The government of Ecuador under President Moreno has focused on reducing the size of the public sector and its influence on the economy and sought private sector investment to drive economic growth. Facing serious budget deficits and the economic fallout from the COVID-19 pandemic, the Moreno Administration rationalized the size of government, merged ministries, and reduced the number of state-owned enterprises. Other cost-cutting measures include reducing fuel subsidies and reducing the number of public employees. Still, Ecuador is saddled with a very large public sector, and Moreno has committed to continue government spending on social welfare programs. In September 2020, the International Monetary Fund approved a $6.5 billion, 27-month Extended Fund Facility for Ecuador, and has already disbursed $4 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 economy will likely be slow to recover as the Central Bank estimates an 8.8 percent GDP contraction in 2020 and 3.1 percent projected growth in 2021. By the end of 2020, only 34 percent of the eligible working age population was fully employed.
To increase private sector engagement in the economy and attract Foreign Direct Investment (FDI), the Ecuadorian government passed a Productive Development Law containing tax incentives in 2018 to spur investment, changed tax and regulatory policies for mining, and issued new Public-Private Partnership regulations to increase private investment in infrastructure projects. Ecuador is a dollarized economy that has few limits on foreign investment or repatriation of profits, with the exception of a five percent currency exit tax, and is actively seeking foreign investors. It has a population that views the United States positively, and the Moreno Administration has expanded bilateral ties and significantly increased cooperation with the United States on a broad range of economic, security, political, and cultural issues.
Despite these efforts, FDI inflow to Ecuador has remained very low compared to other countries in the region, due to a number of problems, most notably corruption. Ecuador is ranked in the bottom third of countries surveyed for Transparency International’s Perceptions of Corruption Index. President Moreno declared the fight against corruption as a top priority. The independent judicial branch prosecuted government officials, including two of Moreno’s former vice presidents, as well as individuals involved in the Odebrecht and other corruption scandals. Ecuador’s highest court upheld convictions against former President Rafael Correa and 19 others in 2020 for a bribery scheme involving contributions by private companies to finance his political party illegally. Economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.
Sectors of Interest to Foreign Investors
Petroleum: 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. To improve efficiencies, the government may offer concessions of its refineries and issue production-sharing contracts for oil exploration and exploitation. The government has gradually reduced its consumer fuel subsidies since May 2020 by aligning domestic fuel prices with international prices. The Ecuadorian government held a successful public tender for oil production-sharing contracts (Intracampos I) in 2019 and reportedly plans to move to production sharing contracts as the standard for future tenders.
Mining: The Ecuadorian government has reduced taxes in the mining sector to attract FDI. Presidential Decree 475, published in October 2014, reduced the windfall tax and sovereign adjustment calculations. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector. The previous Correa administration also developed mining sector incentives such as fiscal stability agreements, limited VAT reimbursements, remittance tax exceptions, and mechanisms for companies to recover their investments before certain taxes are applied.
Electricity: The government plans to offer concessions to develop wind, solar, hydro, biomass, biogas, geothermal, biofuel, combined cycle, and gas fired electrical generation plants to further diversify the energy matrix. It is also exploring possibilities to connect to the electrical grid the oil and shrimp sectors, which largely use independent generation capacity, and improve the cross-border electrical transmission connection with Peru. Non-hydro renewable energy projects in Ecuador are eligible for U.S. International Development Finance Corporation (DFC) financing.
Telecommunications: The government is finalizing the valuation model for 4G bands (700 and 2.5ghz) following consultations with the International Telecommunications Union and the U.S. Federal Communications Commission. Ecuador’s telecommunications regulator Arcotel plans to publish the new valuation model as well as an updated fee schedule for telecommunications services by the end of April 2021. The spectrum auctions for the 4G bands will take place under the new administration as well as any 5G valuation model, deployment, and commercial rollout. The current government is considering a concession of the state-owned telecommunications company CNT, as well as diversification of its core network hardware away from Chinese vendors.
