firm SGS from Peru. Stage 2: Launch The firm that was selected must organize an event of public presentation of the Program. The event was schedule for October 26 th and the organizers invited around 1,500 enterprises, mainly small enterprises, from Lima (this because this first Program will be hold just in Lima, the capital of Peru). For the call the Ministry of Production sent an invitation specially designed in order to catch the attention and interest of business guests. 18

19 In addition, a brochure was printed and published a press release: 19

20 There was around 900 small enterprises confirmed for the launch and more 500 assisted to the event. The goal for that stage was to raise awareness and, mainly, to convince the audience about the need of implementing good manufacturing practices and improving the quality of the management in their companies. So, rather than a simple presentation of the Program, it was a kind of workshop where three specialist talk about, respectively, good practices in the manufacturing process, the benefits and the importance of having a certificate in a small enterprise, and the great opportunities that Peruvian SMEs are finding in the international market through the certification of its products. 20

21 Stage 3: Select enterprises To date, there are 291 enterprises interested in being selected for this Program. They were registered after the launch event and through the Web page ( 134 are micro enterprises and 157 are small, mainly, of apparel (23%), metalworking (12%), food (11%), textile (6%), footwear (4%), agribusiness (4%) and plastics (3%). This stage has the next schedule: Stage Schedule Call and online registration From October 26 th to November 19 th, 2010 Submission of supporting documents From November 22 nd to 30 th, 2010 Evaluation From December 1 to 15 th, 2010 Results December 20 th, 2010 Contract signing and payment of initial fee (25% of the cost) From December 21 st, 2010 to January 15 th, 2011 Implementation From January 16 th to October 16 th, 2011 For the selection of the 40 small enterprises, SGS in concordance with the Ministry of Production will evaluate the business potential for further growth and the characteristics that enable them to make better the implementation of a program like this. Companies must submit, as supporting documentation, a detailed description of the business, and affidavit of sales in recent years (since 2007), a sales forecast for this year, a chart that shows the organizational structure of the company and affidavits of no debts to the National Superintendence of Tax Administration and the credit bureau. Stage 4: Implementation The Program will be divided in four parts as follows: Module 1: SGS will work on the next goals with each company selected: 1. Awareness and interpretation of the requirements of good manufacturing practices: the topics will include the importance and benefits of a quality system based on the requirements of good manufacturing practices, documentation necessary to implement a program like this, importance of the quality manual, 21

22 procedures, instructions, registers, and development control, modification and distribution. The consultant firm must consider a workshop if necessary for better understanding, with each participant. 2. Diagnosis of the company: SGS will review the documentation and existing processes in the small enterprise. 3. Planning the implementation of quality system requirements. Module 2: 1. Quality Systems Documents: SGS will provide expert advice to each participant in the review of existing documentation and the development of the evidence base identified in the planning stage. The consultant firm will also organize meetings with the responsible people for developing processes into the small enterprise to explain the procedures, instructions and forms for the proper handling of such documents. 2. Training to implement the quality system: this will include topics such as monitoring and implementation of documents, metrology (optional for companies that use measuring instruments), workshops for the treatment of non-compliance and complaints, among others. 3. Quality system implementation: SGS must provide advice on how implement the procedures, quality plan and other documents of the quality system, including programs for the use of formats and record generation. Also the consultant firm will provide advice to perform the internal audit and management review of the company, among other requirements contained in this Program. Module 3: 1. Pre-audit: SGS will audit all the processes involved in the quality system. 2. Corrective actions: as a result of the pre-audit the consultant firm will coordinate with the responsible people the necessary actions to generate the changes initially proposed. 22

23 Module 4: 1. Certification of compliance with the requirements of good manufacturing practices. Methodological approach The service will be developed in the four modules described above. SGS could start by groups of 10 MSEs, with the participation in training workshops for up to three (3) participants for each enterprise. The consultancy service will be led by a Consultant Principal, with support from three supervisors, assisted by four Senior Consultants and junior consultants (recommended 15). The consultants will be responsible for interacting with members of the company for the development of system documentation quality based on good manufacturing practices, and bring support to the person designated by the company to make the necessary changes as a result of the consultancy. The Senior Consultan will coordinate with the Quality Committee of the Ministry of Production and the managers of the companies to follow the advice and consultancy service. The supervisor must schedule visits of four to eight hours a week, every 2 weeks. Payment to the consultant The Ministry of Production will pay to the consultant firm after the end of each module, as follows: 25% at the end of the first module 47% at the end of the second module 17% at the end of the third module 11% at the end of the fourth module. The cost total of the project is US$ 192,857, and the 75% of this will be assumed by the Belgian Development Agency. 23