CSR is one of my own areas of responsibility—and I’ve had a hand in all the major deals EDC has done in Peru—so you can understand my interest in this field.  I’d like to come back to that experience later in my talk to look at how good business and good CSR practices are intimately linked.

Before I focus on today’s theme of building on Peru’s infrastructure with Canadian expertise, allow me to draw on EDC’s latest Global Economic Forecast and try to plot how Canada and Peru fit in. Then it will be clearer why I believe that Canadian business is such a good match for Peru’s infrastructure growth.

I’ll also touch on some key ways that EDC can partner with the different public and private interests in this room for our mutual benefit.

Global Economic Forecast

As we have all experienced, the world economy has been on a rollercoaster ride for the past five years.

First it pulled us up to the height of global growth, then dipped suddenly to the steepest drop in decades, took a sharp turn upward last year and then a mid-year stall that upset us all again.

Every country has been affected to some degree and that ultimately influences with whom and how we will do business in the future.  So where are we now on the coaster’s trajectory?

The world still has a way to go before it climbs back up to the activity levels of the pre-recession years – with some exceptions. Peru is one of the rising stars, with close to 9 per cent growth in 2010, one of the best rates in the world.  But expect GDP fallback for most countries this year—including Peru and Canada.

There are many reasons for the ongoing volatility; I”ll just underscore a few:

Protectionism: Many countries, including the U.S., are being accused of manipulating their currencies to gain an unfair advantage. Protectionism in general remains a threat until worldwide growth returns.

Fiscal restraint:  An abrupt spending withdrawal by Western governments and business investments that are still on hold, could undermine the global economy—and there really are no policy moves left for Western governments if they need to act.

Imbalance: Continued excesses in the U. S. housing market, the tenuous state of public finances in parts of Europe, and the possible emergence of some asset price bubbles are some of the remaining concerns.

The good news:

Momentum: Orders for U.S. goods are rising steadily and key emerging markets are adding new thrust.

More stimulus: U.S. exports have picked up and the economy was boosted by additional stimulus this year.

Pent-up demand. Lower output helps work off the excesses of the past. The rebalancing of supply and demand hints at aggressive, widespread growth later this year.

These new developments have brightened the global outlook, barring the yet unpredictable economic effects of ongoing political unrest in the Middle East and North Africa.

Canada will be a key beneficiary of the improved U.S. picture and so will Peru, which also counts the U.S. as one of its largest trading partners.

Canada’s overall growth should be a little better than expected this year, closer to the 3 per cent mark of 2010, thanks largely to our improved trade performance.  Peru is expected to achieve up to 7 per cent growth this year, above the Latin America regional average of some 4 to 5 per cent.

On the down side, Latin American countries are now contending with inflationary pressures after stronger-than-expected growth last year—and Peru is no exception.

Like Canada, Peru can benefit from diversifying its markets of export, import and direct investment, both incoming and outgoing.  Too much dependence on the U.S., even a rebounding U.S., is not healthy over the long-run--as we have all painfully experienced.

Canada-Peru Compatibility

Two-way merchandise trade between Canada and Peru is still relatively modest, but has been growing aggressively.  It doubled from 2006 to 2010, reaching over $4 billion, with imports from Peru representing the lion’s share.  While we don’t track how many Canadian companies are doing business in Peru, we can use EDC as a barometre of the rate of growth—our clients exporting to, or investing in Peru nearly doubled in the past five years, landing at 170 companies in 2010.

An even better indicator of the strong affinity between our two countries is that Canada is one of the largest foreign investors in Peru—these investments reached a record $3.6 billion in 2008, just prior to the global recession. We’re also a leading investor in Peru’s mining and financial sectors.  For Peru, Canada has become its third major export destination, after the U.S. and China.

Peru is ranked this year, by the World Bank, as the number one country in South America for ease of doing business and second only to Mexico in Latin America as a whole.  It is also among the 20 countries in the world with the greatest financial stability, according to the World Economic Forum.  Peru has more liquidity–both public and private— to undertake major projects than most emerging markets.

