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Peru Manufacturing
The industrial sector has had its problems too,
especially in
the 1980s. Manufacturing production grew more rapidly than
the
economy as a whole up to that decade. It increased at a
compound
annual rate of 3.8 percent between 1965 and 1980. But it
grew
only 1.6 percent a year from 1980 to 1988, and then
plunged 23
percent in the ghastly economic conditions of 1989.
Of dominant importance in the 1980s were food
processing,
textiles, chemicals, and basic metals; food processing
alone
accounted for nearly one-third of total manufacturing
output. For
the period 1980-88, when total manufacturing production
increased
by only about 5 percent, food processing rose by nearly 23
percent. Production of basic metals went the other way,
falling
by almost 22 percent. Output of metal products and
machinery,
closely associated with capital goods and investment, fell
by 7
percent from 1980 to 1988, and then fell by one-fourth
between
1988 and December 1989
(see table 12).
The weak picture for manufacturing in the 1980s did not
result
from any intrinsic obstacle on the side of productive
capacity
but from the overall weakness of the economy and of
domestic
markets. The sector's ability to increase production under
better
economic conditions was demonstrated by what happened
between
1985 and 1987, in the successful first half of the García
administration when aggregate demand was stimulated but
inflation
had not yet gotten out of control; manufacturing output
shot up
34 percent between these two years.
The modern manufacturing sector has relied on
relatively
capital-intensive and import-intensive methods of
production,
failing to provide much help for employment. Manufacturing
value
increased from 20 to 22 percent of GDP between 1950 and
1990, but
its share of total employment fell from 13 to 10 percent
(see
table 13, Appendix). Its dependence on imports of current
inputs
and capital equipment has probably resulted in large
measure from
the combination of an overvalued currency with high
protection
against competing imports. Overvaluation holds down the
prices of
imported equipment and supplies, making them artificially
cheap
relative to labor and other domestic inputs. Protection
adds to
the problem by allowing those firms that prefer the most
modern
possible equipment, even when it is more expensive than
domestic
alternatives, to pass on any extra costs to captive
domestic
consumers. In addition, protection saddled industrial
firms
themselves with high-cost inputs from other domestic
firms,
raising their costs to levels that have made it extremely
difficult for even the most efficient to compete in export
markets.
Growth of manufacturing, as of the whole economy, has
been
held back seriously by the failure so far to achieve any
sustained growth of industrial exports. The sector acts as
a drag
on the possibilities of overall growth by using a great
deal more
of the country's scarce foreign exchange to import its
supplies
and equipment than it earns by its exports. This issue is
key to
future growth. Directing manufacturing production more
toward
exports would provide a new avenue for growth through
sales to
world markets and would also help relax the
foreign-exchange
constraints that so frequently hold back the whole
economy.
Data as of September 1992
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