E–Commerce: In 2020, ECommerce sales comprised approximately two percent of Ecuadorian GDP – one percentage point higher than in 2019. The COVID-19 pandemic provoked an overnight digital transformation in the country changing consumer habits and business strategies. 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.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Ecuador is open to FDI in most sectors. The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or -controlled companies. The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony (i.e. flora, fauna and ancestral knowledge). Although in recent years Ecuador took steps to attract FDI, its overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change. From January to September 2020 (latest information available), FDI flows to Ecuador amounted to USD 897 million, 45 percent more than 2019 levels (USD 619 million) but still 36 percent lower than 2018 levels (USD 1.4 billion). FDI continues to be lower compared to other countries in the region.
There are no laws or practices that discriminate against foreign investors, but the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador. Under the prior Correa administration, disputes involving U.S. companies were politicized, especially in sensitive areas such as the energy sector. This resulted in several high-profile international investment dispute cases, with companies awarded damages in international arbitral rulings against Ecuador in the last few years. In addition, several cases are pending final arbitral rulings.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities are allowed to establish and own business enterprises and engage in all forms of remunerative activity, with limitations in strategic sectors as enumerated in the Constitution. There are no investment screening mechanisms for inbound investment, and the Ecuadorian government actively seeks international investors. One hundred percent foreign equity ownership is allowed.
For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax. All license and franchise agreements must be registered with the National Service for Intellectual Property Rights (SENADI). In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador’s Central Bank for statistical purposes.
In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).
In 2018, Ecuador folded ProEcuador (https://www.proecuador.gob.ec/), the entity that is responsible for promoting economic development through exports, imports, and investment in Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP). ProEcuador is now a Vice Ministry within MPCIEP and has 27 offices in 23 countries, including three in the United States. Ecuador is ranked 129th out of 190 countries in the World Bank’s Ease of Doing Business report for 2020, with particularly low rankings for Starting a Business (177), Resolving Insolvency (160), and Paying Taxes (147).
A newly created company will at a minimum be required to register with the Superintendence of Companies, Securities, and Insurance (http://www.supercias.gob.ec/), the municipal government, the Internal Revenue Service, and the Social Security Institute. The registry with the Superintendence of Companies is a completely online process as of April 2019. The incorporation of companies in Ecuador grew almost eight percent in 2020 (10,800 new companies), propelled by the introduction of the simplified joint-stock company (SAS). The SAS came into effect in May 2020 following the enactment of the Organic Law on Entrepreneurship and Innovation.
Ecuador does not restrict domestic investors from investing abroad. ProEcuador (see above) is responsible for promotion of outward investment from Ecuador. Foreign investments are subject to a currency exit tax of five percent.
In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial dealings in tax havens and other suspect jurisdictions. The list includes several U.S. states and territories that do not have state income taxes. The prohibition entered into force in September 2017.
The United States and Ecuador signed the Protocol on Trade Rules and Transparency in December 2020 under the Ecuador-U.S. Trade and Investment Council Agreement (TIC). The agreement updates the TIC with new annexes in four areas: Trade Facilitation and Customs Administration, Good Regulatory Practices, Anti-Corruption, and SMEs. The Protocol awaits legislative ratification (as of April 2021).
2. Bilateral Investment and Taxation Treaties
Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawal from our Bilateral Investment Treaty (BIT) on May 18, 2017, effective May 18, 2018. Investments made prior to withdrawal are covered for 10 years, but the abrogated BIT covers no new investments in Ecuador.
Ecuador signed in June 2018 a Comprehensive Economic Partnership Agreement with the European Free Trade Association, which includes Switzerland, Norway, Liechtenstein, and Iceland. The Ecuadorian National Assembly ratified the agreement in April 2020. The accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and Peru became effective January 1, 2017. In May 2019, Ecuador, Colombia, and Peru signed the United Kingdom-Andean Countries Trade Agreement to ensure trade continuity with the United Kingdom following its exit from the European Union. Ecuador’s National Assembly approved the Ecuador-UK Trade Agreement in July 2020 and it entered into force on January 1, 2021. Ecuador concluded limited trade agreements with El Salvador and Nicaragua in November 2017. Ecuador is negotiating a Strategic Cooperation Agreement with South Korea. Ecuador also is in the process of finalizing a new trade agreement with Mexico that would permit it to negotiate membership in the Pacific Alliance.
