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ECUADOR: An Introduction

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Ecuador begins 2021 aiming to jump-start the economy after the losses of 2020 and will also welcome a new government as the current President, Lenin Moreno, decided not to run for a second term.

With the last four years focused on ensuring legal and fiscal stability to attract foreign investment as a crucial element of public policy, the new administration will be tasked with continuing such efforts to further secure foreign investment as well as important financing.

Regarding the government response to COVID, an announced vaccination plan for 2021 is already set in motion to allow productive activities to develop fully. Ecuador’s GDP took a significant hit in 2020, falling by an estimated 8%, but preliminary figures for 2021 estimate growth of 3%.

After initial full-on lockdowns in March-May, the government has opted for less restrictive measures controlled by local authorities; therefore, public and private activities in most sectors are expected to carry on in 2021.

Lacking stimulus packages due to the economic contraction, Ecuador has enacted important legislation, especially relating to labour rules, to aid private entities. The new emergency and productive contracts have very important provisions to promote employment but with flexibility in terms and indemnification that reduce risks for employers. Remote work has gained importance and prompted technification in many areas. Accordingly, labour regulations have also been updated to clearly outline new work conditions.

The IMF’s help in covering a significant public deficit has also promoted important efforts to reduce unnecessary public expenditure. The extraordinary events in 2020 have also meant a reduction of public agencies alongside efforts to diminish regulatory hurdles.

A combination of promotion of private investment as a means to revamp the economy and more technical controls of public spending have improved external perception and have been the basis for agreements with external entities such as the IMF.

Although there will be a new administration, the public agenda and public policies are expected to be focused on objectives such as:

- Increase productivity.
- Reduce the public debt and deficit.
- Income tax exemption for new investments.
- Promote investment and job creation.
- Increase Ecuador’s credibility in foreign markets.
- Increase revenue from public assets and infrastructure.
- Effective payment of Ecuador’s international obligations.
- Increase oil production, promote responsible mining operations.

Ecuador’s continuous efforts to increase productivity is also a central point in the country’s agenda. As Ecuador uses the U.S. dollar as its currency (which is perceived as an important cause of economic stability), it is crucial to increase its participation in foreign markets with competitive local products. The commercial treaty with the European Union continues to bring important opportunities in that regard.

Moreover, in December of 2020, negotiations of a commercial agreement between Ecuador and the United States, headlined by the Office of the United States Trade Representative, have produced an initial phase agreement. The United States is Ecuador’s principal destination for non-oil related exports, and favourable conditions are key to local industries.

Important legal reforms like those to the Code of Commerce which incorporated regulations to several contracts previously ignored by Ecuadorian legislation in the fields of distribution, agency and franchising, continue to strengthen commercial relations within the country and with foreign counterparties.

A legal reform to the Companies Law incorporating the new “SAS” (simplified stock) corporation has prompted a wave of incorporations of companies free of past restrictions such as notarial and registration expenses and delays in authorisations. These reforms have also updated important aspects of corporate law in Ecuador to keep up with neighbouring countries and allow shareholders to incorporate truly binding shareholders’ agreements and, in general, better corporate governance.

Due to the need to cover the deficit, several public entities have continued to promote private investment by implementing several strategies such as concessions of public works and public-private partnerships. Concessions of public infrastructure have been announced as part of these efforts, and interesting developments are expected.

In the hydrocarbon industry, the government expects to increase production and has entered into several contracts with private companies offering incentives to investments that allow incremental production. A potential recovery of international oil prices, if the expected increase in demand exists, would also bring important income and increase activity in general.

The mining industry has been slowly advancing with many important international players setting up shop in the country. Both public and private entities have been acknowledging the importance of developing this industry, with a more peaceful coexistence between miners and environmental activists. Gold and copper are the more prominent resources in the country.

Although some industries have powerful regulatory agencies that require significant initial licences such as the food, medicine, agrochemical and telecommunications industries, important reforms aim to expedite most day-to-day procedures, incorporate electronic means to file petitions and waive certain requirements. This has been especially palpable in the pharmaceutical industry and sanitary registration of such products.

In the telecommunications market, the government aims to increase internet access and has reformed the Telecommunications Law to offer advantages to tech companies and reduce the rates for spectrum use, among other measures.

The M&A market was on hold for most of 2020 but resumed in the last quarter. The acquisition of medium and large local companies by foreign investors seems to be a prevalent and important trend. Local parties have gained important knowledge in the last decade for such procedures and international interest remains high.

In dispute resolution matters, local arbitration for commercial disputes is available in the largest urban centres and the country is becoming more knowledgeable in the management of important commercial disputes. The court system was benefited by major reforms to civil and administrative laws, and terms to resolve disputes are now perceived as reasonable.

Important pieces of legislation that may be approved in 2021 notably include the much-delayed data protection law that has been in the works for years, an area where Ecuadorian legislation has been clearly behind other jurisdictions.