After the political violence, Peru considers economic decline | Business and economy news

Lima, Peru — Anti-government protests that have killed dozens and inflicted human casualties on some of Peru’s most critical sectors are winding down, but have left their mark on the country’s economy.

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

But for three months, vital highways were blocked by rocks and burning tires, lucrative copper mines were paralyzed and railways leading to the ancient Inca citadel, like much of Peru’s economy, were shut down amid shockingly violent demonstrations.

Examining the damage to a monolithic mining sector and the nation’s iconic brand as a travel destination of choice, analysts told Al Jazeera they see signs of a cautious restart in these key sectors. However, months of turmoil, 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 emerges, they said one thing is certain: More volatility will hamper investment in minerals and deter tourism — economic drivers that account for 10 percent and 3.9 percent of gross domestic product, respectively (GDP) of the nation.

“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 took an estimated 0.3 percent out of this year’s growth, he said. Including 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 used to political chaos as Peru, which has seen seven presidents in seven years, the chaotic ascension of President Dina Bolwarte in December after the ouster of her predecessor Pedro Castillo plunged the country into violence not seen in decades.

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

Impact on mining

A line of riot police in Lima, Peru, clash with anti-government protesters in January
The protests have affected Peru’s mining and tourism sectors, both major sources of revenue [Neil Giardino/Al Jazeera]

The unrest, which has left more than 50 dead, is centered in the mineral-rich and highly indigenous mountains, where vast copper reserves have allowed Peru to overtake China as the world’s second-largest producer.

In Apurimac, a region rocked by recent unrest, campesino communities demanding the resignation of President Bolwarte blocked a highway leading to the Chinese-owned Las Bambas mine, which produces about 2 percent of the world’s copper supply, disrupting the transport of the material. 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 holds steady amid the recent turmoil, no temporary logistical setbacks due to blocked highways no long-term damage to the sector will occur.

“If you keep producing but you can’t get your product out when there’s a new opportunity, you export it and there’s a quick recovery in terms of export volume and fiscal revenue,” said Carlos Monge, a researcher at the Center for Development Studies and Promotion or DESCO. “[But] if you have to close the operation, then it’s not easy to start that production again because the value chain is broken.”

The mining sector, which accounted for 62 percent of Peru’s exports, shrank 3.6 percent year-on-year in January, and there are fears that continued instability will push back private investment, which last year totaled $5.4 billion.

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

“More broadly, there are two positive trends to look at: high prices and demand, and [clean] an energy transition that is highly dependent on certain minerals. And one of them is copper.

Lost from tourism

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

Newspaper kiosk in Lima, Peru
Hits to Peru’s mining and tourism sectors will undermine GDP growth in 2023. [Neil Giardino/Al Jazeera]

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

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

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

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

“[I]it probably won’t be until around 2025 or 2026 until we recover to the levels of 2019. And that’s if there’s no more political crisis,” Arce told Al Jazeera.

From its spicy ceviche and sour pisco to the Amazon River and Rainbow Mountain, the country’s appeal to both backpackers and luxury travelers has led to a pre-pandemic high of 4.4 million foreign tourists. But recent unrest has disrupted the sector. Nationally, tourism losses now total $600 million due to the political crisis, according to Peru’s Ministry of Foreign Trade and Tourism.

The hotel industry has been hit particularly hard, with employment down 83 percent.

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

Its largest hotel, with 162 rooms, was closed from December to February due to a lack of tourists. Koechlin said his staff of approximately 700 people has been cut to a minimum, which has hurt 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. No more cancellations and we are now getting bookings and guests.”

This week, indigenous communities in the Andes called for renewed anti-government strikes that will include highway blockades — troubling news for Sofia Arce, who is preparing to lead 24 US tourists on a once-in-a-lifetime trek through the Sacred Valley.

So far, she said, there are no cancellations and no freeways blocked.

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