ecuador - The Business Year

DIPLOMACY | ECONOMY | FINANCE | ENERGY | INDUSTRY & MINING | TELECOMS & IT | TRANSPORT |
REAL ESTATE & CONSTRUCTION | AGRICULTURE | HEALTH & EDUCATION | TOURISM
ECUADOR
2014
In This Issue
DIPLOMACY
INTERVIEW
VALUE CHAIN AHOY!
Jorge Glas, Vice-‐President
of Ecuador, on the
productive matrix
14
ECONOMY
FOCUS
ECUADOR’S RETURN TO
THE BOND MARKET
MY WORD IS MY BOND
Ecuador returns to the
global capital markets
28
ENERGY
REVIEW
COUNTING OUT CRUDE
Value-‐adding seen as key
for economic diversity
and export performance
65
TOURISM
PHOTO ESSAY
DESTINATION CUENCA
Ecuador’s third largest
city is a hit with locals
and expatriates alike
168
œ1/vù3/v+-*v=>H+.*v;O>+-1vMA>+0,
THEBUSINESSYEAR
3
Contents ECUADOR 2014
65 ENERGY
65 Counting out crude ‡ REVIEW
68 HE Pedro Merizalde Pavón,
Minister of Non-Renewable Natural
Resources ‡ INTERVIEW
70 Yvonne Fabara Arias, Secretary
of Hydrocarbons ‡ INTERVIEW
21 ECONOMY
71 Marco Gustavo Calvopiña Vega,
General Manager of Petroecuador
‡ INTERVIEW
21 Welcome back ‡ REVIEW
24 HE Francisco Rivadeneira,
Minister of International Trade
‡ INTERVIEW
26 Antonio García Ruales, Executive
Director of PRO ECUADOR ‡
INTERVIEW
27 Cristian Espinosa C., Executive
Director of the Ecuadorian-American
Chamber of Commerce (AMCHAM
Quito) ‡ INTERVIEW
45 The reform club ‡ REVIEW:
BANKING
48 Fausto Herrera, Minister of
Finance ‡ INTERVIEW
50 Diego Martinez V., President
of the Board of Banco Central del
Ecuador (BCE) ‡ INTERVIEW
28 My word is my bond ‡ FOCUS:
ECUADOR’S RETURN TO THE BOND
MARKET
51 Ricardo Cuesta D., Executive
President of PRODUBANCO-Grupo
Promerica ‡ INTERVIEW
30 Mauricio Rodas Espinel, Mayor of
Quito ‡ INTERVIEW
53 Efrain Vieira Herrera, Executive
President of Banco del Pacífico
‡ INTERVIEW
31 Hugo Villacrés Endara, President
of the Board of the Ecuadorean
Institute of Social Security (IESS)
‡ INTERVIEW
6 ¡Viva la revolución! ‡ YEAR IN
REVIEW
32 María Soledad Barrera
A., Chairman of the Board of
Corporación Financiera Nacional
(CFN) ‡ INTERVIEW
9 DIPLOMACY
34 Come talk to us ‡ B2B:
CONSULTING
9 Pacific rules ‡ REVIEW
45 FINANCE
55 The future is now ‡ FORUM:
TECH BANKING
56 Bond is back ‡ REVIEW: EQUITY
MARKET
56 Fernando Martinez, Partner in
Investum ‡ COLUMN
72 Eduardo López Robayo, President
& CEO of Sertecpet
‡ INTERVIEW
73 What lies beneath ‡ FOCUS:
REFINERY OF THE PACIFIC
74 Bismarck Andrade González,
General Manager of Refinería del
Pacífico ‡ INTERVIEW
76 Danilo Diego X. Moreno Oleas,
General Manager of EP FLOPEC
‡ INTERVIEW
78 Water way to go ‡ FOCUS:
RENEWABLES
78 Cai Runguo, Senior Advisor of
Sinohydro ‡ COLUMN
79 HE Esteban Albornoz Vintimilla,
Minister of Electricity & Renewable
Energy ‡ INTERVIEW
80 Eduardo Barredo Heinert,
General Manager of Corporación
Eléctrica del Ecuador (CELEC EP)
‡ INTERVIEW
58 Ramiro Crespo, Senior Partner &
General Director, & Eduardo Checa,
General Manager of Analytica ‡
INTERVIEW
12 HE Rafael Correa, President of
Republic of Ecuador ‡ PROFILE
35 Have we met? ‡ FORUM:
ECUADOREAN COMPANIES
ABROAD
14 HE Jorge Glas, Vice-President of
Ecuador ‡ INTERVIEW
36 Roberto Dunn, General Manager
of Consorcio Nobis ‡ INTERVIEW
16 The final frontier ‡ FOCUS:
LATIN AMERICAN RELATIONS
37 A promising province ‡ FOCUS:
MANABÍ
17 HE Enrique Peña Nieto, President
of Mexico ‡ GUEST SPEAKER
39 It’s a dirty job, but… ‡ B2B:
WASTE SERVICES
18 Long & winding road ‡ FOCUS:
EU TRADE AGREEMENT
40 Coastal idyll ‡ VOX POPULI:
MANABÍ
63 Oscar Zuloaga Ayala, Executive
President of ZHM Seguros ‡
INTERVIEW
19 HE Mariano Rajoy, Prime Minister
of Spain ‡ GUEST SPEAKER
42 Be here now ‡ FORUM: WHY
ECUADOR?
64 Premium bonds ‡ VOX POPULI:
INSURANCE
59 Pedro Ortíz Reinoso, General
Manager of Fiducia ‡ INTERVIEW
60 Stay safe ‡ REVIEW:
INSURANCE
62 Juan Ribas Domenech,
Chairman Seguros Sucre & Seguros
Rocafuerte ‡ INTERVIEW
In partnership with:
Ministry of International Trade
and
PRO ECUADOR
4
THEBUSINESSYEAR
ECUADOR 2014
83 INDUSTY &
101 TELECOMS
83 Turning the screw ‡ REVIEW:
INDUSTRY
101 Plug me in ‡ REVIEW
MINING
87 Richard Espinosa Guzmán,
Coordinating Minister of Production,
Employment, and Competitiveness
‡ INTERVIEW
89 Wilson León Lee, Executive
President of Grupo Öriental ‡
INTERVIEW
91 Food bar ‡ FORUM: AGRIFOOD
92 Home run ‡ FOCUS:
PRODUCTIVE MATRIX
93 Nicolás Espinosa, Executive
President of Automotores y Anexos
(AYASA) ‡ INTERVIEW
94 Change away ‡ VOX POPULI:
PRODUCTIVE MATRIX
96 Roberto Jouvin, General Manager
of Mabe Ecuador ‡ INTERVIEW
97 Gustavo Iñurritegui, Executive
President of the Andean Area of
Franz Viegener (FV) ‡ INTERVIEW
98 Gold fingers ‡ REVIEW: MINING
100 Santiago Yépez Dávila, General
Manager of Empresa Nacional
Minera (ENAMI EP) ‡ INTERVIEW
& IT
102 Luis Eduardo Carrión, General
Manager of Binaria ‡ COLUMN
105 Jaime Guerrero Ruiz, Minister of
Telecommunications & Information
Society ‡ INTERVIEW
106 René Ramírez Gallegos,
National Secretary of Higher
Education, Science, Technology &
Innovation of Ecuador
‡ INTERVIEW
107 The Knowledge City:
Investigate! Innovate! Produce!
‡ FOCUS: YACHAY
109 Héctor Rodríguez, CEO of
Yachay Public Company
‡ INTERVIEW
110 Knowledge cherry bite
‡ FORUM: YACHAY
111 Omar Monroy, Country General
Manager of Xerox ‡ INTERVIEW
113 William Moss, CEO, & Richard
Moss, President for Latin America of
Cobiscorp ‡ INTERVIEW
115 Katherin Miño, General Manager
of PuntoNet ‡ INTERVIEW
116 Tomislav Topic, CEO of Telconet
‡ INTERVIEW
117 Live from Ecuador ‡ B2B:
MEDIA
119 TRANSPORT
119 Calibrate & fine tune ‡ REVIEW
120 Maria de los Ángeles Duarte,
Former Minister of Transport &
Public Works ‡ COLUMN
122 Paola Carvajal, Minister of
Transport & Public Works
‡ INTERVIEW
123 Armando Castellanos Talero,
General Manager of Servientrega
‡ INTERVIEW
124 Fernando Guerrero, General
Manager of TAME EP ‡ INTERVIEW
125 Harmonized expansion
‡ FOCUS: PORTS
126 Land ahoy! ‡ VOX POPULI:
MARITIME
127 Manuel van Oordt, CEO of LAN
Ecuador ‡ INTERVIEW
129 REAL ESTATE
& CONSTRUCTION
129 Place in the sun ‡ REVIEW:
REAL ESTATE
130 Alfonso Jalil, General Manager,
Real Estate Division, Grupo Aries
‡ COLUMN
132 Santiago Ribadeneira, CEO of
PROINCO Inmobiliaria
‡ INTERVIEW
134 A place to stay ‡ VOX POPULI:
RESIDENTIAL
135 Iron & stone ‡ REVIEW:
CONSTRUCTION
138 Manuel Román Moreno,
General Manager of Empresa
Pública Cementera del Ecuador ‡
INTERVIEW
THEBUSINESSYEAR
5
Managing Editor
Leland Rice
Regional Director
Carla Alberti de la Rosa
Country Editor
Tyler Mattiace
139 AGRICULTURE
Country Manager
Yamila Ortiz Pontier
139 Farmers’ delight ‡ REVIEW
EDUCATION
Project Assistants
María Alejandro Coello,
Santiago Echeverría
140 Juan Xavier Cordovez, Executive
Vice-President, EXPALSA ‡ COLUMN
145 It’s business time ‡ REVIEW:
HEALTH
154 Sonia Roca, Chancellor,
Universidad Del Pacífico ‡ COLUMN
Managing Director
$\ÞH+D]ÏU9DOHQWLQ
142 Oil & flowers ‡ B2B: GROWERS
Editorial Director
Jason J. Nash
Commercial Director
Laila Bastati
143 Profit to net ‡ FOCUS: TUNA
146 Ana Dolores Román, General
Manager, Pfizer ‡ COLUMN
156 Sergio Flores Macías, President
of Escuela Politécnica del Litoral
(ESPOL) ‡ INTERVIEW
Senior Editor
Mark A. Szawlowski
Web Editor
Peter Howson
143 Victoria Serrano, General
Manager, Seafman ‡ COLUMN
144 Jelisava Cuka Auad, General
Manager of Marbelize ‡ INTERVIEW
145 HEALTH &
148 Héctor Enríquez C., General
Manager of Laboratorios LIFE
‡ INTERVIEW
149 Diego Ruiz, Executive President
of Novartis Ecuador ‡ INTERVIEW
157 Dr. José Barbosa Corbacho,
Rector-Chancellor of Universidad
Técnica Particular de Loja (UTPL)
‡ INTERVIEW
Sub-‐Editors
Terry Whitlam, Aidan McMahon,
Michael Gibson, Lewis King,
Susan Barrett
150 The place to heal ‡ FORUM:
HEALTH INSURANCE
158 Fabián Carrasco Castro, Rector
of Universidad de Cuenca
‡ INTERVIEW
Editorial Assistant
Asiye Duman
151 Guillermo Menéndez, General
Manager of Grunenthal Ecuatoriana
‡ INTERVIEW
159 A cunning plan ‡ VOX POPULI:
RESEARCH
152 House of healers ‡ B2B:
HOSPITALS
161 TOURISM
Contributors
Scott Preston
Transcribers
Nikolai Davis, Attila Pelit,
Pronto Publishing Services,
Deanne de Vries, Natalia Ehrenberg
Art Director
Berin Cansu Zafer
Jr Art Director
Bahar Kara
Designers
Ceren Bettemir, Mine Sinal,
Sérgio Caldeira, Didem Toprak
Cover Illustration
.UÞDWhQVDO
HR Executive
Ines Delgado
PR Executive
6HPLKD(ONÏUDQ
Operations Manager
6HUSLO<DOWDOÏHU
Operations Executive
g]QXU<ÏOGÏ]
Operations Assistant
Gamze Zorlu
Finance Executive
1DPÏN$NPDQ
Circulation Manager
Amy Burtin
Publisher
Peggy Rosiak
Printing: Apa Uniprint
The Business Year:
78 York Street, London W1H 1DP
T +44 (0)207 692 8335
F +44 (0)207 692 8336
[email protected]
www.thebusinessyear.com
The Business Year is a registered trademark of The
Business Year International. Copyright The Business
Year International Inc. 2014. All rights reserved. No
part of this publication may be reproduced, stored in
a retrievable system, or transmitted in any form or
by any means, electronic, mechanical, photocopied,
recorded, or otherwise without prior permission of
The Business Year International Inc. The Business
Year International Inc. has made every effort to
ensure that the content of this publication is accurate
at the time of printing.
The Business Year International Inc. makes no
warranty, representation, or undertaking, whether
expressed or implied, nor does it assume any legal
liability, direct or indirect, or responsibility for the
accuracy, completeness, or usefulness of any
information contained in this publication.
ISBN 978-1-908180-38-4
153 Back to school ‡ REVIEW:
EDUCATION
161 Enviable position ‡ REVIEW
164 Roque Sevilla, Chairman of
Metropolitan Touring ‡ INTERVIEW
165 Gino Luzi, General Manager of
Grand Hotel Guayaquil
‡ INTERVIEW
166 Gaining traction ‡ FOCUS:
TRAIN CRUCERO
167 Jorge Eduardo Carrera, General
Manager of Ferrocarriles del
Ecuador ‡ INTERVIEW
168 Cuenca andean dreams
‡ PHOTO ESSAY: DESTINATION
168 Juan Fernando Paredes Roldán
Executive Director, Municipal
Tourism Foundation for Cuenca
‡ COLUMN
171 EXECUTIVE
GUIDE
171 The thick of it ‡ REVIEW:
LEGAL
174 Mauricio Durango Pérez,
Founder & CEO of Moore Stephens ‡
INTERVIEW
175 Streamlined for success
‡ REVIEW: DOING BUSINESS
GUIDE
178 When in Ecuador...
6
ECUADOR 2014
THEBUSINESSYEAR
YEAR IN REVIEW
¡VIVA la revolución!
C San Lorenzo
PASIFIC OCEAN
C I Esmeraldas
In a transformed political
environment, Ecuador’s economy
is thriving, though major potential
remains to be exploited efficiently.
COLOMBIA
I
Tulcán
GALAPAGOS ISLANDS
(located 972 km from the coast)
I
Quito
S Bahia de Caraquez
C I Manta
ECUADOR
I Portoviejo
S La Libertad
C I Guayaquil
I Cuenca
S Puerto Bolivar
PERU
S
Sea Port
C
Container Terminal
I
International Airport
THEBUSINESSYEAR
THE ECUADOR OF TODAY
Length of Land Borders
2,010 kilometers
Area
283,561 km2
Total Population
16.09 million
Life Expectancy
73.4 / 79.46
GDP (2014 IMF estimate)
$83.451 billion
Unemployment Rate (2013)
4.7 %
ChØ[ncih",*+-#
2.7 %
=oll_hn;]]iohn>_×]cn
(2014 IMF estimate)
$1.106 billion
Legislative Power
Unicameral National Assembly
Government Type
Presidential Representative Democratic
Republic
HEAD OF STATE
President Rafael Correa
HEAD OF GOVERNMENT
President Rafael Correa
BRAZIL
is radically different from that
of a decade ago. As President
Rafael Correa’s administration
continues to explore new ways
to boost the country’s economy
and attract foreign investment,
the success of policies implemented over the past eight
years has become evident. Following a binary strategy of liberal trade policies and socially
inclusive programs that aim to
raise the living standards of its
poorest citizens, the government has reduced the levels of
extreme poverty from almost
17% to 8.6% between 2006 and
2013, and elevated the income
of the poorest two-fifths of the
population by over 8%. As the
population continues to grow,
reaching over 16 million in 2014,
these endeavors have become
more necessary than ever, particularly in the border regions
of the north, which have traditionally suffered from conflict overspill from Colombia.
A range of other programs
has been implemented to improve lifestyles and edify the
populace. The Plan for the Citizen’s Revolution, a comprehensive blueprint for the redirection
of national resources toward education, housing, infrastructure,
and healthcare for the benefit of
rural and urban-dwelling Ecuadoreans, began in 2007 with the
accession of the Correa administration to power. This five-year
plan included additional components to ensure the rights
of indigenous communities.
Aspects of this more socially
oriented system can be seen in
the text of the new constitution,
which was promulgated in 2008.
Extended for a second phase to
end in 2017, the scheme has also
significantly improved transparency and accountability in politics and the commercial sphere,
creating a more ethical environment in which to do business.
This fact has not been lost
on foreign investors keen to
enter the Ecuadorean market.
The country is now an associate member of both Mercosur
7
and the Pacific Alliance, and
has enacted free trade agreements (FTAs) with numerous
countries beyond the region,
too. Links with Europe came to
prominence over the course of
the year, as a pact was signed
to guarantee favorable trading conditions. The markets of
Asia have a stronger presence
than ever, too. Chinese capital
has flowed abundantly into the
economy, fortifying national infrastructure and in some
cases completely funding the
construction of transport projects, and reaching a total of $12
billion since 2009. The country’s
reputation in the international
capital markets was damaged
by a default on bonds in 2008.
However, this negative development has been reversed by
the decision to return to the
markets in 2014 with the sale
of $2 billion worth of 10-year
bonds at 7.95%, which will help
the government to broaden its
funding sources. FDI has increased dramatically under the
incumbent administration, the
result of its reasonable policies
with regard to international
trade. FDI represents more than
40% of GDP since 2012, indicating confidence in a country
that has advanced its political
institutions and a stable market.
A steady macroeconomic
performance has met with a
positive response from international ratings organizations.
Standard & Poors’ rating rose to
B+ from B in 2014, while those
of Moody’s and Fitch stand at
Caa1 and B stable, respectively.
GDP has risen from around $45
billion in 2007 to $83.451 billion
in 2014, according to IMF data.
Inflation at year-end 2013 was
2.7%, while unemployment in
the same period hovered over
the 4% mark. Much of the population is employed in the agriculture sector, with around 27%
of the workforce making a living
in the numerous rural provinces
of the country. Non-traditional,
value-added products such as
flowers are being encouraged
through the improvement of
8
THEBUSINESSYEAR
ECUADOR 2014
YEAR IN REVIEW
refrigeration and logistics infrastructure. The country’s unrivalled biodiversity, a result of a
varied, well-irrigated topography, allows for the practice of a
range of farming types. In addition, eco-tourism has emerged
as a viable niche in the market.
Oil and gas retains a considerable hold on the economy.
Approximately 50% of exports in
2012, totaling $12.7 billion, were
of crude petroleum, with refined
petroleum comprising just 3.8%
of outgoing trade in the same
year. This figure is set to change
as the Pacific Refinery comes
online, overtaking the Esmereldas facility to expand the production of oil-derived products
currently being imported by the
country. Along with other refining projects, Ecuador’s potential in this regard is set to reach
500,000 bbl/d. The mining and
extraction of minerals is another area of serious potential, with
over $200 billion in reserves yet
to be exploited. Energy projects
such as the Coca Codo Sinclair
hydroelectric plant, and a host of
additional renewable resources,
are planned to provide the bulk
of national demand for electricity in the near future. Meanwhile,
the development of port infrastructure along the Pacific coast
The country is now
an associate member of both
Mercosur and the Pacific Alliance,
having enacted numerous free
trade agreements (FTAs) beyond
the region, too.
aims to precipitate the completion of the Panama Canal
expansion, which will increase
the volume of cargo along the
western South American coast.
Prospects are good and expectations high for Ecuador in
the coming years. Now in his
third term following reelection
in early 2013, President Correa,
Vice-President Jorge Glas, and
their diverse cabinet will continue to push for progressive
reforms and challenge staid
concepts in national politics.
Through the encouragement of
healthy, sustainable, and peaceful living for Ecuadoreans, a new
model for Latin American economies is being explored, in the
aim of providing an open economy and robust social policy.
And until the 2017 general elections, this momentum is likely
to continue, bringing economic
growth and further integration
with the region and the world. GDP Current Prices (in USD Billion)
Source: IMF
83.4
78.4
72.4
66.3
57.9
52
54.2
45.5
41.7
36.9
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Population Pyramid - 2014
Source: US Census Bureau
ECUADOR 2014
MALE
FEMALE
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
775 620
465
310
155
0
0
POPULATION (IN THOUSANDS)
155
310
465
620 775
POPULATION (IN THOUSANDS)
AGE GROUP
THE ECONOMY
HAS BEEN
OFFICIALLY
DOLLARIZED
SINCE 2000
THEBUSINESSYEAR
12
14
16
President Correa has sought
to boost the internal economy,
while looking to engage with the
country’s key economic partners.
Jorge Glas, Vice-‐President of
Ecuador, on the productive
matrix and foreign investment
potential of the country.
Ecuador’s dealings with its
neighbors have won it support
and challenged geopolitical
norms.
9
Diplomacy
REVIEW
Not content with a solid result in the 2013 General Election, President
Rafael Correa has adopted a strategy of increasing foreign trade for the
benefit of Ecuadorean society.
K
PACIFIC RULES
nown for controversial
stances
on diverse issues,
and an uncompromising attitude toward
the foreign policy of the US
and other global powerhouses, President Rafael Correa
has put Ecuador back on the
map. However, these gestures
belie an economy that has
overcome the global financial
crisis of 2008, opening up to
international investment and
the development of its vast
mineral and energy wealth.
The approach of the government is pragmatic, aiming
to encourage open trading
through a series of free trade
agreements (FTAs), while
investing in public projects
in an attempt to nurture a
more inclusive society. After
decades mired by internal
conflict and military governments, Ecuador has become
a land of steady growth and
balanced politics.
GRAN ECUADOR
The Republic of Ecuador
was founded in 1831, emerging from the collapse of the
ill-fated, post-colonial coun-
The current Correa administration
continues to move from success to
success, attracting enthusiastic praise
and interest both at home and abroad.
try known as Gran Colombia.
This heterogeneous union of
the modern day states of Colombia, Venezuela, Ecuador,
and Panama fell apart after
15 years of political infighting,
leading to the establishment
of the former three as independent nations. Peru, which
was still under Spanish rule,
became a destabilizing force
in the Ecuadorean political
arena, as the border had never
been agreed upon. This, combined with disagreements
among disparate segments of
Ecuadorean society, primarily
the conservatives and liberals,
led to a tumultuous period for
the young republic, characterized by coups d’etat and
military rule.
The early 20th century was
a period of liberalization in
Ecuador, both economically
and socially. Continued disputes with Peru marred relations during World War II,
but led to a framework peace
agreement called the Rio Protocol in 1942. This did not fully end the conflict, however,
and problems remained until
the late 1990s when the Military Observer Mission Ecua-
10
THEBUSINESSYEAR
ECUADOR 2014
dor-Peru (MOMEP) was set up to broker a border agreement. With the exception of a period
in the 1950s when increased exports of bananas
created a level of political stability, short-lived
governments, many of which were of an authoritarian military bent, marred Ecuadorean
politics in the 20th century. A constitution promulgated in 1978 ordered a return to civilian
rule, and remained in effect until the late 1990s
when it was modified. The 20th incarnation
of an Ecuadorean constitution was created in
2008 following the accession of Rafael Correa
to the presidency, and is still currently in force.
STRONG CONSTITUTION
Ecuador is divided into provinces, municipalities (also known as cantons), and parishes.
Prefects manage the affairs of the former, while
councilors, mayors, and parish boards are responsible for the latter two subdivisions. Within each canton, the council ensures that local
needs are met, carrying out all necessary public
works and administering the budget and annual expenditure for the state. These local government representatives are elected for four-year
periods, and have a high degree of financial and
administrative authority, guaranteed by the
constitution, which outlines a vision of a decentralized and empowered nation. Above this
level, ministries with specified responsibilities
coordinate interactions among the regions.
The 2008 constitution clearly outlines the
division of power within the government. The
legislative branch is known as the National Assembly, a unicameral parliament with its seat
in Quito. The assembly is subdivided among
15 national representatives, and two representatives for each of the provinces, and members
for each additional 150,000 citizens or more in
a given area, according to the national census.
The assembly comprises 124 deputies who are
affiliated with 10 commissions and who serve
for four years.
National elections held in February 2013
demonstrated a high level of support for President Correa’s Movimiento Alianza PAIS, which
won 52.31% of votes, maintaining a considerable majority. Next, the relatively new Creating
Opportunities Party (CREO) garnered 11.42%
of support, and stood behind the main opposition candidate for the presidency, Guillermo
Lasso. The Social Christian Party, with 8.96%,
followed, while the January 21 Patriotic Society
Party, the Plurinational Unity of the Lefts, and
the Ecuadorean Roldosist Party trailed behind
with approximately 5% of votes each.
The National Court of Justice is made up
of 21 judges who are elected by the Judiciary
Council for nine-year terms. This represents
the highest tier of the judicial branch of government. The president of this court serves a threeyear term. The 2008 constitution safeguards the
sanctity of transparent legal practice, ensuring
strong training for professionals and aiming to
increase efficiency in the system. Recognizing
the country’s unique demographic composition, it also allows for the practice of indigenous
traditions in the settling of disputes within their
communities, provided there is no conflict between these customs and the customary law of
the nation. In addition, a Constitutional Court
is the authority for all legal considerations related to the electoral process. In 2012, the court
took a majority vote to introduce the D’Hondt
system of proportional representation. This
common method places an emphasis on the
highest averages for parties or candidates, and
generally allows larger parties a greater share of
seats, encouraging stability in parliament and
government.
THE BUCK STOPS HERE
The executive branch of government is represented by the President of the Republic, who
manages public administration and serves the
dual roles of head of state and head of government. The Office of the President is complemented by that of the Vice-President, and also
by the various ministries which oversee the
running of the country. The president selects
assorted ministers and advisors for their cabinet, and serves for a four-year term. Following
the change in electoral method in 2012, and
concurrent with the legislature elections in
February 2013, voting for the presidency also
took place, renewing Rafael Correa’s rule for a
second time and guaranteeing his continued
leadership until 2017. Competing with seven
other contenders, President Correa and running mate Jorge Glas received 57.17% of votes,
ensuring that their PAIS Alliance now controls
both the National Assembly and the Executive.
Opposition candidate Guillermo Lasso of CREO
followed behind with 22.68%, while Lucio Gutiérrez of the PSP won 6.73%.
DIRECTLY INVESTING
This landslide victory speaks volumes about the
successes gained by President Correa’s administration that has been governing since 2007.
With his leadership, characterized by canny
fiscal initiatives, outspoken and controversial
diplomatic overtures, and progressive reform
of the political environment of the country,
Ecuador is experiencing unprecedented stability. The government has consistently foregrounded a broad strengthening of the economy and its production base, while making
dramatic improvements in the lives of those in
poverty across the country. Concerted efforts
to increase FDI by creating a more welcoming
destination for capital from abroad have allowed FDI to jump to over 40% of GDP in 2012.
President Correa has a strong background in
Diplomacy
economics, and has leveraged this knowledge
to pull the country out of a cycle of political
uncertainty. The growth that has resulted has
been shared among the population by boosting
the emerging middle class, while the reduction
of income poverty levels from 37.6% to 25.5%
between 2006 and 2013, and extreme poverty
from 16.9% to 8.6% in the same period, has fostered a more inclusive society.
Concern for the well-being of its citizens and
the country has earned President Correa’s government high praise from abroad. In particular,
enlightened innovations such as the recognition of the rights of nature in the 2008 constitution have helped to establish a new reputation
for Ecuador in the world of diplomacy, while
domestic support remains strong and a fractured opposition fails to mount serious threats
to the governance of the PAIS Alliance. Further
recent amendments to the constitution, including a change that would make additional reelections possible, have generated some degree
of civil dissent, despite President Correa declaring that he has no plans to do so when 2017
comes around. Additionally, the government’s
dedication to more efficiently and extensively
Enlightened innovations such as the
recognition of the rights of nature in
the 2008 constitution have helped
to establish a new reputation for
Ecuador in the world of diplomacy.
utilizing the nation’s mining and oil potential
has produced more than just revenue, as select
local communities opposed to these projects
voice their concerns over its effects. Ultimately, however, a large support base and stronger
democratic institutions will guarantee considerable stability for the incumbent government,
allowing its program of socially conscious development to continue apace. THEBUSINESSYEAR
11
12
THEBUSINESSYEAR
ECUADOR 2014
PROFILE
Image: Presidency of the
Republic of Ecuador
WHEN
LIFE IS
GOOD
With an eye on maintaining
economic and political stability,
President Correa has sought to
boost the internal economy, while
looking widely to engage with the
country’s key economic partners.
Rafael Correa, who has been referred to as Ecuador’s most effective president, has certainly
come a very long way from his blue-collar upbringing. Correa, who assumed office in 2006, is
now serving his third term in office. As the first
president in five decades to be elected to a second term, in a country that rotated seven presidents in 10 years, Correa’s long-running tenure
speaks to his political and economic success.
Correa has more than earned his reputation
as a bold politician with an ambitious agenda
aimed at reforming Ecuador’s institutions and
bolstering the economy. With the backing of
his party, the PAIS Alliance, which Correa himself founded, some of the President’s resume
of accomplishments includes the enactment
of a new voting system, the securing of a lucrative EU trade deal, and the ratification of a new
constitution.
Diplomacy
To some extent the new constitution, which
is based on principles rooted in buen vivir, is
representative of Correa’s political philosophy. Buen vivir, or “good living,” comes from
the worldview of the indigenous peoples of
Quechua in the Andes. Nature is recognized
as exhaustable, society is recognized as pluralistic, and politics are meant to be inclusive
for all citizens. With these principles in mind,
Correa has adopted a development approach
that is ecological, community friendly, and culturally sensitive. The constitution now features
the passage, “we hereby decide to build a new
form of public coexistence, in diversity and in
harmony with nature, to achieve the good way
of living.” Before his career in politics Rafael
Correa spent much of his time as an academic. After receiving a degree in economics from
the Universidad Catolica de Santiago de Guayaquil in 1987, Correa went on to earn two Master’s degrees in Arts in Economics and Science
in Economics from Catholique de Louvian in
Belgium and the University of Illinois at Urbana-Champaign, respectively. Then, in 2001, he
earned a PhD in economics from the University
of Illinois as well.
In contrast with prevailing Western economic theory, Correa campaigned on a platform
of left-leaning, socialist policies that focus on
poverty alleviation, regional integration, and
principles of autonomy that derive from the
country’s colonial past. He has also invested
heavily in infrastructure projects developing
roads, schools, and health clinics. Between
2007 and 2013, government expenditure toward public investment amounted to $34 billion. During this period the country’s poverty
rate fell 10% in five years from 2007 to 2012.
High oil prices and increased petroleum revenues have buoyed the massive increase in social spending, with $7.26 billion earmarked for
public investment in 2014 alone.
Correa’s programs have subsequently benefited rural populations and slum inhabitants,
who have historically been ignored by government development schemes. This has allowed
the President to achieve the largest redistribution of wealth in the country’s history. Ecuador’s egalitarian strides are partly to credit for
Correa’s staggering approval rating, which has
steadily climbed since his inauguration, remained above 50% and peaked at 90% in April
2013, the highest approval rating in Latin America. In September of 2014, Correa’s rating stood
at a favorable 83% among respondents living in
Ecuador’s largest cities.
During the national address in October 2014,
President Correa announced that the executive’s priorities would center on prioritizing
public investment until 2017. With three years
left before his term expires, infrastructure developments, social programs, and healthcare
are expected to continue to take precedent
among the President’s top goals. In 2015, 32%
of the government’s budget is set to target strategic sectors while another 23% will be designated for production.
Correa continued to undertake several major
economics projects in 2014. The International
Monetary Fund (IMF) was welcomed back and
reviewed the government’s finances. Ecuador’s
debt to GDP ratio is a healthy 24%, and ratings agencies have upgraded the state’s credit
standings. In June 2014, Ecuador reestablished
itself in the international market and launched
$2 billion in 10-year bonds. Around the same
time, Goldman Sachs provided a $400 million
loan that was secured by 50% of the country’s
gold reserves. As well, Ecuador also launched its
first digital currency under Correa’s guidance.
The use of the currency will facilitate transactions and is expected to increase monetary security and transparency.
President Correa’s audacious leadership style
is equally apparent in his use of soft power in foreign policy. He has been outspoken in his stance
on a range of hot topic international issues, even
when those issues clash with Ecuador’s largest
trading partner, the US. In 2012, Julian Assange
of WikiLeaks escaped extradition when Correa
granted him asylum at the Ecuadorean embassy
in London. The US, the UK, and Sweden levied
immense international pressure on Ecuador,
but Correa held his ground and reaffirmed protection for Assange in 2013. These moves were
not without cost however, as the US made it
a point not to renew the 22-year-old Andean
Trade Preference Act. The pact allowed Ecuador preferential relief from trade duties and its
cancellation is estimated to have cost the country $26 million annually in trade. In response,
the government swiftly passed a new law in
2013 that allocated $23 million a year in aid to
exporters.
Born into a working class family in 1961, Rafael Correa has become one of the most revolutionary figures in Ecuadorean history. In
2014, he was nominated for Best Politician of
the Year by the Colombian magazine Crasel.
On top of his accomplishments, he has his own
TV show, speaks English, French, and Quechua, idolizes Hugo Chavez, and describes himself as a “Christian leftist.” The descendant of
revolutionary, Chilean politician, Correa de
Saa y Lazon, Rafel Correa has stayed true to his
word, and looks set to uphold the political and
economic stability that Ecuador has enjoyed
during his administration. THEBUSINESSYEAR
13
Ecuador’s egalitarian
strides are partly
owing to Correa’s
staggering approval
rating, which has
steadily climbed since
his inauguration,
remained above 50%
and peaked at 90% in
April 2013, the highest
approval rating in
Latin America.
14
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
value chain
AHOY!
TBY talks to HE Jorge Glas, Vice-‐President of Ecuador, on the
productive matrix, foreign investment, and trade agreements.
Why is it necessary for Ecuador to transform its
productive matrix?
What does the transformation of the productive
matrix mean, more practically, for the economy?
The National Strategy for the Change of the
Productive Matrix was a response to the prevailing conditions of our country. When the
government entered office, Ecuador was a
country with serious deficiencies in energy and
infrastructure. There was also a lack of investment in roads, ports, and airports. We also had
the second-lowest broadband penetration in
all of Latin America, as well as many other challenges. Having had a dollarized economy for 14
years, we have a fixed exchange rate. As a consequence, we cannot use monetary policy as a
means of generating competitiveness in the way
that many other countries can. This affects our
trade balance, which is why we are focusing on
projects like the Pacific Refinery. We subsidize
petroleum in Ecuador, which we see as part of
a social transfer, but it is increasingly expensive
for the country, and worsens our trade balance.
We have improved the quality of life for people
in Ecuador, but this has also contributed to increased consumption, which means a further
increase in imports of the kinds of goods and
appliances people want for their homes and
daily lives. Now, our goal is to change our economic structure in Ecuador to help ensure the
competitiveness of the economy and generate
more wealth and opportunities for Ecuadoreans. We have traditionally been an exporter of
non-value-added products, such as petroleum
and agricultural goods. We need to make the
leap to industrialization and Buen Vivir, while
keeping in mind the protection of our environment. We are dependent on primary exports,
and need to step beyond this dependence. This
is why we have proposed the strategy for the
change of the productive matrix.
The first step is to develop industrializing industries, that is to say, the primary industries
that can spur further industrialization in other
sectors. These are industries, such as petrochemicals, iron and steel, copper, aluminum,
and shipbuilding, among others. The growth of
these industries can allow us to overcome our
dependence on primary exports. Other countries, such as China, South Korea, and Singapore, have made this transition in the past, but
we cannot take the same amount of time that
they did to realize the transition. We need to accelerate this process and will invest in this with
financing and strategic alliances with friendly
nations. I have visited a number of our allies to
discuss this, such as India, China, and Cuba. All
of this comes down to strengthening national
productivity on all levels, from micro-enterprises to large-scale industries and projects.
What role can the agricultural sector play in this
transformation?
Agriculture will remain an important part of
our economy. We need to increase productivity per hectare for our agricultural products,
such as bananas. Moreover, whatever we produce in the agriculture sector, it is important
that we produce much more in the agro-industrial sector as our neighboring countries
do. We have defined quality standards for our
national products, so that their quality can be
recognized not only locally, but also internationally. More generally, the idea is that we
need to look not at individual products, but at
value chains in order to determine what components can generate the most profit. This
will mean greater revenues for producers, al-
BIO
Jorge Glas studied
electrical engineering at the
Escuela Superior Politécnica
del Litoral, and moved on
to play a key role in the
development of the national
telecommunications
and electrical sectors.
From 2007 to 2009 he
was president of the
country’s Solidarity
Fund, a public entity with
assets in numerous major
telecommunications
corporations. He also
oversaw the merger
of Andinatel S.A. and
J[]c×]n_fM(;(ni\_]ig_
the Corporación Nacional
de Telecomunicaciones
CNT S.A. In addition, he
headed up the fusion of
electricity generation and
nl[hmgcmmcih×lgmchninb_
Corporación Eléctrica del
Ecuador (CELEC) and the
Corporación Nacional de
Electricidad (CNEL). He
has served as Minister of
Telecommunications and
Information Society and
Minister for Coordination
of Strategic Sectors,
and played a key role
in the renegotiation of
hydrocarbon contracts and
the development of the
mining sector.
Diplomacy
THEBUSINESSYEAR
lowing Ecuador to move up the value chain.
Ecuador is proud to produce the best cocoa in
the world. But a kilogram of chocolate sells for
much more than a kilogram of cocoa. We can
use technology and innovation to make the
most of our agricultural strength.
Biq^i_ml_acih[fchn_al[ncih×nchninbcmmnl[n_as9
We have identified that integration as an important part of this, not only in terms of political integration, but also in terms of building
regional value chains. Specifically, we are looking at the integration of our energy systems and
how this can be used for economic development. We recently signed an agreement with
the Ministry of Energy of Chile. Ecuador will
soon have an abundance of renewable energy
from the eight new hydroelectric projects set
for completion by 2016. This is the energy we
need to sustain our development and industrialization. Looking at regional value chains,
Ecuador has proposed the construction of a
copper refinery. Chile and Peru export copper concentrate, but refined copper is a much
more preferable export. The refining of copper
involves significant energy consumption, and
Ecuador will shortly have a substantial supply
of environmentally friendly electricity. This is
energy that can also be used, for example, for
the aluminum industry, another industry that
could play an important role in industrializing
the country.
What role can private international investment
play in transforming the productive matrix?
The main protagonist in this transformation is
the private sector. We have decided to invest
here because it is not feasible to await private
sector commitment. My country lost decades
though neoliberal policies that shaped our
economy and lives. Much of the private sector’s
investment of that time, in the energy sector for
example, was costly and inefficient. These plans
represent $10 billion of investment and imply
many opportunities for investment for the private sector. We have seen considerable interest
from investors in countries such as Russia and
the Middle East, as well as opportunities to obtain both financing and expertise from other
friends, such as China and Brazil, and a few European countries interested in becoming a part
of the development of these new industries.
Now, here in the Vice-Presidency, we receive
international investors from all over the world
who are interested in the opportunities that are
presented by the productive matrix strategy.
These include technology providers, financial
institutions, and strategic partners, all of whom
are waiting for us to finalize studies in many of
these investment areas. At the Vice-Presidency
we are working to promote investment, and
seeking the technology to transform our economy. Our goal is to ensure that the private sector
Ecuador is pursuing major
improvements in national
infastructure
has the financing and the human talent available to make the necessary investments. That
is why Ecuador ranks among the highest-level
countries regarding investment in education as
a percentage of GDP.
How would you characterize the importance of the
trade agreement with the EU?
This agreement represents opportunities not
only for our current exports, but also for export
growth across new segments. The important
consideration is exports with value-added. This
trade agreement will allow us to export everything that represents the new industries that we
are building in this country. Ecuador went into
this negotiation with a number of clearly defined red lines in terms of public policy, tax policy, public procurement, and strategic areas of
the economy to protect. Ultimately, I think we
have achieved our objectives. The agreement
has yet to be ratified in Ecuador, and during
negotiations we have not lost sight of our dollarized economy. We are unable to devalue our
currency to generate competitiveness, and,
therefore, need to ensure no loss of competitiveness upon signing.
What makes Ecuador an attractive destination for
international investment?
The intensity of our development objectives
and our plan to industrialize the economy in
the timeframe we are talking about, and with
the conditions that we have already created
in Ecuador, is something unique. During our
time in government we have provided energy,
infrastructure, roads, ports, and we have the
backing of our citizens. We are proposing $10
billion in investment in basic industries, not
including projects like the Pacific Refinery, or
our hydroelectric, or infrastructure projects.
Ecuador represents opportunities because of
its geographic position, and because of its natural resources. Ecuador has
$10 billion in
investment
planned to
develop the
basic industries
necessary for
industrializing the
country
15
16
THEBUSINESSYEAR
ECUADOR 2014
FOCUS LATIN AMERICAN RELATIONS
THE FINAL FRONTIER
Ecuador’s frank
dealings with its
hinterland have
won it support
and challenged
geopolitical norms,
but a long history
of engagement
with international
organizations shows
that it means business.
IN 2008, as part of an intensified campaign
against the Revolutionary Armed Forces of Colombia (FARC), Colombian state troops broke
the basic concept of territorial sovereignty that
underlines modern diplomacy. By crossing the
Putumayo River, an important tributary of Latin
America’s great Amazon River, the military had
entered Ecuadorean territory, violating norms
of international relations and sparking the Andean diplomatic crisis, which dominated both
nations regional relations for some time.
The previous year, the administration had begun to implement its Plan Ecuador, a multi-faceted strategy designed to develop the northern
border provinces of Esmereldas, Carchi, Imbabura, Orellana, and Sucumbíos. These areas had
experienced significant growth in the number
of Colombian refugees settling in the area, driven out by the ongoing conflict. Their presence
added to an already challenging situation in the
impoverished region, and finding a resolution
to this situation became a priority for the Correa
government. Improving the social development
of these provinces was a key element of the plan,
but the critical consideration was diplomacy
and an attempt to improve communication
with neighbors.
Relations with Peru have been historically
strained, but have bettered over the past two
decades. Since 1942, the contentious border
between the two Andean nations had been a
subject of grave dispute, a conflict that culminated most recently in armed conflict during
the mid-1990s. A peace agreement brokered by
the US and guarantor nations Argentina, Brazil,
and Chile came into effect in 1998, surmounting
one of Ecuador’s most intractable regional diplomatic obstacles.
In terms of the region at large, Ecuador has
been vigorously engaged in multi-lateral organizations. As an early member of the UN, it has advocated steadily on behalf of emerging nations
and Latin America as a whole. In 2009, it held
the rotating presidency of the Union of South
American Nations (UNASUR). In addition it is a
member of the Latin American Energy Organization, the Community of Andean Nations, and
the Organization of American States (OAS).
Ecuador has joined the Pacific Alliance, the
primary instrument for managing trade between Latin America and the wider world, as an
associate member, which would allow it to participate in Free Trade Agreements (FTAs) with
the founding states of Chile, Mexico, and neighbors Peru and Colombia. Separately, but no less
significantly, it is keeping its options open by
considering a full membership offer of the continent’s other most influential trade group, the
Southern Common Market (Mercosur). Also as
an associate member, the country is enjoying
beneficial trade regulations with the group, the
members of which are closer in ideology to the
government than those of the Pacific Alliance.
President Rafael Correa’s immediate and indignant response to the Andean crisis was typical of a leader who has embraced an active and
outspoken diplomatic policy since his election
in 2007. In the wake of the incident, representation in the embassies of Quito and Bogotá were
recalled, and soon Ecuador’s close regional and
ideological ally, Venezuela, became involved in
an act of solidarity. Despite a build up of military forces in border regions of Venezuela and
Ecuador in apparent anticipation of more incursions, the situation was resolved over time
as Colombia apologized for the action. Ecuador contributes much to a number of regional
groups, but also receives the benefits of these
countries’ support. It was the involvement of
the Rio Group that resulted in the resolution
of the crisis at a summit in the Dominican Republic. A conciliatory policy was adopted by all
sides, and, in October 2009, full diplomatic relations were restored. Diplomacy
THEBUSINESSYEAR
17
GUEST SPEAKER
a shared
COMMITMENT
HE Enrique Peña Nieto, President of Mexico on
shared goals and the significance of education
for social development.
My recent visit to Ecuador,
without a doubt, was extremely significant, considering that it has been 10 years
since a Mexican President
last visited that nation. It was
therefore, a great honor to
visit our sister republic in order to reaffirm the desire of
both governments to deepen
our relationship. A relationship that can hopefully serve
as a basis for cooperation,
trade, the strengthening of
our economies, an increased
flow of citizens between the
two countries, and above all,
of sharing diverse experiences
of success, which can allow us
to truly strengthen the development of our peoples and
prepare them to be part of the
demanding and competitive
globalized world.
During my visit to Ecuador, President Correa and I
expressed the desire of both
governments to work towards
all goals agreed upon in various memorandums of understanding and agreements, in
cooperation and collaboration
toward a range of objectives.
Our target is a broadening
of our commercial relations
in order to achieve a greater
equilibrium in the trade balance between the two countries and to secure the strong
support and cooperation of
our countries’ educational institutions with the Yachay City
of Knowledge.
Additionally, we aim to
build the technical cooperation of the Mexican Federal
Electricity Commission with
electrical generation projects
being developed in Ecuador.
We also agreed to create a
worthy space for the headquarters of the Union of South
American Nations (UNASUR), which could not boast
a grander headquarters, and
which has the potential to become a cultural space delegated to the Cultural Economic
Fund, which fosters still closer
cultural links between Ecuador and Mexico.
The goals that President
Correa and I agreed on during
my visit are more than good
intentions; they are real objectives for our two countries.
Beyond discussing our mutual
relations, we have set tangible
goals that can bring real benefits and results for the harmonious relationship between
our two countries. In Mexico,
we have been working to rise
above the fundamental challenges that the world is facing. We have pushed forward
structural reforms to energize
our economy and to achieve
better economic performance
on which to base social devel-
opment for the inhabitants of
our country. Ecuador, without a doubt, has been doing
the same.
Ecuador has seen sustained
economic growth over recent
years, having promoted inspirational social policies that
are, without a doubt, reaching segments of the population that previously had no
support. Mexico is doing the
same. What we are doing in
Mexico is very similar to what
Ecuador is trying to achieve.
Mexico, and the administration which I have the honor to
lead, has set five main national goals, oriented at national
security. As a result, today we
see a Mexican State of greater capacity and strength. We
have detained many high profile individuals from various
criminal organizations precisely because we have been
strengthening the capacity
of the Mexican government
through greater coordination
between different levels of
government.
Another major objective
that we share with Ecuador is
education. We cannot hope to
be a more developed society
with greater opportunities for
our people if we cannot spark
greater abilities and capacities
among new generations. As
such, Mexico is pushing forward education reform, not
only to achieve wider coverage, but more importantly to
improve the quality of education being provided.
We have worked toward
making Mexico more inclusive, through different social programs, and without a
doubt, those that Ecuador has
implemented have become a
key benchmark for what we
can achieve through the social
policies that our government
is implementing in Mexico.
A prosperous Mexico, which
is our goal in assuring that
Mexico grows economically
and sustainably, can provide
conditions for enhanced development. This, again, is an
objective that we wholeheartedly share with Ecuador.
A further goal is to transform Mexico into a responsible global actor. It was for
precisely this reason that I visited Ecuador earlier in 2014.
Primarily, to reaffirm Mexico’s
Latin American identity, and
then to reaffirm the links of
brotherhood and respect that
Mexico has, and maintains,
with all of the people of the
Latin American region. I believe that we have successfully
conveyed this sentiment on
many platforms and forums.
I therefore pledge that the
goals that President Correa
and I set out during my visit
will be realized to the fullest extent, helping to strengthen and
broaden the relationship of
affection and brotherhood between Ecuador and Mexico. BIO
Enrique Peña Nieto holds
a Bachelor’s degree in
law from Universidad
Panamericana and a
Master’s degree in Business
from Monterrey Institute
of Technology and Higher
Education. Early in his
career he held a number of
positions within the State
of Mexico’s government,
including Sub-Secretary of
the Interior, Administrative
Secretary, President of the
Directive Council of Social
Security, President of the
Internal Council of Health,
and Vice-President of the
National System for Integral
Family Development. In
2003 he won election
as a State Deputy in his
hometown of Atlacomulco.
In 2005 he became
Governor of the State of
Mexico. He was sworn in
as President of Mexico on
December 1, 2012.
Extracted from a speech given fol-‐
lowing the visit of President Nieto
to Ecuador on March 10, 2014.
18
THEBUSINESSYEAR
ECUADOR 2014
FOCUS EU TRADE AGREEMENT
LONG & WINDING ROAD
The 2014 trade
agreement will secure
access to markets
on both sides, while
creating a stable
business environment
that will help expand
and diversify trade
and investment
between Ecuador and
the EU.
THE EU AND ECUADOR completed negotiations in July 2014 on a trade deal that will
eliminate tariffs for most products and allow
Ecuador to increase its exports to the European
bloc by at least $500 million by 2017. Currently,
the EU is extending a system of preferential tariffs that benefit Ecuador’s exports, which had
been due to expire in December 2014, until the
new trade deal officially takes effect in the second half of 2016.
According to the Ecuadorean Exporters’ Federation (FEDEXPOR), exports to the European
market have been increasing by an average of
about 4% per year. Ecuador sends about 30% of
its non-oil exports to the EU—mainly to Spain,
the Netherlands, Germany, and Belgium. Ecuador’s main non-oil exports include bananas,
shrimp and tuna, cocoa, tropical fruit juices,
nuts, and roses. In 2012, exports to the EU were
worth $2.4 billion, and imports from Europe
totaled $2.7 billion. Ecuador mainly supplies
the EU with agricultural and fishery products,
while it imports manufactured goods and processed petroleum products. There has been a
constant positive trend in trade between the
two parties, which should be further strengthened now that the trade agreement has been
concluded. At the moment, 60% of the total
exports from Ecuador benefit from Europe’s
Generalized System of Preferences Plus (GSP+)
system, a preferential arrangement that will
lapse for Ecuador in the end of 2014. Some
30% of its exports are represented by bananas,
for which the agreement signed in 2014 foresees an important preferential arrangement,
which has proved a point of contention in the
past. Most of the products covered under this
system enter the EU with zero tariffs and pay
lower taxes than would otherwise apply. Within this latter category are bananas, one of Ecuador’s main export products, whose preferential
tariff is €148 per metric ton.
This agreement comes at the end of a long
process of debate on trade issues between
the EU and the wider region. In 2007, the Andean Community of Nations (CAN)—a customs union whose main members include
Colombia, Peru, Ecuador, and Bolivia, as well
as a number of associate members—with the
exception of Bolivia, began talks with the EU,
with the end goal of signing a region-to-region
trade and tariff agreement. However, due to a
series of disagreements between CAN member
states, and specific objections from Ecuador,
CAN members Colombia and Peru decided to
take up negotiations bilaterally with the EU
in 2008. In July 2009, Ecuador pulled out of
the talks entirely, claiming they were unfair, a
view mainly based upon disagreements on the
pricing of its bananas. In January 2009, trade
negotiations between the EU and three CAN
countries—Colombia, Peru, and Ecuador—restarted, with the aim or reaching a multiparty
trade agreement. After nine rounds of negotiations a successful conclusion was reached with
Columbia and Peru in February 2010, and in
June 2012, the two countries signed a free trade
agreement (FTA) with the EU, which took effect in 2014. Ecuador began bilateral talks with
the EU in 2012, but an agreement between the
two parties was hindered time after time by
the banana issue. However, in December 2013,
the WTO’s Dispute Settlement Body supported the claims of many banana-exporting Latin
American countries—including Ecuador—that
the EU was illegally discriminating in favor of
bananas from its former colonies in Africa, the
Caribbean, and the Pacific.
The WTO ruling against the EU on the banana question removed what been an ongoing problem, and talks finally saw progress in
December of 2013. Within this context, the EU
renewed GSP+ status for Ecuador for one more
year while the current agreement was being
negotiated. During this time Ecuador and the
EU have managed to reach a compromise, and
have finally inked an accord that both parties could support. This recently signed trade
agreement will allow Ecuador to benefit from
improved access for its main exports to the EU,
including bananas. The agreement will also
provide improved access to the Ecuadorean
market for many key EU exports, for example
in the automotive sector and for alcoholic beverages. At present, both Ecuador and the EU
are optimistic about their bilateral trade relationship, and all parties involved have spoken
enthusiastically of the deal and their future as
trading partners. Diplomacy
THEBUSINESSYEAR
19
GUEST SPEAKER
STRONGER
TOGETHER
Upon President Rafael Correa’s visit to Spain last
April, he stated that relations between Ecuador
and Spain were experiencing an “extraordinary
moment.” How would you assess the relations
between both nations, what is your vision for the
future of Spanish-Ecuadorean relations and what
areas have more potential for growth?
I agree with President Correa and thank him
greatly for valuing so positively the state of
our bilateral relations. President Correa is the
second Latin American president I welcomed
in the Moncloa Palace, just four months after
starting my mandate, in March 2012. I remember well our first meeting. Beyond ideology, we
agreed on the essential, on the need to apply,
above all, common sense, taking into account
the circumstances of the moment and what is
more convenient for citizens. Ever since then
we have had a special understanding. We had
bilateral meetings on a total of four occasions.
President Correa is, with Colombian President
Santos, the Latin American President with
whom I have met the most. The last visit of
President Correa was especially pleasing. He
came to receive an honorary doctorate from the
Universidad Autonoma de Barcelona and used
his visit to drive forward the priority of his third
term: human talent, science and technology.
President Correa knows that Spain is always
ready to provide Ecuador with all the cooperation it may need, as he could see for himself
during his visits to the Institute of Marine Sciences in Barcelona, and Biomedical Research
Park in Madrid. Ecuador is enjoying a great
period of political stability and economical
growth. The country is developing infrastructure projects that will improve competitiveness
and productivity, and especially the life quality
of its citizens. Projects such as Quito’s metro
and Cuenca’s tram are concrete examples, but
there are many more. With the recent accession
of Ecuador to the Multiparty Trade Agreement
of the European Union with Colombia and
Peru, our trade relations and investment flows
in both directions will receive a significant
boost. Therefore, our relations are meant to be
even more intense in all fields, but particularly
in the economic and talent mobility.
TBY talks to HE Mariano Rajoy, Prime Minister of Spain
on burgeoning relations between two firm friends.
Ecuadoreans represent the main Latin American
community in Spain. How do you assess the integration of Ecuadoreans in Spain?
As I said in my press conference with President
Correa the first time I had the pleasure to meet
him at the Moncloa Palace, relations between
Spain and Ecuador are special because people
are our greatest asset. The human factor is always the most enriching and the element we
must look after the most in bilateral relations
between countries. Ecuador and Spain are
setting a good example to the world by their
orderly, legal and mutual integration migration flows. In Spain we have the second largest
Ecuadorean community abroad, which is here
the first Latin American community: more than
400,000 Ecuadoreans live in Spain, and many
more if you count dual nationals.
Almost 40% of Ecuadoreans who emigrated
from Ecuador to Spain have received Spanish
nationality without losing their Ecuadorean
nationality. Since 2000, more than 260,000
Ecuadoreans have obtained Spanish citizenship through residence. All Spaniards are truly
grateful for the contribution of Ecuadoreans to
our development and the fact that they choose
Spain as their second home it is a matter of
great pride for us. I want to emphasize that
Ecuadoreans are integrated into our society
with a commendable sense of solidarity, sharing our values and even fighting for freedom in
the most difficult missions of our Armed Forces. Estalyn Angelo Mera, who died in combat
in Afghanistan, is an example of Ecuadorean
heroism, sacrifice, and values. His Majesty the
King awarded him the Cross of Military Merit
with Red Badge, an extraordinary distinction. I
would like these pages to be a homage of them
all, paying them, again, all our tributes, recognition, admiration, and respect.
BIO
Mariano Rajoy was born
in 1955 and educated in
Law at the University of
Santiago de Compostela.
He was Minister of Public
Administration from 1996
to 1999 and Minister of
Education from 1999 until
2000. He then served as
Deputy Prime Minister from
2000 to 2003. He acted
as leader of the opposition
from 2004 until 2011. He
was elected Prime Minister
of Spain on December 21,
2011.
20
THEBUSINESSYEAR
ECUADOR 2014
How does Spain evaluate Ecuador’s adhesion to
the Multiparty Trade Agreement of the EU with
Colombia and Peru, and where does Spain stand
in the elimination of the Schengen visa for Ecuadorean nationals?
I am extremely pleased with the accession of
Ecuador to the Multiparty Trade Agreement of
the European Union with Colombia and Peru.
We must congratulate President Correa for this
decision. He gave an example of pragmatism
and political realism. A good leader is one who
makes decisions based on what is best for his
citizens on the long-term, not letting his ideology limit them. By becoming a middle-income
country, in 2015 Ecuador will not be able to
benefit from the Generalized System of Preferences of the European Union, losing the benefits of market access with zero (or very low)
custom tariffs.
Therefore, Ecuadorean exports would have
to start paying custom tariffs if it wasn’t for
the fact that Ecuador has joined the Multiparty Trade Agreement. Without this privileged
access to the EU market, which is the world's
largest integrated market, Ecuadorean exports
would have lost competitiveness and market
shares, for custom duties would have become
more expensive. Ecuador would have ended
up exporting less, in other words, having less
national income and therefore a lower ability
to redistribute income. All Ecuadoreans would
have lost a lot.
Thanks to the Multi-Party Trade Agreement,
Ecuador goes from a limited system of market
access, unilateral and temporary (GSP +), to an
improved, bilateral (which takes into account
the needs of both parties) and long-term (almost definitive) system.
In a transitional period of 10 years, Ecuador's
exports will have free access to 96.4% of the European Union market, from which significant
Ecuadorean products and sectors such as fishing, bananas, flowers, coffee, cocoa, fruits and
nuts will benefit. European exports, for the first
time, will also improve access to the Ecuadorean market, examples being cars and alcoholic
beverages (wines and spirits). However, it is not
just about trade. The agreement means, above
everything else, that Ecuador enters the list of
the most reliable, open and safe countries to invest in, with clear rules. European investment
will pay more attention to Ecuador and not only
to its neighbors Colombia and Peru. With more
exports and more investment, the national income of Ecuador will increase too and there-
fore the capacity and ability to redistribute this
income and thus social cohesion. Ecuadoreans
will also directly benefit from the agreement,
for they will be eligible to travel to the EU without a visa. The main argument of my Government in asking the European Commission and
Member States to withdraw the Schengen visa
for Colombia and Peru was the entry into force
of the Multiparty Trade Agreement of the EU.
I hope that the agreement will soon be signed
and ratified, so that with its entry into force we
have a new ambition in our relationships. Ecuador can always count on Spain so that the
efforts of Ecuadoreans are recognized and its
policies of trade liberalization and legal security are rewarded without discrimination. Those
are the sound policies the European Union applies and wants for its partners.
How do you envision Ecuador’s economic future?
I am very optimistic. I believe in Ecuador; first
of all in the capacity of Ecuadoreans, but also
in the country’s new political stability and its
economic future. The fact that the Ecuadorean government has been pragmatic and has
acceded to the Multiparty Trade Agreement of
the European Union with Colombia and Peru
inspires me with much confidence.
The figures of our trade and investment flows
show that Spanish companies are also increasingly turning to Ecuador. Between 2009 and
2012 Spanish exports to Ecuador increased by
222%, from €184 million to €593 million. Spanish investment has also been gradually increasing, from an aggregate of €742 million in 2010 to
€998 million in 2012, which means an increase
of 34%. The crisis has not stopped Spanish investment in Ecuador. It is worth remembering
the success of the Hispano-Ecuadorean Business Meeting held in 2012 and closed by the
then Prince of Asturias, King Felipe VI today.
In addition, Ecuador is addressing with ambition the bottlenecks of its economic development, as evidenced by the development of infrastructure and creation of alternative sources
of income to oil. Exporting more and with a
greater diversification of products and markets,
receiving more investment, developing infrastructure, collecting more tax revenue for other
complementary policies such as education, science and technology, Ecuador has become an
example of change and pragmatism. Ecuador is
on the path of progress and as Prime Minister of
Spain this gives me great satisfaction. Ecuadoreans deserve this. Ecuador is enjoying
a great period of
political stability and
economic growth. The
country is developing
infrastructure projects
that will improve
competitiveness and
productivity, and
especially the life
quality of its citizens.
THEBUSINESSYEAR
27
28
37
Cristian Espinosa, Executive
Director of the Ecuadorian-‐
American Chamber of Commerce,
on bilateral agreements.
Rafael Correa’s signalling toward
the international bond market
in June 2014 has attracted global
attention.
Manabí is shaping up to be
at the core of many of the
government’s development
initiatives.
21
Economy
REVIEW
Ecuador hit the headlines this year when it finally struck a trade deal with
the EU and made a triumphant return to the international markets. But
for how long can high public spending keep the train rolling?
WELCOME BACK
S
ince President Correa took office, he
has promoted a
program of high
public spending, for which
Ecuador’s return to the international markets following
default in 2008 is especially
significant amid concerns that
the Andean nation had become too reliant on Chinese
funding. Elsewhere, a July
2014 deal with the EU to guarantee continued preferential
access to the bloc provided
cause for celebration among
exporters, and particularly banana producers, and secures
a destination for at least $3.5
billion worth of Ecuadorean
goods.
According to the Wall Street
Journal, Ecuador’s economy
grew 4.5% in in 2013, above
the government target of
4.05%, but below the 5.1%
clocked the previous year. Services dominate the economy,
at 50.2%, with industry representing 39.9% and agriculture the remaining 9.9%. And
while oil export revenues continue to account for over onethird of government revenues,
it is the non-oil sector that was
Image: Indurama
With a return to the bond market,
and significant plans underway to build
solid and sustainable economic growth,
Ecuador has signaled to the world that it
is back in the game.
the star of 2013, growing 4.9%
compared to the hydrocarbon
sector’s 1.4%.
The fiscal deficit remains
a key concern, however, and
stood at 4% of GDP at end2013. For end-2014, the government expects a fiscal deficit of some $5 billion, with
$7.26 billion earmarked for
public investment over the
year. And it is in this context
that Ecuador’s return to the
international markets, in June
2014, is so significant; the
country sold $2 billion in 10year bonds at a yield of 7.95%,
according to the Finance Ministry, in a move that heralded
the welcoming back of the
IMF and an unofficial recognition that the economy had
become too reliant on Chinese liquidity. Indeed, since
2009 Chinese funding to Ecuador has reached $12 billion, a
trend that began following the
2008 default.
In other indicators, GDP
per capita stood at $5,943 as
of end-2013, up from $5,637
in 2012 and $5,226 in 2011.
In trade terms, Ecuador displayed a dramatic turnaround
in 1H2014, posting a surplus
22
ECUADOR 2014
THEBUSINESSYEAR
@cm][f>_×]cn
(As a Percentage of GDP)
Source: Focus Economics
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2009
2010
2011
2012
2013
GDP by Sector
Source: European Commission DirectorateGeneral for Trade
MIND THE GAP
70
60
50
40
30
20
10
0
1993
of $483 million for the first five months on the
back of export growth—in the same period the
year before there was a deficit of $626 million,
the country going on to post a balance of negative $1.4 billion for year-to-November 2013.
Aside from policies that have introduced quality controls for imported products and supported domestic industry, PRO ECUADOR, under
the Ministry of International Trade, seeks to
boost the country’s trade profile and attract
FDI, with $476.7 million of the latter hauled in
in 2013, up 41.1% in 2012. Approximately 80%
of foreign investment is made in the oil sector,
in spite of the fact that the private sector represents just 25% of the strategic oil sector.
But despite some positive cash flows, current account deficit (CAD) worries continue,
the gap standing at 1.3% of GDP as of end2013. It was the announcement that a new digital currency, the sucre, would be launched in
October 2014, which caused surprise, the government seemingly hoping that it could help to
fund the deficit. For use alongside the US dollar, and if implemented properly, the sucre, the
first ever digital currency to be backed by a national government, has the chance to surprise.
That said, some observers maintain concerns
that it could create inflationary pressure when
coupled with the fiscal deficit.
In 2013, inflation ended the year on 2.7% in
CPI annual variation terms, the lowest in eight
years. In other good news, the National Institute of Statistics and Census (INEC) reported unemployment of 3.91% in June 2013, the
lowest rate in Latin America. And according
to the Ministry of Planning and National Development (Senplades), full employment exceeded underemployment for the first time, at
52% and 43%, respectively. According to Focus
Economics, the unemployment rate ended the
year on 4.7%.
2003
2013
Agriculture
Industry
Services
In 2008, Ecuador defaulted on $3.2 billion in
global bonds, buying back 93% of the sum at
35 cents on the dollar a year later. The development severely limited the country’s access
to the capital markets and allowed China to
capitalize on the country’s new liquidity shortfall by offering up attractive financing in return
for a supply of crude oil. But in 2014, Ecuador
made its return to the international markets,
selling $2 billion in 10-year bonds at a yield of
7.95%. According to the Finance Ministry, demand was in excess of $5 billion and among the
over 200 participants were institutional investors and private banks in the US, Asia, Europe,
and South America. The additional liquidity
will help Ecuador continue its program of high
MARCO CARRIÓN VUELE
Vice-‐President, Chamber of SMEs
of Pichincha
We organize numerous fairs and
sector events with a clear emphasis
ih]ihnlc\onchaninb_^cp_lmc×][ncih
process. For example, at the end
of 2013 we organized a fair for the
productive sector, which the VicePresident of Ecuador and other
ministers attended. We aim to
organize activities that contribute
to the process of changing the
production matrix of the country with
our knowledge and expertise.
public investment, with $7.26 billion having
been earmarked for investment in 2014 alone
out of a total spending budget of $34.4 billion.
Between 2007, when Correa came to power,
and 2013, public investment totaled $34 billion, a staggering figure considering that just
$6 billion was invested in the preceding eight
years. The country’s return to the international
bond market, in that respect, also represents a
diversification in fund sourcing, many having
warned that Ecuador had become too reliant
on China for loans. With the Far Eastern giant
having invested $12 billion since 2009, it is prudent of the authorities to seek alternative funding to hedge against a drop in global oil prices,
a wave upon which Ecuador has become accustomed to riding.
Economy
In 2014, Ecuador
made its return to the
international bond
markets, selling $2
billion in 10-year
bonds at a yield of
7.95%. According to
the Finance Ministry,
demand was in
excess of $5 billion
and among the over
200 participants were
institutional investors
and private banks in
the US.
TRADE ON
The headline trade news for 2014 was the signing of a pact with the EU to allow Ecuadorean
exporters continued preferential access to
markets in the bloc. Signed in July, Ecuador
came within months of the end of a previous deal, which was set to expire in 2015. The
deal, affecting a number of goods including
shrimp, canned tuna, and oil, revolved primarily around bananas, with the EU wanting
a guarantee that Ecuador would not flood the
market and create problems for the bloc’s other trade partners. In response, Ecuador agreed
to the triggering of a tariff on bananas should
an annually established limit be reached. In
2013, Ecuador’s exports to the EU totaled $3.5
billion, with $630 million in banana exports.
In the same year, the country imported goods
worth $2.9 billion from the EU.
In other trade news, 1H2014 was full of good
news for Ecuador following a disappointing
2013, when the country posted a trade deficit
of $1.4 billion in the year to November. However, the introduction of new quality controls
on imported goods and government support
for domestic industry, as well as higher oil revenues, led to the turnaround in 2014. For the
January-May period, Ecuador posted a surplus
of $483 million, with exports up 9% and imports down 2% YoY, according to the Central
Bank. Exports were worth $11.1 billion over the
period, while imports were worth $10.61 billion. The about-face can also be somewhat attributable to a program of import substitution,
and the import of a number of goods, including
those deemed harmful to public health as well
THEBUSINESSYEAR
23
GDP Per Capita
(in USD)
Source: Focus Economics
2009
2010
2011
2012
2013
1000
2000
3000
4000
5000
6000
as those that could be produced domestically,
has been restricted. But it was oil that really did
the trick, leading exports to the tune of $5.74
billion over the period, followed by bananas
at $1.12 billion, shrimp at $1.09 billion, and
flowers at $344.31 million. In non-oil terms for
January-May, the balance came in at negative
$2.76 billion, while the oil sector posted a surplus of $3.25 billion.
