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Country Risk Report: Ecuador


December 13, 2017

Ecuador is located in western South America, bordering the Pacific Ocean at the Equator, between Colombia and Peru. It's land area is 276,841 sq. km., which is about the size of Colorado, and includes the Galapagos Islands.

Official Name: Republic of Ecuador

National Symbol: Andean condor
Internet Domain: .ec
International Dialing Code: +593

Table of Contents

Location and Size Credit and Collections
Government Risk Assessment
Legal System Business Climate
Ten Interesting Facts Business Protocol
Economy Other Sources of Information
Comparative Economic Indicators  

LOCATION AND SIZE

Ecuador is located in western South America, bordering the Pacific Ocean at the Equator, between Colombia and Peru. It's land area is 276,841 sq. km., which is about the size of Colorado, and includes the Galapagos Islands.

GOVERNMENT

Ecuador’s government is a representative democratic republic with 24 provinces.

Branches:

  • Executive: Chief of State and Head of Government - President Lenin Moreno; Vice President Jorge Glas; cabinet appointed by the President
  • Legislative: unicameral National Assembly including 124 seats with members elected through a party-list proportional representation system to serve 4 years
  • Judicial: National Court of Justice; Constitutional Court

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LEGAL SYSTEM

Ecuador has a civil law legal system based on the Chilean civil code with modifications.

The country has not accepted compulsory International Court of Justice (ICJ) jurisdiction with reservations. It does accept International Criminal Court jurisdiction.

The Ecuadorian judicial system is inefficient and vulnerable to political interference. Court delays are significant, and judgments are inconsistent.

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TEN INTERESTING FACTS ABOUT ECUADOR

  1. Ecuador uses the metric system; however, gasoline is sold by the gallon.
  2. Garbage trucks play music, as ice cream trucks do in the United States.
  3. The official currency of Ecuador is the U.S. Dollar.
  4. Ecuador was part of the Inca empire before the arrival of the Spanish in 1534.
  5. The majority of balsa wood in the world comes from Ecuador.
  6. Ecuador was the first nation to declare that nature has constitutional rights.
  7. Ecuador is one of 17 megadiverse countries in the world with: 25,000 plant species, 1,600 bird species, 6,000 butterfly species, 106 endemic reptiles and 138 endemic amphibians.
  8. The Panama hat originated in Ecuador.
  9. Ecuador’s Cotapaxi Volcano is the highest active volcano in the world (19,357 feet/5,900 meters).
  10. Ecuador exports more bananas than any other country in the world.

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ECONOMY

The Ecuadorean economy is very dependent on a limited number of commodities including oil, gold, copper, seafood, flowers, coffee, cocoa, and sugar, which represent 90% of Ecuador's exports. It's petroleum resources have accounted for more than half of the country's export earnings and approximately two-fifths of public sector revenues in recent years.

Limited access to international financing forced the government to reduce expenditure levels and cover a budgetary financing gap with loans from international financial institutions, funds from Ecuador’s Social Security Institute, and financing from China. 

Leading Markets (2017): US 45%, Peru 7.7%, Venezuela 6.5%, Colombia 4.6%, Panama 4.6%, Chile 4.2%

Leading Exports-commodities: petroleum, bananas, cut flowers, shrimp, cacao, coffee, wood, fish

Leading Suppliers (2017): China 9.4%, Colombia 9.1%, Brazil 4.2%, Venezuela 3.9%

Leading Imports-commodities: industrial materials, fuels and lubricants, nondurable consumer goods

Top Industries: petroleum, food processing, textiles, wood products, chemicals

Top Agricultural Products: bananas, coffee, cocoa, rice, potatoes, manioc (tapioca), plantains, sugarcane; cattle, sheep, pigs, beef, pork, dairy products; fish, shrimp; balsa wood

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COMPARATIVE ECONOMIC INDICATORS – 2017

  Ecuador Bolivia Chile Colombia Peru Venezuela
Population* (millions) 16.4 10.3 17.1 45.2 29.5 28.0
Population growth rate (%) 1.5 1.7 0.9 1.1 1.0 1.5
Age Structure (%)
(15 to 64 years old)
68 60.7 68.1 67.2 65.1 65.1
Age Structure (%)
(65+ years old)
6.8 4.6 9.6 6.1 6.4 5.4
Literacy (%) 94 86.7 95.7 90.4 95.9 93.0
Unemployment rate (%) 4.8 5.5 6.9 10.8 7.7 7.3
Inflation (%) 5.4 6.9 3.3 3.7 3.4 27.6
Population below poverty line (%) 28.6 51.3 11.5 37.2 31.3 27.4
GDP** (USD billions) 125.8 51.5 281.0 470.7 301.5 373.7
GDP real growth rate (%) 6.5 5.1 6.5 5.7 6.9 4.2
GDP per capita** (USD) 8,300.0 4,800.0 16,100.0 10,100.0 10,000.0 12,400.0
Public debt (% of GDP) 22.1 36.6 9.4 45.6 21.7 36.3
Industrial production growth rate (%) 1.9 3.6 5.3 4.9 5.6 1.4
Exports (USD billions) 22.3 9.1 86.1 56.5 46.3 92.6
Imports (USD billions) 23.6 7.6 72.3 54.7 37.0 46.4
Reserves of foreign exchange and gold (USD billions) 3.0 12.0 41.3 32.3 48.8 29.9
Currency Dollar
(USD)
Boliviano
(BOB)
Peso
(CLP)
Peso
(COP)
Nuevo Sol
( PEN)
Bolivar
(VEB)
Exchange rates (per USD) 11/27/2017 1.0 6.9 487.5 1,762.7 2.6 4.3
Exchange rates (per EUR) 11/27/2017 0.84 9.0 642.1 2,321.5 3.5 5.7

