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Guillermo Lasso’s first 100 days: a highlight on business initiatives and economics

Published on September 07, 2021

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The government of Guillermo Lasso has completed 100 days in power and international experts described the diplomatic handling of vaccines and investments as positive.

Lasso, before assuming power, began to manage with other countries the provision of Covid-19 vaccines. He did so on April 26th with the governments of China, the United States and Russia.

Not waiting for the May 24th inauguration was a very important step for international relations said expert Carlos Estarellas.

Estarellas also believes it was very important for the regime to assume the pro tempore presidency of the Andean Community (CAN) in July, when Lasso traveled to Colombia, where he held talks with his counterpart, Iván Duque.

He feels that these situations improve the perception of the country. “The visits he has made in general, I think they are positive and will give Ecuador a better relationship with the other States. In these hundred days, from my point of view, it has been positive; of course, you have to continue, but for a first start I think it’s fine. Vaccination has been a key point,” he said.

Since he began his duties, Lasso has also tried to expand bilateral relations so that there is “more Ecuador in the world and more world in Ecuador.”

He has traveled to Peru and Mexico and has spoken with authorities in other countries.

When he was elected, he had a conversation with Antony Blinken, Secretary of State of the United States, about economic and health cooperation, and restoring democracy in Venezuela.

In July he sent a letter to US President Joe Biden asking him to speed up the process for signing a trade agreement.

On August 5th, he met via a video call with the Russian President, Vladimir Putin. They drew up a roadmap that includes the manufacture of vaccines, railway projects, energy, oil and free trade agreements.

Before this dialogue, Lasso attended his first invitation to a change of command ceremony and went to that of Pedro Castillo, in Peru.

In the neighboring country, Lasso also spoke with his Chilean counterpart, Sebastián Piñera; from Argentina, Alberto Fernández; and with the ambassador of Mexico, Marcelo Ebrard.

He has participated in inaugurations together with Duque, such as on August 14th in the binational Rio Mataje corridor (Esmeraldas province) -La Espriella (Nariño Department, in Colombia).

Recently, he traveled to Mexico to propose a free trade agreement to his counterpart, Andrés Manuel López Obrador.

Ecuador’s interest in this agreement was born with the objective of joining the Pacific Alliance, made up of Mexico, Chile, Peru and Colombia.

On that visit, he took the opportunity to meet with the business sector to attract investment. For example, he spoke with the President of the Mexican multinational FEMSA, José Antonio Fernández, and with executives from Arca Continental, a Coca-Cola distributor.

And a few days ago, after completing his first 100 days in power, he spoke by telephone with the President of the People’s Republic of China, Xi Jinping. The leaders spoke about an upcoming signing of a free trade agreement.

Luis Benavente, a Peruvian political analyst and director of the Vox Populi Consultancy, said that Ecuador is seeking “very strong” international trade.

“Ecuador today, its relations and economic policy, has a very clear vision of attracting investment because it has been nurturing its relations. For example, in Peru I have seen a seminar to invest in Ecuador,” he indicated.

Benavente pointed out that “a great change has been seen in Ecuador, from what it was at the beginning of the pandemic. I think it could become attractive for investments.”

Estarellas agreed, saying that the direction focused at the moment is being maintained and hasn’t not decline. “He has directed it well (international relations), we hope that it is not only the beginning but continuous,” he said.

How is the ‘Lasso effect’ reflected in investments?

As an executive of the multinational General Motors, Fernando Agudelo lived in Ecuador for a time in the past decade. After presiding over the operation in the country, he continued in positions in South America until he retired from the company.

The Colombian has now once again set his sights on the country to be a director and part of the shareholders – along with local partners – of SZK del Ecuador. This company obtained the representation of Suzuki, which began operating this month.

“Ecuador is in a very good moment, with growth prospects,” he said, referring to the outlook he perceives in the country.

The reintroduction of this Japanese brand, which will now compete independently, is one of the important investments that have been made in the automotive sector in recent months. The project involves an investment of $20 million and 120 jobs in the first year.

Agudelo said that South American countries have their cycles and Ecuador is going through one now, with a positive climate to do business. Suzuki has planned eight locations this year and its intention is to expand its network in the coming years.

