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Peru Tourism Project (P174944) The World Bank Peru Tourism Project (P174944) Public Disclosure Authorized Project Information Document (PID) Public Disclosure Authorized Concept Stage | Date Prepared/Updated: 05-Oct-2020 | Report No: PIDC30297 Public Disclosure Authorized Public Disclosure Authorized Oct 5, 2020 Page 1 of 15 The World Bank Peru Tourism Project (P174944) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Peru P174944 Peru Tourism Project (P174944) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) LATIN AMERICA AND Dec 14, 2020 Mar 18, 2021 Finance, CARIBBEAN Competitiveness and Innovation Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Peru Ministry of Foreign Trade and Tourism (MINCETUR) Proposed Development Objective(s) Support the post-COVID recovery of the tourism industry and strengthen destination development and management in selected provinces of Peru. PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 100.00 Total Financing 100.00 of which IBRD/IDA 100.00 Financing Gap 0.00 DETAILS-NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 100.00 Environmental and Social Risk Classification Concept Review Decision Moderate Track II-The review did authorize the preparation to continue Oct 5, 2020 Page 2 of 15 The World Bank Peru Tourism Project (P174944) Other Decision (as needed) B. Introduction and Context Country Context Peru has experienced solid economic growth since 2010. Between 2010 and 2013 real GDP growth rate averaged over 6.7 percent, above the average for the South American region.1 This strong economic performance resulted from the application of structural reforms and prudent macroeconomic policies.2 However, since 2014, GDP growth rates have slowed to a little over three percent per year, mostly due to lower international commodity prices. This led to a temporary reduction of private investment, less fiscal income and a slowdown of consumption. Two factors attenuated the impact of this external shock on GDP, enabling continued growth, albeit at a slower pace. The first was the prudent management of fiscal, monetary, and exchange policies especially during the boom. This allowed the country to endure the decline in fiscal income without drastically adjusting spending and to have international reserves for an ordered adjustment of the exchange rate. Second was the surge in mining production as projects implemented during the previous years matured, which increased exports and offset the deceleration in domestic demand.3 The country has increased its dependence on extractive industries over the last 30 years. Dependency on copper and gold mining, as measured by contribution to GDP, has increased by about 50 percent. The mining sector represented 60 percent of total country exports, 60 percent of foreign exchange, and 12 percent of GDP in 2019.4 Nevertheless, the outlook for this industry is not as promising now as it was before, given the volatility in commodity prices and contracting external demand. The country's copper export volumes, for example, were down around 20 percent year-on-year in June 2020.5 The decline of commodity prices has placed increased importance on economic diversification and the development of the services sector, including tourism. Tourism presents a valuable opportunity to replace needed foreign exchange while at the same time generating jobs and incomes and spreading economic benefits more widely throughout the country. Peru suffers from a substantial imbalance in the geographic concentration of economic activity, productivity, population, and institutional capacity. Lima accounts for almost 35 percent of Peru’s population and about 65 percent of national GDP.6 1 World Bank Group, Macro Poverty Outlook Update June 2020. Retrieved from: http://pubdocs.worldbank.org/en/157051591373846452/mpo- table2-per.pdf 2 World Bank Group, Peru Overview. Retrieved from: https://www.worldbank.org/en/country/peru/overview 3 Ibid 4 Sociedad Nacional de Mineria, Petroleo y Energia. Retrieved from: https://andina.pe/agencia/noticia-actividad-minera-peru-represento-9-del-pbi- ultimos-diez-anos-763521.aspx and Gerencia de Información y Análisis Económico Gerencia Central de Estudios Económicos, Actividad Económica Febrero 2020. Abril 2020. Retrieved from: https://www.bcrp.gob.pe/docs/Publicaciones/Notas-Estudios/2020/nota-de-estudios-28-2020.pdf 5 Economist Intelligence Unit, Peru´s Country Report August 2020 6 Banco Interamericano de Desarrollo, Estimación del PIB Departamental y Análisis de la Desigualdad Regional en el Perú: 1795-2017. Retrieved from: https://publications.iadb.org/publications/spanish/document/Evoluci%C3%B3n_del_PIB_departamental_y_an%C3%A1lisis_de_la_desigualdad_reg