Ecuador is negotiating a Tax Information Exchange Agreement with the United States. Ecuador does not have a bilateral taxation treaty with the United States.
3. Legal Regime
Transparency of the Regulatory System
While there is a focus within the Moreno administration to improve transparency and government accountability, progress has been slow. Economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador. National and municipal level regulations can conflict with each other. Regulatory agencies are not required to publish proposed regulations before enactment, and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement toward public consultative processes. Government ministries generally consult with relevant national actors when drafting regulations, but not always and not broadly.
The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/. Publicly listed companies generally adhere to International Financial Reporting Standards (IFRS). While there are some transparency enforcement mechanisms within the government, they tend to be weak and rarely enforced.
There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.
International Regulatory Considerations
Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia, Colombia, and Peru. Ecuador is an associate member of the Southern Cone Common Market (MERCOSUR). Ecuador is a member of the World Trade Organization (WTO) and notifies draft regulations to the WTO Technical Barriers to Trade (TBT) Committee. Ecuador ratified the WTO Trade Facilitation Agreement on October 16, 2018.
Legal System and Judicial Independence
Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its susceptibility to political and economic pressures constitute challenges faced by U.S. companies investing in Ecuador. While Ecuador updated its Commercial Code in May 2019, enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.
Laws and Regulations on Foreign Direct Investment
Ecuador does not have laws specifically on FDI, but several have effects on overall investment. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector. The Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions. The Productive Development Law of 2018 enumerates tax incentives for new investments and investments in rural or border areas. ProEcuador’s website https://www.proecuador.gob.ec/ provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.
Competition and Antitrust Laws
The Superintendence of Control of Market Power reviews transactions for competition-related concerns. Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes mechanisms to control and sanction market power abuses, restrictive market practices, market concentration, and unfair competition. The Superintendence of Control of Market Power can fine up to 12 percent of gross revenue companies found to be in violation of the law.
Expropriation and Compensation
The Constitution establishes that the state is responsible for managing the use and access to land, while recognizing and guaranteeing the right to private property. It also provides for the redistribution of land if it has not been in active use for more than two years.
The Article 101 of the 2015 Telecommunications Law grants permission for the occupation or expropriation of private property for telecommunication network installation provided there are no other economically viable alternatives. Service providers must assume costs associated with the property’s expropriation or occupation.
ICSID Convention and New York Convention
Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010. Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). The 2018 Productive Development Law clarifies the permissibility of international investor-state arbitration under the 2008 constitution and includes provisions permitting arbitration at venues within Latin America.
Investor-State Dispute Settlement
Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date of May 18, 2018. The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent 10 years. There have been numerous claims against Ecuador under the BIT that have gone to international arbitration. There are two active cases awaiting a final decision.
International Commercial Arbitration and Foreign Courts
Several U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims. The Government of Ecuador in the past treated these disputes as a political issue, speaking negatively about investors involved in these cases. Payment of arbitration awards generally takes longer than a year, although the Government of Ecuador has paid all final awards. Ecuador’s 2008 Constitution limited investor-state arbitration to regional arbitration entities and was the primary driver of the 2017 termination of BITs.
Ecuador is ranked 160 out of 190 in the category of Ease of Resolving Insolvency in the World Bank’s 2020 Ease of Doing Business Report. With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset. The provisions do not apply to homes with a market value of more than 500 times the basic monthly salary (currently USD 200,000) or vehicles worth more than 100 times the basic monthly salary (currently USD 40,000).
In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it takes about six months for the auction to take place. World Bank’s Doing Business Report estimates that foreclosure proceedings result in costs equal to about 18 percent of the value of the estate in question, and a recovery rate of 18.3 cents on the dollar.