In recent months, other business groups such as the Favorite Corporation have announced new investments in a Megamaxi, in Cuenca, which will cost $36 million. It will also have investments in the Mall del Norte, in Guayaquil, which will be close to $50 million.

The KFC group, which manages a network of fast-food restaurant chains, has a plan to open 135 stores in the country between 2021 to 2025. And Pronobis and Innovum have real estate projects underway in Guayas.

Added to this are other investments that firms such as Pronaca and Arca have planned in purchases of local companies and that have received endorsement from the control authorities in recent weeks.

On the social media platform Twitter, this new business atmosphere and the announced investments have been linked to “#efectolasso,” a kind of positive repercussion due to the arrival of a government open to private investment.

Freddy García, Director of Economic and Statistical Studies at the firm Inteligencia Empresarial, said that it is probable that the investments that are being made now, and for the short term, had already been planned, but the certainty of a change of government was needed to begin to execute them.

An executive of one of the companies that have announced projects commented that the change of government brought tranquility to be able to continue with a project that had been in the works since before the presidential elections.

Garcia said that planning an investment takes time. In that sense, he estimated that the new investments motivated by the change of government would only be taking shape on paper.

In the business sector there is talk, however, that there are signs that the Government is giving that point to a new economic moment, and that could motivate a greater movement in investments.

Pablo Zambrano, Executive President of the Chamber of Industries and Production, said that the planning being carried out by the Ministry of Production for economic recovery, the creation of productive clusters, the return of Ecuador to the Agreement on Settlement of Investment Disputes between States (ICSID) and the elimination of tariff items are aspects that help attract investment.

The union spokesperson also noted as positive the announcements that have been made to attract investment in the mining, oil and other sectors.

During forums that have been held, officials from the Ministry of Production have been in charge of positioning the idea that the Government is outlining the way to make the country more attractive for investment. In addition, current incentives are being promoted, such as tax exemptions, which are given for new projects.

New investment passing previous years

Last Monday, the Minister of Production, Julio José Prado, announced that new investment contracts were approved for an amount that exceeds $500 million in mining, services, and agro-industries.

In total, during the first quarter of the Lasso government, 19 investment contracts for $702 million were approved, with a commitment to generate 2,315 new jobs. This figure exceeds the 50 investment contracts approved in 2020 for $602 million and with the commitment of 2,375 jobs.

Thru the end of this year, Prado estimates the country will see at least $2.2 billion in new investments related to the new business environment.

In recent years, foreign direct investment (FDI) has been somewhat elusive for Ecuador when compared to other countries in the region. In 2018, the IDE was $ 1.456 billion; in 2019, $949 million, and in 2020 it was $992 million, according to data from the Central Bank.

Analysts and businessmen emphasize that President Lasso, is taking steps to attract investments and increase those that already exist, as with Mexican companies. Lasso met in Mexico days ago with businessmen who have relevant investments in Ecuador such as Carlos Slim, owner of Claro.

Jorge Ayala, manager of the firm Bizwell Consulting Group, said that work should be done on a number of reforms that encourage investors to bring their resources, despite the limitation that being an unattractive country could mean because it is small.

“It is essential that the Government begin to work on structural and institutional reforms that give the investor a framework of stability and generate confidence, in order to eliminate bureaucratic obstacles such as, for example, in foreign trade activities, inefficient regulations, among others,” said Ayala. For example, he believes that stability is required in the rules of the game in tax matters, with a long-term horizon so that the investor can plan adequately.

The Executive President of the Chamber of Industries and Production said that the challenge for the coming weeks will be to know details of the proposal for the tax reform and other macroeconomic aspects.

“It would be important to have more definitions in this regard,” said Zambrano.

Where is the money is coming from?

The corporate investments that are registered with the Superintendency of Companies reached $750 million from January thru August 26th.

Guayas and Pichincha concentrate the largest amounts of corporate investment so far this year, with $477 million and $201 million, respectively.

After the items generated in Ecuador, the largest amounts of corporate investment come from companies with links in Switzerland, Mexico and Spain.

In that time period, $66 million in investment came from Switzerland; $37 million from Mexico; and $30 million from Spain, according to data from the Superintendency of Companies.

Important multinationals from these countries operate in Ecuador and have a presence in the food, telecommunications, and fishing sectors.

How many and what kind of new companies?

