Cell phone use in Peru is far advanced. In 2013 there were almost thirty million people living in Peru and there were also almost thirty million cell phones in use in Peru. Cell phone penetration is at 99.5%. Does everyone have a cell phone? No, about a quarter of the population don’t have cell phones, but there are people with two cell phones, especially in the cities. Those who don’t have their own cell phone usually have access on family members’ phone or a friends phone. There are plenty of phones and the expansion has happened rapidly. In 2007 there were half as many cell phones in Peru as there are today.
Why is cell phone penetration important? It means the quality of economic life is improving. Economic opportunity for individuals is available on a broader basis than without all those cell phones. According to a study done at the Federal Reserve Bank of St. Louis mobile phone expansion at the village level in rural Peru has increased household real consumption by eleven percent, reduced poverty incidences by eight percent and decreased extreme poverty by 5.4 percent. And, these benefits seem to be shared by every household whether they have a cell phone or not.
It’s certain cell phones make a difference. But how is this happening? Cell phones cost people money to obtain and after purchase they are an ongoing expense in order to stay connected to the network. Peru is not a rich country, it’s GDP per capita is noticeably below the South American average and Peru’s land line development is the third lowest in South America, behind Bolivia and Paraguay. Networking and communications open a door for economic growth sometimes with the use of micro-finance. Since 2006 slightly over sixty thousand people in Peru have received or requested micro loans through Kiva (dot) org. The Kiva website breaks down the areas of interest for the loans and even offers profiles of each loan request.
Many of the loans are for agriculture, retail, transportation, construction and food. And many of the loans are to individuals of disadvantaged and vulnerable group backgrounds. The Andean mountain Indians and people of the Amazon jungle are part of those individuals and they are also the poorest part of Peru’s population. The government in Peru has struggled to learn the ways of opening up to international trade and business competition. Peru has a growing economy, although is starts from a low baseline. The expansion of their fossil fuel, natural gas and mineral production has fostered prosperity, but not everyone has benefited. Peru’s indigenous people, especially those living away from the cities are frequently poor.
Almost twenty-eight percent of the population lives below the poverty line. Successful economic development in Peru, as in most places, is a matter of not only finding a path to economic growth, but also a path to an equitable distribution of growth opportunities. The Peruvian government is attempting to do both. The breakdown of employment in Peru involves less than one percent in agriculture, about twenty-four percent in industry and a whopping seventy-five percent in service industries. It’s the export of minerals, oil and natural gas that are growing the economy. That export is to China, Vietnam, the United States, Mexico and other South American countries. But heavy industry requires electricity, so the expansion of Peru’s electrical needs is not driven by consumer needs as much as it is by industrial needs. Rural people and especially the indigenous people are concerned about this part of the development path. They see the way mining defaces the land and power plants drive up Co2 levels as a problem that might mean the new growth is not worthwhile.
In response, the government is spending money to expand solar energy development in rural areas. The mountains in Peru are a huge impediment to expanding power lines as part of a single unified grid, just as those mountains impede telephone lines from expanding into rural areas. By promoting competition among free enterprise to expand the power grid and mobile telephone availability, the government is producing growth and infrastructure development. Then it subsidizes expansion of these networks into rural areas as a way of distributing opportunity more broadly. And, as I noted earlier, according the U.S. Federal Reserve Bank this strategy is having success. Income levels in rural areas are rising.
Growth And Politics
The combination of electricity and cell phones in rural areas produces positive economic growth among the poor in the Andes mountains and in among the poor in the Amazon jungle on the eastern side of the Andes. It’s important to create growth in these places because that is where the oil and mining industries are most active. The growth of heavy industry is visible in these rural places. Scared mountainsides where mining occurs and pollution from oil drilling and power generation show up in the Amazon regions. On top of these local environmental problems, global warming has produced glacier shrinkage in the Andes mountians, which is very noticeable in the electric grid. The rivers that drive hydroelectric plants are all feed from glaciers and as the glaciers recede hydroelectricity declines. People notice.
In the bigger picture, Peru is at the center of global commodities demand. Asian countries are seeking sources for oil and minerals and Peru has opened up to foreign investment, about twenty percent of which is now coming from China. During this growth period there is opportunity for outside investors to profit by investing in companies involved in Peru’s infrastructure development. The key to how long this growth will continue is political. As long as the government continues to simultaneously develop industry for mineral and oil export and also devise means of distributing economic opportunity to rural areas Peru’s economy should continue to grow.
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