4. Industrial Policies
In August 2018, the National Assembly approved the Productive Development Law that provides income tax exemptions and VAT exemptions to attract investments, good for 12 years in all areas except the cities of Quito and Guayaquil, where it is 8 years, and border regions, where it is 20 years. In December 2015, Ecuador’s National Assembly approved a Public-Private Partnership law intended to attract investment. The law offers incentives, including the reduction of the income tax, value added tax, and capital exit tax, for investors in certain projects. It designates Latin American arbitration bodies as the dispute resolution mechanism. The law came into effect upon publication in the Official Registry on December 18, 2015. The Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on December 30, 2014, provides tax incentives related to depreciation calculations and income tax rates, which could benefit some foreign investors. The Ecuadorian government is moving toward a Public-Private Partnership model to attract investments particularly in the energy and transportation sectors but does not yet offer sovereign guarantees or joint finance on those projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
The 2010 Production Code authorized the creation of Special Economic Development Zones (ZEDEs) that are subject to reduced taxes and tariffs. The government considers the extent to which projects promote technology transfer, innovation, and industrial diversification when granting ZEDE status. Foreign-owned firms have the same investment opportunities as national firms.
Performance and Data Localization Requirements
Nationally the government does not mandate local employment. However, the Organic Law of the Amazon, approved by the National Assembly on May 21, 2018, mandates that any company, national or foreign, operating within the area covered by the law (the Amazon Basin) must hire at least 70 percent of their staff locally, unless they cannot find qualified labor from that area. The 2015 Organic Law for the Special Regime of the Galapagos (LOREG) and its regulations enacted in April 2017 include the mandatory hiring of local residents. The law stipulates non-residents can be hired only if companies demonstrate there are no local candidates with the required skill set.
There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. Companies can currently transmit data freely into and out of Ecuador, and there are no requirements to store data within the country. The National Assembly is considering a draft data protection bill that may include high fines for data protection infractions, prior consent for cross-border data transfer, and parental consent requirements.
On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters. Article 148 of the Code establishes that agencies must give preference to open-source software with content developed in Ecuador when procuring software for government use. Executive Decree 1073 of June 2020 mandated an order of preference when procuring software for the government: 1) Open-Source; 2) Ecuadorian-Developed; 3) Software with Some Ecuadorian Content; and 4) Internationally-Developed.
Visa and residency requirements are relatively relaxed and do not inhibit foreign investment.
5. Protection of Property Rights
Ecuador ranks 73rd out of 190 in the 2019 World Bank’s Doing Business Report’s category for Ease of Registering Property. Foreign citizens are allowed to own land. Mortgages are available and the recording system is generally reliable.
Intellectual Property Rights
Enforcement against intellectual property infringement remains a problem in Ecuador.
In April 2016, the United States Trade Representative (USTR) moved Ecuador from Priority Watch List to Watch List in its annual Special 301 Report on intellectual property, and Ecuador has remained on the Watch List since then. In December 2020, SENADI issued implementing regulations for the Code of Knowledge, Creativity, and Innovation Social Economy (Ingenuity Code) – the legislation that covers intellectual property rights. Nonetheless, SENADI has limited enforcement capacity and remains hampered by a lack of funding and personnel due to budget cuts. The Ingenuity Code itself also requires reform to address several gaps limiting effective IP enforcement.
Piracy of computer software and counterfeit activity in brand name apparel is widespread, and enforcement is weak. Pirated CDs and DVDs are readily available on many streets and in shopping malls, and copyright enforcement remains a significant problem. The Bahia Market in Guayaquil is mentioned in USTR’s 2020 Review of Notorious Markets for Piracy and Counterfeiting. A lack of ex-officio authority for the Ecuadorian Customs Service limits its scope of action to seize IPR infringing products, and there have been few enforcement actions to protect IPR. SENADI was established in January 1999 to handle patent, trademark, and copyright registrations. SENADI reports information on its activities on its website at http://www.propiedadintelectual.gob.ec/.
The 2014 Law to Strengthen and Optimize Business Partnerships and Stock Markets created the Securities Market Regulation Board to oversee the stock markets. Investment options on the Quito and Guayaquil stock exchanges are very limited. Sufficient liquidity to enter and exit sizeable positions does not exist in the local markets. The five percent currency exit tax also inhibits free flow of financial resources into the product and factor markets. Foreigners are able to access credit on the local market, but interest rates are high and the number of credit instruments is limited.
