TBY talks to Verónica Sión de Josse, Minister of Industry & Productivity, on Ecuador’s industrial strategy, competitiveness, and incentives.
TBY What are the main axes of Ecuador’s industrial development strategy?
VERÓNICA SIÓN DE JOSSE The government of Ecuador favors investments that will be profitable while adding value, generating social inclusion, and respecting the rights of nature, consumers, workers, and the state. Ecuador is the first country to recognize these rights as a legal body. Under these axes we are generating a productive economic model that contributes to economic growth and incorporates elements of sustainability.
How is the current administration improving the country’s competitiveness?
We are working hard to improve our efficiency and productivity alongside strong public investment to guarantee the best levels of competitiveness. Approximately 13% of GDP was dedicated in 2011 to public investments in ports, airports, and road infrastructure. Public investment in 2011 totaled $8.45 billion, and in 2012 we forecast an investment of over $10 billion. Estimated GDP growth will be between 13% and 14.18%. In roads, ports, airports, and agriculture the initial investment will be $1.22 billion. In terms of commercial policy, Ecuador is making big strides toward Asia, and many of the new investments in the country originate from there. China, South Korea, and Singapore are assisting us technically to improve our levels of development and competitiveness. We want to overcome the model that characterized Ecuador for decades, based on the extraction of non-renewable resources. Now we want to transform that model into a value-added one based on knowledge and high technology.
What are the goals of the government’s economic development model for the country?
Our model for industrial development, on top of generating value-added, will create opportunities for the development of new businesses. In the country’s last census, small enterprises were clearly identified as the engines of growth. During President Correa’s administration over 90,000 small enterprises have been created, employing between one and nine people each. In the long term, this is a development model through which the government co-finances innovation using several mechanisms in order to reinforce the productive capacity of the country. Also during the Correa administration, employment has grown by 7.59%, while the unemployment rate has been reduced to 2.19%, and underemployment to 4.71%. We have one of the lowest unemployment rates in the region.
What has the government done to incentivize private investments?
We have implemented some specific policies. The Organic Code of Production and Investments (COPSI) establishes specific incentives for investment. Through the Productive Transformation Agenda, we have selected 14 sectors that have major potential and could benefit from more incentives. The new legal body includes a general tax stimulus, such as the annual reduction of a percentage point on the corporate tax rate, which this year is at 25%. All imports made by investors, either of capital goods or raw materials, can be exempted from the payment of customs taxes. Investments that include innovation, the training of human capital, or the implementation of alternative energy resources to improve efficiency and relieve pressure on our energy matrix can also benefit from tax breaks, including a reduction for the expenses associated with the international promotion of a company and its products. Up to 100% of expenses for the acquisition of clean production facilities or the implementation of renewable energy systems (solar, wind, and others) are also tax deductible. Incentives also exist for investors in run-down zones, including the deduction of 100% of expenses for the first five years when a company is creating new jobs in an under-developed area. These incentives are in addition to sector-specific incentives already available to 14 identified sectors, including the agribusiness, automotive, chemical, pharmaceutical, textile, technology, plastics, timber, transport, software, and tourism industries.
What do the prioritized sectors have in common?
These sectors offer potential for value-added generation, taking advantage of the natural resources of the country. In addition, they are high generators of productive employment. They can also contribute to improving the levels of productivity and competitiveness in the country’s productive sector. We have the capacity and the primary resources to be able to incentivize these sectors, and on top of that they offer opportunities to the market, both national and international. Every province has a productive transformation agenda, which identifies the potential business lines, clusters, and players in the productive chain. These prioritized sectors are part of the strategy of the national logistics agenda and the national innovation agenda.
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