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Investing in the Future of Ecuador – 2018

On Wednesday, May 30th, Quito hosted the “Investing in Ecuador’s Future” event as part of the 2018 Latin American Cities Conference organized by the Council of the Americas. EXPERTISE participated in this conference, which aimed to showcase Ecuador’s shift in economic policy to attract private investment. The event featured President Lenín Moreno and Susan Segal, President and CEO of Americas Society/Council of the Americas, in the opening speeches, as well as presentations by Pablo Campana, Minister of Foreign Trade; Richard Martínez, Minister of Economy and Finance; Carlos Pérez, Minister of Hydrocarbons; and various panelists, presidents, and managers of significant regional companies.

The Council of the Americas, founded in 1965 by David Rockefeller, focuses on promoting free trade, the rule of law, market openness, investment generation, and socio-economic development in the region. With a membership of over 200 large-cap, highly liquid US companies, it brings together presidents, ministers, government officials, bankers, and experts in economics, politics, business, and finance. The conference in Quito gathered the country’s economic sector to present its new vision for capital openness and position Ecuador as a secure and promising investment destination within the region and the world.

In his speech, President Moreno emphasized that Ecuador is undergoing a significant shift in its macroeconomic policy to welcome socially responsible capital, respectful of labor justice and the environment. The aim is to attract long-term investment programs and become a major generator of employment, opportunities, development, and prosperity through close public-private cooperation. This transformation is being supported by the issuance of clear and transparent regulations that provide legal security, combat corruption, ensure compliance with international obligations, and offer tax incentives, among other measures.

Minister Campana discussed the bill he presented to the executive branch in January of this year, highlighting its advantages in attracting investment. He outlined the path that Ecuador’s foreign trade policy would follow, mentioned the commitments made by Ecuador to strengthen trade relations and open its markets, and invited the private sector to become the driving force behind the Ecuadorian economy.

Among the most relevant benefits included in the capital attraction law, he mentioned the extension of income tax exemptions for investments made in border areas, depressed areas, and the Amazon region for the first 20 years of operation, and up to 10 years in cities throughout the country. The law also includes investment in Quito and Guayaquil, granting an 8-year exemption. Other benefits encompassed the VAT deduction for social housing construction, the refund of ISD (Solidarity Tax on Foreign Exchange Outflows) for exporters with a net return of foreign currency, a gradual reduction in ISD starting from 2019 based on economic performance, the elimination of minimum advance income tax payments, prioritization of service export sectors, tourism real estate development, and other areas according to investment levels and the country’s interests, as well as a flat 8% tax on share transfers.

Regarding the commercial policy route, Minister Campana indicated that Ecuador is expanding and diversifying its export portfolio, initiating new trade negotiations with various countries such as Mexico, India, South Korea, Canada, Vietnam, the United Kingdom, among others. The possibility of joining the Pacific Alliance is also being analyzed, and work has begun to align the legal framework accordingly.

Regarding the strengthening of trade relations and market opening, Minister Martínez referred to the previous decade as “ten years of misguided economic management” and expressed that Ecuador is currently in a moment of effort and shared prosperity based on six fundamental pillars: transparency, discipline, credibility, solidarity, coherence, and stability. He emphasized that all efforts of the state are directed towards creating institutional capacity, maintaining a solid legal framework to ensure predictability, restoring dialogue with the international market, fulfilling obligations, fiscal balance, financial order, and creating sustainable social policies to encourage production and investment.

Minister Carlos Pérez, responsible for the Hydrocarbons portfolio, which merged with the administration of Electricity and Renewable Energy, highlighted that the draft law prepared by his ministry considers the application of participation contracts instead of service contracts. This would allow the state to transparently and explicitly participate in a percentage of any increases in oil prices, which would benefit both the state and the investors in the oil field.

He expressed optimism about the Oil & Gas Fields 2018 processes, which will generate millions of dollars in revenue for Ecuador through well drilling, provision of oil services, reactivation of closed wells, and construction and expansion of oil facilities. Pérez noted that 85% of the energy produced and used in the country is clean hydroelectric energy and that Ecuador is on track to reach 100%. He mentioned that Ecuador is in a privileged position to become an energy exporter to all countries in the region, currently supplying Colombia and, in the near future, Chile and Peru. He highlighted the recent contract renegotiations with Petro China as a clear example of the state’s commitment to providing legal security, trust, predictability, and stability. Despite the contracts being considered detrimental to the country, no impositions were made, agreements were reached, and the foundations were laid to prevent abusive contracts that could jeopardize sustainability. This was a different approach than terminating the contracts, as would have been the case under the previous policy.

Gitty Villarroel
EXPERTISEADVISOR

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