Funding body: FIAS (Foreign Investment Advisory Service) and IFC (International Finance Corporation) – World Bank
This project follows a 2003 study by the International Finance Corporation (IFC) into ‘Municipal Administrative barriers to investment’. The project aims to update the study’s main recommendations for simplifying regulations and administrative procedures to encourage new private investment, improve the environment for business development and help formalize industries in Lima, Peru.
The project will identify the main barriers represented by procedures for construction permission to private investment, analyse Lima’s zoning regulations for the development of commercial activities, and identify the range and distribution of economic and commercial activities which actually take place in the city. The project will then identify priority areas for reducing barriers to external investment and develop more simplified regulations and administrative procedures for construction permission and registering property. The project is being carried out in collaboration with a local consultant.
Duration: April – September 2005
- Review of building regulatory framework and identification of bottlenecks.
- Analysis of official commercial zoning regulations in comparison to actual commercial activities on the ground.
- Diagnostic report followed by a report on proposals to be presented at a workshop in September 2005.
- New simplified regulatory framework for construction permission and property registration.
Following a visit to Peru in 2003 of an IFC representative it was agreed with the Government of Peru and the Metropolitan Municipality of Lima (MML), that reviews be undertaken of the existing regulatory framework affecting private sector investments in commerce and industry.
A loan from the IFC was approved and consultants appointed to review the norms, procedures and costs involved in obtaining operational licenses. The objective of this review was to identify bottlenecks, identify proposals for removing them, implement proposals, increase institutional capacity by training municipal staff and monitor the implementation of the proposals.
Among the key findings of the operational licenses study was the fact that of an estimated 50,000 economic sites that engage in economic activity within the municipality, only 13,948 have a license. There was also evidence of a high withdrawal rate associated with initiating procedures for license applications suggesting that the procedures, times and costs involved were not considered acceptable by potential investors.
These problems are particularly acute in the Historical Centre. Prior to 1971, this was the economic as well as the cultural heart of Lima. However, in 1971, constraints for development within the Historical Centre were removed in order to stimulate investment and development. As a result, many developers demolished old buildings, some of them of great historical and aesthetic merit, and replaced them with much larger structures many bearing no relationship to the adjacent buildings or their environment, and of a very poor design quality. This, together with a rapid increase in rural-urban migration which led to central Lima being swamped by street traders, accelerated a process of decline and some of the more exclusive retail businesses and a number of major commercial institutions began to move out of the Historical Centre.
To curb such inappropriate developments and protect the remaining structures and environment in the Historical Centre, a private company worked with the Municipality to prepare a submission to UNESCO for registration as a World Heritage Site. Following UNESCO recognition in 1994, guidelines were prepared for considering all applications for the use or redevelopment of buildings within the area covered. These guidelines were primarily concerned with aesthetic issues and proved excessively restrictive in terms of encouraging property owners or potential investors to refurbish or redevelop existing buildings. From a period of excessive laxity, public policy had moved to the other extreme of excessive control and over-protection which only served to accelerate the outward movement of commercial enterprises serving the upper end of the market.
When the master plan for Lima was approved in April 1999, it was required that all applications for construction licenses in the Historical Centre had to be submitted to the National Institute of Culture (INC) for approval before being considered by the municipality. This created a major procedural bottleneck and delayed many proposals. This in turn encouraged property owners and investors to either undertake work without approval or cancel their investment in the area altogether. Although applications now only need to be submitted to the INC if they relate to officially designated monuments and their environmental surroundings, many norms are widely considered to be unduly restrictive.
At present, there is an estimated 1.5 million square metres of empty buildings within central Lima and a significant proportion of this is in the Historical Centre where a large number of empty or underused buildings exist. In addition, 1334 out of 5700 buildings are in a poor state of repair and major investment is required to restore them to their former glory or even make them operational. Even the infrastructure is inadequate for the existing level of activity and water and power supplies are unreliable throughout the Historical Centre. In some cases, it might not be economically feasible to make the necessary level of investment to improve properties, given the modest and uncertain returns presently available.
The proposed zoning plan for the municipality attempts to address these issues by widening the range of activities permitted within the Historical Centre and identifying treatment areas for regeneration in other parts of the municipality. In addition to the operational licenses review, it was considered that the regulatory framework for processing construction licenses also presented a significant impediment to investment, particularly in commercial and industrial development. Consequently, the present consultants were commissioned by IFC in early April 2005 to review the norms, procedures and costs involved in obtaining construction licenses and make proposals for change.