Chart: Peru’s cities need to find alternatives to mining

The Yanacocha gold mine near Cajamarca, Peru. Image: Euyasik at Wikimedia Commons

It would be fair to say that, in terms of its natural resources, Peru won the lottery. It’s sitting on veins of copper, gold, zinc, and silver, which, we probably don’t need to tell you, are pretty good news for a country’s economy.

For the past four years, in fact, Peru’s GDP has grown at an average of 7 per cent annually, and since 2004, poverty levels have halved from 50 per cent to under 25 per cent, according to the Peruvian Association of Banks. It’s also been ranked second only to South Korea by Wall Street experts for its ability to resist shocks to the economy - literally sitting on top of a massive source of wealth probably helps.

However, mining is an incredibly labour-intensive industry, and Peru can’t sustain this level of growth forever. Over the past 50 years, its population increased by 73 per cent, massively inflating its working age population. Over the next 20 years, however, it's only expected to increase by 12 per cent. As today’s population gets older, the number of those who can work labour-intensive jobs won’t increase at the rate it has done for the past half century. 

As a result, economists warned this year, the mining industry can only expect to carry on at its current levels for another 15 years. At the Gold and Silver Symposium earlier this year, economist and politician Pedro Pablo Kuczynski said “Peru, demographically, has its best years ahead of it. But it’s only 15 years, so we can’t lose even a single day.”

The solution? Cities are trying to diversify their economies away from mining. Here’s a chart comparing the mining and manufacturing sector in a few of the largest ones:

Share (%) of manufacturing, mining and utilities in total GDP. Source: CityMetric Intelligence.

Lima, Peru’s largest city and its industrial and financial centre, already had a pretty diverse economy, in which mining and manufacturing only accounts for around 20 per cent of its GDP. The city produces large amounts of textiles, agricultural products (they apparently make an awful lot of fish oil tablets) and food, which account for most of its mining and manufacturing sector – even if the metals market crashes, Lima’s economy should survive.

Arequipa, on the other hand, is one of the most mining-reliant in the country (it’s in the top four Peruvian regions for exports of silver, copper and gold). But since 2008, the graph shows it’s diversified into something that isn’t manufacturing. Turns out, that something is IT. David Chandler, an ex-Google developer, recently set up his new company, the Zuriel Corporation, in Arequipa, and Silicon Valley companies like Zagile have also set up operations there. Companies are attracted by the city’s professional population and the nine universities offering technical subjects.

Country-wide, there are plans to install a massive fiber-optic system in 2016, which would make it possible for Peru’s other cities to expand their IT sectors, too. IT is far less labour intensive than mining or manufacturing – and that’s good news for Peru’s aging population.

 
 
 
 

The Adam Smith Institute thinks size doesn’t matter when housing young professionals. It’s wrong

A microhome, of sorts. Image: Wikimedia Commons.

The Adam Smith Institute has just published ‘Size Doesn’t Matter’, a report by Vera Kichanova, which argues that eliminating minimum space requirements for flats would help to solve the London housing crisis. The creation of so-called ‘micro-housing’ would allow those young professionals who value location over size to live inside the most economically-active areas of London, the report argues argues.

But the report’s premises are often mistaken – and its solutions sketchy and questionable.

To its credit, it does currently diagnose the roots of the housing crisis: London’s growing population isn’t matched by a growing housing stock. Kichanova is self-evidently right in stating that “those who manage to find accomodation [sic] in the UK capital have to compromise significantly on their living standards”, and that planning restrictions and the misnamed Green Belt are contributing to this growing crisis.

But the problems start on page 6, when Kichanova states that “the land in central, more densely populated areas, is also used in a highly inefficient way”, justifying this reasoning through an assertion that half of Londoners live in buildings up to two floors high. In doing so, she incorrectly equates high-rise with density: Kichanova, formerly a Libertarian Party councillor in Moscow, an extraordinarily spread-out city with more than its fair share of tall buildings, should know better.

