Monthly Snapshots - July 2021: Ecuador Edition

With a promise of reigniting the economy, Guillermo Lasso assumes office in Ecuador

Conservative Guillermo Lasso took office in May as president of Ecuador with the promise to kickstart an economy affected by coronavirus. He also promised to create jobs for a population exhausted by years of damaging austerity measures.

The 65-year-old former banker and businessman, who defeated socialist candidate Andrés Arauz in the April elections, promised to restore social spending and policies previously seen in the Rafael Correa cabinet who saw power for a decade until his decision to abstain in the 2018 elections.

His foreign policy will be marked by a push for free trade agreements and his political priority in foreign affairs is aim at entering Ecuador in the Pacific Alliance. Ecuador’s most recent president Lenín Moreno (2017-2021), who decided to abstain from a second term with a 10% approval at the end of his cabinet, was unable to make economic progress due to his adoption of traditional market measures. In his presidency, Ecuador saw cuts in public spending and loans from the International Monetary Fund (IMF) and other multilateral organizations.

Ecuador sees an economic recovery with an expansion of 2.8% in 2021

The Central Bank of Ecuador (BCE), presents its recovery plan, beginning with a macroeconomic forecast of 2021 (published on November 30 of the previous year).

Three identifiers are set out for the year 2021 which highlight Lesso’s economic plan:

1. Continuity with the program of the International Monetary Fund (IMF);

2. The economic growth of the main world economies;

3. The expectation of the general vaccination of the population against covid-19.

In 2021, Ecuador saw a GDP recovery of 2.8% compared to 2020, an atypical year due to the COVID-19 pandemic. Below shows the figures published by the Central Bank:

Growth in the domestic economy

The next macroeconomic forecast saw several assumptions being made by the Central Bank. Some of which include: The recovery of household consumption by 2.1%; export increase of 2.8%; 1% investment increase; imports recovery of 3.3% (due to the expansion in demand for consumer goods, which will amount to USD 697 million and raw materials, which will reach USD 1,281 million); capital good increase (which will total USD 867 million; and fuels and lubricants, which will represent USD 984 million.).

Ecuador will launch new participation contracts to attract oil investment

Ecuador will start with a bidding process so that companies (that already operate in the country) can migrate "freely and voluntarily" to participate in contracts from the current service provision, in which the government pays them a certain fee.

Additionally, the government will carry out a study to determine the oil fields that will be included in international tenders and those that will continue to be operated by the state oil company Petroecuador.

Ecuador will also create a "sustainability fund" that will be fueled with a part of the oil revenues, being used for social programs, especially in the areas of influence of the oil infrastructure, where they tend to be the poorest areas of the country. country.

Why Ecuador is a good place to launch your tech startup

Although traditionally known for its agricultural products, and against the general consensus, Ecuador has advantages for those who want to innovate in technology.

Ecuador is a country known for its biodiversity and the quality of its agricultural products, but not for its technology. In addition, it is a small market, so many Latin American tech startups skip it in their expansion plans.

Ecuador is an excellent place to develop and launch a technological product and then take it to the rest of the continent. Among the advantages it offers are a dollarized economy, the diversity of its natural regions, its uncompetitive market, high Internet penetration and a relatively large pool of talent.

Diversity of regions

If there is something that defines Ecuador, it is its diversity: it is like three countries in one. This makes it an excellent place to experiment. This is not a secret among mass consumer companies such as Nestlé or Kraft, which often choose Ecuador to test new products. If, for example, it hits the Coast but not in the Sierra, they can plan its launch in other countries accordingly.

Dollarized economy

Perhaps one of the main advantages that Ecuador offers is dollarization. For the entrepreneur looking to scale regionally, laying the foundations in a dollarized country helps mitigate the currency risk that operating elsewhere would entail. For the investor, a dollarized economy ensures that returns will not be diminished by devaluations.

Although the advantages offered by dollarization have not yet been reflected in risky investments for the technology sector, at the macro level they are already being seen. The American Development Finance Corporation (DFC) finances mortgages in the country that it then securitizes in the United States and sells them to investors in that country. This operation has the effect of lowering the interest rates that Ecuadorian banks (Banco Pichincha, in this case) can offer their clients.

No competitive market

The fact that the Ecuadorian market is not very competitive is an advantage when you are just starting out because customers tend to be more patient. After all, they don't have many other options and are used to things not working out perfectly.

But beware: it is a double-edged sword. If you are not clear about your goal of expanding into more competitive international markets, the widespread mediocrity of local competition can lower your own standards. We cannot neglect quality and professionalism if the ambition is to become a regional or international benchmark.

High internet penetration

The way to measure connectivity varies a bit depending on who does it, but the fact is that Ecuador leads the internet penetration rates in Latin America. According to Hootsuite's WeAreSocial.com, in 2018 Ecuador had an Internet penetration of 80% compared to 73% in the Americas.

The reasons for the high penetration of the Internet in Ecuador are various, but like many developing countries, its use is linked to the proliferation of smart cell phones. We also have the advantage of being the South American country with the highest population density, which makes providing cellular coverage cheaper than in others —such as Bolivia, Peru, Chile or Argentina— that have large areas with very few inhabitants.

Additionally, something that is rarely recognized is that Ecuador has exported software since the 1980s. Many of these entrepreneurs now invest in and advise the new generation of entrepreneurs. This makes the tech talent pool relatively high for a country that is best known for its agricultural and natural resource exports.