By TBY | Ecuador | Feb 01, 2015
In order to promote technological innovation, quality employment, and import substitution, the government has rolled out a series of tools and incentives to support entrepreneurship and productive investments in Ecuador. […]
In order to promote technological innovation, quality employment, and import substitution, the government has rolled out a series of tools and incentives to support entrepreneurship and productive investments in Ecuador. In late 2010, the President’s cabinet agreed to a 3% cut in the corporate tax rate, down to 22%, in order to incentivize investments. This reduction is in conjunction with a 10% reduction in taxes if firms reinvest earnings within a year. In addition, a capital outflow tax of 5% penalizes companies that move their earnings abroad. Another new policy has been the creation of Special Zones for Economic Development (ZEDE), which function similar to economic free zones. If a company is established in a priority industry within a ZEDE, it is eligible for a five-year exoneration from corporate taxes. Moreover, foreign capital goods enjoy a waiver of duty payments and tariffs, as long as the goods remain within the ZEDE. Companies are also eligible for exoneration from the 5% Capital Outflow Tax for goods imported and payments made on foreign loans and stockholder earnings. Lawmakers in Ecuador are banking on these, and other incentives, to draw the kind of investment and development that will enhance the value of human resources and technological holdings.
The cornerstone of President Correa’s ambitious transformation is developing the petrochemical industry in Ecuador, as the current refineries are outdated and incapable of the capacity required by the national economy, and the emerging petrochemical industry. A joint investment by the Industrial & Commercial Bank of China, Ecuador, and Venezuela on a refinery that will process 300,000 barrels per day (bbl/d) is set to address this paucity. The new refinery will also correct the country’s reliance on imports by processing crude oil into petroleum derivatives including high and low octane fuels, diesel, lubricants, polypropylene, benzene, xylene, and ethanol. Given that Ecuador had a negative trade balance of over $687 million in plastics in primary form alone, enhanced petrochemical capabilities could go a long way toward correcting the current account deficit.
As Ecuador ramps up its productive capacities, making its human resources capabilities internationally competitive will present a challenge. While high school enrollment rates are low at 62.5%, they are more reflective of an overall lack of enthusiasm and opportunity, both of which are already changing. When compared to enrollment rates of 48.9% in 2006, current enrollment rates are a positive signal. Higher education is getting a makeover as well. Higher education enrollment has increased from 22.9% in 2006 to 30.1% in 2011, and is expected to increase over the years. One university in particular, Yachay, is set to impart the skills necessary to drive the kind of development that President Correa aspires to achieve. With over $1 billion in total investments, the project will attract talent and companies to Ecuador, with President Correa calling it the most important project of the last 100 years.