VIEWS FROM ABOVE

Ecuador 2013 | EXECUTIVE GUIDE | INTERVIEW

TBY talks to Celso Malimpensa, Country Geographic Leader of PwC Ecuador, on the overall outlook of the economy, and legislation being passed by the government, with the collaboration of Gonzalo Argandoña, PwC Partner.

Celso Malimpensa
BIOGRAPHY
Celso Malimpensa joined PwC in 1985 in the São Paulo office. In 1989, he was promoted to manager and became a Partner in 1996. He largely worked in Brazil in a number of positions until he was appointed the Country Geographic Leader of PwC Ecuador. Malimpensa studied Accounting at university and graduated in 1982. He was also a professor for three years at FECAP, as well as a Member of the Regional Accounting Council of São Paulo.

How would you characterize the business environment for foreign investors in Ecuador?

Among the 185 economies across the globe, Ecuador ranks 139th according to the World Bank Doing Business 2013 edition, which is an increase of nine positions on the previous year's edition. The rank reflects group topics regarding evaluation criteria to determine the ease of doing business, and its feasibility. To constitute an enterprise, 13 mandatory events are necessary to fulfil all the legal and tax requirements, a process that approximately requires 56 days. Other considerations that need be taken into account at the start of business in Ecuador are: construction permits require 16 procedures and take around 128 days; registering property comprises nine mutually dependent steps, which are indispensable; paying taxes involves 654 hours per year; and enforcing a contract on the judicial level requires 39 actions and instances to occur. This approximately takes 588 days, and on average the cost represents 27.2% of the claim. From a regional point of view, Ecuador has reached an average performance whereby the country has set a precedent of locating itself in a regular Doing Business position.

What must Ecuador do to maximize its knowledge and human capital potential?

Education plays a leading role in the maximization of knowledge, and should also be seen as a key factor in the attainment of corresponding human rights, as well as in helping achieve the UN's millennium goal of universal primary education. To do this, Ecuador must constantly develop a sense of responsibility, cultivate an autonomous culture, increase students' range of possibilities, and exercise the ability to face and deal with challenging situations. Conversely, regardless of the implementation of a new legal framework for tertiary education, a more binding course of action to reach an optimal R&D for universities and colleges, as well as assuring better academic or technical studies and publications must be addressed. In other words, we need to produce knowledge, instead of just learning it, in addition to making this new data accessible in different segments of society. Therefore, more accurate information will be used as input for decision-making processes. On these grounds, the Council of Evaluation, Accreditation and Quality Assurance of the Higher Education System in Ecuador (CEAACES) promotes the continuous assessment of existing universities and colleges in order to maintain and provide proper development and sustainability criteria for the attainment of a noticeably improved service.

What is your midterm outlook on the evolution of the non-oil trade balance?

According to the Central Bank of Ecuador, the non-oil trade balance of January 2013 registered a rise in negative trade balances from $833.2 million to $863.5 million, which represented a larger non-oil commercial deficit of 3.6% than in the previous year. Additionally, at the end of the same period, compared to the previous one, the non-oil trade balance grew 37.6%, from $627.6 million to $863.5 million. Furthermore, as an expected outcome of the four-year national budget program, the Ministry of Finance of Ecuador forecasts the non-oil trade balance improving. Based on data from the Ministry for the Coordination of Economic Policy the deficit, at $8.8 billion in 2012, is estimated to rise to $8.9 billion in 2013, but then decline to $8.2 billion and $7 billion in 2014 and 2015, respectively. To be able, in the short term, to mitigate the deficit of the Ecuadorean non-oil trade balance it is advisable to open up the Ecuadorean economy to markets where domestic products, such as flowers, coffee, and seafood, have an extensive quality advantage. It would also be beneficial to intensify business and commercial relations with countries whose trade balances are largely positive.

“The overall outlook seems promising based on the bills that have been passed into law."

What are the most important specifications of the Ecuadorean Commercial Code that foreign investors should be aware of?

Effectively, the Ecuadorean Commercial Code is inadequately promoted; hence, investors are not able to fully understand the rights, obligations, and benefits enshrined in this law. Despite this, circumstance regarding the existing commercial code considers the following:

• Art. 2. - Those deemed to be merchants or traders

• Art. 3. - Trade actions (16 different types)

• Art. 7. - Who are forbidden to conduct trade actions

• Art. 26. - Period allowed to obtain business registration (15 days)

• Art. 140. - Business registration mandatory nature

• Art 154. - Ecuador geographical jurisdictional hierarchy.

Do you anticipate further changes to the legal framework for investment?

Currently, the legislative environment of Ecuador may see the approval of approximately 63 bills or drafts laws impacting certain sectors of society. Among those connected to the legal framework for investment are: the law on the securities market, the currency regime and the state bank law amendment, as well as the financial system institutions law amendment, the law for the defence of labour rights (Procedure No. 108924), and the social security law amendment (Procedure No. 121679)

Where do you foresee the main growth opportunities in the Ecuadorean economy?

In 2012, according the four-year national budget programme (2012-2015 indicates a progressive decline of GDP, until a 3.3% level has been reached by 2015. As for the various sectors of the economy, there is a positive perspective regarding infrastructure and construction. This segment of the economy has seen the highest growth over the past two years on a 15.6% average, and signifying 10% of the GDP. Finally, there are more sectors promising growth in the upcoming years, such as aquaculture, fisheries, shrimp processing and preservation, and forestry, which will altogether reach an average growth of around 15%.

What are your expectations for M&A activity in Ecuador?

The overall outlook seems promising based on the bills that have been passed into law. The most relevant industrial sectors to be consolidated due to transactions and mergers are health, finance, and education. PwC highlights the presence of regional players, for instance Brazil, Colombia, and Peru, primarily in the field of potential purchasers and acquirers in the floriculture and aquaculture, construction, retail, and tourism sectors.