Ecuador has done much to ease the concerns
of spectators over 2014, taking bold steps to diversify the government’s funding basket, while
closing a trade deal with the EU that will be a
huge relief to exporters both small and large.
Heading into the future, it is yet to be seen for
how long President Correa’s penchant for public investment can last, but with a number of
large projects drawing to a close, including the
Refinery of the Pacific, the seeds of investment
could be about to bear fruit. 24
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
trading
PLACES
TBY talks to HE Francisco
Rivadeneira, Minister of
International Trade, on the EU
trade agreement, bilateral and
multilateral pacts, and increasing
links with the Middle East.
BIO
Ecuador recently concluded its negotiations for a
nl[^_[al__g_hnqcnbnb_?O(Qb[ncmnb_mcahc×cance of the agreement for Ecuador?
The negotiation of a trade agreement with the
EU concluded in July 2014, after nine rounds
of negotiations from bloc to bloc. The process
started in 2007 together with the Andean Community countries. The result of this process is
an agreement that meets the needs of Ecuador
in relation to access to the European market
and the protection of sensitive domestic production sectors. Ecuador requested special and
differential treatment due to the size differences of the economies; Ecuador is more vulnerable to international prices due to its dollarized
economy. Undoubtedly, the negotiations represent a win-win scenario.
Do you feel that the EU has been receptive to providing special and differential treatment, which
acknowledges the different challenges Ecuador
will face?
We feel the EU has been receptive; however,
its first option was to negotiate an association
agreement. In addition to bilateral trade talks,
the EU also maintains agreements between
specific trade blocs and, as such, negotiations
for an agreement between the EU and the Andean Community was initially proposed. Unfortunately, due to the fact that we could not carry
out this negotiation in a mutual manner as a
bloc, Ecuador decided to continue unilaterally.
The primary objective is still the same; however, this agreement deals not only with trade, but
development in general, as well as helping regional economies and creating welfare.
Francisco Rivadeneira
graduated in International
Relations and specialized
in international economics,
political science,
international trade, economic
and legal integration,
]ihØc]nl_mifoncih&[h^
negotiation. He has attended
prestigious centers such as
the University of Geneva,
the Graduate Institute
of International and
Development Studies in
Switzerland, Universidad
Andina Simón Bolívar,
Jihnc×]c[Ohcp_lmc^[^
Católica de Quito, and the
University of Barcelona.
After that he served on
several public and private
entities, including the
Ministry of Foreign Affairs
and Human Mobility of
Ecuador, the Export and
Investment Corporation
of Ecuador (CORPEI),
and Citibank. He has been
professor of international
economics, international
trade, economic and legal
integration, and international
relations, among others
[nJihnc×]c[Ohcp_lmc^[^
Católica de Quito,
Universidad San Francisco
de Quito, Universidad Andina
Simón Bolívar, and Facultad
Latinoamericana de Ciencias
Sociales (FLACSO).
Do you see it as something positive that Ecuador
is negotiating an agreement on its own rather than
as part of a bloc?
Every bloc negotiation has its positive and negative aspects. When you secure a trade deal as
a single country, it is adapted to meet the specific needs of that state. As a bloc, the interests
of some countries are sacrificed for the good
of the group. On the other hand, it is notably
better to negotiate as a bloc, because you have
more power and influence in the negotiation
process. In that respect, during these negotiations, we have certainly gained in terms of certain specific interests for Ecuador, but we have
also lost some negotiating capacity.
What is the current importance of trade with the
Gc^^f_ ?[mn& [h^ mj_]c×][ffs nb_ O;?& [h^ qb[n
role do you see it playing in the future?
Currently, our trade with the Middle East is
not very significant. However, the importance
of this region lies in its potential for greater
opportunities. The Middle East has enormous
consumer capacity, especially in regard to our
products, and there is a significant market demand in this region for high-quality products,
which Ecuador can provide. The market demand for food exports is particularly high, due
to the lack of capacity that many Middle Eastern countries have to grow local crops. Countries like Ecuador can provide high-quality
food products, year-round. There is also huge
immediate potential for Middle Eastern countries to invest in Ecuador, as the country provides a strong, structured option for countries
seeking to diversify their risks following the fi-
Economy
nancial crisis, which made a significant impact
on much of the Western world. Ecuador can fill
this portfolio gap, primarily because of its political, economic, and social stability. The country
has developed interesting high-value projects
in both the public and private arenas. We are
working to incentivize countries like Qatar, Kuwait, and Saudi Arabia to invest in Ecuador’s
energy, physical infrastructure, telecommunications, food, and industrial sectors. It is also
worth mentioning that Ecuador is looking to
utilize the city of Dubai as its main economic
hub for the Middle East and nearby regions,
such as Africa and India.
How is Ecuador responding to the suspension of
preferential access to the US trade market?
The US market will remain a crucial partner for
Ecuador, and we are keen to increase investment opportunities between the two countries.
Ecuador has opened four trade offices in the
US located in New York, Miami, Chicago, and
Los Angeles, and the country is looking to open
another office in Houston, in 2015. The possibility of negotiating a trade agreement with the
US does exist, and Ecuador has a significant
interest in this; I made this point quite clear in
meetings with the US government in 2013. The
real question lies in what type of agreement this
will be. In our previous experience negotiating with the US, we found that many times the
asymmetries between itself and its negotiating
partners are not properly taken into account. It
negotiates as if other countries are on the same
level, which is unacceptable. If the US is willing
to take Ecuador’s unique economic situation
into account, then negotiating a new trade
agreement could be an option.
Biq qcff nb_ Nl[hm'J[]c×] J[lnh_lmbcj "NJJ# [`fect Ecuador, considering that the country is not
participating?
Ecuador is well aware that the Asia-Pacific region is the most important area in the world
today. It is also the most strategic, because the
countries that will exhibit the highest growth
rates in the coming years are found in this region. Ecuador is also a part of the Pacific Rim
and, as such, participation in any process related to developing economic trade in this region
is important for the country. We are examining
whether we should integrate ourselves into
Asia-Pacific Economic Cooperation (APEC), an
organization that helps to create a type of economic synergy among regional actors. How-
ever, for the moment, we have decided not to
officially take part in this forum primarily because, from a trade perspective, the region is
too liberal. This does not mean we aren’t keeping up with what is happening with this mechanism, in fact, we may seek to become part of
this agreement in the future. If the TPP comes
into force, Ecuador will re-evaluate its role in
this forum; however, I am not optimistic about
the outcome because interests are quite varied
at this moment.
What are your key priorities for Ecuador’s trade
policy over the coming years?
We hope that the conclusion of the agreement
with the EU will help our country close other pending deals and lead to negotiations for
agreements with Canada, the European Free
Trade Association (EFTA), Turkey, and South
Korea. In Latin America, we are in the process
of finishing negotiations with El Salvador and
Nicaragua, and are commencing negotiations
with the Dominican Republic and Honduras.
We also hope to reach a more comprehensive
agreement with Mexico in the near future, and
we are working to finalize and sign an agreement with Venezuela in 2015. Ecuador is also
launching a powerful campaign next year to improve the country’s image by promoting various
sectors, including tuna, shrimp, and flowers. We
want to boost our exports in terms of both value
and volume; however, this requires a change in
our export tendencies. Finally, our goal is to increase foreign investment into the country.
The past few years have not been positive in
terms of multilateralism in world trade. Is the future of international trade going to be in bilateral
agreements?
The position of the Ecuadorean government is
that multilateralism is the best option. We believe in the WTO and its purpose. Unfortunately,
the reality is that it is extremely difficult to reach
result-oriented agreements in the WTO. The last
meeting in Bali was more successful than Doha
in reaching certain trade agreements, but was
still not sufficient.
What role should international trade play in developing the Ecuadorean economy?
The role of international trade is essential in
developing the economy. When you have a dollarized economy, there are only three ways of
bringing in currency: debt, foreign investment,
and exports. THEBUSINESSYEAR
25
Ecuador’s Ministry
of International
Trade was created
in 2013
In July 2014,
Ecuador
concluded its
final round of
negotiations for
a bilateral trade
agreement with
the EU
26
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to Antonio García Ruales, Executive Director of PRO
ECUADOR, on export promotion, attracting foreign investment, and
developing Ecuador’s global image.
come see
US NOW
What is the number one mission
of PRO ECUADOR?
How do your export promotion
strategies differ by market type?
PRO ECUADOR, in reality, has
two main objectives. One is
the promotion of our consolidated export offer, and we also
play a role in the promotion
of new value-added products
from the country. A second
goal is the attraction of investment to Ecuador.
There are two basic kinds of
strategies supported by different tools or activities. We have
image creation tools and sales
development tools. They are
related to the specific kind of
activities we do in any of those
markets. In a market that in
which we are just beginning
commercial relations, like
Turkey for example, we mostly
do image development activities. In intermediate markets,
we do a mixture of image creation and sales development.
In fully developed markets,
we basically concentrate our
activities and strategies on
implementing
incremental
export sales from Ecuador. We
also have more specific tools
that are developed to help
SMEs and major companies.
What kind of support does PRO
ECUADOR provide for exporters?
BIO
Antonio García Ruales
has previously worked as
Vice-Minister of Foreign
Trade and Economic Integration of Ecuador, he was
head of the Commercial
I`×]_i`JLI?=O;>IL
in Chile, and Ecuador
Commercial Counselor in
Peru. He has also worked
as Regional Director of
the University of Loja, he
was a professor at Florida
Atlantic University, and also
contributed as an external
consultant on foreign trade
for SMEs in Ecuador.
One of the main features of
PRO ECUADOR is the fact that
we have 32 business offices
around the world, working in
about 1,000 activities related
to the promotion of exports
and investments in any given
year. That means that every
day, we have at least three or
four activities going on somewhere in the world. I consider
it vital that we offer the export
sector such global promotion.
We also have several tools that
can be used in the promotion
of Ecuadorean goods to the
world, and these tools are basically designed in relation to
each country where we have
a presence. This strategy has
been designed simply because
we have different degrees of
commercial relations with
different countries. We can
basically divide our consumer
markets or targets into three
groups: the countries with
which we are just beginning
to develop relations, those
where we are at an intermediate stage, and those in which
we enjoy fully developed commercial relations.
What would you say are the
challenges for Ecuadorean
companies looking to export?
We try to identify “complementary production platforms” in order to do business
with them, because we produce what they don’t. A company’s first strategy should be
to identify sectors in which it
does not compete with that
country. The same applies to
the goods that we produce. In
that sense, we rely heavily on
the help that we get through
our international officenetwork, which provides the cure
strategic intelligence used in
entering those markets. Another challenge that companies face is fostering an export
culture to begin with.
PRO ECUADOR
b[m-,i`×]_m
around the
world working
on more than
1,000 activities
related to export
and investment
promotion
What are the key areas in which
Ecuador should be promoting
investment?
I guess one of the main concerns of the government has
been to develop Ecuador as
a modern society and robust
state. I do not know of any
developed country that has
achieved that stage, unless
they have developed three basic areas: a solid infrastructure,
a healthcare system capable
of satisfying the population,
and also a quality educational system. Those objectives
are the main concerns of our
government; we are working
on achieving them to propel
Ecuador into the future. I was
recently contacted by a large
foreign investor who said that
they had selected Ecuador
over another Latin American
country because we have better highway infrastructure. We
have chosen the right path to
develop the Ecuador of the
future. For the first time, this
government knows exactly
what we have to do and how
to support the projection of
our exports around the world.
PRO ECUADOR is an example
of that. We have only been
here for three years, but we
have opened up the world to
Ecuadorean exports as never
before. Economy
THEBUSINESSYEAR
27
INTERVIEW
the DEAL
maker
TBY talks to Cristian Espinosa C., Executive
Director of the Ecuadorian-‐American Chamber
of Commerce (AMCHAM Quito), on trade
with the US, supporting Ecuadorean and US
companies, and bilateral agreements.
ž=ig\ch_^
US-Ecuadorean
trade totals
around $19 billion
ž;fgimn/*
of Ecuadorean
exports go to the
US
Qb[n cm nb_ mcahc×][h]_ i` ?]uador’s trade with the US?
For Ecuador, close to 50% of
exports are bound for the US,
which is in turn one of the
main suppliers for Ecuador.
There are many US companies present in Ecuador, involved in production, trade,
and sales, and re-exporting
from Ecuador. This is particularly important for the banana
industry. Bananas are exported by large US multinationals
to markets such as Europe,
Turkey, and even New Zealand. These companies play a
vital role in our economy, and
we enjoy excellent business
relations with the US, despite
a certain tension in the past
arising from our diplomatic
support for WikiLeaks. The
private sector has remained
robust despite these issues,
and we liaise with ambassadors and officials so that private contacts have been able
to sustain bilateral relations.
Our combined trade of almost
$19 billion is set to increase,
while our population is 15
million, which means that for
almost every person there is
close to 20% of GNP per capita
with the US. It is vital to keep
trade flowing and pursue more
markets. It will take a while for
some to realize that these bilateral relations are crucial not
only for businesses, but also
for individuals, as almost 10%
of the population lives abroad,
with most residing in the US.
Should it be a priority for the government to renegotiate a bilateral agreement?
It is arguably ill-advised to
reach an agreement with a nation that is much larger than
yourself as you run the risk of
asymmetrical trade. The counter argument is that it is good
BIO
Cristian Espinosa C. is
currently the Director of
International Affairs of
the Municipality of Quito.
He served as Executive
Director of the Ecuadorian
American Chamber of
Commerce between 2011
and 2014, and as President
of the Ecuadorian Council
Chambers and Production
Associations of Ecuador. He
has been a Career Diplomat
since 1987 (currently on
leave). Between 2003
and 2005, he served as
Vice Minister of Trade and
Integration and as the Chief
Negotiator of the free trade
agreement (FTA) between
Ecuador and the US. He
has also led negotiations
between Ecuador and
the EU, and presided the
negotiations on behalf of
the Andean Community
countries for the existing
trade agreements between
the CAN and MERCOSUR.
He served as Director
General of the Andean
Community between 2006
and 2008. His diplomatic
postings have been in Tokyo
and Geneva where he was
Ecuador’s representative
to the WTO and served
as President of the
Antidumping Committee.
Espinosa teaches at various
Universities in Ecuador
and has undergraduate
and graduate degrees in
Economics, Philosophy
and Public Administration
from Boston University and
Harvard University.
to partner with a large country
in that it can open the door to
large investment possibilities.
The government is looking into
an ideological agreement that
deals with the difficulties of a
bilateral agreement with the
US, because for us this trade is
crucial. Half of our exports are
destined for the US, while just
a fraction of US exports come
here. Also, trade is focused on
certain parts of the US. For
example, Ecuador is an important trading partner for Florida,
but wholly irrelevant to Washington, DC. Meanwhile, Texas
exports many products for the
oil and gas industry to Ecuador;
therefore, it is vital to address
diverse perspectives when considering such questions.
How would you describe the focus of AMCHAM Quito’s work?
We work both domestically and internationally, and
have taken many Americans
who have long worked here to
Washington, DC. When businessmen who have worked in
a specific area visit the capital,
their cases are listened to carefully. For example, when we
were lobbying for an extension
of the ATPDEA, we lobbied on
six separate occasions due to
the number of updates. We
have authorities here in Ecuador who are trying to impose
restrictions, or pass new provisions on intellectual property
that will affect new members.
Sometimes, we are successful and sometimes we are not,
but we do raise issues and then
come back and provide other
opportunities to move agendas. We are often grouped together with Venezuela, Cuba,
and Argentina as anti-trade,
but we respond to this by saying that we are not anti-trade
and it is a mistake to put us in
the wrong group because you
lose business opportunities.
No matter how much Correa
supports Maduro in a speech,
if you walk down the street and
talk to business owners, general managers, and other people
involved in commerce, you get
a different view. 28
THEBUSINESSYEAR
ECUADOR 2014
FOCUS ECUADOR’S RETURN TO THE BOND MARKET
MY WORD IS MY BOND
In the 1980s, Ecuador’s main export product,
oil, failed to generate sufficient revenue to repel national debt that bond defaults had left in
1993, 1995, and 2000. Meanwhile, structural
repayment agreements with its main international creditors prioritizing financial obligations from the state over social obligations
for the Ecuadorean community jarred with
Rafael Correa, then Minister of Economy and
Finance. His view was that 80% of the spoils of
Ecuadorean oil should benefit Ecuadoreans,
with the remaining 20% to address debt. This
conflict of opinion prompted his resignation
from the Ministry.
THE “D” WORD
Fast forward to Correa’s assumption of the
presidency of Ecuador, as the global financial crisis ravaged oil exports in 2008, the
state’s foreign debt rose from $1.17 billion,
to over $14.25 billion. Correa’s special debt
audit commission ultimately declared Ecuadorean debt illegitimate and resulting from
the misdemeanours of previous administrations, and that repayments (which required
the assigning of 50% of economic resources)
were tantamount to neglecting the fundamental needs of education, health, housing, and infrastructure. Enter the “D” word,
when at the end of 2008 he declared that
Ecuador would not make a $3.2 billion payment on foreign bonds. Bondholders sold
these instruments at rock bottom rates, and
soon after, Ecuador bought 93% of its own
debt at 35 cents on the dollar.
I’LL BUY THAT
Yet today, Ecuador has broadly regained investor confidence. As a result, President Correa walked Ecuador onto to the international
stage by selling $2 billion of bonds in June
2014. The 10-year bonds were offered at a yield
of 7.95%. The deal saw lower borrowing costs
when compared with the $650 million of 10year bonds priced to yield 10.75% in December 2005. Correa first estimated that Ecuador
would gain $700 million in bonds, and asset
managers and buyers seemed more than willing to welcome him back into the capital markets. This change reflects, too, government
awareness of the need to diversify financing
sources and loan requests, beyond Chinese
funding of an estimated $12 billion since 2009.
Ecuador only received 0.4% of total FDI in Latin America and the Caribbean at that time. If
the Andean nation follows the same performance as other “frontier” markets, its bonds
and stocks could log better performance than
its peers on greater investor inflows. The transaction has attracted over 200 institutional in-
The long expected
change in Rafael
Correa’s approach
toward the
international bond
market in June 2014
caught the attention
of 200 international
investors, and
underlines Ecuador’s
projected public
investment in its
‘Buen Vivir’ project.
vestors and private banking from Europe, Asia,
the US, and South America. And confirming a
preference for realpolitik over rhetoric, Correa
has since given the green light to annual IMF
reviews of the economy.
WHAT TO BUY?
Revenue generated by the bond deal will partially fund Correa’s ambitious infrastructure
and transportation projects. The National Investment Plan (PAI) of 2014 has determined
that the government will make significant
public investments worth $7.26 billion in the
Ministry of Transport, the Ministry of Electricity and Renewable Energy, and the Ministry
of Public Health and Education. In fact, the
government’s investment goal by 2017 is $47.6
billion, while the 2014 budget alone calls for
spending of $24.3 billion, including a deficit of
$4.94 billion.
SEE-THROUGH ECONOMY
Ecuador’s return to the bond market has won
the interest of investors, less wary of a repeat
appearance of ideological rigor than aware
that times change, along with circumstances.
Meanwhile, Ecuador’s parallel return to transparency can only further attract alternative
sources of financing to the local private sector,
benefitting the nation overall in their wake. The
World Bank predicts that Ecuador’s economy
will expand by 4.3% in 2014, which would be
among the best growth performances in Latin
America. 30
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
a CITY
on the RISE
TBY talks to Mauricio
Rodas Espinel,
Mayor of Quito, on
the challenges facing
Quito, promoting the
city to tourists, and
facilitating economic
development.
Three main
goals for Quito
are improving
mobility, boosting
competitiveness,
and fostering
innovation.
To what extent does a local government actually have the power to facilitate such economic
developments?
BIO
Mauricio Rodas Espinel
was born in Quito in 1975.
He holds a JD degree from
Jihnc×]c[Ohcp_lmc^[^
Católica del Ecuador. He
has two Master degrees in
Government Administration
and Political Science from
University of Pennsylvania.
After that he was a
consultant for the UN
Economic Commission
for Latin America and
the Caribbean (ECLAC)
in Santiago de Chile and
advisor for several local
and federal government
ministries in Mexico. In May
2014 he was sworn in as
Mayor of the Metropolitan
District of Quito, after
winning the general
elections of February 2014,
becoming the youngest
mayor elected in the history
of the city. In July 2014 he
was appointed Provincial
Councilor of Pichincha
Province.
As you begin your term as the
Mayor of Quito, what do you see
as the biggest challenges facing
the city?
One major challenge is improving our citizens’ quality
of life. This involves a number
of things: improving mobility, transportation, and traffic,
which is a major problem here
in Quito. The other is competitiveness. We believe that Quito’s potential competitiveness
has not been taken advantage
of in the past. This is because
the previous administration
believed the municipality had
to do everything on its own,
and regarded the private sector with skepticism. We believe
that the private sector should
generate wealth and employment, and that the municipality should be a partner in
achieving these goals. In order
for this to happen, we need to
establish a clear and solid rule
of law. This will create an environment that fosters entrepreneurship, local and foreign
investment, and industrial areas with clear rules where new
businesses can develop.
Local governments have many
tools at their disposal. Many
industries have been leaving
Quito for neighboring cities
in Ecuador, which shows that
the problem is on a city level.
If you compare the investment
coming into Quito with other
cities in the country, you can
see that we have been losing
our position over the past few
years. Investment is stagnating
because local taxes in Quito
are up to six times higher than
in Guayaquil and Cuenca. Our
response will be to reduce
local taxes for the lower and
middle classes. That will also
create a much friendlier environment for entrepreneurship
and investment. We are also
eliminating bureaucracy and
red tape, municipal licenses,
and permits required to operate a business in the city. In
the past, red tape prevented
many new businesses from
setting up in Quito, and these
are steps we can take on a local
level to stimulate growth and
investment. We must establish
a clear set of rules regarding
land use. Establishing specific
areas within the city for industrial development and applying the right kind of incentives
for industry in such areas will
foster competition and investment. We have also identified
three main economic areas in
which we see significant potential for Quito in the future.
The first is tourism, which
Quito has an innate potential for developing. Quito was
designated as UNESCO’s first
world-heritage city in 1978.
We have also won the World
Travel Awards for the best
South American Touristic
Destination two years in a
row. Quito is also one of the
21 semi-finalists for the seven new wonders of the world
process. All these factors have
been useful in terms of promotion. Quito now receives
630,000 tourists per year, and
we are hoping to double that
number during my term. We
are already establishing incentives for more investments
in tourism such as hotel projects and programs that foster
tourist activity.
The second area we have
identified as strategic is
our logistics export activity around the new airport.
The airport is located in rural
Quito. The location is quite
isolated, so there is potential
for development around the
airport with a focus on logistical and export-related activity. Thirdly, we want to develop
the economy of creativity and
technological development.
We are working on a new innovation district in Quito with
professionals from MIT. These
are the same people who developed the innovation districts for Medellín, Barcelona,
Singapore, and other cities
around the world. There is
great potential in this arena
because young professionals
will take Quito into the future.
We will advance not only by
leveraging software and technological development, but
also through innovative solutions to everyday urban problems. So, in these three economic areas, we have created
specific tools to foster entrepreneurship and drive foreign
and local investment. Economy
THEBUSINESSYEAR
31
INTERVIEW
SOCIALLY
secure
TBY talks to Hugo Villacrés Endara, President of
the Board of the Ecuadorean Institute of Social
Security (IESS), on national development,
the state of the economy, and public-private
partnerships.
žThe IESS
provides social
healthcare
services in
Ecuador
žThe Bank
of the IESS
invests money in
mortgages and
consumer credits
to spur economic
development
What do you see as your mission
and goals as president of the
board of the Ecuadorean Institute of Social Security (IESS)?
We have some important
goals in health and banking,
and we are trying to improve
public healthcare by bringing
more doctors into the system
over the next few months. We
will be hiring approximately
900 family doctors and 600
specialist doctors, who will
work around the country at 96
hospitals and health centers.
We are trying to improve the
way that we serve our members nationally, and to generate a new system based on value. We want to bring a more
human face to our health
services, while improving the
How could the public and private sectors best cooperate in
Ecuador?
manner in which we provide
access to medicine. There are
three ways to do this: we can
do it ourselves, which is what
we have been doing until now;
secondly, we can distribute
medicine through private
pharmacies, and thirdly, we
have a public business called
Enfarma, which is a government enterprise, through
which we also distribute
medicine. We work with both
private and public hospitals,
and are keen to link them in
a broader, stronger system.
In terms of banking, we work
with mortgage credit and consumer credit, with a value of
$1.32 billion in the former and
$1.44 billion in the latter.
IESS is involved in the Ecuadorean economy. How important
is its role in funding national
development?
One of the key ways in which
we improve the rate of national growth is through construction. If we can increase
construction credit then we
can expedite growth, which
naturally is of direct benefit to
the national economy.
We have a productive relationship with the private sector,
and utilize its services for the
benefit of our members. We
also work together with private banks for access to credit.
We are not trying to increase
our market share, but rather
to improve the quality and
value of our service offering.
We have also worked with the
private sector on construction
projects, building hospitals,
and housing. The best path for
us, for the country, and for our
members, is for the private
and public sectors to work in
tandem, because there are
certain areas in which the
private sector is stronger, and
others better suited to the
public sector. We also need to
increase the quality of human
value we give our members, in
terms of transparency, honesty, and good service.
What role would you like IESS
and BIESS to play in the Ecuadorean economy over the coming years?
I envisage a social security
system in which people have
confidence, and one able to
give members all the services
they need in terms of healthcare and pensions. It will be
a system that can work for
everyone from the beginning
of their working lives right
through to retirement. BIO
Hugo Villacrés Endara
was born in Quito and
graduated in Economics
`ligJihnc×]c[Ohcp_lmc^[^
Católica del Ecuador. He
has a Master’s of Science
in Economics (MSE) from
University of Lausanne in
Switzerland and an MBA
from Universidad Carlos
III de Madrid. He has
taken several courses on
governance, public policy
and marketing management
from the George
Washington University
and one in Development
Planning for Developing
Countries in Beijing. He
began his career in the
public sector as Manager
of Mercado Mayorista de
Quito. In 2009, he joined
Banco del Estado where he
held various management
positions. He was appointed
Deputy General Manager of
the Central Bank of Ecuador
in 2013, where he served
until March 2014.
32
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
BIO
María Soledad Barrera
A. studied business
administration at the
Jihnc×]c[Ohcp_lmc^[^
Católica del Ecuador in
Quito, and went on to work
at Financiera Manabi,
Fundación Natura as an
independent consultant.
Throughout the 1990s
and until 2007 she served
as Junior Executive of
Mercados de Capitales and
in other positions in Caracas,
Venezuela, taking time out
to complete an MBA in
International Management
at the American Graduate
School of International
Management in Arizona, US.
Two more senior positions,
one in Brasília and one again
in Caracas for Corporación
Andina de Fomento
followed. In 2010, she
moved to Quito to join the
<[h]i^_f?mn[^i&×lmn[m
General Coordinator, then as
Assistant General Manager,
[h^×h[ffs[mA_h_l[f
Manager in 2011.
an emerging
HUB?
TBY talks to María Soledad Barrera A.,
Chairwoman of the Board of Corporación
Financiera Nacional (CFN), on economic
development, capital markets, and
internationalizing Ecuador’s economy.
President Correa recently said in an interview
that his number one goal for the country was social and economic development. What role does
Corporación Financiera Nacional (CFN) play in
that?
CFN is more active on the financial and economic development side. The government
has always been trying to foster a stronger
relationship with the private sector. Most
of the infrastructure and investment is at an
adequate level, and our roads, airports, and
energy infrastructure is in place. Education
and healthcare are also crucial areas for further investment, and once we have all those
basics set up we can invite the private sector
to join us in making this model sustainable.
Their role is really important. We want at least
to maintain the current level of investment,
not relying only on the public sector and government side. You have to invite other partners to help us deal with this model. In terms
of CFN’s role, we are an economic group; not
just a financial institution or a bank. We recently went to market with a program called
Progresar, which comprises three products.
The first one is the National Guarantee Fund,
which is essentially an engine for SMEs. The
second is long-term financing for fixed assets. Both products already have clients. The
third one we are working on is seed capital for
entrepreneurs. We will also likely offer venture capital. Once these programs start up
and evolve they can enter the market. Those
are the three major projects we plan to offer
to foster the transformation of the country’s
productive matrix.
Do you think that the current level of development of Ecuador’s capital markets is a challenge
that is holding back economic development?
The agricultural sector remains
a key source of employment for
many Ecuadoreans
Unfortunately, it is. We now have a new law
that we hope will encourage new investors to
tap the market. We perceive the capital markets as a financing tool, which is why CFN
also helps by buying papers. Of course, it is a
shallow market, but at least we are helping at
a modest level. The idea is to introduce more
players and to get more people to invest in the
capital markets and local companies, or any
companies that are listed. The secondary market is of paramount importance to deepen the
market. We foresee companies not only relying
on loans, but also tapping the capital markets.
Economy
What is your vision of the Ecuadorean economy
and its international role over the coming decade?
I am really confident in what we are doing,
and we should continue on this road. Both the
government and the private sector have made
helpful contributions to developing the national economy. Over the coming years, there
will be more Ecuadorean companies exporting
value-added goods, and the most relevant element, over 5,000 Ecuadorean students that
are studying abroad, at some of the best universities in the world, will make a world of difference. The country will be on the path to becoming a knowledge hub a decade from now.
Even today, without that superb benefit, we
have a different approach to life. Citizens have
improved their living standards, and have developed a better attitude toward education.
CFN is the
Ecuadorean
development
bank that lends
resources and
provides technical
assistance to
the private
sector for the
transformation
of the productive
matrix
What are the strengths of Ecuador as an investment destination?
Investment in human capital and knowledge
should come first. Back to 1997, when Intel
was trying to establish a plant in Latin America, its staff visited Chile, Brazil, and some
other countries in Central America. They had
WWWCFNFINEC
THEBUSINESSYEAR
33
We believe the capital markets are a
×h[h]chaniif&[h^nb[ncmqbs=@H
also helps by buying papers—the
idea is to introduce more players
and to get more people to invest
in the capital markets and in local
companies.
been considering Chile, but they ended up going to Costa Rica, since the country was committed to preparing engineers and had established technical institutes and universities that
would make Intel’s investment sustainable by
providing human capital. Educated people
will always make the difference. Of course,
many other conditions had to be met as well,
such as a safe and secure environment and adequate regulations. 34
THEBUSINESSYEAR
ECUADOR 2014
B2B CONSULTING
GINO ERAZO
Partner, KPMG
come
TALK
TO US
Consultancies in
Ecuador are an
essential part of the
country’s recent drive
to internationalization
and sustained
economic growth.
ROLF STERN
President, BDO
Ecuador
Over the past decade, Ecuador
has seen an economic transformation. How has that changed
the nature of your business in
the country?
GINO ERAZO The world is
rapidly changing and Ecuador
has tried to keep pace. We are
facing challenges on all fronts:
increased competition, ongoing regulatory developments,
decreasing perceptions of the
value of our services, and margins under pressure. Therefore,
we believe that the consulting
firms also need to reassess their
business model to be more
global, more efficient, and more
customer-focused so that they
can enhance quality of advisory and audit services and drive
value to better meet the needs
of investors and other stakeholders. The current marketplace requires KPMG to refocus
efforts to diversify our services
beyond those related to the core
services. Currently, the firm is
pursuing a transformation to
drive increased quality and sustainable and profitable growth
in light of high competition and
the plethora of regulations and
standards set worldwide, which
Ecuador also seeks to comply
with. KPMG Ecuador is seeking
to align to market expectation
and strengthen other service
areas, such as advisory, tax, and
legal, and generate further business, a task that demands the
employment and development
of highly skilled people.
ROLF STERN The growth of
the middle class in Ecuador has
been important, and the strong
middle class acts as a political
stabilizer in the country. Adopting the US dollar as our currency has changed the way that
business is conducted by eliminating currency fluctuations.
This has led to an increasing
demand for our services, which
we have met by growing our capabilities and business. In 1973,
BDO was only one person, but
today we have 150. We expect
to continue with this level of
growth. Our success has also
made it possible to hire and
train the best talent available.
It also means that the nature
of the services that we provide
has expanded. Initially, we
specialized in consulting but
as we grew, we branched out
into auditing, taxation, and recently outsourcing. Today, we
have about 150 people working
from our offices in Quito and
Guayaquil. Our clientele has
also diversified as we expanded. In 1973, we did not have
any petroleum clients, but now
we audit Petro Ecuador. Today,
we also audit one of the largest
shrimp businesses in Ecuador.
There were very few NGOs in
1973, but now we audit NGOs
supported by the European
Community, and the US and the
Ecuadorean governments. We
have diversified in response to
attending to our clients’ needs.
While we always had clients in
the commercial sector, the industrial sector, and the banking
sector, our clientele base now is
much larger and more diversified. We also audit banks now.
What does the market expect to^[s`lig]ihmofncha×lgm9
GB Today’s unrelenting pace of
change means our stakeholders
are facing equally challenging
pressures. And they want more
from us, they want us to add
value to their business. They
also want our insights, in particular on the risks we identify
while rendering our services,
and they are seeking broader
assurance. At a time when the
volume of data is expanding
daily, I would predominantly
refer to the use of technology.
Many of our clients are introducing sophisticated technological capabilities to address
increasing challenges and opportunities around the velocity
and volume of data. In KPMG,
we are focused on driving quality and relevance by developing
innovative,
technology-enabled capabilities that will transform the way we conduct our
services.
RS We are the fifth largest firm
in the world; however, our priority is not size, but rather excellent customer service. The senior partners of our firm routinely
get together and work with our
clients, and we strive to foster
active relationships. While we
are part of a worldwide firm,
much of our decision-making
takes place at a local level. This
lets us work faster, and be agile,
and flexible, qualities that we
strive to maintain. Economy
THEBUSINESSYEAR
35
ECUADOREAN COMPANIES ABROAD FORUM
HAVE WE MET?
Ecuador is powering forward economically, and as a
result, Ecuadorean companies of all sizes and varieties
are making their presence felt abroad.
EDUARDO PÉREZ
JUAN PABLO VELA
WILSON LEÓN LEE
President & CEO,
Adriana Hoyos
General Manager,
Indurama
Executive President,
Grupo Öriental
E
cuador is not well
known as a country
that promotes design.
However, we have taken this to
our advantage, because our furniture and design combine the
best of Ecuador—the resources,
and the identity of Latin American design. Today we are well
known across Latin America.
We have expanded in the US,
and have also been pursuing
further expansion there, too. We
are exporting products made in
Ecuador to the US since 2001.
We have around 10 active dealers and many other design firms
in the US, which is currently the
largest market for our brand. We
also have distribution in Mexico, Guatemala, the Dominican
Republic, Panama, and Costa
Rica, and are starting to do some
business in Dubai, too. We have
two licenses in Venezuela, but
that is slightly different. The license is more like a franchise as
with here. We recently opened
a showroom in Chile, and are
opening one in Peru in October
2014. I would say that about 60%
of our business is international.
W
e are expanding to
Latin American markets and export to
around 20 countries in the region. Meanwhile, we have our
own operations in Peru, Colombia, and in Central America.
We make products for brands
like Whirlpool that are sold in
Colombia, Chile, and Central
America. In Ecuador, we hold
a 70% market share in stoves
and 65% in refrigerators. I know
home appliances well, which
will allow us to build on our
strengths in the local market
and also in Peru, where we are
already in a strong position. We
are also growing in Colombia
and in Central America, but the
ultimate goal is to have a presence throughout Latin America,
where our target is do the same
that we did in the Ecuadorean
market. We need to establish industrial clusters linking the suppliers of the product, which will
give us productivity and curb
transport costs in the supply
chain. We need the government
to incentivize innovation to develop the national knowledge
base.
W
e are an Ecuadorean
brand born in Ecuador and sustained by
Ecuadoreans. But what is more
important for us is to emphasize that we use Ecuadorean
raw materials, produced locally, to create Oriental food
products using our knowledge.
We want to show Ecuadoreans,
Latin Americans, Europeans,
and even Chinese people that
Ecuadorean raw materials can
be used to make healthy and
delicious Oriental food. Some
of our sauces are actually being
exported to China now, such as
our chili sauce, which is made
with Ecuadorean chili. Ecuador
can produce chili sauce all year
round because of our equatorial
location. We see this as an opportunity for export. More than
10% of our products are currently exported within the region,
but also to Europe and China.
You have to pursue your goals
every day and adapt when needed by developing new technology and products. You also need
to encourage your employees to
pursue growth, adapt to change,
and innovate.
JELISAVA CUKA
AUAD
General Manager,
Marbelize
M
arbelize is the fourth
largest exporter of
tuna in Ecuador. We
are also the first to develop new
kind of products. We are innovative; we invest in research to
develop new products and create new trends. We were the first
company in Ecuador to package
tuna in a glass container. Our
largest export market is Europe.
Asia is our main competitor.
To compete with them is a big
challenge. Their prices are very
low, at around $10 per box.
The challenge is to give the end
consumer an excellent product,
but to have them pay for it is
difficult. We try not to compete
on price, but rather on quality.
That is why we have diversified.
That is why we don’t sell a lot of
canned tuna, but instead pouch
packs. We sell these in a catering
size that is intended for hotels,
hospitals, and schools because
they value good quality. My
biggest challenge is to open up
new markets. We are working
with the government to open up
markets because there are customs duties everywhere.
36
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
READY FOR
the future
When you say, thinking more
about long-term planning, does
that mean larger investments?
TBY talks to Roberto Dunn, General
Manager of Consorcio Nobis, on the
transformation of Ecuador, increased
investment in the country, and
transforming the productive matrix.
How has the profound economic
transformation of the past decade changed the focus of Consorcio Nobis and the way the
company approaches the economy in Ecuador?
For the consortium, the past 10
years have been a time for development based on a specific
strategy. We are now in a position whereby the economy has
helped us prepare a long-term
investment strategy, in order
to reach goals in specific areas.
We are a highly structured consortium, but at the same time
greatly diversified. As such,
any hiccup in the economy
could affect one of the many
industries that we handle, including agriculture, energy,
the commercial sector, and
real estate. We are, therefore,
highly exposed, but Ecuador’s
sustained economic health
allows us to undertake larger
challenges. These will bring
more jobs and opportunities
for the people and third parties
involved in our projects.
BIO
Roberto Dunn obtained
an MBA in Finance and
Administration and a
BSBA in Finance and
Marketing from Boston
College. He has also
completed several courses
on internationalization,
]iljil[n_×h[h]_&\omch_mm
competitiveness, upperlevel business management,
analytic and strategic
planning, and aviation costs.
Before joining Nobis he
was Manager of BESA –
Bebidas Sabrosas, General
Manager of Ecuadorian
Sociedad Ecuatoriana de
Transporte Aéreo, Saeta
S.A, and Commissioner at
Fideicomiso Air Ecuador. He
began his career at Nobis
as General Manager in
2008 and became Executive
Director of the consortium
in 2012.
Yes it does, an example being our real estate developer
company. Formerly, we had
projects for one or two specific buildings, while subsequent growth has seen us look
into the niche of a city within
a city: a microcosmic zone of
five to 10 buildings. And now
we are moving on to having a
larger city beyond Guayaquil.
This is a project that over the
span of eight years will be an
investment of $700 million. It
will feature between 35 and
40 buildings, with comprehensive services: from dining to commercial, to sustain
around 3,000 families.
Do you feel there has been a
change in the international perception of Ecuador?
Ecuador has had political stability, which is important for
economic stability. That is
what we as entrepreneurs and
investors need, because in order to grow and see the future
and keep growing, we need
clear rules of the game. Therefore, stability gives us the capacity for strategic investment
either through the owners’
money, external investors, or
seeking credit lines.
What is the main focus sector
for Consorcio Nobis currently?
We have learned to pay attention to what the government
has envisioned in its strategic plan for Ecuador. We are
involved in all of the sectors
where the government is gathering the strength for you to
go and invest. We are looking
at tourism, to go along with
one of our real estate units
Consorcio Nobis
is currently in
talks with DP
World to develop
a new private port
and hotels that we manage.
We are also looking at energy,
in terms of ethanol production, which is a sector on the
government’s strategic agenda. Meanwhile, we have major
port project that remains a key
focus for the next five years
because of it logistical significance. With the roads that we
now have, logistics will be the
next threshold for the country
to cross.
What role do you see for Consorcio Nobis in Ecuador’s efforts to transform the productive matrix?
We are doing this on the energy front. We are going to look
more closely at contributing
through the production of ethanol, so that there will be less
reliance on imported gas. For
each gallon of gasoline consumed, 70% is imported. And
that goes into subsidies and
cost, which costs the country.
If we can help with the local
production of ethanol, then
we will retain revenues in our
own economy. This will mean
more jobs, new developments
in a proactive sense with new
plans, and meanwhile, the
economy will move along
more quickly. Economy
THEBUSINESSYEAR
37
MANABÍ FOCUS
A PROMISING
PROVINCE
Manabí is shaping
up to be at the
core of many of
the government’s
development
initiatives, and
transforming into a
new powerhouse for
the economy.
Ecuador’s Manabí Province, with a population
of over 1.3 million, covers an area of around
18,900 square kilometers adjacent to Ecuador’s
central Pacific coastline. The province has 22
cantons and Portoviejo is its capital and largest
city with around 250,000 residents. Despite its
good connectivity to other parts of the country, and buoyant aquiculture (shrimp), fishing
(tuna), and tourism industries, Manabí has the
dubious honor of being Ecuador’s poorest province, with 26.8% of the population receiving the
federal government’s so called poor payment
that goes to those citizens most in need. The
rural-based existence of much of the province’s
population is largely the cause of this. In particular, Manabí’s economy has historically been
heavily based on the cultivation of coffee beans,
with over half of Ecuador’s beans grown in the
hilly inland areas of the province, and coffee
exports departing from the province’s Manta
Port. Unfortunately, declining world prices for
coffee in the 1980s led to crops in the province
being left unharvested by famers, which in turn
saw a rise in agricultural pests and diseases.
Further, much of the coffee is still produced
on small, low-yield farms of one to 10 hectares
with other crops such as cocoa, bananas, or citrus fruit being grown alongside it, meaning that
coffee production in the province is still a near
subsistence industry for many farmers.
The Mayor of Portoviejo, Agustín Casanovas
Cedeño told TBY in his recent interview that,
“Agriculture and agribusiness are two of the
economic drivers of this canton… However, our
agricultural producers need to double production volume to achieve the desired levels of development.” To this end, Portoviejo Canton has
passed legislation affording a 50% reduction in
taxes for five years to investors committing over
$1 million. This move is aimed to kick-start FDI
in the region in the hope of addressing some of
the current agricultural and standard of living
issues that the people of Manabí Province face.
At the other end of the investment scale are the
SMEs hoping to contribute to the Province’s
economic development. Banco Comercial de
Manabí is a regional bank owned by a group of
businesspeople from Manabí that is specifically
tailoring its services to the needs of companies
in the province. In a recent interview with TBY
the bank’s Manager, Walter Andrade, explained
that the bank is focused on providing credit lines to SMEs that make up around 60% of
its corporate clients, and need this support to
grow and compete in the region.
TOURISM TO THE RESCUE
Manabí Province also has another ace up its
sleeve. The region’s coastline extends for 350
kilometers and the province boasts numerous
beautiful recreational beaches. These include
San Vicente, San Lorenzo, El Murciélago, Los
Frailes, and the 17-kilometer Canoa Beach,
which is the longest beach in Ecuador. Aside
from swimming and sunbathing, Manabí has
excellent surfing, wind surfing, and kite surfing
beaches, such as San Mateo, which is famous for
its world-class surfing breaks of up to 300 meters in length. The attractive and tranquil Pacific
Coast resort city of Bahía De Caráquez sitting
on a dramatic peninsula also draws visitors to
the region. The city has transformed itself into
an eco-tourism destination in recent years, with
a predominance of hotels and also numerous
holiday homes, many of which are only occupied during the January to April high season.
The city has styled itself as an “ecocity,” also by
establishing its own paper recycling plant, banning plastic bags, and setting up initiatives for
reforestation and organic agriculture. Visitors
looking for a different and active holiday experience can walk along the beach to the Punta Gorda Reserve, where they can do voluntary work in
the tropical dry forest. They can also visit nearby
islands, such as the national heritage site of Isla
Corazon, to see local flora and fauna, or visit the
area’s organic farms to experience coffee and
chocolate production, and other local organic
craft industries first hand.
Manabí Province is also home to the Machalilla National Park covering 60,000 hectares, of
which 20,000 hectares are a marine reserve. The
park is immensely important to the ecology of
Ecuador, being one of the few areas of coastal
tropical dry forest remaining in the country. Los
Frailes, rated as one of Ecuador’s most beautiful
beaches, is situated within the national park. As
well as being an excellent, safe swimming beach
with fine white sands, tourists can take a boat
out to go diving on the reef, or do some whale
watching in season.
Tourism also injects much needed capital
into Manabí’s economy via the cruise ship industry. Manta Port is on the cruise ship route,
with vessels calling at the port during the season that runs roughly from October through to
April. Some of the largest cruise shipping lines,
such as Holland America and Princess Cruises,
call at Manta. The ships dock close to the center
of Manta, with a free shuttle service lasting 15
minutes taking passengers and their tourist dollars into town. And it is not just temporary visitors aiding the province’s economy. There is a
growing trend for foreigners to choose Manabí
for their retirement, either along the coast in
places such as Crucita Beach, or in the provincial capital of Portoviejo. The city is situated 30
kilometers from Ecuador’s Pacific coast, and
was founded by the Spanish in 1535. Portoviejo
is now the country’s sixth largest city. Its Mayor,
38
THEBUSINESSYEAR
ECUADOR 2014
Agustín Casanovas Cedeño, is acutely aware of
the need to work on urban planning and mobility issues within the city to attract and retain
more overseas revenue from segments such as
international retirees and Ecuadoreans living
abroad. As he told TBY, “We must provide more
parks, and build more housing, conference and
convention centers, and shopping malls, as
well as enhance services, hospitality, and entertainment, to attract higher levels of foreign and
private investment.”
INFRASTRUCTURE DEVELOPMENT
According to Ecuador’s President Correa,
Manabí Province is “the Province of the Millennium” because of the infrastructure projects
currently being developed in the region that he
hopes will shape Ecuador’s social and economic future. Of these projects, the Pacific Refinery
is billed as the most expensive in the history of
Ecuador. The construction of the new refinery
in coastal Manabí is expected to cost around
$13 billion, with a planned completion date of
2017. In addition to central government funding, the China National Petroleum Corporation
and Petróleos de Venezuela are investing in the
project. On its completion, Manabí Province
will be home to the largest refinery in the country processing over 300,000 barrels of crude
oil per day and employing an estimated 1,300
workers. In the meantime, 20,000 workers will
be needed in the refinery’s construction phase,
which is a huge injection of economic activity
for the province.
Other essential infrastructure projects include improvements to 7,000 kilometers of rural roads so far by the provincial government
over the past eight years. However, the scale of
work still to be done is significant. Manabí Province’s Prefect, Mariano Zambrano Segovia, told
TBY in a recent interview that, “…our province
requires almost 15,000 kilometers” of road improvements. Health services are another area
where Manabí Province is in need of further
infrastructure and resource input. One recent
example of this is the aid organization Supplies
Over Seas (SOS) “Mission to Manabí” initiative
carried out in conjunction with Manabí Province officials over 2011-2013. Three containers
of medical supplies and hospital equipment
were shipped to the province from the US, and
a team of 20 medical personnel visited remote
rural areas of Manabí to carry out operations in
villages where healthcare facilities are still basic
or altogether lacking.
Having said this, the President’s recent focus
on funding infrastructure development initiatives in Manabí has to be taken as a positive
sign that the province will be propelled forward
in the long-term. Economy
THEBUSINESSYEAR
39
WASTE SERVICES B2B
IT’S A
DIRTY JOB,
but…
CARLOS SAGASTI
former General
Manager, Empresa
Metropolitana de Aseo
de Quito (EMASEO)
JUAN GONZÁLEZ
President, Intercia
Revolutionary changes in the ways Ecuador
deals with waste, recycling, and cleanliness are
helping transform the capital and the country.
How has the transformation of
the waste management system
ch Kocni \_h_×nn_^ nb_ j_ijf_
of Ecuador, and could more be
done?
What was the state of Quito’s
waste management system
over past decades?
CARLOS SAGASTI Quito, for
the past 40 years, has managed
its waste through the public
sector. In 2003, the city government decided to split Quito’s
waste management system into
two halves. The south and central parts of the city would be
managed by a private company, while the northern part of
the city would be managed by
EMASEO. So after seven years,
the city increased in population,
in waste generation, and the
problem was there was no one
in the municipality who was
planning for, or thinking about,
waste. When we arrived in 2009,
there was no installed technology in the company. Every day,
we would collect an average
of 1,800 tons of waste. We had
around 150 vehicles, trash collectors, and 1,300 employees.
Despite the size of the operation
and the intensity of the work,
there was no technology, no
data collection, and no way to
measure what we were doing.
Additionally, at that time EMASEO only provided three types
of services: collecting, sweeping,
and washing the streets in the
colonial center of the city.
JUAN GONZÁLEZ We were
initially involved in the paper
business, and starting from the
year 2001, we began collecting
predominantly used cardboard
cartons for recycling. In 2003,
we established plants at various
locations in Ecuador to collect
both paper and carton, and in
the year 2005 began to manufacture and recycle plastic bottles and export plastic flakes. We
also began to wash soiled plastic with specialized technology
during this period. We export
to the US and Asia, and operate
out of two plants in Quito, one
in Manabí, and three here in
Guayas. Besides that, we have
warehouses in almost every city
of the country. We plan to increment new lines of recycling such
as light bulbs, rubber tires, metals, and home appliances. We
are increasing process capacity on the lines we are already
working on. At present, we are
on the final mounting process of
a new washing line for plastics,
this would triple our capacity to
process PET bottles.
CS Yes, because the city has
been selected as an important
tourism destination, with its
cleanliness being an important
part of that. I cannot imagine a
world-class tourism destination
that has dirty streets. We had
this system in Quito as well. Yet,
since most people in Quito need
to leave for work in the morning,
this meant that there was a period of about four hours with garbage sitting on the streets every
morning. In addition to 2.3 million people, Quito has 250,000
stray dogs, which enjoyed their
breakfast from these garbage
bags. To solve this, we began installing large steel bins to collect
waste. The other benefit of this
was that it reduced the number
of people working the trucks.
JG We aim to encourage people
working in this area and nurture their entrepreneurial drive,
teaching them to manage their
finances and assisting them in
entering the formal economy.
We provide start-up money to
purchase machines to pack collected waste into bales, which
are then returned as raw material to us. Some people go out
to the landfill and collect the
materials, later renting a space
to turn into a warehouse and finally hiring other people to help
with collection. About 10,000
families are involved in this collection business. 40
THEBUSINESSYEAR
ECUADOR 2014
VOX POPULI MANABÍ
AGUSTÍN
CASANOVAS
CEDEÑO
Mayor, Portoviejo
COASTAL IDYLL
The coastal province of Manabí is known for its
natural beauty and resources, and is currently
in the midst of a period of vibrant growth and
development.
VICTORIA
SERRANO
General Manager,
Seafman
W
W
e are a city with a
strong
agricultural
character and tradition. We also have a strong
commercial character and over
the past few years have focused
on the development of services,
especially education and health.
Much of this city’s growth was
unplanned and as a result, there
is a high level of informality. Our
canton suffered from improper
planning during its economic
and industrial development,
causing it to be less developed
than other cantons in Ecuador.
At the moment, we are planning
our municipal goals for 2025.
This process must involve both
the public and private sectors.
We have great potential as a
canton, but need to unite in our
efforts to address the disorganization of previous years.
e are a particularly productive province thanks to
our highly skilled workforce. However, as a region
we have suffered from severe climate conditions,
which has affected our productivity and reduced our industrial output. Nevertheless, we have played an important part
in Ecuador’s development. One of our major achievements
has been consolidating our long-term productive vision, as
well as developing our road infrastructure plan, the latter
being some of my early programs. We have improved the
quality of the national roads in our province, and extended their reach to underserved rural communities. While we
have already invested in over 7,000 kilometers of road infrastructure, our region requires more than 15,000 kilometers.
Therefore, we have taken important steps toward developing the road infrastructure to best serve our industrial and
agricultural producers.
MARIANO
ZAMBRANO
SEGOVIA
Prefect, Manabí
Province
T
he tuna industry is
alive and well in Ecuador. We are currently
constructing new facilities to
accommodate our expansion.
We also expect our production
capacity to increase by 10% as
a result of the new EU trade
agreement. In fact, our expansion plans were based on the
assumption that the trade agreement would be signed. Europe
accounts for 70% of Seafman’s
sales, even though we do not
have our own brand there.
We were active before anyone
thought tuna was economically
viable, and have remained in operation as the industry evolved.
Seafman is known in Manta,
and in the industry, as a school
because we put a tremendous
emphasis on the training and
education of our employees. If
you visit other plants, you will always find people who started at
Seafman. Our training programs
even extend into the universities.
WALTER ANDRADE
Manager, Banco Comercial de Manabí
W
e have developed a series of business
products that suit the region and its
unique characteristics. We understand the mindset of our people, and that also
means that we know the needs of the enterprises here, and is why we have been able to support
them throughout the disparate economic situations the country has experienced. Another way
in which we play a key role in regional development, while setting ourselves apart from the
competition, is through our agility in meeting
the client needs. Our role here has changed over
the years, too. We have provided funding channels to a wide variety of economic sectors, and
that is the best example of how we have contributed to the development of the region. We have
to keep in mind that the country itself has developed, and with it Manabí. Arguably, the region
has not grown to the same extent as Guayaquil,
Quito, and Cuenca, but it has notably expanded.
Bumper years, growth years, record-breaking
years, challenging years. The key players and
their stories are all in The Business Year.
The Business Year is also available on tablet, giving you
an insider track into the country’s most dynamic
sectors—in the palm of your hand.
w ww. th ebu sinessy ea r. com
42
THEBUSINESSYEAR
ECUADOR 2014
FORUM WHY ECUADOR?
be here NOW
Across any number of sectors, Ecuador is
increasingly seen by regional and international
companies as a key place to be doing business.
DIANA TORRES
CARLOS VANEGAS,
Managing Director,
Citibank Branch
Ecuador
Executive President,
Liberty Seguros
C
itibank started operating in Ecuador in 1960 with a clear goal:
to facilitate trade activity between Ecuador and other regional countries through our large branch network. In
this context, one of our main focuses over
the years has been local and multinational
corporate companies in Ecuador, as well as
the other markets in which we operate; we
provide them with the right tools to develop
their business activity, which enables them
to take advantage of the synergies between
Citibank branches in several countries. The
government and the institutional sector is
another one of our main focuses of activity.
All in all, I think Citibank has contributed to
the development of Ecuador from several
points of view by providing finance tools to
companies operating in the country, bringing in international banking practices and
standards, boosting technology and knowhow transfer, and playing an active role in
the professionalization of the banking industry. Finally, we have also adopted an active role when it comes to social responsibility, engaging in activities to boost financial
education and entrepreneurship in Ecuador.
L
iberty has a large footprint in Latin America. We started operations
in the region in 1995-1996 by entering Venezuela and Colombia. We subsequently entered Chile, Brazil, and Argentina.
The intention of the group is to keep developing its footprint not only in Latin America, but in emerging markets worldwide, for
example in Asia and Europe. The Ecuadorean market has been of great interest to
the group for a number of years. In 2012,
the regulator essentially divested the insurance business from the banking sector in
Ecuador, which created an opportunity for
Liberty to enter the market. Also, the market
has grown significantly over the past decade,
in fact exceeding GDP growth, although it is
still a small market. Premiums in Ecuador
border $1.7 billion today, which makes it an
interesting niche market to enter. Therefore,
a combination of factors was involved in our
decision to enter the country. I think it is
preferable to maintain our momentum and
keep entering additional countries in Latin
America because having a greater footprint
is beneficial. Another positive about the Ecuadorean market is that the insurance penetration level remains low.
EDWIN CHÁVEZ
ZAVALA
CEO for Perú, Ecuador
& Bolivia, Siemens
E
cuador is a highly attractive country for doing business; the government is keen to open the doors to
foreign investors, and we are also talking
about a country that needs infrastructure
for its development. For Siemens, it is vital
to take part in Ecuador’s largest infrastructure projects, especially those related to the
government’s plans to shake up the national
energy and electricity matrix. I believe that
Siemens can play a leading role in this process, saving the country significant expense
over the long term. The Pacific Refinery is
another top priority for Siemens, because in
the future it is set to become a key element
in the broader economic development of
the country. Overall, Siemens is eager to
participate in Ecuador’s high-tech projects
of social and economic merit. Finally, the
high levels of investment in education and
public health committed to by the incumbent government also interest Siemens as a
leading manufacturer of medical equipment
and technology. Siemens is well equipped to
leave its social footprint on Ecuadorean society through the strength of its leading-edge
technological offering.
Economy
THEBUSINESSYEAR
FERNANDO
AGUDELO
OTTO ICAZA
LEGARDA
ENRIQUE PONCE DE
LEÓN ROMÁN
Executive President,
GM Ómnibus BB
General Manager, 3M
General Director,
Decameron Ecuador
E
cuador is an important market
for the company. It is a market
in which the automotive sector
has undergone regulatory changes and the
imposition of quotas. In response, GM has
ramped up investment in Ecuador over the
past few years. Ecuador is a market with opportunities that warrant this increased investment. Our medium- to long-term strategy in Ecuador is proven by our commitment
to industrialize the country by developing
a solid auto parts supplier base. As part of
our efforts to help transform the production matrix, we have increased investment
in our plant to maximize its potential. In
2014, we will complete the final expansion
stage, where a $70 million budget has been
allocated over the past three years aimed at
productivity and quality, the development of
new products, and attracting new investors
to the auto parts segment. By attracting new
investors, we hope to increase the number
of Ecuadorean parts in vehicles. Since we
are a multinational company, we also boost
know-how transfer by providing regular
training courses to our staff, other companies of the auto industry and even other industries.
E
cuador is a great place for developing our global solutions. It is
part of the Andean region, which is
formed by Peru, Ecuador, Bolivia, and Paraguay. Ecuador represents a huge opportunity for the company especially because government investment here is huge. In every
segment, the government is our biggest client. The main segments that will be affected
are health, domestic security, traffic, mining,
and industry. The company realized that
having a local person is good for the business. For countries in Latin America, 3M and
similar companies tend to be more open to
working with local people. Being a local allows for a better balance between what the
company wants you to do, and the reality
of what you can do in the country. Over the
next three years, we want to break the $100
million barrier, which would be a significant
milestone for the company and would position us as one of the most important of the
95 subsidiaries that 3M has across the world.
This year the target is to surpass the $60 million mark. We are 75% of the way there, but
need to increase our efforts.
W
43
e saw great potential in Ecuador
due to the growing interest of its
citizens in travel—the all-inclusive
product Decameron offers proved highly
attractive for Ecuadoreans. Choosing a location for our hotel was a tough task, because
Ecuador is a beautiful country and each region has something special to offer. In the
end, we decided to set up operations in the
Esmeraldas region—one of the most paradisiac destinations in the country. Later on,
we opened another establishment in Santa
Elena, near Guayaquil. At the same time, I
would add that the government is highly attentive and supportive to foreign investment
activity, and provided us with all the facilities
needed while taking our first steps here. All
in all, Ecuador is a country of great natural
beauty that offers plenty of opportunities for
foreign investors; in addition, support from
the authorities and the hunger of Ecuadoreans for travel encouraged us to establish
a presence here. From that moment, our
activity in this market went from emissive to
receptive.
THEBUSINESSYEAR
50
56
63
Diego Martinez V., President of
the Board of Banco Central del
Ecuador (BCE), on the benefits of
financial inclusion.
Ecuador’s capital markets would
benefit from greater interest as
a financial instrument, and a
broader buy-‐sell culture.
Oscar Zuloaga Ayala, Executive
President of ZHM Seguros, on
the importance of industry
consolidation.
45
Finance
REVIEW BANKING
The government is adamant not to see a repeat of the local banking crisis
that crippled the economy, and moreover, has honed the banking sector
both for fiscal prudence and social value.
THE REFORM CLUB
T
he
Ecuadorean
banking
sector
saw its nadir in the
1998 to 1999 period when a crisis fueled by
a collapsed banking system
ultimately cost the nation $8
billion. Close to half of the
then 40 banks fell by the wayside, and in January 2000, the
prospect of hyperinflation led
to the declaration of a state
of emergency by President
Jamil Mahuad, who adopted
the US dollar in place of the
sucre, the local currency at
the time. Determined never
to see such days again, subsequent reforms under the
Correa administration have
led to a stable banking landscape underpinned by the
government’s insistence on
prudent solvency measures.
IMF numbers point out that
the average bank assets to
GDP ratio from 1961 to 2011
was at 21.04% with a minimum of 13.12% in 1990 and a
maximum of 39.66% in 1999.
Meanwhile, the official bank
capital to assets ratio for 2011
(latest data) was 8.6%. Average non-performing loans
as a percentage of total bank
loans from 1998 to 2011 was
at 9.19%, with a minimum of
3.2% in 2011 and a maximum
of 31% in 2000.
THE NEW BANK CODE
Having a dollarized economy
limits Ecuador's recourse to monetary
policy. Instead President Correa is relying
on strategies such as banking reform and
import substitution.
The Correa administration
has made systemic reform
of the banks the cornerstone
of its broader economic development plan. As a result,
ideologically motivated steps
have seen greater state involvement in banking policy. Understandably perhaps,
private banks have been
concerned that shareholders
would become vulnerable to
government policy. To counterbalance such accusations,
the government insists its
new banking code is vital to
generating employment and
supporting broader economic growth and social welfare
by swelling state coffers. The
government built up a liquidity fund to safeguard against
repeat banking crises that was
funded by taxing the banks.
Assets in the fund have risen
36% since 2012, according
to Ecuadorean Central Bank
(BCE) data, and stood at $1.64
billion by the end of 2013.
46
THEBUSINESSYEAR
ECUADOR 2014
Furthermore, the government has ensured
that the BCE worked in step with its social and
economic development policies. Thus, the
BCE, formerly an independent entity, post-crisis became subsumed within the executive
branch’s economic team, and fortified with a
new Economic Planning Ministry. Commenting on Ecuador’s financial landscape, Diego
Martinez V., President of the Board of the
BCE told TBY that, “Our new policies make it
more attractive to keep money here. This has
increased liquidity in the economy, which encourages further investment. Credit policies
are also important, be it via the private or public banking sector. Total credit increased from
20.3% of GDP to 28%. In nominal amounts,
credit growth has been at 109% over the past
five years, while private credit rates have
grown by 92%, and the public banking figures
are at 356%.”
With 516 articles, the banking bill has its
detractors, who are concerned that its new Political Board for Monetary and Financial Regulation consolidated power in political hands
in contravention of free market economics.
The Board features five government officials,
comprised of the Minister of Economic Policy, the Minister for Production, the Minister
of Finance, the Secretary for Planning, and a
representative of the President.
The new bank code is just the latest installment in a long line of banking sector reform,
where a 2011 referendum barred legal representatives, board members, and shareholders
of financial institutions from business activity
beyond the financial sector. As a result, these
individuals divested or liquidated, among
others, their stakes in insurance, brokerage,
and pension companies. The code also bolstered requirements for private banks to retain
their assets and investments in Ecuador. And
in 2012 the BCE raised the mandatory rate at
which private banks kept their assets and investments in Ecuador from 45% to 60%. Since
November 2012, the BCE has obliged all international cash transfers to Ecuador to flow
through central bank accounts, and some
observers perceive such currency control as a
potential precursor to a new Ecuadorean currency to replace the US dollar.
Meanwhile, at the retail level, current reforms have limited borrowers’ liability in case
of default on mortgages and auto loans. Official data indicates that reforms have impacted
banking sector performance, and the total net
profit of all private banks in Ecuador stood at
$268 million in 2013 marking a 15% YoY decline. Private Banking Association of Ecuador
data points to an average return on equity
(ROE) of 10.15% for the banking industry as a
whole in 2013, down from 12.79% in 2012, and
18.91% in 2011.
The government
insists its new
banking code is
vital to generating
employment and
supporting broader
economic growth
and social welfare by
swelling state coffers.
The government built
up a liquidity fund to
safeguard against
repeat banking crises
that is funded by
taxing the banks.
Assets in the fund
have risen 36% since
2012, according to
Ecuadorean Central
Bank (BCE) data, and
stood at $1.64 billion
by the end of 2013.
STAY MOBILE
A full 60% of Latin Americans remain unbanked. Meanwhile, industry data indicates
that Ecuador has a mobile phone penetration
rate of 113%. This presents an excellent opportunity for greater financial inclusion that the
Correa administration has not ignored as part
of sweeping banking reforms. Accordingly, the
BCE is set to run a pilot project for transactions in electronic money from late October to
mid-November of 2014 with eight credit cooperatives. The idea is to test the smoothness of
purchases at establishments such as garages,
pharmacies, and supermarkets. The BCE aims
to bring around 200,000 unbanked citizens in
remote rural areas into the fold, with a target
in excess of 2.8 million new financial transactions by 2016. Electronic money is a part
of President Correa’s wider financial reform
that he has defined as, “a code that finally puts
the banks at the service of society unlike now,
when society is at the service of banks. This is
21st century Socialism.”
SELECTED PLAYERS
Private Banking Association of Ecuador
(ABPE) data indicates that the banks in 2013
registered a return on equity (ROE) of 10.15%
down from 12.79% in 2012, 18.91% in 2011,
and 14.32% in 2010. According to the Wall
Street Journal, as President Correa was elected in 2006, the figure was at 24.21%, more
than double last year’s print. The Superintendency of Banks puts the combined 2013
net profit for Ecuador’s 25 private banks, and
state-run Banco del Pacifico, at $268 million,
down 15% YoY. For the year the largest slice,
at $53 million, went to Banco del Pichincha,
followed by Banco del Pacifico with $41 million, Banco de Guayaquil with $40 million,
and Produbanco with $29 million. The four
alone thus accounted for 63% of the total assets of the Andean nation’s banking sector.
Foreign-owned banks in Ecuador, including
Citigroup, Dutch-German Procredit Bank,
and Panamanian Promerica had an 8% share
of the sector’s total earnings in 2013.
BANCO DEL PICHINCHA
Established in 1906 in Quito, Banco del
Pichincha is Ecuador’s largest private bank.
It posted 2012 net assets of $8 billion and
liabilities of $7.3 billion. Bank data for 2013
indicates total assets of $9.02 billion, total
equity of $780.44 million, and net income
of $53.54 million. The ratio of net income to
total equity was at 6.86%, that of net income
to total assets at 0.59%, and that of equity to
total assets at 8.65%. A comprehensive offering of retail banking services is facilitated
by an ATM network of over 700 units, and it
has also led the field in electronic banking.
Finance
In 2007 the institution launched a network
of customer service centers in Spain to serve
the three quarters of a million Ecuadoreans
living there. The bank also has representative offices in Shanghai, Panama, and the
US. Meanwhile, it is a pioneer in electronic
banking.
BANCO DE GUAYAQUIL
Ecuador’s second largest private bank, established in 1923, is Banco de Guayaquil,
and today operates around 200 branches
and 800 ATMs. Its comprehensive service
features corporate, personal, private, and
transaction banking. Like rival Banco del
Pichincha, Banco de Guayaquil opened its
doors in Spain in 2007 to leverage bilateral
relations with Madrid, followed by Panama
City in 2008. As of June 2014 net assets stood
at $3.6 billion, with respective total income
and total expenses of $203 million and $176
million. The return on assets (ROA) was at
1.41%, and the return on equity (ROE) at
14.45%. Impressive ratios include coverage
of the commercial portfolio of 206%, while
that of consumer loans, its mortgage portfolio, and microenterprise portfolio were at
112.6%, 146.3%, and 88%, respectively.
