Import substitution is opening up Ecuador's market to local producers, and playing a crucial role in changing the production matrix.

For Ecuador to change its productive outlay to a more complex system based on human resources and technology, its manufacturing sector will need to grow. This in turn will require the opening of new markets, which may prove complicated given the defensive nature of Resolution 116, which restricts imports on 293 items in an effort to prevent capital flight, while reducing the country's reliance on foreign imports that can be produced locally. In 2012, measures were passed to reduce the import of foreign cars by 30%, abolish mobile phone imports, and institute a slew of other protective measures, much to the chagrin of the country's trading partners. And while these changes have many business owners expressing concern, the changes are a crucial part of President Correa's plans to stimulate manufacturing in the country. With oil prices far below their 2008 peak, local manufacturing could shave billions from Ecuador's trade deficit over the years. This revival will not happen overnight, however, as the manufacturing sector's recent contributions to GDP growth have been limited. In 2011-2012, most of the country's growth was driven by the utility industries and construction sectors. During this same period, the manufacturing sector contributed only 7% to total growth. Building on manufacturing's importance for economic growth and stability, the government's policy focuses on expanding domestic supply capacity to correct Ecuador's lopsided productive outlay. The successful implementation of industrial policy should strengthen supply, and raise demand due to an increased income from higher-value labor.


For many industrializing nations, automobile assembly or manufacturing plays a crucial role due to the number and complexity of components required. Given Ecuador's tight import restrictions and pro-manufacturing stance, an indigenous car industry could bolster growth across the sector. In addition, an established car culture could spur the growth of related financial, service, and leisure industries. However, this scenario is predicated on access to a large enough market, sufficient investment, and the presence of skilled workers and engineers. According to some in the Ministry of Production, this scenario is not only possible but also imminent. The country already has local auto manufacturing capabilities with the capacity to produce 80,000 units per year, as of 2013. The car manufacturing landscape is further broken down into three major players: Aymesa, which assembles for the likes of Hyundai; Maresa, which works with Mack, Fiat, Mitsubishi, Ford, Toyota, and Mazda, in a wide variety of models; and Omnibus BB, which produces for GM and Chevrolet. In 2013, car sales fell by 6% to 113,812 units, but of these sales, 55,509 were assembled domestically from completely knocked down (CKD) kits, according to the Asociación de Empresas Automotrices del Ecuador. However, the Economist Intelligence Unit expects these numbers to pick up again in 2014-2015. Production from Ecuador's four assembly plants, which hit a record high of 81,398 units in 2012, fell 16% in 2013.

In 2012, Ecuador exported $265 million worth of delivery trucks, and GM has a facility in Quito that assembles vehicles for the local, and export market. Speaking to TBY, Fernando Agudelo of GM Ecuador explained that in 2014, GM would complete the final expansion stage of their manufacturing and assembly facilities, where a $70 million budget has been allocated over three years to boost productivity and quality, develop new products, and attract investors to the auto parts segment. As part of this initiative, GM is increasing the production of local parts, including axles and drive shafts, but local industry is not yet at the level required to meet the demand for new-car sales. However, GM is no longer alone in the national market place. Hyundai's mid-size Mighty truck was launched into CKD-based production in April 2012 at the Aymesa plant near Quito. The plant is expected to reach production of 3,500 units this year. The trucks will also be sold in neighboring Venezuela, and production is slated to expand to 8,000 units by 2017. As well, the Great Wall company from China is also looking to start CKD production in Ecuador over 2014.


With Resolution 67 of 2012, the Ecuadorean market is effectively closed to imports of most mobile phones, which has opened up space for domestic manufacturing. In 2014, Yezz unveiled the first smartphone manufactured in Ecuador. The Andy 3.5 is a 3.5-inch phone that runs on the Android operating system. The Andy 3.5 boasts up to 1 Gb of memory, a 5 mega-pixel rear camera and a 2 mega-pixel front-end camera, all for around $200. The phones are made at the Ecuadorean Development and Electronic Manufacturers (DMEE) facility in the industrial sector of Carcelén. While current capacity is limited to 35,000 units per month, the goal is to reach 70,000. According to El Commercio, Yezz phones are produced using 13% local components, while lower end phones are comprised of up to 24% local parts. With the Andy 4 and Andy 5 expected to start production by the end of 2014, up to $1 million more in investments is expected. While Yezz is grabbing headlines, a total of six local manufacturers are working to establish their presence in the newly created national market. Lidenar manufactures phones and other communications equipment. The company has invested over $1 million and started operations in Cuenca, with 30 new employees including graduates from the universities of Azuay. As of late 2014, the plant was producing 15,000 units monthly at 30% capacity. Another Ecuadorean firm, Alphacell, opened a plant in 2014 that will boost its output of low-end phones. This new venture is a departure from the company's previous line of business, which previously focused on importing and marketing. Developments at companies like Alphacell seem to indicate that President Correa's policies are receiving a response from the business community.


In 2012, Ecuador exported $156 million worth of textiles, driven in large part by the country's proximity to major North and South American markets. In Ecuador, the region of Atuntaqui is renowned for its textile and garment production, where 80% of the region's employment is tied to textile production. In 2013, the government announced that it would be investing $2.6 million to set up a Center for Development of Textiles and Apparels at Atuntaqui. The establishment of the center is part of Ecuador's efforts to strengthen the technical capacity, productivity, efficiency, and competitiveness of the country's textile and garment industry. The move is also a response to a steady decline in textile exports since 2011. This decrease is reflected in jobs numbers in the industry, which only grew by 1%, to 123,044 in 2012, up from 121,850 direct workers in 2011. Meanwhile, imports outpaced exports, which suggests room for growth in domestic production. Beginning with textile imports of around $400 million in 2009, imports have grown to $500 million in 2010, and $785 million in 2011. In 2012, however, textile imports dipped to $741 million in conjunction with a dip in exports, and a reduction in the overall textile trade imbalance. At the same time, Ecuador's primary competitors are seeing their production costs rise. In China, minimum-wage increases pushed up labor costs by 5% to 15% in 2010. Meanwhile, the Chinese government has set a target for annual minimum wage increases of 13% until 2015. These numbers have led the Asociacion de Industriales Textiles del Ecuador (AITE) to call for more government spending to promote Ecuadorean products abroad through ProEcuador or the Institute for the Promotion of Exports and Investments. Using these organizations, and establishing more free trade agreements (FTAs), Ecuador can capitalize on its comparative advantage in textiles to increase employment and reduce its deficit.