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EXECUTIVE SUMMARY

The Government of Ecuador under President Moreno has taken a distinct path from the policies of his predecessor, focusing on reducing the size of the public sector and its influence on the economy and seeking instead private sector investment to drive economic growth. Facing serious budget deficits, the Moreno Administration is rationalizing the size of government, merging ministries, and planning a reduction in the number of state-owned enterprises. Other cost cutting measures include reducing fuel subsidies and mandatory reductions in 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. To fund these programs and continue reforms, the Ecuadorian government reached in March 2019 an agreement with the International Monetary Fund (IMF) and international financial institutions for financial assistance totaling USD 10.2 billion over three years. The IMF program is in line with the government’s efforts to correct fiscal imbalances and to improve transparency and efficiency in public finance. While the March 2019 IMF program has been cancelled, the Moreno administration has opened negotiations with the IMF for a new agreement, expected to be reached in August 2020.

To increase private sector engagement in the economy and attract Foreign Direct Investment (FDI), the Ecuadorian government passed a Productive Development Law in 2018 to spur investment, has in recent years changed tax and regulatory policies for mining, and seeks to develop a Public-Private Partnership law 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 capital 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 Corruption Perceptions Index. Two high-profile cases of official corruption involving the state-owned petroleum company PetroEcuador and Brazilian construction firm Odebrecht exemplify challenges that confront investors. Numerous officials have been charged for corruption related offenses, and several have been convicted, including former Vice President Jorge Glas, who was sentenced to six years in prison in December 2017. In addition, 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 controlled by two state-owned enterprises (SOEs) that cannot be privatized. To improve efficiencies, the government may offer concessions of its refineries and is seeking ways to better target fuel subsidies. An effort to eliminate subsidies in October 2019 sparked violent civil unrest that forced the government to walk back the measure. 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, made minor reductions to 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 is seeking to offer concessions to develop wind, solar, hydro and gas fired electrical generation plants to further diversify the energy matrix, as well as improve the 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 seeks to increase national coverage of the 4G network, as well as eventually introduce 5G into Ecuador. It plans to offer a concession of the state-owned telecommunications company CNT, as well as diversify its hardware away from Chinese vendors.

ECommerce: ECommerce sales comprise approximately one percent of Ecuadorian GDP but are a fast growing market. 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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 93 of 198 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 129 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 99 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 $898 http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 $6,110 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

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. 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. In 2019, total flows of FDI in Ecuador fell to USD 966 million from USD 1.4 billion in 2018. 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 a number of high-profile international investment dispute cases, with several companies awarded damages in international arbitration rulings against Ecuador in the last several years. In addition, several cases are pending final arbitration 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.

Other Investment Policy Reviews

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 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).

Business Facilitation

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 29 offices in 26 countries, including four in the United States. Ecuador is ranked 129th out of 190 countries in the World Bank’s Ease of Doing Business report for 2019, 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.

Outward Investment

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 capital 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 effect in September 2017.

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 on June 25, 2018 a Comprehensive Economic Partnership Agreement with the European Free Trade Association, which includes Switzerland, Norway, Liechtenstein, and Iceland. That agreement was ratified by the Ecuadorian National Assembly in April 2020. The accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and Peru became effective January 1, 2017. Ecuador concluded limited trade agreements with El Salvador on November 16, 2017 and Nicaragua on November 19, 2017. Ecuador has been 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 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 towards prior consultation processes. Government ministries generally consult with relevant national actors when drafting regulations, but not always.

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 WTO and notifies draft regulations to the WTO 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 Anti-Trust 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 companies found to be in violation of the law up to 12 percent of gross revenue.

Expropriation and Compensation

The Constitution establishes that the state is in charge of 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 2015 Telecommunications Law allows expropriation of private land in accordance with the rules and procedures of the law when necessary for the installation of network infrastructure. The prior Correa administration’s use of a 99 percent excess profits tax on some investments was determined by international arbitration panels to be an indirect expropriation.

Dispute Settlement

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).

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 ten 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

A number of 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 has in the past treated these disputes as a political issue, speaking negatively about investors involved in these cases. Payment of arbitration awards has taken more than a year, though 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.

Bankruptcy Regulations

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 would take about six months for the auction to take place. World Bank’s Doing Business Report estimates that the foreclosure proceedings would result in costs equal to about 18% of the value of the estate in question, and a recovery rate of 18.3 cents on the dollar.

4. Industrial Policies

Investment Incentives

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 20 years in border regions. 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 to 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% of their staff locally, unless they cannot find qualified labor from that area.

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. Companies can transmit data freely into and out of Ecuador, and there are no requirements to store data within the country. A draft Data Protection Law has been presented to the National Assembly, but it does not contain provisions that would affect foreign investors any more than local investors.

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

Real Property

Ecuador ranks 73rd out of 190 in the 2018 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 rights (IPR) infringement remains a problem in Ecuador. 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 then. The government has drafted implementing regulations for the 2016 Code of the Social Economy of Knowledge, Creativity, and Innovation, which is the legislation that covers Intellectual Property Rights, and allowed for public input into the regulations. However those regulations have not yet been approved. The Ecuadorian government plans to revise the Code but with no date for completion.