Worse, the original source for this assertion refers to London as a whole: that means it includes the low-rise areas of outer London, rather than just the very centrally located Central Activities Zone (CAZ) – the City, West End, South Bank and so forth – with which the ASI report is concerned. A leisurely bike ride from Knightsbridge to Aldgate would reveal that single or two-storey buildings are almost completely absent from those parts of London that make up the CAZ.

Kichanova also argues that a young professional would find it difficult to rent a flat in the CAZ. This is correct, as the CAZ covers extremely upmarket areas like Mayfair, Westminster, and Kensington Gardens (!), as well as slightly more affordable parts of north London, such as King’s Cross.

Yet the report leaps from that quite uncontroversial assertion to stating that living outside the CAZ means a commute of an hour or more per day. This is a strawman: it’s perfectly possible to keep your commuting time down, even living far outside of the CAZ. I live in Archway and cycle to Bloomsbury in about twenty minutes; if you lived within walking distance of Seven Sisters and worked in Victoria, you would spend much less than an hour a day on the Tube.

Kichanova supports her case by apparently misstating research by some Swiss economists, according to whom a person with an hour commute to work has to earn 40 per cent more money to be as satisfied as someone who walks. An hour commute to work means two hours travelling per day – by any measure a different ballpark, which as a London commuter would mean living virtually out in the Home Counties.

Having misidentified the issue, the ASI’s solution is to allow the construction of so-called micro-homes, which in the UK refers to homes with less than the nationally-mandated minimum 37m2 of floor space. Anticipating criticism, the report disparages “emotionally charged epithets like ‘rabbit holes’ and ‘shoeboxes,” in the very same paragraph which describes commuting as “spending two hours a day in a packed train with barely enough air to breath”.


The report suggests browsing Dezeen’s examples of designer micro-flats in order to rid oneself of the preconception that tiny flats need mean horrible rabbit hutches. It uses weasel words – “it largely depends on design whether a flat looks like a decent place to live in” – to escape the obvious criticism that, nice-looking or not, tiny flats are few people’s ideal of decent living. An essay in the New York Times by a dweller of a micro-flat describes the tyranny of the humble laundry basket, which looms much larger than life because of its relative enormity in the author’s tiny flat; the smell of onion which lingers for weeks after cooking a single dish.

Labour London Assembly member Tom Copley has described being “appalled” after viewing a much-publicised scheme by development company U+I. In Hong Kong, already accustomed to some of the smallest micro-flats in the world, living spaces are shrinking further, leading Alice Wu to plead in an opinion column last year for the Hong Kong government to “regulate flat sizes for the sake of our mental health”.

Amusingly, the Dezeen page the ASI report urges a look at includes several examples directly contradicting its own argument. One micro-flat is 35 m2, barely under minimum space standards as they stand; another is named the Shoe Box, a title described by Dezeen as “apt”. So much for eliminating emotionally-charged epithets.

The ASI report readily admits that micro-housing is suitable only for a narrow segment of Londoners; it states that micro-housing will not become a mass phenomenon. But quite how the knock-on effects of a change in planning rules allowing for smaller flats will be managed, the report never makes clear. It is perfectly foreseeable that, rather than a niche phenomenon confined to Zone 1, these glorified student halls would become common for early-career professionals, as they have in Hong Kong, even well outside the CAZ.

There will always be a market for cheap flats, and many underpaid professionals would leap at the chance to save money on their rent, even if that doesn’t actually mean living more centrally. The reasoning implicit to the report is that young professionals would be willing to pay similar rents to normal-sized flats in Zones 2-4 in order to live in a smaller flat in Zone 1.

But the danger is that developers’ response is simply to build smaller flats outside Zone 1, with rent levels which are lower per flat but higher per square metre than under existing rules. As any private renter in London knows, it’s hardly uncommon for landlords to bend the rules in order to squeeze as much profit as possible out of their renters.

The ASI should be commended for correctly diagnosing the issues facing young professionals in London, even if the solution of living in a room not much bigger than a bed is no solution. A race to the bottom is not a desirable outcome. But to its credit, I did learn something from the report: I never knew the S in ASI stood for “Slum”.