Challenges remain of course.  Inflation, which I mentioned earlier, is a risk in Peru, as food prices increase worldwide.  As well, all it takes sometimes is community opposition to one or two large projects, as has happened in Peru, to create nervousness in investors. In addition, Peru’s infrastructure, in its existing state, is a bottleneck to Peru’s fast pace of growth and international competitiveness. Clearly Peru recognizes this; the government has launched or planned more than $40 billion in infrastructure projects over the next 5 years.

Infrastructure opportunities

This brings me to the heart of our theme today and my 3 top reasons why Canada and Peru are in many ways natural partners in infrastructure development:

First of all, anyone can build infrastructure in good conditions.  Canada can build in the toughest ones!  We have a full range of companies that offer everything from engineering-construction to equipment and environmental services.

Some 4,300 Canadian firms are involved in infrastructure exports and investments around the globe. A few of you are here today.  For the sake of our Peruvian guests, let me name some leading Canadian companies that are doing work in Peru to give you a small sense of the depth of Canada’s expertise and interest in the region.

Aecom-Tecsult, Aecon, Amec, CWA, Dessau, Genivar, Golder Associates, Hatch, Klohn-Crippen- Berger, Knight-Piésold, Ledcor, Sandwell, SNC-Lavalin, and Stantec, Many of these rank among the top engineering-construction firms in the world—some have been involved in Peru for decades.

In the power sector, Canada’s Atco Power, Brookfield and TransAlta are among the leading investors and operators of Latin American power plants. Several more Canadian companies are actively looking into such opportunities!

All these firms have overcome geographic and climate challenges such as remoteness, high altitudes, extreme cold and heat, and water scarcity—all barriers confronted in different parts of Peru.  As one of our clients told us:  “We’ve built our careers on solving problems on the edge!”

Indeed, Canadians have designed and built some of the best water treatment facilities, hydro-electric power generators, mass transit systems, and award-winning ports and airports.

Canadian companies have also partnered with Peruvian leaders on other Latin American projects.  A case in point is the Cobre Panama copper mine, where SNC-Lavalin partnered with a division of Lima-based Graña y Montero Group, and a Colombian company.  This approach could work well in the infrastructure sector too, considering the huge demands throughout Latin America.

For our Canadian audience members, let me just touch on two of the major Peruvian projects:

Power transmission lines in Southern Peru will cost an estimated $450 million and will require a private company to design, finance and build the line and substations, then operate and maintain them.

Secondly, Peru’s new Inter-Oceanic Highway will consist of three highways linking northern, central and southern Peru with Brazilian cities; the overall cost is estimated at up to $2 billion. Here again, the administration, operation and maintenance will be turned over to a private company or consortium of companies.

There are also big plans for new railways, mass transit, water desalination, ports and airports.

Aside from the technical challenges, the size and risk of these projects makes the right project management and financing formula critical.

If there was one lesson from the credit crunch, it’s the importance of sound financial strategies and partnering with reliable organizations to share the risks.

EDC knows—we provided more than $1 billion in financing for diverse infrastructure projects in many parts of Latin America over the past 5 years.

This includes support last year to Dessau and a Peruvian partner, to do a feasibility study for electricity company Hidrandina S.A to develop transmission lines and stations in rural areas--something Dessau has done successfully in other remote parts of the country.

EDC is also well aware that these projects take many players, proper structuring and expert risk management, often with both public and private sector partners.

This leads me to my second top reason for Peru-Canada cooperation: Canada is among the most successful countries in applying public-private partnerships—what we call P3s. We can share these best practices with Peru.

In Canada, our P3s are long-term contracts where the public sector procures the design, construction, operation and maintenance of a facility usually from a consortium of private firms.  The acquisition is often privately financed over the economic life of the asset, but public financing too can be involved, both from the government coffer and export credit agencies such as EDC.

Project ownership tends to remain with the public sector or is transferred back to the government at the end of the contract term—sometimes as long as 30 years.  In other words, the private sector is taking care of the asset in return for payment, but it belongs to the whole country.

Today, there are about 55 P3 projects in Canada, some 20 of which have recently been completed; virtually all were delivered early or on time and not one saw any cost overruns that had to be made up by the public sector.

EDC has more than a decade of solid experience with P3s and worked with various models in the U.K., Ecuador, Mexico, the Dominican Republic, the UAE and other countries.

