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ECUADOR: An Introduction

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2019 continues to herald interesting prospects for Ecuador in many aspects. A significant shift in public policy regarding private investment has taken place, which provides opportunities for foreign investors in the country.

After a significant decrease in public revenue, due to the fall in oil prices, and increased public expenditure by the former government, the economy saw conservative growth in the first half of 2018, with 1.9% in the first trimester and 0.9% in the second trimester.

Yearning for capital in strategic sectors such as oil and gas, electricity, infrastructure and tourism, the government has taken a full approach to promote private investment by implementing several strategies such as:

Enacting a new tax law (Tax Law to Foster Productivity and Reactivate the Economy) that offers a tax amnesty and a set of tax advantages and investment protection to several sectors, including pharmaceuticals, tourism, agribusiness, manufacturing, renewable energies; and to several essential industries such as hydrocarbon refining, petrochemicals, casting and refining of copper or aluminium, among others. This piece of legislation should provide a significant boost to the economy.

Several concessions of public works and public-private partnerships have been announced by the government in sectors such as electricity, infrastructure and transportation.

Alignment with international organisations that will foster confidence and strengthen relationships with key partners and stake holders.

Ecuador increased its status from an "observer" to an "associate" country to the Pacific Alliance, thus allowing the country to reinforce commercial relationships with Peru, Colombia, Chile and Mexico, and paving the way towards free trade within the Alliance.

On another front, the government has also taken the first steps to become a member of the Organisation for Economic Co-operation and Development (OECD) with the intent to apply best practices to public policies regarding social, economic and environmental matters. The executive branch believes that this alignment will pave the way to foreign investment and better credit conditions.

Encouraging oil and gas, mining, electricity and construction which are sectors of the Ecuadorian economy that typically attract foreign capital and long term growth.

In the hydrocarbon industry, the government launched an oil bidding round - Intracampos - where 8 blocks are being offered for tender. In light of promoting the bidding round, the contract offered is a production sharing model instead of the service contracts offered in past tenders.

The new production sharing contract provides a formula in which the production shared between the private contractor and the State fluctuates depending on international oil prices. When the price increases, the State share increases in the proportions negotiated. The government expects this formula to create a stable contract which shares the risk of oil price fluctuations with the contractor.

The government sees the Intracampos Round as a starting point for future oil and gas projects and as a showcase for international investors to learn about the new policies the government is offering.

Furthermore, with regard to oil and gas projects, the government is encouraging an international audit by the United Nations Development Programme of five major projects, such as refineries, pipelines and liquefaction plants, in order to determine possible overpricing and to advise on better project development.

Regarding the Mining Sector, President Moreno's administration has acknowledged the importance of developing this industry, with a more peaceful coexistence between miners and environmental activists. For this reason, a popular consultation was held, setting the basis for responsible mining, assuring that protected areas such as natural reserves will be preserved. Other significant changes regarding the mining industry involve the elimination of windfall tax and the reduction of capital gains tax, among others.

In regulatory and legal matters, a new law to simplify processes was enacted. Although some industries have powerful regulatory agencies that require significant initial licences such as the food, medicine, agrochemical and telecommunications industries, the law speeds up certain day-to-day procedures and waives certain requirements.

In dispute resolution matters, local arbitration for commercial disputes is available in the largest urban centres. A set of procedural reforms in 2016 moving towards an oral litigation system has also helped to speed up the ordinary justice system.

In light of the above, the business environment in Ecuador is more favourable given the public sector's push to increase its collaboration and positive interactions with the international community and private sector, which is clearly encouraging to foreign investors.