The government of Ecuador under President Guillermo Lasso has adopted an ambitious economic reform agenda to drive investment. Private sector leaders in Ecuador emphasize the “Lasso Effect” in investment given the surge of optimism following the April 2021 election of the region’s most pro-business president in decades. “More Ecuador in the world and more of the world in Ecuador” – President Lasso’s key message for his presidency – includes the administration’s drive to attract $30 billion in investment over his four-year administration. Indeed, investment is growing – with both international and domestic companies searching for opportunities in this traditionally protectionist market that once garnered little attention compared to neighbors Colombia and Peru. Public-private partnerships (PPPs) are the cornerstone of the administration’s investment drive, including the establishment of a PPP Secretariat and the consolidation of PPP-related tax rules and regulations.
The Ecuadorian government is taking positive steps to improving fiscal stability. In September 2020, the International Monetary Fund approved a $6.5 billion, 27-month Extended Fund Facility for Ecuador and has already disbursed $4.8 billion to aid in economic stabilization and reform. The IMF program is in line with the government’s efforts to correct fiscal imbalances and to improve transparency and efficiency in public finance. The Ecuadorian Central Bank reported solid GDP growth of 4.2 percent in 2021 and projects 2.8 percent GDP growth in 2022. The Ecuadorian government remains committed to the sustainability of public finances and to continue a fiscal consolidation path. The fiscal deficit narrowed to 3.5 percent of GDP in 2021 (from over 7 percent of GDP in 2020) and is expected to narrow further to a little over 2 percent of GDP in 2022 due to improved tax collection, prudent public spending, and high oil prices.
Still, the Lasso administration faces major challenges to its investment agenda given the country’s long-term reputation as a high-risk country for investment. A challenging relationship with the National Assembly complicates the passage of needed economic reform legislation. While the administration’s November 2021 tax reform passed into law, the National Assembly soundly defeated President Lasso’s proposed investment promotion bill March 24. Serious budget deficits and the COVID-induced economic recession force the government to employ cost cutting measures and limit public investment. Ecuador has traditionally struggled to structure tenders and PPPs that are bankable, transparent, and competitive. This has discouraged private investment and attracted companies that lack a commitment to quality construction, accountability and transparency, environmental sustainability, and social inclusion. Corruption remains widespread, and Ecuador is ranked in the bottom half of countries surveyed for Transparency International’s Perceptions of Corruption Index. In addition, economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.
Ecuador is a dollarized economy that has few limits on foreign investment or repatriation of profits, with the exception of a currency exit tax. It has a population that generally views the United States positively, and the Lasso Administration has expanded bilateral ties and significantly increased cooperation with the United States on a broad range of economic, security, political, and cultural issues.
Sectors of Interest to Foreign Investors
Petroleum and Gas: Per the 2008 Constitution, all subsurface resources belong to the state, and the petroleum sector is dominated by one state-owned enterprise (SOE) that cannot be privatized. Presidential Decree 95 published July 2021 opened private sector participation in oil exploration and production, with a goal to double oil production to 1 million barrels per day by 2028. The government can offer concessions of its refineries, sell off SOE gasoline stations, issue production-sharing contracts for oil exploration and exploitation, and prepare the SOE to be listed publicly on the stock market. The government maintained its consumer fuel subsidies since May 2020. The Ecuadorian government plans three oil field tenders in 2022 including concessions for Intracampos II and III and Block 60–Sacha. Given its declining and underdeveloped gas fields, the government plans to launch a tender for its Amistad offshore gas field. Additionally, the government announced potential tenders for a South-East concession, a private operator for the Esmeraldas refinery, and another to build and operate a new Euro 5 quality refinery.
Mining: The Ecuadorian government plans to accelerate mining development to increase revenues and diversify its economy. Presidential Decree 151, published August 2021, seeks to promote private sector participation in mining exploration and production. The decree allows for private sector investment, joint ventures with the state-owned mining enterprise (SOE); seeks to combat illegal mining; and establishes an Advisory Board to guide the government on best practices for responsible mining. The government announced plans to relaunch its mining cadastre in 2022, which was closed in 2018 due to irregularities in granting concessions. Ecuador has two operating mines — a gold mine operated by a Canadian company and a copper mine operated by a PRC-affiliated company. In 2021 the government issued two new mining concessions and announced plans to issue concessions for 12 additional strategic mining projects.
Electricity: Hydroelectric electricity accounts for 80 percent of Ecuador’s electricity generation. The PRC-built 1500 MW Coca Codo Sinclair (CCS) hydro power plant designed to provide 30 percent of Ecuador’s electricity has never generated its total installed power capacity and has been undergoing repairs since it began operating in 2016. CCS is also at risk from regressive erosion from the adjacent Coca River. The government contracted U.S. Army Corp of Engineers engineering services December 2021 to develop a solution to mitigate the river erosion. The government plans to develop wind, solar, hydro, biomass, biogas, geothermal, biofuel, combined cycle, and gas-fired electrical generation plants to diversify the energy matrix. It awarded a 200 MW solar tender and a 110 MW wind tender to private operators in 2020. It launched tenders for a 500 MW renewable energy block, a 400 MW combined cycle power plant, and a Northeast Interconnection transmission line in December 2021. The government imported its first LNG cargo December 2021 followed by a second shipment in February 2022.
Telecommunications: The Lasso administration is prioritizing rural connectivity as its major telecommunications policy. In mid-2021, the Ministry of Telecommunications (MINTEL) received from the International Telecommunication Union (ITU) the valuation report for the 2.5 GHz (gigahertz) and 700 MHz (megahertz) bands. The cost set is reserved. Likewise, MINTEL asked the ITU for the valuation of the 3.5 GHz, 850, 900 AWS and 1900 bands, which in turn will allow new players in the market and the future deployment of the fifth generation of technologies (5G). Three 5G technology connectivity tests have taken place in Ecuador, though there is no target date for the beginning of 5G commercial operations. Ecuador is due to renegotiate the concession contracts with the mobile network operators, which expire in 2023. New terms and conditions of the concession rights and use of frequencies are currently in the works including technical, legal, and regulatory requirements. The current negotiations do not include the frequency bands for the 5G network and are instead focused on the frequencies currently assigned to operators.
E–Commerce: In 2020, E-Commerce sales reached $2.3 billion record sales, an overnight digital transformation due to the pandemic. In 2021, according to Ecuador´s Electronic Commerce Chamber, E-Commerce sales grew 20 to 40 percent ($460 to $920 million, approximately). While many Ecuadorians are interested in purchasing online, they are limited in their ability to receive international shipments due to logistics and customs problems upon arrival in Ecuador. The Ministry of Production launched the National E-Commerce Strategy in 2021, establishing a framework for facilitating the digital transformation in the country. The strategy focuses on strengthening the current legal framework, capacity building for small and medium enterprises (SMEs), and improving logistics and payment gateway capabilities. Since the issuance of the National E-Commerce Strategy, no new regulations have entered into force to facilitate its application and the objectives set forth therein. The government is also promoting the development of the Andean Digital Agenda together with the other Andean Community countries, whose update will be promulgated in the first half of this year.