PRODUBANCO–GRUPO PROMERICA
A major name in the Ecuadorean banking arena,
Produbanco has made strong use of automated systems, and assesses over 4,500 consumer
credit and mortgage applications per month. In
2013 it registered a net profit of $28.7 million. It
was also the purchase story of the year, when
in March Panama-based Promerica Financial
Corp. picked up a 56% stake for $130.3 million
(108.6 million Produbanco shares for $1.20
each). Given its status in the local market and
AAA- rating by Bank Watch Ratings, the Produbanco brand remains unchanged.
BANCO DEL PACÍFICO
The pioneer of Ecuador’s first cashpoint in
1979, at the retail level Banco del Pacífico offers
saving and current accounts, as well as familiar investment instruments. It has a network of
1,077 service points and 218 ATMs. Also, the institution, incorporated in 1972 and headquartered in Guayaquil, is designs and manages
financial advice programs and meets the investment banking needs of business of all sizes.
As of June 30, 2014 it had an asset coverage ratio
of 275.74%, and a solvency ratio of 14.47%. The
non-performing loans (NPL) ratio was at 1.37%,
fractionally down from 1.38% in 2Q2014. THEBUSINESSYEAR
47
48
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to HE Fausto Herrera, Minister of Finance, on
promoting growth and improving Ecuador’s economy.
THE basics
Ecuador is looking to re-enter the international
bond market, and has spoken with representancp_m`lig=cnc\[he[h^=l_^cnMocmm_[\ionØi[ning around $700 million in bonds. What steps are
being taken in that regard?
Recently, President Correa said that his top goal
for Ecuador is to promote social and economic
development. What role does the Ministry of Finance play in that?
BIO
Fausto Herrera graduated
`ligJihnc×]c[Ohcp_lmcdad Católica del Ecuador
with a degree in economics. He also has an MBA
and a Master’s degree in
Economics, Finance, and
Sustainable Development.
During his 10-year career
in the public sector, Herrera
has served as Vice-Minister
of Finance, Subsecretary of
Fiscal Relations, Subsecretary for Macro-Fiscal
Consistency, Subsecretary for Macroeconomic
Policy, and Coordinator of
Macroeconomic Planning
and Studies. Additionally,
he has been an advisor to
the National Secretary of
Planning and Development
(SENPLADES), an advisor
to the Minister of Finance,
and a consultant to the Inter-American Development
Bank (IDB).
First of all, we are a growing economy. Over
the past five years, we have grown by an average of 4.2%. In our national development plan,
we have two clear objectives. The first is to
change the energy matrix, and the second is to
develop the productive matrix. My role as the
Minister of Finance is to secure the necessary
financing to achieve these goals. For example,
the plan to change our energy matrix will cost
approximately $8 billion. The result of this
change will mean that, from 2016, Ecuador will
save $1.2 billion annually. This is 1.2% of our
GDP. Obviously, to do these major infrastructure projects requires a lot of funding, and our
goal is to find the best sources of financing to
fund public investment.
You recently signed an agreement with the Inter-American Development Bank (IDB). What is
nb_mcahc×][h]_i`nb[n[al__g_hn9
My responsibility as Minister of Finance is to
find the best sources of financing with the best
terms from sources all around the world. A few
years ago, we negotiated a special agreement
with China. However, it’s not good for an economy to be reliant on only one creditor. Therefore, we are also looking to Russia, Brazil, and
multilateral lenders, such as the Corporación
Andina de Fomento (CAF) and the European
Investment Bank (EIB). We recently opened a
new line of credit with the Abu Dhabi Development Fund. We believe the Ecuadorean development policy should be by Ecuadoreans,
for Ecuadoreans. For this reason, we don’t accept any conditionality on loans or financing.
In April 2014, I met with institutional investors
in Europe and the US to discuss Ecuador’s return to the capital markets. International investors have seen the economic growth that Ecuador has experienced in recent years, as well as
the current economic health of the country.
But, of course, the question is: what is different
now? The difference is that we are now a country that knows where we are going, and what
we want for the future. We are a country that
will not be an exporter of commodities, but
a producer of high value-added goods. With
respect to the default in 2008, the important
thing to emphasize is that these bonds were
not created by the Ecuadorean state. They were
bonds that we had taken over as a result of the
nationalization of private accounts. Private
debts were taken over by the state and then restructured. Now, the new Ecuadorean constitution prohibits the nationalization of private
debt, which removes the danger of this. The
important point is that Ecuador is experiencing strong economic success and, in order to
achieve the economic transformation we want,
we need stronger financial muscle.
Ecuador has seen strong growth fuelled by a high
level of public investment. What is the plan to ensure this translates into longer-term sustainable
development?
This depends on evolution over time. If you
had asked me in 2007 if Ecuador was an attractive destination for international investment, I
would have told you yes, for oil and gas and for
mining. Now, after the changes we have experienced over the past seven years in terms of
infrastructure, energy, human capital, and the
judicial system, we are facilitating new forms
of investment. Ecuador is now an attractive
destination for investment in non-traditional sectors, not just natural resources, and we
are seeing investment from Mexico, the US,
Finance
Colombia, and Peru in non-traditional sectors
like food and industry. Furthermore, we have
seen growth in private investment. We hope
that, by the end of 2014, we will have investment in exploring our mineral resources. We
have $220 billion in proven mineral resources,
and private investment will play its role. FDI is
not an end in itself, but it is a means to achieving development by allowing companies to
create jobs and bring in their knowledge. Our
development plan is something comparable to what the Asian tigers did. However, we
don’t have as much time as them. What they
achieved in 30 years, we need to do in 10. To
achieve this, we need stronger financial muscle. That is why Ecuador is working to control
its current account and public spending. We
have the highest level of public investment in
Latin America to develop the infrastructure
necessary to attract foreign investment.
You compare Ecuador’s growth model with that
of the Asian tigers. One of the important elements
of that growth model was technology transfer.
What role does that play in Ecuador’s model?
To attract technological investments, we have
been working to transform our education system in Ecuador. The city of Yachay is an ambitious plan in this regard, as it combines a
technology-based university and a destination
for international technological investment.
We have created many advantages for technology investment, but the most important is
investment in human capital. For this reason,
we currently have 8,000 Ecuadorean students
studying abroad on government scholarships
to ensure that we have prepared the right human capital. Additionally, we have both tax
incentives and a good legal framework for
technology investments. We don’t have the
same amount of time as the Asian tigers, and
for this reason we need to use what we have.
What we have is natural resources, so we are
using money from natural resources to fund
this technology development.
What has been the most important public sector
investment Ecuador has made over the course of
your term?
Right now, the most important public investments we are making are in two areas. First, in
the petroleum sector, we are spending around
4% of GDP in working to maintain and grow
Ecuador’s petroleum production. We are upgrading all of our petroleum infrastructure.
These can have a return of more than 130%.
The other area is the energy sector, which right
now consumes 2% of GDP. We are channeling
around 8% of GDP into energy investments,
such as hydroelectric development, which is
expected to produce a return of 1.2% of GDP
from 2016 or 2017.
What are your top policy priorities for the coming
year?
Our top priority will be to reduce the level of
poverty in Ecuador. However, if we don’t start
to more aggressively transform the productive
sector in the country, we cannot effect this
economic change. That is why the President
is looking to deepen the transformation of the
productive matrix by creating more incentives
for investment, using public investment to accelerate growth, and creating clear rules for
investors. We are also working to ensure that
the financial sector can provide the necessary
resources to the productive sector to effect
this transformation. We recently announced
that this year we will be passing a new financial code, which will try to bring the financial
sector in line with our development strategy to
provide cheaper long-term financing for productive investment.
Why Ecuador?
What has been the most important FDI in Ecuador in recent years?
The most important investments have been
in our industrial sector, unlike our neighbors, which have seen major investments in
the mineral resource sectors. However, in the
future, we are expecting to see more investments in the mining sector. This is a sector
where we need foreign investors who can
bring in better know-how to help us make the
most of our resources.
Ecuador has a different model of development than its neighbors. We believe in our
people and what they can do for Ecuador. We
are not making superficial changes; we are
making deep structural changes to the country that make Ecuador a favorable destination
for investment. All foreign and all private investment is welcome in Ecuador as long as it
respects three fundamental things: the rights
of workers, payment of appropriate taxes,
and respect for the environment. THEBUSINESSYEAR
Ecuador
is re-entering the
international debt
market, and will
\_Øi[ncha1**
million in bonds
49
50
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
Concerning dollarization, do
you have concerns that you are
using a currency over which you
have no control, while at the
same time engaging in high levels of public investment?
quite
MANAGEABLE
TBY talks to Diego Martinez V., President
of the Board of Banco Central del Ecuador
(BCE), on the benefits of high public spending,
promoting financial inclusion, and re-entering
the bond market.
What is the government’s strategy to ensure that public investment translates into sustainable
development?
BIO
Diego Martinez V. graduated
from the Catholic University
of Ecuador and has a
Master’s in Development
Economics from the
Institute of Social Studies
(ISS) in the Netherlands.
He has held several
important public positions,
and has been a member of
the Boards of Petroecuador,
Petroamazonas, the
Electricity Corporation of
?]o[^il&[h^nb_J[]c×]
L_×h_ls(B_cm]oll_hnfsnb_
President of the Board of
Banco Central del Ecuador
(BCE).
The goal of our government
is to promote a change in
how the country produces
goods and services. We want
to change the country from
being mainly a primary goods
producer to one that has a significant industrial and services
sector. In 2013, Ecuador’s
economy grew by 4.5%, and
over the past four years it has
recorded average growth rates
of 5.2%. This is quite stable,
not just for Latin America, but
globally. But more importantly, the manufacturing sector
and the non-oil economy grew
considerably. The non-oil sector has grown by 5.8% since
the world economic crisis of
2010. Our aim is to transform
Ecuador into a non-oil and
knowledge-based economy,
although it remains in need of
generating foreign exchange.
These foreign exchange revenues are being used to promote a different growth and
development pattern. Public
investment has to underpin
a basic infrastructure that allows the non-oil industries
to shift their costs to become
more profitable. This has
been happening heavily over
the past five or six years. This
is because, from a cost structure perspective, it would not
be possible to bring about
the changes needed solely
through private initiatives.
Ecuador is
implementing
new methods
of electronic
payments to
jligin_×h[h]c[f
inclusion
The government must provide
the infrastructure, roads, electricity, education, healthcare,
and higher education. These
are all crucial to changing the
relative costs of industry over
time. Today, all non-oil sectors are growing faster than
in the past, in a highly stable
economy. Ecuador has solid
growth, low inflation and unemployment, stable interest
rates, and increasing human
talent, all conducive to private
sector investment. We do have
a current account deficit, since
we are investing and importing raw materials and capital
goods to support production
and these investments, but
the current account deficit is
still only 1.3% of GDP, which is
quite manageable. Our financial system is also stable. We
have the highest liquidity rates
in our history since becoming
a dollarized economy, having
increased from 29% in 2009 to
37% in 2013.
This concern explains why we
place great importance on stability and responsibility, and
accounting for every dollar. As
we lack a national currency,
each US dollar that goes out
means less money to fund Ecuadorean growth, while each
US dollar that comes into the
country promotes growth,
spurring greater investment
opportunities and aiding the
financial system in general.
Three years ago new policies
allowed us to control the volume of money in the economy, helping to attract money
to Ecuador. In the past it was
common for bankers and citizens to save money abroad.
Our new policies make it more
attractive to keep their money
here. This has increased liquidity in the economy, which encourages further investment.
Credit policies are also important, be it via the private or public banking sector. Total credit
increased from 20.3% of GDP
to 28%. In nominal amounts,
credit growth has been at
109% over the past five years,
while private credit rates have
grown by 92%, and the public
banking figures are at 356%.
We have followed a deliberate
policy of increasing credit to
keep the country going and
the economy running smoothly. In 2013, FDI accounted for
0.8% of GDP, or $702 million,
which many consider low, although FDI in Ecuador is a net
provider of foreign exchange,
and those rates are still the
highest Ecuador has seen in
the past five years.
What are your key priorities for
the BCE over the coming years?
Providing sufficient liquidity
for the economy and making sure it stays stable with
an adequate growth rate
for credit, and making sure
loans are repaid are all key
priorities for us. We also have
to be careful about spending
quality, as we are obviously
trying to make sure we have
a net increase in the amount
of money coming in. Finance
THEBUSINESSYEAR
51
INTERVIEW
TBY talks to Ricardo Cuesta
D., Executive President of
PRODUBANCO-‐Grupo Promerica,
on growth strategies, regional
banking, and the middle class.
What motivated Grupo Promerica’s acquisition of
Produbanco in Ecuador?
There were several factors behind this very important decision. Banco Promerica has been
present in Ecuador for 14 years in what has been
a successful experience. It rose from a small finance company to the eighth-largest bank in a
very competitive environment. Another reason
was that Grupo Promerica was looking to expand its banking business, and Central America is already concentrated and saturated. The
third reason is that Produbanco was the fourth
largest bank and was considered one of the best
operators in Ecuador. Additionally, Grupo Promerica decided to increase its presence in this
market; combining both banks gives us around
a 12.3% market share. I would also have to add
that Ecuador is a dollarized economy with a
healthy macroeconomic performance, and the
fact that it has a hard currency is also crucial in
making such decisions.
Qb[ncmnb_mcahc×][h]_i`nbcm[]kocmcncih`ilAlopo Promerica?
Grupo Promerica is a Central American banking group with over $10 billion in assets. Promerica is present in nine countries in Latin
America: Ecuador, Panama, Costa Rica, El
Salvador, Honduras, Nicaragua, Guatemala,
and the Dominican Republic. Additionally, the
principal shareholders of Promerica Financial
Corporation own Terrabank N.A., a community
banking operation in south Florida, US. Produbanco and Banco Promerica combined will
represent approximately 39% of the group’s
total assets. However, one of Promerica’s initiatives is to ensure that no country represents
more than a 25% share of the group’s assets.
So in essence, the banking operations in all
other countries will continue to grow in order
to balance out this 39% share. Grupo Promerica grows approximately $600 million in assets
per year across the nine countries. Eventually
we will reach this goal, where we (Produbanco)
should account for no more than 25%.
BIG
PLAYERS
thinking
small
Would you now consider Produbanco to be an international player in Ecuador’s banking sector?
Produbanco is a local bank with international
shareholders. Produbanco is the fourth largest
bank in Ecuador, and has a solid and impeccable reputation over its 35 years of operations in
this market. Grupo Promerica’s strategy in the
nine countries it operates in is to promote itself
as a local bank. Part of Promerica’s success has
been based upon being close to the client. You
can have a regional umbrella, but not necessarily be viewed as an international global bank.
We compete against that view. We like to be
considered local and we want to be very close
to our clients.
What does being local mean for the way you do
business in Ecuador?
First of all, we are in a country witnessing the
burgeoning presence of local corporations and
entrepreneurs. What we are doing with the Promerica umbrella here is giving local corporations an alternative view of banking not only in
Ecuador, but also outside Ecuador. Produbanco joining Promerica thus widens the umbrella
of opportunities for these clients. Produbanco
is the key corporate bank in Ecuador. In that
role, we can also help corporate clients to ex-
BIO
Ricardo Cuesta D. pursued
an MA in Business
Administration at the
Florida International
University before going
on to hold numerous
positions through out his
career at companies such
as Motorisa S.A., Citibank,
Banco Aserval, Thompson
<[heq[n]b=[fc×][^il[
de Riesgos, Asociación
de Bancos Privados del
Ecuador, and many others,
as well as his current
position as CEO–President
at Banco de la Producción
(Produbanco). Delgado also
held instructive positions
for VISA International’s
Latin America Division, and
Citibank N.A., where he was
Director and Instructor for
Corporate Seminars.
52
THEBUSINESSYEAR
ECUADOR 2014
Qb[nlif_][hnb_×h[h]c[fm_]niljf[schmojjilning the transformation of the productive matrix?
pand their business. For example, Ecuador is an
importer of many products including consumer goods and other raw materials. We need increasingly large lines of credit for trade finance.
Produbanco and other competitors are subject
to country risk and its limits. Grupo Promerica
has a definite advantage as our credit limits are
in line with our presence in nine countries and
thus we, internally, can compensate with the
excesses experienced in the other markets. In
essence, we have introduced this value-added
strategy into what is already a solid bank. This
is propelling it into an international arena that
Produbanco was not previously a part of.
How has growth of the middle class changed the
banking sector in Ecuador?
First of all, it allowed banking to become national. Originally, the banks were either from
Quito or Guayaquil, and they stayed within
their regions. Since 2001, inflation rates are obviously closer to those observed in the US, so
actual growth in income has clearly benefited
lower income groups, which, in turn, have advanced into this growing middle class. Once
basic needs are met there is the will to direct excess funds elsewhere. That has transpired into
housing and auto loans, credit cards, and other
consumer products. It helped people start to
experience a better quality of life, as the banking sector was there with products that allowed
them to purchase new consumer and household products.
It does make a large contribution to the success of that venture. However, there are major
industries that greatly exceed our capacity to
fund; the large hydroelectric projects, refinery,
petrochemical projects, and so on. We already
fulfill our social responsibilities within the
banking industry, which is to recirculate and be
an intermediary for funds. The main issue for
the banking sector revolves around how everyone can work to increase the short-term nature
of Ecuadoreans’ savings into a longer-term
scenario where funding becomes available for
expansion. Today I would say, being responsible, we are probably at the limit of what that
gap should be. We should not take any further risk engaging in long-term financing with
short-term funding. We also need to work with
the authorities toward a consensus. The ideas
being proposed are excellent, and we want to
play our part in any subsequent transition, but
in a technical and professional manner. My
responsibility and the responsibilities of everyone at Produbanco today are mainly directed
towards our depositors. I have to make sure
that we have sufficient liquidity to operate the
bank safely. This is a highly important issue that
we need to look at from a technical perspective.
The ultimate responsibility of a bank’s CEO is
toward the depositors, not credit, the latter being a matter of fact. If I offered a 10-year credit facility at 1% interest, I would have a line of
keen customers from here to Colombia. But
taking long-term deposits requires confidence,
and involves the building up of a bank. It is a
question of assuring your depositors that money is always available. IN NUMBERS
PRODUBANCO-‐
Grupo Promerica
4th
Largest bank in
Ecuador
39%
Account of the
×h[h]c[faliojÎm
business across Latin
America
The combined entity
will have a
12.3%
Market share in
Ecuador
Finance
THEBUSINESSYEAR
53
INTERVIEW
VAULT INTO
the breach
TBY talks to Efrain Vieira Herrera, Executive
President of Banco del Pacífico, on funding
development, and getting loans and technology
into the hands of customers.
As a publicly owned private bank, how would you
]b[l[]n_lct_nb_lif_nb[n<[h]i^_fJ[]‹×]ijf[sm
in Ecuador’s banking sector?
BIO
After majoring in electrical engineering as an
undergraduate, Efrain Vieira
Herrera earned a Master's
degree in business administration in 1991, and a second in business economics
in 1994. Herrera’s academic
career also included a
position as senior lecturer
at the Escuela Superior
Politecnica del Litoral and
Professor of Finance at the
IDE Business School. His
professional experience
includes positions such as
Director and President at
DATAFAST, Vice-President
of Business at Diners Club,
General Manager at BIESS,
and his current position
as Executive President at
<[h]i^_fJ[]‹×]i(
Banco del Pacífico is a private bank that was
purchased by the Central Bank of Ecuador after the financial crisis in 1999, meaning that
today the state is the owner of Banco del Pacífico. However, we have preserved our independence and our activity does not depend on the
national budget. In a way, the bank has become
a channel to comply with the public delineation of economic policy. For example, we have
been active in financing activity within the
transformation of the production matrix. We
have also played an important role in providing funding for strategic sectors, and in 2013,
we provided credit lines worth $350 million to
strategic sectors. This has represented a shift in
terms of earlier priorities, as we used to have a
stronger focus on retail banking.
What is the balance between corporate and individual clients in your portfolio?
Today, 90% of our clients are from the corporate segment. However, if we add the activity of
Incorporar, a company engaging in retail banking and the credit cards business, the balance
would be 55% corporate and 45% individual.
The vision of the company is to further increase
the percentage of the corporate segment, as
well as achieving a greater share of financing
within the SME segment. Finally, our main aim
is to provide high-quality products and services
so our clients feel satisfied with us.
What are the competitive advantages of Banco del
J[]‹×]i`il]iljil[n_]fc_hnm9
We offer competitive and attractive terms for
credit lines according to their specific nature.
Our interest rates are also competitive for
these products. In addition, we offer role man-
agement through electronic systems for our
corporate clients, and financial and technical
consultancy services. Our credit lines are flexible in all senses. This is all part of our business
strategy; to prioritize global profitability over
basic economic profitability.
How do you see the bank contributing to the national economy?
We do not see our contribution to the country’s
development strictly from an economic point
of view, but as a concatenation of the different
economic sectors that contribute to the development of the country. We are active in credit
lines for the construction sector as well as for
the purchase of housing units. We know the
construction sector is important for the national economy, and as a result we offer credit
lines to people constructing housing units and
to those who are purchasing them. We try to do
the same in other economic sectors. We also
try to invest in government bonds and treasury
certificates; though this is not our priority, we
also take part in these types of investments.
How would you assess the presence of international banks in the country?
At the moment their presence is relatively
small, especially if you take into account that
in the past it was much larger. This is because
the economy is still in a process of expansion
into the regional arena, and is attempting to
improve the position of local banks. At the
moment, there is not much space for foreign
banks, as large local banks manage the sector
well. This means that local banks are meeting
the demand of those multinationals present in
Ecuador. For example, one of our main clients
is Holcim, and we have strong and productive
ties with it, meaning that we always come up
with new products to meet its needs.
54
THEBUSINESSYEAR
ECUADOR 2014
<[h]i^_fJ[]‹×]i
has allocated
$400 million
in credit for
strategic sectors
of the Ecuadorean
economy in 2014
Banco del Pacífico
aims to reach
$200 million in
SME loans and
mortgages in the
next 10 years
What are some of the key measures the bank implements to support SMEs?
SMEs have traditionally been a strong segment
for us. However, over the past few years their
importance has decreased. We want to change
these dynamics again, and we are set to implement a series of strategies to regain our market
share in this segment. We have a $150 million
budget to use until the end of the year for specific actions aimed at this segment. We want to
revive and revitalize this part of the bank with
a medium- to long-term vision. I also think
there is a huge opportunity in this segment, as
SMEs are to be the main economic drivers of
our future economic expansion.
What role do new technologies play in Banco del
J[]‹×]iÎm\omch_mmmnl[n_as9
We were the pioneering bank in the development of new technologies in the banking
sector in Ecuador. However, as occurred with
the SME segment, this was gradually forgot-
ten and we are attempting to bring it back, as
I believe that the future of the sector is based
on electronic channels. We were the first
banking institution to introduce so-called recycler ATMs, which enable our clients to do
other transactions and make payments 24
hours a day, seven days a week. We have also
provided our clients with the tools at the local
level (in small shops and pharmacies) to pay
their bills and other invoices in those physical
spaces.
What is the bank’s future strategy?
We have allocated a budget of $400 million for
credit lines for the strategic economic sectors
over 2014. In 2015, this figure should reach the
$500 million mark. Our challenge is to continue
growing in the student loan segment, as well as
in mortgages and SMEs, and we hope to reach
$200 million in credit lines. I want to make this
bank into Ecuador’s leading banking institution within five to 10 years. Finance
THEBUSINESSYEAR
55
TECH BANKING FORUM
the future
IS NOW
ALEJANDRO
RIBADENEIRA
General Manager,
Banco General
Rumiñahui (BGR)
T
echnology is a basic issue that
every bank has to deal with to
operate successfully. You have
to understand our target market, which is
military personnel. It is like a huge company
with offices all over Ecuador and in certain
other countries. They need a bank with a national presence, and we are a medium-sized
institution. We have dealt with this reality by joining forces with Banco Pichincha.
Between 2008 and 2012 we were perfecting
our financial ratios, so we were not paying
much attention to IT. In mid-2012, we decided to change that. We started to invest a
lot of money improving our IT, and in 2014
the vast majority of our projects are IT based.
We are buying new BPM and CRM software,
analyzing the core software we use to attain
customers and register transactions. We improved our webpage, too, but there are still
many areas to be improved. We need it to be
more efficient, to save money, and to better
serve our customers. They need electronic
payments and other technologies to perform
transactions. Improving our IT will allow us
to introduce products and services that will
hit our target market.
The modern banking industry is increasingly
becoming dependent on high-tech solutions to reach
out to customers.
LUIS JAVIER LOPEZ
JANET PACHECO
Executive President,
Banco Capital
General Manager,
Banco ProCredit
W
e want to be a multi-banking institution capable of offering integrated services and solutions, for
example, we need to improve our technological processes to offer our clients alternative banking tools. My appointment was
also part of the bank’s strategy to diversify
and expand its operating segments, while
giving the institution a more pluralist character with additional products and services,
as well as higher levels of technological sophistication. Technology is essential, as today we would be incapable of offering all the
services and products we have, while also
reaching higher banking penetration levels
domestically. New technologies enable us to
be faster and more efficient in our activity.
I think one of the challenges facing emerging economies is the low banking penetration level, which sparks further problems. I
think technology plays a key role in increasing banking penetration; nowadays it eases
many processes and people can perform
any process on a computer or mobile phone.
Moreover, new technologies enable the faster launch and implementation of products,
services and strategies, reaching clients
more efficiently, too. I think this is the road
to follow in Ecuador, both for us and for the
other banks, as the current banking penetration in the country barely reaches 40%.
W
e operate 22 banks on three continents. Of these, six are considered
the largest banks, and in Ecuador
one of these is ProCredit—among the top
six. I think, on the one hand, that the financial resources SMEs need in order to increase
their investment pose a challenge. In addition, the human resources component can
be challenging, and that in many cases their
performance could be enhanced through
greater technical knowledge. Our clients
have many strategies for their businesses;
however, they don’t always have the technological knowledge to back it up. Both aspects are related to the efficiency that these
enterprises need for the future. Efficiency is
important because Ecuador is a relatively
small market, compared with its neighbors.
We need to improve efficiency and quality.
Meanwhile, as a private bank, we were the
first to service the agricultural sector, and
also the first to launch special credit—EcoCredit—to invest in measures to protect the
environment.
56
THEBUSINESSYEAR
ECUADOR 2014
While well regulated, Ecuador’s capital markets would benefit from
greater interest as a financial instrument, and a broader buy-sell culture.
Review
EQUITY MARKET
bond is BACK
Ecuador has two stock exchanges, namely
the Bolsa de Valores de Quito (BVQ) and the
Bolsa de Valores de Guayaquil (BVG), created
in 1969. The BVQ ECU Index (Global) traces the trajectory of listed companies on both
the Quito and Guayaquil stock exchanges.
The Ecuindex is a key national indicator portraying the rise and fall of the national stock
market overall. Liquidity remains an issue as
many opaque family-owned businesses shun
listing and the obligatory transparency that
goes with it. Therefore, the exchange has yet
to wrest capital from traditional investments
such as real estate to become a more dynamic
financial instrument. As of September 1, 2013,
the Global Ecuindex had peaked at 1,100.52
on April 2013. Official data indicates that the
market capitalization of listed companies in
Ecuador had climbed from $690 million in
1992 to $6.10 billion by June 2012. Meanwhile,
World Bank data puts Ecuador’s market capitalization of listed companies as a percentage
of GDP at 7% for 2012, down from 7.5% in 2011
and 7.8% in 2010.
The 1993 Capital Markets Law sets the regulatory tone, availing stock market trading to
banks and other firms, and fostering the development of mutual funds. Activity on the two
stock exchanges is ostensibly in short-term
commercial paper, bank obligations, and government debt, with less than 10% in equity
trading. The main regulators of the securities
market are the National Securities Council
and the Superintendency of Companies, the
former responsible for establishing the general policy of the stock market, and the latter
tasked with the implementation and regulation of trading activities.
FERNANDO
MARTINEZ
Partner in
Investum
What is the company’s current
lif_ch?]o[^il!m×h[h]c[f
sector?
Q_[l_[]iljil[n_×h[h]_
×lgnb[nb[mnbl__g[ch[l_[m
of business: structuring and
×h[h]cha&g_la_lm[h^[]kocmcncihm&[h^×h[h]c[f[h[fsm_m(
Nb_×lmnih_cmnb_gimncgportant service we have, and we
have generated over $92 million
in the brokerage market, and
more than $60 million for the
banking market over the past
three years.
What is your primary client
jli×f_9
We have concentrated on helping companies obtain as much
money as they can over the past
three years. We started with
transactions of $500,000, and
then obtained $1 million, $2 million, $6 million, and $7 million of
business. The latest transaction
we realized was for $15 million
and now we have been mandated for a $200 million project
×h[h]_nl[hm[]ncih(Ch?]o[^il
]iljil[n_×h[h]_jl_^igch[n_m
ip_ljlid_]n×h[h]_(Ch]iljil[n_×h[h]_&sio][hao[l[hn__
[fi[hqcnb][mbØiq[h^
assets of the company, whereas
qcnbjlid_]n×h[h]_&sio^ihin
have the assets.
Finance
QUITO & GUAYAQUIL
Quito’s benchmark index is the Ecuindex,
although two others are in play. The IVQ is a
statistical measure of monetary value, while
the IRRF is an index of bond performance.
Currently, the BVQ has 44 (in 2012) listed companies and 35 brokers, all authorized by the
Superintendency of Companies. The average
capitalization of the exchange for 2012 was
$1.167 billion. The total traded value for the
year was $104 million, where the private sector
trumped up $0.64 billion and the public sector $0.25 billion. As of Friday, October 3, 2014,
the benchmark Global index had declined to
1193.81 points from 1194.86 in the final session of September of 2014.
The BVG, Guayaquil’s bourse, has over 45
listed companies serviced by 20 brokers. To
render the two exchanges more appealing to
international investors, as of January 2012, the
BVQ and the BVG unified their trading systems
with the Unique Interconnected Trading System (SIUB). The stock exchange, a tax-paying
limited company, is also a beacon of transparency in the private sector.
INVESTMENT FUNDS
Investment funds must be registered with the
Securities Market Registry, which is an organ
subordinate to the Superintendency of Companies. The largest investor class is the government of Ecuador, acting through the Ecuadorean Social Security Institute (IESS), followed
by banks and local equity funds. International
equity funds are a rarity on the Ecuadorean
stock exchanges.
THEBUSINESSYEAR
As of September 1, 2013, the Global Ecuindex had peaked at
+&+**(/,ih;jlcf,*+-(I`×]c[f^[n[ch^c][n_mnb[nnb_g[le_n
capitalization of listed companies in Ecuador had climbed from
$690 million in 1992 to $6.10 billion by June 2012.
BONDS
Ecuador is keen to re-enter the international bond market. The investment community
appears warm toward a dollar-denominated
bond rumored to offer rates of 7%-8%, with a
10-year maturity, geared at raising $700 million. According to The Economist, “Although
such interest payments would be slightly higher than the rates China has demanded for its
bilateral loans, some of which are tied to oil
shipments, they are lower than the bonds that
the country defaulted on.” In 2008 President
Correa’s administration defaulted on $3.2 billion of sovereign bonds from ideological motive, since which time Quito has sourced Chinese credit to finance infrastructure projects.
In a TBY interview, Fausto Herrera, Ecuador’s
Minister of Finance dispelled any thought of
a repeat performance, stating that, “the important thing to emphasize is that these bonds
were not created by the Ecuadorean state.
They were bonds that we had taken over as
a result of the nationalization of private accounts. Private debts were taken over by the
state and then restructured. Now, the new
Ecuadorean constitution prohibits the nationalization of private debt, which removes the
danger of this.” Creating value. Managing risk.
For M&A in Ecuador or the region, savvy investors turn to Analytica for local
knowledge and world-class execution. Some of our recent transactions:
t-JCFSUZ.VUVBMBDRVJSFT1BOBNFSJDBOBUIFMFBEJOHMPDBMJOTVSFS
t(SVQP.ÏYJDPCVZT3VUBEF$PCSFJOBDPVOUSZUSBOTBDUJPO
t&EFTBQVSDIBTFTUIFTBOJUBSZXBSFBSNPG$IJMFT$FNFOUPT#ÓP#ÓPJOBDPVOUSZEFBM
At Analytica, we understand the risks—and rewards—of investing in emerging markets like ours.
Ask us how Analytica can help you.
Analytica. Ecuador’s Investment Bank.
."%FCU4USVDUVSJOH#SPLFSBHF3FTFBSDI
Av. 12 de Octubre # 1942 y Cordero, World Trade Center, Tower A, Of. # 1505, Quito, Ecuador
T. +593-2-222-6640 F. +593-2-222-7015 www.analytica.ec
57
58
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
dollar for your
THOUGHTS
TBY talks to Ramiro
Crespo, Senior Partner
and General Director,
and Eduardo Checa,
General Manager
of Analytica, on
international investors
and capital markets.
Analytica is
looking to
continue
expanding its
international
reach and client
base
What is the key focus of Analytica’s business?
EDUARDO CHECA We have
several threads operating simultaneously. We are active in
debt structuring, with the broker dealer house, and we work
on prime Ecuadorean corporate issues. We also undertake
mergers and acquisitions,
which is another key area of our
group. In addition, we provide
either the sales side or buying side for companies within
Ecuador, or for those being
bought or sold by foreign companies. We also provide equity
research services.
What are the primary sectors
that attract interest from international investors?
EC We have seen considerable
interest overall. Ecuador is a
country that has grown from
$400 million in insurance premiums to well over $1.3 billion,
which made it an important
player in the insurance arena.
We have also seen interest in
mining, while the retail business and food and beverages are also appealing. These
mostly comprise Ecuadorean
companies being acquired by
foreign companies.
Eduardo Checa graduated
from the University of Wisconsin Stout with a Major
in Business Administration
and a Minor in Economics.
In addition to his position
at Analytica, he is a board
member at a number of
institutions, including the
Quito Stock Exchange,
Grupo Moderna, and Latino
Insurance Line.
Ramiro Crespo graduated
with a Master’s degree in
Economic Development
from Georgetown University. A recognized economic
and political analyst, he is
currently General Director
and Senior Partner at Analytica. Previously he had
been Vice-President of Corporate Finance at ING Bank
Ecuador for nine years.
How would you characterize the
development of the capital markets within Ecuador?
RAMIRO CRESPO One of the
problems with the Ecuadorean capital markets has been
over-regulation. The capital
markets in the 1980s were at
the same level of development
as Colombia, Peru, and Chile.
Today those markets are much
more developed. If they are
ranked out of 10 as a 10, we
would be at a five in terms of
emerging markets. Before they
were all equal, but Ecuador has
not improved sufficiently.
RC When we originally dollarized, many people said that in
order to do it successfully, we
needed a solid financial system and fiscal environment.
In Ecuador we had neither of
those things, but it still worked
well. If you lacked a good financial system and solid fiscal accounts, you absolutely needed
sound money. Ecuador cannot
issue its own currency or dollars, which means that we have
sound money, which promotes
stability. It also helps with the
development of the financial
markets because, since dollarization, long-term financing
and loans, such as mortgages,
have developed quickly. You
are able to issue 15-year loans
in the knowledge that the dollar
you recover will still have strong
purchasing power. Today we
use import substitution, tariffs,
and quotas to restrict the volume of imports so money will
not leave the country and liquidity will go down and with it
economic activity. The answer
is to export more, more FDI,
and access to the international
capital markets.
What effect has dollarization
had on the appeal of Ecuador?
EC Dollarization has had an excellent effect on the economy by
helping to stabilize it. In order
to be successful in dollarization, very few things need to be
done; you have to export more
than you import, and you have
to be highly productive. You
also need access to foreign borrowing and investment. If you
have those four things, you have
a ladder with which to climb to
development.
Finance
THEBUSINESSYEAR
59
INTERVIEW
A CAPITAL
IDEA
TBY talks to Pedro
Ortíz Reinoso,
General Manager of
Fiducia, on managing
regulatory changes,
impediments to
foreign investment,
and asset allocation
strategies.
What role does Fiducia play in
?]o[^ilÎm×h[h]c[fm_]nil9
Fiducia began its active presence in the financial sector in
Ecuador in 1994. Initially, we
positioned ourselves as one
of the first providers of financial services for real estate
projects. Later, we expanded
to defeasance trusts, administrative trusts, and then securitization. We created the
first securitization system in
Ecuador, which consisted of
the value of the cash flows resulting from the money spent
by foreigners in Ecuador using MasterCard credit cards.
MasterCard decided to securitize these flows, and we realized this transaction in 2003.
This opened up an expanded
method for us to participate in
Ecuador’s capital markets.
What is your current characterization of Ecuador’s capital
markets?
From our point of view, in order for Ecuador’s capital markets to play a more significant
role in the country’s financial
sector, the two sides of the
capital markets, the issuers of
non-bank securities on one
side and the institutional investors that are going to purchase these securities on the
other, need to be compatible.
Securities being issued need
to be designed for the investors who are going to invest in
them. Speaking about capital
markets in Ecuador, it is important for us to talk about the
legal reform that took place
in 2012. Until 2012, banking
institutions were allowed to
own brokerage houses and
insurance companies and
have fund administrators.
In that year, the law that required that any shareholders
of banking institutions to divest any ownership of investment or insurance companies
was amended. As a result, new
Ecuadorean capital markets
were born without the participation of commercial banks.
Another important factor in
Ecuador’s capital markets is
the fact that the majority of
the country’s pension funds
are concentrated in the IESS.
This limits the role of pension
funds in the country’s capital markets, which presents
a challenge for the country,
because the existence of institutional investors with a high
level of technical capacity is a
fundamental factor in the development of capital markets.
What is your asset allocation
strategy?
The portfolio structure of each
of our funds depends on the
objective of that fund. Currently, the assets in which we
have been investing are fundamentally domestic. This is
for two reasons; the first is be-
cause Ecuador is a dollarized
country, which is an important advantage, and the profits
from local investments are in
US dollars. Secondly, as Ecuador has taxes on foreign capital flows it is more difficult to
move money in and out of the
country. As a result of these
fees, the Ecuadorian dollar is
only worth about 95% of the
dollar internationally. This
means that it makes more
sense to invest in Ecuador and
keep profits in the country.
As a result, this makes foreign
investments less competitive
because it is more difficult to
invest in them and repatriate
the profits. This is a secondary
factor though. The primary
factor is that in Ecuador, there
is still a great need for the
availability of better financial
instruments through the capital markets. This need exists
on two fronts. On one side,
it is necessary for companies
that are looking for long-term
financing for new business
ventures of the kind that are
usually not financed through
bank loans. On the other side,
the deposit rate that financial
institutions are paying for savers is not appealing when inflation is factored in.
Have you seen interest in your
funds from international investors?
Yes, we have hosted institutional investors, who usually manage family wealth
funds. It appears to me that
they are looking for low-risk
funds in emerging markets.
They come to us because we
administer the only fund in
Ecuador that has a risk rating of AAA-. They are looking for good risk ratings and,
of course, profitability. Our
funds yield such high profitability because they include
corporate securities with positive interest rates. In 2003, the
company had its
×lmnm_]olcnct[ncih
and began its
involvement in the
capital markets
BIO
After studying business at
the Universidad Tecnología
Equinoccial de Quito
Ecuador, and marketing
[h^×h[h]_[nnb_Chmncnoni
Tecnológico Monterrey de
México, Pedro Ortíz Reinoso pursued his graduate
studies at the Universidad
Católica de la Plata, Buenos
Aires, and the Universidad
Autónoma de Occidente,
Cali, Colombia. He later
went on to represent Ecuador in the Iberoamericano
Congres of Investment
Funds in Brazil in 2010,
and the Congress of Latin
American Trusts in 2011.
In a professional capacity,
Reinoso has held positions
chnb_×_f^mi`]l_^cn&
treasury, and investment
funds from 1984 to 1999.
In addition to a number of
other leadership position
in Ecuadorean and Latin
American associations and
committees, Reinoso has
served as the director of
the Association of Fund
Managers and Trustees of
Ecuador from 2001 to the
present. Since 2002, he has
held the position of General
Manager of Fiducia.
60
THEBUSINESSYEAR
ECUADOR 2014
New regulations introduced in 2011 are still shaping the sector, but
growth remains brisk.
Review
STAY
SAFE
Low penetration
and increasing foreign
interest are a recipe
for future growth in
the insurance sector.
INSURANCE
THE IMPACT OF REGULATIONS that
put an end to bank participation in the insurance sector, opening the floodgates to foreign
involvement, is still being felt in Ecuador.
Despite the entrance of a number of foreign
insurers looking to take advantage of a number of selloffs, the sector remains fragmented;
there are 36 insurers and two reinsurers in the
country. That said, the trend is toward consolidation in this fast-growing industry, the sector
is also helped along by a 75% urbanization rate
and rising middle class. Indeed, the insurance
sector in Ecuador is the region’s third fastest
growing, after Brazil and Peru.
In 2012, premiums grew by 9.8%, almost
twice the rate of GDP, to reach a value of $1.5
billion. That put the value of the sector at 1.8%
of GDP, a figure that remains low compared
to Peru’s 4.9% and Colombia’s 6%. And then
in 2013, net premiums came in at $1.7 billion,
with foreign companies accounting for 35.4%.
Foreign firms are certainly raking it in, with
the top three—Pichincha, AIG, and ACE—
bringing in 58% of the sector’s total net profits
of $42 million for the year. According to EIU
Viewswire, the industry registered a net outflow of $386.8 million in 2013, including payments to foreign reinsurers.
In conversation with TBY, ZHM Seguros Executive President Oscar Zuloaga discussed the
rise of foreign insurers; “Before 2011, an estimated 40% of Ecuadorean premiums were in
the hands of financial bank-led holdings. Regulations over market power and control came
through during that year banning all banking
institutions from the ownership of any business
aside from the banking business itself,” continuing that then, “a swift sale process began
taking shape very quickly, with interest from the
big names wanting to come in, either buying in
through the acquisition of bank-owned insurers
or landing a spot through local privately owned
companies at the time when the market would
present them with much more attractive conditions and opportunities.” And just like that, big
names such as Liberty, Mapfre, and QBE joined
the likes of AIG, Generali, and ACE in the sector. From a competitiveness perspective, Zuloaga believes “this trend will continue and…
will have a positive impact.” But not everyone
shares his sentiment, with Enrique Talbot, Executive President of Vaz Seguros, suggesting
that the big foreign players lack that local touch;
“The arrival of these companies into the Ecuadorean insurance market has led to a loss in the
quality of service and relations between compa-
Finance
nies and clients. For these large insurance companies, clients are merely statistics. We have the
advantage of knowing the particularities of the
Ecuadorean market.”
But for the smaller player, consolidation is
a distinct possibility. According to Gal Semblantes Vorbeck, General Manager of Universal Compañia de Reaseguros, “Ecuador has
38 insurance companies, which is a relatively
high number given the size of the market, and
this spells tough competition.” Some spectators warn, then, that local companies could be
squeezed out amid tough competition, with industry insiders also worried over talk of tighter
regulation on premiums and possible caps on
executive salaries in the sector, according to
EIU Viewswire.
In reinsurance, there are two companies at
work in the sector, the state-owned Seguros
Sucre and Seguros Rocafuerte. They are tasked
with ensuring that the entire public sector is
insured. Discussing their importance, Juan
Ribas Domenech, Chairman of Seguros Sucre and Seguros Rocafuerte, commented that,
“all in all, it is important for the government
to have a state-owned insurance company in
order to protect its vast public structure and
insure its properties.”
As of end-2013, reinsurance cessions were
approximately 50%, a figure that is only just behind the average of 55%-60% in Latin America.
But with the two reinsurers in Ecuador ceding
much business to reinsurers abroad, a drive is
now underway to ensure more retention in the
sector and possibly develop a deeper domestic reinsurance business with a view to keeping more dollars at home. According to a new
code, the minimum capital for insurers could
be increased to $8 million and $13 million for
reinsurers. QBE Seguros’ CEO Diego Sosa Villaquirán delved deeper into the matter in an
interview; “With motor insurance, for example,
business can be retained within the country;
THEBUSINESSYEAR
61
DIEGO SOSA VILLAQUIRÁN
CEO, QBE Seguros
Latin America represents for QBE almost 8% of the group premium,
which is hugely relevant. Ecuador is our third-largest operation in
the region, although it is obviously a still relatively small one in Latin
America. In general terms, we have a leading position here. We are
the third largest company in Ecuador. The government operates
two insurance companies in Ecuador, Sucre and Rocafuerte, and
most government businesses go directly to them. We are the largest
multinational company in Ecuador. We are fully aware of our brand,
and I believe that our clients perceive us as one of the best options in
the market in terms of service, with a good claim payment process.
however, this is not the case for insurance related to earthquakes or other disasters,” he said,
adding his take on the need, or lack of need, for
more reinsurance; “A local catastrophe requires
payments from abroad, and I do not agree that
establishing reinsurance within the market is
necessarily the best idea. We and other multinational companies are offering reinsurance
products, meaning we are acting as both insurer
or reinsurer.”
While it isn’t clear how the sector will look in
just a few years, what is clear is that there is plenty of margin for growth. With penetration levels
still low, increased foreign interest in the sector
will result in stronger awareness and more robust premium offers. The problem of making
sure the money stays in the country, however, is
the medium-term challenge. 62
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to Juan Ribas Domenech, Chairman Seguros Sucre and Seguros
Rocafuerte, on the state of the country’s insurance industry, increasing
insurance penetration, and plans for the future.
underwriting
GROWTH
What is required to increase the
social penetration of insurance
products?
What role do Seguros Sucre and
Seguros Rocafuerte play in Ecuador’s insurance sector?
Today, there are two stateowned insurance companies
in the industry, Seguros Sucre and Seguros Rocafuerte,
and we both currently work
to ensure that the entire
public sector is insured.
Both companies are led by
two highly experienced professionals, who have both
worked in the insurance sector for over 25 years. These
are two key elements for
both the sector and the state.
All in all, it is important for
the government to have a
state-owned insurance company in order to protect its
vast public structure and insure its properties.
How would you characterize the
insurance market in Ecuador?
Today, the sector is gaining
relevance, experiencing the
growth and expansion we all
expect. However, Ecuadoreans are not yet fully culturally aware of the importance
of insurance coverage. This
is something we all need to
work on in the industry. At the
moment, there are around 40
insurance companies operating in Ecuador, and they will
all need to fulfill the requirements of being stronger in
terms of capital adequacy and
equity, as stipulated by the
government.
We need high levels of innovation and hard work with products for the mass consumer
segment. Also, insurance
companies must be creative
enough to develop new products and strategies to target
alternative market niches. Ecuador lags behind in terms of
premium level and share of
GDP, or in other words, the
penetration of the insurance
sector in society, as compared
to other regional countries like
Colombia, Chile, and Costa
Rica is lower. This difference is
mainly related to the way each
country has developed its insurance industry—Ecuador
has definitely not developed
its insurance sector as far as
the aforementioned countries.
Looking forward, what are the
greatest challenges facing Ecuador’s insurance industry?
We have to be able to increase
our penetration, culturally
educate people in the importance of insurance products, and also increase our
share and role in the national
economy. I think the greatest
challenge by far is to increase
the share of the insurance
sector in GDP. However, let
me say that over the past
few years we have received
more foreign investment in
the sector—today, numerous
multinationals operate in the
industry, and I believe we are
in the process in which local
players must become more
competitive to survive and
as the level of professionalism increases, so too does the
awareness among people of
the need for insurance.
What is the balance between
public and private companies in
your client portfolio?
Around 80% to 85% of our client portfolio is composed of
public entities. In this context,
one of our main challenges is
to become more competitive
and transparent in order to
better target the private sector
in the near future.
85% of Seguros
Sucre’s clients
are state-owned
companies
What are your goals looking
ahead?
Seguros Sucre is the leading
insurance company in Ecuador, whereas Seguros Rocafuerte is among the top 10.
Our goal is to consolidate the
operations of both companies in order to increase our
solidity and reliability, which
will enable us to increase our
share of the market. Also, we
need to increase the number
of services offered to our clients. These two elements will
enable us to become a more
relevant player in the private
sector. If we want to increase
our reliability in consumer
perception, we must become
a more transparent company. In this context, we have
already taken important steps
toward achieving this; we have
traveled abroad with our largest clients when negotiating
their reinsurance contracts,
so they can be part of the entire process, knowing exactly
where we stand at each particular moment. BIO
Juan Ribas Domenech
graduated from the
University of Denver with
a degree in Economics and
started out his professional
career at Banco Del
J[]c×]i&[m[=iljil[n_
Chp_mng_hnI`×]_l(B_
went on to serve as the
Commercial Director for
Techniseguros, Regional
Deputy for Seguros
Equinoccial, Branch
Manager and later General
Manager for Seguros
Unidos, and then as
General Manager for Cia. de
Seguros Ecuatoriano Suiza,
before assuming his current
position as Chairman of
Seguros Sucre and Seguros
Rocafuerte in 2013.
Finance
THEBUSINESSYEAR
63
INTERVIEW
the local
HERO
What distinguishes ZHM from
other providers in Ecuador’s insurance sector?
TBY talks to Oscar
Zuloaga Ayala,
Executive President
of ZHM Seguros, on
the importance of
specialized service,
changes in regulation,
and consolidation.
BIO
After studying Law and the
Universidad Catolica de
Guayaquil, and Television
at TCC London, Mr. Ayala
worked as Anchorman
and News Manager for
Ecuavisa. Then, in 1992,
he started fundoZHM,
a personal insurance
brokerage. Throughout his
career, Ayala has conducted
numerous seminars and
training programs. During
the administration of
President Gustavo Noboa,
he served as Minister, and
Government Spokesperson
before returning to the
private sector at the end
of the term. Ayala leads
a group of professionals
based in Guayaquil, Quito,
and Cuenca that offer
professional consulting
and risk analysis services
to multinationals and
local companies. Since
2000, ZHM Seguros has
ranked as one of the 10
largest insurance providers
in terms of volume and
premiums in the national
insurance market.
We present an alternative to
the larger networks, and place
a strong emphasis on personal service and high-quality
technical solutions by having
a clear understanding of how
the global market and the
large corporations work from
an insurance perspective. We
have been able to establish a
matrix of service that works
well for large- and medium-sized Ecuadorean corporations and at the same time
for major international firms.
We are brokers for SABMiller,
América Móvil, Arca Continental Coca-Cola, and Bimbo
among the top Ecuadorean
industrial firms.
What constitutes good service
for an insurance broker?
You first have to understand
the nature of the business your
client is involved in and begin
assessing their risk exposure
to determine and advise on
the required coverage. In our
line of business, we have to
make sure we are aware and
ready for more than meets
the eye. Planning for the future is also another key factor
to develop value-added partnerships at a whole different
level with clients; it’s imperative that we can guide them
through mid-term and longterm growth and expansion.
Once you understand that,
you can start looking for adequate insurance partners to
provide them with solutions
to their needs. When I speak
about service, it is because
our clients are accustomed to
having close connections with
their partners throughout the
processes of underwriting
policies and claims management when needed.
ZHM Seguros
is an Ecuadorean
insurance
broker with a
number of major
multinational
clients
measured on premiums per
capita. But most importantly
it will raise the level of awareness among clients of the true
need to count on a professional and specialized perspective
for their insurance needs. This
situation will also present brokers with a major challenge;
to rethink ways to align ever
more demanding offers with
a new wave of solutions being
offered by new players, while
maintaining an added value
concept for both of them simultaneously.
Do you think that is going to lead
to consolidation within the rest
of the market and among smaller Ecuadorean players?
B[mnb_l_]_hnchØori`chn_lh[tional companies into Ecuador
changed the insurance sector?
Before 2011, an estimated
40% of Ecuadorean premiums were in hands of financial bank-lead holdings. Regulations over market power
and control during that year
banned all banking institutions from the ownership of
any business aside from the
banking business itself. A swift
sale process began taking
shape, with interest from the
big names wanting to come in,
either buying in through the
acquisition of bank-owned
insurers or landing a spot
through local privately-owned
companies at a time when the
market would present them
with much more attractive
conditions and opportunities.
As a result, household names
like Liberty, Mapfre, and QBE
have positioned themselves
alongside already established
names like AIG, Generali, and
ACE. We believe this trend will
continue and have a positive
impact on competitiveness,
the supply of new insurance
solutions, it’s penetration
We must take into account
the previous sale process
started back in 2011, and the
new regulations in force will
require a substantial increase
of capital for most companies,
and tighter management of
assets and reserves. All players
will face the added burden of
raising their capital adequacy
levels and margins, which will
undeniably have a negative
impact on their profitability
and make further consolidation inevitable.
Do you consider regulatory reform of the insurance sector to
be positive?
The new regulations have
the virtue of placing more
emphasis on the strength
and viability of the insurers
that will carry on doing business in the next 18 months.
But it presents a challenge
to the new authority in allowing the companies to
continue with sound business practices without overregulation and interference.
It’s too early to measure the
full impact of the amendments just executed. 64
THEBUSINESSYEAR
ECUADOR 2014
VOX POPULI INSURANCE
ENRIQUE TALBOT
Executive President,
Vaz Seguros
PREMIUM
BONDS
RAFAEL MATEUS
PONCE
General Manager,
Seguros Unidos
A highly competitive environment
means Ecuador’s insurers must
always be on their toes.
I
W
e were established in
2002 and are the only
company in the insurance sector headquartered
in Cuenca. We have offices in
Quito, Guayaquil, and Loja,
and are set to open operations
in Machala. We believe that we
must provide the market and
consumers with something
new; otherwise, there is little
chance of surviving the intensely competitive environment.
From 2003, we experienced a
growth rate of 25%, thus greatly
in excess of the 11% insurance
market average.
personally founded Aseguradora del Sur with
several partners, most of whom were from Cuenca, which is why our first registered office was in
that city. Later on, I purchased all the shares from the other partners, and I now own 100% of the company. Over the
years, the company has set itself apart from the competition
thanks to the services it provides to its clients through its 300
brokers. These have a high level of satisfaction and identification with our company, and as a result we enjoy an elevated level of diversification in our business activity.
RODRIGO
CEVALLOS
BREILH
Executive
President,
Aseguradora del
Sur
W
e are a local company
ranked among the top
10 in terms of sales,
while seven of those 10 companies are multinationals. We are
one of the most financially solid and consolidated companies
in the industry. Also, we have
the structural support of over
110 companies—those belonging to Grupo Eljuri. The growth
and expansion of Grupo Eljuri
has fueled our company over
the past few years, and we have
basically grown in step. In this
context, the automotive industry deserves a special mention.
Grupo Eljuri has a strong market
share in this industry, thanks
to which we have been ranked
among the leading companies
for vehicle insurance.
GALO SEMBLANTES VORBECK
General Manager, Universal Compañía
de Reaseguros
A
s a local reinsurance company, Universal is a very small operation compared to the international reinsurance entities,
although we believe that we help the local market to solve
certain capacity problems. For example, certain large reinsurers request a minimum premium, which could be between $10,000 and
$15,000 depending on the company, and that means that if a certain
business isn’t going to produce that minimum premium for the reinsurer they are not going to settle it.
THEBUSINESSYEAR
65
68
73
79
The Minister of Non-‐Renewable
Natural Resources on the
restructuring of national oil
companies.
With over $9 billion in Chinese
loans, the Pacific Refinery
has widespread political and
economic implications.
The Minister of Electricity and
Renewable Energy on the energy
matrix, power consumption, and
the use of renewables.
Energy
REVIEW
With crude oil representing over half of Ecuadorean exports, the sector
remains a major source of state revenue, while new facilities are set to
supply domestic demand.
COUNTING OUT CRUDE
E
cuador is an oil
producing country, though its
electricity
requirements are not met by
domestic production. Approximately three-quarters
of its electricity is supplied
by imported petroleum derivatives, with the remainder
covered by renewable sources such as hydropower. The
country’s petroleum refining
segment, while presently insufficient, is being dramatically expanded. Currently it is
spread across its Esmereldas,
La Libertad, and Shushufindi
refineries, at a total capacity
of 176,000 bbl/d, and operated by state-owned company
Petroecuador. Its extraction
activities are managed by
Petroamazonas, again a government-controlled firm. Ecuador’s proven oil reserves
are in the region of 8 billion
barrels. In 2012, Ecuador produced 18.26 bcf of natural gas
for domestic consumption.
After a decade and a half
break, Ecuador rejoined the
Organization of the Petroleum Exporting Countries
(OPEC) in 2007, and currently
Image: Petroecuador
Refinery capacity in Ecuador
is set to jump to 500,000 bpd in 2017
when the Pacific Refinery comes
online. About 45% of the new capacity
will supply the domestic market with
transportation fuels and petrochemical
feedstock.
stands as its smallest member. Under its relatively small
territory lies considerable reserves of oil and gas, though
much of this has not yet been
exploited. The country produces approximately 500,000
bbl/d, and crude petroleum
makes up 50% of exports.
In 2012, revenue generated
by the trading of this commodity, primarily with the
west coast of the US, reached
$12.7 billion, while refined
petroleum represented just
a fraction of this at $960 million. This relatively low level
of production makes it the
fifth largest producer in Latin America; however, the income garnered from its sale
has funded much of the present administration’s political
activities and improved the
lives of many Ecuadoreans
through the construction of
new infrastructure and social
facilities.
With a 2014 budget of $34.3
billion, a government price of
around $86 per barrel was set.
Since 2010, when the Correa
administration renegotiated
hydrocarbon contracts with
the 17 firms that were present
ECUADOR 2014
Source: OPEC
16
14
12
10
8
6
4
2
2013
2012
2010
2011
0
Wells Completed
350
300
250
200
150
100
50
2012
2013
2012
2013
2011
0
Producing Wells
Source: OPEC
3500
3250
3000
2750
2500
2011
billion expected to follow. This financing will
go towards the construction of the refinery,
which is expected to cost around $13 billion
upon completion in 2017. In return, China is
guaranteed preferential sales of Ecuadorean
petrochemical products and partial ownership. As part of the financing deal, the China
National Petroleum Corp. will take a 30% stake
in the refinery, and Petróleos de Venezuela
will reduce its stake to 19% from 49%. Petroecuador will retain its 51% controlling stake.
Upon the completion of the Pacific Refinery,
Ecuador’s total refining capacity will reach
approximately 500,000 bbl/d. Around 45% of
this output is expected to supply the domestic market with petrochemical feedstock and
transportation fuels, and the remainder will
be absorbed by China.
TRANSPORT OPTIONS
Source: OPEC
2010
The Pacific Refinery, targeted for completion
in 2017, should correct Ecuador’s reliance on
imported petroleum derivatives, and reposition the country as a supplier of petrochemical
products, rather than a consumer. The Pacific
Refinery is expected to process 300,000 bbl/d
at maximum capacity. Whereas the country
historically imported more complex petroleum products, the Pacific Refinery will allow
it to sell to China, and process a significant
part of Venezuela’s crude output from the
Orinco Oil Belt. Under this scenario, Ecuador
will add value to its economy, while simultaneously reducing its trade deficit. Rather than
selling crude, the refinery will process crude
into petroleum derivatives including high and
low octane fuels, diesel, lubricants, polypropylene, benzene, xylene, and ethanol.
The refinery will come at a cost however. A
group of Chinese banks, led by the Industrial & Commercial Bank of China disbursed $2
billion in loans in mid-2014, with another $7
Value of Petroleum Exports
(in Thousand USD Millions)
2010
REFINED TASTES
With a 2014 budget of $34.3 billion, a
government price of around $86 per
barrel was set.
2009
in the country, a profit limit of $32 a barrel has
been in place. Though this initially discouraged operators, the majority have remained,
accepting the state’s policy of resource nationalism and the full sovereignty of the state
over national resources. However, the gradual
diminishing of the reserves being processed
has necessitated a search for other forms of
revenue, and Ecuador’s return to international
bond markets. For the energy sector, this has
led to an expanded exploration in more remote provinces for their untapped potential,
and the pursuit of advanced technologies to
bolster the refining segment.
In the regions of Morona Santiago and
Pastaza in the heavily forested southeast of the
country, areas have been designated for exploration, while substantial reserves are present
in the Ishpingo-Tambococha-Tiputini (ITT)
fields in Yasuní National Park, an estimated
900 million barrels of oil. However, the exploitation of many of these new areas is fraught
with difficulties concerning the protection of
the environment and the various indigenous
communities scattered throughout the area.
Far from insensitive to the issue, the government in fact imposed a ban on extraction and
exploration in the area during its first six years
in power. In 3Q2013, this was overturned, and
efforts are being undertaken to minimize any
potential environmental impact from the new
search for reserves. Nonetheless, the situation
has triggered protests in support of the local
populations who argue that they receive too
little in exchange for the construction of processing facilities on their land.
2009
THEBUSINESSYEAR
2009
66
The national pipeline infrastructure has for
a long time been working at full capacity.
The OCP pipeline transports crude oil from
the northeast of the country to the Esmereldas refinery and port, and is the primary link
from the interior to the coast. Completed in
2003 after four years of work, it transformed
the segment by facilitating the movement of
heavy crude oil.
For now, petroleum products imported
from abroad meet the bulk of domestic energy
demand. Hydroelectric generation represents
over half of national energy production,
though this is still far from sufficient. Ultimately, hydroelectric power is envisaged to account for 90% of electricity produced nationally within the current administration’s term.
Blessed with over 2,000 rivers or waterways
starting in its high-altitude mountain ranges,
Ecuador has long been seeking to exploit its topography to generate low-cost, non-polluting
energy sources. Of the facilities in operation at
present, the largest is the 1.1GW Paute-Molino
plant. This will be overtaken by the Coca Codo
Sinclair plant, which has been under construction since 2010. Though initially proposed decades ago, the project is seen as a clear success
of Correa’s government. At a cost of $2.6 billion, the project is expected to be complete
by 2016, and will add an additional 1.5 GW of
Energy
capacity to the current 5.3 GW. Eight other hydropower projects are in progress at present.
Coca Codo is representative of the influence of foreign capital—particularly from
China—in the Ecuadorean energy sector.
Since the 2008 global financial crisis, the
government had limited options for accessing foreign capital, and eventually accepted
heavy investment from across the Pacific.
Though Cocasinclair EP is a fully state-owned
company, the project is funded primarily by
the Export-Import Bank of China. Also, its
engineering, construction, and procurement
(EPC) contract is mainly the business of Sinohydro, a Chinese corporation, while additional Chinese firms and companies from Mexico
and Ecuador control other contracting interests. Most crude petroleum shipped from
Esmereldas and Guayaquil is sold to Petrochina. However, Russia also has considerable
interest in the energy sector, with state-giants
Gazprom and Rosneft conducting business
directly with Petroamazonas. An announcement in late 2013 confirmed that Gazprom
will invest $1.5 billion into energy projects. THEBUSINESSYEAR
67
MAURICIO ZANELLA
General Manager,
Poweron
Approximately 60% of our clients are in the oil and gas, and
mining sectors. We run the power for our customer’s operations
in different applications in almost all industries. In the Amazon
and coastal regions of the country, where the oil and gas sector is
focused, we have to keep our operations safe and clean developing
environmental and socially responsible solutions to run our power,
so we have carried out new technologies in our equipment that our
customers value. We combine experience, human talent expertise,
leading-edge technology, and innovative design that become in costeffective solutions for our customers.
68
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
GAS
master
TBY talks to HE Pedro Merizalde Pavón,
Minister of Non-‐Renewable Natural Resources,
on the production matrix and national oil
companies.
What role can the Ministry play in the transformation of the production matrix in Ecuador?
We have many opportunities to play a key role;
for example, the generation of electricity with
natural gas. Ecuador has reserves of up to 60
million cubic feet of natural gas. Natural gas
is also expected to play a key role in boosting
the development of the local pottery industry,
which is internationally competitive. The Ecuadorean government is also developing the
Pacific Refinery, an infrastructure project set
to drive growth in the petrochemical sector.
These two segments, along with oil and mining are our main contribution to the transformation of the productive matrix. The main
focus of our Ministry and the government will
be in the generation of electric energy and the
refinery project.
Qb[ncmnb_cgjiln[h]_i`nb_J[]c×]L_×h_lsjlidect for the country?
BIO
Prior to his current role as
Minister of Non-Renewable
Natural Resources, Pedro
Merizalde Pavón, worked
as General Manager of
L_×h_l‹[^_fJ[]‹×]i?fis
Alfaro RDP-CEM. His
educational background is
in energy and management,
having studied Petroleum
Engineering at the
Universidad Central in
Quito, and later completing
an MBA at the Escuela
Politécnia del Ejército. He
has extensive expertise
in the management
of engineering and
construction projects.
The Pacific Refinery will help to meet domestic demand for oil and diesel products in Ecuador. At the moment, we import about 40% of
these products. The refinery will enable us to
produce these products, reduce our imports,
and use our resources more efficiently. The
refinery also means that $5 trillion of natural
resources will stay in our country, while increasing the export profile of Ecuador, which
will make us a leading regional exporter. This
project sets Ecuador on the path to energy independence. We have located and cleared the
area and began building key infrastructure
projects related to the refinery. The aqueduct,
which will provide the refinery with water, will
be completed in late 2014, and the design of
equipment to be installed is also completed.
What is the potential of Ecuador to develop a competitive petrochemical industry as a result of the
l_×h_lsjlid_]n9
The development of a vibrant petrochemical
sector is the main objective of the Pacific Refinery project, and we will progressively add prod-
ucts to our portfolio as we expand. We are able
to offer and provide foreign investors with raw
materials for the manufacture of their products,
industrial facilities for operations, fiscal and legal incentives, and basic services.
How can the restructuring of Petroamazonas and
Petroecuador increase the competitive level and
_`×]c_h]si`nbim_nqi]igj[hc_m9
Petroamazonas and Petroecuador were restructured to be more efficient, as the two
were involved in similar activities. Now, exploration and production is handled exclusively
by Petroamazonas. This decision has already
created positive results. For example, in early
2013, we produced an average of 505,000 barrels per day (bbl/d). In late 2013, production
had increased to an average of 550,000 bbl/d.
This growth is the result of the introduction
of new technologies by Petroamazonas and
increased investment in its workforce. Meanwhile, Petroecuador now manages refineries,
transportation, distribution, and marketing.
This restructuring has allowed the two companies to specialize, and has strengthened its
business profile and efficiency.
What are the challenges facing the oil and gas
ch^omnlschn_lgmi`nb_mojjfsi`bcabfsko[fc×_^
human resources?
The development of human resources is a
high priority for the sector. We have established strategic partnerships with leading
universities to build bridges between industry and higher education in the preparation
and training of future technical workers for
our country. We estimate that when the Pacific Refinery is fully operational, it will employ more than 22,000 people at its facilities,
which means we will need many more skilled
workers in Ecuador. We have also conducted
research with international experts to predict
future developments in the petrochemical
sector, allowing us to properly develop and
train our workforce for the future.
Energy
THEBUSINESSYEAR
69
The government is
promoting exploration for
new energy deposits
What are some of the main measures implemented by the Ministry to protect the environment in
some of the most controversial projects?
In your opinion, do regulatory reforms adopted in
2013 in the mining industry in Ecuador make the
industry attractive to investors?
We conduct exploration and production in
line with international environmental standards. We also collaborate with international
experts to reduce the environmental impact
even further. For example, we give priority to
the construction of underground pipes and secure platforms. All infrastructure projects are
also built according to the standards set by the
Ministry of Environment. When it comes to the
construction of offshore platforms, we build
according to strict international requirements.
We also use very strict processes for disposal
and recycling, which removes all contaminated elements from the production centers to
areas where they are treated and safely recycled. Finally, we also seek technical advice from
biologists, zoologists, and other specialists in
flora and fauna, in order to protect ecosystems
around the areas in which we produce.
