Guidance

Overseas business risk: Ecuador

Updated 12 June 2023

0.1 Overseas Business Risk - Ecuador

1. Geography

Roughly the same size as the UK, Ecuador is located on the north-western shoulder of South America, bordered by Colombia to the north, Peru to the south and east, and the Pacific Ocean to the west. Ecuador features four distinct natural regions – the Pacific coast, the mountainous Andes highlands, the Amazon rainforest, which constitutes almost half of the country’s surface area, and the Galapagos archipelago. Its fragmented topography and diverse geography give Ecuador a great variety of climates and ecosystems making it one of the most biodiverse countries in the world.

2. Political

In May 2023, centre-right President Guillermo Lasso made use of a constitutional mechanism enabling him to call early Presidential and Parliamentary elections. These are scheduled to take place in August 2023, with a potential second round of presidential elections in the autumn if no candidate reaches 50% in the first round. Until the new authorities are in place, President Lasso will rule by executive decree with oversight from the Constitutional Court. The new authorities will be elected to finish the 2021-2025 electoral cycle, i.e. they will hold power for around 18 months.

In 2019 and 2022, Ecuador saw nationwide political protests, led principally by indigenous groups. Some protests turned violent, especially in Quito, and led to a number of fatalities. Extractive industries are a particularly sensitive issue, particularly for many indigenous communities, but are also one of the most important sectors for the country, economically speaking.

The government faces the challenge of tackling a growing threat from serious organised crime groups, which are funded through drugs trafficking activities and have links to other groups in the region. The security situation has deteriorated notably in recent years.

The UK and Ecuador are also working closely on environmental issues, particularly on oceans and forest protection and facilitating the green transition.

3. Economics

Ecuador is a small economy (106.2bn USD in GDP in 2021) that depends on oil and agricultural commodities, and faces the constraints that come with dollarisation. As well as its stunning natural heritage and biodiversity, including the Galapagos Islands, Ecuador has rich deposits of gold, copper and oil found in the Andes-Amazon regions, while on the coast, it has the largest tuna fleet in the Eastern Pacific.

Ecuador is the eighth largest economy in Latin America. Ecuador’s dependence on commodities exports, especially oil (8.9% of GDP) and agriculture (8.3% of GDP) make it vulnerable to global commodity price shifts and external shocks.

Following the collapse of the currency in 2000, which led to dollarisation, until 2014, Ecuador enjoyed economic growth averaging 5%, which allowed for a spate of public spending, mainly on infrastructure projects, social programmes for the poor and expanding the public sector. However, when the oil boom faded, growth rates slowed leading the Government to sell oil futures and secure short-term loans with high yields to compensate fiscal deficit. Debt levels soared reaching over 60% of the GDP by 2021.

Ecuador entered the COVID-19 pandemic with a stagnant economy. In 2020, the Ecuadorean economy shrank by 7.8%. Under the Moreno administration, Ecuador sought international funding support by agreeing a US$6.5bn loan with the International Monetary Fund that was disbursed on a 27-month programme. This was implemented until December 2022.

The programme delivered positive results and Ecuador’s macroeconomic performance showed a sustained recovery. Overall indicators tracking growth, balance of payments and fiscal stability have begun to improve, driven partly by an increase in oil prices, a fiscal reform passed in December 2021, a debt restructure with China and private bondholders, and the government’s successful COVID-19 vaccination campaign.

However, with a complex political outlook that makes it challenging to tackle structural economic issues, growth projections for Ecuador remain limited, although they remain among the highest in the region. The Central Bank’s growth projection for 2023 is 2.6%.

Country risk is structurally high, and it has not decreased markedly since the Lasso took office (around 800 base points in February 2022). The cost of doing business remains high and hiring costs and the minimum wage are out of proportion with the marginal productivity of the average worker. While the unemployment rate has decreased to 3.8% in January 2023, compared to the previous year, the informal sector has gained prevalence, accounting for 53% of the labour force, which also limits the Government’s fiscal capacity.

In May 2023, the Ecuadorean Government secured the largest debt-for-nature swap in the world, reducing its external debt burden by 5.5% and securing hundreds of thousands of dollars for marine conservation in the Galapagos Islands. The swap will allow Ecuador to save up to USD 1.6bn in interest payments.

4. Business

Bilateral trade is small, at less than 0.1% of the UK’s global trade and with a total trade balance of £299m favouring Ecuador in 2022. However, for Ecuador, the UK is the eleventh largest market globally for their non-oil exports. Over the last decade, total bilateral trade has seen an average annual increase of 9%.

The latest statistics show that total UK exports for 2022 (£86m) surpassed the total 2021 exports (£66m) increasing by 30%.

The top 5 goods exported from the UK to Ecuador are:

• Alcoholic beverages
• Medicinal and pharmaceutical goods
• Books and printed material
• Professional and scientific equipment
• Motor vehicles.

