As businesses across Latin America and indeed around the world look for new opportunities in 2019 and beyond, expanding into new markets is often considered one of the best options for growth and long-term profitability. But deciding on the right market for your expansion can be tough, as there are countless factors to take into consideration before you can ensure a return on investment and commit to operating in a country on the other side of the world.
Below, we offer a summary for doing business in Ecuador, share its most profitable and valuable industries, and discuss the future of the country’s economy.
Doing Business in Ecuador’s economy
With a GDP of USD$103 billion and positive economic growth ranging from 0.1% to 5% over the past five years, Ecuador is a country on the up. Thanks to low unemployment in the country (latest figures put Ecuador’s unemployment figure at 5.4%) and a growing GDP per capita of USD$6,143, the country boasts an increasing middle-class citizenship, with many of its citizens having high levels of disposable income, meaning that there is a market for luxury goods and services. Inflation in the country has remained low, from a recent peak of 3.7% in 2014 to as low as -0.2% in 2017, which is good for consumers and for businesses.
Annually, the country exports more than USD$19 billion worth of goods and services to other countries around the world, and imports a similar amount (in 2017, the country imported USD$20 billion worth of goods and services, but that figure has been as high as USD$27 billion in recent years) to appease rising consumer demand and growing foreign direct investment.
Whilst, on the whole, the country’s figures look good, it’s expected that its economy will slow down in 2019 and 2020, as the government cuts public spending in a bid to strengthen its finances. Public debt in the country has increased to 45.2% of its GDP (as of 2017), a figure that has almost doubled from its 24% of GDP figure back in 2013. With austerity on the rise, consumption and demand for goods and services may also suffer as inflation levels rise and the country’s dollarized economy struggles with its reliance on external funding.
The country is expected to report growth in the coming years, however. In 2019, GDP growth is expected to stand at 1%, and increase to 1.2% in 2020, offering businesses confidence in their market and serving as a carrot to foreign investors who may have been put off by the country’s austerity measures. Indeed, entering into a country during an economic slowdown can offer advantages, such as being able to secure finance and taking heed of competition.
For much of the 20th century, Ecuador’s economy was powered by its agricultural products, with the country becoming a renowned producer of commodities such as coffee, cocoa, rice, potatoes, sugarcane, pork, beef, bananas, dairy, fish, and shrimp. Whilst agriculture and its processed foods industries remain an important part of its economy today, generating an estimated $USD1.8 billion annually, foreign investment and diversification have encouraged new businesses across a range of industries to take dominance, adding to the country’s GDP.
The development of new technologies and the ongoing push to combine innovation with sustainability has brought about opportunities in oil, which currently accounts for around 50% of the country’s exported goods. With large natural petroleum reserves, Ecuadorian firms are able to extract around 500,000 barrels of oil a day, of which 90% is exported to foreign countries. According to the latest data, the country has around six and a half billion barrels of oil in reserve, meaning countless opportunities for other businesses to exploit its reserves.
The service sector is another key area of growth in the country and is considered Ecuador’s most profitable sector, contributing 56.14% of the GDP. Industry follows in second place, contributing 33.43% to the GDP. Manufacturing comes in third with a 16.33% share.
Forming a company in Ecuador is a relatively straightforward process, particularly when you work with a local business expert. Below, we round up the Ecuadorian company incorporation basics:
- A business can be registered with two shareholders.
- Directors and shareholders can be of any nationality.
- Companies incorporated in Ecuador can be 100% foreign owned.
- Directors do not need to travel to Ecuador to incorporate their businesses.
- Just USD$400 share capital is required to get started in the country.
- Typically, it takes between 6 to 8 weeks to complete the company incorporation process.
- The most common company type is the SRL (Sociedad de responsabilidad Limitada).
- No physical office is required to incorporate or operate in the country.
Key information for investors doing business in Ecuador
- A new law, known as The Productive Promotion and Attraction of Foreign Investment Law, offers income tax and profit relief to foreign investors in certain sectors.
- The country’s national currency is the US Dollar, allowing businesses to benefit from the stable exchange, low inflation, and simple asset transfers.
- Special Economic Zones can be utilized for growth in the country and allow businesses exemption from corporate taxation and tariffs when importing/exporting.
- The country has a corporate tax rate of 25% and a capital gains tax of 10%.
- The average salary in Ecuador stands at USD$437.44 per month – the minimum wage is USD$386.00 and the average wage in manufacturing is currently USD$437.00.
- In the first quarter of 2018, foreign investment in the country hit USD$324.97 million.
Doing business in Ecuador with Biz Latin Hub
If you are looking to expand your business globally and find new opportunities in markets across Latin America, then Ecuador should be a country to consider. Indeed, with its strong and stable economy, its range of market opportunities, and low barriers to entry, there has never been a better time to step foot in the nation and make a splash with your business.
When you’re ready to get started, enlist the help of the team here at Biz Latin Hub. With years of experience helping businesses enter into markets such as Ecuador, we’re best placed to guide you through the entire process, covering everything from the company incorporation process to due diligence and recruitment. Email the team today on here for personalized support and assistance.
Learn more about our team and expert authors.