How can you make sustainability one of Ecuador’s competitive advantages?
Minister Prado: We have developed one of the most important competitiveness strategies in the history of the country – Ecuador Competes. When we were making that plan we decided to make sustainability an integral theme. That means there isn’t a specific sustainable programme, instead sustainability is embedded in everything we do.
Ecuador is a mega biodiverse country, whose main non-oil exports come from agriculture, aquaculture and fishing. Given the state of the world at the moment it is really important that every product we export complies with the best standards, allowing us to reach the top markets. Sustainability isn’t something that is fashionable for a moment, it is the building block of everything we are doing at this ministry. As a result, we cooperate closely with our colleagues in the Ministry of Environment.
Ecuador attracts low levels of foreign direct investment; can sustainability reverse that trend?
MP: Over the last decade, annual FDI in Ecuador has represented an average of 0.6% of GDP, which makes us one of the lowest recipients of foreign direct investment in the region. Part of the problem is historic, because previous governments didn’t believe in attracting FDI, as they were keen to drive economic growth with public investment. There is nothing wrong with state investment but right now Ecuador needs both. So, we are currently trying to attract new international investment and retain those foreign investors that are already in the country.
I think it is really important for the future of Ecuador that we don’t just attract any investment but strive to receive sustainable capital. We want projects that protect labour rights, the environment and democracy. This government is trying to do things in the right way. We want investment that is aligned with our competitiveness strategy and values. We want to boost our green economy and attract capital to our solar, wind and biomass energy projects. Already three international investors – two from Spain and one from France – have pledged to invest more than $500million in the renewable energy projects here in Ecuador.
So, do you make sustainability part of your trade agreements?
MP: It depends on the agreement. For example, our deal with China is only related to trade, it doesn’t look at investment, environmental practices, or labour rights. In other free trade agreements, for example our deals with Costa Rica, Mexico and South Korea, we have a sustainable element. These are next level agreements, where there are clauses to work together to cooperate on environmental issues and protect workers’ rights.
We are keen to open up access to the US market because we are the only country on the Pacific Coast of the Americas that doesn’t have a deal with the USA. We think the fastest way to solve that is not through a new trade deal but by specific protocols. The first trade protocol will be linked to commerce, removing non-tariff barriers. Then following protocols will be linked to labour rights, conservation, investment protection and fair trade. We are currently negotiating an FTA with Canada that will have really high standards.
At present the UK is a top-ten trade partner for Ecuador but we can do much better in terms of exports, imports and investment. We have seen some improvement on the investment side with UK companies signing investment contracts in mining and renewable energy projects. But the UK is still underrepresented here when you consider the size of its economy. With global supply chains being disrupted there is a great opportunity for the UK to source sustainable products from Ecuador for better prices than it is currently getting from elsewhere.
Are you frustrated that the good work of your ministry is being undermined by problems elsewhere in the government?
MP: I am frustrated that we can’t proceed more rapidly in attracting the investment we identify. We think that Ecuador, with the government it has, the strong economy and its potential in mining, renewable energy and exports, should be advancing much more quickly with these projects. But frustration on its own won’t solve anything. Three weeks ago, we launched a new programme called Productive Roundtables (mesas productivas) to solve the bottlenecks that are hindering investments. It’s a successful initiative that has worked in Costa Rica and Peru and it allows companies to highlight unnecessary red tape, perhaps being caused by poor coordination between ministries or with the entities that issue permits.
The president has a vision of attracting investment and realising projects. One hurdle is that there are too many bureaucrats in the public sector, as they were created by previous governments. That can create an institutional inertia that stops projects from happening. But by targeting problems we have made some institutions more efficient. One success story was the public laboratory service. A positive indicator, that indicates international investor optimism about Ecuador, is the amount of investment contracts that we have signed. In the last 18 months we have signed $7billion of investment contracts, which is more than the combined total of the previous eight years.
In recent years Ecuador has issued thematic bonds; could sustainable finance transform the economy?
MP: Those thematic bond issues demonstrate the potential of sustainable finance in Ecuador. I was president of Ecuador’s Banking Association for six years and I started one of the first sustainable finance projects. Back then the local banks were reluctant to get involved in sustainable finance but now the five largest banks in Ecuador all have impressive sustainable commitments and projects. When you look at the likes of Banco Guayaquil or Pichincha, sustainability is at the core of what they do. The limiting factor in Ecuador now is not demand, as the banks are keen to increase their sustainable investments, but the supply of projects.
I think the trade deals that we are signing will help encourage local companies to create more sustainable projects. That’s because many of these deals force our producers to meet international best practice to access new lucrative markets. Our shrimp industry has already shown this can be done in Ecuador. Thirty years ago the shrimp sector was almost wiped out by white spot disease. But it has since recovered and now accounts for almost 9% of GDP. That generates $9billion of value for the country across the value chain. The success of our shrimp is sustainability as it is 100% organic while we use blockchain technology to ensure the traceability of every shrimp that is sold abroad.
Where are the sustainable investment opportunities in Ecuador?
JJP: Ecuador is one of the most biodiverse countries in the world meaning it offers many opportunities for green production. We want investors from the UK to come here and show us how to use our excellent soil, location, sun, freshwater and other factors to create high-value, sustainable products. From a political and macroeconomic point of view there is no better place to invest right now. We have one of the lowest rates of inflation in the world and we have a president with a strong vision of free trade and open investment. Moreover, we are working constantly to improve the conditions for international investors. You don’t see all of those factors in one Latin American country. I invite your readers to come now. They shouldn’t wait until everything in Ecuador is perfect – the opportunity is now.
Even if a new government comes to power in 2025, most of the changes we have made will stay. Take trade agreements for example. At present Ecuador only has ten such deals and they give access to 40% of the world economy. Our new deals with China, Costa Rica and South Korea, will take us to 60%. Then if we sign agreements with the US, Canada and the Dominican Republic, our exporters will have tariff-free trade with 80% of the global market. That would put us on a par with Chile, Peru and Colombia, so it would be hard for a new government to reverse. I also think our competitiveness strategy, which has created 20 sector-specific clusters, will prove durable. Because even if a new government scraps the strategy, the clusters, which are made up of private-sector firms, will continue to thrive.