The top 5 goods imported to the UK from Ecuador are:

• Fish, crustaceans and molluscs
• Vegetables and fruits
• Textile Fibres
• Flowers
• Coffee, tea and cocoa

The UK-Andean Trade Agreement Colombia, Ecuador and Peru that took effect on 1 January 2021 for Ecuador determines our bilateral trade.

The British Embassy sees significant opportunities across a range of sectors, in particular Energy and Renewables, Life Sciences, Agriculture and Agri-tech and Infrastructure. The British Embassy is ready to support UK companies seeking to export or operate in Ecuador.

Companies should seek professional legal advice should they have, or be considering, entering into agreements with the Ecuadorean Government. Companies will rely on local partners to understand regulations and specific importing requirements. It is important to conduct a thorough due diligence on possible partners. Spanish is the main business language in Ecuador. Expect all contracts and official documentation to be sent in Spanish.

4.1 Trade Agreement

Following the UK’s departure from the European Union (EU), and recognising the Andean Community (Colombia, Ecuador and Peru) as an important and growing trade and investment partner, both parties agreed to continue this relationship through the UK-Andean Countries Trade Agreement. In Ecuador, the agreement took effect on 1 January 2021. The treaty covers all the key fields of the trade relation, such as (i) Preferential Tariff Rates on Goods; (ii) Rules of Origin; (iii) Sanitary and Phytosanitary measures; (iv) Technical Barriers to Trade; (v) Trade in Services; (vi) Intellectual Property; (vii) Government Procurement; among others.

The agreement serves as a platform to promote dialogue and facilitate the implementation of mutual commitments and preferential trade conditions through a mandate requiring an annual meeting of the UK-Andean Trade Committee.

The First Trade Committee took place virtually in July 2022. The UK chaired this meeting and all eight Subcommittees that have been established under the Trade Agreement’s institutional framework. Ecuador chairs the Trade Committee in 2023 and is in charge of coordinating the meetings that will likely take place in July 2023.

5. Human Rights

Ecuador is one of the 185 members of the International Labour Organization (ILO). Workers with formal contracts enjoy extensive protections though large numbers work in the informal sector.

Ecuador’s constitution and legal system provide extensive human rights protection, though the implementation and enforcement of these rights does not always keep up with the legislation. The rights to organise labour and to strike are guaranteed by the Constitution. Women are represented in many high-profile positions in Ecuador, including in politics, though societal attitudes lag behind legal protections. This is particularly the case when it comes to LGBT+ rights.

Ecuador underwent the fourth cycle of the UN Human Rights Council’s Universal Periodic Review process in November 2022. Ecuador engaged actively with this process and accepted the vast majority of recommendations presented.

Amnesty International has expressed concerns about human rights violations and excessive use of force during mass protests in June 2022, which turned violent.

6. Bribery and Corruption

Bribery is an offence under UK legislation. It is illegal for British nationals, someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions, which form part of the offence, take place in the UK or elsewhere.

Care and due diligence must be taken when doing business in Ecuador, which ranks 129th out of 190 countries on the ease of doing business ranking from the World Bank.

Due diligence must be taken seriously when doing business in Ecuador, which ranks 101 out of 180 countries on  Transparency International’s 2022 Corruption Perception Index. It is important that UK companies and individuals make sure that local agents and partners are aware of obligations under UK legislation.

Read the information provided on our Bribery and corruption page and visit the Business Anti-Corruption portal, which provides advice and guidance about corruption in Ecuador and some basic procedures you can establish to protect your company.

7. Terrorism Threat

The threat from terrorism is generally low, though we continue to advice vigilance – consult our Travel Advice for regularly updated information. More details are available on our Terrorism threat page.

In May 2023, the government issued a Presidential decree describing organised crime activity as terrorism in some cases, thereby enabling a stronger, securitised response, including the deployment of the military. This does not meet a UK or international definition of terrorism.

8. Protective Security Advice

Read the information provided on the Travel Advice page for Ecuador.

9. Intellectual Property

Despite improvements in recent years, most notably the new Intellectual Property Law passed in 2016, intellectual property rights are not consistently enforced. Court delays are significant and judgments are unpredictable. Outside influence cannot be discounted. Read the information provided on our Intellectual Property.

10. Organised Crime

The security situation in Ecuador has deteriorated in recent years, with the country’s murder rate increasing significantly in particular since 2020. Criminal groups, funded through drugs trafficking but which work across a range of areas, have exploited Ecuador’s strategic location to use the country as a transhipment point for drugs produced elsewhere, but they are becoming increasingly bold in response to an attempted crackdown by the Lasso government, employing violence as a means to silence opposition. Extortion has become increasingly common throughout the country.

For more information about the security implication relating to crime, see our Travel Advice page.

11. Contact

Contact the Department for Business and Trade (DBT) team in Ecuador for further information.

11.1 UK Export Finance

The government can provide finance or credit insurance specifically to support UK exports through UK Export Finance – the UK’s export credit agency. For up-to-date country specific information on the support available see UK Export Finance’s country cover policy and indicators.