In recent years, the majority of FDI coming into Ecuador has been sourced from ambitious companies in Asia, launching large-scale exploration and extraction initiatives in the energy and mining sectors of the country. International organizations have also been interested in funding social projects in Ecuador. However, Ecuador has plenty on offer for a variety of foreign investors in many sectors of the economy; in addition to the thriving natural resource extraction industry, the construction, agriculture, and tourism sectors are just a few of the areas in which foreign investors can find business opportunities. With chambers of commerce, government entities, and local businesses striving to push Ecuador into the spotlight, in 2012 the country is set to receive increased attention as a prime FDI destination.
FDI inflows grew significantly by end-2011, up to over $560 million from less than $160 million the previous year. According to Minister of Economic Policy Coordination Jeannette Sánchez, “we expect a continuation of the historical trend of such investments being directed toward the energy sector. Foreign investments are typically allocated toward large strategic projects, and this year we will develop several programs to satisfy the needs of investors.”
With the introduction of the government’s pilot Production Code in 2011, Ecuador is aiming to accelerate the process of establishing special economic zones and providing tax incentives for potential foreign investors. The code incorporates both general and specific categories for investment incentives, essentially “guaranteeing” FDI returns by acting as a contract between the Ecuadorean government and foreign investors. The document states “the incentives an investor is entitled to and confirms where arbitration will take place. Following this agreement, the investor signs a contract for up to 15 years. Within the code, we guarantee investments and protect foreign investors,” related Santiago León, Minister of Coordinator of Production, Employment, and Competitiveness. The country’s current account deficit prompted the establishment of the code, which the Ecuadorean government anticipates will mitigate trade imbalances and incentivize investments in new sectors. Joaquín Carvajal, Chairman of the Board at the American Chamber of Commerce Guayaquil, told TBY in an interview “these measures will definitely boost FDI in Ecuador… FDI in Peru and Colombia reaches around $4.6 billion and $6.5 billion respectively.” This disparity emphasizes the need for more comprehensive regulation for potential FDI partners.
In terms of the mining industry, Chinese enterprises are paving the way into the country with large-scale private investments in many regions. One such company is Ecuacorriente, which signed a five-year contract of $1.7 billion to develop a copper mine in the Amazon region called El Mirador. Chinese companies have also developed hydropower projects and oil and gas projects in the country, signing agreements in 2010 for investments pledging $5 billion over the coming decade.
The Ministry of Tourism has employed a different approach to attracting FDI, inviting businessmen from around the globe to experience Ecuador’s wide selection of investment opportunities. “We have welcomed delegations from Singapore, Qatar, and other countries in the Middle East,” Freddy Ehlers, Minister of Tourism, told TBY in an interview. “At the same time, we are inviting large multinational corporations to come over and develop large projects in our rich territory.” Some of the companies that the Ministry is targeting include airlines and large international chains. “Ecuador offers a high return over the medium to long term, and a great sectorial growth margin,” Ehlers concluded.
Local economist Pablo Lucio Paredes also sees Ecuador as a wealth of possibilities for investors in almost every sector, owing largely to the country’s prime demographic: a young and dynamic population. In addition to energy and mining, “the construction sector has a lot to offer and plenty of room to grow… and all the sectors related to consumerism are offering opportunities,” he explained.
© The Business Year