International Trade in Ecuador

News Related to International Trade in Ecuador

Business outline for Ecuador

Economic Overview

Ecuador has been performing well since it adopted the US Dollar as its national currency in 2000. Its economy is primarily based on oil which accounts for nearly 50% of its total export income, and the agricultural production. As a matter of fact, Ecuador is the world's largest exporter of bananas and a major exporter of farmed shrimp. The primary sector contributes to less than 10% to GDP. As for the industry, it represents almost one third of GDP and more than one fifth of employment. The service sector contributes to less than two thirds of Ecuador's wealth and employs more than two thirds of its active population. 

Nevertheless, Ecuador, member of the OPEC, has not managed to obtain maximum profit from the development of its oil reserves. The country's economy is facing problems such as insufficient investments, corruption in the public sector of oil production and poor management in general. 

In 2009, economic growth was lower than expected due to the drop in oil prices and the global financial situation . However, in 2010 the country came out of the recession with a growth of almost 3% and this trend should continue in 2011. Rafael Correa's government has notably suceeded in signing 13 bilateral investment agreements, under the threat of nationalizing the oil industry. The country's challenges are to diversify its economy, train a more highly skilled labor force modernizing its infrastructures.

FDI in Figures

Foreign investment inflow decreased in 2009. Ecuador is not an easy place to do business in. As a matter of fact, the country has complex regulations in labor issues and discourages private investment through mergers, acquisitions or take-overs. Inconsistent contract enforcement is one of the main concerns to foreign investors in Ecuador. 

Oil is the sector that attracts foreign investment the most, followed by financial services and food processing. The USA is the largest investor. 

Recently, the country's politicized decision of failing to meet its obligations of 2012 and 2030 will alter its capacity to reach international financial markets. The government has just recently announced a proposition on which it will pay 30 cents of each dollar of the outstanding debt. The financial crisis should affect the economy in two ways: First, the weakness in prices and the decrease of demand which reduces the USD exchange and tax revenues. Then, the repercussions of the financial situation will test the ability of the commercial and banking sectors, in particular, to continue their functions normally. 

Foreign Trade Overview

Ecuador is open to foreign trade, especially after joining WTO. Ecuador applies a four-tiered tariff system:
- 5% for most raw materials and capital goods;
- 10-20% for intermediate goods;
- 20% for most consumer goods;
- Finally, a small number of products, including planting seeds, agricultural chemicals and veterinary products are duty-free.

Customs duties are relatively low. However, in spite of having become a member of the WTO, Ecuador has not been able to eliminate many of its non-tariff barriers. Importers are required to register with the Central Bank to obtain an import license and must also have authorizations from various government agencies. Ecuador also continues to maintain a pre-shipment inspection (PSI) regime for imports.

In 2010, Ecuador registered a trade deficit. Foreign trade is in fact very vulnerable to the fluctuations in the price of oil on international markets. The production of barrels per day decreased compared to the previous years. Oil exports represent  over 50% of total exports. The global drop of crude oil prices and the recent reinforcement of the USD have certainly harmed the terms of exchange rate in the country and have produced tensions on the balance of payments. The government tries to attenuate the effect on the balance of payments by imposing restrictions in imports and establishing controls preventing capital outflow. The recent approval of the mining law should deliver more transparency to foreign investors. Moreover, Ecuador's legal system and the complex regulations of the country make business management very complicated and expensive. 

However, if the country loses its access to financial markets or if the government cannot increase its income, most likely the USD exchange system will have to be abandoned and the currency will be devaluated, which could provoke an increase in export income and this would really discourage the growth of imports, eliminating in this way certain tensions in the balance of payments and allowing the government to use currency policy as an economic tool. On the other hand, this would mean a weak currency which will have a negative effect on inflation and on the balance of the private sector.

The main trading partners of the country are the United States (33.5% in 2009), Peru, Chili, Colombia and Russia.