Company incorporations have also seen an increase this year. From January to July, the country had a growth in new companies of 98%, compared to the same period of the previous year. And thru August 26th, 10,229 new businesses were already constituted; only 2 were liquidated.

From January to July, 9,088 companies were formed, almost double the number in the same period in 2020.

These figures came from a statistical report of the corporate, securities market and insurance sector, corresponding to the period 2014 to July 2021, presented by the Superintendency of Companies, Securities, and Insurance (Supercias), through its National Directorate of Investigation and Studies.

The report details that from January to July of this year, of the 9,088 companies had been established, 6,070 are Simplified Stock Companies (SAS).

In the accumulated total to July 2021, the provinces with the highest number of businesses were Guayas and Pichincha with 34%.

The wholesale and retail trade concentrates an average of 22% of the companies incorporated annually.

The Natural Resources sector concentrates an average of 31% of Foreign Direct Investment (FDI), ranking it as the sector that obtains the highest amounts of foreign direct investment annually.

In second place is the manufacturing industry sector with 19%; followed by the wholesale and retail trade sector, with 15% of total FDI.

These three sectors represent on average 69% of the annual FDI obtained by the business sector in the country, during the period analyzed.

The indicators report also shows figures for the amount traded on the Stock Exchange, which in the accumulated period to July 2021 shows a growth of 31.33%, compared to the same period of the previous year.

Even with new investment, economic recovery will be slow

The country’s economic recovery in 2021 will only surpass that of Nicaragua, Cuba, Haiti and Venezuela, according to the Economic Commission for Latin America and the Caribbean (ECLAC).

The Gross Domestic Product (GDP) of Ecuador will grow 3% in 2021, according to the latest study by the United Nations Economic Commission for Latin America and the Caribbean (Cepal). Ecuador’s economic growth will be one of the lowest in Latin America, according to the report.

The country’s economic recovery in 2021 will only surpass that of Nicaragua and Cuba, which will rise 2.5% and 2.2%, respectively. In addition to Haiti and Venezuela, which will contract 1.3% and 4%, respectively.

The countries of the region that will grow the most in 2021 are Panama with 12%, Peru with 10.6%, Chile with 9.2%, Dominican Republic with 8%, Argentina with 7.5%, El Salvador with 7.5%, Colombia with 7.5%, and Mexico with 6.2%.

On the other hand, the economies that will have a moderate recovery are Brazil with 5.2%, Bolivia with 5.1%, Honduras with 5%, Guatemala with 4.6%, the Caribbean islands with 4.1 %, Uruguay with 4.1% and with Paraguay (4.1%).

A better forecast for Latin America

For all of Latin America, ECLAC raised its growth forecast in 2021, from an estimated 5.2% in July to 5.9%, according to the study presented on August 31st.

The improvement is due, in part, to the issuance of $6.5 billion in Special Drawing Rights by the International Monetary Fund (IMF) for all its members.

In the case of the region, these resources will make it possible to strengthen the external position of its economies and reduce risk. Special Drawing Rights (SDR) are potential assets that can be exchanged for freely usable currencies, such as dollars.

Although the forecast for the region’s economy improves, it is still insufficient to reach pre-pandemic levels, only nine of the 33 countries in the region will achieve that position. In 2022, with an average expected growth of 2.9%, another five countries will have reached the levels of 2019.

Cepal Latin America is the region of the world most affected by the pandemic in health and economic terms: 43.2 million people have been infected and 1.4 million have died.

Structural problems persist

For ECLAC, beyond the growth expected in 2021, the great challenge for the region is to maintain sustainable and inclusive growth, although “nothing allows us to anticipate that the low growth dynamics prior to the crisis will change,” he says.

The structural problems that limited the region’s growth before the pandemic, such as low investment and productivity, informality, unemployment, inequality, and poverty, “have worsened and will negatively affect economic activity and labor markets,” says the organization.

The pandemic unleashed the biggest crisis that regional labor markets have experienced since 1950 and the recovery expected for 2021, according to ECLAC, will not allow it to reach pre-crisis levels either.

The unemployment rate will hit 11% in 2021, compared to 10.5% in 2020. Individually, women will show a worse result, with unemployment at 12.7%, three percentage points below that of men.

The report also notes that fiscal balances will improve this year but notes that public debt levels will continue to be “high,” mainly due to aid packages to strengthen public health systems, support family income, and protect health.

 

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