Blues for the Peruvian Miracle
According to the World Bank, from 2002 to 2013, Peru’s economy grew annually at an impressive average rate of 6.1%. This is much higher than its neighbors Colombia (4.56%) and Chile (4.55%), and far above the regional average of 3.4%. Poverty rates fell from 52.2% in 2005 to 26.1% in 2013, the equivalent of 6.4 million people escaping poverty (World Bank.) But people are not optimistic that the so-called “Peruvian Miracle” can keep going at the same pace. From 2014 to 2017, growth slowed to 3.0%. The Peruvian economy is heavily dependent on commodities exports, so the end of the commodities boom and falling global demand for copper and iron have reduced growth.
BBVA, a bank, projects that the economy will grow at a rate of 3.9% in 2019 and 3.7% in 2020. The World Bank projects that growth in the medium term will be around 4.0%. (These numbers may look good for more developed economies but are mediocre for emerging markets trying to lift their population’s living standards.) And these projections may be overly optimistic, considering the Peruvian economy’s vulnerability to external conditions. China and the United States are Peru’s main trading partners, so China’s slowdown and the trade war between the two can negatively impact its economy. Things will get even worse if the United States enters a recession, the US Dollar continues to strengthen, and international financial conditions tighten.
The country’s intractable political crisis doesn’t help sound policymaking. After a series of clashes with the legislature, President Vizcarra recently announced his intention to call for early congressional and presidential elections. The move seeks to send home a congress that has refused to pass the anti-graft reforms the country desperately needs. Making things murkier, several former Peruvian presidents have been enmeshed in the corruption scandals involving payments from Brazilian construction company Odebrecht. Alan García, a two-time president, took his life when the police arrived at his house to take him into custody as part of the Odebrecht investigation.
With the Peruvian Miracle apparently coming to an end and the country’s political crisis making policy measures more difficult to implement, there’s a fair level of anxiety in the legal market about the cloudier outlook. This anxiety may be warranted. The boom years created a more competitive market. With growth slowing down, more players will have to compete for less business.
In this environment, many firms’ greatest enemy will be confusion and lack of clarity about who they are and what their business is. When the going gets rough, some firms tend to get nervous and become prone to doubting their model and shooting themselves in the foot. Classic examples in our markets include boutiques that decide to become “full-service,” thus losing their distinctiveness, firms that have traditionally pursued higher-end work going for lower-end matters just to keep people busy, and firms that adopt suicidal pricing “so we don’t lose clients.”
While confusion and distraction will lead some firms to join the downward march toward market irrelevance, others will be smart enough to adjust their strategies to the new realities, find new ways of being relevant to their clients, and commit to superb client service. Firms will have to choose which group they want to join.