*November 2017 estimates

Economic Data from CIA World Factbook
2017 Corruption Perceptions Index, Transparency International
2017 Index of Economic Freedom, Heritage Foundation

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CREDIT AND COLLECTIONS

Ecuadorian Statutes of Limitations:

  • Open Account: n/a
  • Promissory Notes: 3 years
  • Written Contracts: 5 years
  • Oral Agreements: 5 years

An ongoing problem in Ecuador is receiving full and timely payments.

RISK ASSESSMENT

Coface Country Rating: C -- A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.

Coface Business Climate Rating: B-- Evaluating the business environment involves measuring the quality of a country’s private sector governance – in other words businesses’ financial transparency and the effectiveness of the courts in settling debts. 

 

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BUSINESS CLIMATE

The Ecuadorian economy, is expected to remain in recession. The dollarization of the economy in the early 2000's has helped macroeconomic stability, but falling oil price and the appreciation of the dollar since 2015 have exacerbated the country's fragilities. Oil Export revenues are expected to increase into the next year, but will be limited by OPEC. 

Economic Freedom (2017 Index of Economic Freedom): Ecuador’s economic freedom score is 49.3, making its economy the 160th freest in the 2017 Index. Ecuador is ranked 28th out of 32 countries in the South and Central America/ Caribbean region, and its overall score is far below world and regional averages. The government’s policy of continual expansion into economic sectors has considerably undermined economic freedom forcing the private sector to compete with a growing public sector in what has become a restrictive entrepreneurial environment.

Market Access: In 2016, Ecuador embarked on a program of import substitution and voluntary import restraints to reduce its trade deficit. Further suppressing trade, the trade weighted average tariff rate rose to 6 percent. The investment regime is complex and non-transparent. The financial sector remains poorly developed with increased state interference.

Regulatory System: Ecuador's regulatory system is not transparent. Government officials and private Ecuadorian businesses have used regulations and questionable legal maneuvers to affect foreign company operations. Some foreign companies have been required to make additional payments not negotiated in original agreements.

Intellectual Property Rights: There is a widespread local trade in pirated audio and video recordings, computer software, and counterfeit activity regarding brand name apparel in Ecuador. Enforcement against intellectual property infringement, which is the purview of the national police and the customs authority, has been ineffective.

Corruption: The rule of law in Ecuador is undermined by pervasive corruption. Illicit payments for official favors and thefts of public funds are common. Transparency Internationalconsistently ranks Ecuador near the bottom among countries it surveys in the region.

Political Violence: Ecuador does not have a tradition of substantial guerrilla activity, nor of frequent violence as a result of demonstrations or political instability. Crime, however, is a serious concern, especially in the larger cities. Violent crime has significantly increased over the last few years, with American citizens being victims of crimes, including homicides, armed assaults, robberies, sexual assaults, and home invasions.
 

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BUSINESS PROTOCOL IN ECUADOR

  • Ecuadorians are more formal in their business dealings than many other cultures. Shake hands when meeting someone, also when leaving.
  • Professional or academic titles with the surname are used in business. Common titles are "Doctor" (medical doctor or Ph.D.), "Ingeniero" (engineer), "Arquitecto" (architect), and "Abogado" (lawyer). If someone does not have a title, the honorific Señor or Señora is used with the surname. Always wait until invited before moving to a first-name basis.
  • Business cards are exchanged during the initial introductions. Although most business executives speak English, it is a good idea to have one side of your business card translated into Spanish.
  • The Ecuadorian culture is reliant on relationships, trust and non-verbal cues. Being distant or protective of personal information can, therefore, be construed as being rude.
  • Ecuadorians are indirect communicators who speak diplomatically and with courtesy. They view blunt communication as extremely rude.
  • Ecuadorians are essentially concerned with the people they are doing business with, not the company.
  • Avoid confrontation and be careful not to embarrass people or publicly place them in awkward positions. Calling attention to someone’s error demonstrates a lack of finesse.

More information on Business Protocol: Kwintessential

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SOURCES FOR FURTHER INFORMATION ON DOING BUSINESS IN ECUADOR

Doing Business in Ecuador, U.S. Commercial Service

Ecuadorian-American Chamber of Commerce-Guayaquil

Embassy of Ecuador, Washington DC

 

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