Success in P3s means understanding the prequalifications, bidding and selection process and, perhaps most important, identifying compatible business partners.  Infrastructure firms that have stable financial positions and partners, and secure bonding guarantees, which free up crucial working capital, often have a head start. EDC can help in many of these aspects.

A third advantage for our two countries is the Canada-Peru Free Trade Agreement, one that has been in force since August 2009.  It is well established, compared to some newer FTA’s between Canada and other Latin American countries, which are awaiting ratification.  And it offers three key benefits:

It means that companies in both our countries pay no tariffs on 95 per cent of their exports;

On the infrastructure side, it gives investors a more fair, consistent and stable investment climate; and

It better ensures that labour and environmental commitments will be respected –important elements of a project’s sustainability.

Clearly our two countries have many things going for us that favour more integrated trade—trade that goes beyond exports to more direct investment, including setting up joint ventures and on-the-ground offices to better supply and service the main project partners.

How EDC can help

Before concluding, I’d like to give you a brief sense of why infrastructure project sponsors often turn to EDC:

We are already well-connected to leading Peruvian companies and Canadian companies operating or interested in working in Peru.  We have had a full-time representative based in Lima since 2009—for those who don’t already know our Chief Representative Stephen Benoit, he’s here with us today; he’s easy to talk to and can link you to the information, partners or financing you may need.

On the subject of financing, big projects require a great deal of it—generally much more than any one financial institution is willing to undertake alone. EDC has long been a trusted partner to local and international banks, public and private-sector institutions.  We increase the financial capacity of syndications and also get involved in loan structuring and guarantees.

For Peruvian companies interested in investing in major projects in Canada, we can also provide our services to those that form joint ventures or start new operations, which will be exporting or investing abroad.
Finally, we can reduce the development risks of major projects—not only credit, contract and political risks, but also environmental and social ones.

I was just speaking yesterday at a workshop on mining and CSR, about the importance of integrating the latest CSR practices to ensure a project’s long-term success and survival.  This applies just as much to major infrastructure projects, which obviously also impact the surrounding land and communities.

I’m sure the companies in this room are well aware that if they want to borrow from a reputable financial organization, they need to comply with international CSR standards or guidelines.  Today this is just as much about improving social performance as about mitigating environmental impacts.

EDC often helps its clients understand and take the necessary measures.  For example, we have guided our clients in engaging with key stakeholders, including customers, affected communities and civil society groups, to enable them to find common ground.

This is not the forum to go into details on CSR, but since this topic is one of my areas of responsibility, I hope you will permit me to make a couple of observations from my trip to Peru last year.

While we have seen social strife in Peru’s mining sector, we have also seen exemplary practices from companies like Antamina.  In meetings with one of their executives, I learned first-hand how they have invested more than $160 million in social programs to alleviate poverty in the communities where they operate.  This is over and above the billions in taxes and royalties they pay, the huge employment they generate and the infrastructure they have built to integrate the Ancash district with the rest of the country.

A big issue in Peru is the scarcity of water; this makes it crucial for project sponsors to find innovative ways to balance the water needs of their project with those of the community.  I am confident that Canadian know-how and technology—represented by the companies in this room-- can be valuable in helping Peru adapt to this major concern.

Conclusion

I realize you have all received a lot of information to digest today. So let me summarize the key points that I most want you to take away.

Peru is one of the fastest growing and most promising emerging markets in Latin America.

The country is already strategically focused on improving its infrastructure to maintain its economic growth and competitiveness.

Like Canada, Peru is a rugged country with tough infrastructure challenges; Canada offers world-leading engineering-construction and infrastructure equipment companies who have expertise and ingenuity to spare.  We also have strong and historic bonds with Peru through the mining and financial sector.

The advantages of Peru-Canada infrastructure investment are clear.  The challenge is to do it—and to do it in an economically and socially sustainable way!

EDC can help, through:

Connections with trusted business partners from both our countries.

The ability to partner with local and international financial institutions and offer new financial tools.

Unparalleled expertise in risk management, including social risks, to ensure a project’s lasting power.

Thank you very much for the opportunity to speak to you.  Muchas Gracias. Feel free to approach Stephen Benoit or me to discuss any of this further.