Inter-Oceanic Highway goes nowhere in boosting trade

18 February 2017

Much in the news because of the corruption associated with the granting and amending of contracts to build the Inter-Oceanic Highway, less attention has been given to the use made of this hugely expensive infrastructure project.

The Inter-Oceanic Highway, which cost some US$1.8 billion to build all-told, linked the road system of southern Peru with that of the western states of Brazil. It meant building and upgrading the road connection between Puno and Cuzco and the frontier crossing at Iñapari and then on to Rio Branco.

It formed one of three integration projects, the others linking Paita (in Piura) through to Manaos (a combination of road and river links), and from Lima to Cruzeiro do Sul in Acre. Both of these projects have effectively been abandoned, leaving the Inter-Oceanic Highway, inaugurated in 2011, as the only terrestrial link.

The justification for the project is that it would at once provide access to the Pacific ports to Brazilian exporters of minerals and bulk agricultural commodities (like soya) while giving Peruvian exporters access to the Brazilian market. The volume of trade between Peru and Brazil, limited to air and sea cargoes, was always very small. The Inter-Oceanic Highway was also supposed to encourage greater integration of energy markets between Peru and Brazil.

At its maximum, the Inter-Oceanic Highway has so far accounted for only 2% of bilateral trade between Peru and Brazil since it was opened. The vast majority of commercial flows continue to be carried by sea. In spite of several meetings to promote trade by land, the flows have remained stubbornly low. According to the Customs Office in Puerto Maldonado, the annual value of the export trade over the last few years has not exceeded US$2.7 million.

The main reason for this is cost. It remains cheaper to ship a container from Lima to Sao Paulo by sea than by road. Also the complex system of customs checks between Brazilian states provides a further disincentive.

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