Money and Banking System
Ecuador is a dollarized economy, and its banking sector is healthy. According to the Ecuadorian Central Bank’s Access to the Financial System Report, approximately 59 percent of the adult (over 15 years old) population (6.9 million people) has access to a bank account. Ecuador’s banks hold in total USD 47.9 billion in assets, with the largest banks being Banco Pichincha with about USD 12.2 billion in assets, Banco del Pacifico with about USD 6.9 billion, Banco de Guayaquil with about USD 5.7 billion, and Produbanco with about USD 5.4 billion. The Banking Association (ASOBANCA) estimates 2.7 percent of loans are non-performing. Foreigners require residency to open checking accounts in Ecuador.
Ecuador’s Superintendence of Banks regulates the financial sector. Between 2012 and 2013, the financial sector was the target of numerous new restrictions. By 2012, most banks had sold off their brokerage firms, mutual funds, and insurance companies to comply with Constitutional changes following a May 2010 referendum. The amendment to Article 312 of the Constitution required banks and their senior managers and shareholders with more than six percent equity in financial entities to divest entirely from any interest in all non-financial companies by July 2012. These provisions were incorporated into the Anti-Monopoly Law passed in September 2011.
The Organic Monetary and Financial Code, published in the Official Registry September 12, 2014, created a five-person Monetary and Financial Policy and Regulation Board of presidential appointees to regulate the banking sector. The law gives the Monetary and Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. The Code also established that finance companies had to become banks, merge, or close their operations by 2017. Of the 10 finance companies in Ecuador, two became banks, six closed their operations or are in the process of closing, and two were absorbed by other financial institutions. There are 24 private banks in Ecuador as of December 2020.
Electronic currency appeared in 2014 with the approval of the Organic Monetary and Financial Code, which established the exclusive management of the system by Ecuador’s Central Bank. In 2017, with the approval of the Law for the Reactivation of the Economy, Strengthening of Dollarization and Modernization of Financial Management, electronic currency management was transferred to private banks. The Central Bank issued Regulation 29 in July 2012 requiring all financial transfers (inflows and outflows) to be channeled through the Central Bank’s accounts. In principle, the regulation increases monetary authorities’ oversight and prevents banks from netting their inflows and outflows to avoid paying the five percent currency exit tax.
Foreign Exchange and Remittances
Ecuador adopted the U.S. dollar as the official currency in 2000. Foreign investors may remit 100 percent of net profits and capital, subject to a five percent currency exit tax. There are no restrictions placed on foreign investors in transferring or repatriating funds associated with an investment.
Resolution 107-2015-F from Ecuador’s Monetary and Finance Board issued in July 2015 exempted some payments to foreign lenders from the capital exit tax. Among other requirements, the duration of the loan must be more than 360 days, the loan must be registered with the Central Bank, and the resources must be destined for specific purposes, such as to fund small businesses or social housing.
The Financial Action Task Force (FATF) announced October 23, 2015 that it had removed Ecuador from the list of countries with strategic deficiencies in anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. Ecuador will undergo its next FATF mutual evaluation in 2021.
Sovereign Wealth Funds
The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF). Approved in July 2020, Ecuador’s Public Finance Law (COPLAFIP) established a Fiscal Stabilization Fund to invest excess revenues from extractive industries and hedge against oil and metal price fluctuations.
7. State-Owned Enterprises (SOEs)
Ecuador has a total of 19 SOEs. The major SOEs include those for petroleum (Petroecuador), electricity (Electricity Corporation of Ecuador – CELEC – and the National Corporation for Electricity – CNEL), and telecommunications (National Corporation of Telecommunications – CNT). The SOES combined have approximately 30,000 employees. Ecuador’s Coordinator of Public Companies maintains a list of SOEs at: https://www.emco.gob.ec/Emco2/empresas-publicas-2/ .
