The ongoing conflict in Ukraine and volatility in oil prices have hit Latin America hard. Across the region, inflationary pressures have driven up food and fuel prices, and Ecuador is no exception. This led to weeks of protests in the small Andean country, but in July they came to an end when the government and protest groups negotiated a deal to lower the price of gasoline and diesel. For foreign investors and businesses thinking of domiciling there, the question now is: How is the Ecuadorian economy performing?
For now, things are stable. In August the ratings agency Fitch gave Ecuador a ‘B-‘ stable outlook. “The stable outlook balances a substantial and better-than-expected fiscal improvement … with challenges that could pressure public finances, complicate recovery, and hinder structural reforms likely needed for a stronger, more sustainable growth”, the ratings agency said.
Another positive indicator of how the Ecuadorian economy is performing is the windfall from high oil prices, putting the country on track to pay down its debt with the IMF this year.
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Key Economic Indicators to how the Ecuadorian economy is performing
What follows are the Central Bank of Ecuador’s key economic statistics for 2021:
- GDP grew 4.2 percent, exceeding the Central Bank forecast of 3.55 percent
- Household spending increased 9.6 percent, thanks in part to the government’s financial relief program
- Oil refining grew by 23.9 percent as a result of increased oil production
- The hospitality and food service sector saw a 17.4 percent increase year-on-year as Covid restrictions eased
- Aquaculture and shrimp fishing grew 16.2 percent thanks to increase shrimp exports
- Transportation grew by 13.1 percent as various industries reactivated as Covid restrictions eased
- Exports decreased 3.7 percent due to a dip in foreign sales of crude oil, bananas, coffee, and cocoa
With such positive post-pandemic growth trends in 2021, the time may be right for your business to enter the Ecuador market.
How is the Ecuadorian economy performing? Consider some of the business advantages
- Economy remains resilient despite challenges
- The government’s fiscal restraint is a positive signal
- Highly attractive foreign ownership, tax incentives
- A dollarized economy provides built-in stability
- Special economic zones helping boost development
Ecuadorian economy performing very well in the face of internal and global challenges
Many of Ecuador’s economic difficulties are the result of circumstances beyond its control, such as the war in Ukraine and the high cost of global oil prices. While these difficulties have had a worldwide impact, the global economic downturn has arguably hit Latin America the hardest.
1. Ecuador’s economy is weathering the storm
Despite sluggish economic activity (due in part by a wave of street protests earlier this year), Ecuador’s growth is trending upward. One economic analysis firm is forecasting that the Andean nation’s GDP will grow 2.8 percent this year, and expand by a moderate 2.3 percent in 2023. What’s more, the agricultural, construction and service sectors continue to show robust growth. It could be said that the Ecuadorian economy is performing well under the circumstances.
2. Fiscal restraint a positive signal to foreign companies, investors
Ecuador’s president, Guillermo Lasso, has shown fiscal restraint while at the same time providing post-Covid recovery financial support for the most vulnerable Ecuadorians – and even re-negotiated an additional $1 billion line of credit with the IMF in May. This is an encouraging sign that the government won’t make any radical moves that could negatively affect foreign business interests in the foreseeable future.
3. Highly attractive ownership, tax incentives
Another perk for foreign businesses that domicile in Ecuador is that – unlike in other countries in the region, which require a local official majority owner – foreigners can own 100 percent of an Ecuador-based business. Ecuador’s corporate tax regime also offers a host of tax exemptions and deductions to foreign business that have Ecuadorians in their employ. When certain conditions are met (and some limits in place), all expenses that are necessary for a business to generate taxable income are tax deductible.
4. A dollarized economy provides built-in stability
Although not immune to the levels of inflation the country is currently experiencing, Ecuador’s US dollar-economy shields it from the adverse effects associated with currency depreciation. This should be attractive to foreign businesses and investors that don’t want to potentially take a hit to their revenue by exchanging a local currency to the US dollar.
5. Ecuador’s Special Economic Development Zones
Ecuador has designated 19 areas throughout the country as Special Economic Development Zones (that go by the Spanish acronym ZEDE), or “tax-free” economic zones to stimulate economic activity and attract foreign investment. Open to the fintech, telecoms, energy, mining and oil sectors, companies operating in the economic zones enjoy exemptions from import duties, surcharges and taxes. In March this year, Ecuadorian lawmakers rejected a Lasso administration proposal to expand these zones to attract billions more in FDI, which had it been passed, would have given a boost to how the Ecuadorian economy is performing.
Biz Latin Hub can help you understand how the Ecuadorian economy is performing
At Biz Latin Hub, we provide integrated market entry and back-office services throughout Latin America and the Caribbean, with offices in Bogota and Cartagena, as well as over a dozen other major cities in the region. We also have trusted partners in many other markets.
Our unrivalled reach means we are ideally placed to support multi-jurisdiction market entries and cross border operations.
As well as knowledge about how the Ecuadorian economy is performing, our portfolio of services includes hiring & PEO accounting & taxation, company formation, bank account opening, and corporate legal services.