By Elizabeth Martínez de Marcano
Ecuador is living exceptional times. In a world that increasingly questions the growth models that have yet to eradicate exclusion and guarantee long-term prosperity, the Ecuadorans are building its own success story. After being a country with one of the world’s highest rates of infections and deaths due to the COVID-19 pandemic, the government announced during the first week of September that it had met the target of vaccinating 9 million people in 100 days. The nation went from being one of the countries hardest hit by the pandemic to becoming an example for the world.
The successful vaccination efforts are the latest example of the benefits that arise from a fruitful collaboration between the public and private sectors. The dialogue in the country has shifted, with the government paying greater attention to the private sector and the necessity to create space for private activity to expand its role in the years to come. In this context, the World Bank and IFC are promoting the first Country Private Sector Diagnosis (CPSD) for Ecuador: a joint effort that aspires to become a substantial tool that allows detecting the challenges ahead and the best practices to face them. The report reflects the early impacts of the pandemic, and the current understanding regarding the potential fallout of the crisis on the country and on the private sector.
IFC wants to identify areas of opportunity where the Ecuadoran private and public sectors can work together to promote development, economic inclusion, and the fight against climate change. The CPSD’s analysis and recommendations remain as, if not more, valid in the context of the pandemic and of an eventual recovery. A dynamic and resilient private sector is necessary if Ecuador is to break the low-growth trajectory it finds itself in today. The CPSD argues that tackling some of the major obstacles facing the private sector — ensuring a stable and predictable policy environment, improving the incentives for trade and investment, enhancing the playing field in terms of competition, strengthening the capacity of the financial system to support private sector-led growth, and implementing labor regulations that allow employees and firms to respond more flexibly to changing circumstances — is essential to job creation, firm performance, investment, and productivity.
According to Mariana Vijil and Zeinab Partow, economists of the World Bank Group and main authors of the CPSD, the government has taken positive first steps to address some of these barriers and boost new activities on the road to recovery. The diagnosis attention is focused on four sectors of the Ecuadoran economy:
A) Mining. The geological potential of the country is vast but underdeveloped. Ecuador’s great biological, social, and ethnic diversity creates the opportunity and the obligation for the country to pursue “green growth mining,” associating large scale projects with biodiversity conservation and community development. For this potential to materialize, however, legal, regulatory, and institutional constraints need to be addressed
B) Perishable agricultural exports (fruits, vegetables, fisheries and related food safety standards). Ecuador exports significantly more fruit and fishery products than its much larger neighbors, Colombia and Peru. Important advantages and opportunities in the production of fruits, vegetables, and fishery products can be harnessed to further grow these exports. These opportunities include the possibility for off-season production; a focus on organics; and greater use of modern, cold-chain, post-harvest technologies to allow the export of perishables to more distant markets. Ecuador’s exports are nevertheless constrained by a lack of infrastructure and institutional capacity as well as by broader macro-level constraints.
C) Logistics and transportation for perishable goods. The COVID-19 pandemic has impacted the transport of agricultural products. The obstruction of border crossings and delays at ports and in customs have hampered sector exports. Beyond the current crisis, land transportation in Ecuador is constrained by factors such as high import tariffs on trucks and parts and a lengthy process to register new trucks, both disincentives to investing in fleet modernization. In maritime transportation, the concessions of Ecuador’s public ports over the past two decades have significantly improved port infrastructure and connectivity to global shipping networks, although some difficulties remain. In air transportation, the success of the country’s open-sky policy will depend on the level of ambition of the bilateral agreements to be negotiated.
D) Tourism. The tourism industry is Ecuador’s fourth-largest nonpetroleum export and its largest service export, contributing more than 5 percent of the country’s GDP. Prior to the COVID-19 pandemic, it had been experiencing robust growth. Nevertheless, tourism revenues in Ecuador continue to be concentrated around the Galapagos Islands, with limited spillovers to other areas and segments of high potential.
These are by no means the only sectors in the Ecuadorian economy that would benefit from improved regulation and a more developed collaboration of the private sector. They do, however, provide concrete examples of how the cross-cutting constraints considered in the CPSD have affected important areas of economic activity in Ecuador.
Last November, IFC held Creating Markets in Ecuador: Country Private Sector Diagnostic, a virtual event where 12 high-level representatives of the government and the private sector broke down the main findings of this analysis with the authors of the report. With the participation of Simón Cueva, Minister of Economy and Finance, and Julio José Prado, Minister of Foreign Trade, Investments and Fisheries, the consensus of the event was unanimous: The diagnosis of what needs to be done is shared by all; It’s time to work together on solutions!
- Elizabeth Martínez de Marcano is the Country Manager for IFC in the Andean Region.