As part of the government’s austerity measures to deal with the COVID-19-related economic crisis, the government announced in May 2020 the liquidation of eight SOEs. These include the state-owned airline (TAME), the post office (Mail of Ecuador), the railroad company (Ecuadorian Railways Company), a social development firm using profits from natural resource revenues (Strategic Ecuador), training centers for athletes (High Performance Training Centers), an agricultural storage company (National Storage Units), the public media company, and a science and technology research firm (Yachay City of Knowledge).
The 2009 Organic Law of Public Enterprises regulates SOEs. SOEs are most active in areas designated by the 2008 Constitution as strategic sectors. SOEs follow a special procurement regime with greater flexibility and limited oversight. The Law of Public Enterprises requires SOEs to follow generally accepted accounting principles; however, SOEs are not required to follow the same accounting practices as the central government, nor do they have to participate in the electronic financial management system used in most of the public sector for budget and accounting management. SOEs are eligible for government guarantees and face lower tax burdens than private companies. SOEs generally do not have professionally audited financial statements. The Ministry of Economy and Finance approves SOEs’ annual budgets and often slows distribution of funds to SOEs to compensate for other government expenditures.
Ecuador is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.
The Ecuadorian Constitution prohibits privatization of state-owned enterprises, but the Ecuadorian government is seeking to offer long term concessions to operate some of its assets, such as the Sopladora hydroelectric plant, CNT, and the Esmeraldas oil refinery. In addition, the Ministry of Production, Trade, Investment and Fisheries is considering projects to be developed as potential public private partnerships.
8. Responsible Business Conduct
Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a manner that is socially and environmentally responsible. NGOs such as the Institute of Corporate Social Responsibility and the Ecuadorian Consortium for Social Responsibility promote responsible business conduct. Many Ecuadorian companies have programs to further responsible business conduct within their organizations. The Energy Ministry announced Ecuador’s adherence to the Extractive Industries Transparency Initiative (EITI) in October 2020 and set up a multi-stakeholder group to develop an EITI work plan.
Ecuadorian law prohibits all forms of forced or compulsory labor, including all forms of labor exploitation and child labor. Article 42 of the labor code establishes that all companies engaged in global or domestic supply chains are required by law to pay minimum wage, ensure eight-hour workdays, and pay into social security. The Ministry of Labor’s Directorate for Control and Inspections is the authority that enforces the law. Ecuador currently has four products included on the Department of Labor’s Bureau of International Labor Affairs list of goods which it has reason to believe are produced by child labor or forced labor in violation of international standards, as required under the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2005. These include the exploitation of child labor in the production of bananas, bricks, flowers, and gold.
Ecuador’s flower production consortium, in coordination with the International Labor Organization and the Ministry of Labor (MoL), undertook a series of efforts to eliminate child labor from flower farms in 2020. The MoL reported that labor inspections of large flower farms in 2020 in Pichincha province did not find instances of child labor. This positive outcome is largely because these farms are part of the Business Network for a Free Child Labor Ecuador and are committed to the elimination of child labor. In contrast, Ecuadorian media in 2020 covered child labor violations at abaca fiber (Manila hemp) plantations run by a Japanese subsidiary company. According to media reports, the Ombudsman’s office and MoL carried out inspections from 2017 to 2020 at the company’s 32 plantations and fined the company over $150,000 including for child labor violations. The MoL said in a 2019 report that it had found child labor, inhumane working conditions, labor risks, and work accidents at the company plantations.
Corruption is a serious problem in Ecuador, and one that the Moreno administration is confronting. Numerous cases of corruption have recently been tried, resulting in convictions of high-level officials, including former President Correa, former Vice President Jorge Glas, and former Vice President Maria Alejandra Vicuña, among others. U.S. companies have cited corruption as an obstacle to investment, with concerns related specifically to non-transparent public tenders, dispute resolution, and payment of arbitration awards.