We are still working on the full implementation
of these amendments, but in the last couple
of years we have built bridges with the private
sector and the mining industry. At the moment,
there are two Chinese companies operating in
Ecuador, which have had a very active role in
conducting research on the profitability and
feasibility of developing large copper mining
projects in Ecuador. We should note that large
mining projects require long-term vision. Large
investments are required, and the return is often realized only after 10 or 15 years. Mining is
an attractive sector in Ecuador today, but there
are some segments that require large investments that have adopted regulatory changes to
ensure that the sector realizes its potential.
What are some of the main advantages of Ecuador’s barrel system tariff for investors?
We have a very attractive investment structure
where the government recognizes the return
on investment made by the companies, plus
interest, and the costs of operation. This has
generated a lot of interest from overseas, and
we have a waiting list that includes companies
from around the world. We provide these incentives in the context of a stable business environment, and the strengthening of our political and legal framework. Ecuador has areas of
high development potential in the near future,
and the arrival of even more international investors is expected.
What are some of your main priorities as Minister
for the next few years?
One of my priorities is to promote exploration
in southeastern Ecuador, and to better identify the resources available there, especially hydrocarbons. We must also continue to develop
existing mining projects and boost exploration
activities along the Andes. While countries like
Chile, Peru, and Colombia have active copper
mines, Ecuador does not have them. The same
applies to the gold mining industry. These are
all areas that require greater investment. We
plan to conduct research along the Andes to
establish the true potential of the area, and we
will use this data to attract foreign investors to
Ecuador, a country that enjoys political and
economic stability, and where a legal framework has been established. IN NUMBERS
Non-‐Renewable
Natural
Resources
Average oil
production in late
2013
550k
BBL/D
Estimated number of
qile_lm[nnb_J[]c×]
L_×h_ls
22k
70
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
full BURN
What is the importance of the
Secretary of Hydrocarbons in
the oil and gas sector of Ecuador
and in the broader economy?
In 2010 a legal reform was introduced that brought about
a significant change in Ecuador’s hydrocarbons sector, particularly regarding its
structure. Since then we have
been a dedicated agency removed from the operational
component of the business,
and responsible for overseeing the sector, as well as
awarding and managing oil
contracts. This marks a key
improvement by introducing a climate of impartiality,
and has importantly provided
comprehensive legal security
for investors.
What is the advantage of the tariff per barrel system that Ecuador uses today?
The tariff per barrel system
is based on a service contract, and has replaced the
production-sharing contract.
Given Ecuador’s circumstances, namely its reliance
on oil income, it has secured
civil control over oil income.
Today, all oil is owned and
managed by Ecuador, whereby what benefits the industry
benefits the country at large.
However, there is some misunderstanding. It is believed
that
production-sharing
contracts are attractive for
the oil companies. I always
invite them to consider the
real economic model, which
proves much more profitable. Oil companies in that
system are gaining more than
they would have previously
in a deal where they assume
no risk given the nature of
a service contract. We need
to better communicate precisely how the system actually works to their advantage.
TBY talks to
Yvonne Fabara
Arias, Secretary
of Hydrocarbons,
on the energy
production matrix,
the domestic tariff
system, and Ecuador
as a destination for
international investors.
BIO
Yvonne Fabara Arias
graduated in Social and
Political Sciences and has a
dichn^_al__`ligJihnc×]c[
Universidad Católica del
Ecuador. She obtained a
Master’s of Science from
the London School of
Economics and a diploma
in International Law from
the Sociedad de Estudios
Internacionales (SEI) in
Madrid. Since then she has
aquired 25 years of oil and
gas industry experience
in Ecuadorean and foreign
companies. Among others,
she has advised the
Minister of Non-Renewable
Natural Resources of
Ecuador and participated
in the construction,
operation, maintenance,
and management of major
oil infrastructure projects
such as Oleoducto de
Crudos Pesados, Villano
project, Poliductos de la
Costa, Papallacta potable
q[n_ljlid_]n&[h^L_×h_l‹[
^_fJ[]‹×]i&[gihainb_lm(
She is a member of the
Association of International
Petroleum Negotiators
(AIPN).
Is it an incentive to increase
production? Will there be production sharing in the contract?
Not really, because the economic model is based on free
cash flow. It is the production
model itself that generates the
income to meet required investments. The fundamental
difference with the production
sharing contracts is that the
oil companies obviously have
ownership over the oil they
produce. Now however, they
make no investments and provide a service throughout the
lifespan of the contract. They
have special terms for producing particular oil products,
such as enhanced oil recovery.
In my view, it is in the interest
of the country, and as such has
been a political decision.
What is the case for developing
the Yasuní-ITT Field, and can it
be done without an environmental impact?
I think it can. The field is located in one of the regions of
greatest biodiversity in the
world. It has to be preserved for
humanity. These are the values
that Ecuador has to respect.
The government has done its
best to do so. Unfortunately,
we were unable to receive the
compensation that Ecuador
required to avoid exploiting
its resources. It might be controversial, but, obviously, the
government has obtained authorization from the legislative body. There is a commitment that we have to assure.
The operatorship will be on
behalf of the government of
Ecuador through its public
companies. They will be overseen and the works will comply with all the requirements
to preserve the environment.
Ecuador absolutely needs
the resources of this field, but
must develop it responsibly.
The Secretary
of Hydrocarbons
(SHE) was
created in 2010
How important is the developg_hn i` nb_ J[]c×] L_×h_ls `il
Ecuador?
We are building a new refinery not only for local consumption, or for export, but
moreover, for a petrochemical
complex that will change the
entire local production chain.
The other refineries in Ecuador were built 40 years ago
and are costly to maintain and
less than reliable. Without its
own refinery, Ecuador is destined to remain dependent
on the import of fuel from the
international market. Having
a refinery is therefore fundamental to national security, as
the basic component of a major change in our production
matrix.
What makes Ecuador an attractive destination for international
investors?
In comparison with certain
other countries, Ecuador provides a more secure geological
environment. This means that
while we have the resources
there is less associated risk in
exploiting them. Potential investors examining the contract
system in Ecuador will surely find the sector a tempting
business proposition. Moreover, we now have in place an
independent agency tasked
with working closely with investors, and dedicated to the
signing of fruitful deals. Energy
THEBUSINESSYEAR
71
INTERVIEW
ENERGIZING
the nation
TBY talks to Marco Gustavo Calvopiña
Vega, General Manager of Petroecuador, on
transforming the production matrix, recent
restructuring, and alternative fuels.
BIO
Marco Gustavo Calvopiña
Vega is a chemical engineer,
with special expertise in
l_×hcha(B_al[^o[n_^
from the Universidad
Central del Ecuador, and
went on to complete a
Master’s degree in Business
Administration with a
`i]omih×h[h]_&[nnb_
Instituto Centroamericano
de Administración de
Empresas (INCAE) in
Costa Rica. He has held a
number of management
and technical positions in
the petroleum industry,
including periods as
General Vice-President
of Petroecuador, Head
of Production at the
Mbombo×h^cCh^omnlc[f
Complex, Assistant
Manager of Operations
for Petroindustrial, and
Manager of Petrocomercial.
He has offered consultancy
services to the Ministry of
Non-Renewable Natural
Resources, the Presidency,
and the Directorate of
Petroecuador. In addition,
he has been involved in
major projects such as the
]ihmnlo]ncihi`nb_J[]‹×]i
[h^;g[tih[ml_×h_lc_m(
Petroecuador
is the public
company
responsible
for Ecuador's
downstream
petroleum sector
What is the role of Petroecuador in Ecuador’s efforts to
transform the energy and production matrices?
We play a key role within the
energy sector, as part of the decision-making process, and we
provide advice on the business
to the public authorities. Ecuador currently imports large
volumes of diesel for power
generation. Once projects like
the Pacific Refinery, in which
we also play a substantial role,
are on course, Ecuador will
become self-sufficient in diesel for its industrial needs. We
are also involved in efforts to
change consumption patterns
in terms of electricity and gas,
areas in which Petroecuador
also has several projects. We
also have close ties with other
economic sectors to better assess their fuel needs. Petroecuador not only produces fuels,
but also many other products
such as asphalt, an essential
element in the large infrastructure projects the country is set
to implement. Again, we have
close ties with public authorities and the relevant ministries
in order to better orientate our
projects and business activity
toward the main objectives of
the government.
What analysis has the company
made in terms of producing and
marketing alternative fuels such
as ethanol and biodiesel?
We have conducted technical
analyses and studies in order
to start biodiesel production.
Technically speaking, we are
ready to produce biodiesel,
but this is not a decision we
can take unilaterally, as it also
requires infrastructure such
as service stations, and the
vehicles need to be prepared
for this type of fuel. Currently, Ecuador produces palm
oil, which is transformed into
biodiesel, and so far there is
just one biodiesel producer in the country. However,
a tariff scheme has to be set
up. In the meantime, we already produce several types
of fuel such as fuel with ethanol. Over the final months
of 2014, we will be providing
this type of fuel to all of the
Guayaquil city area and we
plan to expand nationwide.
I should also note that for us
to fully cover the Ecuadorean territory with such fuels,
we require substantial sugar
cane production.
How has the restructuring of
Petroecuador made the compahsgil__`×]c_hn9
This restructuring, which also
involved Petroamazonas, took
place a year and a half ago. It
has been a positive decision
for both companies. Before,
there were two companies engaging in duplicate activities:
production and exploration.
The restructuring implied
greater efficiency and more
synergies. Petroamazonas has
increased production and we
have a stronger focus on the
activities we do, namely, refining, logistics, distribution, and
supply of hydrocarbons.
Biq cgjiln[hn cm nb_ J[]c×]
L_×h_lsjlid_]n`ilnb_h[ncih[f
economy?
Ecuador produces 550,000
bbl/d of crude oil and the
national refining capacity
only reaches 175,000 bbl/d.
The remaining production
is exported, and we import
industrialized products such
as diesel, gasoline, and LPG.
One should bear in mind that
the gap between exported
oil and imported products is
significant. We have a strong
dependence on fuel imports.
The Pacific Refinery will redress this situation, augmenting the economy and boosting development of the whole
country. This refinery will
also help us to improve the
quality of our fuels. It should
become fully operative within five years, as key steps have
been taken over the past few
months. Our company and
the country itself are making
large investments in infrastructure and other projects
such as the storage and transporting of LPG. We also have
ambitious projects regarding
the storage and handling of
diesel and gasoline, as well
as petrochemicals, including several key pipelines and
oil distribution centers. We
have invested in the latter areas over the past few years to
make our infrastructure more
efficient. We are also modernizing and making much more
efficient use of infrastructure
at the Esmeraldas Refinery.
At this facility investment is
exceeding $1 billion. 72
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
energetic
remedies
What differentiates Sertecpet in
an industry dominated by foreign players?
TBY talks to Eduardo
López Robayo,
President & CEO of
Sertecpet, on the
challenges of being
internationally
competitive, and
demonstrating
Ecuadorean expertise.
BIO
Eduardo López Robayo
holds a Bachelor’s degree
in Commercial Engineering
from Javeriana University of Ecuador. He also
graduated in Geology,
Mining, Petroleum, and
the Environment from the
Department of Engineering
at the Central University
of Ecuador, and studied
Management in Petroleum
Negotiations. A prestigious
][l__lchbcm×_f^b[m
included representing the
Presidency of the Republic
of Ecuador during liaison
with PETROECUADOR in
2003 and being a Presidential Advisor in Petroleum
matters in 2004. In the
same year he became Minister of Energy and Mines
of the Republic of Ecuador,
where his tenure ran until
2005. He was appointed to
his current post of International CEO and President
of Sertecpet Holdings S.A.
Ecuador, in 2010.
Sertecpet’s principle characteristic over its 23 years of
history is innovation; we have
developed technologies and
services that are patented
and internationally certified.
Additionally, the value our
company generates with its
products and services allows
us to stand apart. Our integrated solutions are efficient
and profitable, and today our
clients consider us partners,
rather than contractors. These
features have enabled us to
internationalize our services
and products, and are the basis of our success.
What challenges have you faced
as an Ecuadorean business expanding internationally?
Our company has operated
in the industry for the past
23 years; however, the real
technological and innovative
development of Sertecpet has
taken place over the past 14
years. It is not easy for a company from a small country to
sell its products and services
abroad, especially in our industry, which hosts large and
highly experienced players.
Our company has lowered
these barriers, confirming that
not only large countries and
multinationals create technology and generate value-added
for other companies. We have
demonstrated that Ecuadorean expertise is as valuable as
any other, registering our own
R&D advances. We have always had a clear market niche;
mature and low production
oil fields, where our solutions
boost efficiency and competitiveness. For example, we
have taken 15 closed fields
from PEMEX to a current production level of around 6,700
bbl/day.
Initially, we focused our strategic plan on the Middle East,
but socio-political turbulence
prompted a shift to the American continent, today our key
focus. Our aim is to consolidate regional operations from
Alaska to Patagonia by 2020.
We also plan to widen our area
of activity to both non-renewable and renewable energy.
Overall, we have a more global
and integrated strategic plan
for the near future based,
again, on our know-how,
technologies, and capacity to
reach new levels.
How can Ecuador sustain its
impressive social and economic
development?
I believe that the public and
private sectors, as well as
the education sector—with
emphasis on tertiary education—should together analyze
national needs for the public
good. I think this is essential
to achieving the much desired
change in the production
matrix—establishing the role
of each sector in the process.
Sertecpet is an exemplar in
terms of commitment to R&D
and innovation, underpinned
by an Ecuadorean workforce
and registering great success
abroad. Today, we are talking
about an organization of 1,800
staff, which makes a tangible
economic contribution.
Sertecpet
is an Ecuadorean
oil and gas
technology
company present
in 19 countries
What is your outlook for the energy sector?
Ecuador has a suitable regulatory framework and the resources to boost the development of solar energy projects
over the coming years; it also
has the potential to double
current production figures,
and will increase hydro-electric energy generation in the
short term through ongoing
projects. Overall, the country is well placed to become
a regional energy exporter.
Ongoing energy projects will
reduce costs and boost industrial competitiveness. In this
context, Sertecpet has quite
a role to play in Ecuador, but
also regionally. We will continue investing in R&D and
rely on innovation to generate
value-added, forging strategic
alliances with local and foreign players, and contributing
to the development of Ecuador and any other market we
operate in. Having said that,
our goal is to consolidate our
activities on the entire American continent, requiring important changes to include
corporate governance and
listing requirements. Energy
THEBUSINESSYEAR
73
REFINERY OF THE PACIFIC FOCUS
CHINA’S EMERGENCE as the largest
outside investor in Ecuador’s oil sector has
positive and negative implications. A group
of Chinese banks, led by the Industrial and
Commercial Bank of China disbursed $2 billion in loans in mid-2014, with another $7
billion expected to follow. These loans will go
towards the construction of the Pacific Refinery, which is expected to cost around $13 billion upon completion in 2017. The size of the
current deal is a dramatic increase from the
initial projections of $5 billion that President
Correa put forth in 2007. Oil is Ecuador’s main
export, and revenues from oil sales finance
about 35% of government spending. As part of
the financing deal, China National Petroleum
Corp. will assume a 30% stake in the project,
and Petróleos de Venezuela will reduce its
holding to 19% from 49%. Petroecuador will
retain a 51% stake. However, the ecological
implications of the deal have alarmed activists who have warned that Chinese funding is
linked to extraction from the Ishpingo, Tambococha, and Tiputini Fields under the Yasuni
National Park.
Upon completion, the Pacific Refinery is
expected to process 300,000 barrels per day
(bbl/d), as well as Venezuelan oil from the
Orinoco Oil Belt, or around 16% of Venezuelan crude output. Plans are to use 17% Orient
crude, 66.5% Napo crude, and 16.5% Venezuelan crude; however, Venezuelan crude could
increase if necessary. The refinery, located in
Manabí, takes up 500 hectares, in addition to
a buffer zone of 3,300 hectares that surrounds
the refinery. Currently, Ecuador spends
around $3 billion a year importing oil-derived
products despite the fact that it is an oil producing country. The facility will change this
by processing crude oil into petroleum derivatives including high and low octane fuels,
diesel, lubricants, polypropylene, benzene, xylene, and alcohol. The refinery is also expected
to employ 1,300 workers when it comes online,
not to mention the 20,000 workers involved in
the construction of the plant.
With over $9 billion in Chinese loans, the Pacific Refinery
has widespread political and economic implications.
WHAT LIES
BENEATH
As part of the
×h[h]cha^_[f&=bch[
National Petroleum
Corp. will assume
a 30% stake in the
project, and Petróleos
de Venezuela will
reduce its holding to
19% from 49%.
The Pacific Refinery will replace the Esmeraldas Refinery as the largest refinery in
the country. The Esmeraldas Refinery has a
110,000 bb/d capacity. The refinery also recently underwent an overhaul, including a
renovation to achieve greater energy efficiency, at a cost of $750 million, as well as an upgrade using high-quality, low-sulfur content
products, at a price tag of $600 million.
While the refinery will eliminate Ecuador’s
reliance on imported oil-derived products,
observers worry that the financing deal will increase the country’s reliance on a single creditor. The deal requires that the bulk of Ecuador’s output be sold to China, which reduces
the maneuvering options of Ecuador in the
event of a decrease in oil prices, or a downturn
in the Chinese economy. Others point to the
link between the financing deal, and decisions
to exploit highly sensitive ecological areas.
And while the Chinese stress their commitment to harmonious development of the local economy, environment, and community
when operating abroad, environmentalists are
not convinced. In addition the region is home
to two indigenous groups that live in voluntary
isolation, which raises concerns about disruption by operations. Ultimately, Ecuador’s
options were limited given the size of funding required. Bismarck Andrade, the General
Manager of the refinery assured TBY that Ecuador has strict environmental regulations in
place to prevent the kind of degradation that
worries environmentalists. In addition, close
attention from environmentalists should help
keep the industry in check.
Following the completion of the Pacific Refinery, and other upgrade projects under way
at the country’s other refineries, Ecuador’s
total refining capacity will reach approximately 500,000 bbl/d. Around 45% of this
output is expected to supply the domestic
market with transportation fuels and petrochemical feedstock, and China will absorb
most of the remainder. 74
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
black
GOLD
TBY talks to Bismarck Andrade González, General Manager
of Refinería del Pacífico on the developing petrochemical
industry in Ecuador, and the importance of the sector for
both local and national development.
What would you say is the importance of the Pa]c×]L_×h_ls[m[jlid_]n`il?]o[^ilÎm_]ihigs9
The Pacific Refinery is the largest project in
the history of Ecuador. The purpose of it is to
meet the internal demand for hydrocarbons
in Ecuador and export the extra. By doing this,
the country will be saving over $4 billion that it
now has to spend or invest in the importation
of these products. The refinery will also provide
some basic petrochemicals, which will trigger
the development of the petrochemical industry
in Ecuador, contributing through this aspect of
the project to a change in the productive matrix. The petrochemicals scheduled for production around the refinery will be vital for the national economy.
We are also constructing a modern
school for the neighboring community
of El Aromo. We have thus far
invested over $13 million, and have
committed around $40 million
mj_]c×][ffs`ilnb_j_ijf_[lioh^
nb_J[]c×]L_×h_ls(?hpclihg_hn[f
regulations in Ecuador are stringent
and we have all the requisite licenses
already in hand.
$10 billion. We are now working on the preparation of the shareholder’s agreement, which
will be Petroecuador with a 51% stake, CNPC
with 30%, and PDVSA with 19%.
What is the current timeline for project completion?
In June of 2013, a framework agreement was
signed between the government of Ecuador
and China National Petroleum Corporation
(CNPC), one of China’s largest oil concerns, and
the Industrial and Commercial Bank of China
(ICBC), the largest bank in China and one of
the most important worldwide. This framework
agreement indicates that the refinery was originally set for the production of 300,000 barrels
per day (bbl/d), and is to be constructed in two
phases: one of 200,000 bbl/d and one of 100 000
bbl/d. A feasibility study has already been conducted for the 200 000 bbl/d phase. At the moment, we are at the final stages of concluding
the financing for 70% of the project cost with
ICBC. The project is estimated to cost around
What makes Chinese companies sound partners
in this venture?
The Chinese were willing to finance a project
on this scale. Another important consideration
was that the refinery specifications are internationally compatible with specific nations, and
the licenses for the refinery are all American or
European. Therefore, the refinery will be constructed with cutting-edge technologies. We
will produce products that meet strict Euro 5
specifications. We will also contribute to the
welfare of the people around the project because with the construction of the refinery, at
the peak of construction we will employ over
20,000 workers. With the operation of the refinery we will employ around 1,300 workers.
BIO
Bismarck Andrade
González studied at the
Faculty of Distillation,
M_j[l[ncih&[h^L_×h_ls
Technology in the Institute
of Petroleum, Gas, and
Geology in Bucharest,
Romania. In addition, he
received a Bachelor’s degree from the University of
nb_J[]c×]ch=[fc`ilhc[&OM(
Following studies, he went
on to represent Ecuador in
the Economic Commission
of OPEC in Vienna and to
work for the Corporación
Estatal Petrolera Ecuatoriana (CEPE). Later, he held
positions with Petroecuador
as Manager of International Trade, and with the Ministry of Energy and Mines
in an advisory role. Most
recently, he has worked as
International Director of
the Ministry of Non-Renewable Natural Resources,
and as Technical Manager
i`nb_J[]c×]L_×h_ls?fis
Alfaro RDP-CEM.
Energy
Biq^isiom__nb_l_×h_ls^_p_fijchanb_j_nrochemical industry in Ecuador?
We will be providing the basic petrochemicals.
Around the refinery, the government is implementing a Special Development and Economic
Zone with the aim of attracting national and international companies to develop petrochemicals and pharmaceuticals. This will take the
form of an industrial park, and the setting will
provide the basic supplies for these companies,
such as water and telephone communications.
Companies will benefit from tax exemptions
and ultimately the city of Manta and the province of Manabí will get a lot from this project.
With $40 million commited to
mi]c[fjlid_]nm&nb_l_×h_lscm
changing local communities
What is being done to meet the human capital
challenge that comes with developing such a
high-technology project?
This is something that we have to do as the
project leaders. We have to establish the workforce, by talking to the universities, firstly the
local institutions, and then on a national level
to source the skilled workers that will ultimately
operate the refinery. We still have time for this,
and are already taking care of the matter.
The petrochemicals produced at
nb_l_×h_lsqcff\_]lo]c[f`ilnb_
national economy
Biqqcffnb_l_×h_ls]ihnlc\on_nifi][f^_p_fijment in Manabí?
We have been working solidly toward this,
investing in social projects related to the refinery with the local communities. We have
already supplied potable water to some of
these communities, and are in the process
of finalizing two health centers. We are also
constructing a modern school for the neighboring community of El Aromo. We have thus
far invested over $13 million, and have committed around $40 million specifically for the
people around the Pacific Refinery. Environmental regulations in Ecuador are stringent
and we have all the requisite licenses already
in hand. We are diligently implementing the
terms of the license. THEBUSINESSYEAR
75
žJlid_]n_^
capacity of
300,000 bbl/d
žNi_gjfisip_l
20,000 workers in
construction and
1,300 workers
during operation
žJlid_]ncm
jointly run by
Petroecuador,
CNPC, and PDVSA
76
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to Danilo Diego X.
Moreno Oleas, General Manager
of EP FLOPEC on the strategic role
of hydrocarbons, international
expansion, and transforming
Ecuador’s energy matrix.
national
TREASURE
BIO
How has EP FLOPEC’s role in the economy developed over the years?
EP FLOPEC has transported hydrocarbons
overseas to and from Ecuador. Considering
that Ecuador’s key export product is petroleum, EP FLOPEC has an important role in
that strategic sector. At the beginning, we ensured that the oil shipping companies fulfiled
the Ecuadorean regulations by controlling
the suitability and technical conditions of
the vessels. Subsequently, we were granted
the exclusive right to transport hydrocarbons
to and from Ecuador. In the Pacific, Ecuador
is the largest petroleum producer exporting
mainly to the Americas, but also to Asia and
Europe. EP FLOPEC has expanded over the
years to keep up with Ecuadorean petroleum
production, purchasing and leasing additional
vessels. In accordance with our strategic planning, EP FLOPEC has taken responsibility for
100% of hydrocarbons transportation, both in
terms of exports and imports, until 2017. One
of the major consequences of this has been the
need to grow the fleet; therefore, EP FLOPEC
continues in the process of developing commercial agreements with other companies to
expand the capacity and efficiency of the company. Often, our ships make the return journey to Ecuador empty, and so today to ramp
up efficiency we are combining the cargoes of
various companies.
Danilo Diego X. Moreno
Oleas studied business administration and economic
science in Marseille and
Nice, France, before going
on to complete studies at
the Universidad Católica
del Ecuador. In addition, he
earned an MBA in Business
Administration with a major
in Finance from the University of San Diego. Following
this, he held a range of
×h[h]c[f[h^g[h[a_lcal positions throughout
the 1990s for a range of
companies, including Cigna
International Insurance
Company, Ecuasanitas SA,
and UNICEF. From 2000
to 2005, he worked as a
consultant with the UN
Development Programme
(UNDP) and for various oth_ljo\fc][h^jlcp[n_×lgm(
Prior to his current position,
he served as General Manager of Jardines Santa Fe in
Mexico and then Cementos
Chimborazo in Ecuador.
How do you see the company developing looking
ahead?
EP FLOPEC’s main responsibility is to transport 100% of Ecuador’s crude exports, as well
as its imports of refined petroleum products.
As new projects occur a potential market is in
process to transport clean petroleum products
into Ecuador. EP FLOPEC is open to participate in other sectors too, for example when
the mining industry begins to expand in Ecuador, we can also transport mining products.
Actually, EP FLOPEC increased its participation in the regional market, not only with Ecuadorean products, but also with those of the
region. The goal is to have a strong position
in that market in the coming years. Currently,
we already operate mainly in Panama, the US,
Chile, Peru, and Colombia. Those countries
require maritime transportation in tankers,
so we are looking to reach an agreement to
undertake this on their behalf. We also have
business with Mexico, Canada, and others, for
which we have commercial relationships with
a range of companies.
What are the challenges of expanding internationally?
EP FLOPEC has operated in the market for over
40 years and we provide a reliable and first
class service to our customers. Our challenges are to develop commercial agreements and
Energy
EP FLOPEC
žcm[mn[n_iqh
company with the
exclusive right
to export and
import petroleum
products from
Ecuador by ship
žbij_mniqile
with the local
mining sector
once it develops
strategic alliances with specific companies to
increase our participation, and provide an adequate price structure to our potential partners.
We are focusing on new segments to attend the
large petroleum companies’ needs, considering an adequate portfolio with own, leased and
associate vessels. Finally, we are constantly
committed to keep all ships well maintained,
providing experienced and well trained crews,
and keeping onshore personnel with high standards of service.
THEBUSINESSYEAR
77
EP FLOPEC’s main responsibility is
to transport 100% of Ecuador’s crude
exports, as well as its imports of
l_×h_^j_nlif_ogjli^o]nm(;mh_q
projects occur a potential market is in
process to transport clean petroleum
products into Ecuador.
Why is it important for Ecuador to have a public
company playing this role?
For Ecuador, hydrocarbons constitute a strategic commodity and EP FLOPEC’s role falls on
the expeditious and appropriate fleet to lift the
oil in a secure and timely manner. To achieve
this purpose, we have a law which allows State
companies to provide the maritime transportation of hydrocarbons. Many countries in the
world have the same regulations restricting
maritime transportation. In the US for example, they have the Jones Act, which states that
only ships built and owned by US companies,
can move cargo within US ports. EP FLOPEC
supports the local maritime industry, hiring Ecuadorean officers and crew on board our own
ships, creating extensive jobs either on board
and shore, such as agency services, husbandry or on ship chandler services. In addition, by
the end of this decade, Ecuador is planning to
develop a modern shipyard to build new tankers. EP FLOPEC will be the first secured and
important customer in a position to put future orders on about 20 aframax tankers over
the five first years. We will also engage in the
maintenance of current and new ships. In this
way, our company will support one of the new
government projects with a strong impact on
the economy, creating thousands of new jobs
along the commercial and production chain.
Biq^isiom__nb_J[]c×]L_×h_ls]b[hacha?J
FLOPEC’s role in the economy?
The new refinery is going to change the energy matrix in Ecuador, shifting our historical
trend of oil exporters and product importers
to be self-producers of clean products. This
refinery will create a petrochemical industry
and new opportunities to operate different
sizes of ships in order to transport a diverse
range of products.
What role does EP FLOPEC play in Ecuador’s efforts
to change the productive and energy matrices?
I think there are considerable opportunities
to take advantage for EP FLOPEC. First of all,
we will continue transporting all hydrocarbon
requirements to and from Ecuador, in accordance with the new energy matrix and effects
of the Pacific Refinery. We also have the opportunity to develop the Ecuadorean maritime industry by the support in the new shipyard. We
are going to invest more than $400 million in
this project and we are going to put orders for
about 20 Aframax tankers. As per above, we are
involved in the shift to make Ecuador an industrialized country, instead of a historically agricultural country.
What is your vision for EP FLOPEC within Latin
America and within Ecuador in 10 years’ time?
Now we have the opportunity to expand our
goals, not only attending to our domestic
needs, but also to take advantage of the market and increase our participation. Our vision
consists of attending to 100% of the Ecuadorean market and holding 25% of the regional
market; and leading tanker transportation in
the Pacific basin in the next 10 years. The expansion plan also takes into account the diversification of services, such as into some port
agency, oil storage facilities, and additional
logistic operational businesses along the maritime transportation chain. 78
THEBUSINESSYEAR
ECUADOR 2014
FOCUS RENEWABLES
WATER WAY
to go
ECUADOR HAS LONG BEEN an oil country, both in production and consumption
terms, with 76% of the energy consumed in the
country coming from petroleum and 4% from
natural gas. However, the government has set
new plans in motion to redefine the electricity
production matrix, which could make it one of
the most green countries in the world when it
comes to electricity.
When it comes to power, hydro is the crown
prince waiting to be king. The government announced in March 2014 that by 2016 approximately 90% of the country’s electricity will
come from hydroelectric power plants. The
bulk of this will come from eight hydroelectric
megaprojects, which include the Coca Coda
Sinclair, Cardenillo, Sopladora, and Minas-San
Francisco. The government even hopes that
it will be able to export surplus electricity to
neighboring countries. Currently, hydroelectric accounts for around 50% of Ecuador’s electricity generation and it produced 11 billion
kWh in 2011. At the moment, the largest plant is
located in Azuay province. Paute-Molino is the
country’s single largest complex with a capacity
of 1.1 GW, one-fifth of the total capacity of the
country at 5.3 GW. However, there are six more
mega-hydro plants on the way, with Coca Coda
Sinclair the largest with a predicted capacity of
1.5 GW alone. “Coca Coda is of national interest for Ecuador to help solve its energy problems. Out of the eight hydroelectricity projects
The age of
hydrocarbons for
electricity production
in Ecuador is coming
to an end, with hydro
set to take center stage
in a new drive by the
government.
underway in Ecuador at the moment, Coca
Coda Sinclair is the most important,” Cai Runguo, Senior Advisor of Sinohydro, explained
to TBY in an interview. The project has been
underway for four years, and while it has run
into a couple of problems during construction,
the plant is expected to come online in 2016.
It is hoped that once more hydropower plants
come on stream, the price of electricity will fall,
which could have an environmental impact
on the country. “We are hoping to encourage
Ecuadorean families to switch to using electric
cookers to promote cleaner, cheaper electricity
usage. As a result, the project not only has an
economic significance for the country, but also
an environmental one,” Runguo explained.
With the introduction of cheaper electricity, it
is also hoped that more rural areas will be able
to connect to the grid. Currently, nearly 8% of
the population, who mostly live in rural areas,
are without electricity.
Due to Ecuador being a tropical country,
hydro is a logical step for its electricity production matrix due to the country’s high amount
of rainfall in the right areas. However, the government does not wish to put all its eggs in
one basket and is investigating the possibility of wind power as well. In March 2013, the
government studied the landscape of Ecuador
and found that it has a potential to produce
884 MW of wind energy. The greatest potential was along the western edge of the Andean
spine at high altitudes. The province of Loja
was also pinpointed as a high potential area
with a possible capacity of 520 MW identified.
The province was actually home to the first onshore utility wind farm, which produces 16.5
MW in the Vilonace development. The site is
2,700 meters above sea level and came online
in January 2013. CAI RUNGUO
Senior Advisor, Sinohydro
What is the current status of the Coca Codo
Sinclair project?
This is a corner stone project for Ecuador, which is
why we have had strong support from the government. Right now, there are around 1,000 Chinese
workers and 5,000 Ecuadorean workers on site, because at the moment we are at the peak of the work
for the project. Starting from 2015, we will begin
reducing the number of workers, assuming we can
continue on schedule. This project is of national interest for Ecuador to help solve its energy problems.
Right now, Ecuador needs to import energy to satisfy
the demand. This project will radically change the
situation. Out of the eight hydroelectric projects
underway in Ecuador, Coca Codo Sinclair is the most
important. The plan is that by 2016, Ecuador will
b[p_mo`×]c_hn_h_lasnihinihfsg__n^ig_mnc]^_-
mand, but to also be an energy exporter. As a result,
nb_jlid_]nhinihfsb[m_]ihigc]mcahc×][h]_`il
nb_]iohnls&\on[fmi[h_hpclihg_hn[fmcahc×][h]_(
Ecuador has a plan to change its economic matrix,
and energy is an important part of this.
Sinohydro is the 20th largest contractor in the
qilf^(Qb[ncmnb_mcahc×][h]_i`?]o[^il`ilnb_
company globally?
Sinohydro has more than 400 projects around the
world. However, Coca Codo Sinclair is the most important project for us outside of China. Furthermore,
South America is an important new market for us.
We have a large presence in Africa and Asia, but we
still have very few projects in Latin America. This
project is a way for us to introduce Sinohydro to the
Latin American market.
Energy
THEBUSINESSYEAR
79
INTERVIEW
How has the Ministry of Electricity and Renewable Energy contributed to the transformation of
Ecuador’s energy matrix since
its founding in 2007?
all
FIRED
up
TBY talks to HE
Esteban Albornoz
Vintimilla, Minister
of Electricity and
Renewable Energy,
on the energy matrix,
power consumption,
and the use of
renewables.
Before 2007, there was no
Ministry of Electricity and Renewable Energy in Ecuador to
regulate this strategic sector
of the economy. As a result,
prior to 2007, the energy sector had experienced a number
of complications, and in fact,
was on the verge of collapse as
a result of inadequate investment. This was exacerbated
by the fact that a move toward
privatizing the sector was
hamstrung by legal uncertainties and internal complications. Therefore, in 2007, the
Ministry was created to spearhead sector recovery and
growth, which since then has
been pronounced. In 2009, we
saw a few problems in terms
of poor supply, but those were
basically related to the prior
lack of investment. Starting
in 2007, we set out a plan to
swiftly reinvigorate the sector.
The first idea was to take advantage of the country’s huge
water potential, which is why
we conducted studies to build
hydroelectric projects. Currently, Ecuador has eight large
hydroelectric projects under
development. At the same
time as we developed these
projects, it was necessary to
invest in conventional thermal power generation using
national fossil fuel reserves.
Previously, thermal power
generation had used imported
fuels. We have developed nine
thermal plants, with around
600 MW of capacity, as well
as four hydroelectric plants of
around 460 MW of capacity,
in addition to the eight under
construction. Finally, we have
taken the important, symbolic step of developing a wind
farm with a 16.5-MW capacity.
Overall, we have achieved an
increase of almost 1,100 MW
in capacity over a very short
period of time.
IN NUMBERS
Ecuador
Plans to generate
93%
of its energy from
renewable sources
by 2016
What is the status of power consumption in the country’s energy strategy?
We have also been focused on
improving efficiency in power
consumption since 2007. The
main segment of energy consumption in Ecuador is domestic; 35% of electricity consumed is residential, and this
is where we have focused our
attention. The first program
involved the replacement of
incandescent bulbs with compact florescent lamps and energy saving light bulbs. Today,
incandescent light bulbs are
no longer available in Ecuador
as all bulbs are fluorescent.
This is a high-impact project that involves a ban on the
importation of incandescent
lamps, which is key to managing energy consumption.
We have another ambitious project geared at getting people to use electricity
for cooking instead of LPG,
whereby the public would be
both washing and cooking using renewable, domestically
generated electricity. We are
also working to replace inefficient refrigerators; we plan to
replace 330,000 refrigerators
in Ecuador. Finally, the other
major axis has been to restore
and strengthen the management of electricity companies’
distribution and transmission
systems. We have had problems in this area, especially
relating to network losses and
low revenue collection, and
we have worked hard and we
can now safely say that one
of the great achievements of
the national government has
been the reduction of loss.
When the government took
office, the loss of electric power was above 22%, but with
the efforts we have made
the loss rate is now at 12.6%,
and many international eyes
are looking at what we have
achieved in just a short period of time. Ecuador saves
$20 million per year for each
percentage point of reduction, which means that the
country has saved hundreds
of millions of dollars in lost
electricity. We have substantially improved the issue of
collection as well; we formerly
had a recovery rate of 93% and
now are at 98% or 99%. That’s
a more complex issue because
the electrical distribution networks are very large and we
have improved the quality of
service. That is why we have
worked throughout the electrical industry chain, meaning
generation, distribution, and
transmission, but also in energy efficiency. BIO
Esteban Albornoz
Vintimilla was born in
Cuenca in 1967, and has
an undergraduate degree
in electrical engineering as
well as a doctorate from
the University of San Juan
in Argentina. He has been
a professor at Universidad
de Cuenca and Universidad
Politécnica Salesiana and
also served as manager of
the Corporación Eléctrica
del Ecuaodor (CELEC) and
President of the Colegio
de Ingenieros Eléctricos y
Electrónicos del Ecuador.
80
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
PRODUCE & RENEW
TBY talks to Eduardo Barredo Heinert, General Manager of Corporación
Eléctrica del Ecuador (CELEC EP), on geothermal power, renewable
energy, and energy independence.
BIO
Carlos Eduardo Barredo
Heinert was born in
Guayaquil and studied
at the Escuela Superior
Politécnica del Litoral and
completed graduate studies
in the Escuela de PostGrado de Administractión
de Empresas (ESPOL).
Additional education has
included courses at INCAE,
ESPOL, and INECEL, and
he has attended a number
of prominent conferences
run by the Presidency,
OLADE, ACCE, and
CIER. A varied career in
management has included
positions in INECEL,
and DEMAC during the
1970s, EMELRÍOS and
EMELGUR over the course
of the 1980s and 1990s,
and additional executive
management positions in
TRANSELECTRIC, CNEL,
and CELEC EP over the
past 15 years. He has also
served as a member of
the boards of ECUACIER,
HIDROPASTAZA,
CONELEC, and CENACE.
What are the primary strengths of Ecuador’s energy matrix?
Ecuador has remarkable hydroelectric resources, which are of primary importance for
the national matrix. The other energy resource
is gas; either LPG or the natural gas from the
coasts of Ecuador, Peru, or Monteverde. Fuel
oil will be substituted by that gas and the energy produced by hydroelectric power. Meanwhile, another component of the energy mix is
geothermal power.
We need to increase the share of
electricity generation in the entire
energy sector from 15% to 40%,
which means cutting down on
the share of energy required for
transportation. Currently, the share
used in the transportation sector is
about 75% of total energy production.
Do you see much potential for geothermal power
in Ecuador?
Definitely, and in fact the company is considering geothermal energy and has already initiated studies that have identified a number
of prospects. CELEC EP is focusing its efforts
on the development of four specific prospects,
one located on the border with Colombia, and
we expect to establish facilities with a total capacity of over 500 MW. This will bring us closer in scale to some of the largest geothermal
power producers. In El Salvador for example,
geothermal power represents 25% of total
electricity production. We intend for geothermal power to meet around 10% of Ecuador’s
requirements.
When we met with the Minister of Electricity he
stated that Ecuador’s goal was to raise the renewable energy component in total power production to 93% by 2016. What strategies are in
place to achieve this goal?
These are the numbers for hydro energy, and
to date, there are eight hydroelectric projects
in operation. CELEC EP has seven of them,
and Coca has one. The total capacity of these
projects exceeds domestic demand. We may
be able to export this energy as a result. Currently, we are making arrangements for other projects. For example, the largest current
project is the Coca Codo Sinclair Hydroelectric Project, with a planned capacity of 1,500
MW. We are now making arrangements for
another hydroelectric project with even more
impressive capacity of 6,000 MW. We have two
projects in Zamora and Santiago, one at 3,600
MW and the other at 2,400 MW. In 2015, we
will start the construction process, and when
we talk about capacity, it is important to note
that hydroelectric energy is not stationary, but
variable. Sometimes, we may need to produce
a certain amount of power by gas, or to import
power from Peru or Colombia. We may be able
to export power, but the fundamental idea is
not to use oil to produce power.
Energy
CELEC EP
is the public
company
responsible
for electricity
generation and
transmission in
Ecuador
Hydroelectric generation is set
to contribute thousands of MW to
Ecuador's energy grid
THEBUSINESSYEAR
81
What contribution is CELEC EP making toward
achieving energy independence?
CELEC EP is an executive arm of the government. The minister decides on the policies
to be implemented by the sector and on the
timeframe, and CELEC EP works to achieve
these. We set up, operate and, eventually, contract private companies. For example, in Mexico, the Federal Electricity Commission (CFE)
is the only company in the country holding
complete control of the generation, transmission, and distribution of power. However,
CFE contracts quite a few private companies
for the construction of its facilities and operations. CELEC EP utilizes a similar business
model in the execution of these objectives. It
is important to understand that the production and energy matrices are part of the same
system. Within the productive matrix is the
energy matrix, and within that is the electricity
matrix, while within that in turn is hydroelectric power. When we say that we are increasing hydroelectric power to 93% of the total, it
should be understood within this framework.
If the productive matrix grows, and the energy and electricity matrices grow in turn, then
New energy investments will
eliminate Ecuador's reliance on
imported energy products
93% is proportionally greater than what it was
before. We need to increase the share of electricity generation in the entire energy sector
from 15% to 40%, which means cutting down
on the share of energy required for transportation. Currently, the share used in the transportation sector is about 75% of total energy
production. THEBUSINESSYEAR
87
92
98
Richard Espinosa Guzmán,
Coordinating Minister of Production,
Employment, and Competitiveness,
on promoting inclusiveness.
Ecuador is moving toward a
more complex production system
based on human resources and
technology.
Large gold deposits in Ecuador
await sufficient expertise and
foreign investment.
83
Industry & Mining
REVIEW INDUSTRY
Import substitution is opening up Ecuador’s market to local producers,
and playing a crucial role in changing the production matrix.
TURNING THE SCREW
F
or Ecuador to
change its productive outlay to
a more complex
system based on human resources and technology, its
manufacturing sector will
need to grow. This in turn will
require the opening of new
markets, which may prove
complicated given the defensive nature of Resolution
116, which restricts imports
on 293 items in an effort to
prevent capital flight, while
reducing the country’s reliance on foreign imports that
can be produced locally. In
2012, measures were passed
to reduce the import of foreign cars by 30%, abolish
mobile phone imports, and
institute a slew of other protective measures, much to
the chagrin of the country’s
trading partners. And while
these changes have many
business owners expressing
concern, the changes are a
crucial part of President Correa’s plans to stimulate manufacturing in the country.
With oil prices far below their
2008 peak, local manufacturing could shave billions from
Image: GM Omnibus BB
The manufacturing sector represents
one the key sectors targeted for
economic development, with the
auto industry playing a major role in
promoting a higher level of value-added
and diversity.
Ecuador’s trade deficit over
the years. This revival will not
happen overnight, however,
as the manufacturing sector’s recent contributions to
GDP growth have been limited. In 2011-2012, most of the
country’s growth was driven
by the utility industries and
construction sectors. During
this same period, the manufacturing sector contributed only 7% to total growth.
Building on manufacturing’s
importance for economic
growth and stability, the government’s policy focuses on
expanding domestic supply
capacity to correct Ecuador’s
lopsided productive outlay.
The successful implementation of industrial policy
should strengthen supply,
and raise demand due to an
increased income from higher-value labor.
BURN RUBBER
For many industrializing nations, automobile assembly
or manufacturing plays a crucial role due to the number
and complexity of components required. Given Ecuador’s tight import restrictions
84
THEBUSINESSYEAR
ECUADOR 2014
and pro-manufacturing stance, an indigenous
car industry could bolster growth across the
sector. In addition, an established car culture
could spur the growth of related financial,
service, and leisure industries. However, this
scenario is predicated on access to a large
enough market, sufficient investment, and
the presence of skilled workers and engineers.
According to some in the Ministry of Production, this scenario is not only possible but also
imminent. The country already has local auto
manufacturing capabilities with the capacity
to produce 80,000 units per year, as of 2013.
The car manufacturing landscape is further
broken down into three major players: Aymesa, which assembles for the likes of Hyundai;
Maresa, which works with Mack, Fiat, Mitsubishi, Ford, Toyota, and Mazda, in a wide variety
of models; and Omnibus BB, which produces
for GM and Chevrolet. In 2013, car sales fell by
6% to 113,812 units, but of these sales, 55,509
were assembled domestically from completely knocked down (CKD) kits, according to the
Asociación de Empresas Automotrices del Ecuador. However, the Economist Intelligence
Unit expects these numbers to pick up again
in 2014-2015. Production from Ecuador’s four
assembly plants, which hit a record high of
81,398 units in 2012, fell 16% in 2013.
In 2012, Ecuador exported $265 million
worth of delivery trucks, and GM has a facility
in Quito that assembles vehicles for the local,
and export market. Speaking to TBY, Fernando Agudelo of GM Ecuador explained that in
2014, GM would complete the final expansion
stage of their manufacturing and assembly facilities, where a $70 million budget has been
allocated over three years to boost produc-
Textiles have long been a stable
aspect of the industrial sector
tivity and quality, develop new products, and
attract investors to the auto parts segment.
As part of this initiative, GM is increasing the
production of local parts, including axles and
drive shafts, but local industry is not yet at the
level required to meet the demand for newcar sales. However, GM is no longer alone in
the national market place. Hyundai’s mid-size
Mighty truck was launched into CKD-based
production in April 2012 at the Aymesa plant
near Quito. The plant is expected to reach production of 3,500 units this year. The trucks will
also be sold in neighboring Venezuela, and
production is slated to expand to 8,000 units
by 2017. As well, the Great Wall company from
China is also looking to start CKD production
in Ecuador over 2014.
HELLO, IT’S ME
With Resolution 67 of 2012, the Ecuadorean
market is effectively closed to imports of most
mobile phones, which has opened up space
for domestic manufacturing. In 2014, Yezz unveiled the first smartphone manufactured in
Ecuador. The Andy 3.5 is a 3.5-inch phone that
runs on the Android operating system. The
Andy 3.5 boasts up to 1 Gb of memory, a 5 mega-pixel rear camera and a 2 mega-pixel frontend camera, all for around $200. The phones
are made at the Ecuadorean Development
and Electronic Manufacturers (DMEE) facility in the industrial sector of Carcelén. While
current capacity is limited to 35,000 units per
month, the goal is to reach 70,000. According
to El Commercio, Yezz phones are produced
using 13% local components, while lower end
phones are comprised of up to 24% local parts.
With the Andy 4 and Andy 5 expected to start
LETICIA
MACÍAS
ZAMBRANO
General Manager,
Almacenes La
Ganga
The country has enjoyed
positive economic
expansion over the last
decade, especially since
adopting the US dollar
as our currency. The
administration of President
Correa has pushed forward
the development of the
country over the last seven
years. Before dollarization,
our company underwent
a tough economic period
in which, for example,
we stopped imports and
had to reduce personnel.
However, we managed
not to close any of our
stores, and we were the
only chain keeping open
all of our stores. In the
next few years we doubled
the volume of sales and
expanded our business
activity.
86
THEBUSINESSYEAR
ECUADOR 2014
With Resolution 67 of 2012, the
Ecuadorean market is effectively
closed to imports of most mobile
phones, which has opened up space
for domestic manufacturing.
production by the end of 2014, up to $1 million more in investments is expected. While
Yezz is grabbing headlines, a total of six local
manufacturers are working to establish their
presence in the newly created national market. Lidenar manufactures phones and other
communications equipment. The company
has invested over $1 million and started operations in Cuenca, with 30 new employees
including graduates from the universities of
Azuay. As of late 2014, the plant was producing 15,000 units monthly at 30% capacity. Another Ecuadorean firm, Alphacell, opened a
plant in 2014 that will boost its output of lowend phones. This new venture is a departure
from the company’s previous line of business,
which previously focused on importing and
marketing. Developments at companies like
Alphacell seem to indicate that President Correa’s policies are receiving a response from the
business community.
GIRD YOUR LOINS
In 2012, Ecuador exported $156 million worth
of textiles, driven in large part by the country’s
proximity to major North and South American
markets. In Ecuador, the region of Atuntaqui
is renowned for its textile and garment production, where 80% of the region’s employment is tied to textile production. In 2013,
the government announced that it would
be investing $2.6 million to set up a Center
for Development of Textiles and Apparels at
Atuntaqui. The establishment of the center
is part of Ecuador’s efforts to strengthen the
technical capacity, productivity, efficiency,
and competitiveness of the country’s textile
and garment industry. The move is also a response to a steady decline in textile exports
since 2011. This decrease is reflected in jobs
numbers in the industry, which only grew
by 1%, to 123,044 in 2012, up from 121,850
direct workers in 2011. Meanwhile, imports
outpaced exports, which suggests room for
growth in domestic production. Beginning
with textile imports of around $400 million in
2009, imports have grown to $500 million in
2010, and $785 million in 2011. In 2012, however, textile imports dipped to $741 million in
conjunction with a dip in exports, and a reduction in the overall textile trade imbalance.
At the same time, Ecuador’s primary competitors are seeing their production costs rise. In
China, minimum-wage increases pushed up
labor costs by 5% to 15% in 2010. Meanwhile,
the Chinese government has set a target for
annual minimum wage increases of 13% until
2015. These numbers have led the Asociacion
de Industriales Textiles del Ecuador (AITE) to
call for more government spending to promote Ecuadorean products abroad through
ProEcuador or the Institute for the Promotion
of Exports and Investments. Using these organizations, and establishing more free trade
agreements (FTAs), Ecuador can capitalize
on its comparative advantage in textiles to increase employment and reduce its deficit. GUSTAVO
ORDÓÑEZ
TOBAR
General Manager,
Laboratorios
Cosméticos TARSIS
Our business activity covers the entire spectrum of
beauty, hygiene, and makeup products. I personally
believe that cosmetics and
makeup products have
over the years become
×lmn'h__^jli^o]nmchiol
society; we would include
toothpastes, shampoos,
shower gels, and all such
products within cosmetics.
I can say that consumer
\_b[pcilb[mmcahc×][hnfs
changed in Ecuador over
the last decade, as has the
sector itself. In general,
Ecuadorean society has
seen a change in the way
products are consumed.
What’s more, global trends
have also had their effect
on the Ecuadorean market;
people tend to buy more
bio and natural products
than before.
(PPEUIJOHTBMXBZTTUBSUBUIPNF
8IFOZPVSIPNFXPSLT
FWFSZUIJOHTXPSLT
Industry & Mining
THEBUSINESSYEAR
87
INTERVIEW
EVERYONE
involved
TBY talks to HE Richard Espinosa Guzmán, Coordinating
Minister of Production, Employment, and Competitiveness,
on the development of Ecuador’s production matrix.
What role has your Ministry played in Ecuador’s
economic development in recent years?
Ecuador’s economy is doing well right now—
you can see many new infrastructure projects such as roads, airports, and hydroelectric
plants being built across the country. By 2016,
we will have eight new electric plants operating in Ecuador thanks to the largest investment
ever made in the country’s history. The situation has changed so much that we even foresee
Ecuador exporting electricity to the region by
2016. Some seven years ago, many areas in the
country suffered from daily blackouts. The efforts of the public and private sectors to transform the energy system in the country have
made this possible. We plan to become one of
the leading producers of electricity in the world
by 2016, and 93% of this electricity will come
from hydroelectric plants. Also, it is important
to mention that we already started the tender
process for the first highway in Ecuador—the
Santo Domingo-Esmeraldas highway. Regarding airports, as many as 21 have been renovated. One such infrastructure project that we can
highlight is the Galápagos Airport, which is the
first airport in the world to be run completely
on renewable energy. On top of all this, we have
to praise the political stability the country has
attained over the last few years, because it has
made possible the implementation of all these
projects. We have also achieved the lowest unemployment rate in the history of the country, being one of the lowest in the region, too.
Ecuador currently experiences growth rates
above the average in the region, and we have
controlled inflation.
What role does the Production Code introduced by
this government play in its efforts to change the
production matrix in the country?
The 2008 Constitution brought in the new Production Code, a regulatory and legal framework
for productive industries in the Ecuadorean
economy, which has also boosted the diversi-
BIO
The Coordinating Minister
of Production, Employment,
and Competitiveness,
Richard Espinosa Guzmán
graduated in business administration and marketing
from San Francisco de
Quito University. During his
time in the public sector,
he has served as Coordinating Minister of Social
Development, Minister of
Labor Relations, National
Secretary of Human Resources Development and
Public Sector Remuneration, National Director of
Generational Change, and
National Coordinator of the
Ecuadorean Food Program
as part of the Ministry of
Social Wellbeing.
fication of the economy, the country’s export
profile, the value-added of those products
manufactured in Ecuador, and the inclusion
of the private sector in the country’s overall
productive chain. Investments such as the Pacific Refinery, as well as in productive areas
like metal and steel, energy, and shipbuilding,
are ongoing efforts to change the productive
matrix in the country. These have helped to
bring the public and private sectors in Ecuador
closer; there are over 400 companies that have
stated their interest and willingness to increase
production volumes and expand their export
profile to contribute to such strategic efforts.
There are both large- and medium-sized enterprises among these companies I mentioned.
For example, three years ago Nestlé made the
commitment to invest $450 million in Ecuador over five years. It wants to make Ecuador
its operational base for exporting a wide range
of local produce to other regional markets. We
have seen interest from many multinational
companies in establishing local production in
order to reduce imports. In the next few years,
we will also, for example, boost the consumption of ethanol as a fuel source for vehicles. To
that end, we plan to increase sugar cane production to 36,000 hectares across the country,
which will create increased job opportunities in
the agricultural sector.
How have you been working with the automotive
industry to boost local production?
We have been holding talks with many companies for this purpose, and we have seen interest
from foreign companies planning to establish
production operations in Ecuador. I believe
that over the next few years we will have many
more vehicles available in the market made
with parts that have been produced in Ecuador.
We want to increase efforts to introduce electric cars in Ecuador, and we have held talks with
companies like Nissan to take advantage of our
energy matrix and gradually incorporate electric vehicles into taxi fleets for example, as well
as encouraging private consumption among
the population. This first stage of a broader strategic plan would be followed by a second one in
which we would assemble electric batteries in
the country, and a third one in which we would
actually assemble entire electric vehicles in Ecuador. The implementation of the second and
third stages are subject to the success of the first
stage. There are many more projects we foresee
in this and other economic sectors over the
medium term that are envisaged to contribute
88
THEBUSINESSYEAR
ECUADOR 2014
Production lines are a much
more common sight in
Ecuador these days
to the reduction of imports and the increase
of exports in sectors and segments where the
country has strong potential. We have to keep
in mind that we are already a leading exporter
of cacao, bananas, shrimp, wood for rafts, and
many other products—most of them primary
products.
What role will innovation and projects such as
Yachay play in the future development of Ecuador?
Innovation will definitely play a major role, and
the City of Yachay project is an important step
toward the development of our R&D capabilities. We hope to see the project taking important steps forward during 2014, a year in which
we hope to attract investment to this area of
our economy by sharing risks with those willing to invest. This would be a way to show our
confidence and our conviction that what we do
will definitely succeed. The City of Yachay will
considerably improve our R&D and scientific
capacity in the near future; however, we expect
the project to contribute in particular to fields
such as nanotechnology and biotechnology. All
in all, these initiatives are aimed at transforming the economy of Ecuador and boosting local
production by generating greater value-added.
What are the challenges that still face Ecuador in
its efforts to transform the productive matrix?
The challenges are many; however, we have
started out on the right path. The experience of
the so-called Asian tigers in transforming their
own economies can be useful for Ecuador. We
are convinced that we will continue to attract
foreign investment into Ecuador, which should
be another key driver in this process. However,
as a challenge in this context, we have to make
sure that these foreign investors promote the
transfer of knowledge in their operations. Another challenge lies in ensuring that we properly reinvest the profits from Ecuador’s natural
resource wealth into the development of technology and human resources. We welcome all
foreign investors, and invite them to consider
the comprehensive list of incentives and the
clear legal framework we have in place for their
benefit. In this context, we are in a good position to become an entry point for Asian companies looking to expand into Latin America.
What role can SMEs play in the transformation of
the productive matrix?
SMEs already play a hugely important role in
our economy, and I believe this will only become more relevant in the near future. We have
always said that nobody will be left aside in the
transformation of the production matrix. In this
context, the government is trying to provide an
array of tools to aid their development. We are
working to strengthen the ties between SMEs
and the public sector in order to do this. Ecuador
is currently
working with
Nissan-Renault
on a project to
develop electric
cars in Ecuador
to help reduce
the country’s
dependency on
fossil fuels
Industry & Mining
THEBUSINESSYEAR
89
INTERVIEW
ecuadorean
SPICE
TBY talks to Wilson León Lee,
Executive President of Grupo
Öriental, on challenges of growing
an Ecuadorean food brand,
product innovation, exporting
internationally.
Why did you enter the food sector upon arriving in
Ecuador in 1975?
When I arrived in the town of Quevedo, I was
considering potential business opportunities. I
started working in a restaurant with a Chinese
partner, and I saw that Ecuadorean cuisine
uses color for the palate, such as sauces, but I
noticed that it was difficult to find soy sauces in
Ecuador. We had to import soy sauce and other
sauces from China. In the absence of choice, we
often ended up with products that were expensive but of low quality. I then realized that we
could have better sauces if we produced them
ourselves. Therefore, I started making a new
sauce condiment with my own recipes. This
unique sauce that I make is my own recipe,
unavailable anywhere else—including sauces
imported from China. The sauce is now known
in Ecuador as Oriental Chinese Sauce, but actually it is a sauce that is uniquely Ecuadorean,
not just because it is only made here using local
ingredients, it also has a different texture from
other soy sauce as it has a higher yield. I started
out selling my products to Chinese restaurants,
but because they were few in number at the
time, I began selling to stores and supermarkets as well. From there, we have continued
growing over the past 39 years. Now, because
of our sauce, Quevedo is known throughout Ecuador for its Chinese rice dish know as chaula-‐
fan,”and the main seasoning is prepared with
Oriental Chinese Sauce. Now we have distribution throughout 10 offices with own sales force
around Ecuador.
What role has Grupo Öriental played in the economic development of Quevedo?
We are the main agro-industry in Quevedo. We
were founded here, and buy our agricultural
products locally, also employing local people,
and exporting our products throughout Ecuador and around the world. We have two main
plants in Ecuador: one for beverages, and
another for sauces, noodles, and other flourbased products. In total, we employ around 450
people in Quevedo city.
Grupo Öriental
now has two
factories
employing over
450 people, in
Quevedo city. And
around Ecuador
700 total direct
employment
What is the importance of having an Ecuadorean
identity for Grupo Öriental?
We are an Ecuadorean brand born in Ecuador and sustained by Ecuadoreans. But what
is more important for us is to emphasize that
we use Ecuadorean raw materials, produced
locally, to create quality Oriental food products using our expert knowledge. We want to
show Ecuadoreans, Latin Americans, Europeans, and even Chinese people that Ecuadorean raw materials can be used to make healthy
and delicious Oriental food products. Some of
our sauces are actually being exported to China now, such as our chili sauce, which is made
with Ecuadorean chili. Ecuador can produce
chili sauce all year round because of our equatorial location. We see this as an opportunity to
export. More than 10% of our products are exported currently within the region, but also to
Europe and China.
What challenges have you faced growing as a food
brand in Ecuador over the past 40 years?
You have to pursue your goals every day and
adapt when needed by developing new technology and products. You also need to encourage your employees to love your company, to
pursue growth, and to adapt to change and innovate. In Ecuador, we have seen considerable
political change over the years, but for the past
seven years we have enjoyed stability.
BIO
Wilson León Lee was born
in Hong Kong, but came
to Ecuador to investigate
opportunities in the
agro-industrial sector in
1975. Since then, he has
developed a distribution
network across the whole
country offering diverse
food options for differing
segments of the market.
He has also developed
subsidiaries and sister
companies such as the
Clínica de Medicina
Natural y Acupuntura
China (CHINAMEDIC)
in Guayaquil, and the
Restaurante Cantonès
Internacional, in addition
to the new Borojó
Amazónico (Borama) agroindustrial plant.
90
THEBUSINESSYEAR
ECUADOR 2014
Grupo Oriental produces
many Chinese-style food
products
What role do you see for companies like Grupo Oriental to contribute to Ecuador’s efforts to change
the productive matrix?
The key word there is change: we all need to
change. For Grupo Oriental, we saw the opportunity to change by working to integrate
plantain flour into our products rather than
traditional wheat flour. Everyone knows that
Ecuador produces plantains in great volume,
and that plantains boast many benefits both
for people and for the economy. Historically, in
Ecuador, plantain used to be the main source
of food, and an important source of nutrition.
We realized that we could take advantage of
this. We are now developing an instant plantain flour product that can be used for soups,
breads, any main dishes, and other foods. For
us, we started from making Chinese sauce,
to noodles, to spices, to healthy beverages, to
healthy products.
What role can Grupo Oriental play in Ecuador’s
economy in the future?
We decided in 1975 to invest in Ecuador because we believe in the people and the possibilities of the country. We also believe in Ecuador’s agricultural potential. I started a business
here with nothing but a vision. Now our aim
is to establish an international Ecuadorean
brand. We want our brand to transmit the idea
that with Oriental products, you can experience
Asian flavors using Ecuador’s natural agricultural wealth. We want to be recognized internationally as an Ecuadorean brand with Oriental
values and culture. The group has been in Ecuador
manufacturing food products
since the 1970s
We are the main agro-industry in Quevedo. We were founded here,
and buy our agricultural products locally, also employing local
people, and exporting our products throughout Ecuador and around
the world.
Industry & Mining
THEBUSINESSYEAR
91
AGRIFOOD FORUM
FOOD BAR
Ecuador’s agribusiness sector is looking to add value to the
already strong agriculture sector through higher standards,
different product lines, and advanced equipment.
JUAN FERNANDO
MAYA
RODRIGO
CAMACHO
General Manager,
Alpina
Executive President,
Nestlé Ecuador
I
n Ecuador, Alpina has
a 40% share of the formal cheese market and
20% of the formal dairy market.
However, only 30% of cheese is
sold in the formal market in Ecuador, while informal producers
account for 70%. In many cases,
we are working with informal
producers to help them develop
better safety and quality standards. One example is a small
dairy cooperative in Ecuador,
named Quesinor, located close
to our plant in Carchi. We have
been working with them to help
integrate standards for technology and hygiene and generate
business value to commercialize their products. We feel that
we have a social responsibility
to ensure that there is a harmonious environment for business.
Alpina buys more than 170,000
liters of milk every day. We have
been working with the Ministry
of Agriculture to source much of
this milk from small farmers. By
guaranteeing a buyer for these
farmers, we can help support
the market, and by working to
identify the many cooperatives
and associations and agreeing
to purchase milk from them
under formal conditions, we are
helping to bring them out of informality.
T
here are three areas
that we are going to
focus on for the future.
The first is our people. We really
work hard and will keep working in Ecuador for our people, in
terms of their development and
training. In 2013, we increased
our investment in training and
development five fold. We care
about our people, and we feel
that we should give the best
conditions to them, meaning
quality, tools, technology, facilities, and opportunities for personal development. The second
area is our product and brands
portfolio, which we want to expand further and faster. You will
see many innovations in the
coming years aimed toward improved nutrition. Also, affordable and premium products are
areas where there are still plenty of opportunities. And third,
I can say that we want to grow
also in new and different categories, which means investing
in equipment, machinery, and
different lines, but also looking
at mergers and acquisitions.
DAVID VERGARA
Executive Director,
Corporación
Superior SA
E
cuadoreans are ready
to take on a challenge,
and our collaborators
and team members are skillful,
hard working, and quick learners. In this context, many of our
management positions at the
production plants and commercial areas are occupied by
Ecuadoreans who have previously worked for other leading
companies in the food industry
elsewhere in region, which is
more common today. The new
productive matrix adopted by
the government has brought
many opportunities for local
producers. In this context, we
search for new market niches
that can help us expand our
business activity. For example,
in 2014 Superior’s portfolio has
expanded significantly in order
to offer more alternatives to local consumers. I perceive many
growth opportunities, and we
are determined to take advantage of them to expand into
new segments of the food industry. We want to double our
operational size over the next
five years. Today, we are on
the right path and convinced
that we will continue playing
a major role in Ecuador’s food
industry.
JEFFERSON
SANTANDER
General Manager,
Universal Sweet
Industries (La Universal)
E
cuador is one of the
leading exporters of
cacao; other markets
do not currently pay at a premium for Ecuadorean cocoa,
and the country needs to further
invest in international brand
building, as we still live off past
successes. I also think that Ecuador should increase the production of fine aroma cacao
and start working to generate
value-added from the product through a strong brand, by
promoting it and make it more
competitive worldwide. We expect to reach a 20% export level
within four years—we started
exporting two years ago and exports currently represent 10% of
our business activity. There are
several lines that offer interesting business opportunities. For
example, the country still has
a long road ahead regarding
healthy food products in order
to catch up with more advanced
markets. Also, Colombian companies sell products worth $150
million using technology that
has yet to be introduced here.
Once this is done, there is another market niche to explore
there.
92
THEBUSINESSYEAR
ECUADOR 2014
FOCUS PRODUCTIVE MATRIX
HOME RUN
DESPITE its complicated sounding name,
Ecuador’s production matrix simply means
the outlay of the country’s productive sector.
When President Correa advocates changing
this outlay, he hopes to change the economy
from the one based on the sale of natural resources to a more complex system based on
human resources and technology. For example, rather than selling oil—which made up
over 50% of the country’s 2012 exports—Ecuador hopes to manufacture and sell end-use
petrochemical products for both the national
and international market. And while critics
level accusations of protectionism, President
Correa contends that an over reliance on imports is preventing Ecuador from investing
the profits of its natural resources back into
the national economy. In December 2013,
Ecuador’s Foreign Trade Committee issued
Resolution 116, which restricted imports on
293 items in an effort to prevent capital from
escaping, while reducing reliance on foreign
imports that can be produced locally.
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
Ecuador is moving
away from an
economy based on
the sale of natural
resources, toward
a more complex
system based on
human resources and
technology.
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. Industry & Mining
THEBUSINESSYEAR
93
INTERVIEW
How has the economic transformation of the past decade
changed the automotive industry?
We are a company that believes in the potential of the
country, which is why we
implement investment plans
every year. Over the last few
years, we have focused on
introducing better production processes to increase
capacity and become a more
efficient and competitive
company. For example, we
have successfully maintained the leading position of
our brands—Nissan and Renault—in the market. Also,
we emphasized the need to
improve the quality of our
services. For example, AYASA
currently reinvests 70% of its
profits back into the country.
These elements position our
company as a leading player
in the sector. On top of that,
Ecuador has enjoyed a stable
political and economic environment, and the automotive industry has benefited
from this. The industry has
also paid special attention
to the post-sales service segment over the last few years,
a segment in which we have
positively grown. The future
will follow such trends, and
we believe we have plenty of
room to continue expanding
our activity in this segment
in particular and the sector
in general.
How has AYASA adapted its
business strategy in accordance with the government’s
new production goals?
We are a very flexible and dynamic company, and we saw
the new industrial production
approach by the government
as an opportunity in itself. For
example, we have been closely
working with the brands that
represent Nissan and Renault
in Ecuador to implement an
electric car project. The government has already carried
out research on the potential
implementation of this ambitious project and its profit-
ADDED buzz
TBY talks to Nicolás Espinosa, Executive
President of Automotores y Anexos (AYASA),
on the automotive sector, the government’s
production goals, and developing electric cars.
