Ecuador: Investing In Ecuador's Future 2018

Last Updated: 21 June 2018
Article by Gitty Villarroel Moreno

 On Wednesday, May 30, Quito hosted the 2018 Latin American Cities Conferences of the Council of the Americas, a meeting in which EXPERTISE participated and which was intended to promote the change of focus in Ecuador's economic policy in order to attract private investment. It was attended by the President of the Republic, Lenín Moreno and by Susan Segal, President and CEO of the Americas Society/Council of the Americas, both in the opening speeches. It included presentations by Pablo Campana, Minister of Foreign Trade; Richard Martínez, Minister of Economy and Finance; Carlos Pérez, Minister of Hydrocarbons; and, the participation of several panelists and CEOs of major companies in the region.

The Council of the Americas, which focuses on promoting free trade, the rule of law, the opening of markets, the generation of investment, and the economic and social development of the region, was founded in 1965 by David Rockefeller and has a membership of more than 200 U.S. companies with significant capitalization and high levels of liquidity. It also includes presidents, ministers, government officials, bankers, and economics, politics, business, and finance experts. The conference in Quito brought together the country's economic sector to launch its new vision of a capitals' opening-up process and to present Ecuador, to both the region and worldwide, as a safe and promising investment destination.

In his speech, the President of the Republic stated emphatically that Ecuador is making an important shift in its macroeconomic policy, to welcome socially responsible capital, respectful of labor and environmental fairness, so that it can execute long-term investment programs and become the great creator of jobs, opportunities, development, and prosperity, while maintaining a close public-private cooperation. This shift is being supported by the issuance of clear and transparent rules that offer to provide legal certainty, fight against corruption, compliance with international obligations, and tax incentives, among others.

In turn, Minister Campana spoke about the bill he presented to the Executive in January of this year, highlighting its benefits in terms of attracting investment. He outlined the path that foreign trade policy would follow, commented on the commitments made by Ecuador to strengthen trade relations and to open up its market, and concluded by inviting the private sector to become the driving force behind the Ecuadorian economy.

Among the most relevant benefits included in the law for attracting capitals, he mentioned the extension of the exemption from income tax for investments made in border areas, depressed areas and in the Amazon Region until the first 20 years of management, up to 10 years in cities throughout the country, and includes the investment made in Quito and Guayaquil, granting 8 years of exemption. Other benefits are the deduction of VAT for the construction of social housing; the reimbursement of Overseas Remittance Tax (ISD in Spanish) to exporters with a net return of foreign currency; the gradual reduction of the ISD beginning in 2019, depending on economic performance; the elimination of the minimum advance payment of income tax; the prioritization of services export, tourist real estate development and other sectors according to the level of investment and interest of the country; and the 8% single tax on the transfer of shares.

Regarding the trade policy route, he said that Ecuador is opening up and diversifying its exports portfolio. New trade negotiations will begin with several countries such as Mexico, India, South Korea, Canada, Vietnam, and United Kingdom, among others; the possibility of becoming part of the Pacific Alliance will be analyzed; and work has begun to align the legal framework with this new route.

Concerning the strengthening of trade relations and opening up the market, he said that Ecuador recognizes the United States as its main strategic partner, since it is the destination of most of our oil and non-oil exports, followed by the European Union. In this regard, Ecuador will strengthen ties and generate commitments such as creating an environment of legal predictability and stability, transparency, legal security and fight against corruption, thus making Ecuador an open skies country to receive services and expand the routes and frequencies of more airlines in order to promote trade.

Later, Minister Martínez referred to the past decade as "ten years of economic mismanagement," and stated that "we are living at a time of shared effort and prosperity," based on six basic principles: transparency, discipline, credibility, solidarity, consistency, and stability. He pointed out that all the State's efforts are aimed at creating a sound institutional framework, maintaining a solid legal structure to guarantee foreseeability, reestablishing dialogue with the international market, ensuring fulfilment of obligations, fiscal balance, financial order, and designing sustainable social policies, focused on promoting production and investment.

Regarding Minister Carlos Perez, in charge of the Hydrocarbons Ministry that merged with the Electricity and Renewable Energy Administration, he said that the bill prepared by his ministry considers the application of participation contracts instead of service contracts, through which the State transparently and explicitly participates in a percentage of the possible increases in oil prices, a fact that would benefit both the State and the investors in the oil field.

He was optimistic about the Oil & Gas Fields 2018 process, which will generate millions of dollars in revenues for Ecuador from the drilling of wells, provision of oil services, reactivation of closed wells and construction and expansion of oil facilities. He highlighted that 85% of the energy produced and used in the country is clean hydroelectric energy and that we are on our way to reaching 100%. He also said that we are in a privileged position to become energy exporters to all countries in the region, currently being suppliers to Colombia and in the near future to Chile and Peru.

He mentioned the recent renegotiations of contracts with PetroChina as a clear example of the State's commitment to legal security, trust, foreseeability, and stability. Despite the fact that such contracts are considered harmful to the country, no impositions were made. Thus, it was possible to reach agreements, and the basis was laid to prevent abusive contracts that could jeopardize their sustainability; instead of terminating them, as would have been the case if Ecuador had continued with the previous policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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