Ecuadorian law provides criminal penalties for corruption by public officials, but the government has not implemented the law effectively, and officials have engaged in corrupt practices. Ecuador ranked 92 out of 180 countries surveyed for Transparency International’s 2020 Perceptions of Corruption Index and received a score of 39 out of 100. High-profile cases of alleged official corruption involving an Equadorian state-owned petroleum company and a Brazilian construction firm illustrate the significant challenges that confront Ecuador with regards to corruption. The Ecuadorian National Assembly approved anti-corruption legislation in December 2020. The legislation, which reforms the Comprehensive Organic Penal Code, creates new criminal acts including circumvention of public procurement procedures, acts of corruption in the private sector, and obstruction of justice. It also includes 11 provisions reforming the laws governing the public procurement system and the Comptroller General’s Office.
Illicit payments for official favors and theft of public funds reportedly take place frequently. Dispute settlement procedures are complicated by the lack of transparency and inefficiency in the judicial system. Offering or accepting a bribe is illegal and punishable by imprisonment for up to five years. The Comptroller General is responsible for the oversight of public funds, and there are frequent investigations and occasional prosecutions for irregularities.
Ecuador ratified the UN Anticorruption Convention in September 2005. Ecuador is not a signatory to the OECD Convention on Combating Bribery. The 2008 Constitution created the Commission for Citizen Participation and Social Control (CPCCS), tasked with preventing and combating corruption, among other responsibilities. The 2018 national referendum converted the CPCCS from an appointed to a popularly-elected body. In December 2008, President Correa issued a decree that created the National Secretariat for Transparency (SNTG) to investigate and denounce acts of corruption in the public sector. The SNTG became an undersecretariat and was merged with the National Secretariat of Public Administration June 2013. President Moreno established the Anticorruption Secretariat within the Presidency in February 2019 but disbanded it in May 2020 for allegedly intervening in corruption investigations conducted by the Office of the Attorney General. The CPCCS can receive complaints and conduct investigations into alleged acts of corruption. Responsibility for prosecution remains with the Office of the Attorney General.
Resources to Report Corruption
Alleged acts of corruption can be reported by dialing 159 within Ecuador. The CPCCS also maintains a web portal for reporting alleged acts of corruption: http://www.cpccs.gob.ec. The Attorney General’s Office actively pursues corruption cases and receives reports of corruption as well.
10. Political and Security Environment
Widespread public protests in 1997, 2000, and 2005 contributed to the removal of three elected presidents before the end of their terms. Large-scale but peaceful demonstrations against the Correa government occurred in June 2015. Some indigenous communities opposed to natural resource development have blocked access by petroleum and mining companies. Opposition to the government’s decision to remove fuel subsidies led to nationwide violent protests in October 2019. The protests paralyzed the country for 11 days, causing significant property damage, including to petroleum and telecommunications infrastructure. A dialogue between the government and indigenous protest leaders, mediated by the United Nations and the Catholic Church, led to the government’s decision to restore the fuel subsidies. Security along the northern border with Colombia deteriorated significantly in late 2017 and early 2018, when dissident Revolutionary Armed Forces of Colombia groups attacked police and military units and kidnapped civilians, resulting in several deaths. Military and police increased their presence in the zone, and violence in the northern border area calmed in 2019, although illicit activities continue. Violence related to drug-trafficking organizations increased in 2020 and 2021, particularly in Ecuador’s port cities.
11. Labor Policies and Practices
While Ecuador’s Statistics Institute shows 66 percent workforce participation, and an unemployment rate of 5.7 percent, the official underemployment rate is 22.3 percent, and it is estimated that 47.3 percent of workers are in the informal sector. Semi-skilled and unskilled workers are relatively abundant at low wages. The supply of available workers is high due to layoffs in sectors affected by Ecuador’s flat economic growth since 2014. The COVID-19 economic crisis is estimated to have resulted in the loss of 230,000 jobs in the formal sector in 2020. In addition, first Colombian and now Venezuelan migrants have added to the informal labor pool. The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually. The minimum basic monthly salary for 2020 is USD 400 per month.