Local
representative
of NissanRenault
in Ecuador
AYASA has
operated
in Ecuador's
automotive sector
for more than 50
years
Aims to be
the leading
automotive
company in
Ecuador by 2020
BIO
Nicolás Espinosa has
experience as an Industrial
Chemical Engineer, Industrial Engineer, and in Financial Management. He has
been Executive President
of Automotores y Anexos
(AYASA) since 1992. In
addition, he is Director and
Vice-President of the Board
of Directors at CONCLINA,
as well as President of Consejo Consultivo Grunenthal.
ability, apart from the positive environmental impact of
it. We have to keep in mind
that Renault and Nissan have
been worldwide leaders in
the mass production of these
vehicles for similar projects in
northern Europe, and this is a
competitive advantage for us,
because we see there is huge
potential in Ecuador for such
a project. All in all, we align
ourselves with the production
policies of the government,
especially in the segment of
electric cars.
What is the status of the electric
car project?
We have already conducted all the relevant studies on
the mass utilization of these
vehicles for public company
fleets. In this context, some
of these companies, for example, Correos del Ecuador,
have already carried out tests
with these vehicles. At the
moment, the government has
already taken the steps to set
up the regulatory framework
for the implementation of
this project, and the importation of these types of vehicles. Additionally, several private companies have already
shown their interest and commitment to implement such
an ambitious goal. AYASA
will soon hand in the draft of
the Memorandum of Understanding (MoU) between the
government and the brands
we represent in order to take a
step forward in this entire process. This is an important opportunity to change the mobility culture in Ecuador and
boost local production in the
automotive industry through
different stages—a battery
recycling plant first, followed
by a production and assembly plant. Future prospects
foresee a potential market for
electric cars of around 60,000
units per year.
Does Ecuador have the level of
human capital and technological expertise to implement such
a project?
In this context, Nissan has already offered to the Ecuadorean government to train local
technicians on new technologies within the automotive
industry, including electric
technologies. I think the challenge could come from how
to link such an offering with
the development of the city of
Yachay, because I believe that
would be the ideal framework
to make the offer come true.
Renault has also made such
an offer to the authorities, and
we have to highlight that this
offering does not only apply to
research, but to the final consumer, too. 94
THEBUSINESSYEAR
ECUADOR 2014
VOX POPULI PRODUCTIVE MATRIX
CHANGE
AWAY
Ecuador is capitalizing on changes
in its productive matrix, and many
of the biggest players are focused
on the task at hand.
Image: Continental Tire Andina
JAIME MANTILLA
W
e establish assembly plants in almost every country in which we operate. The growth and development of the plant in Ecuador has been stable and
consistent. The plant has manufactured innovative and topclass models that are highly acclaimed. Over the past decade
we have supported the government’s efforts to substitute
imported products for locally produced ones. As part of our
efforts to help transform the production matrix, we have increased investment in our plant to maximize its potential.
In 2014, we will complete the final expansion stage, where
a $70 million budget has been allocated over the last three
years aimed at productivity and quality, the development of
new products, and attracting new investors to the auto parts
segment. By attracting new investors, we hope to increase
the number of Ecuadorean parts in vehicles. Since we are
a multinational company, we also boost know-how transfer by providing regular training courses to our staff, other
companies of the auto industry, and even other industries.
FERNANDO
AGUDELO
Executive
President, GM
Ómnibus BB
Country Manager,
Sony Ecuador
S
ony has 15 offices in Ecuador, and was in fact the
first brand to have its own premises here, believing
in the need to keep in touch with the consumer. We
have just started producing in Ecuador, manufacturing two
television models, and in 2014 the number will rise to five.
We attribute this to Ecuador’s growth, and are confident of
the high-quality proposition Sony brings the country. We
have two direct Sony stores, and two franchises, in Ecuador.
Franchising allows us to reach more people beyond the city
centers. Currently, we have 150 direct employees, and are developing other sub-brands in Ecuador, such as PlayStation.
Sony’s presence in Ecuador speaks volumes in terms of its
importance as we only have a limited number of television
production operations in Latin America, namely in Mexico,
Argentina, Brazil, and now Ecuador. Televisions account for
70% of Sony sales in Ecuador. The manufacturing operation
is relatively large, which is important for the national market
and the wider region.
Industry & Mining
THEBUSINESSYEAR
W
MARCELO CHICO
CAZORLA
Vice-‐President of the
Board of Directors,
Continental Tire
Andina
e are a competent
player in the government’s plans to transform the country’s production
matrix; our main objective is to
increase the national production of natural rubber conterminous to reduce our dependence on imports of natural
rubber from Asia. Moreover, we
want to boost our exports and
with this we contribute more to
the economic and social development of Ecuador. At the moment, 50% of our production
is distributed in our domestic
market, whereas the remaining
50% is exported. Over the past
decade, we also have developed three retread plants (Quito, Guayaquil, and the last one
was set up in Cuenca). At those
centers, we mainly work on
large truck tires. These efforts
are part of our profound commitment to the environment;
moreover, we conduce saving
costs and improving tire life.
Ecuador lacked a culture of tire
retreading and only recently we
can see an increasing awareness of this opportunity.
PATRICIO CÁRDENAS
Business Manager, LINDE Ecuador
L
INDE is the world’s leading player in the gas industry,
with a presence in around 100 different countries. In
this context, Ecuador’s relevance within such global
operations is certainly important; we have always seen growth
potential and business opportunities in this market. Despite
what many might say about the size of the country, LINDE has
always seen a growing and promising market in Ecuador. In this
context, one of our strongest points is that we are involved in
several economic sectors, and not only in the gas industry. This
is one of the most attractive things of our operations in Ecuador,
which began over 52 years ago. In this context, over the past two
years we have implemented investment plans worth $50 million, and we have committed to broaden our business activity in
the country in coming years.
95
96
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
utility
MAKERS
TBY talks to Roberto Jouvin, General Manager
of Mabe Ecuador, on the transition from gas to
electric stoves, growth, and human capital.
What would you say distinguishes Mabe products?
We make sure all of our products are manufactured in a
high-quality way, and our
standards of production are
high. Our plants are well positioned. We have local brands,
and we have GE as a partner in
Latin America.
How is the current government
effort to switch the country from
gas stoves to electric stoves affecting your operations?
It has been a temporary challenge for us at the moment,
because we manufacture
and sell gas stoves, and as a
result,sales of these have fallen by 60%. However, we are
participating actively with
the government in this plan.
We are ready for the production of electric stoves, and we
will expand our portfolio in
this industry. The transition
is a good idea because subsidies for gas right now cost
the government around $800
million a year. It is great for
the country’s economy, and
it is popular as well. The way
to do it is to offer people a new
product that cooks better and
is more efficient. We are willing to do it. The government
over the past few years has
been encouraging applicants
to become more efficient. We
have also been participating
in making that the norm. In
the past, an air conditioner
probably broke down in six
months. We want them to be
more efficient.
Which segment of the economy
do see as the main driver of future growth for you in Ecuador?
The low- to middle-income
sector, as the mid-high sector
is probably 10% of the market.
Almost 70% of the market is
the middle class, and their income per capita is on the rise.
They want houses, appliances, and cars. Around 15 years
ago, many people didn’t have
air conditioners or washing
machines, and some didn’t
have fridges. The market has
increased significantly over
the past decade.
How would you characterize the
level of human capital in Ecuador?
One of the things that makes
Mabe special is its post-sales
service. If you buy one of our
products, you can be sure that
the company will take care of
it. People don’t hesitate to buy
any of our products. If there is
a problem, we fix it. No questions asked. As far as the level
of technical education, I think
it has been increasing. When
I hire someone for middle
management, they all have
a Master’s degree, while 15
years ago you didn’t see that.
Now, everyone has undergraduate degrees and at least
one Master’s degree. Everyone is trying to speak a second language as well. I am 44
years old. When I graduated
29 years ago, I studied in the
US when I had the opportunity. No one spoke English then.
It is different now. People in
their 20s all speak English.
The level of competition has
increased greatly. This is in
the lower class as well. It’s a
different country.
Why Ecuador as a destination
for international investors?
We came here in 1994. Since
then, Ecuador has been an
excellent operation for Mabe.
Ecuador is a stable country
with a good income per capita.
It is a small country; however,
if you compare it to a similar
country like Guatemala, the income per capita here is much
higher. Companies in Ecuador
are much more profitable. It is
a good country to do business
in, but you have to know that
the rules can change. Mabe
has a plant in
Ecuador, which
manufactures
products for
export across
Central America
and the Andes
BIO
Roberto Jouvin graduated
from Colegio Javier as
a Bachelor in Physical
Mathematics, before
going to Eckerd College
in Florida, US to study
Management and Finance.
He later acquired his MBA
from the Universidad
Federico Santa Maria de
Chile with a specialty in
Marketing. He began his
career at Kimberly-Clark
as a Marketing Manager
in 1994 before moving to
Plasticos Industriales as
a Commercial Manager in
1998. In 2002, he moved
to Mabe Ecuador as the
Commercial Manager
before taking his current
position up in 2003 as
General Manager.
Industry & Mining
THEBUSINESSYEAR
97
INTERVIEW
ANDEAN
TIGER
uador and the region for 37
years already. Over the years,
Ecuador has become more
relevant to the group. This relevance has been all the more
important over the past five
years due to the change in the
productive matrix currently
underway in Ecuador.
TBY talks to Gustavo
Iñurritegui, Executive
President of Andean
Area of Franz Viegener
(FV), on the strengths
of the Ecuadorean
market, changes in
the productive matrix,
and future challenges.
What part of production in Ecuador is reserved for the domestic
market?
I am going to divide my answer into two parts. In terms
of water management and
faucets, 90% of the production is for Ecuador, and 10% is
for the export market. In terms
of toilets and accessories, the
contribution to the commercial trade balance is even
greater. In the toilet segment,
70% is for the national market,
while 30% is exported.
Qb[n cm nb_ mcahc×][h]_ i` nb_
Ecuadorian market for Franz
Viegener (FV) as a group with a
presence across Latin America?
FV Group has a major presence across all the major
countries of Latin America,
and it is divided into three
parts: the plants in Argentina, which cover and service
the MERCOSUR market, and
which include all the countries bordering Argentina,
Uruguay, Paraguay, Bolivia,
and, of course, Argentina itself; the plants in Ecuador,
which service the Andean
market of Ecuador, Colombia, Peru, Central America,
and the Caribbean; and finally the plant in Brazil, which
covers that market. The importance of Ecuador is its
service to the Andean market,
and our position as leader
and sole manufacturer of faucets, toilets, and bathroom
accessories. We also aim to
become the market leaders in
Colombia and Peru.
Over the past seven years, Ecuador has seen a marked economic transformation. Has that
]b[ha_^nb_mcahc×][h]_i`?]uador for the company?
Since 2000 and the economy’s dollarization, the role of
Ecuador has been different.
The company has been in Ec-
How large is the Ecuadorean
market for FV Group?
BIO
Gustavo Iñurritegui
obtained his professional
education at the
Universidad Católica de
Buenos Aires. He began
his career in FV Argentina
in 1984 at an entry level
position, and gradually
rose up through the ranks
thanks to a combination of
hard work and the will to
do things better. In 1996
he came to Ecuador to help
run the subsidiary there.
In 2008, he was selected
as successor to the Chief
?r_]oncp_I`×]_l(
The group has annual revenue of $600 million, and the
local operations in Ecuador
represent 12%; therefore, approximately $70 million a year.
The group has approximately
6,000 employees worldwide,
and in our local operations, we
employ around 1,200 people.
What would you say are the
strengths of Ecuador as a manufacturing base?
First of all, I would highlight
its geographic location at the
center of the Pacific coast of
Latin America, and second, its
two great commercial neighbors, namely Colombia and
Peru. Those two factors make
it an interesting proposition.
What kinds of challenges have
you faced in growing your operation in Ecuador?
One of the challenges is being able to conquer the Ecuadorean market with qual-
ity products, something that
the country was not used to.
The second challenge was
the presence of the two great
neighbors of Colombia and
Peru. People usually opt for
price, although price and
quality do not go hand in
hand. It has taken many years
of work to provide technical
support to constructors and
installers. The experience of
FV as a company has leant
much support to this process.
What role do you see for FV in
Ecuador’s efforts to transform
the productive matrix?
The change in the productive matrix for Ecuador is
important, and we support
the government’s initiative.
However, the importance of
generating exports is greater
than the importance of substituting imports. It is important for the government
to monitor production quality
and to ensure that it meets
international standards. The
local manufacturing system also needs to produce at
reasonable prices. This is a
highly complex and difficult
issue, and demanding for the
government in terms of the
details and the changes that
it implies. However, there
should be coherence in the
government’s message. It is
vital for the government to
say that it wants to substitute
imports, and also to act accordingly. IN NUMBERS
Franz Viegener
(FV)
Ecuador domestically
represents
12%
of FV’s global
revenues
98
THEBUSINESSYEAR
ECUADOR 2014
Ecuador has a huge amount of resources waiting to be exploited;
however, a lack of expertise and willing foreign investors has hampered
development in the past, but hopefully this is all about to change.
Review
MINING
GOLD FINGERS
After a rather unsuccessful set of reforms in
2009, which lumbered companies with massive taxes and tangled them in red tape, the
government announced a new set of reforms
in 2013 aimed at freeing up the companies and
attracting more FDI into the mining sector.
When Kinross canceled the $1.2 billion concession it had won to tap Ecuador’s largest gold
reserve in June 2013, the government realized it
needed to take a look at mining laws to attract
more investment. Kinross was actually charged
$720 million for walking away from the project.
“Ecuador, as a mining country, is trying to understand how the mining sector operates here.
During this process, some mistakes have been
made,” said Santiago Yépez Dávila, General
Manager of Empresa Nacional Minera (ENAMI EP), to TBY. “However, the government has
done its research and understands how it operates in the world and in the country.”
Because of this, Ecuador’s mining industry
still remains largely unexplored and unexploited. President Correa is hoping that the mining sector can reduce some of the economy’s
dependency on oil; however, the country will
need outside help. In the new reform package, the government set a new royalties ceiling of 8%, which was previously open-ended.
Small mining operations will pay a minimum
of 3%, medium-sized operations 4%, and
large-scale mining operations will pay 5% in
royalties. The government is hoping to attract
more small- and medium-sized companies to
take up concessions by having lower royalty
payments and allowing the signing of flexible
concession agreements, meaning they do not
need to negotiate exploitation contracts with
the government. It also streamlined the permit application system, removing many of the
time-consuming processes. Still, while the government has made some much-needed changes to the sector, many companies feel that it did
not go far enough in its reforms. The windfall
tax is still seen by many as a possible deterrent
to investors, and some say it should have been
lowered. The windfall tax can be as high as 70%
on revenues for mining companies; however,
this comes into action only after the company
has recouped its initial investment. While the
new reform may need some ironing out, overall
the industry seems pleased with the direction
that the authorities are taking, and the government is almost fully behind President Correa’s
leadership, with the reform passing 105 in favor
and 14 against in the local parliament.
RESERVES
Ecuador has a vast amount of reserves, mainly gold, silver, copper, and zinc. The latest estimates by ENAMI EP places Ecuador’s gold
reserves at 39 million ounces and USGS places
the country’s silver reserves at 17 million troy
ounces. When Kinross backed out of its concession, it created quite a headache for the government; yet, the $720 million charge would have
gone some way to alleviate this. However, Ecuador’s minerals still remained in the ground,
Industry & Mining
and someone new needed to be found to take
over the project. In August 2013, only a month
after Kinross walked away, Codelco, Chile’s
largest copper mining company, stepped up to
the plate. Codelco will be able to bring its vast
experience and knowledge to Ecuador, something at the moment that the country lacks.
ENAMI EP will own 51% of the joint venture
and Codelco the remaining 49% to work on the
Llurimagua reserve. It is estimated that the reserve could be worth as much as between $200
billion and $220 billion in total, depending on
the viability of some of the deposits. The joint
venture is expected to receive its environmental license by the end of 2014, and Codelco has
committed to invest $28 million over five years
to explore the 4,956-hectare reserve. It is hoped
that commercial mining will begin by the end
of the decade; however, it could be up to eight
years before any mining begins, depending on
the exploration results.
Another major deposit that is currently being explored is El Hito, which is located in
southeast Ecuador in the Santa Barbara area.
The deposit, under the concession of Ecuador Gold & Copper Corp., has estimated reserves of 161 million tons of copper and exploration is well underway to find the most
viable way to exploit the mineral. El Hito is
a part of the large Zamora Gold and Copper
Belt that runs for 40 kilometers and holds
a vast amount of reserves. The total belt is
thought to hold 8 million ounces of gold at
0.56 g/ton in the inferred category and 2.6
THEBUSINESSYEAR
99
Ecuador has a vast amount of reserves, mainly gold, silver, copper,
and zinc. The latest estimates by ENAMI EP places Ecuador’s gold
reserves at 39 million ounces.
million ounces at 0.4 g/ton in the indicated
category, as well as 800 million pounds of
copper in the inferred category and 1.5 billion pounds in the indicated category.
SELLING UP
Even though Ecuador has an enviable
amount of resources in the ground, unfortunately it is suffering from something of a
liquidity problem at the moment. To try and
resolve this, in June 2014 the government
decided to sell 1,165 gold bars from its reserve for $580 million to Goldman Sachs to
increase the country’s liquidity issues. The
country has borrowed over $12 billion from
Chinese banks to fund infrastructure development, and has now re-entered the global
bond market after a near half-decade hiatus.
Also, with Ecuador one of the few countries
on the continent to use the US dollar, liquidity issues have their own unique challenges.
Under the deal, the country will get the gold
back in three years time and, in theory, make
a profit of $20 million. 100 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
dig for
VICTORY
Do you think the way Empresa
Nacional Minera (ENAMI EP)
approaches mining in Ecuador
is different to the way private
sector companies do?
TBY talks to Santiago Yépez Dávila, General
Manager of Empresa Nacional Minera (ENAMI
EP), on the role of a publically owned mining
company, its role in the productive matrix, and
legislative reforms in the sector.
Definitely, yes. ENAMI EP, as
a public company, has two big
duties. The first is to produce
income for the government,
and the other is to provide
wealth to the communities. A
private company does not have
as much of a social focus. One
important part of ENAMI EP’s
activities is to provide communities with all the requirements
needed to maintain artisanal
mining. We have two social
projects in the country. ENAMI
EP also has partnerships with
associations to reduce the use
of mercury.
Ecuador has a lot of mining
potential, but the country has
struggled to get the mining industry to play the role in the
economy that it could. Why do
you think this is?
Probably because the economy has been based on oil for
the past 40 or 50 years. It was
a mistake to focus solely on
this sector. Of course, this sector provides the country with
a lot of wealth. However, this
sole focus is the reason for
the country’s problems at the
moment. The mining activity
in this country cannot just be
about finding these resources
and selling them. It has to be
a process that provides the
country with the possibility
of adding value, diversifying
sectors, and contributing to
communities. This is the main
reason for the change in the
productive matrix.
What role can the mining sector
play in changing the productive
matrix?
It is important that the mining sector plays a role in this
change, because we need to
be responsible to the people
of this country. We need to
show that the country can do
more than find minerals. We
need to create new processes
BIO
Santiago Yepez Dávila is
currently CEO at Empresa
Nacional Minera (ENAMI
EP). He is a mining advisor
with over nine years of
_rj_lc_h]_[h^mj_]c×]
expertise in developing the
mining business in Latin
America. He was previously
the President at the Ecuadorean Chamber of Mines
and a Member of the Board
at the American Mining
Association. His professional specialties include:
Mining Financing, Project
and Business Development,
Relationship Building,
Strategy Management,
Negotiation, and Government Relations. He holds
a Doctor of Law (JD) and
Master of Finance degrees
`lignb_Jihnc×]c[Ohcp_lsidad Católica del Ecuador,
and a graduate degree from
the Universidad Central de
Chile in the Management of
Mining Projects.
and industries. Mining activity
creates more decentralization,
because you invest a lot of
funds into communities. Especially in the mining sector,
food, transportation, goods,
and housing are required,
which then contributes to the
overall economy. Due to the
nature of the mining sector,
it can also contribute to rural development. The sector
also provides a lot of work for
people. The sector needs to
learn about new technologies,
which then provide income
for the government and the
communities with part of the
royalties. The mining law of
Ecuador says the government
needs to reinvest at least 60%
of mining royalties into communities. Oil companies are
used to producing substantial
volumes of oil, and investing
generated revenue solely in
the capital, Quito.
Do you think the reforms made
to mining legislation in 2013 enhanced the abilities of the country to attract FDI?
Ecuador, as a new mining
country, is trying to understand how the mining sector
operates here. And during this
process, some mistakes have
been made. However, the
government has done its research and understands how
it operates in the world and
in the country. Some important changes are coming, because the government knows
mining is a high-risk activity.
Exploration also needs to be
better supported, and the government is working on this.
ENAMI EP
žcm?]o[^ilÎm
national public
sector mining
company
žcmfiiechani
jointly develop
projects with
international
mining companies
to bring in needed
expertise
Is Ecuador now an attractive
destination for international
mining companies?
Yes definitely, because of the
country’s considerable potential. The grade of minerals
in Ecuador is interesting, the
cost is low, and the country is
competitive in the mining arena. The country has political
stability, and the most important thing is that our President
is greatly supportive of this
industry, which shows in the
highway, water, and electricity infrastructure. This may be
contrasted with to a country
like Chile, where one has to
pump water from the ocean
into mining projects. The
government is preparing for
this industrial era by building
roads, ports, airports, and hydropower plants, all of which
are attractive to investors. THEBUSINESSYEAR
101
105
107
111
The Minister of
Telecommunications and
Information Society on improving
access to technology.
Alongside encouraging research
and innovation, one of Yachay’s
primary goals is the development
of human talent.
The Country Manager of Xerox on
the company’s contribution to the
economy and its move into the
services sector.
Telecoms & IT
REVIEW
The national uptake of technology is central to Ecuador’s broader social
inclusion, wealth generation, and international competitiveness.
P
resident Correa’s
“socialism for the
21st Century” is
geared toward social inclusion and the sustainable alleviation of poverty.
The proverbial path to this
is paved with technology, as
the government pushes toward universal of access to
communications. A recent
initiative currently in the pilot
project stage is introducing
electronic payment to leverage high mobile penetration
and address low financial
participation. Yet, at the heart
of the National Plan for Good
Living 2013-2017 is socio-economic development, whereby
Ecuadoreans become educated contributors to national wealth and a competitive
industrial matrix. Naturally
enough, education is the primary recipient of attention,
and Correa’s IT program,
Digital Training through Mobile Classrooms, is taking
ICT beyond urban areas. The
National School Connectivity
Plan targets connecting over
9,700 schools nationwide by
2015, with related technology
to be largely financed from
PLUG ME IN
the Fund for Development of
Telecommunications in underprivileged areas (FODETEL). FODETEL itself receives
funds from contributions
stemming from a state levy
of 1% of telecommunications
operators’ turnover.
THE AUTHORITIES
The Correa administration is focused
on bringing Ecuador to the forefront of
the Andean region, and has specifically
indentified the ICT sector as a prime
driver for this goal.
The drafting and execution of
ICT policies and regulation
of telecommunications and
ICTs falls to four state agencies. CONATEL, the sector
watchdog, the National Television and Radio Broadcasting
Council (CONARTEL), which
regulates and authorizes radio
and television broadcasting
services, the National Secretariat of Telecommunications
(SNT), which actions telecommunications policies, and the
Telecommunications Superintendent’s Office (SUPERTEL), which has final say on
telecommunications services
and the use of the airwaves.
The pace of technological
advance picked up in 2006
when CONATEL canvassed
public and industry opinion
on a national ICT strategy.
As Global Information Soci-
102 THEBUSINESSYEAR
ECUADOR 2014
ety Watch put it, “CONATEL acknowledged
the lack of a comprehensive state policy, and
in doing so, it predefined a thematic agenda
that sought to align efforts in the ICT sector
with broad socioeconomic and developmental
goals.” That was a wakeup call the current government, in power since 2007, has built on.
The government aims to ensure universalization by increasing teledensity, yet certain trends
borne out by industry data—and familiar to
many emerging markets—suggest there is still
some way to go. The market penetration rate
for mobile phones according to BuddeComm
is high, at 113% (2014e); this is also due to less
than universal landline (16% penetration) provision in the mountainous Andean nation.
YACHAY
René Ramírez Gallegos, National Secretary of
Higher Education, Science, Technology and
Innovation in a TBY interview spoke of, “increasing [education] expenditure budgets—
from 1.1% to 2% of GDP,” since 2007. Ecuador has also upped its research, innovation,
and technology budget from 0.2% to 0.72% of
GDP. Meanwhile, the poster-boy for Ecuador’s
scientific leap forward is the Yachay “City of
Knowledge,” the word borrowed from the indigenous Kichwa language. With a land allocation of 44 square kilometers, the scheme has
at its core a university, and is envisaged being
a home for diverse incubator companies, and
a lightning rod for innovation. “Yachay will
be the innovation center of Ecuador; a city, a
company, and a university representing the
innovation system of the country,” Ramírez
Gallegos explained. “It has to work also as a
specialized cluster where people will live and
generate innovation, knowledge, research,
and future developments for Ecuador.” Meanwhile, Héctor Rodríguez, CEO of Yachay Public Company, describes the project as more of
an industrial paradigm shift. “In the 1970s, we
developed Petroecuador to create an oil-based
economy, and in the 1980s we created Corporación Nacional de Telecomunicaciones (CNT)
to develop the ICT sector. We have developed
Yachay because technology and knowledge
underpin the future.” In that sense, “Yachay
University bridges the gap between basic and
applied research and the end product.”
INTERNET
Broadband penetration is estimated at just
7.7%, although dial-up services have a rate of
around 70% according to Jaime Guerrero Ruiz,
Minister of Telecommunications and Information Society. He told TBY that, “We currently
have the fastest internet in the region at 3.6
Mb/s,” adding that, “five years ago there was
only 3,000 kilometers of optic fiber in the country, whereas today the figure has reached 35,000
kilometers.”
Internet service providers as of June 2013
numbered 327, and SENATEL data put the number of internet cafes as of February 2014 at 2,386.
SIZE MATTERS
During 3Q2013, Ecuador clocked an average connection speed of 3.6 Mbps,
hitting the global average, and registering the second fastest internet
speed in Latin America after Mexico, and showing 53% YoY growth over
nb_-K,*+,×aol_(;h^qbcf_nb_m_hog\_lm[l_\_bch^=[h[^[Îm[p_l[a_
connection speed of 8.8 Mbps and the 9.8 Mbps recorded in the US, Ecuador is catching up. The two existing submarine cables servicing the country
are the Pan American (PAN-AM) cable, which was launched in 1999 and is
nearing the end of its lifespan, and the South America-1 (SAm-1) cable laid
in 2001, which serves the entire South American continent.
Nb_J[]c×]=[lc\\_[h=[\f_Msmn_g"J==M#mo\g[lch_bcab'mj__^fche&
which is expected to be online by 3Q2014, will give Ecuador a massive
increase in internet connectivity speed and vault it ahead of Mexico and
other Latin American countries. According to the Ministry of Telecommunications, the 80 Tbps 6,000 kilometer-plus Florida-Ecuador PCCS cable will
improve connectivity speeds by 1,600% in Ecuador. The submarine cable
system is the most advanced of its kind on the market.
LUIS EDUARDO CARRIÓN
General Manager, Binaria
How has Binaria adapted to the needs of Ecuador’s technology sector over the past 35 years?
Binaria has changed its core business every four
years for the past 35 years, and every four or
×p_s_[lm&q_b[p_nil_nbcheiol_hncl_\omch_mm
process. Technology is always changing. As the
cost of PCs fell, private ownership rose; therefore,
we shifted to selling computers instead. Next, we
redeveloped our infrastructure with new servers
and storage. Our latest challenge lies in transforming into a service company. As computer use rises,
we have to give customers added value, which we
do by delivering quality service. Our focus today
is on providing knowledge and training. The four
components of our businesses are cloud services,
mobile, security, and big data. We are also investing
heavily in data mining and extraction transfer load
(ETL). Binaria has created a company dedicated to
providing these solutions.
How would you describe the level of human
talent available locally?
Because Ecuador is a small country, there is less
room for specialization in certain areas. For example, there are a relatively low number of banks in
the banking sector. Companies must expand to other regions in search of customers. The challenge
is to create specialization here, and that requires
delivering a product with broad consumer appeal.
Qbcf_cncm_[msni×h^ko[fc×_^n[f_hnb_l_ch?]o[dor, it is harder to create the experience.
Qb[n[l_siolai[fm`il<ch[lc[ip_lnb_h_rn×p_
years?
Binaria needs to continue consolidating as a
service business. Infrastructure as we know it is
about to change, as more companies migrate to
the cloud.
104 THEBUSINESSYEAR
ECUADOR 2014
Meanwhile, total internet subscriber numbers
had reached 4.69 million, of which 996,217 were
fixed-line users and 3.69 million mobile users,
while the teledensity ratio stood at 29.96%, almost double the 2011 figure of 14.58%.
And in a landmark development late 2014 is
set to see the completion of the Pacific Caribbean Cable System (PCCS) submarine high-speed
link. With existing links short on capacity, the
new line, at 6,000 kilometers, and running from
Jacksonville, Florida to Manta, Ecuador, will
boost Ecuador’s internet capacity by an estimated 160 times.
TELEPHONY
There are seven fixed-line operators in Ecuador. State-owned CNT, in commanding the
fixed-line market, by extension also rules the
roost for ADSL delivery, the service becoming
available to Ecuadoreans in 2009.
MOBILE
Ecuador’s telecommunications sector has
grown rapidly since 2000, when the telecommunications market was liberalized. Central
Bank of Ecuador (BCE) data puts overall sector growth at 22.7% from 2004 to 2005, which
contrasts starkly with sector growth of 11.2%
from 1999 to 2000 and just 0.1% in 1994. Yet
the most outstanding statistic is that of mobile phone use, which rocketed 9,970.4% from
December 1996 to December 2005. According
to SUPERTEL, which monitors and regulates
the national telecommunications and radio
frequency spectrum, by November 2006 there
were 8.19 million mobile phone users among
a population of 13.52 million. Official data for
2012 reveals a higher print of 16.39 million total
subscribers, of which the vast majority, at 13.62
million were pre-paid users, and just 2.77 million post-paid. Number portability in Ecuador
was introduced in October of 2009, and readily
taken up. National Telecommunications Secretariat (SENATEL) data puts the cumulative
total of ported mobile phone numbers as of
Oct 6, 2014 at 1.125 million users. In pursuit of
greater sector accountability, as of July of 2014
according to SENATEL, Ecuadorean mobile operators are obliged to meet stipulated customer
service quality parameters updated by CONATEL. These also encompass the aspects of cost
and coverage. In 1Q2014, a $138.5 million fine
levied by the Superintendency of Market Power
Control on number one mobile provider Claro
for anti-competitive practices was overturned.
NOT JUST CONSUMING
According to the Ecuador Times, the Florida-based company Yezz—present in 12 Latin
American markets—in October 2014 introduced its first Android smartphone, the Andy
3.5, assembled in Ecuador. Costing less than
$200 in the local market, the brand hopes to
cash in on high mobile penetration and subsequent data sales. Its Development and Manufacturing Electronic Ecuadorian plant (DMEE)
located in Carcelén, has a monthly capacity of
35,000 units, but ultimately aims at 70,000.
THE PLAYERS
Effectively a duopoly, Ecuador’s mobile sector is
shared among América Móvil’s Conecel (trading
as Claro), Telefónica’s Otecel (trading as Movistar), with CNT (previously Telecsa/Alegro) holding a slender market share. Late in 2013, the industry watchdog granted additional spectrum to
CNT enabling the delivery of LTE services.
Reaching around 85% of the population according to BNAmericas, Conecel (Claro) offers
both pre-paid and post-paid wireless services,
as well as internet, paging, and data transmission. In 2012, Movistar gained some ground on
market leader Claro, despite having less than
half of the latter’s subscriber base. SUPERTEL
data put Claro’s share modestly down from
70.0% to 69.0% for the year, while Movistar rose
to 29.3% YoY from 28.4%. State-owned CNT retained its 1.7% market share at the end of 2012.
For the year the mobile market registered subscriber growth of 7.7%. The government
aims to ensure
universalization by
increasing teledensity,
yet certain trends borne
out by industry data—
and familiar to many
emerging markets—
suggest there is still
some way to go.
Telecoms & IT
THEBUSINESSYEAR
105
INTERVIEW
What have been the main achievements of the Ministry since it was
`ioh^_^×p_s_[lm[ai9
Our Ministry is rather young
and has just 100 people
working in it. The core reasons behind its establishment were the importance
of new technologies and the
information society in the
development of Ecuador.
Some of our top priorities
back then were the modernization and upgrading of certain institutions linked to the
sector, such as the Civil Register, which deals with the
identification of Ecuadorean
citizens, Correos del Ecuador
(the national postal company of Ecuador), Corporación
Nacional de Telecomunicaciones (the public telecommunications corporation of
Ecuador), and the National Register of Public Data,
among others. Therefore, we
can proudly say that the Ministry has become rather iconic within public administration, having performed vital
tasks in this sphere. We have
updated services, boosted
technology, and changed old
patterns. In sum, I believe
that we have achieved much
over the past five years, leading key transformational processes for Ecuador through
innovation and our flexibility
as an organization.
How have these achievements
impacted the economy?
According to available data,
we have achieved significant
change during a period of
unprecedented growth for
Ecuador. Internet penetration
rose from 6% to almost 70%
during this period when we
went from being the bottom
country in terms of broadband access to topping the table, according to US research.
We currently have the fastest
internet in the region at 3.6
Mb/s. Overall, our work has
been constant and steady, as
we had to create all the infrastructure and then provide
services that today are available to Ecuadorean society.
In another example, five years
ago there was only 3,000 ki-
SYMBOLIC
development
TBY talks to HE Jaime Guerrero Ruiz, Minister
of Telecommunications and Information
Society, on the achievements of the ministry,
and improving access to technology.
lometers of fiber optic in the
country, whereas today the
figure has reached 35,000 kilometers.
What has been the Ministry’s
approach to improving access
to technology in Ecuador, and
what programs have you implemented to achieve this?
We have implemented many
nationwide programs to democratize technology services
such as internet access For example, we have created the socalled “Info Centers,” spaces to
provide training, equipment,
and tools to democratize internet access in Ecuador. Today,
we are nearing 2 million visits
to these centers in a country
of 14 million inhabitants. In
this context, we have seen a
boost in entrepreneurship
among citizens of rural Ecuador thanks to these Info Centers, and they can now utilize
the network to advertise and
sell their products by leveraging the infrastructure that we
have installed. Approximately
500 such centers have been
established nationwide. Additionally, we have seven mobile
classrooms, whose main aim
is to reach remote areas of the
country to provide internet
training and access to people
living in remoter areas, which
tend to be those on the lowest
income. This program received
international recognition for
its efforts to build an inclusive
system for new technologies.
Over 250,000 people have
already benefited from this
program. We have also established the School Connectivity
The Ministry
was founded in
2009
to modernize the
role of technology
in Ecuador
Over the past
ûYH\HDUV
internet
penetration has
risen from 6% to
70%
BIO
Program, the aim of which is to
interconnect all public schools
across the country by setting
up a special lab within the
school with computers and internet access. Currently, 7,000
schools are connected, while
at the beginning of our term
there were none. Our goal is
to reach 9,000 schools by the
end of this government’s term.
Also, we have already started
providing schools with Wi-Fi
areas for students, staff, and
even parents. So far, the eight
largest public schools in the
country already have Wi-Fi,
and we aim to ensure that
all public schools across the
country become Wi-Fi spots.
This project, alongside the two
I mentioned before, impact as
many as 5 million people in
Ecuador. Jaime Guerrero Ruiz
has been the Minister of
Telecommunications and
Information Society since
April 2010. He also presides
over the National Council
of Telecommunications,
which oversees the
telecommunications
market. He is an electrical
engineer specializing in
electronics. He completed
his graduate studies
at Escuela Politécnica
del Litoral (ESPOL). He
attended secondary
school at Liceo Naval
de Guayaquil. He holds
a postgraduate degree
in Administration of
Telecommunications
Systems and Services and
has taken various courses
in management.
106 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
get
ONLINE
TBY talks to René
Ramírez Gallegos,
National Secretary
of Higher Education,
Science, Technology
and Innovation of
Ecuador, on
technology parks,
Yachay, and
international
partnerships.
What would you say is the role
science and technology play in
Ecuador’s efforts to transform
the productive matrix?
It has an essential role, for
technology and science contribute to strengthening the
quality of human resources.
The government has a vision
that the transformation of the
country’s production matrix
has to be based on the development of the finite resources
in society, meaning the development of a society of knowledge through innovation. In
this context, the country invests large amounts to make
sure that the main value added to society is knowledge. To
achieve this, it is necessary to
develop, on the one hand, a
strong education and culture
system, and, on the other
hand, a strong science, technology, and innovation system. We are at this particular
stage right now.
What is the importance of
Yachay in these efforts?
In the higher education segment, we still engaged in a
nationwide reform since 2007
that entails the adoption of a
new organic law, a restructuring of the system to eliminate
lower quality higher education centers, and increasing
expenditure budgets—from
1.1% to 2% of the GDP since
2007. In fact, we are the country with the largest expenditure on education in the
region. We also put a lot of
emphasis on human talent,
and this is why we set up a
Bachelor’s degree in teacher
training and education. We
have also become the country with the best remuneration for researchers. We are
in the process of developing
four new universities, while
also restructuring the network of technology institutes.
We aim to build closer bridges between the private sector
and the higher education system. We increased the budget for research, innovation
and technology from 0.2% to
0.72% of GDP. We have also
started strengthening the
degree courses related to the
pedagogical and educational
sciences, because we believe
the structural change has to
do with childhood, primary,
and secondary education.
We want to further push the
role of innovation and creativity through technological
and industrial parks. Regarding Yachay, it is the physical
space that will contribute
to these and other developments, creating economic environments within research
institutes, universities, and
other such centers. Yachay
will be the innovation center
of Ecuador; a city, a company,
and a university representing
the innovation system of the
country. It has to work also
as a specialized cluster where
people will live and generate
innovation, knowledge, research, and future developments for Ecuador.
What is the importance of international partnerships for the
development of education and
research in Ecuador?
One of our first duties has
to do with catching up, and
we know international partnerships can give us that
knowledge transfer we need.
Ecuador’s current stage of
development requires that
knowledge transfer right
now. We need to boost ties
between local universities
and the main research and
innovation centers around
the world, for this is key for
the development of a knowledge-based society. We also
bring our view into it with several programs such as scholarships—at the moment, we
grant over 9,000 scholarships
for Ecuadorean students and
researchers to study in the
best universities in the world.
What are the main objectives of
the Secretariat for the next few
years?
Our top priority has been to
strengthen the innovation
system in Ecuador. Before
the presidency of Correa, no
government had the vision
to guide its development.
We also must make sure that
innovation, technology, and
education have sufficient financial resources for their
development. The Yachay
Project will
be a “city of
knowledge”
constructed on
4,500 hectares
in the north of
Ecuador
BIO
René Ramírez Gallegos’s
graduate studies are
comprised of a MA in
Development Economics
from the Institute of Social
Studies, the Hague, an MA
in Government and Public
Affairs from the Facultad
Latinoamericana de Ciencias Sociales Sede (FLASCO), Mexico, and graduate
studies in quantitative
methodology at the University of Michigan. Prior to his
appointment to the position
of National Secretary of
Higher Education, Science,
Technology and Innovation, Gallegos served as
the National Secretary of
Planning and Development,
Content Coordinator for the
Ecuador National Development Plan, and President
of the National Council for
Modernization. In addition,
he was an associate professor at FLASCO-Ecuador
Economics Department,
Coordinator for the Millennium Center for Social
Research (CISMIL), as
well holding professorship
[nnb_Jihnc×]c[Ohcp_lmc^[^
Católica del Ecuador, and
the Universidad Andina
Simón Bolívar.
Telecoms & IT
THEBUSINESSYEAR
107
YACHAY FOCUS
THE KNOWLEDGE CITY:
INVESTIGATE!
INNOVATE! PRODUCE!
Alongside encouraging research, innovation, and entrepreneurship, one
of Yachay’s primary goals is the development of human talent, for both
Ecuador and beyond.
The $1.04 billion initiative, Yachay University
for Experimental Technology and Research—
also known as Yachay Tech, or just Yachay—is
meant to be a world-class, globally linked, and
nationally transformative center for research
and education. It will be a core element of the
Yachay City of Knowledge, which the Ecuadorean government envisions as a forward looking, hi-tech, and vibrant metropolis developed
around the idea of sustaining start-up incubators, world-class R&D units, and industrial
production facilities.
A research university and planned city in
Urcuquí, in Imbabura Province, Yachay is to
function as an academic, technological, entrepreneurial, and scientific hub. The campus
extends over an area of approximately 12,000
acres and plans to host 4,000 students when it
is fully up and running. Internationally recognized academic institutions such as Stanford,
Cal Tech and Kansas State University are already deeply involved and plan to offer academic instruction in English as well as Spanish. Comparisons are being made to similar,
admittedly better-known, innovation and ICT
hubs such as Silicon Valley in Palo Alto, South
Korea’s Incheon development, Dubai, and the
Shenzhen Special Economic Zone in China.
As far as the story goes, the original idea for
Yachay was developed in 2013 after President
Correa toured Asia, and was so impressed
with the technologically advanced research
and business clusters in the countries he had
toured in South Korea and Singapore, that he
wanted to import a similar model to Ecuador.
Yachay was designed from the outset to be a
highly interdisciplinary institution and to have
a world-class guiding concept and administrative/research structure. Also known as the
Ciudad de Conocimiento, or City of Knowledge, the official motto— Investiga! Innova!
Produce! (Research! Innovate! Produce!)—
succinctly sums up the goals and aspirations
of the wider project. Although Ecuador is rich
in oil and gold deposits, President Rafael Correa wants to diversify and move his country
away from an economy that is largely based
on oil-extraction and mining. He wants to take
Ecuador through an academic and technological revolution with Yachay; hence, his initiative to build a research university surrounded
by labs, ICT facilities, industrial parks and,
eventually, a full-service city. The university is strategically placed right at the heart of
the Yachay City of Knowledge, an overarching idea that is meant to promote technology
transfer, the stimulation of creative business
innovation, and the sharing of knowledge,
which is ultimately designed to address social
development in Ecuador and the wider world.
According to José Antonio Olivares, General
Manager of IBM del Ecuador: “I have never
seen any project like this in my 17 years working for IBM. We have to keep in mind not only
the technological production of such an ambitious project, but its future educational contribution to a country such as Ecuador and a
region like Latin America.”
Yachay is designed around what is known as
a “triple helix” model, which blends together
elements of the public sector, academia, and
the private sector to create a network for interaction among scientists, researchers, and
entrepreneurs to create a self-reinforcing ecosystem of internationally recognized research,
business innovation, creativity, and productivity. According to plans released in 2013,
the university was meant to open in 1Q2014,
and is in the process of doing so on a revised
timeline. Microsoft, Cisco Systems, and China
Telecom have already set up units in Yachay.
The city is centered around the university, and
it’s also meant to function as a special economic development zone. There will also be
other public research institutions as well as
industrial parks for knowledge-based industries such as ICT and biotech. There are also
planned incubators for innovation and centers
of research. Yachay is expected to play a fundamental role in the construction of a national
innovation system. It is an incubator for higher education and public and private research
institutes, but also for other associated knowledge-based industries. Hector Rodriguez,
Yachay is designed
around what is known
as a “triple helix”
model, which blends
together elements
of the public sector,
academia, and the
private sector to
create a network
for interaction
among scientists,
researchers, and
entrepreneurs.
108 THEBUSINESSYEAR
ECUADOR 2014
General Manager of Yachay, told TBY, “Yachay
bridges basic and applied research, and the
end product. We leverage human talent, superlative infrastructure, and the valuable incentives [such as lower transaction costs], to
create a bank of innovative ideas. The state is a
promoter of these initiatives; it has the will to
advance into the knowledge-based economy,
and the government has invested what was
necessary to guarantee that workers’ skills are
nurtured.”
Caltech in the US is helping to design the
overall plan for implementing Yachay University and the overall strategy that will help innovations developed within the City of Knowledge grow from research concepts to finished
products, which could be manufactured in
an attached industrial park. Yachay will focus
on five strategic areas: life sciences, IT, nanotechnology, energy, and petrochemicals. The
government and senior administrators hope
that world-class scientists and researchers
will be drawn to this to this new Latin American take on the Silicon Valley model. One
hope is that Yachay will be able develop and
patent new medicines from the remarkably
bio-diverse Amazon rain forest. Other nearby
abundant natural resources are planned to aid
in the development of cutting-edge solar power cells and new petrochemical technologies.
It should also be a fertile ground for attracting talent from Latin America and across the
world, and hopes to become Latin America’s
first truly international academic cum business innovation institution.
The Yachay concept is however loaded with
possible risks and pitfalls. “Money can buy infrastructure,” says Academic Secretary of the
Board and Caltech Professor Jose Andrade,
“but it can’t buy you excellence or international relations with strategic partners that make
The success of the City of Knowledge is critically dependent on the
quality of both its people and the national—public and private—
support provided, leading to the creation and development of a
generation of human, business, and research talent.
things happen.” A great test for Yachay will
be in drawing in the type of global level talent
needed to bring the idea into reality. Moreover,
Yachay could also run the risk of being seen as
a university catering mostly to the needs of the
Ecuadoran (and beyond) elites, isolated and
removed from the rest of the country, operating in a vacuum while much of the country is
struggling to meet basic development goals.
Many would also question as to why the significant amounts of money and energy being
spent on building Yachay is not being invested into Ecuador’s existing—and often under
funded—public universities.
Yet at its best, it aspires to develop a new and
talented generation of technology experts and
business leaders, which would enable the establishment of an effective knowledge-based
economy in Ecuador and the wider region.
The success of the City of Knowledge is critically dependent on the quality of both its
people and the national—public and private—
support provided, leading to the creation and
development of a generation of human, business, and research talent. To this end, Yachay
has the ambition and resources to create a
new type of Andean revolution. Ecuador and
the region are banking on its success, and the
world is watching. Telecoms & IT
learned DREAMS
THEBUSINESSYEAR
109
INTERVIEW
TBY talks to Héctor Rodríguez,
CEO of Yachay Public Company,
on the Yachay University project
and promoting the knowledge
economy.
Yachay University styles itself
as the City of Knowledge. What
does that mean?
Yachay University’s concept
involves the creation of a science and technology park. A
global city is going to be built
where people can experience
the latest technology and
world-class companies can
maintain permanent communication and exchange
businesses. Its full name is
Universidad de Investigación
de Tecnología Experimental,
and it is a fundamental part of
our overall project. National
public-sector research centers
are based across the university, and we are also partnering
with a number of enterprises
around the world in projects
to develop R&D facilities within the city. From an economic
perspective, one of the most
important aspects of the city is
entrepreneurship. As we seek
investment from established
companies, we offer them a
complete business system to
allow for the creation of new
enterprises and start-ups.
Essentially, Yachay is an ecosystem for innovation, with
all systems, public services,
and high-quality, advanced
technologies in place. It is
also important that we are not
competing in the way China
did in the international market 20 years ago, on the basis
of having the lowest labor
costs in the world. Rather, we
are trying to develop a system
Yachay means
“knowledge” in
the indigenous
Kichwa language
and is being
constructed on
4,500 hectares
of land north of
Ibarra
known for having the most
qualified engineers and scientists available. Classical academia in Latin America is not
traditionally about connecting entrepreneurs and the industrial sector. We have a triple-helix concept, which aims
to coordinate the relationship
between the public sector,
academia, and industry. The
public sector and academia
used to invest heavily in basic research, while industry,
in contrast, pursued margins.
Therefore, Yachay University
bridges the gap between basic
and applied research and the
end product.
How will you facilitate the transfer of knowledge between social
segments?
The national constitution recognizes three subsystems in
our economy. The first one
is the private sector, which
guarantees the rights to private property, which is far removed from the model of the
traditional socialist regime.
The second subsystem is the
state sector. And in Ecuador,
we have another one, the
popular solidarity economy,
which involves communal
and cooperative property.
Ecuador is home to 14 nationalities, each with their own
understanding of the law and
the economy. Yachay University cannot merely develop a
strategy that guarantees the
active role of public enterprises. Its role is to develop the
city holistically, and to commercialize technology. In the
1970s, we developed Petroecuador to create an oil-based
economy, and in the 1980s we
created Corporación Nacional
de Telecomunicaciones to develop the ICT sector. We have
developed Yachay because
technology and knowledge
underpin the future. The private sector is the developer of
these new businesses, along
with established companies.
Our role as the state is to enable knowledge transfer from
Yachay to the private companies that are developing the
sector. The popular solidarity
economy, which consists of
cooperatives, such as collectives of banana farmers, is also
important in Ecuador. One of
the commercial failings of this
sector is its lack of access to
technology. This represents
the difference between, for
example, an Ecuadorean banana cooperative and Dole.
Dole obtains its seeds from
Monsanto; it purchases them
at a low price and has its own
laboratories. A banana cooperative may have 10,000 farmers, but lacks such technology,
so it has to buy seeds from
abroad. They are, therefore,
tied to the technological package of fertilizers and pesticides that they have to import.
The final price is also quite
different. This type of business has no way of developing
its own technology in order to
be competitive. Yachay’s role
is not only technological, but
also social and educational
when it comes to offering new
opportunities to the community and introducing new
ways to generate income. BIO
Héctor Rodríguez was
born in Quito in 1980,
and graduated from the
Universidad Católica del
Ecuador, where he studied
Social Sciences as applied
to International Relations.
After later obtaining an
MSc in government and
public affairs from the
Facultad Latinoamericana
de Ciencias Sociales, he
has taught public policy
courses in the Universidad
Internacional del Ecuador
and the Altos Estudios
Nacionales (IAEN). He has
also served as Executive
Director of the Ecuadorean
Agency for International
Cooperation (AGECI)
and as assessor for the
National Secretariat for
Planning and Development
(SENPLADES). In addition,
he has worked as President
of the Directorate of the
Ecuadorean Institute
of Education Credit and
Scholarships (IECE), and as
General Subsecretary for
Science, Technology, and
Innovation.
110
THEBUSINESSYEAR
ECUADOR 2014
FORUM YACHAY
knowledge
CHERRY BITE
JOSÉ ANTONIO
OLIVARES
Ecuador’s Yachay - City of Knowledge project,
inspired by the Silicon Valley concept, is set to get
underway blending higher education with an applied
technology think-tank approach to learning.
ERNESTO KRUGER
CEO, Kruger
General Manager IBM,
Ecuador
T
he government of Ecuador is highly invested in technology, and it
has set the tone for the private sector on how they should allocate their budgets to this field. The best example of this
is the City of Yachay, which is known as the
“City of Knowledge” in Ecuador. In my 17
years at IBM, I have never seen such an ambitious and sizable investment in technology
from the government. This investment also
encourages local technology firms, especially those engaged with software production,
to develop themselves. Ecuador is a leading
software developer in the region if we bear
in mind the size of the country, its economy,
and its population. Ecuador has local software companies exporting regionally with
a high level of reputation. In this context,
Ecuador is firmly moving toward becoming
a regional referent in the software industry
thanks to the economic and industrial developments in the country over the last few
years. And we have to keep in mind not only
the technological production of such an ambitious project, but its future educational
contribution to a country such as Ecuador
and a region like Latin America. Ecuador is
set to become a producer of IT talent from
which the government, as well as the public
and private sectors, will benefit. In this context, the City of Yachay will bring together
the public, private, and academic sectors.
JUAN CARLOS
CISNEROS
General Manager,
Alcatel-‐Lucent
E
cuador has many entrepreneurs,
and 20 years ago many people
started technology companies.
The problem was that we did not have a
government that understood technology.
We did not have a market or laws for entrepreneurs. Today, the new economy that the
government has established has integrated
well. A market needs to speak about innovation and entrepreneurship. Today, it is
as if the stars have aligned and now entrepreneurship is possible, which is fantastic.
I believe Ecuador was reborn, and became
a new country. To this end, I think Yachay
is important in the educational system because it is about research and new technologies, but it is only about applied research.
Research needs to connect to reality. Reality
is the companies, the enterprises, and the
necessities. It is possible for Yachay to have
incubators and accelerators, which is great.
If Yachay has accelerators, this is good for
us, because we need more help to do more
with entrepreneurship and start-ups. Moreover I believe Yachay is doing well in involving the private sector. It is not possible to do
only public work; that is not good. Good examples of this include Ireland, Israel, South
Korea, Malaysia, and, of course, Singapore.
These are examples of start-up nations.
They have blended the public and the private sectors.
E
cuador has experienced significant
changes in its IT industry, not only
in terms of the advancement of its
infrastructure, but in demand patterns and
market trends too. These have been linked
to generational changes in Ecuadorean society. I believe that today Ecuadorean human
capital in segments such as software and applications is highly qualified and skilled. We
have software developers that have worked
with well-known multinationals in the development of new apps and software. However, our segment in particular still requires
know-how and technology transfer from the
main multinational companies operating
in Ecuador. As an Ecuadorean, the Yachay
project will be good for the country and the
industry, positively contributing to building
up such expertise and bringing even faster
technological developments to both Ecuador and the sector. All in all, I think that the
city of Yachay will better position the industry as one of the main drivers in Ecuador’s efforts to change its production matrix, while
boosting the export profile of this industry.
I think higher education centers in Ecuador
should follow the trend that Yachay will set,
boosting cooperation between all parts and
involving the private sector. The effect of
the city of Yachay will impact not only the IT
sector, but the entire economy of the country and its people too, because it will boost
innovation in other key economic sectors for
the country.
Telecoms & IT
THEBUSINESSYEAR
111
INTERVIEW
evolving LEGACY
TBY talks to Omar Monroy, Country General Manager of Xerox, on the
company’s economic contribution and its move to the services sector.
How has Xerox contributed to the economic development of Ecuador?
While Xerox has been growing annually, our
goal has also been to promote our team’s efficiency and productivity as much as needed
to achieve the right goals. In that sense, for
many years, we have set out our expectations
according to a number of metrics such as customer and distributor satisfaction, which are
both on the rise. Paper use is decreasing daily
due to several environmental factors, adding
up to efficiency and cost savings. For many
years, this has been a negative trend for us, because we have been focused on printing paper.
Now, we have recognized that the only way to
survive in this multimedia world is by concentrating on creating efficient solutions in
document management. Therefore, Xerox has
always been a partner for our customers and
not just a retailer. We focus on a few different
market segments, including SMBs and top-tier corporates. On these three levels, we have
always made an effort to provide efficiency
through consulting to our business partners.
Our consulting services are based on managing their documentation processes to better
understand how we can assist them. Being a
business partner implies generating networking relations at all corporate levels and investing money, time, and technology. After all, we
have a similar approach to smaller businesses.
As a result of our consulting services, we have
transformed our business model. At the same
Xerox Ecuador has been the best
operation model around the globe
ip_lnb_j[mn`iolil×p_s_[lm(
time, we have promoted the digital document
process geared toward customer productivity.
What is the importance of Ecuador within Xerox’s
global portfolio?
Xerox Ecuador has been the best operation
model around the globe over the past four or
five years. There are four main regions, including the US and Canada, Asia, Europe, and
the emerging markets such as Latin America,
Africa, the Middle East, and the CIS. Among
these 180 countries, Ecuador has delivered the
best performance and YoY growth. We have
also had the largest market share increase and
have implemented many unique services over
the past three years.
Why is the Ecuadorean market such a strong performer for Xerox?
There are several reasons behind this, one
being that Xerox has been here for around 48
years. For instance, our success is our passion;
BIO
Omar Monroy has a
diploma in business
management from the
Monterrey Institute of
Technology and Higher
Education (TEC Monterrey),
and has studied at
American Junior College
and the Escuela Politécnica
del Ejército E.S.P.E, both in
Quito. Before assuming his
current position, he served
as manager of corporate
accounts sales, managing
both sales and operations
in this area, as well as other
notable positions within
Xerox. Since 1994, he has
received numerous awards
including the highest grade
of recognition within the
]igj[hsih×p_i]][mcihm&
and was responsible
for Xerox Ecuador being
awarded Best Emerging
G[le_n;`×fc[n_ih`iol
occasions.
112
THEBUSINESSYEAR
ECUADOR 2014
we’re proud to be Ecuadorean and hard workers. Also, our customer’s trust due to our value
proposition is key.
In 2013, you mentioned that Xerox still faced the
challenge of being perceived to be focused on paper. What have you been doing to change that?
This has been hard for us to be honest. We’ve
been emphasizing Xerox’s involvement in digitalization and the outsourcing of technology
business processes, including the banking segment. Our communication to top executives is
that Xerox offers IT services and more. We are
now closing deals on this matter with some of
the largest companies in the region. This organization is divided horizontally and vertically,
meaning that we have units that focus on specific segments such as electronic archiving and
banking and education services. One of our
projects, Yachay Laboratories, is where we’re
investing to develop new service technologies.
Xerox has been
in Ecuador for 48
years
The bulk
of Xerox’s
business is
now focused
on electronic
document
management and
business process
consulting
How important is the public sector for Xerox in
Ecuador?
The government in Ecuador is an important
customer that has multiple service requirements. There are around 6,000 companies in
this segment, meaning the government is our
biggest client.
Looking forward, what are your major goals for
the next few years?
First of all, our customers are our main focus.
Xerox is doing well in terms of revenue, profit, market share, inventory, and collections.
However, our purpose is to leave a legacy
based on more than financial results. Secondly, our customers are going to receive fewer
documents printed by Xerox, because we are
corporate citizens, and conscious about the
environment. Consequently, we develop software, technology, and electronics in order to
cut down on paper use. Success is a mixture of skill,
training, teamwork, and passion
Telecoms & IT
THEBUSINESSYEAR
113
INTERVIEW
smart way
TO PAY
TBY talks to William Moss, CEO,
and Richard Moss, President for
Latin America of Cobiscorp, on the
intersection between microfinance
and ICT development.
William Moss has been
Cobiscorp’s President
and CEO since 2005. He
became the Company’s
Executive Vice-President
and COO after serving since
2001 as EVP, Founder, and
COO of Microbanx Systems,
LLC, which merged with
Cobiscorp. He is a founding
member of Washington
Capital Partners and of
Inter-American Merchant
Investors, LLC. William
Moss has served as
Vice-President and Chief
Ch`ilg[ncihI`×]_l`il
the Overseas Private
Investment Corporation
(OPIC) in Washington,
DC; and Vice-President for
Investment Management
of Commercial Materials,
LLC, and an international
private equity fund.
William graduated from
Cornell University with an
MBA (1984) and a BS in
Economics (1977).
Richard Moss graduated
with a degree in Economics
and Japanese from
Cornell University, and
later received a Monbusho
Scholarship to do graduate
work at Keio University in
Tokyo. He holds an MBA in
Finance from the University
of Pennsylvania’s Wharton
School of Business and
an MA in International
Studies, also from the
University of Pennsylvania.
He is currently CEO of
Cobiscorp Latin America.
He has also served in
diplomatic and government
functions as Director
General of the Andean
Community, and was
the Minister of Trade,
Industry, and Fisheries in
the government of Gustavo
Noboa.
Do you think that Ecuador’s reputation falls short
i`l_Ø_]nchanb_mnl_hanbi`nb_n_]bhifias[h^nb_
software sector generally?
WILLIAM MOSS I think all small countries that are
under-capitalized have difficulties playing in the
software business. That is why it is relevant that
we are an inter-American company. As a software
company, Cobiscorp needs access to the financing
required by this business, and that kind of financing has not generally been available in Ecuador.
When countries face a shortage of capital, it tends
to be particularly lacking for businesses like ours
that create intangible products. We have our roots
here, and at the same time we want to be presentable and grow internationally. That is what gives
us that inter-American focus. We do not consider
ourselves to be a global player. There is some use
of our software in places such as Japan and Africa;
however, those were ultimately serendipitous opportunities that arose without precedent. We do
see growth opportunities in Latin America. We also
see that our base market, which is this region, has
expanded into a whole new region, the US.
What kind of challenges have you experienced in
entering the US market?
WM We are growing in Latin America, and have
our eye on the US market. Our priority was to
move to where we could have access to capital. We
have been executing a strategy with a long-term
vision, and moving some strategic pieces of our
organization to be localized where investors need
to see them. As a software company, if you want to
be funded in Silicon Valley, the first thing venture
capital or private equity investors will say is that
they want the senior leadership of the company
to be based there, too. As a result, we have been
proactive in establishing our operations in the
US. Now that Cobiscorp is present in the US, the
strategy has worked because in 2013 we received
major financing from an internationally renowned
private-equity company, which is part of the Tem-
114
THEBUSINESSYEAR
ECUADOR 2014
pleton Group. This has boosted our ability to work
and also enables us to do things such as recognize
some of the opportunities in the US and aim to
bring our product up to the standard of such a demanding market.
RICHARD MOSS We are a well-established company in the IT sector, with access to top talent and
the ability to interest that talent on a long-term basis. At the same time, we have the ability to work
with the major universities here and to influence
the development of their programs. However, our
R&D work also has to take place within the realities
we face in the international market. We are working with world class consulting firms who can tell
us what the market trends are. We are global players but the R&D is done locally with top talent.
What technologies developed in the Ecuadorian
context is Cobiscorp implementing in more developed banking markets?
WM There is microfinance, for example, also
known as small-dollar lending in the US. We are
in an environment now where the demand for this
type of financing is growing. Importantly, Cobiscorp has the technology that allows it to undertake large-scale micro financing in a way that is
economically feasible, even in places such as the
US where labor costs are much higher, which is
something that no US financial technology provider has really had much experience in. We do individual microfinance, solidarity groups, and village
banking. We have just taken on a client in Bolivia
with close to one million microloans, where loan
officers transact business via mobile devices. We
also have several banks in Colombia using our
technology to do several million microloans. This
expertise is necessary now for a whole new set
of reasons. For example, regulators in the US are
pushing programs to attend to the underbanked.
I also think that when you work in these environments it is important, even just with microfinance,
to push the business out to mobile devices for
payments and so forth. Being able to make mobile payments is the leading trend at the moment.
That is the reason why, through a combination of
circumstances, we ended up being the technology
provider for one of the largest telecommunications
companies in Japan that wanted to enable immigrants there to send money by mobile phone.
Given your international presence, what is the sighc×][h]_i`?]o[^ilninb_]igj[hs9
RM The government is focusing on the IT sector.
There are major changes taking place in the world
of payments, with digital money coming onto the
scene, which is being sponsored by the central
bank. Those are all areas where I believe there is
enormous potential to increase the volume of
business in Ecuador, and that will have an impact
on the change that is occurring in both the productive matrix and in this new digital payments world.
What is next for Cobiscorp?
WM Our next step is to leverage our expertise in
what we call ubiquitous finance. This means the
ability to make the technology that enables financial services work anytime, anywhere, for anyone.
This is bringing in inclusive banking capabilities
that are frictionless and borderless. We want to
become a recognized player in the enablement
of ubiquitous finance to satisfy that need, also we
are focused in our “digital banking product portfolio.” Cobiscorp
is a pan-American
×h[h]c[fmi`nq[l_
provider with
roots in Ecuador
and the US
The company
is looking to
leverage its
expertise in
mobile services
`ilgc]li×h[h]_
providers to grow
in the US market
Telecoms & IT
THEBUSINESSYEAR
115
INTERVIEW
THE IT crowd
TBY talks to Katherin Miño, General Manager of
PuntoNet, on improving internet penetration,
streamlining installation, and promotions, and
staying responsive to consumer trends.
How would you describe PuntoNet’s role in Ecuador’s internet sector?
PuntoNet’s role is vital, as we
help companies to develop
their activities and integrate
different applications around
Ecuador and the world. Telecommunications is a crucial
tool that enables companies
to optimize their time and
resources and dedicate themselves to developing their core
business without worrying
about such activities as telecommunications
Over the past seven years, the
country has seen a profound
economic transformation, with
internet penetration jumping
from 6% to 70%. How has this
changed the internet business?
BIO
Katherin Miño, General
Manager of PuntoNet,
studied Business
Administration Engineering.
Afterwards, she earned an
MBA at the International
SEK University and
a MSC at the ADEN
Business School. Sánchez
complemented her studies
with management and
coaching programs at
the Florida International
University (FIU). She is an
accomplished negotiator,
as well as knowledgeable
ch[^gchcmnl[ncp_&×h[h]c[f&
[h^n_]bhc][f×_f^m(
Her professional career
has focused primarily
on the development
of telecommunication
companies.
In the past we lacked the tools
to provide good coverage and
could not reach all segments.
With government support to
develop telecommunications
and create regulations, coverage in Ecuador today is good.
We can provide internet to
people and to companies
with many kinds of systems,
including satellite, fiber optic, wireless, copper cable,
and more.
How did that transformation
change the way PuntoNet approaches the market?
We have two different segments, each with a special
focus. The first segment is
home broadband. For this
segment, PuntoNet created and implemented a large
wireless network around Ecuador, building a dedicated
product that was more cost
effective than other methods.
Our strategy was to form close
Galápagos, being islands, exclusively have satellite coverage. In the key cities, we have
a fiber-optic or wireless network. In the smaller cities, we
only have a wireless network
because its implementation is
more convenient.
What distinguishes PuntoNet
from some of the larger names
in the market?
relationships with our clients
since in the early days many
were unfamiliar with internet
usage, perceiving it as largely
a medium for entertainment.
At that point, the government
supported the use of the internet to develop and spread
knowledge. Then, there is the
corporate segment, where
the key consideration is innovation and the renewal of
technology. We want to give
companies the entire IT infrastructure they need to facilitate the running of their business. Companies do not have
to spend money on servers, or
telephone systems, so we provide this. Our business is 65%
corporate and 35% home clients. Our focus is on the corporates because by the nature
of business they have the most
urgent requirements. We are
fourth in Ecuador in terms
of corporate market share,
but we do not count Claro or
Telefonica because their core
businesses are somewhat different from our own.
How large is PuntoNet’s network coverage, and what challenges have you faced in building network infrastructure from
scratch?
We have commercial offices
in 13 cities, but provide 100%
nationwide coverage of Ecuador. The difference is in the
kind of technology employed
in each city. For example, the
We are fundamentally different from other companies for
two main reasons. Firstly, our
service is easy to install. Other
companies take between 10
or 15 days to activate. We can
install it within four or sometimes three days. We also run
campaigns with a same-day
installation service. People do
not like to wait, so this makes
a real difference. Additionally, the larger companies have
many internal processes and
inevitable bureaucracy. We
are a private company and it
is a simple task for us to optimize the process. If I want
to run a campaign this weekend in some neighborhood or
other, I can offer to install the
service the same day. It makes
a big difference. Another thing
is that we do not contract
work out to third parties. We
want to be a company that
creates jobs, our entire team
belongs to PuntoNet. We create a culture of belonging, and
our employees are motivated
to do the job right.
What are your goals for Punnih_nip_lnb_h_rn×p_s_[lm9
We have two goals. One is to
keep a long relationship with
our home clients. The other
is to improve our relationships with our corporate clients and provide them with a
greater range of tools so that
they remain with us. I anticipate us becoming a large
company recognized for its
human talent and committed
to its mission. 116
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
cheap &
CHEERFUL
What kind of challenges are
faced by an internet service provider in Ecuador?
TBY talks to
Tomislav Topic,
CEO of Telconet, on
targeting corporate
internet subscribers,
the internet and
economic growth, and
navigating localized
impediments to
growth.
Over the past seven years, internet penetration in Ecuador has
grown from 6% to 70%. How has
that changed the sector and the
way you do business?
The internet is becoming
commonplace
nowadays,
and the industry is becoming
more mature. We have grown
significantly in both urban
and rural communities, not
only in terms of the total user
numbers, but also in average
internet speed. We can safely say that Telconet and its
brands are by far the greatest
contributors to the average
speed of connections in Ecuador, which has the fastest
speed after Mexico since January 2014. In mid-2014, we
will surpass Mexico with an
offering of 100 Mbps for less
than $40. Coverage has increased, and we have grown to
60,000 registered users, while
adding 3,000 to 4,000 users a
month. We stand to become
the Latin American leader in
broadband speed.
