TBY talks to Francisco Rivadeneira, Vice-Minister of Foreign Trade & Economic Integration, on diversifying exports, gaining access to new markets, and the country’s gourmet produce.
TBY How would you assess Ecuador’s global exports in the context of the economic slowdown seen in the US and Europe?
FRANCISCO RIVADENEIRA In general terms the Ecuadorean economy—like most Latin American economies—is in quite good shape, even though we just passed through the first global crisis. Ecuador was able to pass through that crisis without much of an impact on its macroeconomic equilibrium, and there were no significant effects felt on exports in sector terms. Currently, Ecuador is growing. In the first half of 2011 it recorded GDP growth of 8.7%, which is very good, and we think that this will be sustainable. We estimate we’ll be able to grow at a rate of at least 6% a year for the next 10 or 15 years. Besides having oil and gas, we are now going to develop the mining sector, and we think that this will herald a second boom for the economy. The first boom was when we discovered oil in the 1970s and developed that industry. We have now discovered significant reserves of gold, copper, and other important metals like titanium and silicon and are looking for foreign investors to come in from different areas of the world, such as Australia, South Africa, Canada, Europe, and the US, so we can develop that sector. This should ensure economic stability for the upcoming years, and also positively affect the export side of the economy.
Is this positive growth trend also being seen in the non-oil export sectors?
When you break down our export figures and take out oil and gas, then you see that Ecuador has shown an increase in its non-oil export sectors as well, which we tend to divide into two subgroups. First, there are the traditional products that we have exported historically, such as bananas, seafood products (particularly tuna and shrimp), coffee, and cocoa, and they have continued to increase both in terms of volume and value. Second, there are the new sectors that we have been developing, especially on the agro-industrial side. We have become one of the main providers of these products to the world, such as is the case for cut flowers, but this is also increasingly the case for tropical fruits like mango and pineapple, as well as products from temperate climates such as broccoli and other fresh vegetables.
The US Andean Trade Promotion and Drug Eradication Act (ATPDEA) has recently been extended until July 2013. Do you have any plans for the post-ATPDEA era in trade terms?
In the case of the ATPDEA program, the range of goods we could export through that mechanism is very large, but in practice there are very specific products we export. Most of our products enter under “most favored nation” status, under the same conditions as everybody else. And the main products we export to the US go via this route, including oil, bananas, cocoa, coffee, and seafood. Of course, there’s an effect on those sectors that are covered by ATPDEA. Products like broccoli have been negatively affected, and also mango juice and products using mangos, quinoa, and pineapple exports, but in broad terms there hasn’t been much of an effect. Our intention is to have an agreement on trade with the US. We have told the Obama administration that we are interested in reaching an agreement, but the Ecuadorean government is not interested in signing a classical free trade agreement. The type of agreement Ecuador is currently promoting includes three pillars: a trade pillar, a political pillar, and a cooperation pillar. That doesn’t imply that we want to negotiate all three pillars at the same time; we could do it separately at different times. However, we should always maintain a certain relationship between political matters and cooperation matters, especially on the economic and trade side.
What are the main challenges in trying to gain access to markets in Asia?
Asia is a critical market. Ecuador needs to be in Asia, the Asia-Pacific basin, and India. Southeast Asian nations as well as Northeast Asia nations—especially China—are important for us. Everybody is looking to the Asian market because it’s the fastest-growing market, and the only market outside Latin America that will continue to grow. That won’t be the case for Europe and the US over the next few years. Our main problem is logistics; we’re too far away from key markets, and we don’t have the right logistics to reach them. We have to go all the way to Los Angeles or to the Atlantic, or go around Africa. Latin American countries are generally not very competitive due to transport costs. Specifically talking about Ecuador, we have a very similar export offer for Southeast Asian countries. Bananas are one good example. Ecuador was once the main provider to China and Japan for many years. Now we export almost none. This is because China developed its own banana industry, and because the Japanese have switched to buying them from the Philippines. It’s very difficult for us to compete on price terms in part because of the cost of transport. We are seeing a similar trend in coffee, with Vietnam developing its own coffee growing industry. Malaysia and Thailand have excellent shrimp industries, while Malaysia and Indonesia are the biggest palm oil producers in the world. In the field of wood products we see a similar trend, with construction materials and furniture produced in the region at competitive prices. So it’s very difficult for us to export from here and remain competitive. The other problem is the fact that we have very similar offerings, and most of these countries have no tariffs on trade because they are part of ASEAN, and they basically have a free trade zone in the region. On all the products we export, we have to pay tariffs.
How do you plan to overcome these challenges?
First we have to see where we can become more competitive on pricing and transport, and we’re working on that. However, in the short to medium term the solution is simple. We have to go and market our products as being the highest quality of their type in the world. We have to tell consumers in that area of the world that if you buy Ecuadorean bananas, cocoa, coffee, palm oil, broccoli, shrimp, tuna, flowers, and others, you are buying gourmet products. These are products that are considered the best of the best in Europe and the US. We have to invest in marketing and try to obtain a premium on the price by selling products as the best and attack those segments of the economy that have high purchasing power. That’s what we’re working on now. We have been able to position a lot of our products based on this strategy, though not in big volumes, and obtain a better price. And it’s true that most of these products are considered to be among the best of their type in the world.
© The Business Year