Ecuador's manufacturing industry is set for another leg up as the government's new tax plan entices investors, both local and foreign, to reap the rewards of an economy that was recently opened to private enterprise.
Ecuador’s GDP has boomed from USD18 billion in 2000 to USD103 billion in 2017. Although the Ecuadorian economy has historically been largely dependent on primary industries such as agriculture, petroleum, and aquaculture, shifts in global trends and new technologies have led to the development of the textile, processed food, and metallurgy sectors, among others. In terms of contribution to GDP, the service, industry, and manufacturing sectors contributed 56.14%, 33.43%, and 16.33% in 2017, respectively. Those numbers are in line with the distribution of employment by sectors: 54.54%, 26.93%, and 18.53%.
Up until the 1990s, Ecuador’s non-oil sectors were focused on serving the domestic market but the introduction of multiple free trade zones (FTZ) and investor-friendly policies and reforms have made the economy more competitive. However, despite remarkable efforts by Ecuador’s own standards, the fact that the majority of investment and investment decisions rested in the hands of the public sector meant private investors remained hesitant. But that is now changing, largely thanks to the introduction of a set of new laws, including hefty tax exemptions, by the Correa government, the positive effects of which can already be seen.
For example, by relaxing the implementation of the 70% windfall tax on profits, mining firms have to pay the tax after they have regained full capital investment and only if commodity prices reach pre-determined levels of USD1,500 per ounce for gold and USD8,818 per ton for copper. Based on these changes, the government is predicting that the value of Ecuador’s mining industry will jump from USD1.1 billion in 2018 to USD7.9 billion in 2021. A number of international mining giants have already started investing, including Lundin Gold, China-based Tongguan consortium, Canada-based Aurania Resources, and Cornerstone Capital Resources, among others.
The mining sector is not the only beneficiary of the recent uptrend. A growing number of automotive, construction, textile, FMCG, and telecommunication companies are investing in Ecuador due to the favorable tax plan on offer. Local companies have also taken note and are now finalizing plans to expand operations. During an interview with TBY, one of the important players in Ecuador’s automotive sector CEPSA’s general manager Hernando Chiriboga D. highlighted the company’s plan to “grow internationally, start distributing Hyundai, and open related facilities in Guayaquil.”
Keeping all these factors in mind, it is safe to say that the Ecuadorian economy is nearing another period of explosive growth, much like what it experienced after 2000.