How does Telconet approach today’s market in Ecuador?
We go after the customers
who need more bandwidth in
a more secure manner; that is
our market. We are not very
active on the low-end residential market, instead we
are focused on the corporate
market That being said today
Megadatos through the Netlife
brand is targeting the residential market with fiber optic to
the home, and we provide services to Megadatos.
How has the growth of internet
speed transformed how Ecuador does business?
It helped to reduce entry
barriers to the cyber market.
Most of our customers, direct
and indirect, now have very
good access to information,
and now small producers can
position and advertise their
products. Many studies have
tried to establish the relationship between broadband
internet use and the national
economy. Some suggest that
it might be responsible for 1%2% of GDP growth. The Minister of Telecommunications
has provided an open field so
that companies can provide
their best services. As long as
the government does that we
will grow, but the minute the
government tries to control
the market, the nation will
suffer. Some governments
try to favor their state-owned
companies, but this is short
sighted because the whole
country will suffer for the benefit of few.
The municipalities now have
broad powers to issue taxes
on cables; we have identified
five municipalities that charge
unreasonable or wild sums for
this. One small municipality
has charged us $1.2 million for
a small segment of fiber-optic cable. Even if you lawfully
argue against it, they dismiss
your arguments and order
the banks to collect the money. We are actively trying to
counter those unreasonable
charges.
Telconet
žJlipc^_mnb_
fastest internet
connection in
Ecuador
žcmnb_f_[^cha
ISP in the
corporate
segment
What does Telconet do to invest
in people?
We provide people with training and funding for education,
and we also finance 50% of
their career. If there are courses directly connected to their
work, we cover 100% of the
cost. We spend perhaps one
of the highest shares of total
revenues in the industry on
training.
What are the differences in the
way you need to approach the
corporate and residential segments of the market?
Of our total business, 75% is
corporate and indirectly 25%
is residential. We are the leader in the corporate market,
and through the Netlife brand
we expect the residential segment to become equally significant. In the corporate market you have to take care of
every customer individually,
as each has particular requirements that demand personalized attention. The residential
component is a massive market where the focus is on the
significant majority. You cannot be certain that everyone is
satisfied with the service. BIO
Tomislav Topic studied
Electrical Engineering
at the Escuela Superior
Politécnica del Litoral (ESPOL) in Guayaquil, before
completing a Master’s in
business administration at
INCAE. He has more than
30 years of experience in
the IT sector in Ecuador.
He has been involved in
the creation of the most
important, world-class
data centers constructed
in Ecuador. As Founder and
President of Telconet, the
largest private data carrier
in the country, his company
has been responsible
for the construction of
×\_l'ijnc]ch`l[mnlo]nol_&
^cacn[f]_lnc×][ncih&[h^nb_
provision of data center and
cloud computing services
throughout Ecuador. His
expertise has been shared
through his presentations
at major forums and panels
across the region.
Telecoms & IT
THEBUSINESSYEAR
117
MEDIA B2B
JOSÉ DANIEL
GÓMEZ
ORLANDO PÉREZ
Director, El Telégrafo
President, DIRECTV
live from
ECUADOR
The local media landscape is evolving with the
times, and there are plenty tof options, from TV
to newspapers.
What role has the company
played in Ecuador’s media landscape?
JOSÉ DANIEL GÓMEZ DIRECTV
operates in the Americas, principally in the US, where we have
over 20 million subscribers. Our
Latin American operations are
based on two services: Sky in
Mexico, Central America and
Brazil, and DIRECTV in a region
we call PanAmericana, which
has nine countries, mainly in
South America and the Caribbean. Official data from Supertel,
the official data provider, shows
we have 335,000 subscribers in
Ecuador as of end-2013. Meanwhile, in Latin America, we have
17 million subscribers overall,
which includes Brazil and Mexico, and features all Sky and
DIRECTV operations. Ecuador
had a small market before we
launched DIRECTV Ecuador
in September of 2008. It was
a small enterprise handled by
local partners, with 26,000 subscribers, which we have grown
to 335,000 in six years.
ORLANDO PÉREZ El Telégrafo
has a long tradition in the Ecuador's media industry. At the
beginning, it was a local private
newspaper based in Guayaquil
and, today, with public management, it is one of the most
important national newspapers.
One of El Telégrafo's strengths
is that we think of information
as a process, and we follow every important news item and
its consequences and explore
what is behind it. Also, we have
ambitious editorial projects at
the national level. On the other hand, we compete against
strong media outlets in Guayaquil and Quito, the main cities in Ecuador. For this reason,
over the past few years, we have
published local and regional
editions to get closer to these
realities and we tell stories that
any other big media outlet tells.
Credibility is our main quality in
comparison to our competitors.
What are your goals?
JDG The market is still at the
growth stage, and I foresee no
deceleration in the near future. The market is growing as
a whole, and still less than one
out of every five homes has paid
TV. Hence, it is quite feasible
to reach five out of 10 homes
within the next five to 10 years.
With a population of around 15
million, and around 4 million
homes, the market is there. Of
course, it gets progressively
more difficult to win new cus-
tomers as the competitive environment becomes crowded,
but we are in a solid position for
growth on the strength of our
technology, service, and content. We hold the rights to a wide
array of sports, and offer something for the whole family.
OP We have two main goals.
First, we want to become a leading national newspaper in Ecuador with coverage in all points
of the country that reflects the
reality of the nation. In second
place, our purpose is to publish
the economic, social, and industrial growth that the country
experimented and will continue
to do. At this time, our priority is
to train a staff with better skills,
and we want to become a leading newspaper with our information and our professionals.
We will achieve these goals in
the next five years. The government is renovating
the once neglected railroads
to revitalize communities
throughtout the Andes.
Image: Ferrocarriles
THEBUSINESSYEAR
119
122
125
127
Paola Carvajal, Minister of
Transport and Public Works, on
investment in transportation
infrastructure.
The expansion of the Panama
Canal has the transport sector
scurrying to accomodate expected
increases.
Manuel van Oordt, CEO of
LAN Ecuador, on commuting
culture and anticipating market
developments.
Transport
REVIEW
The government has realized the importance of an effective and efficient
transport system, and has been investing billions to renovate and expand
old networks to boost economic activity.
CALIBRATE
& FINE TUNE
T
he topography of
Ecuador
means
establishing
an
effective
transport system is no easy task.
However, with a considerable amount of investment
and planning the country is
well on its way to achieving
its goals. Under the Strategic
Mobility and Transport Plan
(PEM), initiated by the Ministry of Transport and Public
Works and run by Ineco, the
sector has been working to
set up a comprehensive multimodal transport system to
connect the entire country.
The plan is set to influence all
infrastructural investment related to transport from 2013
to 2037 and cover all modes
of transport. It is based on a
similar strategy carried out by
Spain, and will link territories
and provinces to make them
more competitive on land,
sea, and in the air.
ROADS
In total, Ecuador has 43,197
kilometers of road, of which
6,467 kilometers are paved.
Even though air and rail have
made huge improvements
The government is investing large
amounts of money in the country's
transport infrastructure. The idea being
that a sophisticated and expanded
transport network will allow better
access to markets and attract more FDI.
over the last few years, the
road is still the main form
of transport for many of the
country’s inhabitants. The
main reason it is still such a
dominant force in the transportation sector is because
of the reach of its network. It
is able to connect 82% of the
country’s population. However, while the network is
extensive, large parts of it are
generally unusable for any
significant commercial use,
and tend only to be used by
private automobiles and public buses. Under the PEM, the
sector aims to create a series
of hierarchical hubs that will
provide access to ports, airports, and other areas of public interest. As of July 2013,
the Correa administration
had invested $800 million in
upgrading and extending the
road network, with a further
$5 billion earmarked for future investment. Some of this
investment is aimed toward
local farmers to help them
transport their goods more
effectively to international
markets. In April 2013, the
Development Bank of Latin
America (CAF) signed a loan
120 THEBUSINESSYEAR
ECUADOR 2014
agreement with Ecuador for $75 million to
partially fund the Public Investment for Road
Infrastructure Program. The main focus behind the program is to promote the conservation of the road network while also making
a positive impact on traffic, road quality, and
safety. The program is a part of the National
Development Plan, which one of its aims is to
create a sustainable and improved cargo and
transport network, through programs and
planning, and the reduction of transport and
travel costs.
RAIL
Under the Strategic
Mobility and Transport
Plan (PEM), initiated
by the Ministry of
Transport and Public
Works and run by
Ineco, the sector has
been working to set
up a comprehensive
multimodal transport
system to connect the
entire country.
Ecuador has an old railway dating back to the
1800s that used to spread over 1,000 kilometers; however, over many years of neglect, a
lack of investment, and the harsh weather
conditions Ecuador experiences, by 2008 only
10% of the original track still remained. It was
in this year, however, that the government
embarked on a massive restoration plan with
an aim to return it to its former glory. Today,
the country has 966 kilometers of working
track after an extensive amount of work was
put into the network. The railways are state
owned and mainly used for tourism, the most
iconic being the Tren Crucero, or Cruise Train.
Since 2008, the government has invested $280
million in this 400 kilometers of track, which
connects Quito in the Andean mountains to
Guayaquil on the Pacific Coast. Since the renovation, the line has boosted economic activi-
ty in many villages along the track, which were
for a while, largely cut off from the outside
world. As Eduardo Carrera, General Manager of Ferrocarriles del Ecuador, put it to TBY,
“The communities on the train lines are the
ones in charge of managing them, so we will
increase their level of participation, generating
job opportunities with as many as 5,200 direct
employment positions and around 16,000 indirect ones, as well as providing economic alternatives to these communities.”
While the current rail network is largely used
for tourism purposes, the government is investigating the possibility of increasing its role as
a freight carrier. In December 2013, Ecuador’s
National Pre-investment Institute (INP) commissioned Barcelona’s metro operator, TMB,
to carry out a feasibility study for the construction of an electrified rail network connecting
key mining centers with the country’s ports
on the Pacific Coast. The 10-month study will
look into the viability of connecting the mines
in the southeastern part of Ecuador with Puerto Bolivar. In addition to this, the study will
also consider the possibility of installing a passenger line from Quito to Guayaquil; however,
unlike the Tren Crucero this will be aimed at
the high-speed transfer of passengers between
the two cities, unlike the four-day journey taken by the Cruise Train. The TMB will look to
find the best economic, technological, financial, and environmental options for the project
and deliver its results toward the end of 2014.
MARIA DE LOS ÁNGELES DUARTE
Former Minister of Transport and Public Works
What role can foreign investment play in the
development of future projects?
We still have much to do, and opportunities abound
for foreign investment. In fact, it is required in
order to realize building such large infrastructure
projects as the super highways. The Strategic
Highway Plan is set to become a very attractive
proposition for foreign investors. Also, Ecuador’s
ports need more investment to develop key
projects to increase their capacity and capabilities.
For example, the Port of Guayaquil needs to be
dredged to become a deep-water port to accommodate larger vessels; we are also advancing the
tender process for the operation of the Port of
Manta, another key infrastructure project for the
country’s future, because it can further boost Ecua^ilÎm_rjilnjli×f_(Chnbcm]ihn_rn&nbcmcmnb_×lmn
maritime port to be operated on a concession basis
by a third party, and we expect to do the same with
the other Ecuadorean ports.
What are the main competitive advantages of
Ecuador?
Ecuador is located in a geostrategic position to
become a leading logistics player in the region, close
to the Panama Canal. Additionally, the Port of Manta
is a deep-water infrastructure that does not need
dredging in order to accommodate large vessels. In
this context, we enjoy a closer position to Asia than
many other countries in the region. Ecuador is also
the country with the widest and richest biodiversity
in the world; we have many different climate zones
and highly diverse fauna, unique traditions, culture,
and communities, and we also boast the Galápagos
Islands. The country has a unique potential to boost
its tourism offering and become a top worldwide
destination, and in this context Ecuador also has
great potential for culinary tourism. Whatever the
essential investment already made in infrastructure,
that earmarked for the future will play a key role in
l_f_[mchanb_jin_hnc[f?]o[^ilb[mch[ff×_f^m(
Transport
N?OJilnNl[`×]"chNbiom[h^m#
PORTS
Source: World Bank
Being so close to the Panama Canal and having such a large coastal stretch, Ecuador’s
ports have always been important for imports
and exports. The main ports in the country are
Esmeraldas, Bolivar, Guayaquil, and Manta,
which are all state owned. According to the
World Bank, TEU traffic is increasing in Ecuador, up from a little over 1 million in 2009 to
1.12 million in 2012. This increase is somewhat
different to Ecuador’s neighbors, which mainly saw decreases in port activity, with Colombia falling 6.9%, Venezuela 8.2%, and Panama
4.1% in 2013 compared to 2012.
The government wishes to continue this
growth, and has decided that certain reforms
will be the best way to achieve this. One of the
main changes will be the abolishment of the
four separate port authorities managing the
ports, with the Ministry of Transport and Public Works taking over control. By doing this, the
government hopes it will be able to specialize
each port and have them cooperate to create a
more efficient and effective import and export
system. “The government aims to boost maritime and port activities to develop the production matrix and open new business channels. Ecuador’s ports will play a major role in
the national effort to change its trade balance,
positioning the country as one of the main regional ports,” Rocío del Pilar Proaño Villareal,
Sub-secretary of Ports and Maritime Transport, explained in an interview with TBY. 1400
1200
1000
800
600
400
200
2012
2011
2010
2009
0
While the TMB looks into the country’s national network, Metro de Madrid was selected
to carry out technical studies to build the Metro de Quito. Plans to build a metro system in
Quito were first drawn up in 2009 and the design was completed in 2012. In January 2013,
construction began on the $1.68 billion Line 1
that will run from Quitumbe bus station in the
south of the City to Mariscal Sucre Airport in
the north. The line will have 15 stations and it
will take 34 minutes to complete the 22-kilometer trek. Plans for three additional lines are
being considered; however, work is unlikely
to begin before the completion of the first line
in 2017. It is expected that by 2030 the metro
system will handle 500,000 daily commuters,
up from an initial expected demand of 378,000
daily commuters in 2017.
THEBUSINESSYEAR
121
AIR
One of the biggest projects in recent times for
Ecuador has been the construction of its new
international airport in Quito. The $700 million Quito International Airport was officially opened to commercial traffic in February
2013. The airport boosts the longest runway
in Latin America at 4,100 meters, some of the
most sophisticated air-traffic control technology around, and 38,000 sqm of terminal space
with an annual capacity of 5 million passengers. The airport also includes an additional
34,000 sqm of additional buildings, which include the control tower, cargo space, hangers,
catering, and ancillary aviation services. Now
that the country has the infrastructure, it is
looking to increase its connectivity. According to Paola Carvajal, Minister of Transport
and Public Works, “In accordance with the investments that have been made, the Ministry
is updating the Air Services Agreements with
our sister nations in order to improve international air travel connectivity and attract a
wider network of transport services to benefit
passengers and improve our export capacity.”
EDITH
VILLAVICENCIO
General Manager, DHL
Express
DHL Express is focused on international express
services. We are not developing our local business
in terms of domestic delivery, which is the key
difference. We are international specialists in imports
and exports for companies here in Ecuador. We have
the infrastructure, have been working here for 30
years, are the only multinational company present,
and are a part of Deutsche Post DHL. No other
courier here can boast this asset and all the knowhow that comes with it.
122 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
the road
home
In your capacity as Minister,
what do you currently identify
as the greatest strengths and
weaknesses of Ecuador’s transport infrastructure?
Our greatest strength right
now is that the national government and the Ministry
finally have an integrated vision that takes into account
all modes of transport and the
connections between them.
During the term of this government, as part of the “citizens revolution,” there has
been increased investment
in multi-modal transport infrastructure, which for many
years had been unattended
to, or non-existent, in order
to provide the most modern
transport and logistics systems, as well as promote greater regional integration for Ecuador. Furthermore, Ecuador
has a national road network
of the first order, which serves
as a base for maintaining high
levels of service, allowing
conservation of the network.
Finally, we have airports that
can meet the needs of our
economy with modern systems of navigation.
With the implementation
of the National Strategic Plan
for Mobility and Transport,
we are working to overcome
many of the weaknesses that
persist in our transport system. We will have a balanced
and integrated road system,
which will connect the entire country with infrastructure that is modern, and fit
for purpose, for all modes of
transport. We will also have
secure roads that meet inter-
TBY talks to HE Paola
Carvajal, Minister of
Transport and Public
Works, on investment
in transportation
infrastructure,
responding to changes
in the maritime
industry, and
developments in the
aviation industry.
national standards allowing
us to increase capacity. Additionally, our airports and
seaports will be standardized
to international norms, and
our railways will have an integrated automated signaling
system. Finally, overall, we are
working to develop improved
multi-modal transport integration between all forms of
transport.
What efforts is the government
making to ensure that Ecuador’s maritime sector remains
competitive with the expansion
of the Panama Canal?
Our three priorities in this area
are to define a national vision
and policy for our ports, to develop the Sectoral Port Plan,
and to continue investing according to the needs of each
port. In addition, the development of the Port of Manta will
permit ships of a greater draft
to come to Ecuador’s ports,
which will allow us to receive
vessels whose only other option is Panama.
What is your vision for the air
travel sector in Ecuador?
The vision of the Ministry
with respect to the air travel
sector is based on coordinat-
Ecuador
is seeing
historic levels
of investment
in its transport
infrastructure
ed investment in infrastructure and services, as much in
the air travel sector as in the
airports themselves, in order
to develop national destinations and bring benefits to
the regions located within the
area of influence of these airports. This has motivated the
gradual growth in routes and
frequencies within the country. In accordance with the
investments that have been
made, the Ministry is updating the Air Services Agreements with our sister nations,
in order to improve international air travel connectivity
and attract a wider network of
transport services to benefit
passengers and improve our
export capacity.
What role can the private sector have in the development of
Ecuador’s transport infrastructure?
By using public-private partnership (PPP) models, we
can increase investment in
infrastructure in Ecuador. It
should also be mentioned that
the construction sector, specifically relating to transport
infrastructure, has benefited
from a historic level of investment in recent years.
What are your priorities for
transport and infrastructure
policies?
Our top priority is to guarantee access to transport
and mobility services that
are inclusive, secure, and
sustainable on a local and
international level. I also
want to use transport policy
to promote the conditions
of competitiveness and productivity that are necessary
to enable the transformation
of the productive matrix,
and the consolidation of the
most equitable structures for
the generation and distribution of wealth. Overall, my
goal is to enable connectivity
through different modes of
transport at the highest standards of quality. BIO
Paola Carvajal was born in
Guayaquil and graduated
in Civil Engineering from
the Instituto Tecnológico
y de Estudios Superiores
de Monterrey in Mexico.
She has a Higher Diploma
in Occupational Health
and Safety Management,
and is currently working
on her doctoral thesis in
civil engineering with a
focus on transport at the
Universidad Politécnica de
Cataluña in Spain. She has
]_lnc×][ncihch[o^cncha[h^
urban planning, and has
participated in a training
program for administrators of public transport
along with numerous other
courses. Since 2006 she
has served as a Professor
at the Universidad Católica
de Guayaquil, introducing
ideas and courses from other countries and systems.
Most recently, she worked
as Executive Director of the
Agencia Nacional de Tránsito from December 2012 to
March 2014.
Transport
THEBUSINESSYEAR
123
INTERVIEW
TBY talks to Armando
Castellanos Talero,
General Manager
of Servientrega, on
developments in the
logistics sector, staying
competitive, and
navigating new markets.
ket players by surprise, as they
found they had no local alternatives, whereby many made
strong short-term commitments.
What role can the logistics sector play in the transformation of
Ecuador’s production matrix?
always
COMING THROUGH
What is the role of Ecuador in
Servientrega’s international operations?
Ecuador plays a major role in
Servientrega’s global operations, because it was our first
experience abroad. This in itself is an important factor for
our Colombian headquarters.
We arrived in the Ecuadorean
market 20 years ago (1994), at
a time when the country enjoyed an oil boom, making it
attractive for investment. It
was in fact a situation reminiscent of what the country is enjoying today. Servientrega saw
Ecuador as a strategic market
to enter; it has similar characteristics to that of Colombia,
whereby our competitive advantages offered new services
to the market. On top of that,
we share the same language,
which also facilitates business.
How have Servientrega’s activities evolved since the dollarization of Ecuador?
The country has evolved considerably since the establishment of local operations, and
also in the light of political
and social events. Over the
past few years, the country
has gained political, economic, and social stability,
which has enabled companies to formulate longer-term
strategies and better predict
economic performance. This
environment has strengthened us, as we gradually
consolidated our operations
in Ecuador. Over the years,
we have learned to diversify
our activity here, expanding
to new segments. Also, rising
purchasing power and the
expansion of many economic
sectors have helped us to increase our role in this market.
Servientrega
emphasizes
maintaining highquality trained
staff as a key part
of its operations
Qb[nnl_h^mb[p_sioc^_hnc×_^
in the market over recent years?
This is a transition period for
Ecuador, an important moment in which it is set to show
foreign markets the real competitive level and added value
of its production. This production requires high-quality
standards and competitive
prices. The government implemented a strong program
to substitute imports for local
production that supports this
transition process. This has
caused some economic turbulence in terms of the performance of companies during
1H2014, which will gradually
pick up during 2H2014. It is
an ambitious plan that the
government supports with
tax and other legal benefits.
This process took many mar-
BIO
Armando Castellanos has
worked with Servientrega
Ecuador since 1994, in the
positions of National Logistics Manager, Financial and
Administrative Manager,
and currently as General
Manager. Prior to working
with the company, he was
employed as the Manager
of Colombian Operations
for Servientrega in Tolima
from 1989 to 1994. He
graduated with a degree
in Political Economy from
the Universidad Libre de
Pereira in Colombia in 1988.
Nowadays, a more integrated
logistics industry with better
products and solutions has
allowed for a higher degree
of specialization and professionalization in the sector.
Many players have learned to
adapt themselves to the real
needs of clients. We have seen
improvements in the quality
of services, storage services,
and cargo handling, and also
in the utilization of technology. We have also seen an improvement in the human capital of not only this sector, but
all sectors in general.
What are the competitive advantages of Servientrega?
We built the company from
nothing, which means that
we know in detail what we do
and what our clients require.
We provide personalized and
integrated products and services to meet their demands
and standards. We hold several ISO certificates. We have
also started a specialization
process to become a leading
company offering solutions
for the transport and distribution of hazardous substances
and goods, as there is an interesting market niche there
with a very low offering at
present. This requires strong
external preparation in terms
of certification, licensing, and
staff training. Currently, we
are training our personnel,
obtaining the pertinent environmental certificates and
licenses, and preparing our
facilities and fleet. We always
prioritize the implementation of solutions according to
what our clients need, as we
develop an integrated plan
along with them. 124 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
MOVING on up
TBY talks to Fernando
Guerrero, General
Manager of TAME EP,
on competition and
pricing, the new hub
in Quito, and adding
international flights.
What is the importance of
TAME for Ecuador’s transportation system?
TAME connects the country.
If you compare TAME to other airlines in Ecuador, such as
LAN or AeroGal—AeroGal belongs to Avianca Group—you
will see that TAME’s coverage
is much wider. Other companies tend to focus on highly
profitable destinations, such
as the Galápagos Islands. The
basic principal of TAME is to
fly within our home country.
We connect almost 15 different destinations in the country, including the Amazon region, the Galápagos Islands,
and coastal Ecuador. We have
nine international destinations that connect Ecuador to
other Latin American countries and the US. TAME has
flights to São Paulo, Buenos
Aires, Lima, Panama City, Caracas, Havana, and New York.
Is part of TAME’s mission to
act as a representative for the
country internationally?
There is an interesting development happening all over
the world. Larger airlines
are disappearing because
of the economic downturn.
Fuel, pilot training, and aircraft are becoming incredibly expensive. In Southern
BIO
Fernando Guerrero studied
sales engineering at the
Escuela Politécnica del
Ejército, followed by an
advanced English program
for graduates at Texas
A&M University, and an
MBA in business administration with a specialization
in logistics and international commerce at Loyola
University in Chicago. His
career has included such
positions as Manager of
Sales and Operations for
Challenge Air Cargo (UPS)
from 1992 to 1997, Senior
Consultant for Deloitte &
Touche, and Director of
Business and Logistics
Project Development for
TAGSA-CORPORACIÓN
AMERICA in Guayaquil.
In addition, he has served
as Regional Director of
EMSA-SERVISAIR and
Director General of Civil
Aviation in Ecuador.
America, international airlines are leaving the market.
They have left a duopoly
in the airline sector in Latin America with only LAN
and Avianca Group. Recently, Avianca Group started a
joint venture with TAM from
Brazil. TAME plays a major
role in attracting tourists
to Ecuador and helping to
keep prices competitive. Before TAME launched regular
flights to Bogotá, you would
possibly pay $800 for a onehour flight from Quito to
Bogotá. In 2007-2008, if you
wanted to travel from Quito
to Buenos Aires, you would
pay $1,500. Today, the prices
have reduced considerably—
now you will only pay $400
for a flight from Quito to Bogotá—it is half of the price
you had to pay before TAME
launched this route.
In 2011, TAME became a public company. What was the importance of this transition for
TAME?
Before 2011, TAME belonged
to the Ecuadorean Air Force.
In 2011, it became a 100%
state-owned company. The
Ministry of Transport, the institution responsible for delivering government policy
in the transport industry, has
jurisdiction over the company. The Ecuadorean Air
Force was focused on offering transport services within
the country and didn’t consider the international market. Another major change
concerns our commercial
strategy. The price of tickets
is now related to the time
you are buying them, and
changes if you buy the tickets
a day or a month before the
scheduled flight. The image
and branding of the company has changed, too.
TAME
was part of
the Ecuadorean
Air Force until
2011, when
it became a
separate public
company
What does TAME do to compete
with the duopoly in the airline
business?
We have a number of distinctive features. Our key advantage is the connectivity
between Quito and the rest of
the country. In the summer
of 2014, we are establishing a
huge hub in Quito. It will stand
in line with international hubs
in Lima and Bogotá, and will
have a very short transiting
time of 30 to 60 minutes.
Is New York important addition
in the transition of Quito into a
hub?
Yes, because currently, the
flight to New York departs
from Guayaquil, and soon it
will depart from Quito. As a
part of this strategy, we will
also have a flight to Ft. Lauderdale. It is both cheaper and
faster to fly there than to Miami, although Miami Airport
is convenient for transit passengers. However, there are
many flights, and sometimes
you need to wait for three
hours or more in transit. The
headquarters of many major
North American airline companies are also located in Ft.
Lauderdale. Transport
THEBUSINESSYEAR
125
PORTS FOCUS
HARMONIZED
EXPANSION
The potential for larger ships requiring deeper ports
following the expansion of the Panama Canal has seen both
operators and the state swing into action.
Ecuador currently has four large stated-owned
commercial ports, Esmeraldas, Bolivar, Guayaquil and Manta, as well as three other smaller
ports, namely La Libertad Port with a maximum
draft of 12 meters, and Bahia De Caraquez and
San Lorenzo Ports that are both small river ports
with maximum drafts of 7.8 meters and 6.6 meters, respectively. At one time Bahia De Caraquez was in fact Ecuador’s largest port; however,
the focus there now is on eco-tourism activities.
In terms of overall container traffic using
the standard unit of measurement, equivalent
to containers of 20 feet or 6.25 meters (TEUs),
Ecuador was ranked number 54 in the world
in 2012 with a world share of only 0.2% according to Fact Fish data. However, TEU traffic
increased from 1,000,895 TEUs in 2009 up to
1,124,415 TEUs overall for Ecuador’s ports in
2012 (World Bank figures), somewhat bucking
the global trend for deceleration in port activities. Of its near neighbors, Colombia suffered a
6.9% decline in port trade, Venezuela was down
8.2%, and Panama dropped by 4.1% in 2013
compared to 2012 figures. In contrast the latest
report released by the UN’s Economic Commission for Latin America and the Caribbean
(ECLAC) shows that Chile’s growth was up 6%
in 2013 compared to 2012 figures, Brazil was up
6.2%, and Ecuador’s trade rose by a more modest 3.9%. The best results were experienced in
Uruguay and Argentina where port trade rose
by 9.7% and 9.8%, respectively.
BANANAS FOR SALE
In terms of specific areas of trade, Ecuador is
the world’s largest exporter of bananas and they
make up a whopping 22.3% of the country’s exports. Some 40% of this trade goes through the
Port of Bolivar in El Oro Province, where 92%
of the port’s activities relate to banana exports,
while the remaining activities include the export of other perishable goods such as broccoli, pineapple, mango, and passion fruit, as well
as cocoa. Between January and October 2012 a
total of 1.26 million tonnes (1.38 million tons)
of fruit were exported through Bolivar Port. By
way of comparison over the same period in
2013, 1.29 million tonnes (1.42 million tons) of
bananas alone left via the port thanks to infrastructure improvements worth $51.2 million,
according to figures from Fresh Plaza Global
Fresh Produce and Banana News.
RESTRUCTURING TO IMPROVE
GROWTH
One of the maritime policy issues Ecuador’s
government is wrestling with currently is rivalry
between the state-owned ports of Esmeraldas,
Bolivar, Guayaquil, and Manta. To this end,
in 1H2014 Ecuador’s President Correa passed
a decree abolishing the four port authorities
and centralized their administration under
the Ministry of Transport and Public Works instead. The government’s intended strategy is
to develop each port’s area of specialization in
the hopes of forming a complementary countrywide port infrastructure capable of future
growth. There is also a desire to capitalize on
Ecuador’s geostrategic position with a view
to benefiting from the current Panama Canal
expansion program. Of Ecuador’s four stateowned ports Esmeraldas, situated at the mouth
of the Esmeraldas River, is the furthest north
and serves the country’s northern hinterland
including exporting its agricultural products,
wood, and wood chips. The Port of Manta positioned at the center of Ecuador’s Pacific Ocean
coastline is the country’s deepest port. It has
an international terminal and also has a niche
as the hub for Ecuador’s tuna fishing industry
and related export trade for which the port has
a second fishing terminal. In terms of international trade, Manta competes with Guayaquil
Port, which is only 200 kilometers away and
accounts for the largest volume, some 90%, of
both inbound and outbound cargo in Ecuador
despite not being as deep as Manta Port. Bolivar Port dominates the country’s banana trade.
As Rocío del Pilar Proaño Villareal, Sub-secretary of Ports and Maritime Transport told TBY
in a recent interview, “Our concern leans more
towards specializing our ports for greater dynamism and activity.” To this end there is a twostage development plan to increase the water
depth at Manta Port from its current 12 meters
to 14 meters, then 16 meters to allow larger vessels in. With further government investment
earmarked to create another port beyond the
Gulf of Guayaquil to allow for increased shipping traffic without the need to dredge the existing Guayaquil Port channel.
FERNANDO
VELA HOLGUIN
Country Manager,
Cotecna
Ecuador doesn’t export
many commodities. We
don't have wheat, so we
import it from Argentina
and Canada. Ecuador
produces corn for its own
necessities, as well as
rice, but not for export.
We do have a surplus of
cocoa beans, and so our
company performs some
inspections for cocoa and
coffee. We also perform
[mcahc×][hnhog\_l
of banana inspections.
We trace the containers
for export with GPS
to eliminate any risk
of contamination. We
additionally offer a trade
×h[h]cham_lpc]_`il
international banks.
126 THEBUSINESSYEAR
ECUADOR 2014
VOX POPULI MARITIME
JUAN CARLOS
JAIRALA REYES
LAND ahoy!
JUAN JURADO VON
BUCHWALD
President, Cámara
Marítima del Ecuador
Being so close to the Panama Canal,
Ecuador’s ports play an important role in
its economy, one which many would like
to expand.
T
T
he need for deep-water ports has long been
on the agenda, for both
the state and private sectors. With
ships of deeper drafts coming our
way, we are facing an interesting
challenge in regard to Ecuadorean
ports. While the port of Guayaquil
has the market, services, and infrastructure to handle commerce with
these new vessels, it temporarily
lacks the draft in its access channel.
On the other hand, there are other
ports of deeper draft, but that lack
the connectivity and the hinterland
that makes attractive for shipping
lines to call there. The government’s response to that call is the
creation of another port beyond the
Gulf of Guayaquil. That solution is
disputed by many official and private sector players in Guayaquil,
who believe that a channel could
be dredged in order for Guayaquil
to be able to receive the traffic.
RODOLFO CANO
MURE
General Manager,
Autoridad Portuaria
de Manta
Manager, Autoridad
Portuaria de Guayaquil
he idea to develop the Port of Manta is not directly
related to competing with the Port of Guayaquil,
or simply to building the deep-water port, but
is geared to making the entire maritime and port network
more competitive. Today, we have four main ports: Esmeraldas, Manta, Guayaquil, and Puerto Bolivar, all of which
have their own hinterland and characteristic features. Our
concern leans more toward specializing our ports for greater dynamism and activity. Manta will offer alternatives
within Ecuador that are more in line with maritime transportation with large vessels. This will be the first deep-water
port in Ecuador and the concession will be granted in 2014.
It does not mean that it will be the only one, but for now, we
are aiming to increase industrial activity related to the maritime industry around Manta, and stimulate the industrial
and economic development of Ecuador.
ROCÍO
DEL PILAR
PROAÑO
VILLAREAL
Sub-‐secretary,
Ports and
Maritime
Transport
T
he port of Manta has two terminals—
the international terminal and the
fishing terminal, which is mainly to
meet the needs and demands of the tuna industry. The concession is for the infrastructure
and facilities of the international terminal. The
idea behind the concession is to find a strong
international partner to achieve an established
expansion, which aims to boost the transfer of
knowledge, and bring their international expertise into Ecuador. We want to specialize this
terminal so it can accommodate deep-water
vessels. Right now, we have a deep-water port
G
uayaquil is, in itself, a key
city for the country; it
has traditionally been a
maritime port city with a strategic
location that put it at the forefront
of commercial development in Ecuador. Guayaquil has long led the
development of foreign trade in the
country as a consequence. For this
reason, Guayaquil has always hosted the foreign communities in our
country. However, I should add that
Ecuador’s other maritime ports are
also of importance for the country;
Manta, Esmeraldas, and Puerto Bolivar all have their own importance
and market niche. We all complement each other and form a crucial
network of maritime ports that underpins national development. The
Port of Guayaquil at the moment
accounts for the largest volume of
imported and exported cargo, and
there’s a nationwide strategy to
complement the role of the Port of
Guayaquil with a higher specialization among the other ports. Guayaquil today enjoys many benefits in
term of infrastructure and logistics
facilities due to its leading role.
that lacks the infrastructure to welcome those
types of vessels. We have received interest from
several large export companies in the agricultural industry that as soon as we start operating the
new facilities, they will make Manta their natural port. All in all, the concession aims to develop
the necessary infrastructure to make the Port of
Manta a deep-water port, making our infrastructure more competitive and efficient; we will have
a 400-meter long dock for containers, two carrying cranes with all the necessary associated infrastructure, and a partner in the concession will
bring knowledge, expertise, and contacts.
Transport
THEBUSINESSYEAR
127
INTERVIEW
feet off the
GROUND
TBY talks to Manuel van Oordt, CEO of LAN
Ecuador on the commuting culture, being
proactive to improve flight efficiency, and new
cargo markets.
You became the head of LAN Ecuador at the beginning of 2013.
What has been your perception
of Ecuador’s airline sector?
The airline sector is very modern featuring the latest generation aircraft, which is not typical of many airlines in South
America. It is an industry that
has high standards in terms of
safety and airport infrastructure. It is a dynamic market
because of the country’s geography, which makes it very
decentralized. The size of the
market is also large considering the size of the country and
the per-capita level of travel is
very high. There is a culture of
air travel in Ecuador because
the corporate sector is used
to high-frequency travel. They
demand fast and high-quality
service, which makes the market very fluid.
How does that compare to the
last market you worked in,
Peru?
Peru was much more centralized with domestic traffic flying through Lima, and much
less traffic between other
cities. In Ecuador, there is a
higher rate of flights in the
corporate sector. The new
airport in Quito is somewhat
farther from the city, so people plan their trips more. A lot
of people just get on a plane to
have lunch with their client,
and then return to the office in
the afternoon. People are used
to the flexibility of commuting
between cities.
What does good service from an
airline mean to you?
Good service is a combination of attributes: modern airplanes, proper maintenance,
scheduling, and rigorous
training standards. We have
also worked hard to enhance
cooperation with the authorities, the government, the airports, and our suppliers. In
BIO
Manuel van Oordt is CEO
of the airline LAN Ecuador,
a subsidiary of LATAM
Airlines Group, Latin America’s largest airline. He has
had a successful career
with LATAM Airlines Group
in Peru and Chile, where
he started in 2004 as International Sales Manager
for LAN Airlines. Prior to
that he held management
positions at telecommunications multinational
company Telefonica in
Peru, was a management
consultant with AT Kearney
in Brazil, and participated
in the start up of Peru’s
×lmn]l_^cnch`ilg[ncih
bureau, Riesgo SA. Manuel
holds a Bachelor of Science
(BS) degree in Electrical
Engineering from Worcester Polytechnic Institute
(WPI), Massachusetts, and
a Masters of Business Administration (MBA) from the
Ross School of Business,
University of Michigan, both
in the US.
Quito for example, there is an
issue with turbulence during
the summer due to the mountains situated near the landing
path. We found out that most
of the turbulence comes from
a certain area, and is caused
by volcanic activity and air
rising from the Amazon, so we
mapped out a different route.
This change has reduced the
number of canceled flights at
Quito airport by 20%-30%. We
also worked with the Quito
airport to make an alternate
plan to land from north to
south because sometimes the
wind changes direction. We
have also improved efficiency
with a larger runway. The old
airport was at a much higher
altitude, and required more
distance for take off, while the
new airport is built at a lower
elevation making it more efficient and safer.
LAN is also working with the
Fundación Municipal de Turismo para Cuenca. What is the
mcahc×][h]_i`nb[n`ilsiolijerations in Ecuador?
Our business depends on
tourism, and we work closely
with the tourism authorities,
with Quito Turismo, and the
Ministry of Tourism, with
whom we recently signed an
agreement to promote Ecuador. We are trying to promote
more international and Ecuadorean travel. We work with
the Ministry of Tourism on
marketing campaigns to bring
in tour operators and to learn
how to promote Ecuador
through training and educa-
LAN Ecuador is
part of LATAM,
the Latin
American Airline
Group, which was
formed by the
merger of Chile’s
LAN and Brazil’s
TAM
tion. We also work with tour
operators internationally for
very specific marketing campaigns. We have quotas for
certain places, like Barcelona
and have sales teams all over
the world.
How much of your business is in
cargo here?
Cargo represents about 25%
of our business, and the
growth of the flower sector
has played a large part. Ecuador has become one of the
world’s greatest exporters of
roses. Growers here have introduced many new varieties
that have attracted new consumers, and opened up fresh
markets. Ecuadorean flowers
are in high demand in Eastern
Europe and Russia. Ecuador's urban environments
are expanding as new
development comes online.
THEBUSINESSYEAR
129
132
135
138
Santiago Ribadeneira, CEO of
PROINCO Inmobiliaria, on the
company’s social responsibility.
The construction sector is
a critical part of national
infrastructure and development
plans.
Manuel Román Moreno, General
Manager of Empresa Pública
Cementera del Ecuador, on
changing cement production.
Real Estate & Construction
R E V I E W R E A L E S TAT E
Although house prices in Ecuador have been trending upwards in recent
years, as it becomes a popular destination for expatriates and retirees, in
2013 and 2014 the market has cooled somewhat, providing good value for
money for both buyers and landlords aloke.
PLACE IN THE SUN
A
fter five years of
steadily
increasing house prices,
Ecuador’s
property market is now showing
signs of slowing, partly due to
an oversupply of residential
properties that remain unsold,
creating a glut on the supply
side of the market. Ecuador’s
GDP grew at 4.3% in 2013,
while inflation rose at a steady
3.1%. Ecuador regularly ranks
among the top 10 destinations
in the world for expatriates
and retirees. The local real
estate market has seen house
price rises in the past several years, and these rises have
mainly been driven by the following factors: 1) the country
has witnessed rapid economic
growth and maintained relatively low interest rates, both
of which have spurred buying;
2) there was a great influx of
migrants, many of whom are
returning home from living in
Spain and the US; and 3) there
was an increase in the number
of North American and European expatriates and retirees
who choose to make their
homes in popular major cities,
such as Quito and Cuenca.
Image: Pronobis
Ecuador is extremely popular among
expatriates retiring to the country, which
has long been a steady supply of buyers
in the real estate market. Now, new
developments are attracting both locals
and foreigners' attention to the sector.
Foreign and expatriate
migration into Ecuador has
been a key factor affecting
the housing market in recent
years. Ecuador is a popular
destination for retirees from
North America and Europe,
and it ranks highly as a place
to retire or as a place to have
a second house. More and
more non-Ecuadoreans are
choosing a less expensive
and more pleasant life in the
country, and Sergio Torassa,
CEO of real estate developer
Pronobis, told TBY that: “It
has been ranked number one
by Forbes and International
Living, and in top positions
by the Financial Times. According to the UN, some areas of Ecuador have arguably
the second best weather in
the world, with excellent sunshine hours and attractive
sunsets. The government of
Ecuador grants real estate
visas to foreigners who purchase homes in the country
worth at least $25,000. In
addition, the country also
grants pensioner visas to
foreigners with a retirement
income of not less than $800
per month.
130 THEBUSINESSYEAR
ECUADOR 2014
Yet despite its popularity as a destination,
prices are lower in 2013 and 2014. This downward pressure on prices has been caused by a
number of factors, primarily a large inventory
of unsold properties and a slackening in the
rate of Ecuadoreans returning from overseas.
Despite these factors, few suggest that a USstyle real estate “bubble” is forming. Access to
credit is also a factor for homebuyers, and effects the market differently in different regions.
As Ecuador uses the US dollar as its official currency, property prices in Ecuador are quoted in
dollars, which creates another appealing factor
for buyers from abroad. The US dollar has been
the official currency of Ecuador since 2000.
Down payment rates of 30% on mortgaged
properties and the fact that more than half of all
real estate in popular destinations such as Quito and Cuenca carry no mortgages, are the most
frequently cited reasons developers and real
estate agents are optimistic about the market.
Mortgage loans were also down in 2013. In 2010
and 2011, the number of mortgages written by
commercial banks increased by 10% and 12% a
year. According to government figures provided by the central bank, the effective lending rate
for purchasing residential housing remained at
10.64%, which is unchanged on the previous
two years. During 2013 and into the first months
of 2014, builders and real estate agents say that
appreciation is easing slightly. The general industry consensus is that prices will increase 5%
to 6% in 2014. Jaime Rumbea Dueñas, Executive Director of the Asociación de Promotores
Inmobiliarios de Viviendas del Ecuador, told
TBY that the real estate market not only reflects
the Ecuadorean economy, but also drives it. “It
is of the utmost importance, not only because
it is one of the three most dynamic sectors in
the economy, but also because it drives urban
growth and the urban economy, which nowadays is probably the most important part of
the economy, in terms of our country’s growth
estimates,” Rumbea Dueñas explained. “We
had growth of over 20% three years ago. Our
country was growing at a rate of 7%, and now it
There are many real estate
developments underway all
across the country
is growing at a rate of 4%, but our sector is still
helping to pull the economy up.”
According to real estate industry observers,
such as The Global Property Guide, Ecuador’s
property market is mainly driven by Ecuadoreans, both local homebuyers and those returning from the US and Spain. While foreigners
do continue to buy real estate, the trend, especially among English-speakers, is now strongly
in favor of renting, and since late 2010, there
have been significantly more new renters than
buyers. The rental market for foreigners breaks
into two categories; the more traditional unfurnished rental with a one-year lease or more
short term, and fully furnished rentals, which
include all the necessities such as utilities,
building fees, internet telephone, and cable TV
service. In the traditional market, a good quality
2- or 3-bedroom rental can be found for $300 to
$500 per month, while turn-key rentals of three
to six month blocks run from $600 to $1,000.
Both categories of rental can be had at a fraction
of rental costs in North America and Europe.
QUITO, CUENCA, & BEYOND
Ecuador is a country of great natural beauty
and bio-diversity; however, the most active
real estate markets are found in the major cities. Quito is widely considered to be one of the
world’s most culturally rich cities, and is a UNESCO World Heritage Site. From the colonial
Spanish architecture of the historic Old Town,
to the modern skyscrapers of the business
districts, the city provides all of the modern
conveniences of a major global city, alongside
a quieter and often simpler pace of life—at affordable prices.
In Quito, the average price of apartments and
houses was stable in October 2013. According to
NuWire Investor, In October 2013, apartments
located in Quito were priced around $900-$1,000
per sqm, or $80-$95 per square foot. Houses were
priced around $700 to $820 per sqm, or US$65
to $75 per square foot. The average price of new
three-bedroom apartments in Quito, with views,
ranged from $95,000 to $120,000.
ALFONSO JALIL
General Manager,
Real Estate
Division, Grupo
Aries
What is the importance of the
Real Estate Division within
Grupo Aries?
Lately, there has been a trend for
large industries and multinational companies to invest only
in strategic assets. They are
looking to locals to provide them
with non-strategic services, such
as warehouses, logistics, and
i`×]_m(Ip_lnb_j[mn^_][^_&
because of globalization, multinationals in Ecuador are buying
more and more local companies.
We are specialized in these types
of investments.
What is the main focus of your
business?
Iol`i]omcmi`×]_m[h^q[l_houses. But right now, we are
\ocf^chai`×]_mj[]_m[h^q[l_houses for these types of companies—big multinational companies and major local companies.
Also, we have our traditional type
of business, which is apartments
and developments. For example,
we are building brand new luxury
apartments in Quito, and we have
a project in Santo Domingo de los
Tsachilas on a 48-hectare piece
of land.
Which part of the real estate
business do you see as the
main driver of growth for Grupo
Aries in the next few years?
The real estate business is
cyclical. Lately, it has been good
business, due to high oil prices
and the credit provided by Banco
del Instituto Ecuatoriano de
Seguridad Social (BIESS). Unfortunately, the government will
not be so liquid until 2017 when
they will have all their electrical
projects ready.
Real Estate & Construction
Magazine and website articles promoting
Cuenca as the world’s top retirement destination are attracting record numbers of North
Americans and Europeans to the city. Due to
its popularity, prices have risen dramatically
in recent years. Compared to the US, house
prices are 60% to 75% higher than they were
in early 2008, the result of dropping prices in
the US and five years of appreciation in Ecuador. In the large home market, a 3,000 to 5,000
square foot houses in Cuenca’s most affluent
neighborhoods are priced about $275,000,
which significantly higher than the average
cost of a US house in the same period.
Through the first four months of 2014, property values continued to rise steadily despite
the slow economic recovery underway in
much of the rest of the world. According to the
Cuenca Chamber of Construction, the overall
rate of appreciation in Cuenca held constant
from 2007 to 2012 at 8% to 12% per year, depending on the type or property and location.
Annual appreciation for newer condos was
running 10% to 12% and higher.
COMMERCIAL REAL ESTATE
According to the World Property Journal, Ecuador’s general construction price index fell from
229.54 in August 2008 to 210.79 in May 2009,
in the aftermath of the international financial
THEBUSINESSYEAR
131
The downward pressure on real estate prices has been caused by a
number of factors, primarily a large inventory of unsold properties
and fewer Ecuadorian buyers returning from overseas. Despite
these factors, few in the industry suggest that a US style real estate
bubble is forming.
crisis. But since then, construction prices have
reached a historical peak of 234.569 in January
2012. Construction prices rose by 6.88% in 2011
(+2.18% in real terms), after 1.95% rise in 2010
(-0.53% in real terms). In Cuenca, the country’s
third largest city—and, importantly the economic hub of the southern Sierra region—prices for office and commercial space continue to
rise. Cuenca saw an average increase in prices
of about 8% to 12% annually in the past five
years, which was roughly in keeping with residential prices.
In the final analysis, Ecuador offers domestic
and foreign buyers good value in 2014, in both
the residential and commercial sectors, even
within the context of historical rises in the past
few years. Real estate is still big business in this
Andean nation, and is generally set to remain a
stable and sound investment. 132 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
solid
FOUNDATIONS
TBY talks to Santiago Ribadeneira, CEO of
PROINCO Inmobiliaria, on the company’s
social responsibility, developing services, and
financial services.
How did you come by your vocation?
My father, Ernestro Ribadeneira, was the
founder of the El Recreo neighborhood in Quito, which was purpose-built for the workers of
the La Internacional textile factory located in
what today is Centro Comercial El Recreo. His
idealism and social conscience inspires me to
this day, and was the reason that, 25 years ago
when I was a Vice-President of a bank, we created Su Cambio por El Cambio (Your Change for
Change). This scheme involved the collection
of spare change at a network of supermarkets,
which was then channeled to the construction
of homes for street children. In just three years,
2,000 street children received housing, while we
also spread the message of the need for a positive upbringing that would inspire children to
grow up as responsible adults.
What did you do in that respect?
In 1995, pursuing a closely held ambition of
mine, I created Banco Solidario, the first Ecuadorean bank with a social mission to provide
access to credit for self-employed parents and
small businesses excluded from the conventional banking system. I was motivated by helping people escape the trap of debt and fostering
the growth of small businesses that wanted to
succeed but were excluded from regular means
of funding.
Biq][h×h[h]c[fch]fomciha_h_l[n_\_h_×nmnb[n
improve people’s economic situation?
A credit line of $1,000 from the informal sector
would accrue $1,500 of interest per year. By relying on us instead, the client would only have
to pay $260 in interest. The balance of $1,240
remains in the hands of those who worked hard
to generate it.
How was Banco Solidario developed?
From 1995 to 2006, we issued microcredits
worth over $1 billion to 350,000 families and
delivered 5,000 social homes with Bono de la
Vivienda (the housing bonds program). Furthermore, we paved the way for microfinance
in Ecuador. After us came Credife, Procredit,
Bancos del Barrio, and many other cooperative
banks. Nevertheless, we came to realize that
certain ingrained paradigms within the industry had become obsolete and needed to be rethought in the interest of the segment.
Who is being excluded from the current system?
Anyone not enrolled in the Social Security
System is excluded, as the Bank of the Ecuadorean Institute of Social Security (BIESS)
does not serve these individuals. Additionally,
the unbanked population, representing 60%
of the economically active population (EAP),
lack instrumental information regarding financial information on matters such as assets
or guarantees. They are often self-employed
or small business owners who, because they
are unbanked, fall prey to unscrupulous lenders; eroding what little savings they may have
during times of personal crisis.
Biq ][h ×h[h]c[f ch]fomcih \_ g[^_ gil_ ]igprehensive?
This requires a systematic effort toward rejecting accepted systems of banking. The organizations that have, thus far, served this segment
have become cumbersome, and by extension, obliged to meet higher operational costs
prompting many of them to withdraw from this
less profitable branch of banking. Many sound
lessons can be drawn from experiences abroad.
In Asia, microloans are extended by cell phone
and e-money has become massive in Kenya,
greatly extending financial inclusion. In Venezuela, with the arrival of Chávez, a specialist
microfinance bank became the loan originator
for banks lacking experience in the microcredit
business. The Chávez administration required
that 3.5% of their portfolio be reserved for micro-enterprises. The model for the future in
terms of financial inclusion must amalgamate
existing concepts for the sustainable performance of this financial service.
Then what did you do to create a model that brought
together these ideas and broke paradigms?
We looked for a small financial entity, so that
through it we could integrate these concepts
and follow our vision of going further than just
microfinancing. This meant that small business
owners and their families would find in one
BIO
Santiago Ribadeneira
obtained a Master’s in Business Administration at INCAE in Costa Rica, before
beginning a distinguished
][l__lch×h[h]_ch?]o[^il
and Latin America. Prior to
his current position, he was
the founder and executive
president of Banco Solidario, working there from 1995
to 2006. He had previously
served as Vice-President at
Produbanco, and oversaw
the work of the “Su Cambio
por el Cambio” foundation,
dedicated to helping children living on the streets.
In addition, he held a prominent management position
for Banco Popular in Quito
until 1984, and has run a
number of other companies
in the capital city over the
past two decades.
Real Estate & Construction
place everything they need to improve their
quality of life: microcredit, emergency credit,
supplies for work, supplies for home, health
insurance, medical assistance, hospitalization,
and even “homes with the own little houses.”
;h^^c^sio×h^cn9
When you follow your dreams and learn to listen to the voice of your heart, your visions materialize. We found that with PROINCO, which
was the most well-recognized real estate brand
in the country. Hence, with PROINCO already
operating, we decided to add YAPA, a word
that inspired us because of its meaning “to give
more,” and which helped us to renew our philosophy in our new financial inclusion project.
For us, giving a little bit more makes us happy.
What does PROINCO do?
PROINCO is a financial entity specializing in
financial inclusion. With just 27 staff, we disburse $12 million in microcredit per month,
leveraging the YAPA’s existing commercial
network nationwide, as well as in partner institutions and other non-bank outlets. The client
portfolio generated is then sold on to financial
entities that lack our know-how and experience. To access credit, our unbanked clients
can conveniently utilize an existing banking
network to pay their YAPA fees. And now that
electronic money is gaining ground, we will be
issuing credit and receiving payment via cell
phones, eliminating the need to even have a
bank account.
What prospective markets could you expand into
going forward?
We will offer the world’s first example of a system that generates products that are an alternative to social security for those not covered.
This is the culmination of many years of planning based on a vision of inclusion set out by
my father. To achieve this, we have formed an
alliance with a financial entity from the Popular
and Solidarity Economy.
How will you achieve this?
Clients who are not affiliates of the IESS will invest in a certificate of contribution, becoming
a member of the financial entity of the Popular
and Solidarity Economy. The profit from this
PROINCO
žq[m`ioh^_^
with the mission
of providing
financial services
to people not
serviced by the
social security
system
žChgi\cfc[lc[
provides
housing for this
underserved
segment of the
population
THEBUSINESSYEAR
133
certificate will create a reserve fund for the retirement of small business owners. Also, being
a member of the entity will give rights to health
insurance, medical assistance, and hospitalization with microcredit for their business, credit
for home and business supplies, and mortgage
credit so that they can build what my father
used to refer to as a “home in their own little
house.” In this manner, we continue his legacy.
Does your motivation come from your father’s
sense of social justice?
PROINCO Inmobiliaria is continuing on the
same path. He founded El Recreo, and we have
founded Nuevo Sur, which will become the
neighborhood boasting the best services and
housing in the south of Quito. There is a commercial center planned, as well as a theater,
schools, and even a dry port with storage for
heavy trucks, sparing merchants the long journey to Quito. All this was designed by considering improvements to the overall quality of life of
local families. Meanwhile, a separate project of
this type in the parish of Cutuglahua, in Mejía
Canton—the new development center of Quito—has received foreign investment.
Does PROINCO Inmobiliaria also realize other
types of development?
Our sole mission is to improve the quality of life
of the communities that receive our real estate
investments. We are developing the best project on the Ecuadorean coast in Jama, Punta
Ballena. By combining the efforts of the public
and private sectors, we are improving social
conditions in El Matal, in order to transform it
into a prime tourist attraction, which is in line
with the government’s goal of redeveloping our
beaches and towns. It will be known as Mundo Jama, and will prove the point that merely
planning a socially worthwhile scheme is the
first bold step toward realizing it in reality.
Everything you have said could be summarized
with the message: giving a little more makes us
happy. Would you agree?
Yes. This is our philosophy, and I hope God will
give us the light and life to continue enjoying it,
and that we can achieve all that we have proposed and that we can leave our children with a
mission and a task to fulfill. 134 THEBUSINESSYEAR
ECUADOR 2014
VOX POPULI RESIDENTIAL
A PLACE
TO STAY
SERGIO TORASSA
CEO, Pronobis
VERONICA REYES
Assistant General
Manager, CR
Constructora
A healthy real estate sector and a
balanced housing market can be a key
driving force behind a strong economy,
something that Ecuador has its sights on.
T
T
he market is evolving
along similar lines to Latin American countries,
such as Peru, Uruguay, Argentina,
or Chile. Until 2009, the industry was
quite basic. Since then, the market
changed with the public becoming
more exigent, more demanding in
terms of design, quality, functionality, and the equipment that we fit our
buildings out with. Two examples of
our answer to that new demand is
Ciudad del Río and Karibao. Before
Ciudad del Río, people tended to live
backward to the river. In this sense,
we have followed European trends
as it is to live in a river-view property, where they can enjoy the quality
of life associated with the peaceful
colors of the water and clear skies.
Another value-added aspect is the
design. We moved upscale to more
aesthetically pleasing designs for our
clients to enjoy. This is a strong trend
that other promoters and developers
are now adopting in their own products. Pronobis is proud to be one of
the industry leaders, and this is one
of the ways we have confirmed our
commitment with our clients.
he most important challenge for the sector in the
coming years is keeping the trend of financing
home buying in the country, which has many benefits for the economy. The national government has knowledge that this is a key driver of the economy. Financing is
the first challenge, and the second one is finding a social
interest home building model. We need to find a model that
is sustainable and which allows people, who are not able to
get a proper home right now, to be able to do it in the future.
Before 2009, if you drew a pie chart of how homes were sold
in Ecuador, you would find that most of them were sold at
prices above $50,000. It was 2009 when this trend changed
or inverted. After 2009, most new homes are bought at prices that are under $50,000. That is a big step in being able to
tend to the largest market.
JAIME
RUMBEA
DUEÑAS
Executive
Director,
Asociación de
Promotores
Inmobiliarios
de Viviendas del
Ecuador
JOSEPH SCHWARZKOPF
W
hen the company was established, it had a strong
focus on large surface and
high-quality housing units, because
there was a demand for such properties. However, this changed over
the years, and so did our strategy. We
have always been a flexible firm, and
as purchasing power has declined
we have started developing smaller
projects. The market no longer demanded high-quality finishes. The
type of property we first launched to
the market 15 years ago is no longer
in demand at all in Quito. Some other constructors have tried to develop
such schemes, but it was extremely
hard for them to sell. We have always analyzed the market evolution
and adapted ourselves to the types
of properties that respond to saving
capacity and purchasing power. In
this context, recent economic and
social developments in Ecuador have
led to a situation in which the middle class has increased, while at the
same time, the higher social class has
seen its purchasing power reduced
over the years. We are talking about a
segmented and broad middle class in
Ecuador, which is our market niche.
General Manager, Uribe & Schwarzkopf
W
e have seen constant growth of the
sector, especially in Quito, confirming
its status as the largest market. The
main reason for that is the current availability
of mortgages, as in the past decade banks have
been keen, because of the dollar, to extend longterm mortgages to clients at favorable rates.
Formerly, it was not possible to secure a mortgage at a better interest rate than 15%, while today the 10% mark is the norm. A major growth
factor in the real estate sector is the social security bank, which has started giving mortgages
for 15 to 20 years at better terms in competition
with the banks. The mortgage market has duly
become interesting for a much wider audience,
which fuels the purchase of houses, residences,
and offices. As the economy has grown so too
has money entering circulation. Companies are
now starting up in larger number and we build
a large volume of corporate property.
Real Estate & Construction
THEBUSINESSYEAR
The construction sector in Ecuador forms a vital part of the economy,
providing the raw materials—literally the cement and steel—for key
national infrastructure and development plans.
Review
CONSTRUCTION
IRON & STONE
Construction in Ecuador is a sizable industry—cement production alone was estimated
at over 6 million tons in 2012-2013—and is
represented by numerous public and private
companies involved in different operations
related to the building, repairing, alteration or
maintenance of residential, commercial, and
industrial structures. In general, the construction industry in Ecuador is divided broadly
into three segments: residential and non-residential buildings; heavy civil engineering
projects such as work on bridges, roads, ports,
or tunnels; and other more specialized construction-related activities, such as the production of clinker, an essential raw material.
To meet the growing needs of the cement industry, Ecuador recently expanded its clinker
production capacity at the Holcim Ecuador
plant at Guayaquil. By commissioning a new
cement mill in 2012, the Swiss multinational
Holcim began the second phase of its cement
plant modernization in December 2012, thus
increasing clinker capacity to a projected 1.4
million tons annually by 2015. This second
phase required an investment of nearly $400
million, and the construction of a third kiln at
the plant is underway. This will allow Ecuador
to sustain its growth in the coming decades,
and will balance local clinker production capacity with local cement capacity, in order to
eliminate the need to import clinker, and reduce transport costs and risks.
In terms of the cement industry in Ecuador,
there are four plants and three private com-
Like many emerging and developing countries,
the building materials and construction sector plays a
major part in the growth of the economy, and Ecuador is
no different, producing over 6 million tons of concrete in
2012-2013.
135
136 THEBUSINESSYEAR
ECUADOR 2014
CEMENT
panies catering to the needs of over 15 million
citizens. In 2007, during his first term, President Correa started to work directly on issues
related to the integrated social development of
the country, and a specific emphasis was put
on projects related to infrastructure, roads,
and other transport links. To achieve these
goals, the country needed to be able to produce significant quantities of cement. With
this problem, until 2012, the government attempted to increase production and to act in
the market in order to supply enough cement
for the economy’s needs. Ecuador currently
has a number of large-scale megaprojects in
the works, and this is driving up demand for
concrete, steel, and other construction materials. According to its own figures, the government is investing over $2 billion in future
highway projects all across the country, which
will link up a number of currently underserved
areas while expanding existing roadways. Recent past investments in the highway system
have totaled over $8 billion. The government
has also planned or begun building 14 hydroelectric plants to be constructed in the next
few years, with an overall investment amount
over $7 billion. Two further projects that are
relevant to the construction sector include the
highly publicized Pacific Refinery, with a future allotted investment amount of over $13
billion, and the Pacific Shipyard, with a future
investment amount of over $180 million.
There are two main private cement producers in Ecuador, which are also the two biggest producers in the world. One is Holcim,
a Swiss multinational, and the other is Lafarge, a major concern from France. These
two companies taken together have more or
less an 80% market share. The state is also
heavily involved in cement production. Manuel Román Moreno, General Manager of the
Empresa Pública Cementera del Ecuador
(a publically owned cement producer), describes the state role in cement and clinker
production in this way: “The government
has two companies. One of them is Cemento Chimborazo, and the other is Industrias
Guapan. Previously, they were owned by different parts of the government, but we have
now merged them together into the Empresa
Publica Cementera del Ecuador (EPCE). This
was because Cemento Chimborazo had a 5%
market share and Guapan had a 7% market
share; therefore, we decided to bring them
together to make the company stronger.” He
went on to say, “we performed this merger in
November 2013, and right now we are looking to make this company stronger with an
investment of around $230 million to put in a
brand new clinker line.”
The Ecuadorean unit of the Holcim has
announced that its Guayaquil plant expansion will help supply the country’s domestic
cement needs, and moreover the investment
will generate about 2,500 direct and indirect
jobs in the country during the construction
phase, which should be fully completed by
early 2015. The first phase of the expansion
began in early 2010, with an investment of
$120 million, and by completion of the project, Holcim Ecuador’s cement capacity will
grow to over 5.4 million tons per year. The
German company Loesche is also involved
in the Guayaquil plant, having delivered in
late 2013 a new LM 56.4 type vertical roller
mill for cement raw material grinding. The
mill has a capacity of 386 tons per hour. The
mill motor capacity will be 4,000 kW. It will
complement an existing Loesche roller mill
that has been operating at the same plant
since 2010. Lafarge, the other major private
cement producer, has announced the sale of
its cement operations in Ecuador for a value
of $553 million to Union Andina de Cementos (UNACEM) of Peru. Union Andina de
Cementos (UNACEM), formerly Cementos
Lima, is also engaged in the production of cement in Ecuador.
Real Estate & Construction
STEEL
Ecuador is South America’s seventh-ranked
steel producer, and has three steel companies:
the 250,000 tons per year Acerias del Ecuador
(Adelca), the 135,000 tons per year Acerias
Nacionales del Ecuador (Andec), and Novacero which produces around 250,000 tons per
year. Ecuadorean steelmakers Adelca, Andec
and Novacero currently have a combined
crude steel capacity of almost 700,000 tons
per year. Ecuador’s $1.1 billion annual steel
industry imports about 800,000 tons each
year to meet its average demand of about 1.2
million tons a year; most of this steel is used
to provide infrastructure for the oil industry.
In 2013, the Ecuadorean government began
promoting the construction of a $1.4 billion
steel mill to meet future domestic and export
demand, as it has increased import tariffs on
rebar and a number of other steel products,
in a bid to protect its domestic industry from
more competitively priced material from
overseas. The steel mill, which would have
capacity of 1.5 million tons per year, would
take 15 years to build in two stages, Ecuador’s
national investment agency Preinversión said
in a report posted on its website. Annual steel
demand is slated to rise to 2 million tons by
2025, according to Preinversión figures. The
Indian government is also eyeing opportunities to invest in manufacturing industries in
Ecuador, including the steel sector, and negotiations were under way for Indian investment in 2014.
Crude steel output in Ecuador reached
323,000 tons by 2H2014, down by 4% compared with the corresponding period last
THEBUSINESSYEAR
137
Since 2007, successive administrations of the Correa government
have worked directly on issues related to the integrated
infrastructural development of the country. To achieve these goals,
nb_]iohnlsh__^_^ni\_[\f_nijli^o]_mcahc×][hnko[hncnc_mi`
cement and steel.
year. Between January and August of 2013,
Ecuadorean apparent steel consumption
came to 995,000 tons, according to the latest
figures from Latin American steel group Alacero. Increases in 2015 are expected, mainly
due to rising demand from both the construction and infrastructure sectors. This growth
in demand has contributed to lifting local
consumption of steel products such as beams
and bars. One shortcoming that has been
noted is that despite the healthy steel demand conditions in Ecuador, domestic mills
continue to rely on raw material imports such
as ferrous scrap. Imports of ferrous scrap
come mostly from neighboring countries in
Latin America, but also from further afield
in Asia. In the final analysis, the construction sector in Ecuador, driven by a number
of major planned mega projects and a need
for residential housing, is vibrant and in good
health. Current investments and improvements are only deepening this trend. 138 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
cementing
THE FUTURE
TBY talks to Manuel Román Moreno, General
Manager of Empresa Pública Cementera del
Ecuador, on changing cement production
levels, restructuring, and proposed PPP
investment in domestic clinker production.
Qb[n cm nb_ mcahc×][h]_ i` nb_
restructuring within the public
cement sector?
What is the importance of having a national cement company?
The cement business is a monopolistic business by nature.
This is typically because there
are very few producers for a
lot of consumers. In Ecuador,
we have four plants and three
companies for 15 million consumers. Locally, there was a
lack of cement from 20 years
ago up until 2012. In 2007,
the government started to
improve things, such as infrastructure, roads, health, and
education. To achieve these
goals, we needed cement as
one of the main building materials, and up until 2012 the
government asked us to increase production because
the private producers could
not supply the market. In most
countries, except Ecuador and
Paraguay, the entire market
belongs to the private sector.
In this case, we have two main
private producers, which are
also the two biggest producers in the world. One is Holcim, which is Swiss, and the
other is Lafarge, from France.
Now, these two companies
have merged and have more
or less an 80% market share.
We made many investments,
especially in recent years,
and increased our production
three fold. We needed a public cement company, but now
the supply has met the market
demand and we can leave this
business to private producers.
The government has two companies. One of them is Cemento Chimborazo, and the
other is Industrias Guapan.
Previously, they were owned
by different parts of the government, but we have now
merged them together into
the Unión Cementera Nacional UCEM Compañía de
Economia Mixta, where 95%
of shares belong to Empresa
Publica Cementera del Ecuador (EPCE). This was because
Cemento Chimborazo had a
5% market share and Guapan
had a 7% market share; therefore, we decided to bring them
together to make the company
stronger. We performed this
merger in November 2013, and
right now we are looking to
make this company stronger
with an investment of around
$230 million to put in a brand
new clinker line. Clinker is one
of the steps in making cement.
The cement is produced from
limestone and clay. From
limestone and clay, we produce clinker, and with clinker
and the addition of gypsum
we produce cement. Therefore, we need a kiln and a lot of
equipment, such as a crusher.