Ecuador’s Production Code requires workers be paid a dignified wage, defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford basic necessities. Ecuador’s Statistics Institute (INEC) determines the cost and the products that are considered basic necessities. In February 2021, the monthly cost of basic necessities was USD 712.07, while the official family wage level is at USD 746.67. As of January 2021, INEC estimated 34.0 percent of workers had adequate employment. INEC defines adequate employment as earning at least the minimum basic salary working 40 hours per week.
Ecuador’s National Assembly approved in June 2020 limited labor reforms in an emergency law (Humanitarian Law) valid for two years to address the economic impacts of COVID-19. These reforms allowed for the reduction of working hours up to 50 percent and salary up to 45 percent; ability to modify a labor contract with mutual agreement between employer and employee; new temporary contracts for new investments that can be changed to permanent contracts at the end of the temporary period; and layoffs without severance payments only when the company closes entirely.
Ecuador’s National Assembly passed a labor reform law in March 2016 intended to promote youth employment, support unemployed workers, and introduce greater labor flexibility for companies suffering from reduced revenue. The law established a new unemployment insurance program, a subsidized youth employment scheme, temporary reductions in workers’ hours for financially strapped companies, and nine months of unpaid maternity or paternity leave.
The Law for Labor Justice and Recognition of Work in the Home, which included several changes related to labor and social security, took effect in April 2015. The law limits the yearly bonus paid to employees, which is equal to 15 percent of companies’ profits and is required by law, to 24 times the minimum wage. Any surplus profits are to be handed over to IESS. The law also mandates that employees’ thirteenth and fourteenth month bonuses be paid in installments throughout the year instead of in lump sums. Employees have the option to opt out of this change and continue to receive the payments in lump sums. The law eliminated fixed-term employee contracts and replaced them with indefinite contracts, which shortens the allowable trial period for employees to 90 days. The law also allows participation in social security pensions for non-paid work at home.
The Labor Code provides for a 40-hour work week, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits. The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits strikes in most of the public sector. Unpaid internships are not permitted in Ecuador.
Most workers in the private sector and at SOEs have the constitutional right to form trade unions, and local law allows for unionization of any company with more than 30 employees. Private employers are required to engage in collective bargaining with recognized unions. The Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation board process. The Code also prohibits discrimination against union members and requires that employers provide space for union activities.
Workers fired for organizing a labor union are entitled to limited financial indemnification, but the law does not mandate reinstatement. The Public Service Law enacted in October 2010 prohibits public sector workers in strategic sectors from joining unions, exercising collective bargaining rights, or paralyzing public services in general. The Constitution lists health; environmental sanitation; education; justice; fire brigade; social security; electrical energy; drinking water and sewerage; hydrocarbon production; processing, transport, and distribution of fuel; public transport; and post and telecommunications as strategic sectors. Public workers who are not under the Public Service Law may join a union and bargain collectively since they are governed by the provisions under the Labor Code.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
DFC operates in Ecuador under a pre-existing OPIC agreement and has signed several loan agreements aimed at increasing local bank lending to SMEs and female entrepreneurs. DFC is also looking at possible loans to infrastructure projects in the energy sector.
Ecuador and the DFC signed a framework agreement in January 2021 to support private sector investment in Ecuador. The framework agreement provides criteria for future investments to be considered by DFC for financing, with the proceeds supporting development in Ecuador or the refinancing of outstanding debt held by the Government of Ecuador. Under the framework, up to $2.8 billion is available for projects pending their approval by DFC. Loans under this framework would be directly linked to promoting sustainable economic growth. The agreement also establishes a long-term cooperative relationship between DFC and Ecuador’s Ministry of Economy and Finance.
Ecuador is a signatory to the Multilateral Investment Guarantee Agreement.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International
Source of Data:
BEA; IMF; Eurostat;
Host Country Gross Domestic Product (GDP) ($B USD)
* Source for Host Country Data: Central Bank of Ecuador. The Central Bank publishes FDI calculated as net flows only. Outward Direct Investment statistics are not published by the Central Bank.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
Source: Central Bank of Ecuador – September 2020 data. The Central Bank publishes FDI calculated as net flows only. The Central Bank does not publish Outward Direct Investment statistics, nor is there information available on the IMF’s CDIS website.