ional_en_el_Per%C3%BA_1795-2017_es.pdf Oct 5, 2020 Page 3 of 15 The World Bank Peru Tourism Project (P174944) Women in Peru face substantial barriers to employment and economic empowerment. Analyses conducted by the World Bank Group (WBG) in connection with the Systematic Country Diagnostic (SCD), the Country Partnership Framework (CPF) and by global benchmarking (Women, Business and the Law and World Economic Forum) reveal significant economic, financial and educational gender disparities in Peru. Within LAC, Peru ranks 17th for gender parity. Although women are participating in the labor force, they are likely to be earning less, have much lower educational achievement, and are more likely to be in informal businesses. Peru has been extremely hard-hit by the COVID-19 pandemic, both from a health and an economic perspective. Peru currently has the highest number of COVID-19 deaths per 100,000 population—98 compared to 67 in the second hard-hit country (Bolivia).7 GDP is expected to contract by 12 percent in 2020, which is one of the largest predicted drops in the world.8 Interventions to curtail the spread of the virus are impeding domestic activity; lower commodity prices and contracting external demand are hurting investment and exports. Unemployment has increased from 3.6 percent in the second quarter of 2019, to 8.8 percent in the same period of 2020. At the regional level, the ILO predicts that around 41 million jobs will be lost, pushing regional unemployment levels to around 12 percent.9 Peru’s development efforts are also challenged by the observed and anticipated impacts of climate change. Peru is highly vulnerable to climate change. Observed and projected climate change impacts include rising temperatures, extreme precipitation, and more frequent and severe occurrences of natural disasters, including flooding and droughts linked to the recurrent “El Niño” and “El Niño Costero” phenomena. Sea level is expected to rise 0.5 meters by 2100 posing additional threats to coastal urban populations. These changes are expected to impact people’s health, ecosystems, and water availability, all linked to the tourism sector. Additionally, natural disasters affect tourism infrastructure. Floods and resulting mudslides weaken transportation infrastructure, road closures impede access to tourism destinations, particularly those most isolated, and heavy rains destroy cultural sites. Sea level rise could damage coastal infrastructure and can limit access to ports.10 Sectoral and Institutional Context Tourism can be an important contributor to economic recovery, growth, sustainability, and inclusion in Peru. Tourism is labor intensive, generating disproportionately high jobs for women and youth and providing opportunities for female entrepreneurship. Many tourism jobs provide entry opportunities to formal employment and the chance to acquire essential basic skills. In addition, the tourism sector is supplied directly or indirectly by several industries (e.g. agriculture, construction, transportation, retail), creating job opportunities throughout the country and in rural areas. Tourism also has the potential to foster climate-friendly economic development, as tourists are increasingly valuing sustainability. While the industry has been extremely hard-hit by the COVID-19 crisis, it has historically been resilient to shocks such as natural disasters, political disturbances, and economic crises. Prior to COVID-19, tourism demand was outpacing global economic growth. Worldwide, international tourism grew at an average of 5.6 percent p.a. between 2010 and 2019, compared to global economic growth of 3.8 percent p.a. over the 7 https://coronavirus.jhu.edu/data/mortality. Retrieved September 21, 2020. 8 World Bank (2020). Global Economic Prospects, June 2020. https://www.worldbank.org/en/publication/global-economic-prospects 9 International Labor Organization, Sharp rise in unemployment in Latin America and the Caribbean leaves millions without income. Retrieved from: https://www.ilo.org/caribbean/newsroom/WCMS_749692/lang--en/index.htm 10 WB Climate Change Portal and USAID climate change risk profile from: https://www.climatelinks.org/resources/climate-change-risk-profile-peru Oct 5, 2020 Page 4 of 15 The World Bank Peru Tourism Project (P174944) same period.11 While South America attracted over 35 million international visitors in 2019, its share of total global international visitor flows is quite small at 2.4 percent; nevertheless, its share of international tourism has been growing in line with global growth rates. In the ten-year period between 2009 and 2019, Peru’s international tourism experienced significant growth, performing well above the
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