Right now, the country imports a lot of clinker, close to
1 million tons per year; however, the government is working to reduce imports, which
is why we need to increase
domestic clinker production.
To do that we have to invest
huge amounts of money, and
the government has decided
to transfer the responsibility to
the private sector.
Would you say the cement industry can play an important
role in the transformation of the
productive matrix?
Definitely, because it is a
strong industry. The cement
industry is a nice one because
we start with geological materials, with mine quarries,
and limestone, and then we
have to transform this material, meaning we need the
mechanical-electrical industry. We also have to transform
materials with heat, making
it a chemical industry. Then,
we have to sell the product,
meaning it is a market industry. We also need electronics
and software. The cement
industry uses combustible fuels, meaning we have to move
away from the use of fossil
fuel or oil to other products. In
Europe, for example, they can
substitute 50% of these combustibles, such as coal, oil,
and gas, by using waste, such
as plastics and tires. In Ecuador, the use of such fuels is
now zero, meaning we can use
the cement industry to initiate this change. The cement
industry could be, in a few
years, the friend of humanity
because we can utilize all of
the waste, instead of burning
it. We can reach two goals simultaneously by helping the
environment while using this
material to produce cement. EPCE was
created to
manage Cemento
Chimborazo
and Industrias
Guapan,
Ecuador’s two
national cement
companies now
merged into
UCEM CEM
BIO
Manuel Román Moreno
graduated as an industrial
engineer from the Institut Supérieur Industriel
de Hainaut of Université
du Travail in Belgium. He
has more than 25 years of
experience in the cement
industry in the private and
public sector. Before being
appointed General Manager of Empresa Pública
Cementera del Ecuador, he
was a technical advisor to
the Board and Directorate
of Cemento Chimborazo.
In the public sector he has
also served as advisor to the
Minister Raul Sagasti for the
development and implementation of the national
cement strategy. Previously, he had been General
Manager in Fabricación de
Alimentos Finos, Cementos
^_fJ[]c×]i&[h^MF?AN?H
Andino.
THEBUSINESSYEAR
142
143
144
Executives from two key sectors
of Ecuador’s economy, on the
possibilities for exporters.
Ensuring a sustainable future
for the tuna industry is a key
objective for both operators and
regulators.
Jelisava Cuka Auad, General
Manager of Marbelize, on
innovation and the export
market.
139
Agriculture
REVIEW
Improved demand for Ecuador’s key agricultural commodities, such as
bananas and cocoa, have helped boost the country’s export performance.
FARMERS’ DELIGHT
W
hile the agricultural sector in
Ecuador contributed a relatively
modest 5.9% to GDP in 2013,
the sector represented 27.8%
of the country’s employment. In 2014, the agriculture
sector experienced overall
export growth, with strong
growth among some of its
most prominent crops. The
country’s primary agricultural products include bananas,
coffee, cocoa, rice, potatoes,
cassava, plantains, sugarcane, beef, pork, poultry, fish,
and shrimp. Recently, floriculture goods, such as roses
and carnations, tomatoes,
strawberries, melons, and asparagus, have also increased
in export prominence.
The expansion of agricultural sector goods is in line
with the government’s diversification and improved trade
balance priorities. In 2014,
Ecuador continued to enact
new regulations intended to
support its agriculture sector
and uphold price controls to
insulate farmers from global competition. Additional
reforms aim to clamp down
on informal and spot market
activity. For example, in February 2014, banana plantation registration restrictions
came into effect in an effort
to thwart fraud. Ecuador has
realized the need to balance
market activity with environmental considerations in
order to promote sustainable
growth. The government intervened in its tuna fishing
market twice during 2014 to
impose trade bans and allow
wild populations to rebound.
Food labeling regulation
was another policy area that
was updated over the past
year. State law now requires
more detailed information
concerning fat, sugar, and
salt content. Foods containing known carcinogens are to
be labeled as well.
ON THE BEND
Agriculture has long been the
backbone of Ecuador's economy.
However, now it is attempting to
add more value to its crops through
advanced processes.
The past year has been
eventful in regard to Ecuador’s sales of bananas, the
country’s most iconic commodity crop. At the end of
2013, banana farmers faced
the prospects of sector stagnation due to rising production costs. However, increas-
140 THEBUSINESSYEAR
ECUADOR 2014
ing global demand has enabled Ecuador to
increase its banana exports in several key
markets during 2014.
Algeria, the UK, Turkey, and the Netherlands all upped their 1Q2014 imports in YoY
terms for the same period. In the first five
months of the year, exports to China boomed
by 540.77% as China’s domestic production
figures dropped off. In September, China imported 300,000 boxes of Ecuadorean bananas
per week, and that number is set to increase
even further. The Western regime of sanctions
against Russia has also presented Ecuador
with significant export opportunities. In July
2014, over 4 million boxes of bananas were
shipped to Russia, compared to 3 million in
2013. That same month, Ecuador and the EU
concluded years of negotiations by signing a
Free Trade Agreement (FTA) that guarantees
Ecuador’s $630 million in annual banana exports to members of the economic bloc.
The surge in global demand in 2014 was
mirrored by an uptick in prices. In August, box
prices for bananas Free On Board (FOB) rose
as high as $14.50. In 2013, average prices for
boxes FOB ranged between $8.50 and $9.50.
The government has also been working to further regulate the banana market by imposing
price controls, reducing spot market activity,
and reforming plantation registration to combat fraud.
WARM BREW
Cocoa beans, another of Ecuador’s key cash
crops, has experienced dramatic growth in
production as well. Despite battling an outbreak of Witches’ Broom fungal disease in
2013, the cocoa-bean harvest increased 13%.
This raised cocoa output to 220,000 tons and
made Ecuador Latin America’s largest cocoa
producer, with a over 399,467 planted hectares. Eager to cash in on rising chocolate
prices, the government embarked on farmer
education initiatives and increased the rate of
planting. As a result, the country is expected
to increase its cocoa exports by 10% in 2014.
In 2013, Ecuador’s departure from the
Adean Trade Promotion and Drug Eradication
Act (ATPDEA), which ended US/Ecuadorean
preferential trade tariffs, brought into question cocoa export capacities. Regardless of the
speculation however, the country’s cocoa sector future looks bright. Today, Ecuador is on
track to become the world’s fourth largest cocoa supplier in 2015, and could surge should
West African exports come under threat.
Rice exports are set to increase even more
throughout the 2014-2015 period. While
rice-crop diversification is expected to boost
milled rice cultivation from 767,000 tons to
787,000 tons, a 3% increase in production, exports are forecast to grow 16%. Rice is among
the crops targeted by the government’s price
controls, which are promoted through the
Andean Price Band System (APBS). According to APBS standards, the minimum price
per ton is set at $575, while the maximum
price per ton is $691. Additionally, the APBS
levies a 68% duty on rice imports, although
Andean Community members are exempt
from the charge.
Corn production, which leads Ecuador’s
crop farming in total cropped area, is another agricultural subsector that has received
government assistance in recent years. The
Maize Production Support Program, initiated
in 2012, provides farmers with quality seed,
technical assistance, and minimum price
guarantees in order to promote the country’s
self-sufficiency in this core crop. With the
backing of the support program, maize production has been on the rise.
At the end of 2013, Ecuador produced a record 1.1 million metric tons of corn. In 2014,
the growth rate fell by 4.09%, but production
managed to remain well above the million-ton
mark. The majority of corn consumption in
Ecuador is driven by demand for animal feed,
while a relatively small portion is consumed
per individual.
Meanwhile, Ecuador’s sugar farmers have
been increasing their stocks in an effort to
insulate themselves from the impacts of
currency value volatility. Overall, however, sugarcane has continued to develop as a
staple crop for Ecuador’s agricultural sector.
FAS Quito predicts that Ecuador will produce 615,000 metric tons of sugar for the
2014/2015 marketing year. This would represent a 6.5% increase from the 2013/2014
marketing year.
JUAN XAVIER
CORDOVEZ
Executive
Vice-‐President,
EXPALSA
How have EXPALSA and Ecuador’s shrimp industry grown together over the past 30 years?
Expalsa started when shrimp
aquaculture was born in Ecuador. Prior to that, the bulk of
EXPALSA’s exports comprised
wild-caught shrimp. We started
out packing a mixture of wildcaught and aquaculture shrimp.
<onqcnbchnb_×lmn×p_s_[lm&q_
began focusing on aquaculture,
which has driven Ecuador’s growing shrimp exports. EXPALSA is
involved in the genetic improvement of aquaculture shrimp,
the production of the shrimp
larvae, production of shrimp feed,
and the raising of the shrimps
themselves. We are also a market
leader in packing and export.
What have been some of the
challenges in opening up new
markets?
Today, we are present in Europe,
the US, Canada, South America, Asia, and the Middle East.
EXPALSA’s strategy has been to
develop new markets without
overextending our capabilities.
If we concentrate on a single
market, we risk our future operations. We take each market into
consideration and try to maintain
30% of our exports in Asia, 30% in
America, and 30% in Europe.
Is it a challenge to add value in
the food sector?
We were able to add value by
differentiating our packaging. We
^_p_fijj[]e[achanb[nl_Ø_]nm
our customer’s demands, such
as single person servings for
European consumers.
Agriculture
STAY SLICK
As Ecuador looks to diversify its economy, a
number of other commodity crops are tracking
high growth figures too. Among these goods
is palm oil, which is quickly becoming one of
the country’s primary agricultural engines. In
2014, palm oil production is forecast to climb
by as much as 25,000 tons, from 495,000 to
520,000 tons, while exports may trend upward
from 213,000 tons to 225,000 tons. In 2013,
Ecuador exported 55% of its produced palm
oil, generating $300 million in revenues. “In
Ecuador, the volume of oil available for export
is increasing annually, as the industry is growing at a rate of 7% per year. We forecast the industry doubling again over the next 10 years,”
Francisco Naranjo, Executive Director of the
National Association of Palm Oil Cultivators,
told TBY in an exclusive interview.
Palm oil plantations now total 280,000
hectares, which is an even larger area than
the 240,000 hectares of Ecuador’s banana
THEBUSINESSYEAR
141
Cocoa beans, another of Ecuador’s key cash crops, has experienced
dramatic growth in production as well. Despite battling an outbreak
of Witches’ Broom fungal disease in 2013, the cocoa-bean harvest
increased 13%.
plantations. Overall, 87% of these plantations
are smallholdings, where 6,000 of Ecuador’s
7,000 palm oil farmers operate on areas of 50
acres or less. The development of the sector
is, therefore, limited by the access of farmers
to resources and technical know-how. Despite these constraints, palm oil has accounted for 15% of agricultural GDP and supported 170,000 jobs, both directly and indirectly,
since the end of 2013. 142 THEBUSINESSYEAR
ECUADOR 2014
B2B GROWERS
TBY talks to two executives on the importance
of growers for Ecuador’s economy and the
possibilities for exporters.
oil &
flowers
FRANCISCO
NARANJO
Executive Director,
National Association
of Palm Oil Cultivators
(ANCUPA)
ALEJANDRO
MARTINEZ
Executive President,
EXPOFLORES
What is the importance of your
sector for Ecuador's economy?
Palm oil is derived from the
Mesocap, or the reddish pulp of
the fruit
FRANCISCO NARANJO The
palm oil industry is one of Ecuador’s new agricultural segments. In the past, bananas,
cocoa, and coffee production
boomed, and now, some 50
years on, the palm industry has
seen an incredible increase of
palm oil tree plantations. Often
people associate Ecuador with
bananas, but actually the palm
oil industry today is the larger of
the two. We have 280,000 hectares of palm oil, versus 240,000
hectares of bananas. In 2013,
we produced over 500,000 tons
of palm oil, with 45% consumed
locally and 55% exported generating around $300 million
for the Ecuadorean economy,
rendering it one of key agricultural export products. It also
represents about 5% of agricultural GDP and about 0.5% of
Ecuador’s total GDP. In terms
of labor, the sector employs
about 50,000 people directly
and a further 100,000 indirectly in related sectors, whereby
around 150,000 people work in
the palm industry. One important aspect is that in Ecuador,
almost 87% of palm growers are
small producers.
ALEJANDRO MARTINEZ The
flower industry in Ecuador began around 35 years ago. It is still
the main crop in the highlands
and at 98% is almost entirely
dedicated to export. There is no
other crop beside broccoli that
is such a large employer, with
approximately 120,000 people.
Therefore, it is an important
business both in terms of employment and for certain local
economies. The flower business has also helped to develop
other tangential sectors such
as airfreight, for example. The
market here is different from in
Colombia, which has large fields
with a narrow range of flowers.
Here we have small farms of an
average of about 7.12 hectares
per estate, with a diversity of varieties that on average numbers
over 50 species. The Ecuadorean
industry has focused on breeding roses with larger buds and
stems, and high production with
reduced costs, and fewer people
working per hectare.
Do you think that Ecuador
has the potential to become a
more substantial palm oil exporter competing with the better-known palm oil exporting
nations of Asia?
FN No. Malaysia and Indonesia
represent about 85% of the global output of palm oil. Ecuador is
the prime exporter in the region,
ahead of Colombia, but we consume our oil domestically, with
a marginal surplus for export. In
Ecuador, the volume of oil available for export is increasing annually, as the industry is growing
at a rate of 7% per year. We forecast the industry doubling again
over the next 10 years. Local consumption of palm oil is stable, as
our population grows by around
2% per year. Meanwhile, we are
working with the government
to launch a biodiesel program,
and in fact President Correa has
already signed a presidential decree aimed at reaching a nationwide bio diesel consumption
level of 5%. This would account
for 500,000 tons of palm oil per
year, creating a new local market
for our oil.
Ecuador has negotiated a trade
agreement with the EU, but it
seems the agreement with the
US has been placed on hold for
a while. How do these markets
compare in importance for the
Øilc]ofnol_m_]nil9
AM Ecuador does not focus on
one market, typically preferring
the diversified route. About 38%
of production goes to the US,
with 25% to Russia, and 25% to
Europe. The remainder goes to
108 other destinations. About
10% of long-stem roses are destined for Russia. The medium
stems go to Europe, and the
short stems go to the US. We are
working with a couple of supermarkets in the US to introduce
mixed bouquets. Agriculture
THEBUSINESSYEAR
143
TUNA FOCUS
PROFIT TO NET
Ensuring a sustainable future for the tuna industry is among the
objectives for both operators and regulators.
WITH ITS 2,358 kilometers of coastline on
THE EUROPEAN MARKET
the Pacific Ocean, Ecuador is well placed to
take its share in the lucrative tuna fishing industry given that 70% of the world’s commercial
tuna catch between 1950 and 2002 came from
the Pacific Ocean, according to statistics from
the UN’s Food and Agriculture Organization,
Globefish Research Program. In fact, according
to official statistics reported on The Fish Site, of
the approximately 595,248 tons of tuna caught
in the eastern tropical Pacific Ocean in 2011,
Ecuador had the largest catch followed by Mexico, with Panama, Venezuela, and Colombia
lagging some way behind. And the international demand for tuna is not slowing down in any
significant way, particularly with the continued
popularity of sushi worldwide and the general
trend toward fish products as a healthy alternative to meat. In Japan, a country that consumes
approximately 80% of the world’s Bluefin tuna
catch, a Pacific Bluefin was sold for a record
sum of $1.78 million at a 2013 Tokyo auction.
The major downside to this tuna boom, highlighted in a study released by fisheries scientists
from the International Scientific Committee to
Study the Tuna and Tuna-Like Species of the
North Pacific Ocean in 2013, is that the Pacific
Bluefin population is now 96% lower than at its
un-fished level.
Ecuador is taking this issue seriously. Victoria Serrano, General Manger of Seafman, one
of the major tuna processing companies based
in Manta, Ecuador, told TBY, “The Chamber of
Tuna Industries has developed a code of conduct... The Ecuadorean tuna industry has been
respectful of the environment and complied
with all regulations. We should advertise this
fact globally.” And indeed in line with this policy of ecological responsibility, the government
has imposed two tuna fishing bans for 2014.
The first ran from July 29, 2014 for a period of
approximately two months, and a second capture ban will come into force on November 18
and run through until January 2015. Ecuador’s
Undersecretariat of Fisheries Resources outlining the way the bans operate said “…53 ships
of the 99 that make up the tuna fleet, will benefit from this first closure… Meanwhile, the remaining 46 will stop… work in the second ban,”
according to Tunaseiners.
The European market is of growing importance for Ecuador’s tuna industry. Negotiations have just finished on a new free trade
agreement (FTA) between the EU and Ecuador, although according to Agritrade the commercial terms agreed will not enter into force
until 2H2016. Europe accounts for 70% of
Seafman’s sales and the Ecuadorean tuna processing company expects its production capacity to increase by 10% as a result of the new
FTA. Similarly, Marbelize, Ecuador’s fourth
largest exporter of tuna, sends 98% of its products overseas, and its biggest export market is
Europe according to General Manager, Jelisava Cuka Auad. Within that European market,
there has also been significant growth in German imports of canned Ecuadorean tuna, up
53% in 2013 compared to the previous year.
Ecuador is now Germany’s largest supplier of
canned tuna out of the 25 countries it imports
from, and the second largest exporter of tuna
loin to Germany after Vietnam. Marbelize’s
Jelisava Cuka Auad commented to TBY that,
“Asia is our main competitor. To compete with
them is a big challenge. Their prices are low.”
Things are set to get tougher too with Asian exporters, such as the Philippines, lobbying hard
for reduced EU taxes on their tuna products.
If Ecuador cannot negotiate favorable interim
tariff terms with the EU in the lead up to their
FTA entering into effect in 2016, the country
may find their imports become less competitive compared to Asia in the short term.
LOCAL CONSUMPTION
Local consumption of Ecuadorean tuna is
surprisingly low, at approximately six to seven kilograms per capita consumption annually, compared to the Latin American average
of 15 to 16 kilograms, according to the Undersecretariat of Fisheries Resources. In the
case of Marbelize, domestic sales make up
less than 2% of the company’s overall sales.
Clearly there is more work to be done by the
government to encourage local consumption for the sake of both the industry and the
nation’s health, and to balance out the tuna
industry’s current dependence on export
markets for future growth. VICTORIA
SERRANO
General Manager,
Seafman
What does the free trade agreement (FTA) with the EU mean for
Seafman, and for Ecuador’s tuna
industry?
The FTA means that the tuna
industry is alive and well. For
Seafman, it means that we can
continue to grow, and we are currently constructing new facilities
to accommodate our expansion.
We also expect our production
capacity to increase by 10% as a
result of the new trade agreement. Europe accounts for 70% of
Seafman’s sales, even though we
do not have our own brand there.
How has Seafman changed
since you became General
Manager?
Qb_hC×lmnmn[ln_^&q_q_l_
processing around 130 tons per
day, but today we are up to 150
and going to 160 tons per day. The
original Seafman plant was built
in 1966, and fortunately there has
been a readiness to invest in new
infrastructure, which has clearly
enhanced our performance.
What is the strategy for competing with Thailand?
Tuna is an economy of scale
business. It is necessary to enter
markets with your workhorse,
which in our case is the half pound
canned tuna in oil or water. This
is where we run into intense competition and some disadvantages,
since Thai wages and transportation costs are lower. Ecuador is
a small country and simply does
not have the same trade volume.
144 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to Jelisava
Cuka Auad, General
Manager of Marbelize,
on contributing to
the local economy,
innovative new tuna
products, and export
markets.
a favorite
TUNA
Would you say that Marbelize
has played an important role in
the economic development of
Manabí province?
Yes, certainly. We are the biggest exporter on the catering side of tuna pouch bags
in Ecuador. The tuna pouch
bags are our main business.
In 2001, we started bringing
the latest technology into the
plants. We contribute notably
to the economy by directly
hiring 1,125 people from Manta, and working with 3,000 indirect workers, and many vessels. In 2008, we also started a
company for the mechanical
and electronic parts of our operations.
What distinguishes Marbelize in
Ecuador’s tuna sector?
BIO
Jelisava Cuka Auad studied
Business Administration
at the Lausanne Business School in Switzerland, where she earned
a Master’s in Business
Administration. She also
speaks English, French,
and Italian. Since 2000 she
has been General Manager
of Marbelize SA, a position
that has led her to receive
multiple awards, including
for “Best entrepreneur” in
2005, “Merit Company” in
2006 and 2007, and “Administrative Merit” in 2013.
Marbelize is the fourth largest
exporter of tuna in Ecuador.
We are also the first to develop new kinds of products. We
are innovative; we invest in
research to develop new products and create new trends.
We were the first company to
have tuna in a glass container
in Ecuador. Afterwards, the
competition followed, and
now you have a mixture of
seafood in glass jars. We introduced that in 2004, and also
export glass jars now. There
are two big companies with
more than 50 years of experience in the market that focus
on cans. To compete against
them is impossible, and so
we pursue other targets and
alternative products. We are
going to change the way peo-
ple eat tuna, for example by
flavoring it, and packaging it
in glass jars, and we also have
Cazuela Manabita (Manabí
Casserole). We are developing other products such as
tuna nuggets, hamburgers,
and meatballs. We also have
green olives filled with tuna
and then fried. That is a new
market in frozen products.
You can find these products in
the supermarket, but we also
deal directly with cafeterias
in schools. We work with 900
different brands from all over
the world. It is not just my own
brand. In the German market,
we have a client that wants
our tuna meatballs with a different sauce. They are willing
to pay for it because they are
confident of its quality. We
also sell glass jars to Australia.
We even make a special product for cruise ships.
What portion of your sales is
domestic?
It is not even 2%. We are increasing it considerably, but
we don’t have the volume
here in Ecuador. Most people in Ecuador prefer canned
tuna, but that is a small part
of our business. We are going
with the niche products on
one side. Meanwhile, I am developing products for the military, and caterers that supply
meals to government schools.
žG[l\_fct_
introduced
higher-quality
glass jar tuna to
the Ecuadorean
market
ž32i`
Marbelize’s
business is for
export
Given the importance of exports,
how closely do you work with
the Ministry of Foreign Trade to
open new markets for Ecuador?
I visited Russia with the President, and also to Chile and
Dubai. We work a lot with
the government in this area.
We have to decrease duties,
because with 40% in some
countries, 50%, or even 80%
in others, exports are hindered. Today, we are developing a strong market here and
in South America. Although
we don’t sell to Venezuela,
we do sell a lot to Brazil and
Chile. Argentina is opening up
again. Asia is starting to work
a lot with South America, and
that creates export difficulties.
However, as soon as people
sample our quality, they stay
with us. THEBUSINESSYEAR
145
148
153
156
Héctor Enríquez C., General
Manager of Laboratorios LIFE,
on catering to public and private
sector demands.
Ambitious educational reforms
are promoting world-‐class
research and academic value.
Sergio Flores Macías, Rector of
Escuela Politécnica del Litoral
(ESPOL), on promoting advanced
research in universities.
Health & Education
R E V I E W H E A LT H
A 439.5% increase in overall healthcare spending under Correa shows
that his administration means business when it comes to national health.
IT’S BUSINESS TIME
I
n 1992, the conservative DuránBallén regime created the National
Commission on Modernization, which enthusiastically
embraced the Washington
consensus and championed
privatization, to the detriment
of Ecuador’s public health
system. Under the subsequent presidents Bucarám
and Alarcón, health policy
floundered, and the Ministry
of Health (MSP) budget was
reduced to an absolute minimum: from 4.6% of GDP in
1996 to 2.8% in 1997. In 1998,
the right to healthcare was
written into the new constitution, and later in 2002, the
Organic Law of the National
Health System established
the national health system as
the central axis of healthcare
reform. Due to private sector
lobbying, structural adjustment programs, and poor
coordination, however, the
ameliorative impact of Ecuador’s healthcare reform was
largely thwarted, and unequal
access and low coverage rates
defined the 1990s and early 2000s. In 2007, President
Image: Hospital de los Valles
Healthcare standards are on the
rise in Ecuador. Now, the government is
looking at ways to expand the reach of
these services to rural areas.
Correa inherited this broken
health system, made its reform a central part of his policy, and enshrined free, high
quality, public healthcare for
all citizens in the 2008 Constitution. The implementation of
healthcare as a fundamental
right has had a profound effect on the health of Ecuador’s
citizens and in 2014; Ecuador
is now the world’s 20th most
efficient healthcare system according to Bloomberg. In addition, the health sector provided 40 million treatments,
whereas only 16 million were
delivered in 2006. This increase stems from a massive
increase in infrastructure
spending on 14 hospitals and
956 health centers by 2017,
greater flexibility of consulting
hours, and increased coordinating and efficiency.
The Correa administration
has taken steps to improve
the preventative health capabilities of Ecuador as well,
in large part through massive
investment in facilities and
public utilities that will deter
the spread of pestilence and
pathogens. Potable water is
now available in over 91%
146 THEBUSINESSYEAR
ECUADOR 2014
of all urban areas, up from 82% only six years
ago. In rural areas, availability is now 57.9%.
And while Correa claims to be implementing
21st century socialism, the statistics for potable
water skew downward amongst the lowest 20%
of Ecuadoreans, where only 58.3% have access
to potable water (versus the top 20%, where the
number is 99%). According to the Ministry of
Public Health, access to working sewage is even
more limited, again by income. Only 29.6% of
the bottom quintile has access to sewage (versus 96% for the top fifth). A similar disparity
plays out between urban and rural residents
in Ecuador, where 77% of urban dwellers have
access to sewage, while for their rural counterparts, the number is only 23.7%. Of course,
operating costs for public infrastructure rise as
population decreases, and more public amenities are coming on line every day in rural areas.
ON THE MONEY
The 2013 healthcare budget reflects a similar commitment to creating healthy lifestyles.
The largest component was infrastructure and
equipment maintenance, which was allocated 65% of spending. In second place, human
resources spending was allocated 18% of the
budget, followed by medical products and
pharmaceutical costs at 8%, and basic services,
consulting, communications, and property
costs, at 9% in total. Ecuador’s remarkably low
pharmaceutical expenditure is in large part due
to the country’s implementation of compulsory licenses for pharmaceutical manufacturing.
The right of countries to issue compulsory licenses is enshrined in the World Trade Orga-
nization’s TRIPS Agreement of 1995, as well as
in a unanimous Doha Declaration of 2001 on
intellectual property and public health. One
compulsory license, issued in 2010 for Lopinavir/Ritonavir a critical HIV/AIDS treatment,
immediately lowered costs by 27%. Unlike China, which has used similar legal strategies to
produce and export copycat pharmaceuticals,
President Correa has stated that medicine is a
human right, which cannot be patented.
Healthcare spending has more than doubled under Correa. A comparison of the overall
health budgets and investment between 2008
and 2013 shows that in addition to rising from
$879 million to $2.43 billion, $398 million in
2013 went towards facilities and buildings. In
other words, very few hospitals were built in
the years leading up to the 2008 constitutional reform. Overall health spending by category
reflects the same trends. In 2008, investment in
human resources was only $5.5 million; however, by 2013 this number was up to $113.98
million, as the number of medical professionals was ramped up in line with commitments
to improved healthcare. Similarly, pharmaceutical investment rose from $51.59 million
in 2008, to $131.79 million in 2012. Bucking
this trend, installation, maintenance, and repairs was the highest in 2008, at $6.9 million,
reflecting the immediacy of the response to
the reforms. Overall spending and investments
in pharmaceuticals rose from $133.2 million
in 2008 to $277.1 million in 2013. While these
numbers represent improvements during the
Correa administration, comparisons with 2000
are even more striking. In the year 2000, nation-
ANA DOLORES ROMÁN
General Manager, Pfizer
J×t_lcmjl_m_hnch[fgimn_p_ls]iohnlschnb_
qilf^(Qb[ncmnb_mcahc×][h]_i`nb_?]o[^ilean market?
J×t_ll[hemhog\_l`iolch?]o[^ilÎmjb[lg[]_otical market, and has been present in Ecuador for
nearly 60 years. With more than 100 products in the
market, we are active in virtually all therapeutic segments. We employ 140 colleagues across our three
jb[lg[]_onc][fi`×]_mh[ncihqc^_(J×t_l?]o[^il
will continue to strengthen its portfolio, as it is an
important market for the company in Latin America.
Does strengthening your portfolio mean broadening into other healthcare areas that are not
currently your strengths in Ecuador?
At this time, we are focused on strengthening our
portfolio in existing areas, rather than expanding it
into different ones. We have an important presence
in many therapeutic areas, such as cardiovascular,
nervous system, and oncology. This year we will
have launched four new medicines in diverse segments, including pain, oncology, and rheumatoid
arthritis. We have had the opportunity to launch dif-
ferent molecules that are well known worldwide,
as well as others that have been recently launched
in markets such as the US. We want to maintain
and strengthen our portfolio in Ecuador, with the
end goal being to have as many products domestically as we do worldwide.
How has Ecuador’s approach to compulsory licensing affected the way you do business here?
This is a very important issue. Threats of compulsory licenses create uncertainty in the business
environment. We believe that unwarranted or routine
compulsory licensing of patents undermines innovation incentives, and could result in fewer new medicines being developed. The protection of intellectual
property is vital to the progress of medicine; it is
the driving force behind pharmaceutical companies
continuing to research and develop medicines that
treat incurable diseases and other unmet medical
needs. As such, we believe that the unwarranted
compulsory licensing of a patented medicine is
counterproductive to innovation in the health sector
and jeopardizes the future welfare of patients.
Health & Education
Ministy of Health Total Budget
2008 -2013 (In Millions)
2013 2012 2011 2010 2009 2008
Source: Ecuador MSP
al health spending was only $101 million. From
2000 through 2006, overall health spending was
$2.07 billion, whereas from 2007 through 2013,
this number was $9.12 billion, which equals
a 439.5% increase in overall spending under
President Correa. Likewise, the per capita
health budget in 2001 was only $15, whereas by
2013 this number had risen to $117.
PEOPLE POWER
0
500
1000
1500
2000
2500
Per Capita Health Spending
(in USD)
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Source: Ecuador Ministry of Finance
0
20
40
60
80
100
120
As of early 2014, there were approximately 140
hospitals in the Public Health Network, 22 new
hospitals under construction, and 24 more being remodeled. Plans also include 950 health
centers nationwide, with a standard of two beds
per 1,000 residents. Many more health professionals are in the pipeline as well. Minister of
Health, Carina Vance, has announced that almost 600,000 scholarships were created, while
a further 17,000 health professionals received
raises. These numbers are reflected in overall
human resource spending which reached $1.13
billion in 2013. By March 2013, the MSP reported that almost 300 health professionals had returned to the country under the plan Ecuador
Saludable, Vuelvo Por Ti (Healthy Ecuador, I
Come Back For You). This program attracts Ecuadorean and foreign health professionals from
abroad with higher salaries and other benefits.
Until 2011, Ecuadorian health professionals
earned a salary of between $855 and $1,590
per month. The implementation of new public
policies and initiatives offers physicians in Ecuador improved living conditions and salaries
between $2,034 and $2,641, plus all legal benefits, meaning that total compensation can reach
$3,900. There is also a remuneration increase
for nurses, whose earnings can increase from
$986 to $2,034, in addition to other benefits.
THEBUSINESSYEAR
147
Pharmaceutical investment rose from
$51.59 million in 2008, to $131.79
million in 2012.
TRIMMING THE FAT
In late 2011, Ecuador raised its taxes on tobacco products to $0.08 per cigarette unit, making
them the foremost taxers of tobacco. This move
raised the prices of cigarettes by approximately
80% and raised the tax share of tobacco sales
to 77.4%, up from 64% in 2010. Despite the
high taxes, Ecuadoreans are still some of the
top boozers in Latin America, only consuming
less than Argentina and Guyana. The state has
stepped up its efforts to curb this thirst in recent years. A new tax package in 2011 increased
the ICE ad valorem rate on spirits from 40% to
75%, and added a specific tax of $6.20 for every
liter-equivalent of alcohol, which was phased in
by 2014. And while these steps have flooded the
country with cheap bootlegged alternatives, the
state is pressing ahead and this time, fast food
chains are squarely in President Correa’s sights.
According to Ecuador’s Health Ministry, 30%
of school age children, 20% of teenagers, and
30% of adults suffer from obesity, and Correa
argues that these costs must be shifted to the
responsible parties, namely international fast
food chains. While this law has yet to make its
way through congress, the legislative attention
paid to unhealthy vices and improving services
is evidence that Ecuador means business when
it comes to national health. 148 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
the right
PRESCRIPTION
means that more pharmaceutical products are needed
for patients, and the volume
has significantly increased
accordingly. We thoroughly
understand the government’s
requirements and, accordingly, know precisely what
investment and technology is
required to meet those needs.
Close to 27% of our business is
in the public sector.
TBY talks to Héctor
Enríquez C.,
General Manager of
Laboratorios LIFE, on
catering to public and
private sector demands
and maximizing
company performance.
What growth has Laboratorios
LIFE experienced over 2013?
Last year was an important
one because, in addition to
the private sector, we have
become a key Ecuadorean
supplier of products to the
public market. Over the past
seven years, the government
has invested in improving national health conditions. That
How do your strategies differ
when approaching the private
and public sectors?
They are completely different
strategies. In the private market we have the products, we
know the doctors and hospitals, and we understand the
requirements of specific therapeutic areas and develop our
strategies accordingly to supply that market. In the public
sector, what is important is to
cover the basic needs of the
majority of the population
through the National Basic
Product List, needs that differ entirely from those of the
private sector. The most important customers in the public sector are the Ecuadorian
Social Insurance System, the
Ministry of Health, the Armed
Forces, and so on.
What notable investments have
you committed to?
What are your main goals for the
next couple of years?
This year, for example, we
have invested close to $10 million, and are set to have completed several projects by the
end of September 2014. The
three most important projects, which make up the majority of that amount, include
one new complete line of injectable lyophilized products.
The area where we manufacture injectable products has
been completely redesigned
and rebuilt. We are also expanding the manufacturing
capacity of large volume parenteral. Those are the main
investments on the technical
side. Another important investment is new Enterprise
Resource Planning software
(ERP). This new system performs the planning and management of the entire company. In addition to that, we
are going to implement a new
Customer Relationship Management (CRM) and Business
Intelligence System, so we will
not only be upgrading our internal capacity to manage the
business, but also boosting all
other systems to better understand the market and its
requirements. This will also
help us to analyze what strategies we need to implement
to remain competitive and increase our market share.
We are interested in certain
therapeutic areas. Ecuador
has an increasing need for
specialized products in the
cardiology, biotechnology, and
oncology areas. We develop
formulations of our products
here in Ecuador. That means
we need not only information
of what the active principles
are that we need for a product,
but also on what the right formulation is in order to make it
equivalent to original foreign
products. BIO
As General manager of
Laboratorios LIFE Héctor
Enríquez C. oversees a
business with annual sales
exceeding $50 million,
and a staff count of 408,
predominantly engaged in
human and animal health
products, and consumer
products. He has fostered
close relations with key
industry leaders, opinion
formers, distributors, and
both key private and public
sector accounts. He is a
graduate of the Chemical
Engineering School at the
National Polytechnic University, Quito, Ecuador.
Health & Education
THEBUSINESSYEAR
149
INTERVIEW
healthy
BUSINESS
TBY talks to Diego Ruiz, Executive President of
Novartis Ecuador, on its portfolio of products,
growth in the public sector pharmaceutical
business, and exporting hurdles.
Qb[ncmnb_mcahc×][h]_i`?]o[dor for Novartis?
Ecuador is an interesting
market for Novartis. Latin
American markets have factors that are different in comparison to the US and European markets. In Ecuador,
there are 16 million people
and we provide them with the
most innovative treatments.
Novartis puts a lot of effort
into having the same portfolio in Ecuador a in Europe
and the US. Besides pharmaceuticals, Novartis Ecuador
has over-the-counter (OTC),
generics, animal health, Alcon, and ophthalmology.
What would you say is driving
growth in the Ecuadorean market?
For Novartis, it is different in
each business line. Through
the primary care business, we
pursue detailed promotional
activities to reach key opinion
leaders and primary care physicians to promote our solutions for hypertension, metabolism, respiratory, pain,
and central-nervous system
issues. We have a great opportunity in the primary care
business since it has been,
and will continue to be, the
main driver of our growth.
We work with physicians and
many important distributors
in the country. For Novartis,
it is really important to continue developing specialty
businesses. We have held
many launches here, and all
of these products have scientific agents behind them.
IN NUMBERS
Novartis
Private sector clients
75%
What is the split of your business between the public and
private sectors?
The private market continues
to be very important, consisting of almost 75% of our operations. The public market
is increasing day-by-day and
is reaching 25%. More than
60% or 70% of the Ecuadorean population has some type
of healthcare coverage, while
30% of people are below the
poverty line. We are trying to
grow in both segments of the
business. The public business
should be a higher percentage
than it is today. The public
sector may be proportionally
bigger in other countries, but
both markets are very important for us.
Do you see the potential for Ecuador to become a major exporter of pharmaceuticals?
The government will need to
put more effort into changing
the productive matrix. In order to do this, Ecuador should
guarantee investments both
locally and externally. For
example, IP protection must
be improved. We talk about
compulsory licenses, but in
terms of the cost of maintaining patents, Ecuador is one of
the highest in the world. Additionally, the time it takes to
approve a patent in Ecuador
is considerable. In the past
five or six years we have only
had a couple of examples,
so we need long-term, clear
rules. The government could
provide clearer signals to the
pharmaceutical business in
this area. Right now it is difficult, as we have seen with
the EU agreement. Possibly
the most critical issue that
postponed the agreement
has been IP regulations. We
may need to qualify the longterm strategy from the government authorities to try to
become more attractive as a
market.
What kind of challenges does
Ecuador present for the pharmaceutical industry?
Ecuador has challenges similar to those you may find
in any other growing and
emerging markets. In the
Latin American and Asian
markets, because we have
weak IP protection, there are
low levels of reimbursement.
The government offers limited budgets, and many local
pharmaceutical companies
produce copies and brand
generics that hurt the market
more so than in European or
US markets.
Should IP be a concern in issues of public health?
We really want to have a dialogue with the government
and Minister of Health on this
matter with a long-term perspective. We have been working to establish a link to the
patient so that treatment costs
are part of this dialogue. The
patient is at the center of our
decisions. Ecuador deserves
innovative treatments just like
other countries. We are not
adapting our portfolio for this
situation; on the contrary, we
are working hard to establish a
strong portfolio here. BIO
Diego Ruiz has an MBA
from Universidad Austral
IAE, Argentina, and is a
]_lnc×_^Jo\fc];]]iohn[hn
having graduated from the
Universidad de Buenos
Aires (UBA). Since April
2013 he has been the Executive President of Novartis
Ecuador. Prior to that he
was Novartis Pharma Argentina’s Commercial and
Marketing Head from 2008
to 2013, and the company’s
CCFO from 2006 to 2008.
Other positions he has
held include Manager and
Senior Manager for Arthur
Andersen in Buenos Aires
during the period of 1993
to 2003.
150 THEBUSINESSYEAR
ECUADOR 2014
FORUM HEALTH INSURANCE
the place
TO HEAL
A dynamic healthcare
environment requires new
approaches to insurance, which
is being offered up in spades.
PABLO ALBUJA
General Manager, Humana
SANTIAGO TARRÉ
INTRIAGO
General Manager, Best Doctors
I
n the past 15 years, since the
moment Humana became part
of the Grupo Conclina C.A., we
have learned a lot and moved from being
a company in the insurance sector to what
we are today; an enterprise that operates in
the health sector. We have implemented a
successful strategy to provide high-quality
health services to our clients and we now
want to ensure that this relationship grows
and becomes a true partnership. This means
a new approach to the company’s strategy,
which is our main goal for the future. Also,
we want to be an active part of the process
to build a high-quality health system in the
country through a network of clinics and
hospitals. Being part of the most important
health benefits group in the country, Conclina, to which Hospital Metropolitano also
belongs, we know the importance of having
strategic alliances with the best medical providers. Our aim is that our members receive
timely medical services and are attended to
with quality equipment and infrastructure.
LEOPOLDO BÁEZ
AYORA
Managing Director,
Bupa Ecuador
I
E
cuador is one of our more important markets right now. Best
Doctors started its Latin American
operations here in Ecuador. The country
has a dynamic economy. We do our third
highest volume of business in Ecuador, just
behind Mexico and Venezuela. If we account for sales per capita, Ecuador is our
most valuable market. During our six years
of operations in Ecuador, we have experienced remarkable growth. Best Doctors is a
Global company. Best Doctors has enjoyed a
30% average growth rate over the years. Even
though we started operations in Ecuador six
years ago, we only started commercializing
our products a year and a half later. We are
set to reach $20 million in sales, and we have
experienced growth rates of 40% every year.
These numbers have earned us the reputation as one of the leading companies in the
country. The insurance culture is still in its
first stages of development, and Ecuadoreans are just starting to realize the importance of insurance products. Right now, only
around 15% of Ecuador’s population has
private health insurance. This figure is low,
but it shows opportunities for growth in the
Ecuadorean insurance market.
nsurance is certainly a growing market that is becoming more sophisticated. In
general, that means that there are more products. Another indicator we are seeing
is market consolidation. There are too many companies for the size of the market.
Companies are merging, and international companies are buying local entities and consolidating them. This pattern is set to continue over the next few years, which is positive both for
the industry, and the customer. Larger, consolidated companies are able to bring better products and services to the market. About seven or eight years ago, Bupa decided to continue its
growth story in Latin America. It acquired several companies working in the insurance sector,
and one of them, Amedex, had offices here in Ecuador. Latin America, and Ecuador in particular, fit Bupa’s profile, as a developing market. We have invested in growing our business
in this market, and strategically, the company has a long-term commitment. Bupa has a very
aggressive growth plan, and we want to quadruple the size of the company within five years.
That is a challenging, but achievable goal, and our corporate business is a key component in
our efforts to achieve this.
Health & Education
THEBUSINESSYEAR
151
INTERVIEW
public private
PANACEA
TBY talks to Guillermo Menéndez, General
Manager of Grunenthal Ecuatoriana, on
growth plans for Latin America, the flexibility
created by having your own manufacturing
plant, and the role pharmaceutical companies
should play in supporting public health.
Qb[n cm nb_ afi\[f mcahc×][h]_
of Ecuador to Grunenthal?
Ecuador holds a special position for Grunenthal. Not
only from a production perspective, since one of the five
plants that Grunenthal has in
is the world is located here,
but also due to the fact that
Grunenthal Ecuador was the
first subsidiary opened in
Latin America. Last year we
celebrated 40 years of operations in the country. This
was of great significance for
the group. Currently we are
involved in an ambitious
project to grow within the
Latin American region. Ecuador, being one of the largest subsidiaries of the group,
occupies an important role
within that project. We provide pharmaceuticals from
Ecuador to all the countries
in which we operate, from
Mexico to Chile. The Ecuador plant produces for all of
Latin America.
Would you say that having a
plant here distinguishes Grunenthal from the other pharmaceutical companies in the
country?
Definitely, because I believe
that it allows us the flexibility to produce. We also generate work. The plant allows
our group to introduce new
products with more flexibility
and a reduction in the time
to market, compared to other
companies in the country.
How does the pharmaceutical
sector here compare to that of
Panama?
They are different situations.
Panama has limited local
manufacturing, as opposed to
Ecuador where we have multiple manufacturers. That is the
reason why the government is
insisting on raising the quality
of the products. Government
policies are different in each
country, too.
What is your view of the role that
pharmaceutical companies can
and should play in supporting
public health?
BIO
Guillermo Menéndez was
born in 1973. He studied
Operation and Production
Management at University
of Texas and holds an Executive Marketing Program
from INSEAD. He joined
the company as Commercial Manager in 2004 and
become General Manager
of Grünenthal CAM in 2009
until he assumed the position of General Manager of
Grünenthal Ecuadorian in
January 2014. Previously,
from 1999 to 2004, he
worked for Bayer Group as
Product Manager and New
Business Development and
Marketing Project Manager.
As companies dedicated to
research, it is important that
we make new technology
available to the population
and that we educate people in
the use of that technology. It is
also important that we continue working to reduce the time
it takes for these products to
reach the market so that they
can make a difference in people’s lives as soon as possible.
That is where we can best contribute; international companies have the best up-to-date
practices related to drug safety and compliance, which regulate these internal practices
and could be shared with local
companies, thus improving
the quality of their practices.
We are talking about health
and business. This is a very
fine line, which must be widened so we can be more compliant. The industry has been
negatively labeled at times, so
I think it is important for our
industry to work within these
guidelines in order to protect
the population.
What is Grunenthal’s vision for
the sector?
Grunenthal’s vision is to be focused on the patient. We want
to be the player that is close
to the physicians and making
available new technologies, as
well as transferring information regarding the treatment
of pathologies. Grunenthal
mainly focuses on the treatment of pain and women’s
Grunenthal
is the only
multinational
pharmaceutical
company with
manufacturing
facilities in
Ecuador
health pathologies. We strive
to become stronger partners
for physicians, institutions,
and patients in those areas.
Grunenthal recently acquired
the Chilean pharmaceutical
company Laboratorios Andrómaco. What is the importance of that acquisition for Grunenthal's regional operations?
This acquisition will help to
improve the availability of new
products that we can promote
and bring to patients. It is also
an opportunity to grow not
only in a business sense, but
also to grow with our collaborators. We are bringing new
ideas, and this is important for
the company. Another objective is to make sure it continues
to be a great place to work. This
is related to having the capacity to attract and retain talent.
You have to have people who
are proud of being part of the
Grunenthal group. Of course,
we also want to consolidate
our position as a main partner
of our physicians and clients. 152 THEBUSINESSYEAR
ECUADOR 2014
B2B HOSPITALS
FRANCISCO
CEPEDA
General Manager,
Hospital de los Valles
What do you see as your role in
Ecuador’s healthcare system
for the longer term?
FRANCISCO CEPEDA Our vision at Hospital de los Valles is
to be a teaching hospital with
centers of reference for a few
different specialties like pediatric care, intensive care, and
cancer care. In two years, we
hope to inaugurate the cancer
center in alliance with a foreign
partner specializing in cancer
treatment. Our vision over the
next 10 years is to develop two or
three other centers of reference
in combination with the teaching hospital. We hope to achieve
international accreditations of
quality and safety for patients,
which is why our partnership
with Johns Hopkins is important. Achieving all of this will take
patience and hard work.
ELIO WONG LAMA Through
the Hospital Universatario, a
university medical facility, we
offer specialized training to our
physicians. It is large, with about
500 doctors, and we offer opportunities to study abroad for a
year or two and then return. Our
vision is to expand our operations in other cities on the coast,
for example to establish facilities in Manta or Machala, and to
integrate these new centers with
the one in Guayaquil. We aim to
concentrate on certain specific
areas such as heart disease with
a new catheterization lab, im-
ELIO WONG LAMA
Manager, Grupo
Hospitalario Kennedy
aging coming from a new MRI,
heart and others transplant surgery, clinical medicine, urology,
and four new operating rooms,
among others. We have been focusing our efforts on five or six
fields that are not catered for in
other places.
What can Ecuador do to develop
a medical tourism industry?
FC I think it is difficult for Ecuador to compete in medical tourism because we are so far behind
countries such as Mexico, Costa
Rica, Panama, or Colombia. In
Ecuador, the focus is on internal
medical tourism. Other provinces do not have the same quality
of hospitals as we do. Right now,
many people feel they should
travel abroad to have good
treatment. First, we need to focus on showing people that they
can get quality treatment here
in Ecuador. Then, we can look
abroad for patients.
EWL The Ministry of Health
has adopted the correct strategy to deal with the industry. It
is gradually standardizing and
classifying all the medical facilities in the country. It is important to bring these clinics and
health centers up to a certain
standard of quality in order to
remain attractive for health
tourists. Most of the private facilities are sufficiently qualified
with physicians, well trained in
their specialties.
house of
HEALERS
While Ecuador is behind some of its neighbors
in regard to medical procedures and possible
medical tourists, it is making great strides in the
right direction to catch up.
Your aim is to become the
“Johns Hopkins of Ecuador.”
What challenges do you face in
doing that?
One of the features of your new
expansion project is a hotel for
relatives of patients. What is the
motivation for including that?
FC To be a teaching hospital, it
is important to have good physicians who like teaching and
can earn a good salary by both
teaching and practicing medicine. This is not a model that
exists in Ecuador. We are creating it. Our medical director traveled to Johns Hopkins in April
2014 to learn about this model
so that we can apply it here. In
many places, such as the US,
the focus is on the hospital. People go to Johns Hopkins or to
the Mayo Clinic because of the
reputation of the hospital. They
know the hospital is good, and,
therefore, they believe it will
have high-quality physicians.
In Ecuador, however, the focus
is on the physician. You often
have a well-known physician
that works at two or three hospitals. We need to change this,
because it is the hospital that
implements the procedures
and protocols to ensure safety
and quality levels. It is hard to
change this way of thinking in
Ecuador, but it is our challenge.
EWL Approximately 10% of our
patients come from outside the
city, mostly from the coastal region. Sometimes treatments for
these people and also for older
people require more time. Many
people mistakenly think that
when you are in the hospital for
more days, the hospitals make
more money. In fact, when a patient stays in the hospital for one
or two weeks, we are losing our
resources. In response to this,
we have developed the concept of running a hostel where
patients can pay to have medium-length stays of a few weeks.
In this way, they will have shelter, and will be near the hospital
so can visit their doctor once or
twice a day, and can get seen to
by their nurse. In Alborada, we
are building two new facilities,
one has offices for physicians,
and one rooms that can be rented by the hospital, or used for
long-term patient stays. Health & Education
THEBUSINESSYEAR
153
Ambitious educational reforms are promoting world-class
research in Ecuador, where the government now guarantees the
academic value of diplomas.
Review
E D U C AT I O N
BACK TO SCHOOL
When President Correa complained that Ecuador “probably has the worst universities” in
South America, his derision stemmed from a
widespread collapse of academic excellence
in Ecuador’s universities. A former economics professor himself, President Correa and
his administration have been ruthless in their
pursuit of “garage universities,” that the President accuses of cheating students and functioning as degree mills. Starting with the new
constitution, ratified in 2008, and then later
with the Organic Law on Higher Education,
which passed in 2010, legal reforms were implemented to bring educational institutions
in line with international standards and the
country’s development goals.
Many of Ecuador's best
universities are in urban areas
These two legal undertakings overhauled
university funding, administration, accreditation, staffing professor qualifications, and
made public universities free of charge for
students who met heightened criteria. At the
same time, the reforms barred under-qualified students from degree programs. The 2010
reforms ensure that by 2017, 70% of professors have Doctoral degrees and that all new
teachers have at least a Master’s degree. In
addition, promotions were made contingent
on holding a PhD. Educators in Ecuador were
quick to criticize the reforms, but ultimately
some schools were shuttered, and the reforms
went ahead. The ensuing years have tested the
viability of the reforms and overall, Ecuador’s
Image: ESPOL
154 THEBUSINESSYEAR
ECUADOR 2014
NEW SCHOOLS
quality of education is now far better than in
years past. According to teleSUR, enrollment
in public schools has experienced a 16% increase over the past year, 36% of whom are
transfers from private institutions. In addition, 12% of the national budget is allocated
towards education-related projects, totaling
$1.3 billion annually, and including plans to
construct 200 new schools by the end of 2014.
These developments are part of the “Good Living” development plan instigated by President
Correa, which aims to overhaul education and
bring high school graduation rates up to 80%
by 2017.
MORE ON REFORMS
Under President Correa, education reforms
went beyond removing barriers. The establishment of a university accreditation process
through Consejo de Evaluacion Acreditacion
y Aseguramemiento de la Calidad de la Educacion Superior (CEAASES) has raised quality
standards at universities. One of the responsibilities of the CEAASES is to vet students entering universities. Students are now required
to sit an entrance exam created by the National Secretariat of Higher Education, Science,
Technology, and Innovation (SENESCYT) that
measures basic learning skills and suggests
a career path. This organization has also increased scholarships available to students. At
the same time, university salaries were raised
and interest rates on student loans reduced to
4.6% from a previous 12%.
During a speech made in 2014, President Correa boasted that the country was investing
$308 million in either revamping or building
dozens of technical institutes that are strategically positioned to benefit the productive
sector. Correa also pointed out that four new
world-class and tuition-free universities were
being built in the country, one of which, the
National University of Education, will be
dedicated to training educators. Meanwhile,
the Ministry of Education (which does not
include higher education) manages 12% of
the total state budget, making it the largest
budget in the Ecuadorean government. The
second university, which opened its doors in
early 2014, is the University of Arts (UARTES),
the establishment of which is expected to increase artistic research, creation, production,
diffusion, and the maximization of the country’s talents in arts and culture. The first degrees being offered by the school are in film,
audiovisual arts, and inter-cultural literary
arts. Upon completion of the school, which is
still under construction, more degrees will be
offered. The new arts university will have an
investment of around $200 million and an initial enrollment of only 200 students. However
by 2026, at full capacity, the school expects
enrollment of 2,000 students. The third new
university, Ikiam, is dedicated to the study of
natural resources and biodiversity. The university lies in the center of a 920-square-kilometer nature reserve, which makes the facility
part of a massive environmental laboratory.
Also in 2014, the University of Yachay, called
the city of knowledge, was opened. The new
university will combine industry, research,
and academics and go on to play a crucial role
in the new productive matrix. While terms
such as “the Silicon Valley of South America”
are bandied around to describe the project,
these titles have currency. With over $1 billion
in total investments, the project aims to draw
the worlds brightest minds and companies to
Ecuador, with President Correa calling it, “the
most important project for the country in the
last hundred years.”
THE PROMETEO PROJECT
The Prometeo program, which funds researchers from around the world in Ecuadorean universities, is evidence that the country’s
universities are expanding into the international arena. Researchers that are awarded
funding must have established academic credentials, such as publications and experience
in select research projects in specific fields. By
SONIA ROCA
Chancellor,
Universidad Del
Pacífico
What motivated you to found
Ohcp_lmc^[^>_fJ[]‹×]i9
We began in 1994 as a business
m]biif&[h^i`×]c[ffs\_][g_[
university in 1997. From the outset, our role has been to leverage
the spirit of entrepreneurship
as a model for education. At
that time we were pioneers in
Ecuador, replicating the Harvard
Business School model. And
today, over 60% of our graduates have established their own
businesses, which has generated
tangible opportunities for the
country at large.
How would you characterize the ability of Ecuador’s
educational system to instill
entrepreneurship?
We see ourselves as sowing the
seeds of entrepreneurship, but it
seems to me that Ecuador lacks
the right model to ensure adequate long-term positive results.
I would hope to see an academic
model adopted widely by other
universities that fosters business
initiatives, as this is what emerging markets are most in need of.
Foreign investment is important,
but it should not be allowed to
compensate for inadequate indigenous human capital.
In that case, what shortfall
in the educational system is
precluding such a model?
We need to think internationally,
such that graduates develop an
awareness of their potential in the
wider global marketplace. This
view has underpinned our model
since we opened our doors. We
b[p_qile_^ni_mn[\fcmb×lg
links with universities in Europe,
Asia, and the Americas.
Health & Education
late 2013, 357 scientists and researchers from
around the world had moved to Ecuador to
participate in the program, which hopes to
attract 5,000 scientists by 2017. The Prometeo project is structured to create a knowledge-based social economy in the following
areas: sciences of production and innovation,
natural resources, life sciences, educational
sciences, pure sciences, and art and culture.
With such ambitious goals, Ecuador is now
competing with established global research
leaders. However, the country offers 11 public research institutions in various fields, the
chance to research in one of the most biologically diverse countries in the world, a multicultural state with 15 indigenous nationalities,
and the political will to support the academic
ambitions of its researchers.
Ecuador’s international activities are not
limited to the ivory tower; in mid-2013, plans
were announced to hire 5,500 teachers from
Spain to bolster the country’s linguistic capabilities, while taking advantage of Spain’s
high unemployment rates. Teachers from
Spain are being offered monthly salaries of
The 2010 reforms ensure that by
2017, 70% of professors will have
Doctoral degrees and that all new
teachers have a Master’s degree.
up to $5,000, which is far above the median
income of less than $500 per month, according to the World Bank’s 2013 data. And while
the program has predictably raised the ire of
local teachers who are challenging the unusually high pay rates, the presence of qualified Spanish teachers is expected to raise
overall standards and the competitiveness of
Ecuador’s schools. While it is too soon to tell
how Ecuador will fare in what is becoming an
increasingly competitive global educational
market, reforms made over the past decade
have already made it a regional heavyweight,
and as more schools are opened, Ecuador’s
educational offerings will only increase. THEBUSINESSYEAR
155
156 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to Sergio Flores Macías, President of Escuela Politécnica del
Litoral (ESPOL), on promoting advanced research, working with the
private sector, and becoming an internationally recognized institution.
an
INSTITUTIONAL
edge
How have ESPOL graduates
contributed to development in
Ecuador?
BIO
Sergio Flores Macías
received his BS in electrical
engineering from Lafayette College, and a MS in
Electrical Engineering from
Stanford. Later he earned
his MBA from the Escuela
Superior Politécnica del
Litoral. Among the many
academic positions that
Macías has held at ESPOL
leading up to his current
position, he worked as
Director of the Department
of Electrical Engineering,
Director of the Center for
Computer Services, Provost,
President, and Dean of the
Faculty of Electrical and
Computer Engineering. He
has also held the positions
of Executive President of the
State Corporation for Telecommunications (EMETEL),
President of the Board,
for Ecuador Telecom, and
Founding Member of the
Foundation for Science and
Technology (FUNDACYT), to
name just a few.
ESPOL was founded 56 years
ago. During this time, one of
our main goals has been to
offer high-quality undergraduate education. I would argue that our undergraduates
become the best-qualified
professionals in Ecuador. Being a technical university, our
primary contribution is to the
industrial sector, the private
sector—engineering
areas
such as electrical, mechanical, civil, petroleum, and,
computer science, geology,
and marine biology, among
others. We work in applied research to generate knowledge
for developing the agricultural
sector. Our marine research
lab CENAIM developed most
of the techniques used to prevent white spot disease. We
are also working on biotechnology for bananas growers
to organically combat certain
agricultural diseases. Our curriculum is designed to develop leaders and entrepreneurs,
rather than only engineers.
What role do you see for technical education in Ecuador in the
efforts to transform the productive matrix?
This transformation requires
well-trained people. For example, the Refineria del Pacífico project requires 2,000
engineers skilled in petrochemicals, automatic control,
electricity, mechanics, chemistry, and so on. The country
lacks these human resources,
and the university’s role is to
ESPOL
works with Sony,
which sponsors a
lab where ESPOL
students develop
new video games
bridge this gap, which is difficult because training in any
of these fields requires at least
five years. The other option is
to retrain professionals from
other areas, for example training a mechanical engineer
for the petrochemical sector.
To transform the productive
matrix we need well-qualified
researchers in order to generate knowledge for innovation.
Research plus development
leads to innovation and to
changes in the productive
system, and research and development should be done at
universities and through innovation by the private sector.
Do you see relationships with
the private sector as a bigger
part of how the university will
respond to future national requirements?
In the oil and gas sector, most
companies are state-owned
enterprises—PetroEcuador
and PetroAmazonas, for example. These entities are destined to have an important role
in the productive matrix and
need well-trained people. You
either bring these people in
from abroad or you train them
here, and this is where ESPOL
plays an important role.
What is the importance of international links for ESPOL?
This is essential in both undergraduate and graduate education. We are the only university
in Ecuador with international
accreditation: two engineering
programs accredited by ABET
and our business school accredited by AACSB. We are going to start two PhD programs.
A key component of these will
be a six-month stint abroad
at a research lab. We encourage our professors to author
papers with professors from
other universities and to write
research proposals. Our professors work with colleagues
from America and Europe on
different research projects.
What is your vision for ESPOL
and its relationship with the government, the productive matrix,
and private sector?
Until 10 years ago all universities in this country, including
ESPOL, were teaching oriented, where the main goal was
undergraduate
education.
We are today going from an
educational to a research-oriented institution. This means
that while we formerly hired
professors for teaching positions, today we hire professors
for research and teaching. We
are now incentivizing professors to publish in international, high-impact publications.
We also encourage people to
seek research funding. Our
key point is that all effort must
ultimately be aligned with
the productive matrix. ESPOL
is developing an Innovation
Zone for Ecuadorian Littoral
(Zona de Innovación del Litoral Ecuatoriano [ZILE]) as
a mechanism to work on applied research and development for innovation; because
the coastal area needs a technical, economic, and social
development engine. Health & Education
THEBUSINESSYEAR
157
INTERVIEW
upping
the
GRADE
TBY talks to Dr. José
Barbosa Corbacho,
Rector-Chancellor of
Universidad Técnica
Particular de Loja
(UTPL), on pioneering
distance learning,
local economic
development, and
raising academic
standards to
international levels.
What role does Universidad
Técnica Particular de Loja
(UTPL) play in Ecuador’s education system?
The main role has been to democratize teaching through
distance education. Our university has been a pioneer in
distance education in Latin
America for more than 30
years. We began providing distance education in 1976 with
the aim of training teachers, as
in those days many of them did
not hold a university degree or
a higher qualification.
How has UTPL’s focus on distance education transformed the
education system in Ecuador?
Actually the UTPL boasts
more than 26,000 students,
many of whom have studied
through its distance education program. Our focus has
been on providing education
for people who live in rural
areas, for instance, where it
is difficult to access higher
education facilities. This has
meant that many Ecuadoreans have been able to obtain
a degree while doing their
business incubators and business start-ups for the southern
region of Ecuador.
Are there more challenges for
entrepreneurs in Ecuador who
are not based in or near Quito
and Guayaquil?
normal job. As a result, this
has enabled many students
to progress in their professional careers. We have also
contributed to improving the
lives of a vast number of Ecuadorean migrants, especially
those who moved abroad for
economic reasons. Many of
these migrants have been able
to complete their studies with
us via our distance education
courses. This has changed the
way many employers view
Ecuadorean migrants abroad.
We have also received international recognition from international accrediting bodies
for our work in this area.
How has UTPL contributed to
local development in Loja?
Since it was originally founded,
UTPL has played an important
role in developing the local
economy. An essential part of
the university’s mission is to
provide outreach to society. In
this regard, we have a number
of university-led projects that
aim to develop the local economy. Essentially, the aim is to
provide work experience for
our students who take undergraduate programs in related
fields such as business administration, hospitality management, and so on. In this sense,
we have made a significant
impact on local development.
It is largely thanks to these
initiatives that Loja now has
hotels and restaurants of an
international standard. There
is also UTPL’s Technology Valley, which serves as a hub for
There are certainly more challenges for local entrepreneurs,
and those challenges are more
complicated. One of the major
challenges is the lack of formality within the local economy.
In Zamora province, for example, a significant proportion of
the economy is focused on artisanal or small-scale mining.
In the most recent census, it
was calculated that there were
91,000 inhabitants in that particular province. Interestingly,
the number of people actually
registered with the tax authorities as having formal jobs was
only 159, and they all came
from the public sector. Notwithstanding, there are major
mining companies now moving into this field, all seeking a
stake in the market. As a university, we are working hard
on providing training for both
professionals and workers in
this field so that they can become more actively involved in
the decision making process.
Would you say there has been a
change in the international perception of higher education in
Ecuador?
Yes, because the Ecuadorean
government is making a major
effort to transform our higher
education system, specifically
through the use of scholarships
that promote international
mobility programs for students
and professors. Unfortunately, there are some key aspects
that still require improvement.
Arguably Ecuador has had limited opportunities for doctoral
level studies compared with
other counties in the region,
which has made it much harder for the younger generation
of professors to obtain their
PhDs here in Ecuador, and to
have those doctorates recognized internationally. IN NUMBERS
Universidad
Técnica
Particular de Loja
Has provided higher
education training to
more than
44,000
Professionals
BIO
José Barbosa Corbacho was
born in 1952. He earned a
Doctorate PhD Cum Laude
in Philosophy and Teaching
from Universidad Autónoma
de Madrid and has been
Doctor Honoris Causa from
Universidad Católica Los
Ángeles Chimbote in Peru
since 2012. He has been Director, Deputy Director, and
frequent contributor of various literary publications and
is co-author of Ética Para
Todos. He has fostered, organized, and participated in
numerous congresses and
conferences. From 2012 to
2014 he was Regional Councilor of the Inter-American
University Organization
(OUI). Before becoming
the Rector in 2010, he was
Vice-Chancellor of Universidad Técnica Particular de
Loja from 2003. José Barbosa is also member of the
board of Directors of ISTEC,
the Iberoamerican Science
and Technology Education
Consortium.
158 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
make the
CONNECTION
TBY talks to Fabián Carrasco Castro, Rector of Universidad de Cuenca, on
promoting more research in higher education, forging connections with
overseas institutions, and the university’s symbiotic relationship with the city.
Universidad de Cuenca is over
145 years old. How has the instinoncihÎmmcahc×][h]_`il?]o[^il
changed over that time?
The University of Cuenca
is the second oldest in the
country after the Universidad Central del Ecuador. It
has had a clear impact on
both the city and the country
at large. Many Ecuadorean
politicians have previously
served as professors at the
university, or were educated
here, and in that context our
institution has a long and
well-established
tradition.
The new higher educational
law will present a challenge
for us, having been created
to transform the universities’
teaching institutions more
into centers of research. Indeed research is one of the
activities that our universities
have yet to fully embrace.
What are the challenges involved in effecting this transition?
The main problem is the need
for skilled individuals who are
keen to conduct research. The
teachers are not prepared to
undertake research as they
lack experience in this area.
At present, we have many students who are set to obtain
their PhDs overseas—in the
US, Spain, Belgium, or Germany—so it is simply a matter of
time before they return having developed this expertise
themselves. The current government wants to implement
these changes rapidly, but this
cannot be done to order. We
agree on the need to advance
ourselves to become a more
comprehensive university. We
have to teach, but also have
to conduct research. For that
we need to prepare people, as
well as install infrastructure
such as laboratories. This is
the easier part of the equation
that simply requires financial
outlay. The challenge lies in
adequately training human
capital.
How would you characterize the
University’s relationship with
the city of Cuenca?
We say that the city belongs to
the university and the university to the city. This is the only
public university in the area,
and I consider its contribution
important for personal development. We have agreements
with all municipalities, and
numerous mayors of the city
belong to the university. The
city’s mayor was a professor
at the university, so there is
a close relationship with the
government, and also with the
people. We have given assistance to small towns to help
them obtain water, for instance, and are running such
studies at this university.
What role do inter-university
connections play in building research capacity?
What is your medium-term vision for the university?
We need to develop a research
network beyond the national network of research in the
principal universities of the
country. However, we also
need connections with other
countries because Ecuador
is a relatively small nation.
We have connections with
Belgium, Germany, Spain,
the US, and other countries,
where we are trying to link our
own institutions with the best
universities we can find.
It will remain a quality university that helps to solve the
problems faced by the country, that educates the people
of this region, and that cooperates to help develop the city
and its surrounding region.
We will try to take good care of
the country’s natural environment. We are heavily active
in this area and our students
know that it is important to
have this clear objective. I see
the future of this in research. Universidad de
Cuenca
is the secondoldest university
in Ecuador
BIO
Fabián Carrasco Castro was born in Cuenca,
Ecuador and attended the
University of Cuenca after
completing high school in
the US. He majored in Civil
Engineering and has a Master’s degree in the same
×_f^`lignb_Ohcp_lmcnsi`
Colorado, Boulder, US. He
has taught at the Faculty
of Engineering (University
of Cuenca) since 1981 and
worked as the Director of
the Civil Engineering School
from 1989 to 1991. He has
been a member of the Directive Council of the Faculty of Engineering and was
Dean of the same faculty
until 2000. From 2000 until
2011 he was the Vice-President of the University of
Cuenca and since then he
has been the President of
the same institution.
Health & Education
THEBUSINESSYEAR
159
RESEARCH VOX POPULI
A CUNNING PLAN
Ecuador’s universities are increasingly using their
research departments to make an international
name for themselves, while also driving their
respective fields forward.
CARLOS
LARREÁTEGUI
W
ith the creation of
Universidad de San
Francisco de Quito
(USFQ), the educational sector
became competitive for the first
time. Before then, it was a public system with no competition.
