Vertical Integration

How has the FDI environment developed recently?

There has been a slowdown in terms of new FDI because of various policies. However, there are some transactions happening elsewhere, through a different kind of FDI. We have seen investment in some mature industries. For example, there have been several high-level acquisitions, and, despite being worried, Canadian and US companies are still investing in the mining sector. There is also a housing boom in Ecuador because of government spending.

How is the financial sector responding to the country’s situation?

The financial sector is responding well. Before dollarization we had a big crisis—a banking crisis—and the reason was because there was so much money in circulation and the banks became used to making more money on foreign exchange trading than actually lending. In the first quarter of 1999, the banks made 85% of their profits on foreign exchange. Then, when the crisis hit, 70% of the banking system went bankrupt. Dollarization was then imposed in Ecuador and adopted by the Ecuadorean people, who didn’t want to have their savings in the sucre, the former currency. The banks then couldn’t play in the foreign exchange trade anymore, so they had to adapt to borrowing and lending, and making money on margins. Right now the banking system is much more professional than it used to be.

How do you assess the new laws regarding competition and the capital markets?

Ecuador needs a competition law and antitrust law. There are many businesses that are vertically integrated that can get away with murder. The problem is that there is too much discretion, so the government has made a law that can be better interpreted. Ecuador is also desperate for a real capital markets law. One of the problems in the Ecuadorean capital markets—in addition to economic policies—is that there has been overregulation.

What are the main opportunities for investors in Ecuador?

Ecuador is an exotic country where the risks are higher and so are the returns on investment, if you are able to manage the risks. There are many opportunities beyond oil and mining, such as in industry and commerce. We have recently seen the entrance of Sherwin-Williams, Arca, and QBE. These are interesting times, and prices are low, which means that many assets are undervalued. For big multinationals, the risks are not that large. People focus too much on oil and mining, where the investments are huge, but in Ecuador there are other opportunities.

What has led to growth in the insurance sector?

There are several reasons. First of all, the Ecuadorean market has grown and today it is worth $1.3 billion, which is one of its main points of attractiveness. Secondly, the sector has benefitted from dollarization. There are not yet many multinationals, and the ones that decide to enter now will find a clear landscape and many opportunities. There are opportunities to enter a market that’s not saturated and make big profits. New products can also be introduced, especially in life insurance.

How would you describe Analytica and its strengths?

Analytica is the only investment bank in Ecuador. We do debt restructuring, research, M&As, and trading. We are independent and don’t belong to any financial group, and this fact allows us to work with everyone. Analytica is a financial institution with the best research department in the country. It is private and very profitable. We are becoming the main advisors in restructuring, securities, and securitizations, and we are still experts in Ecuadorean external debt, though this is now a very small focus.

How do you gain the confidence of your clients?

We have to convince boards of directors about the reasons why Ecuador is a good investment. We did a study on Venezuela that demonstrated that despite the left-wing government, Coca-Cola is still the leader in that market. Here in Ecuador, if we take the example of the mining sector, we see new regulations in place that can be taught over time, but at least they exist, and the investors know what to work toward. In that regard, the perceived risk in the country is bigger than the real risk. This is what we explain to investors. Additionally, we have carried out weekly studies for over 10 years. Ours is one of the most credible economic publications that Ecuador has. We have been very honest since the beginning about external debt, and that has given us a lot of credibility.

What can you say about Analytica’s team?

When Eduardo Checa, former Country Manager of ING Bank Ecuador and Analytica’s CEO, joined in 2006, he helped us to grow, institutionalize the company, and make it more professional. We have an excellent young executive group of people, as well as directors with a very good reputation in the market. Our internships have a lot of prestige, and many people go from here to Fletcher, which is part of Harvard University. Our idea is to maintain first-rate people.

How do you see Analytica’s future over the medium term?

We stayed in the country as an investment bank when others left, and so we are a reference in the country. We are expanding in Latin America and seeking the opportunity to do business in the US and South America. We are waiting for pending local authorization to bring mining companies to Ecuador. Also, we have enough influence and prestige, though we are extremely ethical, to get access, achieve successful deals, and manage investor risk better than anyone.