Ecuador is on the Notorious Markets List. 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. 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. The National Service for Intellectual Rights (SENADI – formerly Ecuadorian Intellectual Property Institute (IEPI)) 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/ .

Ecuador is a member of the World Intellectual Property Organization (WIPO). 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

Capital Markets and Portfolio Investment

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. 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 Banking Association (ASOBANCA), approximately 51 percent of the population has access to a bank account. Ecuador’s banks hold in total USD 43.7 billion in assets, with the largest banks being Banco Pichincha with about USD 11.4 billion in assets, Banco Pacifico with about USD 6.1 billion, Banco Guayaquil with about USD 5.1 billion, and Banco Produbanco with about USD 4.9 billion. ASOBANCA estimates 3.4% 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.

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 capital exit tax.

Foreign Exchange and Remittances

Foreign Exchange

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 capital exit tax. There are no restrictions placed on foreign investors in transferring or repatriating funds associated with an investment.

Remittance Policies

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). Public Finance reforms under debate at the time of writing this report included the establishment of sovereign funds to invest revenue from extractive industries and hedge against oil and metals price fluctuations.

7. State-Owned Enterprises

The SOEs in Ecuador are concentrated primarily in the petroleum, electricity, and telecommunications sectors and combined have approximately 30,000 employees. The government owns an airline, a railroad company, a cement company, and a university. 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 the airline and the closing of the railroad company. Two SOEs, Petroamazonas and Petroecuador, control the petroleum sector. The government has an optimization plan for some of these entities, reducing the total from an original of 22 to 15 by merging some and dissolving others. Ecuador’s Coordinator of Public Companies maintains a list of SOEs at http://www.emco.gob.ec/Emco2/empresas-publicas-2/ .

The 2009 Organic Law of Public Enterprises regulates state-owned enterprises (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.

Ecuador is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

Privatization Program

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. In addition, the Ministry of Production, Trade, Investment and Fisheries is proposing a number of 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 GOE committed in March 2018 to implement the Extractive Industries Transparency Initiative (EITI), and has set up a multi-stakeholder group and developed an EITI work plan, but has not yet fully adhered to the initiative.

9. Corruption

Corruption is a serious problem in Ecuador, and one that the government is confronting. Numerous cases of corruption have recently been tried, resulting in convictions of high-level officials, including former Vice President Jorge Glas. 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 93 out of 198 countries surveyed for Transparency International’s 2019 Corruption Perceptions Index and received a score of 38 out of 100. High-profile cases of alleged official corruption involving state-owned petroleum company PetroEcuador and Brazilian construction firm Odebrecht illustrate the significant challenges that confront Ecuador with regards to corruption.

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 Controller 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 Transparency and Social Control (CPCCS) branch of government, tasked with preventing and combating corruption, among other things. 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 Prosecutor General. The CPCCS can receive complaints and conduct investigations into alleged acts of corruption. Responsibility for prosecution remains with the Office of the Prosecutor General.

Resources to Report Corruption

Through the Function of Transparency and Social Control, alleged acts of corruption can be reported by dialing 159 within Ecuador. The Council for Citizen Participation and Social Control 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

Popular 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. Nationwide violent protests erupted in October 2019 to oppose the government’s decision to remove fuel subsidies, paralyzing the country for ten days and causing significant property damage. 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 border with Colombia deteriorated significantly in late 2017 and early 2018, when dissident FARC narcoguerrilla 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.

11. Labor Policies and Practices

While Ecuador’s Statistics Institute shows 65 percent workforce participation, and an unemployment rate of 3.8 percent, the official underemployment rate is 17.8 percent, and it is estimated that up to 60 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 200,000 jobs in the formal sector. In addition, first Colombian and now Venezuelan migrants have added to the 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 that 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. The cost and the products that are considered basic necessities are determined by Ecuador’s Statistics Institute (INEC). In December 2019, the cost of basic necessities was USD 717.08, while the official family wage level is at USD 735.47. As of December 2019, INEC estimated 38.8 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 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, which are required by law, 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 eliminates 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 the vast majority of public sector workers 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 small and medium enterprises and female entrepreneurs. DFC is also looking at possible loans to infrastructure projects in the energy sector. 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; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($B USD) 2018 $107.4 2018 $108.4 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $898 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2018 $30 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 17.4% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* 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
Total Inward $966.2 100% Total Outward Amount 100%
Canada $237.9 25% N/A N/A
Spain $149.6 15% N/A N/A
Netherlands $110.9 11% N/A N/A
United States $75.6 7% N/A N/A
Germany $45.1 5% N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Source: Ecuador Central Bank, no Information available on the IMF’s CDIS website, and there is no information available on Outward Direct Investment

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Post contact for this report at Embassy Quito is Geoffrey Schadrack at schadrackgf@state.gov.

2020 Investment Climate Statements: Ecuador
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