Over recent years, Ecuador’s economic and business environment has experienced a radical transformation, with national infrastructure being built on a grand scale to provide a base for the country’s economic future. The government’s “National Plan for Living Well,” implemented in 2009, has established priority areas for social expenditures, strategic sectors, and the more efficient utilization of the country’s extensive natural resource base. To date, President Rafael Correa’s administration has succeeded in reducing poverty levels and unemployment among the 15 million-strong population, though challenges remain in reshaping the business environment in order to promote growth in the private sector and attract FDI. Ecuador’s GDP was estimated to be $67 billion in 2011, with growth in oil and commodity revenues helping to rebuild the economy in the wake of the global financial crisis, which hit the country in 2009.
Under Correa’s presidency, efforts have been intensified to strengthen and diversify political and economic ties with Latin America, Europe, and Asia, with China emerging as a strong investor in the local economy. Since 2000, Ecuador has maintained stable macroeconomic figures, with dollarization assisting in ensuring fiscal discipline. Inflation has remained under control, unaffected by the uncertainties of past currency devaluations. These improvements have coincided with important advances in national infrastructure provision, which have done much to stimulate investment and development. In addition to the new emphasis on providing improved port infrastructure along the Pacific coast, the expansion of the road network into the Amazon region is helping to open up new areas for development.
Ecuador boasts significant resources in the mining and oil and gas sectors that have still not been explored. With the renegotiation of oil contracts in late 2010, public and private investments in the sector are expected to increase, as well as production levels. Ecuador rejoined the Organization of Petroleum Exporting Countries (OPEC) in 2007, adding its 7.2 billion barrels in reserves to the membership pool.
Two significant projects are transforming Ecuador’s energy sector and are providing the country with a solid foundation for future economic development. The $12.5 billion Refinery of the Pacific project is currently high on the agenda, and its anticipated completion in 2013 is expected to eliminate Ecuador’s reliance on imported oil derivatives and allow the nation to become an exporter of refined oil products as well as fertilizers and other hydrocarbon precursors. In addition, the $2 billion Coca Codo Sinclair hydroelectric power project envisages the generation of 1,500 MW of electricity, enough to meet 75% of the country’s needs.
The mining sector has been slow to take off in Ecuador, though its potential is huge with the presence of large-scale proven copper and silver reserves, and an estimated $185.4 billion in mineral reserves at current international prices. The government has entered into negotiations with multinational mining companies interested in moving from an exploratory phase into production in 2012.
A founding member of the Andean Community, Ecuador enjoys customs preferences for its exports to Colombia, Venezuela, Peru, and Bolivia. Additionally, thanks to an agreement the country has with the Common Southern Market (MERCOSUR), it can export nearly 4,000 products tariff free to Latin American giants Brazil and Argentina. Through the Andean Trade Promotion and Drug Eradication Act (ATPDEA), the country is also able to export more than 6,000 products tariff free to the US. Ecuador is also looking to negotiate a trade deal with the EU aimed at creating an association agreement, sending out positive signals on the future trading potential of the Andean nation.
With the largest concentration of rivers per square kilometer, Ecuador is designated as one of only 17 mega-diverse countries in the world by Conservation International, while the Galápagos Islands, made famous by Charles Darwin’s research, further add to Ecuador’s potential as a tourist destination. With the “Rights of Nature” enshrined in Ecuador’s 2008 constitution, the country will only continue to grow on the global eco-tourism map.
The country’s climatic conditions also facilitate the harvesting of agricultural products all year round. This has enabled Ecuador to become one of the world’s primary exporters of bananas and plantains, and a major exporter of cocoa. The exports of non-traditional agricultural products, such as flowers and broccoli, have also gained importance over recent years.
Following the bicentennial celebration of Ecuador’s independence in 2009, the country is now looking to strengthen its level of economic diversification, boost trade levels, and redefine its strategic base for the coming decades.
© The Business Year