The dollar makes Ecuadorian goods expensive; what can the government do to improve the Ecuador’s competitiveness?
Minister Prado: Ecuador’s use of the dollar is an opportunity for investors. Indeed, it’s one of the country’s best assets and gives security to businesspeople because it’s a robust currency that is independent of internal monetary policy. Nevertheless, exchange rate fluctuations don’t determine the competitiveness of an economy. That depends on many other factors, such as the level of innovation, business climate, judicial security, value added by local industry and the ability to integrate into production chains.
The dollar has given Ecuador a monetary stability that without doubt generates more advantages than disadvantages. Our productive sectors have developed their competitiveness in a dollarized economy, with constant growth since 2000. In 2000, non-oil exports were worth $2.5billion, while in 2020 they reached $15billion – an annual growth of 10% for the last 20 years.
Nevertheless, Ecuador’s elevated production costs are undeniable and limit the competitiveness of key sectors. Our work in the public sector is to unblock the bottlenecks that hold back the private sector. One powerful tool in this regard is Executive Decree 68, which was signed by Guillermo Lasso on the 9th of June. That established, as public policy, the reduction of bureaucratic procedures that hinder companies – especially SMEs. This should help Ecuadorian firms save time and money.
How will you work to leverage the UK-Ecuador FTA and boost bilateral trade?
MP: In the last few years the trade balance between Ecuador and the UK has been favourable for us. This began in the first three years of the Commercial Agreement with the EU, where exports registered an average annual increase of $50million compared to the three years before the Agreement. Indeed, exports had actually been falling before that.
The UK-Ecuador Commercial Agreement has been in effect since January 2021, which means 95% of Ecuadorian products can enter the UK with zero duties. We hope that our companies make the most out of the agreement, and the early signs are positive. In just the first four months of 2021, we have already seen a big increase in non-oil exports to the UK, which are up 78% compared to the same period in 2020. That represents an extra $42million of exports.
In 2000, non-oil exports were worth $2.5billion, while in 2020 they reached $15billion
In terms of duty-free access, the conditions will continue to improve as we move through the schedule of tariff relief that is in the agreement. For our part we will continue to give training to the private sector so that it knows how to make the most of the agreement.
The best strategy to promote the agreement is to be a constant presence in the international fairs, business roadshows and trade missions, as they help to boost the image of Ecuadorian products in the UK. We want the most Ecuadorian exporters possible to explore business opportunities with British importers – and they can do that through our commercial office in London.
Where are the best opportunities for British investors in Ecuador?
MP: Ecuador is a country of opportunities in all parts of the value chain. From the development and maintenance of seaports to first-class roads and logistics services, that allow the distribution, commercialisation and internationalisation of farm and sea products to a world that demands nutrition from raw materials to finished food.
UK FDI in Ecuador is growing. In 2016 we received $34million in UK investment. By 2020 that had grown to $112million. So, for the last four years we’ve seen average annual increases in UK FDI of $20million per year. Traditionally that investment went to the extractive industries but it has evolved to the productive sectors, like industry and agriculture, which boosts our productivity and competitiveness.
According to our records, more than 85 British companies have shown serious interest in investing in Ecuador recent years. Infrastructure investors like Actis and software players like MStar Solutions see Ecuador as an interesting investment destination. We expect important FDI increases in agroindustry, renewable energy, telecommunications, tourism, and superfoods. It’s a win-win situation because international investment creates employment in Ecuador and generates return for British investors.
If a UK company does come to Ecuador, they should take advantage of the tax incentives offered by the investment contract model. They offer up to 15-years’ exemption from corporation tax and, for certain key sectors, exemption from capital remittance tax.
How has the pandemic hit Ecuador’s exports?
MP: Despite the circumstances created by Covid-19, Ecuador’s producers and exporters made massive efforts to keep their businesses going. Our products are still being sent to all of our pre-pandemic markets, keeping the same high standards as before and, of course, meeting the new biosecurity requirements.
If a UK company does come to Ecuador, they should take advantage of the tax incentives
Indeed, exports have actually gone up over the period. Non-oil exports in 2020 rose 10% compared to 2019. That trend is continuing this year, with non-oil exports from January to April 2021 up 8% compared to the same period in 2020. Among the star performers, we should highlight banana exports, which were up 12% in 2020, cacao, whose exports increased 24% and the incredible performance of balsa wood, which saw exports jump by 217% in 2020. The main increase in demand came from the US, where the value of exports rose 19%. Our exports to the EU also saw a substantial rise, up 12% in 2020 compared to 2019. Finally, our annual exports to China rose by 7%.
The Ecuadorian government has put a massive Covid-19 vaccination plan in place, which will have a positive impact on the whole economy, including exporters. It will allow this ministry to implement our plans to help the private-sector open up new international markets and boost exports of non-traditional goods. We can only do all of those things if we have an active and protected population.
Please give us a vision of Ecuador’s international trade and incoming FDI in 2030.
MP: We are beginning a new era that will define a new policy for exports and investment. As our president Guillermo Lasso has made clear, we want more of Ecuador in the world and more of the world in Ecuador. For that to happen we must improve our commercial integration with strategic partners, through better trade agreements. We will convert Ecuador into an attractive country for international investors that don’t just bring capital but also new production techniques, technology and digital platforms for our companies – in particular the SMEs. We will generate a substantial change in terms of quality, adapting to new international demands for sustainability and efficiency.
Decree 68, which I mentioned earlier, is one of the first steps towards these objectives. It creates an institutional framework helps investors by reducing unnecessary paperwork, making trade easier and cutting the indirect costs for the start-ups that contribute to improve the competitiveness of the economy. We are creating a network of sector-specific clusters that will help different industries solve their needs and problems.
We are working with a long-term vision. The strengthening of institutions through public policies will help develop and diversify our industrial base, legal security for investors, implement new commercial agreements and find opportunities in new markets.
Finally, I would like to mention that the decision to expand our network of commercial agreements that generate opportunities for our companies to access new markets, either in Latin America or further afield. Free trade deals or commercial agreements have been beneficial for countries because they expand markets, modernise production, generate employment and stimulate investment.
So, I officially invite the readers of LatAm INVESTOR to find out more about the business and investment opportunities, through our online information channels and our trade office in London.