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Henry Kronfle

ECUADOR - Industry

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President, Chamber of Industries of Guayaquil

Bio

Henry Kronfle graduated as a Mechanical Engineer from Miami University, and has held top positions at various companies, including FISA – Fundiciones Industriales, Window World, Ecua Flama, and Techproduct. He is currently the President of the Chamber of Industries of Guayaquil, and has been Honorary Consul for Mexico since 2010.

"We explain to foreign investors where to invest, what to invest in, and what the advantages are of investing in Ecuador."

How would you characterize the economy over 2011?

We predict that the final results for 2011 will reveal GDP growth 6% over the same figure for 2010. The result can be put down to many reasons. One of these reasons is the high price of oil. The average price per barrel that Ecuador sold on the international market was $94.88. That was 36% higher than the price in 2010. There was also a lot of public investment injected into the economy, especially in infrastructure and construction, through credits given by the Social Security Bank. It invested around $626 million in 2011 in housing. There has also been increased credit released in order to activate the private sector. Hundreds of millions of dollars were given to the private sector to be used for private investment and working capital. There has also been growth in the credit issued by private banks in the country—19% higher than 2010—and this increased household consumption. Ecuadorean exports have also increased. The price of commodities and raw materials has risen over the past few years. Ecuador has also been using resources for public expenses by raising taxes. Tax revenues rose 9.1% in 2011. Those are the main reasons that the construction sector and household consumption sectors grew so much in 2011. Industry increased 6.2%, mainly showing growth in beverages, wood, and textile manufacturing. Mining had growth of 4.5%; agriculture also grew. And all this is what made so much economic growth possible.

What are the Chamber of Industries’ main goals for 2012?

We have to be very careful about the future, and predict the factors producing our expected results. Internally, we believe that there will be higher inflation that could affect household consumption. This would be an effect of the new tax laws, which will add to the cost of production and thereby raise the prices of products and affect consumer purchasing power. Household consumption plays the most important role in the growth of the economy, and it is one of the things we are very concerned about. The anti-monopoly law is also very worrisome for us. The government may begin to implement price controls due to possible rising costs. If the government starts controlling prices, it may affect industry.

“We explain to foreign investors where to invest, what to invest in, and what the advantages are of investing in Ecuador.”

Another major player this year will be government. How much money do you anticipate it will inject into the economy?

It depends on worldwide oil prices. One of the main things that might change oil prices is how the European crisis will be resolved. If Europe reduces its demand for oil, it will cause a problem for prices. The amount of money that the government will be able to invest depends on this. Our foreign trade policy will also make an impact. We have duty preferences with the US and EU until 2013. If these agreements do not evolve into free trade agreements, 82% of what the US or Europe purchases will come from our neighbors. If they don’t see Ecuador as a stable country in the long run, exporting with no duties to other countries, they will seek a different supplier. In a dollarized economy, it will be a severe outcome. However, we expect our economy to grow 5.35% in 2012, based on conversations we have had with the Central Bank and the government. The IMF expects 3.8%.

What measures will the Chamber of Industries take in order to soften the potential risks?

If there is liquidity in the system, the economy will be dynamic, and the Chamber will take advantage of this positive development. There are some industries that will have a high capacity to latch onto that increase, but some industries in different sectors will suffer. We are largely prepared so far. The peak investment of industry depends on the stability of the market. We know that an economic boom could be temporary, but we have to plan for the long run. We can’t recover domestic or foreign investments in the short run, and it’s tied to economic policy. We have high hopes for the food, textile, plastic, and construction sectors in 2012. They are definitely prepared for growth. Our ambassador is going to Washington to discuss agreements with the US market. This will be absolutely relevant for Ecuador’s investors.

What are the key challenges for the public and private sectors?

We want both sectors to be headed in the same direction for Ecuador’s production matrix. Having clear dialogues about how new policies affect production and how economic growth is happening in less populated areas is important. We would like to increase production in the areas with no development, and we have to work together to make this happen. The Ecuador-EU agreement is one of the most important tools we have to work with. In Manabí­, one-third of jobs are related to exports to the EU, and we have to maintain that. We aim to lead dialogues on increasing cluster possibilities, improving confidence in the private sector, internationalizing SMEs, and attracting foreign investment. This will further integrate Ecuador into the global economy.

What are some of the projects the Chamber has been working on with the Ministry of Industry and Productivity of Ecuador (MIPRO)?

Ecuador Industrial was the most successful project we carried out in 2011. It was a national conference where medium and large companies in industry and commerce gathered to buy products, services, and parts from SMEs. We were able to transfer technological advantages and knowledge between companies of all sizes, and enable small companies to find credit from public and private banks. MIPRO played a major role by helping companies meet standards of excellence. Large companies were able to learn about formality, delivery time, and quality. We encouraged those companies to be more formal and transparent. We also substituted $74.2 million worth of exports in those two days, while giving business to local SMEs. We also have a lot of social responsibility projects, separate from MIPRO. We are also building the System for Labor Integration (SIL) to get people with disabilities into the economy. We are offering training courses and preparing them to be a part of the workforce with equal conditions.

What should companies know before investing in Ecuador?

They have to learn the organic production code. There are three things that make the Ecuadorean market attractive: legal safeguards, a tax package, and the geographical location of the market. The production code offers a tax package, but the laws are being reformed. The first thing I can suggest is to take a look at the production code and understand it fully, because that is what Ecuador can offer today.

What does the Chamber of Industries of Guayaquil offer to foreign investors interested in Ecuador?

We are the bridge between the private sector and the government. We explain to foreign investors where to invest, what to invest in, and what the advantages are of investing in Ecuador. We also advise them on who to invest with, and encourage them to talk openly with the government, in case the government needs their investment specifically.

What is the profile of your members?

Commerce and media firms are members of the chamber, in addition to industry. There are a lot of sectors of the economy that can join the Chamber. The only requirement is to be a company that runs an ethical business. We are more than happy to have a law-abiding, ethical member to support. We have 750 members in our Chamber, and our members represent 40% of what the country produces, 42% of industrial assets, 30% of total employment in the manufacturing sector, and approximately 45% of the total taxes paid in Ecuador. We also represent more than 40% of the trademarks designed in this country.

© The Business Year – April 2012

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