With these levels it becomes difficult to generate employment and economic growth. The Ecuadorian middle class is minimal and fragile.
The most prosperous economies in the world, with higher levels of employment and investment, are those that have the majority of their population with high levels of assets, that is, wealth and savings to move their economies.
The case of Ecuador is very different. According to the latest Global Wealth report, prepared by Credit Suisse, 63.7% of the Ecuadorian adult population has assets of less than $10,000.
In other words, adding their assets, which include real estate, vehicles, bank accounts, stocks, among others, and subtracting all their debts and obligations to pay, they have minimum wealth.
In the most prosperous economies in Latin America, such as Chile and Uruguay, for example, the percentage of adults with less than $10,000 in their assets is below 40%.
On the other hand, the nations of the region with the highest levels of informality and precariousness (more than 8 out of 10 workers) have more than 75% of their adult population with less than $10,000 of assets. This is the case for Bolivia and Venezuela, for examples.
To change this indicator, Romina Verdesoto, an economist and consultant for international investment banks, said that Ecuador would need a higher percentage of its population not to live just to pay their debts and survive, but to have space to truly become owners and investors.
“Businessmen, and people with higher incomes in the country, have already made efforts in the last year, through greater local investment and even payment of taxes (special contributions). That is somehow squeezing the same ones who always contribute… Ecuador really needs to build a middle class by halving that high percentage that has assets of less than $10,000,” he pointed out.
Effects of the crisis
Currently, in the country there are less than 12,000 people with assets greater than one million dollars. That represents less than 0.2% of the entire adult population. A year ago, the exact figure reached 11,361 millionaires; but the pandemic crisis, and the growing global recession, has lowered the figure to 10,831.
Likewise, the percentage of the adult population with assets between more than $10,000 and $100,000 stands at 33.1%; while those who have between more than $100,000 and less than a million does not exceed 3.1%.
Ecuador has a fragile middle class, not only because of the low levels of income in the national economy, but also because it has precarious levels of education and financial culture.
Pablo Núñez, economist and university professor, stressed that more than half of Ecuadorians with assets between $50,000 and less than $1 million did not have an investment plan, emergency reserves, or insurance for their assets, at the time of the pandemic crisis.
“The same thing that criticizes the State in terms of not having funds to face lean times is what happens even in the highest income segments in Ecuador. Having your own house is something important, but in a crisis situation if that is your only asset, you will not be able to sell it quickly if you need it, and if you do, you can suffer a huge discount in its value,” he said.
Experts say that Ecuador has a lack of financial education and culture in the country. This is visible from the treatment of money as a taboo in families, to the ignorance of basic mechanisms such as investment funds or operations in the stock market.
In societies with high economic dynamism, such as the former Soviet republics, the Czech Republic or Estonia, families have diversified investments that include shares in public and private companies, investment funds, retirement funds, among others. Those countries were poorer than Ecuador in the late 1980s, but now their situation is the opposite.
The pandemic crisis, and the growing global recession are hitting the middle class hard.
The low levels of wealth in Ecuadorian society are tied to a vicious circle of three evils.
Dollarization made it possible to control inflation, take the issuance of money out of the hands of politicians and provide more security for investment in the medium and long term, among other benefits, but none of the governments that have come to power in the last 20 years has promoted reforms to make the national economy more productive.
The solution to this evil includes more flexible labor hiring modalities, incentives for entrepreneurs, investment in technology and innovation, and a shift towards more practical and quality education.
The second evil is a public sector that is too bureaucratic, inefficient and with high levels of corruption. This results in poor quality public spending that does not allow citizens to accumulate wealth.
Finally, the third evil has to do with the low levels of trade openness and competition. During the last visit of the current Chilean Finance Minister, Mario Marcel, to the United States, international investors said that “without the opening and trade agreements, Chile today would be like Ecuador.”