ECUADOR: An Introduction

Political Overview

In 2025, Ecuador continues to navigate the political landscape under the leadership of President Daniel Noboa, who took office on 23 November 2023. Beginning as a transitional president, Noboa has expressed his intention to run for re-election in 2025 to implement a long-term political agenda. His administration has focused on strengthening public safety legislation, which has garnered significant public support. A referendum held in early 2024 demonstrated this support, with the “yes” vote prevailing on measures to bolster the armed forces’ role in combating organised crime, to create specialised constitutional courts, to increase penalties for organised crime-related offences, and confiscate assets of illicit origin. The first half of 2024 was concentrated on trying to recover foreign and local confidence in the government’s ability to control the security crisis.

The government has welcomed US co-operation on public safety and is pursuing an ambitious foreign policy agenda to attract investment. It has even moved to eliminate a constitutional prohibition of having foreign bases or operatives collaborating with local military and law enforcement. This strategy has been well-received, with Ecuador’s political stability contributing to a favourable investment climate.

The upcoming election in 2025 seems to be concentrated between the incumbent and Luisa Gonzalez’s more left-wing and progressive party associated with former President Rafael Correa.

Main Legislative Developments Under the Current Government

The Noboa administration has made significant strides in advancing its legislative agenda. Its more successful bills are associated with changes in the energy market and economic progress in general and in the workplace, namely:

1. The Organic Law to advance private initiative in generation of energy;
2. The Organic Law for the financial relief and economic strengthening of the generations in Ecuador; and
3. The Organic Law to eradicate violence and harassment in all work modalities.

Additionally, the government has continued to apply fiscal measures to shorten public deficit and provide fiscal stability to meet IMF standards and continue accessing foreign funding, in particular:

• increasing VAT from 12% to 15%;
• introducing a special contribution on extraordinary corporate profits; 
• applying a tax on extraordinary profits from private financial institutions; and
• reinstating the 5% cash remittance tax.

Economic Outlook

Ecuador’s economic performance in 2024 was mixed, with a 9% decrease in exports, primarily due to lower oil prices in the first half of the year. However, agricultural exports, including shrimp, coffee, cacao and bananas, are expected to grow. The mining sector continues to receive government support, with the Cascabel mining project advancing to the exploitation phase, involving a USD4.2 billion investment over the coming years.

The government secured a new agreement with the IMF for approximately USD4 billion to implement structural reforms. This financial assistance will help finance the state budget and pay domestic and foreign public debt. As part of the agreement, Ecuador will gradually eliminate fuel subsidies, which currently account for 2.7% of GDP. Following the agreement, Ecuador’s country risk dropped to 1,119 points, the lowest since January 2023, reflecting improved market perceptions of the country's repayment capacity.

While the macroeconomic figures were steadily improved during 2024, the last quarter of the year brought an unexpected crisis associated with lack of electricity output. Given that 60% of the electricity produced in Ecuador comes from hydroelectric sources, this year’s severe drought in the north Andean region created a sizeable deficit that has affected manufacture and services’ industries. In December, the government announced the end of its emergency rationing strategy and is incorporating alternative sources of energy, while focusing on incorporating private investors into a market formerly purely publicly controlled. This has created expectations in foreign markets and investors willing to invest in energy production up to 100 MW (per project) with legal assurances of streamlined permits and preferential purchase payments to avoid a new energy crisis.

Inflation has remained controlled at 2.8%, which favours economic stability. However, there are also risks and challenges, such as vulnerability to external shocks, dependence on oil, public debt, poverty, inequality and corruption. Public debt represents 45% of GDP, which limits the government’s fiscal manoeuvrability. In relation with the public debt issue, Ecuador struck a deal for a USD1 billion public debt conversion aimed at protecting the Amazon region. The government is seeking to reach similar deals regarding other environmentally sensitive regions.  

Trade and Foreign Investment

Trade with the USA remains crucial for Ecuador, as it is the primary destination for non-oil exports. Favourable trade conditions are essential for local industries .In October 2023, Ecuador and South Korea signed an economic co-operation treaty, granting preferential access to 95% of non-oil exports. This agreement is expected to boost sales to South Korea by 27%. Additionally, Ecuador signed a commerce treaty with China, with trade between the two countries reaching approximately USD12 billion in 2022. Key exports to China include shrimp, lead and copper concentrate, bananas, balsa, wood products and cocoa.

Foreign investment continues to play a significant role in Ecuador's economy, with international interest remaining. There has been a favourable environment for M&A transactions, especially in strategic industries such as technology, health and financial services. Local parties have gained valuable experience from these transactions, contributing to a favourable investment environment.

Dispute Resolution

Ecuador is a signatory of the New York Convention and has a long-standing arbitration law. The country constitutionally supports alternative dispute resolution (ADR) methods, providing legal assurances for international companies regarding choice of law and jurisdiction clauses. Investment protection agreements are also available, further enhancing the attractiveness of Ecuador as an investment destination.

Upcoming Political Events

Ecuador is focused on resolving its internal security crisis and regaining trust from international markets through fiscal responsibility. President Noboa aims to maintain his popularity throughout 2025 to secure a full four-year term in the upcoming general election. While a slowdown in investment is expected in the first quarter of 2025 in anticipation of the presidential election, the second half of 2025 is expected to be stable, with increased investment and consumption in key sectors.