Population 15.239 million
GDP 70.836 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
3.6 |
8 |
4.3 |
3.8 |
|
Inflation (yearly average) (%)
|
3.6 |
5.4 |
5.1 |
4.8 |
|
Budget balance (% GDP)
|
-1.6 |
-1 |
-2.5 |
-2 |
|
Current account balance (% GDP)
|
-2.8 |
-0.3 |
-2 |
-2 |
|
Public debt (% GDP)
|
16.1 |
18 |
18.8 |
18.8 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Extensive resources: minerals (copper, gold, silver), oil, gas, hydroelectric
- Tourism potential, (flora, fauna, landscape, cultural heritage)
- Climatic diversity, allowing numerous crops: cocoa, coffee, bananas (world’s biggest exporter)
- Marine resources (biggest shrimp exporter)
- Low public and external debt
- Dollarised economy
WEAKNESSES
- Poorly diversified economy, dependent on oil, vulnerable to external shocks
- Inadequate infrastructures (roads, dams) and poorly qualified workforce
- No access to capital markets as a result of 2008 payment default
- Discouraging business environment with state interventionism
- Geographic and social disparities
- Governance shortcomings
Risk assessment
Activity less supported by the budget policy
Activity will continue to slow in 2013 but much less noticeably than in 2012. The authorities will continue their policy of moderating household consumption in order to reduce the pressure of imports. The law of June 2012 aimed at better credit control, particularly with regard to property and motor vehicles, and the major size of the public banking sector will help them in this. The stability or even slight decline of oil prices will result in reduced public revenues. So, in order not to worsen public finances, the authorities will have to slow public investment. However, investment will still account for a large share of the economy (25%) and continue to grow strongly (5%). More generally, after the planned February 2013 elections, it should be politically easier to moderate the growth of public spending.
Public accounts dependent on oil
Oil revenues make up a large proportion of public resources (45%). However, the budget is regularly in deficit, preventing the build-up of reserves that could be used in the event of a fall in prices. Diversification of the resources is being sought through the development of mining resources with which the country is well provided. Traditional public revenues remain limited, in particular, by tax evasion supported by a large informal economy encouraged by the rigidity of the labour market. Debt, though growing slightly remains low. The external portion of the debt (70%) is very largely held by China and regional multilateral organisations, while the private sector portion collapsed in 2008 as a result of the deliberate default by the Ecuador state, which did not recognise its legitimacy.
Foreign investors’ caution
The current account is slightly unbalanced. Imports slightly exceed exports, made up half by oil and the rest by bananas, shrimps and other marine products, flowers and cocoa. The main destinations are the United States and the countries of the region. Imports are driven both by consumption and investment in infrastructures, oil and mining. They are holding up against the increase in customs duties and quota reductions introduced in 2012, which suggests that these measures will be hardened. With regard to the balance of services, freight costs (insurance, transport) linked to trade and oil services paid to foreign companies greatly exceed revenues from tourism. On the other hand, with regard to the financial account, the sums sent by Ecuadorians who have emigrated to the United States, Spain and Italy are well in excess of dividend repatriations by foreign companies. Since the 2008 default and the closure of the private market, the external deficit is funded largely by China and the remainder by regional multilateral organisations; Chinese loans are secured on future oil revenues and electricity production. Foreign investors remain cautious; Ecuador is placed in the last quartile of the ratings for most governance criteria. Corruption is commonplace. The advantage often given to national companies in the granting of markets, price control more or less offset by subsidies, difficulties in having the validity of claims recognised before the courts, the risk of expropriation and legislative reversals are not encouraging. The authorities are however seeking investments for the development of mining resources, to revive stagnant oil production and to diversity the electricity production using dams and wind power. The government might ease the conditions for granting mining concessions and could auction licences for oil exploration blocks in the Amazon after the elections. The dollarisation of the economy means agriculture and manufacturing will continue to be unattractive.
Social progress dependent on oil resources
President Rafael Correa won the presidential election in February 2013 with 57% of the vote and his party Allianza Pais nearly three quarters of the seats in Congress against a divided opposition. Oil resources have enabled the development of social programmes and higher subsidies. However, the indigenous communities are critical of the inadequate social progress and the lack of consultation on the development of oil and mining resource, while the opposition press complains of abuses of authority. The fight against drug trafficking remains a major challenge for cooperation with neighbouring countries. Foreign policy is in line with that of Venezuela. The dollarisation of the economy adopted in 2000 seems firmly entrenched. It allows non-transfer risk to be reduced by eliminating the risk of non-convertibility but does not eliminate it.
