Ecuador

Executive Summary

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.

ECommerce: 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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 105 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 91 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2020 $29 https://apps.bea.gov/international/factsheet/factsheet.cfm 
World Bank GNI per capita 2020 $5,530 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign 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 (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 2021 (latest information available), FDI flows to Ecuador were USD 493 million, a 50 percent decrease compared to 2020 levels (USD 986 million) and 23 percent lower than 2019 levels (USD 642 million). FDI continues to be very low 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. One case is still pending final arbitral ruling.

[Please use U.S. Department of Commerce key words for industries in this section, list available at https://www.trade.gov/industries-0 ]

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. Ecuador does not have a single national-level interagency investment screening system for FDI. Each ministry analyzes investments and assesses FDI risks. One hundred precent 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 4.5 percent capital exit tax. The Lasso administration committed to the gradual phaseout of Ecuador’s capital exit tax (ISD) over the next four years starting in 2022 with a quarterly reduction of 0.25 percent. President Lasso signed September 2 executive decree 182 removing the ISD on the international aviation and maritime cargo sectors. 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.

Ecuador conducted a trade policy review with the World Trade Organization in March 2019; information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm 

In 2020, Ecuador conducted an investment policy review with the United Nations Conference on Trade and Development (UNCTAD), published in 2021. Information can be found at: https://unctad.org/node/34311 . In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD).

ProEcuador ( https://www.proecuador.gob.ec/ ) is the government entity responsible for promoting economic development through exports, imports, and investment in Ecuador. The institution forms a Vice Ministry within the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCEIP) and has 27 offices in 23 countries, including three in the United States.

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 (SRI), and the Social Security Institute (IESS). The registry with the Superintendence of Companies is a completely online process as of April 2019. The incorporation of companies in Ecuador grew 44 percent in 2021 (15,714 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 is responsible for promoting outward investment from Ecuador. Foreign investments are subject to a 4.5 percent ISD. The 2021 Tax Reform Law enumerates several ISD payment exemptions to productive investment, under certain conditions. In July 2021, the Lasso administration announced a gradual ISD dismantling by sector, quickly followed up with an Executive Decree immediately eliminating ISD on the international aviation and maritime cargo sectors.

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 Protocol entered into force in August 2021 following National Assembly ratification. The agreement updates the TIC with new annexes in four areas: Trade Facilitation and Customs Administration, Good Regulatory Practices, Anti-Corruption, and SMEs.

3. Legal Regime

The Lasso administration, in office since May 2021, has stressed its desire to build the capacity of Ecuador’s weak institutions and promote democracy, transparency, and governability.  Combatting corruption is a top priority of the Lasso administration including developing state institutions to be more transparent and responsive to the Ecuadorian people and enhancing civil society’s role in promoting transparency and accountability. President Lasso has reaffirmed Ecuador’s commitment to pursue a trade policy that holistically supports workers, protects the environment, and fosters equitable and inclusive growth. However, 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 does not promote or require companies’ environmental, social, and governance (ESG) disclosures to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments.

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.

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.

Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its susceptibility to external 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.

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 2021 Tax Reform Law repealed the zero-tariff income tax incentives included in previous legislation and replaced them with income tax reductions. These range from three to five percentage points of the current corporate income tax rate (25 percent), provided the compliance with certain conditions. Investments done under the prior legal framework will continue to enjoy the benefits offered from that legislation. 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.

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 of companies found to be in violation of the law.

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.

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 2022 monthly salary (currently USD 212,500) or vehicles worth more than 100 times the basic monthly salary (currently USD 42,500).

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.

5. Protection of Property Rights

Foreign citizens are allowed to own land. Mortgages are available, and the property title registration system is generally reliable.

Enforcement against intellectual property infringement in Ecuador remains challenging. In April 2016, the United States Trade Representative 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 that time. 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. The regulations do not address concerns raised by the U.S. Government and various stakeholders on issues related to copyright exceptions and limitations, patentable subject matter, and geographical indications (GIs), including opposition procedures for proposed GIs, the treatment of common food names, and the protection of prior trademark rights.

The Lasso administration plans additional revisions to the Ingenuity Code, though has not communicated a timeframe. Enforcement of intellectual property (IP) rights against widespread counterfeiting and piracy remains weak, including online and in physical marketplaces. Ecuador is also reportedly a source of unauthorized camcording. Online piracy continues to be a problem despite some increased enforcement activity, and Ecuador has not yet established notice-and-takedown and safe harbor provisions for Internet service providers. Customs enforcement on an ex-officio basis is weak, including actions against goods in transit. SENADI has limited enforcement capacity and remains hampered by a lack of funding and personnel due to budget cuts. 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/ .

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

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 capital exit tax also inhibits free flow of financial resources into the product and factor markets. Ecuador is a small market that has relied almost exclusively on the financial sector to undertake medium and short-term financing operations. Foreigners can access credit on the local market. In 2021, the Central Bank of Ecuador (BCE) designed a new methodology to set interest rates aimed at increasing financial inclusion and including technical factors for better determination. Despite these changes, the Government continues setting interest rate ceilings and controls.

Ecuador is a dollarized economy, and its banking sector is healthy. According to the Ecuadorian Central Bank’s Access to the Financial System Report, as of September 2020, 75 percent of the adult (over 15 years old) population (8.5 million people) has access to financial products and services. As of December 2021, Ecuador’s banks hold in total USD 51.9 billion in assets, with the largest banks being Banco Pichincha with USD 13.3 billion in assets, Banco del Pacifico with USD 6.9 billion, Banco de Guayaquil with USD 6.3 billion, and Produbanco with USD 6.1 billion. The Banking Association (ASOBANCA) estimates 2.3 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 2021 Law for the Defense of Dollarization established that the Monetary and Financial Policy and Regulation Board be divided into a Monetary Policy and Regulation Board and a Financial Policy and Regulation Board. The latter should oversee the interest rate system jointly with the BCE as the technical entity. The law gives the Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. There are 24 private banks in Ecuador as of December 2021.

A 2018 BCE resolution that ordered electronic money accounts closure effectively eliminated electronic currency. However, banks handle transactions by electronic or digital means for transferences and/or payments to transfer resources and/or payments according to the authorization of the Superintendence of Banks. BCE resolutions were integrated into the Codification of Monetary, Financial, Insurance, and Securities Resolutions. This regulatory body requires all financial transfers (inflows and outflows) to be channeled through the BCE’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.

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.

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