Economic and Political Outlook of Ecuador and Future Prospects
Finncham interviewed Mr Galo Abril-Ojeda, Executive President (CEO), Nordic Ecuadorian Chamber of Commerce.
Economic and Political Outlook
Nowadays, a political and economic stability may be in sight since the recently elected President, Lenin Moreno, is trying to open its public policies towards an integration with Ecuadorian private companies, to boost the country´s productive sector. This, given that the previous 10 year left-winged presidential mandate (considering a half way reelection that took place in 2013) focused on developing several basic infrastructure projects and socially beneficial policies, but breaking apart most incentives towards the private sector.
According to IMF estimates (World Economic Outlook, October 10, 2017) even if most countries around the world are showing signs of a strong economic recovery, the rate of growth of the Ecuadorian economy during 2018 may only be 0.6%. A very poor recovery if the stagnation of -1.6% registered during 2016 and the 1% growth estimated for 2017 by the Economic Commission for Latin America (CEPAL) are taken into consideration.
However, the IMF estimate for Ecuador in 2018 differs from the 1.3% presented by CEPAL (December 15, 2017) and from the 1.8 – 2.0% published by the Ecuadorian Central Bank. The Ecuadorian optimism regarding a higher rate of economic recovery mainly relates to the new governmental economic program that includes a growing public expenditure on social assistance programs, financed with a growing Foreign Debt (in order to fulfill the general elections campaign promises); to the foreign remittances from Ecuadorians working abroad and, to some extent, to the higher international prices for Ecuadorian commodities, excepting oil, registered during the last two quarters of 2017.
Even if oil exports stand for the highest public income source of Ecuador and considering that barrel prices have been quickly increasing lately (currently close to USD 60/barrel), these oil price increases will not benefit the Public Sector´s financial situation according to statements from the Ministry of Hydrocarbons. This is due to the fact that practically 100% of the exportable Ecuadorian oil (120 million barrels for 2018) has already been sold in advance to mainly Chinese and Korean companies. In the 2018 Governmental Budget, around 20% of its total has been assigned to pay the fast growing public foreign debt service, currently representing about 60% of GDP.
The poor economic performance of Ecuador during the last two years has to some extent affected its rate of employment, nowadays around 4% (official estimates). However, if the fact that almost half of the employed labor force, 48%, has “non-appropriate jobs”, reflected in insufficient salary levels, the conditions at the labor market have to be considered as something larger than just a problem. One of the most affected sectors is construction, which significantly employs labor force moving from rural to urban areas.
The newly established Government presented an economic adjustment program with a human focus avoiding measures with major impact on real incomes or public employment of lower and middle income groups. However, both industrial and commerce chambers have criticized the economic program arguing that it does not change the economic strategy applied by the former “left-wing Government” with serious unfavorable impact on investment levels that the actual Government had promised to change. New investments in key sectors like oil, telecommunications, agriculture and similar have the lowest rates of annual growth compared to most countries in the region.
Furthermore, actions taken by governmental and judicial authorities against corruption in public companies and the open invitation to private enterprisers to invest in the country within a framework of structural reforms, democracy and respect for human rights, are expected to significantly increase foreign direct investments (FDI) in Ecuador. According to different recent polls, around 70% of the population do accept President Moreno´s political conduct.
As we have seen so far, the Government is taking different measures in order to increase confidence in foreign investors, particularly of those interested in the “strategic sectors” and infrastructure in general, which have traditionally been in hands of public companies.
Finnish companies with technologies directed to improve energy efficiency, to reduce the use of fossil fuel changing to renewables, i.e. reusing waste to energy are very welcome (waste problems with sever health and social consequences are actually an acute growing problem in most Ecuadorian cities).
IT companies, companies in telecommunication, forestry, housing and infrastructure in general as well as consulting companies connected to these sectors and specialists in export promotion are most welcome.
How to enter the Ecuadorian market as an exporter or as an investor?
Similar to the rest of Latin American countries, getting to know the business environment and how to deal with public institutions is key to a successful entrance to the Ecuadorian market.
Ecuador is a country full of business opportunities, both for large scale infrastructure or similar projects and for taking advantage of a considerable size of potential customers. Even if the country´s economy and population are not as big as in other countries in the region, there is a large group of potential customers or users that know about the existence of a whole world of new product and service solutions around the globe, but currently has no access to it. The reason is simple: the supply has not arrived yet.
The optimal way to enter the country will most likely require some assistance from local counterparts. Further than just relying on local legal professionals that may assist in setting up a company and its tax and social benefit obligations, it is recommended for an entering company to explore for local experts in its specific field of operations. Even though legislation stating a company´s obligations are quite clear, from imports to local tax revenue practices, it is known that these operations may commonly get delayed if the company isn’t properly assessed by professionals in the field. Time efficiency as well as related operative costs may quickly rise, risking the company´s forecasted cash flow.
A very similar scenario is also applied for investment plans. In both cases, finding a partner is highly recommended, but finding the right one is critical in order to reach a fast high-growth scenario.
How the Nordic Chamber of Commerce can help Finnish companies?
Being able to analyze a potential entrance to the Ecuadorian market requires an assessment with a local perspective. The Nordic Ecuadorian Chamber of Commerce will not only assist Finnish companies or investors in exploring the opportunities surrounding a specific field of business, but will do it understanding that Nordic and Ecuadorian points of view can differ in critical aspects of a business plan. From our experience, this is a key factor that will determine a project´s failure or its success.
With our broad network in Ecuador, our Chamber can support interested parties in approaching local and national authorities, associations and other stakeholders, as well as provide assessment in finding and evaluating key players as potential counterparts. Size is always important, but a company´s reputation, networking abilities and growth potential will also play a significant role when choosing a business partner.
We will be glad to take all inquiries and assist any company looking for comments on business opportunities or more in-depth services. Our chamber looks to go beyond just matchmaking; we understand both cultures, we explore, analyze and advice. Success stories can even be told by multinational companies such as Wartsila, whose size, knowledge and history didn´t stop them to rely on us for local directions. Accepting that every single country is a different environment, their trust on us has helped them penetrate the Ecuadorian market establishing solid grounds and executing high growing projects.