Competition makes you develop, and ultimately makes your
university better. Since we have
started, the whole education
system has been transformed,
not only on a university level
but also from K to 12. We are the
only university in Latin America
to offer a full Liberal Arts curriculum in the tradition of the UK
and the US. Just by our example alone, we have changed the
Rector,
Universidad de
las Américas
(UDLA)
attitudes of students and professors, improved the quality of
teaching, and emphasized the
necessity of research. We are not
research-oriented and do not
receive state funding, although
in spite of that we are the top
research university in Ecuador.
We have the largest number of
PhDs of any institution in Ecuador by far.
SANTIAGO
GANGOTENA,
RECTOR
Universidad de
San Francisco
de Quito (USFQ)
U
niversidad de las Américas (UDLA) has a strong,
but limited, research program. It is strong in the
sense of focus, but limited in the sense of scope.
Universities do not receive any funds from the government,
but we have to work with the government. We will not develop a good research project as a whole if we do not collaborate. We do not receive funds from the government, and we
devote most of our resources to helping our health science
schools. UDLA probably has the best-developed research
center in Ecuador, especially for study areas such as cancer.
We have noticed that different indigenous communities in
Ecuador have diverse problems of a genetic nature. As a result, we are conducting genetics studies and we have a center that is focused on diabetes. There is a traditional food
from Ecuador called chocho. We are finding that certain
types of chochos that we develop can fight diabetes. This is
fantastic because it is natural, cheap, and people like it. We
have been conducting experiments for the past three years
and will shortly publish the final study. Again, the concept
is: do your research in topics of significance to the country,
and not just of academic orientation.
160 THEBUSINESSYEAR
ECUADOR 2014
Image: Universidad de
Especialidades Espiritu
Santo (UEES)
A
t the moment we are
transitioning toward
the new law and academic framework stipulated by
the regulator. This framework
has yet to be proven, but we
will do our best to make it work,
even if we do not completely
agree with it, such as the requirement to hold a PhD to become a dean, vice-president, or
president of a university. Time
alone will reveal the wisdom of
the new legal framework. We
want to feature on the global
map, and even in the international rankings. As for the next
20 years, after updating new
skills and curricula, we are driven to develop the health-related
component of Universidad de
Especialidades Espiritu Santo
(UEES): the school of medicine
and related areas, such as in-
JAIME CALDERÓN
SEGOVIA
Rector, Escuela
Politécnica Nacional
(EPN)
tensive care technology, and
neurosurgery. We plan to build
a university hospital within the
next five years. We have already
approached four of the top-10
hospitals to leverage their experience and advice in what will be
a greatly ambitious project. All
of our efforts will be geared at
establishing an agreement with
one of the experienced international institutions.
CARLOS ORTEGA
MALDONADO
Chancellor,
Universidad de
Especialidades Espiritu
Santo (UEES)
F
or over 45 years Escuela
Politécnica
Nacional (EPN) has
espoused a system to balance
secondary education with the
training of professionals, having offset certain deficiencies
in the disciplines of physics,
mathematics, and chemistry.
Once students are enrolled at
EPN, our staff expose them
to both pure and applied scientific research. Teachers at
EPN know that they have to
teach, research, and work to
fulfill our social responsibilities. Research must be linked
to teaching, because knowledge is dynamic, and academic
staff must have published 20
to 30 articles in indexed journals. Arguably, what Ecuadorean universities are missing is
patentable innovation. If it is a
center for engineering and sciences it should be possible to
patent one’s work.
THEBUSINESSYEAR
161
164
165
166
Roque Sevilla, Chairman of
Metropolitan Touring, on
preserving Ecuador’s biodiversity.
Gino Luzi, General Manager
of Grand Hotel Guayaquil, on
Guayaquil’s attraction as a center
for MICE tourism.
The Tren Crucero has been
revived, and is breathing new
life into railroad and sightseeing
tourism.
Tourism
REVIEW
Over the past few decades, Ecuador’s tourism sector has been slowly
growing in reputation and attractions, and today has become one of the
most stable and envied on the continent.
ENVIABLE POSITION
T
oday, tourism is
big business in
Ecuador, but this
was not always
the case. Back in the 1980s,
the government paid little
attention to the tourism industry, leaving much of the
country’s ancient ruins and
colonial towns underdeveloped and unprotected. This,
however, is not the case at
present, with the government investing large sums
of money to develop sites
and tourist attractions, and
the sector contributing ever
larger amounts to the country’s GDP. The direct contribution of travel and tourism
to GDP in Ecuador was $1.66
billion (1.9% of GDP) in 2013,
which is expected to rise by
3.4% in 2014 to $1.71 billion,
and then again rise by 4.5%
per annum between 2014
and 2024 to $2.65 billion (2%
of GDP) according to annual
research carried out by the
World Travel and Tourism
Council (WTTC). The total
contribution of travel and
tourism to GDP in 2013 was
$4.7 billion (5.3% of GDP).
This figure is expected to
Image: Metropolitan Touring
The tourism sector in Ecuador is
expanding yearly; government policy
aimed at attracting visitors to the
Andean nation is focused on highlighting
the country's rich cultural and natural
offerings.
rise by 4.1% in 2014 to $4.89
billion. The sector is then
expected to continue rising
by 4.5% per annum between
2014 and 2024 to $7.57 billion (5.8% of GDP). Tourism
also attracted a considerable
amount of investment over
2013, when $801 million
was pumped into the sector,
which equated to 3.5% of the
total investment in the country. This figure is estimated
to rise by 4.1% over 2014, and
then again by 4.4% until 2024
when it will reach $1.29 billion, or 3.8% of the total.
Employment in the sector
is also set to rise. In 2013, both
indirect and direct employment totaled 337,500 jobs,
or 4.8% of total employment.
The WTTC expects that this
will rise by 2.3% in 2014 to
345,000 and again by 2.9% per
annum until 2024 when it will
employ 461,000 people (5.3%
of total employment). In line
with these growth figures,
visitor numbers have also
been growing, with a 14% rise
between January 1, 2014 and
August 25, 2014 to push the
number just over the 1 million mark. Ecuador is most
ECUADOR 2014
162 THEBUSINESSYEAR
Travel & Tourism Investment
(2014 Percentage Growth)
Source: WTTC
Rank Country
143 Guatamala
2,4
140 Venezuela
2,4
132 Chile
2,7
111 Ecuador
4,1
110 Argentina
4,1
88
78
5
Peru
Colombia
5,5
WORLD
5,7
AMERICAS
5,8
6,5
63 Mexico
51
Costa Rica
1
Brazil
7,5
21,8
Travel & Tourism Direct
Contribution to GDP
(2014-2024 Percentage
Growth PA est.)
Source: WTTC
Rank Country
134 Argentina
3,5
127 Guatamale
3,6
124 Brazil
3,6
AMERICAS
115 Colombia
111 Chile
103 Venezuela
WORLD
87
Ecuador
78
Mexico
61
Costa Rica
26
Peru
3,7
3,8
3,9
4,1
4,2
4,5
4,6
5
6,1
Travel & Tourism Total
Contribution to Employment
(2014-2024 Percentage
Growth PA est.)
Source: WTTC
HARD WORK
Rank Country
117 Chile
102 Brazil
87
76
1.9
2.1
AMERICAS
2.2
Mexico
2.3
54 Ecuador
52
1.7
Colombia
WORLD
Venezuela
2.4
2.9
3
50 Guatamala
3.1
47
3.2
Argentina
43 Costa Rica
3.3
38
3.4
Peru
popular with Colombians, with 251,124 tourists making the trip, followed by the US with
184,540, and then Peru with 112,801 according
to the Ministry of Tourism. It also expects that
by the end of the year more than 1.5 million
tourists will have arrived in Ecuador. This will
be an approximately 10% increase on 2013,
when 1.36 million people visited the country.
Of those that arrived in 2013, 70% came via air
while 29% came by bus, bringing with them
$1.25 billion in foreign exchange according to
the Ministry of Tourism.
The government has been working hard over
the past couple of decades to boost the tourism sector and get it to where it is today. One
of the recent advertising campaigns that has
been running is the All You Need is Ecuador
promotion. The advertisement depicts the half
submerged head of a caiman, with its back
representing the Amazon and the Andes and
its nose the Pacific Coast and the Galápagos
Islands. The advertisement won at the CGI
Awards in Photokina, which is held every two
years in Cologne, Germany. The judges of the
awards stated the image was “incomparable
and one of the best that has been selected in
the awards trajectory.” The advertisement was
able to communicate Ecuador as an enviable
country with four different ecospheres in a
biodiverse, compact, and unique world. The
All You Need is Ecuador campaign has been
unprecedented in tourism advertisements as it
has been able to reach over 455 million people
worldwide since its launch in 2014. It is campaigns such as these, as well as many in the
past, that have been pushing Ecuador’s image
onto the international stage. Further evidence
of this can be demonstrated by the fact it successfully held a PGA Tour event in September
2014, which was attended by 150 participants
from 24 countries. The event was won by 22
year-old Taylor McCumber. The President of
the Club Quito Tennis and Golf Club, Santiago Arias, specifically thanked the All You Need
is Ecuador campaign in being instrumental in
attracting the Tour to Ecuador.
The government has been experiencing a
degree of success in its tourism industry recently; however, it has no plans to rest on its
laurels and has laid out a set of objectives and
targets it wishes to reach. In September 2014,
the Minister of Tourism, Sandra Naranjo, at-
Tourism
Total Contribution to GDP (USD Millions)
Source: WTTC
5,000
4,000
3,000
2,000
1,000
0
2008
2009
2010
2011
2012
2013
2014E
GDP Contribution 2013
(USD Millions)
Employment 2013
(Thousands)
Source: WTTC
Source: WTTC
931 1.658
74 119
2.112
144
Direct Indirect Induced
tended the Second Small Hotels Inter-American Network Encounter, which was held in
Quito. She emphasized the need for cooperation to help strengthen three main areas: security enforcement, the quality of destinations
and tourism products, and the improvement
of connectivity and promotions. During her
speech, she also announced the implementation of a new grading system for hotels to
improve the quality of services offered. Hotels
will be ranked with quality seals of platinum,
gold, silver, and bronze. These will be given to
hotels that specifically stand out in their field
and will allow tourists to easily distinguish between high- and low-quality services. It is expected that the level of services will improve
as hotels compete to get the highest seal of
approval. The Ministry will also be launching
a new electronic system to digitize the lodging
books of hotels, allowing the information to be
handled in a more orderly way. Hotels will register online and the service should streamline
the registering of guests in hotels, lodges, and
hostels. The Ministry has also announced an
investment of $270 million in security services
for tourism. The money will go to 15 police stations that operate in 23 provinces and should
cover almost 100% of tourism activities. THEBUSINESSYEAR
163
164 THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
TBY talks to Roque Sevilla, Chairman of Metropolitan Touring, on
the frustrations of the Yasuni-ITT Initiative, preserving Ecuador’s
biodiversity, and thinking beyond the Galapágos Islands to mainland
tourism opportunities.
responsible
response
How would you characterize
the level of success Ecuador
has had in protecting its biodiversity?
I would like to put your question in context: Ecuador
has the highest biodiversity
per square kilometer in the
world. More than 20% of Ecuador’s territory has been declared a protected area. The
Galápagos National Park is a
world example of good environmental management. But
some hot spots of biodiversity are in great danger because
of oil and copper extraction.
An example is the Yasuni
National Park, the most biodiverse place in the Western
hemisphere.
who collected 750,000 signatures demanding that a public
consultation should be held
asking the people whether
oil should be exploited in the
national park. The authorities
bent the law to avoid public
consultation.
How important is the environment for Metropolitan Touring?
As the former head of the
Yasuni-ITT Initiative, how do
sio`__f[\ionnb_×h[fion]ig_
of the project?
I feel disappointed both with
the international community and with the Ecuadorean
government. The idea was to
avoid oil exploitation in the
Yasuni National Park, keeping
20% of Ecuador's oil reserves
under the soil forever and asking the world community to
contribute to half the value of
that oil. Ecuador committed
to invest those resources in
conservation, reforestation,
renewable energy production,
and support for the poorest
communities. After 18 months
as head of the Yasuni Initiative, I managed to receive the
support of six European countries with a commitment to
contribute during 13 years a
total amount of $1.76 billion.
Unfortunately, large countries such as the US and China showed no interest. When
the negotiation was ripe, the
Ecuadorean government proposed conditions on the donors that were not attractive,
and the project fell apart. Having said that, I must say that I
feel proud of the Ecuadoreans
BIO
Roque Sevilla is an
Ecuadorean businessman,
ecologist, and former
politician. He leads a
corporation that has
investments in insurance,
health, tourism, and
renewable energy. Sevilla
has been Mayor of Quito,
a Member of Parliament,
and was the Chairman of
the Yasuni Initiative. He
was also the Founder and
Chairman of an Ecuadorean
environmental NGO, ViceChairman of the Charles
Darwin Foundation for
the Galápagos, and a
Member of the Board of
WWF International and
WWF in the US. Sevilla is
an Economist and holds a
Master’s degree in Public
Administration from
Harvard University.
We live from this incredible
environment. We give the
highest level of support to any
kind of regulation that is established in the places where
we work. Where such regulations do not exist, we promote
them ourselves. A good example of that is what we do in
Mashpi and in the Galápagos.
Our hotel in the Galápagos has
received the Travel Award for
the third year in a row, as the
green lodge of South America.
In Mashpi, we are investing
not only in the protection of
the forest, but also in research.
We are developing a project to
reintroduce a species of monkey that had disappeared in
that area. There were only 250
of them in Ecuador previously. We have constructed a 3.6
MW photovoltaic plant in the
same area.
Up until now, Ecuador’s tourism sector has focused on the
Galápagos. Do you see the
future of tourism developing
in Ecuador as tourism on the
mainland?
Ecuador has great potential.
We must be careful to avoid
the type of large-scale, cheap
tourism that does not bring
progress into the country. I
would prefer a tourism portfolio of small facilities where
the people, not the large com-
Metropolitan
Touring
has been one
of the leading
marketers for
tours of the
Galápagos
internationally
panies, are the owners. That
is consistent with the philosophy of the government, with
which I agree. Ecuador has the
characteristics of small ecosystems and ecodestinations
that are completely different
from each other. This means
that each town’s people can
develop small facilities, such
as hotels or tourist services
that can be managed by them.
The good thing in tourism is
that you need a relatively low
amount of capital and training to offer good service. For
example, in Mashpi, almost
70% of our employees in our
22-room lodge come from
the region. They are learning
English, and becoming firstclass guides for watching the
450 species of birds. In just
a year and a half, they have
become experts in tourism,
while before they were farmers. That is the value of tourism if you do it in the right
way. I hope that the model of
tourism we develop in Ecuador will use these small niches
wisely, where you will feel the
difference between one place
and another. Tourism
THEBUSINESSYEAR
165
INTERVIEW
location,location,
LOCATION
TBY talks to Gino Luzi, General Manager of
Grand Hotel Guayaquil, on the value of having
a great location, renovating the Grand, and
Guayaquil’s attraction as a center for MICE
tourism in Ecuador.
What distinguishes the Grand
Hotel Guayaquil within the tourism sector?
BIO
Gino Luzi was born in
Switzerland in 1941.
He graduated in Hotel
Administration from École
Hôtelière de Lausanne and
b_cmØo_hnchA_lg[h&
French, English, Italian, and
Spanish. In the course of
his professional career he
has held different positions
in numerous hotels in
Switzerland, Spain, Peru,
Panama, Honduras, El
Salvador, and Ecuador.
He is President of the
Guayas “AHOTEGU” Hotel
Association and a Member
of the Board of Directors of
the Chamber of Tourism.
He has received a host of
prizes and distinctions from
various institutions as well
as the Ministry of Tourism,
the Ministry of Labor and
Human Resources, and the
Ministry of Education and
Culture.
The Grand Hotel Guayaquil
features 182 fully-equipped
and renovated rooms, a 24hour café, a first class restaurant, a bar with live music, as
well as the Terraza Racquet
Club with two squash courts,
a fully-equipped gym, sauna, steam bath, and massage
service. The hotel also has a
beautiful panoramic swimming pool with a waterfall,
located in a tropical environment. The location, in the
middle of the regenerated
downtown section of the city,
is basically in the tourist center of Guayaquil; we share
a whole city block with the
Cathedral, and are one block
away from the park where
hundreds of iguanas are admired by locals and visitors
daily. Another asset is that our
hotel is only four blocks away
from the Malecon 2000, a
beautiful and safe site for local
and international tourism, for
promenading along the river, with 1.5 miles of trees and
flowers, and a good number of
shops and cafés.
Grand Hotel
Guayaquil
has been open for
37 years
Guayaquil has a
growing MICE
tourism sector
have a good volume of weekend family packages, sport
events, and tourism groups,
mainly from France, Germany, Switzerland, Spain, and
the US. We are the best choice
for organized tourism packages for groups and a good
number of individuals in transit to the Galápagos Islands.
As Guayaquil is the country’s most active port we are
obliged to mention the corporate business, which means
a great number of business
people and visitors to conventions, congresses, and fairs.
Qb[ncmnb_g[chjli×f_i`siol
guests?
What occupancy levels have you
seen in 2013, and does seasonality present a challenge?
We have a variety of guests, as
ours is a full service hotel and
one of the three largest in the
city; we welcome corporate
guests and local and foreign
business people, as well as national and international tourists. As the hotel is located in
the tourist heart of the city, we
Occupancy has maintained
its level of approximately 65%
a year since 2012. Being a city
hotel, we do not really have a
seasonal shift, but we do have
lower occupancy in the first
four or five months of the year,
and our best five months run
from July through November.
The hotel is currently undergoing renovations. How will these
enhance it?
This renovation is our fifth
since opening in the mid1970s, but there is a crucial
difference this time. In contrast to previous renovations
this one is comprehensive,
externally and internally, with
a total investment of over
$3 million. Being in a highly
competitive environment, we
have decided to proceed with
the facade, dividing it into 14
sections, and four floors, remodeling half-floor by halffloor, and all the rooms.
What has made the hotel so successful over the past 37 years?
Our 37 years in this market are
not a coincidence. The constant training of our staff, our
genuine orientation towards
the comfort of our guests and
clients, and remaining the
best and most innovative, in
terms of decor, service and
technology initiatives; this has
been helpful in terms of providing the best possible services to our guests.
What does Guayaquil have on
offer to attract MICE tourism?
Guayaquil is located at sea
level, with an international
airport that operates 365 days
a year. The city features a good
number of deluxe hotels belonging to known chains, plus
new openings announced for
the next five years. With a population of 2.2 million, Guayaquil is the economic capital
of Ecuador and the preferred
venue for important national and international events.
There is a new convention
and visitor bureau, which will
be charged with promoting
the city to the country and the
wider world. The city boasts
a convention center with a
capacity of 3,000 seats, and
the principal hotels also have
large convention facilities.
Guayaquil has been selected
to host the International Aviculture Congress 2015, and
the Orchid World Congress
2017, each with between 1,500
and 3,000 participants. ECUADOR 2014
166 THEBUSINESSYEAR
FOCUS TREN CRUCERO
0 km
34 km
87 km
QUITO 2777 mts
MACHACHI 3089 mts
TAMBILLO 2779 mts
LASSO 2995 mts
GUAYTACAMA 2882 mts
LATACUNGA 2760 mts
SALCEDO 2636 mts
CEVALLOS 2882 mts
AMBATO 2570 mts
URBINA 3609 mts
MOCHA 3187 mts
RIOBAMBA 2764 mts
CAJABAMBA 3212 mts
COLTA 3296 mts
MANCHENO 3202 mts
GUAMOTE 3057 mts
PALMIRA 3239 mts
TIXAN 2787 mts
ALAUSí 2347 mts
SIBAMBE 1836 mts
CHANCHÁN 1482 mts
HUIGRA 1255 mts
NARANJAPATA 555 mts
VENTURA 397 mts
BUCAY 294 mts
SAN RAFAEL 161 mts
NARANJITO 31 mts
MILAGRO 12 mts
YAGUACHI 5 mts
GUAYAQUIL/DURÁN 4 mts
Source: Ecuador Destiny
EL BOLICHE 3547 mts
The Tren Crucero’s Route & Altitude
Station
Stop
100 km
122 km
143 km
166 km
212 km
275 km
301 km
352 km
352 km
423 km
440 km
GAINING TRACTION
The Tren Crucero has
been revived after
many years of neglect.
Now, the line is
revitalizing many once
forgotten villages.
By the end of the 19th Century, Ecuador had over
1,000 kilometers of railway track; however, due
to a lack of investment, harsh environment, and
particularly strong weather in 1982 and 1990
by 2008 there was only about 10% of the original track that remained in operation. But since
then, the government has been on a quest to reinstate this once iconic railway running through
some of the most unique and mesmerizing
landscapes around. Over $280 million has been
spent renovating the old track and locomotives,
with the 453-kilometer Tren Crucero, or Cruise
Train, high on the list. Connecting Quito in the
Andes and Guayaquil on the Pacific, the narrow
piece of track is becoming something of an icon
and major tourist attraction for people wanting
a relaxing journey through rural Ecuador.
Construction of the line originally began in
1897 and was not finished until 1908. The original locomotives have been restored, the oldest
of which is nearly 100 years old, and coupled
with new luxury carriages built in Madrid. The
idea behind the restoration is an attempt to
boost economic activity in places tourists would
otherwise be unlikely to visit on the route, places such as Casiguana, which was abandoned
when the train stopped passing by. It is hoped
that by connecting these severed links, numerous villages along the route will once again become economically sustainable. “The communities on the train lines are the ones in charge of
managing them, so we will increase their level
of participation, generating job opportunities
with as many as 5,200 direct employment positions and around 16,000 indirect ones, as well as
providing economic alternatives to these communities,” Eduardo Carrera, General Manager
of Ferrocarriles del Ecuador, explained to TBY.
HIGHLIGHTS
With Quito being 2,800 meters above sea level, passengers are treated to some of the most
exhilarating and astonishingly beautiful views.
One of the most thrilling sections is what is
called the Devil’s Nose. Through a series of
mind-bogglingly tight switchbacks, the train
manages to descend 2,945 meters in only 56 kilometers, making for a hair raising and exciting
section of the journey. The Devil’s Nose took
four years to build between 1904 and 1908 and
cost the lives of over 4,000 workers. Now, the
section is much safer and a highlight for many
tourists. Another highpoint of the journey is the
Avenue of Volcanoes. At over 3,609 meters high,
it is one of the highest points of the journey and
passes by 10 volcanoes. In Urbina, a new visitors
center has been built, which it is hoped will increase economic activity.
The journey takes four days to complete, and
passengers spend three nights sleeping in local hotels as the train only travels in daylight.
In 2015, the price for an adult will cost $1,393,
which will include all the hotels and the ticket.
Ferrocarriles del Ecuador has been promoting
the line heavily with tourists, and has spent $10
million on advertising in the US and the EU. Tourism
THEBUSINESSYEAR
167
INTERVIEW
In many countries, the rail
sector is considered industrial.
However, in Ecuador, it is seen
as touristic. Why is that?
Ecuador used to have a railway network of around 1,000
kilometers built at the end of
the 19th century, operating
until the mid-20th century,
and eventually becoming obsolete. The network had been
built according to the prevailing geographic and economic
conditions of the time, meaning that it did not comply with
today’s regulations regarding
slopes and curvature. Today,
Ecuador’s railway network is
much more functional, and
works through a modern system of tunnels and bridges.
The railway has been reintroduced by the current government, and we have taken
important steps over the past
few years such as the recovery
of the touristic train, a rehabilitated line of nearly 500 kilometers in length. Moreover,
the government aims to revive
railway transportation so as to
contribute to the transformation of the production matrix,
which is not exclusively industrial. We have sought international expertise on these
projects as part of broader
infrastructural commitments.
How does the Ministry work to
bring railway expertise back to
the country?
We have sought international advice from countries like
Spain, where Renfe handles
over 15,000 kilometers of
railway. We have also prioritized the development of the
rail lines we have built, so we
know how they work. All in all,
we prioritize the development
of an Ecuadorean knowledge
base, and we have also sent
staff to some European countries. I think it is important to
have international partnerships for infrastructure construction projects. Today, we
have as many as five private
Ecuadorean companies laying
railway lines and five others
engaged in other aspects of
railway infrastructure and logistics. These companies also
take part in other railway proj-
on TRACK
TBY talks to Jorge Eduardo Carrera, General
Manager of Ferrocarriles del Ecuador on
modernizing Ecuador’s rail network, increasing
numbers of local and international tourists,
and the positive social impact rail can have on
rural communities.
The government
is investing
$350 million in
the regeneration
of the rail
network
ects in neighboring countries
like Peru and Colombia.
What is the impact of the more
than $350 million in investment
plan implemented by the Ministry to local communities?
The Ministry started operating railway tracks in 2008, and
back then we had just 16,000
tourists a year. In 2013 the figure reached 150,000 tourists.
This growth has been possible due to several projects
implemented by the Ministry; for example, the excursion train, which is a one-day
journey through several regions of our country. We also
implemented the so-called
Tren Crucero, where tourists
can spend some nights on a
scenic journey. We have also
implemented subsidy plans
for certain communities in
the country, such as for scholars and the disabled. Today,
75% of our railway tourists
are locals, demonstrating the
importance of this means of
transport for our people. Our
main goal in the near future
is to boost the Tren Crucero,
where 60% of the passengers
are foreigners, and increase
the overall number of visitors
using the Ecuadorean railway
network. We have already
spent $10 million on promotional campaigns in the US
and Europe. These tourism
activities bring development
and economic alternatives to
many rural communities in
our country. Our main priorities in this regard are: 1) to
bring economic dynamism
to the communities through
which the train travels, 2) to
restore the cultural heritage
associated with railways, 3) to
operate one of the most beautiful railway lines in the world.
We also have plans to supplement the above-mentioned
activities with other initiatives
such as the Museum of the
Train, the Coffee Train, and
many more. The communities on the train lines are the
ones in charge of managing
them, so we will increase their
level of participation, generating job opportunities with as
many as 5,200 direct employment positions and around
16,000 indirect ones, and providing economic alternatives
to these communities.
The Tren Crucero we talked
about has been nominated for
the World Travel Awards. Why
should it win?
This touristic product was
launched in mid-2013 and by
the end of the year we were
awarded the prize of Best
Touristic Product Outside
Europe. This in itself is one of
the main reasons why we are a
real competitor for the World
Travel Award; the award is
based around the educational
and economic impact of the
project, the social responsibility aspects of the initiative,
and its touristic potential. BIO
Jorge Eduardo Carrera
Sánchez was born in Quito.
He obtained Bachelor's
and Master's degrees in
Management for Local
Endogenous Development
from the Universidad
Politécnica Salesiana.
He then continued his
studies at Universidad
General Sarmiento in
Argentina and Universidad
de Salamanca obtaining a
graduate degree in Social
Economics and a Master’s
in Entrepreneurship
and Innovation. In his
professional career he
has held several positions,
such as Institutional
Advisor at Fundación
Patronato Municipal San
José, Country Coordinator
in Fundación Logros,
Technical Advisor of
Cooperación Técnica
Alemana (GTZ), Project
Co-Director for Agencia
Española de Cooperación
para el Desarrollo (AECID),
Executive Director of
Agencia de Desarrollo
Provincial de Manabí,
and Secretary of the
Ecuadorean Committee
for Territorial Economic
Development (CEDET). He
has been General Director
of Ferrocarriles del Ecuador
for six years.
ECUADOR 2014
168 THEBUSINESSYEAR
P H O T O ES SAY D E S T I N A T I O N
JUAN FERNANDO
PAREDES
ROLDÁN
Executive Director,
Municipal Tourism
Foundation for
Cuenca
Tourism in Cuenca has grown
\s-*ip_lnb_j[mn×p_
years. What have been the
drivers of this success?
In 1999, Cuenca became a
World Heritage Site, which
caused tourism to take off. The
city boasts such a range of
attractions. A recent World Bank
molp_sc^_hnc×_^=o_h][[mih_
of the safest and most accessible cities in South America.
For a city of its size, Cuenca is
in a perfect position, and that
attracts visitors.
Colonial style buildings are
typical of the downtown and
historic districts
CUENCA
ANDEAN
DREAMS
Cuenca offers visitors a host of
activities guaranteed to keep
even the most restless traveller
entertained.
Located in the province of Azuay in the Andes
of Ecuador, the city of Cuenca, or Santa Ana
de los Cuatro Rios de Cuenca, has long been
a safe haven as well as an attraction for travellers. The first inhabitants of the region date
back to 8000 BC; however, it wasn’t really until
the Pre-Colombian times that the city began to
take shape. It was the Cañari that first established a settlement, which they called Guapondeleg in 500 AD. In around 1000 AD, the Incas
conquered the Cañari and changed the name
of the city to Tomebamba. The Incas began to
replace the original architecture with that of
their own and the city quickly became known
as the “second Cusco,” as well as the regional
capital. It was from the Cañari that the Incans
learnt many new astrological and agricultural
skills, which the Cañari had mastered. The Incan commander Tupac Yupanqui ordered the
construction of a grand city, which was to be
called Pumapungo or “Door of the Puma.” By
What are the challenges in
developing Cuenca’s tourism
sector?
We are working hard to encourage both local and international
tourists to take advantage of
our city. Cuenca’s half a million
l_mc^_hnm[fl_[^s\_h_×n`lig
the clean air and rivers. The
World Bank study was of great
\_h_×n`ilom&[h^q_[l_^icha
our utmost to eradicate the
l_g[chcha^_×]c_h]c_m(
You mentioned an investment
in Cuenca by the Sheraton hotel chain. What role do you see
for international investment in
Cuenca‘s tourism sector?
The Sheraton investment
^_gihmnl[n_mnbcmmcahc×][hn
]b[chÎm]ih×^_h]_ch=o_h][
as a viable market. Now it
is important that we move
forward on an international
airport. Ecuador has a solid
legal framework for investment,
and our international exposure
is increasing.
Tourism
THEBUSINESSYEAR
169
Cuenca offers a distinct blend
of traditional and modern
architecture
The 3rd largest city
in Ecuador, Cuenca
is a World Heritage
Site that offers a wide
variety of highlights
and experiences for
visitors, locals, and
expatriates alike;
it is a truly unique
destination.
the time the Spanish arrived
on the continent, Tomebamba had been destroyed by its
inhabitants and had been
abandoned; however, its reputation had spread across the
continent as the legendary
city of golden temples and
other such wonders, so much
so that many believed, including many of the Spanish
conquistadors, that it could
have been the fabled city of
El Dorado. When the Spanish
finally found Tomebamba,
they renamed it Cuenca and
began permanent settlement
in 1557. Today, the rich history provides tourists with many
activities and places to visit,
such as colonial cathedrals,
monasteries, churches, and
museums. Being located in
the Andes, it also means there
are numerous small Andean
villages within a short driving
distance, Incan ruins, rivers,
streams, nature walks, and El
Cajas, an expansive national park that is between 3,500
and 4,200 meters above sea
level and contains the Lacs en
Miroir (Mirrored Lakes). THEBUSINESSYEAR
171
174
175
178
Founder and CEO of Moore
Stephens on providing wide
ranging strategic business
consultancy services.
A Partner and General Manager
at Moore Stephens talks about
what makes Ecuador an
appealing business environment.
A list of hotels and helpful
hints for first time visitors to
Ecuador to make the experience
convenient and memorable.
Executive Guide
REVIEW LEGAL
THE THICK OF IT
E
cuador is seeking an efficient and
effective set of laws and regulations
to drive the economy and encourage
foreign investment in the country.
LEGAL-POLITICAL SYSTEM
BIO
Xavier Rosales is a partner
at Corral Rosales Carmigniani Perez, a major law
×lgch?]o[^il&l_mofncha
from the merger of Corral
Lim[f_m&[f[q×lg\[m_^
in Quito, and Carmigniani
J_l_t&[f[q×lg\[m_^ch
Guayaquil. He has broad experience in foreign investment in Ecuador, mergers
and acquisitions, competincih&×h[h]chaij_l[ncihm&
banking and insurance.
He has been ranked as a
leading corporate and M&A
lawyer in Ecuador by different reputable publications
including Chambers, LatinLawyer, and IFLR1000.
Ecuador is a democratic republic the constitution of which was enacted in 2008. It recognizes the classic division of powers: a legislative
branch, an executive branch, and a judicial
branch. The president is elected for a period
of four years, with the possibility of immediate
reelection. The National Assembly consists of
137 representatives, also elected for terms of
four years. The judges of the National Court of
Justice are appointed for a period of nine years,
and one-third of them are reappointed every
three years. There is a Constitutional Court,
which is responsible for interpreting the rules
of the Constitution and reviewing the acts of
the state, including judgments of courts and
tribunals that may violate constitutional rules.
FOREIGN INVESTMENT
The rules and regulations applicable to foreign
investment currently in force in Ecuador include the following:
…%FDJTJPOTBOEFOBDUFEJO.BSDI
and issued by the Commission of the Andean
Community (Colombia, Ecuador, Peru, and
Bolivia).
…$PEFPO1SPEVDUJPO5SBEFBOE*OWFTUNFOUT
and its regulations.
… 3FHVMBUJPO EBUFE .BSDI BT
amended and issued by the Central Bank of Ecuador, which regulates the registration of foreign investment.
…-BXPO$PNQBOJFT
As a general principle, the Constitution of Ecuador provides foreign nationals with the same
rights as Ecuadoreans. Decision 291 ensures
that foreign investors have the same rights
and obligations as local counterparts, with
the exceptions provided for in the law of each
member country. Foreign investors do not require prior authorization to invest in Ecuador,
whether to invest in the capital of a company or
as a financial investment through the stock exchange. Foreigners are only required to register
their investment with the central bank, mostly
for statistical purposes.
Foreign investors may freely remit to their
country of origin—or to any other country—
the profits deriving from their investment, as
well as any proceeds obtained from the sale
thereof. No authorization from any organization is required. Both foreign individuals and
entities may acquire real property in Ecuador.
Generally, all sectors of the economy are open
to foreign investment without limitation. There
are only certain specific restrictions for foreign
investment in areas relating to strategic sectors
(namely oil, power, potable water), national defense, and security.
VEHICLES FOR INVESTMENT
The vehicles usually used for local or foreign
investment are corporations (SA), limited liability companies (SRL), and branches of foreign
companies, all mainly regulated by the Law on
Companies. Below is a comparative list of the
main characteristics and requirements of each
type of entity.
172 THEBUSINESSYEAR
ECUADOR 2014
FEATURES
CORPORATION
SRL
BRANCH
Minimum number of shareholders
Two shareholders are required for the incorporation
and maintenance of a corporation.
Similar to a corporation.
Not applicable
Maximum number of shareholders
No maximum number of shareholders.
A maximum of 15 members; otherwise, it needs to be
transformed into another type of company or dissolved.
Not applicable
Shareholders’ liability
Up to the amount of their capital contributions, except
in case of bad faith or willful misconduct.
Similar to a corporation.
Not applicable
Foreign entities that participate as shareholders of a
corporation must appoint an attorney in fact resident
in Ecuador.
Similar to a corporation.
Not applicable
The identity of the shareholders of the foreign entity
participating as shareholder of a corporation needs to
be disclosed up the chain of ownership until the ben_×]c[fiqh_l&qbicm[hch^cpc^o[fil[h_hncnsfcmn_^ch
a stock exchange.
Similar to a corporation.
Capital is divided into register shares. Ordinary and
preferred shares may be issued. Preferred shares have
no voting rights, but may grant special rights in relation
to dividend payments and in case of liquidation of the
corporation.
Capital is divided into quotes of a single class.
Bearer shares are not allowed.
Capital is divided into quotes of a single class.
Shares may be freely transferred. Any statutory or
contractual limitation to the transfer of shares shall be
rendered null and void.
Shares may only be transferred with the unanimous
consent of all the members.
Shares are transferred by means of an assignment
notice executed by the assignor. The assignment shall
\_ _r_]on_^ ch nb_ mb[l_ ]_lnc×][n_ il ch [ ^i]og_hn
attached thereto and recorded in the Register of Shareholders.
The assignment shall be executed in the form of a public deed, duly registered with the Commercial Registry
and further recorded in the Register of Members.
Shares are subject to attachment by seizure of the
mb[l_]_lnc×][n_m[h^l_]il^chanb_[nn[]bg_hnchnb_
register of shareholders.
No attachment of quotas is permitted.
Shares may be pledged.
Quotas may not be pledged.
Minimum subscribed capital
$800
Mj_]c×] gchcgog [giohnm g[s \_ l_kocl_^ `il ]ihducting certain activities.
$400
Mj_]c×] gchcgog [giohnm g[s \_ l_kocl_^ `il ]ihducting certain activities.
$2,000
Mj_]c×] gchcgog [giohnm g[s \_ l_kocl_^ `il ]ihducting certain activities.
Minimum paid-in capital
At the time of incorporation at least 25% of the subscribed capital must be paid in. The remaining balance
must be contributed in a maximum two-year period.
At the time of incorporation, at least 50% of the subscribed capital must be paid in. The remaining balance
must be contributed in maximum one-year period.
100% the allocated capital must be paid in at the time
of establishing the branch.
Preemptive right
Absolute right. The shareholders shall always have a
preemptive right to participate in a capital increase, pro
rata to their current participation in the paid-in capital
of the company. Right may be waived.
Relative right. It needs to be determined in the by-laws
of the company or resolved accordingly by the shareholders’ meeting.
Not applicable.
Highest corporative body
Shareholders’ meeting
Shareholders’ meeting
The corresponding body pursuant to the law and the
\s'f[qmi`nb_b_[^i`×]_(
Shareholders’ meeting venue
The shareholders’ meeting must take place at the
legal domicile of the company, except for universal
shareholders’ meetings with the participation of all the
shareholders that may take place anywhere within the
territory of Ecuador. It is not possible to hold shareholders’ meetings outside of Ecuador.
Similar to a corporation.
Not applicable.
Meeting quorum
;nf_[mn/*i`nb_j[c^'ch][jcn[fch[×lmn][ff(Ch[
second call, the shareholders’ meeting may take place
with the number of shareholders present. Certain exceptions apply.
The quorum may be reinforced in the company’s bylaws.
Similar to a corporation.
Not applicable.
Resolution quorum
Simple majority of the paid-in capital participating at
the meeting, except for those exceptions determined
by law.
Similar to a corporation. The unanimous vote of all the
shareholders is required for: (i) transforming into another type of company; and, (ii) authorizing the transfer
of shares and admitting new partners.
Not applicable.
Statutory auditor
Mandatory
Optional
Not applicable.
Stock market
Public subscription of shares through the stock market
is permitted. Convertible bonds may also be issued.
Not possible
Not applicable.
Management and legal representation
A board of directors is not mandatory. The by-laws
shall provide for a legal representative and an alternate
legal representative. The legal representative shall reside in Ecuador or at least carry a resident visa.
Similar to a corporation.
Must designate a general attorney in fact with full powers, domiciled in Ecuador.
Capital reduction
Allowed
Not allowed when it involves a refund to the shareholders of capital contributions made, with the exception of
the exclusion of a shareholder.
Not applicable.
Legal reserve
Obligation to create a legal reserve with at least 10%
nb_h_ns_[lfsjli×nm&ohncfnb_l_m_lp_l_[]b_m/*nb_
subscribed capital.
Obligation to create a legal reserve with at least 5% the
h_ns_[lfsjli×nm&ohncfnb_l_m_lp_l_[]b_m,*i`nb_
subscribed capital.
Not applicable.
Name
To be authorized by the Superintendence of Companies
Similar to a corporation.
&DUULHV WKH VDPH QDPH DV WKH KHDG RIûFH 1R DOWHUnate name allowed.
Time to incorporate / establish
Approximately 30 days
Similar to a corporation.
Similar to a corporation.
Disclosure of shareholders’ information
Capital structure
Transfer of shares
Attachment of shares
Not applicable.
Not applicable.
Not applicable.
Executive Guide
MERGERS & ACQUISITIONS
In Ecuador, it is possible to merge two or more
companies when one or more (of those taken
over) are taken over by another company, or if
the merging companies disappear in order to
create a new company. In all cases, the company that takes over or the new company succeeds the rights, and obligations of those taken
over.
A company can also purchase all, or the majority of the shares of another company that
does not disappear but becomes the property of the buyer. It is also possible to purchase
all the assets and liabilities, or most of them,
in what is known as a “business purchase”
(purchase of a going concern). In this case,
the buyer does not acquire all of the seller’s
obligations, but only those specifically designated. This alternative is beneficial when there
are any doubts concerning hidden or contingent liabilities of the seller. The purchase can
also involve the assets exclusively, or any part
thereof.
THEBUSINESSYEAR
173
In all cases, the company that takes
over or the new company succeeds
the rights, and obligations of those
taken over.
Ecuadorean law does not contemplate unsolicited (hostile) transactions, and, therefore,
there are no tactics of defense to oppose or
block a takeover. Ecuador enacted, for the first
time, a Law on Competition in October 2011.
Under the Law on Competition any business
combination that meets the following criteria
is subject to prior approval by the competition authority: (i) when the combined volume
of business in Ecuador within the prior fiscal
year is higher than the threshold determined
by the competition authority (known as the
Regulatory Board), which is currently $68 million except in case of insurance and banking
transactions, or (ii) when, as a result of the
combination of entities involved in the same
type of business, 30% or more of the relevant
market is obtained or increased. The content of this article
is intended to provide
a general guide to the
subject matter. Specialist
advice should be sought
about your specific
circumstances.
TBY would like to
thank Corral Rosales
Carmigniani Pérez for
compiling this analysis.
Adding-value to our clients
&RUUDO5RVDOHV&DUPLJQLDQL3HUH]LVDPDMRUODZϧUPLQ(FXDGRU
UHVXOWLQJIURPWKHPHUJHUEHWZHHQ&RUUDO5RVDOHVDODZ
ϧUPEDVHGLQ4XLWRDQG&DUPLJQLDQL3HUH]DODZϧUPEDVHGLQ
*XD\DTXLOZLWKDYLVLRQRILQWHJULW\FRPPLWPHQWDQGTXDOLW\
2XUJURZWKKDVEHHQWKHUHVXOWRIRXUFRPPLWPHQWWRWLPHO\
KLJKTXDOLW\DQGFRVWHϱHFWLYHFOLHQWVHUYLFH&5&3KDVD
WHDPRISURIHVVLRQDOVEDVHGDWLWVRϫ
FHVLQ*XD\DTXLODQG4XLWR
ZLWKGLϱHUHQWWDOHQWVDQGDELOLWLHVWRGHVLJQWDLORUDQG
LPSOHPHQWFUHDWLYHOHJDOVROXWLRQVIRURXUFOLHQWV2XUGHYRWLRQ
WRRXUFOLHQWVKDVHDUQHGXVFRQVLVWHQWO\KLJKUDQNLQJVDQG
UHFRJQLWLRQIURPQXPHURXVUHSXWDEOHSXEOLFDWLRQV
5REOHV(\$Y$PD]RQDV(GLI3URLQFR&DOLVWRSLVRT:F:48,72(FXDGRU
$YGH2FWXEUH(GLI/D3UHYLVRUD2IT:F:*8$<$48,/(FXDGRU
QUITO · GUAYAQUIL
www.crcp.ec
174
THEBUSINESSYEAR
ECUADOR 2014
INTERVIEW
sage
ADVICE
Moore Stephens has a wide international presence. What is
nb_ mcahc×][h]_ i` ?]o[^il `il
the group as an international
]ihmofn[h]s×lg9
Moore Stephens was founded
in London in 1906, and now
it has a presence in over 105
countries worldwide, one of
which is Ecuador. Ecuador
is one of our most important
markets in the Latin American region. We started not as
an auditing firm but as a consulting firm, and, thus, we had
numerous multinational clients that required services in
other countries. Ecuador has
been an important reference
to other firms in the region
and worldwide.
TBY talks to Mauricio Durango Pérez, Founder
and CEO of Moore Stephens, on providing wide
ranging strategic business consultancy services,
the value of creative personalized advice, and
new entrants to the Ecuadorian market.
but also how to help them
take advantage of those reforms to be more competitive.
What would you say, then, is your
value proposition in Ecuador?
What is the main focus of your
practice in Ecuador today?
We used to work on huge legal studies with partners from
Deloitte, Arthur Anderson,
PwC, and so on. But we did
not want to be just a law firm
or an audit firm. We preferred
to become a more strategic
consulting firm that provides
a comprehensive service. In
that regard, we use all of this
knowledge as a tool to provide strategic business consulting without dividing into
practice areas.
Many of your clients switch to
you from one of the big four conmofncha×lgm(Qbscmnb[n9
Many companies or clients
we work with have normally worked with the big four.
But, in Ecuador, they choose
to work with us because we
create value for them. We provide a difference in our services. We offer considerable
personalization, and offer important creative and strategic
products that meet customer
needs. We are always working
within the concept of a factory. We do not produce cars,
but we do produce ideas.
Ecuador has extensively reformed its constitution and
laws. It is not only a matter of
understanding the new legal
requirements and obligations
the companies have to meet,
BIO
Mauricio Durango Pérez
is an Attorney, a Doctor
in Jurisprudence, and a
member of the Quito Bar
Association, who graduated
`lignb_Jihnc×][f=[nbifc]
University of Ecuador. He
is the founding Partner and
General Manager of Moore
Mn_jb_hmJli×f_=ihmoftants. He was formerly
a legal advisor to two of
?]o[^ilÎmf[la_mn×h[h]c[f
groups, and manager of
Arthur Andersen & Co.’s
legal and tax division.
Dr. Durango received a
Diploma in American and
International Law from
the Center for American
and International Law in
Dallas, US. Among other
activities, he is currently
Director and Chairman of
the Board of the Ecuadorian American Chamber of
Commerce and Director
of the Quito Securities
Exchange, as well as being
Chairman of the Board of
the Managing Council of the
Colegio Americano de Quito
Foundation.
We want to be the iPod of
consulting. We want to make
a difference and I think we
are doing that because we
have the trust of multinational and national clients. All of
the products we create are
designed with a focus on creating value or trying to go one
step ahead. We want to create
products that perceive what
the needs and obligations are,
and help clients understand
their legal requirements.
Has a presence
in 105 countries
worldwide
Focuses on
providing
integrated
strategic
consulting
services
What kind of services could an
international company looking
to enter the Ecuadorean market
expect to receive from Moore
Stephens?
At the beginning, we will send
along all the information
about doing business so a firm
has an overview of legislation
in Ecuador. We can then work
on the legal establishment of
the company or branch, and
will advise on the better options. We can also help with
the accounting of the company, or even with its representation if the client so wishes.
We can help with tax matters
and financial issues if a firm
needs capital or loans for projects. We can also assist with
hiring personnel and headhunting, as well as strategic
issues specific to the business
you want to implement.
What are the major challenges
you see for foreign investors
coming into Ecuador?
We have had a lot of reforms,
and we have to be aware that
Ecuador's is a revolutionary government with a “21st
Century socialism” oriented
mindset. We also have to understand what its goals are. All
of the laws it is issuing have an
eye on instituting its overall
goals, so it is important that
companies understand the
new regulations. They have
to improve their processes in
accordance with those regulations, and they have to see the
opportunities that are available. Executive Guide
THEBUSINESSYEAR
175
DOING BUSINESS GUIDE REVIEW
STREAMLINED
FOR SUCCESS
Mauricio Durango
Pérez, Partner and
General Manager
at Moore Stephens on
what makes Ecuador
an appealing business
environment.
According to the economic policies of the government of President Correa, Ecuador has been
improving its business environment in order to
achieve more foreign and national investments.
Indeed, over the past four years Ecuador has
changed several key laws, with which the government is improving the production process
and decreasing paperwork to start economic activities through a company.
The General Code for Production and Investment was issued to regulate production processes, in the stages of production, distribution,
exchange, trade, consumption, management of
externalities, and productive investments oriented toward living well. This recent regulation
sets several tax benefits for new investments especially in those economic activities considered
strategic sectors, such as food production, biotechnology, and petrochemicals among others.
DOING BUSINESS IN ECUADOR
There are several corporate legal arrangements
through which to carry out economic operations in Ecuador, be it through local companies,
branches and subsidiaries of foreign companies,
or holding companies, for example.
In Ecuador, it is usual to constitute two kinds
of commercial company, corporations and limited-liability companies, since they limit their
partners’ liability to the amounts they have put
into them.
The corporate norms are set forth in Ecuador
by the Civil Code, the Commercial Code, and
the Law on Companies, the last having recently
been reformed in May, 2014.
When the capital of any of these companies
comes from foreign investors, they are called
subsidiaries, and must register with the Central
Bank of Ecuador, according to the type of investment they make (local, direct foreign, sub-regional, or neutral).
In the event that an Ecuadorean company has
shareholders or partners that are foreign companies, it must inform the Superintendence of
Companies who the shareholders or partners of
those foreign companies are.
It must also disclose to the Ecuadorean Internal Revenue Service the names of those who appear as shareholders down to the level at which
actual individuals are identified. Both regulations are trying to clarify people who are behind
the companies in order to prevent tax evasion,
crime of money laundering and the trafficing of
influence in negotiations with the State.
For a company constituted abroad to be able
to habitually engage in its activities in Ecuador,
it must have a permanent representative in Ecuador with full powers to carry out all actions
and legal matters that must be done and have
effect in the Nation’s territory, and especially to
be able to reply to lawsuits and meet contractual obligations.
However, if the activities of a foreign company
in Ecuador entail the implementation of public
works, public service provision, or extraction of
Ecuador's natural resources, it must establish
domicile in Ecuador before signing the corresponding contract.
It is important to mention that Ecuadorean
Law is friendly to new investments; this explains
why just two months ago it was issued a new regulation that eliminates several inefficient procedures in incorporating companies.
TAX SYSTEM
The Ecuadorean tax structure comprises taxes,
fees, and contributions. Taxes can be national,
provincial and municipal. The main taxes are
outlined below:
National Income tax (IR)
This tax is levied over the total income obtained
by Ecuadorean or foreign corporate bodies, individuals and undivided estates.
Ecuadorean and foreign companies are treated the same. Overall income is understood as all
income the taxpayer has received.
The taxable base income for this tax is the
total taxable income minus the costs and expenses that, according to Ecuadorean norms,
are deductible. Some activities are exempt from
income tax in order to promote investment (as
it was mentioned before concerning the Production Code), for social reasons, and for other reasons exonerating taxpayers from paying taxes.
According to prevailing legal norms, there is
income considered exempt from income tax,
such as dividends distributed to shareholders and
partners who are individuals or corporate bodies
domiciled abroad (but not in a “fiscal paradise”),
or Ecuadorean corporate bodies, and income obtained under international agreements, among
others.
Income tax for Individuals
Individuals and single-owner businesses pay income tax proportionally to their income, at a rate
varying according to the income received, from
5% to up to a maximum of 35%.
Expenses that individuals may deduct for income tax purposes include “personal expenses”,
which cover: health, education, clothing, and
food, and which are deductible up to an overall maximum of 50% of total taxable income, as
long as this does not exceed the equivalent of 1.3
times the basic un-taxed base amount for income tax for individuals ($10,410.00 as of 2014).
ž Corporate Income tax. There is a single tax rate
176 THEBUSINESSYEAR
ECUADOR 2014
WORK-RELATED
STANDARDS
Under Ecuadorean
legislation, labor contracts
may be either written or
verbal. That is, even if there
is no instrument or contract,
the labor relationship can
be proven. However, the law
provides for certain cases
in which a written contract
is mandatory. Additionally,
there are several modalities
of work, and the most
important are:
ž@cr_^'ncg_ilch^_×hcn_
duration: Ecuadorean
legislation establishes
a minimum one-year
^ol[ncih`il[ff×r_^'ncg_il
ch^_×hcn_'^ol[ncih]ihnl[]nm
that do not specify some
other duration.
žNlc[f]ihnl[]nm4Chnb_
above contracts, when
mcah_^`ilnb_×lmnncg_&
a trial period can be
stipulated, lasting no longer
than ninety days. After that
time, it will automatically
be understood to remain in
effect for the time remaining
to complete one year.
A worker’s remuneration
cannot be lower than the
Ohc×_^<[mc]Q[a_&qbc]b
has been at $340.00 since
2014.
for companies of 22% on a taxable amount calculated through the process called “tax reconciliation.” The Tax Administration grants a discount of ten percentage points in the 12% tax
rate for companies that decide to reinvest their
Available Profits, providing that this reinvested
amount is used to purchase new machinery or
equipment, as well as to purchase goods related to research and technology to improve productivity, diversify production, and increase
employment, among other cases. As a requirement to take advantage of this tax benefit, the
company must formalize the reinvestment (by
Capital Increase) in the Mercantile Register by
the following year.
National Value-‐added tax (VAT)
VAT is an indirect tax levied on consumption
whenever a taxpayer takes an action or signs a
contract for the purpose of transferring or importing physical chattel goods, transferring
copyright or horizontal property, at all stages of
the selling; and provision of services (local and
imported). Rates for VAT are 12% or 0%.
This tax can be transferred by one taxpayer
to another, because the intention is for the tax
burden to be paid by the end consumer, if producing goods and services subject to the 12% tax
rate. Otherwise, a proportional part of this tax
credit can be used.
National Tax on Foreign Currency Payments
(ISD)
The tax on outgoing foreign currency is levied on
all monetary transactions that are done abroad,
with or without the intervention of the institutions comprising the financial system. The taxable action for this tax is the transfer or movement of foreign currency abroad as cash, or by
drawing checks, transfers, sending, withdrawing
or paying in any way. The tax rate on Outgoing
Foreign Exchange is 5%.
Additionally to the above taxable actions, it
will be legally presumed that there has been outgoing foreign currency in the following cases:
ž In all payments made abroad by Ecuadorean or
foreign individuals, or corporate entities domiciled or resident in Ecuador.
ž In the case of exports of goods or services generated in Ecuador, and realized by individuals
or corporate entities domiciled in Ecuador, who
engage in economic activities of exportation,
when the foreign exchange to pay for those exports does not enter Ecuador within 180 days
time.
Tax on Extra Income
This tax is levied on extra income obtained by
companies that have signed contracts with the
national government for exploration and extraction of non-renewable resources.
The taxable base amount is the total extra income, that 'is, the difference between the selling
price and the base price established in the contract, multiplied by the number of units sold at
that price. This tax rate is 70%.
Tax on special consumption
This tax is levied on cigarettes, alcoholic beverages, soft drinks, perfumes and toilette waters,
video games, firearms, sports weapons and ammunition, motor vehicles and hybrid, or electric
vehicles, paid television services, dues, shares or
subscriptions to social clubs, whether from Ecuador or imported.
The taxable base amount is the sales price to
the public suggested by the manufacturer or
importer, minus the VAT and the ICE (as long as
this amount is not lower than the result of adding 25% to the presumptive minimum marketing margin to the ex-factory or ex-customs price,
as the case may be) or on the basis of the reference prices established by a Resolution annually
by the Director-General of the Ecuadorean Internal Revenue Service.
Tax on holding assets abroad
The monthly tax on funds available and investments held abroad by private entities regulated
by the Superintendence of Banks and Insurance
and the Intendancies of the Securities Market
in the Superintendence of Companies is based
on holding any certificate for funds available in
entities domiciled outside Ecuadorean territory, whether directly or through affiliated subsidiaries or offices of the taxpayer abroad; and
investments abroad by entities regulated by the
National Securities Council.
Taxpayers must pay the equivalent of 0.25%
monthly of the average monthly balance of
funds available in foreign entities and investments issued by entities domiciled outside national territory.
When the funds are received or the investments held or made through subsidiaries located in fiscal paradises or preferential fiscal
systems or through affiliates or offices abroad
of the taxpayer, the applicable rate will be 0.35%
monthly of the taxable base income.
REGULATION OF TRANSFER PRICES
AND FULL COMPETITION
In 2005, Ecuador incorporated OECD guidelines
in its legislation on regulating transfer prices, to
regulate those transactions completed by related
companies when the sales are at or below cost.
This regulates prices so they will not be lower
than those current on foreign markets at the time
of the sale; whereas for imports it will make sure
they are not higher than international prices.
The norms state that related parties are when
an individual or company, with domicile in Ecuador or abroad, participates directly or indirectly in the management, administration, control,
or stock of the other company; or when a third
party (an individual or company, with domicile
in Ecuador or abroad) participates directly or
indirectly in the management, administration,
control, or stock of these companies.
The norms oblige certain taxpayers to present
studies and information on their transactions
with related parties to the Tax Administration,
along with their income tax declaration.
Executive Guide
AUDITING AND ACCOUNTING
Accounting must be kept using the double-entry
system, in the Spanish language and in US dollars, taking into consideration generally accepted accounting principles.
For corporate bodies subject to control and
oversight by the Superintendencies of Companies or of Banks and Insurance, their accounting
must be kept according to International Financial Reporting Standards (IFRS) adopted for preparing financial statements as of January 1 2009.
INTERNATIONAL RELATIONSHIPS
FOR INVESTMENTS
Ecuador has signed bilateral treaties on investment with the following countries: Germany,
Argentina, Bolivia, Bulgaria, Canada, Chile, China, Costa Rica, Denmark, El Salvador, Spain, the
US, Finland, France, Honduras, Nicaragua, Paraguay, Peru, the Netherlands, the UK, Sweden,
Switzerland, Dominican Republic, and Venezuela.
Those international treaties try to provide legal security for foreign investors and guarantee
economic conditions in the future.
Furthermore, Ecuador has treaties to avoid
dual taxation for income tax in international
transactions. Ecuador has signed those international agreements with: Belgium, Canada, Chile,
France, Italy, Rumania, Switzerland, Spain, Germany, Brazil, Mexico, South Korea, and Uruguay;
China’s agreement is in the final stage of approval.
Additionally Ecuador has signed Decision 578:
a system with which to avoid dual taxation and
prevent tax evasion among the countries of the
Andean Community. This Treaty uses the overriding principle of taxation in the source country
instead of the residence principle. A treaty with
Argentina (applicable only for air transport) has
also been signed.
To verify payments abroad for agreements
on dual taxation for transactions done in a given fiscal year, totaling more than one basic
tax-free amount for income tax for individuals
($10,410.00 for 2014) requires certification by
Independent auditors. A certificate of fiscal residence, issued by the relevant authority of the
other country, with a translation into Spanish, if
necessary, and authenticated by the respective
Ecuadorean Consul, is also required.
In recent years, Ecuadorian government has
been negotiating several international agreements to avoid double taxation, which demonstrates the intention to stimulate foreign investment.
Indeed, the government is looking to achieve
other international agreements, especially with
countries in which direct providers of the state
are residents, and therefore, it would be possible
to secure better conditions and decrease the tax
burden for companies with international operations in the future. THEBUSINESSYEAR
177
The content of this article
is intended to provide
a general guide to the
subject matter. Specialist
advice should be sought
about your specific
circumstances.
TBY would like to thank
Moore Stephens for
compiling this analysis.
178 THEBUSINESSYEAR
ECUADOR 2014
Where to Stay
QUITO
01 Hotel La Colina Suites
La Colina N26-119 y Avenida
Orellana
T +593 2 223 4678
www.lacolinasuites.com
Rooms 22 Suites of 64sqm Guest
Services )UHH:Lû0LQL*\P
Sauna & Jacuzzi, Coffee Station,
Covered Parking, Airport transfer,
Business Center, Laundry Dining
Restaurant with modern dishes in
a relaxed ambiance
02 Mercure Alameda Quito
Ramón Roca E4-122 y Av.
Amazonas
T +593 254 5847
www.accorhotels.com
05 Swissotel Quito
12 de Octubre 1820 Ave. & Luis
Cordero
T +593 2 256 7600
www.swissotel.com
5
4
1
Rooms 277 rooms and suites
Guest Services 24-hour room
service, 20 meeting rooms, spa,
indoor and outdoor swimming
SRROûWQHVVFHQWHUVTXDVK
racquet, and tennis courts, steam
bath and jacuzzi, Swiss business
center, concierge Dining Le
Gourmet, Trattoria La Pergola,
Tanoshii, Café Quito, Bar Le Point,
Oro Pollo/Oro Pizza, Gourmet Deli.
2
3
6
Rooms 147 rooms and 41
“Privilege rooms” Guest Services
Gym, business center, parking,
early check in, late check out
Dining Gourmet national dishes,
Japanese cuisine, barbeque
Fridays.
03 Hotel Le Parc
Republica de el Salvador No. 34349 e Irlanda
T +593 9 964 7914
www.leparc.com.ec
Rooms 30 suites Guest Services
Executive services, transfer
in-out, business center, unlimited
ZLUHOHVVLQWHUQHWDFFHVVûWQHVV
area, spa, 24-hour room service
Dining Neu Bistro Restaurant, and
Skybar.
Casa Gangotena
Bolívar Oe6 #41 y Cuenca. Quito
T +593 2 240 0800
www.casagangotena.com
04
Rooms 31 rooms Guest
Services Conservatory, garden,
wood-paneled library, terrace
Dining Casa Gangotena offers
national dishes.
GUAYAQUIL
11
06 Grand Hotel
Boyace entre Clemente Ballen y
10 de Augusto
T + 593 4 232 9690
www.grandhotelguayaquil.com
Rooms 182 spacious guestrooms
Guest Services Pool, meeting
URRPVEXVLQHVVFHQWHUûWQHVV
center, Wi-Fi Access, room service,
incoming shuttle service Dining A
choice of three options including
the 24-hour coffee shop La Pepa
de Oro, the 1822 Restaurant, which
serves traditional food in décor
reminiscent of Simon Bolívar, and
the Turtle Bar for drinks.
Executive Guide
07 JW Marriott Quito
Avenida Orellana 1172 & Avenida
Amazonos
T +593 2 297 2000
www.jwmarroittquito.com
Rooms 241 guest rooms, 16
suites, including junior and
Presidential suites. Guest
Services Business lounge,
:L)LDFFHVVûWQHVVFHQWHUZLWK
gym, spa, 24-hour room service,
swimming pool, 32 meeting rooms
spread over 12,917 sq feet with
seating capacity for up to 1,000.
Dining Bistro Latino, La Hacienda
Steakhouse, The Exchange Lobby
Bar & Sushi Bar, Café Gourmet,
'RQ3RUûULR0H[LFDQ
13
08 Hilton Colon Guayaquil
Av. Francisco de Orellana Mz 111
T +593 4 268 9000
www.guayaquilhilton.com
Rooms 294 rooms and suites
Guest Services Airport shuttle,
business center, wireless internet
access, outdoor pool, health
club, spa, extensive meeting,
conference, and convention
facilities with capacity for 1,800
guests Dining six restaurants and
three bars.
8
THEBUSINESSYEAR
179
12
09 Sonesta Hotel Guayaquil
Joaquin Orrantia Av. and 1st
Northwest (La Gran Manzana)
T +593 4 259 5900
www.sonesta.com
Rooms 112 guest rooms,
including 56 single rooms and 56
double rooms Guest Services
ûWQHVVFHQWHUVSDSRROLQWHUQHW
access, 2,700 square feet of
meeting space for corporate or
social events, business center,
24-hour room service, 24hour concierge service Dining
The VIEW restaurant offers
international cuisine.
10 HM International
Alberto Borges 1er Pasaje
T +593 4 228 0806
www.hmhotel.ec
Rooms HM International Hotel
offers modern rooms with the
Atlantis and Greece rooms
equipped with modern odor
removal systems, ideal for coffee
breaks Guest Services LCD
TV, deposit box, ecological air
conditioner, free wireless internet,
fridge, noise insulating windows,
energy-saving lighting, tempered
water systems, modern saloons
of 40 sqm.
Corporate meetings
Executive suites
CUENCA
11 Hotel Oro Verde
Av. Ordóñez Lazo S/N
T +593 7 409 0000
www.oroverdehotels.com
Rooms 77 deluxe rooms including
three suites Guest Services
Laundry, transfers to/from airport
on request, private parking,
secretarial services, personal
computers, and audiovisual
equipment, meeting rooms with
a capacity for four to 12 people
Dining Oro Café, La Cabaña Suiza,
and Gourmet Deli.
12 Hotel Victoria
Calle Larga 6-93 y Presidente
Antonio Borrero
T +593 7 282 7401
www.hotelvictoriaecuador.com
Rooms 23 rooms, including 9
standard or matrimonial rooms,
10 double rooms, 2 triple rooms,
and 2 suites Guest Services
Business center, transfer in-out,
reading areas, private parking,
room service, laundry service, WiFi Dining El Jardín Restaurant.
MANTA
Gourmet restaurant
13 Hotel Boutique Maria Isabel
Barrio El Murciélago Calle 24
#103 y av. Mz2
T +593 5 262 5013
www.hotelboutiquemariaisabel.com
Rooms 16 unique rooms Guest
Services Wi-Fi, private parking,
24-hour security, cafe bar, meeting
room with 3D TV and satellite.
Dining Bar and dining hall.
180 THEBUSINESSYEAR
ECUADOR 2014
When in ECUADOR
Helpful Hints
Useful Numbers
EMERGENCY SERVICES
Some survival tips that will help get you through
the first few days in the country
FIRE 102
EMERGENCY 911
POLICE 101
MINISTRIES
THE PRESIDENCY
www.presidencia.gob.ec
MINISTRY OF FOREIGN TRADE
www.comercioexterior.gob.ec
MINISTRY OF FINANCE
qqq(×h[ht[m(ai\(_]
MINISTRY OF CULTURE &
HERITAGE
www.culturaypatrimonio.gob.ec
MINISTRY ECONOMIC & SOCIAL
INCLUSION
When planning meetings in Quito,
be sure to leave time in case you
get stuck in the city's infamous
WUDIûF
Most exeuctives in Ecuador split
their time between two cities and
ZLOOü\EDFNDQGIRUWKIRUPHHWLQJV
0DNHVXUHWRFRQûUPZKLFKFLW\
your meeting is in to avoid a mixup
They say that in Ecuador there is
a soup for every day of the year.
Locro de Papas is one of the more
popular soups, made with potatoes and cheese.
www.inclusion.gob.ec
MINISTRY OF EDUCATION
www.educacion.gob.ec
MINISTER OF ELECTRICITY &
RENEWABLE ENERGY
www.energia.gob.ec
MINISTRY OF ENVIRONMENT
www.ambiente.gob.ec
MINISTRY OF FOREIGN AFFAIRS
www.cancilleria.gob.ec
MINISTRY OF HOUSING & URBAN
DEVELOPMENT
www.habitatyvivienda.gob.ec
MINISTRY INDUSTRIES &
PRODUCTIVITY
www.industrias.gob.ec
MINISTRY OF INTERIOR
www.ministeriointerior.gob.ec
In the mountains most people take
holidays in July and August, while
on the coast, most people take
holidays in February and March.
Taxi drivers may not always want
to use the meter, meaning that a
bit of bargaining may be in order.
Receipts are a rarity.
Ecuador uses US-style 110 V A/B
class plugs. Bring a surge protector for sensitive equipment.
MINISTRY OF LABOR
www.relacioneslaborales.gob.ec
MINISTRY OF NON-RENEWABLE
NATURAL RESOURCES
www.recursosnaturales.gob.ec
MINISTRY OF
TELECOMMUNICATIONS &
INFORMATION
www.telecomunicaciones.gob.ec
MINISTRY OF TOURISM
www.turismo.gob.ec
MINISTRY OF TRANSPORT &
PUBLIC WORKS
www.obraspublicas.gob.ec
OFFICIAL ORGANIZATIONS
CENTRAL BANK OF ECUADOR
qqq(\]_(×h(_]
It’s not necessary to have a
YDFFLQHFHUWLûFDWLRQZKHQYLVLWLQJ
Ecuador; however, if you visit the
Amazon, make sure to be vaccinated for tropical diseases.
The average temperature on the
FRDVWLVRIÕ&7KHZDUPDQG
rainy season runs from November
to May, while the dry season is
from June to December.
One single kiss on the cheek
between men and women or two
women is accepted when people
are introduced, even at a business
level.
NATIONAL INSTITUTE OF
STATISTICS
www.ecuadorencifras.gob.ec
QUITO INTERNATIONAL AIRPORT
www.aeropuertoquito.aero
Energy for Development
MATRIZ CUENCA, ECUADOR
PBX +593 (07) 3700 100
Panamericana Norte KM 7 ½ , sector Capulispamba
www.celec.gob.ec