ECUADOR: An Introduction

Ecuador has started 2023 with a clear intention to bring foreign investment and creating long-lasting commercial relationships with several countries.

The government has boasted recent closing of negotiations of such agreements with China and Costa Rica.

It also finished its 2022 foreign policy agenda with a visit to the United States to confirm strong cooperations in economic and security issues.

Projections for the Ecuadorian economy in 2022 are of 2.7% growth as evaluated by the IMF. The biggest source of growth comes from the positive results in the following industries: (i) aquaculture; (ii) tourism; (iii) communications; (iii) electricity; (iv) transportation and logistics; (v) commerce.

Paired with the projected growth, the economy has in great part avoided the shocks of global inflation. The inflation figure stands at 3.6% which is one of the lowest of the region and confirms positive projections of the economy and a general environment of stability.

According to official figures, foreign investment grew in the first semester of 2022 in comparison with figures from the 2019-2021 period, even surpassing pre-pandemic projected levels. The administration also states that the 228 investment contracts signed since 2021 have generated 5,000 MDD in investments and are projected to create 130,000 direct jobs.

Stability in the prices of commodities’ value has also had an important and positive fiscal impact as it has allowed to reduce deficit and better organise public expending. Oil prices in 2022 have been extraordinary and generated significantly more income than originally expected.

With fiscal stability at its core, the increase of government income through exports has been combined with a comprehensive tax reform in the latter part of 2021, which has generated a 29% increase in income tax collected in 2022. This increase has been combined with the planned reduction of the cash remittance tax, which has dropped from 5% to 4% in 2022 alone, to lessen impacts in foreign trade.

Ecuador’s continuous collaboration with the IMF has provided an organised and sustainable line of credit for the country, while promoting economic growth and controls of public expenditure.

Public agenda and public policies are expected to continue to be focused on objectives such as:

- Increasing private investment.

- Increasing productivity.

- Reducing the public debt and deficit.

- Promoting investment and the creation of jobs.

- Increasing Ecuador’s credibility in foreign markets.

- Increasing revenue from public assets and infrastructure.

- Effective payment of Ecuador’s international obligations.

- Increasing oil production and promoting responsible mining operations.

Ecuador’s ongoing efforts to increase productivity is also a priority in the country’s agenda. As Ecuador uses the US dollar as its currency (which is credited with providing economic stability), it is crucial to increase its participation in foreign markets with competitive local products.

Stronger foreign policy collaboration between Ecuador and the United States has meant receiving increased assistance in trade and security matters. Trade with the US is key to Ecuador as it is the principal destination for non-oil-related exports, and favourable conditions are key to local industries.

Ecuador has advanced in its efforts in joining the Pacific Alliance with Chile, Colombia, Mexico and Peru. Ecuador rejoined the ICSID Convention in 2021 and filed its formal request for admission in January 2022.

One of the most significant legislative issues has been the unanimous approval of the Organic Law for Digital Transformation. This significant reform has introduced several novel regulations to the local legal system, including:

- Ample definition of digital services, digital identity, and digital domicile.

- Tax breaks for media productions.

- Incorporation of digital securities instruments with electronic signatures.

- Digitalisation of notarial services.

- Formal incorporation of digital hearings for trials.

- Availability of serving a process through email in all judicial proceedings.

A modernised contract law framework has seen the Code of Commerce work favourably to further develop clear and flexible rules for distribution, agency and franchising.

The limited responsibility company “SAS” continues its growth as the standard for private enterprises keeping up with neighbouring countries and allowing shareholders to include truly binding shareholders' agreements and, in general, better corporate governance.

In the hydrocarbon industry, the government expects to increase production and has entered into several contracts with private companies, offering incentives for investments that allow incremental production. It also plans to offer several sites for bidding to private companies in the coming months.

Mining industry continues to be the great public national objective. The administration finished in 2022 with the issuance of regulations for better defining obligations in the exploration and exploitation stages of mining concessions. Current projected figures of mining exports for 2023 are expected to reach 3,600 MDD, the largest sum in history for the country.

On the energy front, a full change in self-generation rules has brought renewed interest in the sector and will likely see many important projects come to fruition in the near future, especially in renewable energy projects, strongly pursued by the administration.

The banking industry has seen positive results in response to important changes as legal reforms have relaxed specific limitations for investment and broadened the definition of financial services, allowing for financial groups to be better integrated. This also means that the industry has become more open to incorporation of new investors as shareholder participation - which was limited before to 6% if such investors held interests in other industries - has been raised to a 25% limit.

The incorporation of open and modern regulations to activities tied to fintech is also a main immediate goal, as private ventures in the field are quickly gaining more relevance.

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 filing and waive certain requirements. This has been especially palpable in the pharmaceutical industry and the sanitary registration of such products. Also, many of these agencies have been implementing electronic filing options, first as a result of the disruption caused by the pandemic and now permanently. The reduction of regulatory hurdles is officially incorporated as public policy.

In the telecommunications market, the government aims to increase internet access. A recent reform of the Telecommunications Law offers advantages to tech companies and reduces the rates for spectrum use, among other measures. The reduction in rates tied to spectrum use aims to create a more competitive market. Changes in regulations in other areas such as landing rights for new technologies are also part of the public authority’s agenda.

The M&A continues growing steadily after the pandemic. 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.

The Data Protection Law incorporated international standards and concepts will demand companies to create internal procedures to follow such rules. This will require changes to be made by certain businesses which regularly gather and manage personal information, including changes to internal manuals, policies, contracts, appointment of data protection officers, and new reporting obligations. All these regulations are set to be enforced in 2023, so assistance in handling data protection locally will be key for many businesses.

In dispute resolution matters, Ecuador is a signatory of the New York Convention; it has a long-standing arbitration law and it constitutionally approves of ADR methods in general. International companies have legal assurances that choice of law and jurisdiction clauses are respected in local courts.

The changes introduced by the General Regulations for the Mediation and Arbitration Law have proven to be especially meaningful in public-private relationships as public procurement disputes have been set to go to arbitration as a general rule, breaking a long-standing tendency to submit such disputes to administrative courts. Among the most significant changes, the annulment action for arbitral awards has appropriately been narrowed in application both legally and through significant case law.