The Inca strikes back

Across the Pacific, Peru is making positive trade inroads, and Australia looks set to play. TIM HARCOURT

When the Airport Economist first visited Lima, he quickly learnt three things about Peru.

First, the very strong traditional cocktail they serve you called Pisco Sour is Peruvian and not Chilean (contrary to what they tell you further south in Santiago).

Second, Peru’s number one soft drink, the iconic Inca Kola, is the only cola to outsell Coca Cola despite the massive marketing onslaught of the Atlanta-based soft drink multinational.

And third, Inca Kola is typically eaten with Chinese food (in Chinese restaurants, which are uniquely called Chifa in Peru).

In fact, the Airport Economist noticed in Lima that there was not only many good Chinese restaurants (along with local traditional Peruvian ones that specialise in ceviche – a local fish – and of course, guinea pig) but a substantial Chinese community in Peru as a result of 19th century immigration from Southern China to the Pacific coast of South America.

Asian influence is also noticeable in the large Japanese community too that took place after the Chinese movements (some of the Chinese migration was in fact indentured labour) and many Japanese migrants also ended up in Brazil (Sao Paulo, for instance, still has a large Japanese-Brazilian community).

Asian economic influence in South America will be on display later this year when Peru hosts the APEC leaders’ summit in Lima. On a recent visit to Australia to promote the APEC CEO Summit – a business conference that accompanies the APEC Leaders’ discussions – Patricia Teullet Pipoli, the head of COMEXPERU, a chamber of commerce organisation, explained how close Peru’s ties with Asia were becoming.

“As well as our strong historical ties with Japan and China, Peru is also looking to East Asia and the Pacific in general. We have signed free trade agreements (FTAs) with Thailand and Singapore and are working on other pacts in the region. Peru is a Pacific nation as well as a South American one and we look as much west as we do north and to rest of the continent.”

Certainly, China for one is becoming influential in the Peruvian economy as Peru’s number two export destination after the US, and Peru’s third most important source of imports, after the US and Brazil.

Teullet stressed that Peru’s growth prospects were strong due to the worldwide resources boom, inflation was still within a respectable 3% to 5% band (and for a nation that experienced 7000% in the 1970s and 1980s – that is respectable!) although Peru still needed an “education revolution” and was keen to learn from Australia in terms of economic management and education reform.

While in Australia, Teullet met with the Australian Minister for Trade Simon Crean about a possible FTA with Australia and Australia’s support for APEC 2008. “We are very keen to work with the new Australian Government. The new Trade Minister was very impressive in signing an agreement so quickly with Chile and now with ASEAN, and we would like to be more like Chile, in terms of Australian trade and investment,” she said.

At the moment, Peru has to do a fait bit to catch up to Chile. There are around 209 Australian businesses exporting to Peru compared to over double that at 439 to Chile, and two way trade is worth $282 million compared to $856 million for Chile, but the trend in terms of trade is in the right direction.

According to Australia’s Trade Commissioner in Lima, Nicholas Baker: “The mining strength of Chile is also flowing on to Peru because of the global commodity boom, but we see education, tourism and services as good sectors for Australian commercial involvement as well.”

Major resources giants like BHP Billiton, Rio Tinto and Xstrata Copper are in Peru along with smaller players like Gekko, Ryco Hydraulics and Caterpillar-Elphinstone which help provide technology, training and infrastructure to Peru’s emerging resources sector. In addition, outside mining a number of other Australian companies have a presence in Peru including Orica Chemicals and Mining, Amcor PET Packaging, Codan (radio communications) and Southern Cross Alliance (a migration service).

While in Peru, the Airport Economist was amazed by the noticeable presence of the surfwear icon Billabong among Peru’s young population, which has its own distinctive Peruvian surf culture. For example, former world champion Sofia Mulanovich is a great ambassador for the sport and was inducted into the Surfing Hall of Fame last year.

In any case, it just goes to show that from Lima to LA and from London to Lisbon, Billabong is simply everywhere and now earns more revenue offshore than more traditional Australian corporates like Westpac.

But back to Inca Kola. In the end Coca Cola got very frustrated with trying to compete with this local iconic soft drink so they bought the company, proving the adage that “If you can’t beat them, buy them!” But have no fear, Inca Kola is still being served with Chinese food – and Pisco, if you believe the locals if you attend APEC 2008 in Lima, is still proudly Peruvian!

*Tim Harcourt is chief economist of the Australian Trade Commission and author of The Airport Economist: www.theairporteconomist.com

Thanks to Patricia Teullet, Cesar Farfan and Chris Gibbs Stewart for their assistance with this article.

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