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Reforms and investment are the economic priorities for Ecuador in 2022

Published on January 04, 2022

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A year of investment and employment boost to accelerate an economic recovery that is still slow. This is how 2022 is projected. The Central Bank calculates a growth of 2.5% in 2022, even lower than expected for 2021, which is 3.5%.

To accelerate the economic reactivation, the Government will emphasize the Law to attract investments, which is expected in January 2022, and the trade agreements with Mexico, the Pacific Alliance and China.

Ecuador will also boost the promotion of 50 public and private projects in nine sectors, starting with hydrocarbons, which could generate up to 30% of the expected $30 billion in investments.

On the other hand, the labor reform must find consensus in the Assembly and, therefore, the Government plans to send it for the first quarter of 2022.

Increase

The Central Bank expects the Ecuadorian economy to grow 2.5% in 2022, less than the 3.55% expected for 2021. The country is still far from the economic recovery that the region will register. For example, Colombia will grow at 3.8% and Peru at 4.4% in 2022.

The lower growth in Ecuador in 2022 will be due to a slowdown in activities such as shrimp, fishing, and trade. But the Central Bank expects investment to increase 4.9%, due to a greater injection of capital in the oil and mining sectors.  Added to this is an increase in exports.

Some multilateral organizations are more optimistic about the performance of the Ecuadorian economy in 2022. The World Bank expects Ecuador’s GDP to grow 3.4% and the International Monetary Fund (IMF) 3.5%.

Job changes

The Government says that the labor reform project is ready, but it will take the first quarter of 2022 to find consensus in the Assembly.

The parties hope to hear about the project, but the leftist groups of Unes and the ID say that they will not support it if it makes labor rights precarious.

According to the Ministry of Labor, the reform will create a new labor regime for the unemployed. Among the proposals are eliminating employer retirement, lowering the cost of dismissal, making the working day more flexible and promoting employment for women.

A new labor law is not a goal of the agreement between Ecuador and the International Monetary Fund (IMF) renegotiated in September 2021, but the body has said that the improvement of the economy could be accelerated with the impulse of reforms such as labor.

Investment attraction

Conquering private investment in 2022 is another state challenge. To do this, the government plans to send a project in January to attract investment. The proposal has three objectives:

  • Reform the Law of Public Private Partnerships
  • Improve the legal framework to promote free zones, which are of interest to international companies.
  • Promote the stock market.

Another strategy to attract investment is to reduce one point of the Tax on Foreign Currency Exit (ISD) in 2022; that is, 5% to 4%.

Greater openness to private investment in the oil sector is another goal. Among other actions, the state plans to delegate 22 areas of the state-owned Petroecuador that are in production.

It will do so through participation contracts, where the private company assumes the investments in exchange for participating in a percentage of oil production.

Trade agreements

For more foreign investment, trade agreements are needed. The Government has planned to reach 10 treaties with markets considered strategic.

Therefore, the goal in the first quarter of 2022 will be to finalize an agreement with Mexico, which has been negotiated for three years. This will make Ecuador a full member of the Pacific Alliance thru the first half of 2022.

In 2022 there will also be progress in dialogues with a view to agreements with two of Ecuador’s main trading partners: the United States and China.

That is why the Trade and Investment Council of the United States and Ecuador, will meet in January.

A treaty with China is expected to be signed in March , according to President Lasso.

Logistics crisis

The signing of agreements also seeks to achieve trade preferences to boost exports and thus mitigate the blow of the logistics crisis that Ecuador and the world is experiencing after the Covid-19 pandemic. The Central Bank foresees an export growth of 3.3% in 2022. To do this, the export sector will have to deal with the logistics crisis, that could deepen, which would mean:

  • Greater increase in the price of sea ​​freight.
  • Shortage of containers and lack of quotas on vessels.

In the case of Ecuador, the logistics crisis in 2022 could mean difficulty in obtaining supplies due to its excess demand, delays in deliveries, and even loss of business.

 

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