Ecuador: Investment and Trade Potential

1. Ecuador: Investment and Trade Potential

2. Market Potential Strategic Location • Easy access to markets • Mid point between North and South America • Mid point in the East Coast of the Asian-Pacific Basin • Close proximity to the Panama Canal • Geographical and environmental diversity

3. Market Potential Strategic Location Less that seven flight-hours from any capital city of the continent, and less than 10 hours from the main cities in America.

4. Market Potential Strategic Location Strategic Location to main markets in Asia and Oceania. Interconnection point between the Pacific, the Amazon, and the Atlantic basins.

5. Market Potential Strategic Location Entrance to South America, through its four international ports: 1. Esmeraldas 2. Manta 3. Guayaquil 4. Puerto Bolívar

6. Market Potential Privileged Access to Global Markets Trade Agreements Andean Community - CAN: • Population (2003): 120 million • Territory: 4’710.000 km2 • GDP (2003): US$243 billion • Free Trade Zone – Custom Union under development Source: www.comunidadandina.org Economic Complementation Agreement with Chile (ACE 32 - ALADI): • Population (2003): 15’665.216 • Territoty : 736.902 km2 • GDP (2003): US$72,056 million • Partial scope agreement effective since January1995, that has permitted an increase in bilateral trade. Since: www.chileinfo.com

7. Market Potential Privileged Access to Global Markets Trade Agreements SOUTHERN COMMON MARKET – MERCOSUR: • Population: 212 million • Territory: 11’910,462 Km2 • GDP: US$800 billion • Free Trade Zone – Custom Union in final phase • Nowadays, Venezuela, Colombia and Ecuador as CAN members has finished a Free Trade Agreement with Mercosur, which is effective since January/2005

8. Market Potential Privileged Access to Global Markets ANDEAN GENERALIZED PREFERENCE SYSTEM – ANDEAN GPS (European Union): Tariff Preferences The majority of industrial and agricultural Ecuadorian products benefits of duty free access to the European Union, thanks to this System, which renders special preferences as compensation in exchange of the activities developed against drugs in the country and the region. ATPDEA – Andean Trade Preferences for Drugs Eradication Agreement Unilateral benefits rendered by the United States to Bolivia, Colombia, Ecuador and Peru, aimed to increase the commercial flows among benefit countries; to generated employment and investment; to contribute to consolidate the values, principles and democratic practices in the region; as well as to continue with the fight against drugs and terrorism. More than 5000 Ecuadorian products are benefit of the ATPDEA.

9. Market Potential • Free Trade Area of the Americas – ALCA (FTAA) • Population: 800 million for 2010 • Territory: 42 million km2 approximately (34 countries) • GDP: US$85 billion approximately • Continental Free Trade Area, that starts in year 2005 Source: www.foodfirst.org/alca • Latin American Integration Association – ALADI (LAIA): • Population (2003): 475 million • Territory: 20 million Km2 • GDP (2003): US$1,927,806 million • Umbrella institution that covers Partial scope Agreements, Free Trade Areas and Custom Unions Source: www.aladi.org

10. Market Potential Multiple Areas of Regional Development • Ecuador is divided by four regions, which constitute an interesting market opportunity for any investor, because they allow different economic activities: • InsularRegion - Tourism • Costal Region - Industry, agriculture and forestry, fishery and aquaculture, services • Andean Region - Industry, agriculture and forestry, fishery and aquaculture, services • Amazon Region - Mining, petroleum exploration, and agriculture • Ecuador is an urban community with: • 2 cities with more than 2 million people • 5 cities with more than 300 thousand people • 14 cities with more than 80 thousand people

11. Economic Performance

12. Economic Performance Economic Growth In 2005, the economy grew 3.9% and it is expected to grow 3% in 2006.

13. Economic Performance Economic Growth

14. Economic Performance Main Indicators The dollarization has achieved its goal of reducing the inflation index down to international standards. The accumulated inflation rate for 2005 was 3.14%.

15. Economic Performance Country Risk (EMBI)

16. International Trade Ecuadorian Exportable Offer • Petroleum and Petroleum Products • Gold • Bananas • Cocoa • Coffee and extracts • Flowers • Mango • Passion Fruit • Heart palms • Pepper • Broccoli • Wood, furniture and construction materials • Bamboo • Aromatic and medical herbs • Organic products • Tuna • Shrimps • Tilapia • Toquilla Straw • Software • Ivory Nut

17. International Trade Exports

18. International Trade Exports

19. Quito (5) Esmeraldas (1) Manta (2) Guayaquil (1) Cuenca (1) Machala (1) International Trade Export Trade Incentives • Benefits of establishing in a Free Trade Zone: • 100% exemption, with the possibility of extension, on: • import and export duties on all goods and services authorized • Taxes on profits for 20 years • Export taxes, local sales, as well as on repatriation profits for 20 years • municipal and capital taxes fro 20 years • Operational tariffs of trademarks or royalties for 20 years • ZONAS FRANCAS • No restrictions on profits repatriation or foreign currency management • Special Custom Regime • Possibility of selling products to other companies on the FTZ • The labor force can be contracted in temporal regimes, allowing to hire and fire them with relatively no costs. In-bound (maquila) processes are allowed by law to be developed anywhere in the country.

20. International Trade Imports

21. Foreign Investment FDI Flows

22. Foreign Investment FDI Flows by Sector

23. Foreign Investment FDI Flows by Origin

24. Foreign Investment Legal Framework • Andean Community: • Decision 24 (1971) • Decision 220 (1987) • Decision 291 (1991) • Ecuador: • Foreign Trade and Investment Law (1997) • Law of Investment Promotion and Guarantee (1997) • Investment Promotion Plan (2001) • FDI is allowed in any sector of the economy, without requiring a previous authorization. • There are equal rights and treatment for both FDI and national investment • Right to repatriate profits. • Tributary stability agreements. • The Ecuadorian Constitution recognizes the international judgement and allows investors to take any judicial problem to international means under the conditions of international treaties, which Ecuador has signed.

25. Foreign Investment Legal Framework Political Constitution of Ecuador • The juridical stability is a fundamental right that the State recognize and guarantee to all people • All contracts by parts can not be modified in a unilateral way by the creation of laws or other dispositions, modification has to be made by mutual agreements • The State guarantee all capital invested by nationals or foreigners, aimed to produce goods or services for the internal consumption or for exportation. Contracts can be celebrated with investors to establish guarantees and special securities • All rights and guarantees established in the Constitution and in all international instruments can be immediately applicable by and to any authority.

26. Foreign Investment Legal Framework Foreign Trade and Investment Law (1997) • FDI is allowed in any sector of the economy, without requiring a previous authorization. • There are equal rights and treatment for both FDI and national investment • Right to repatriate profits. • Tributary stability agreements. • The Ecuadorian Constitution recognizes the international judgement and allows investors to take any judicial problem to international means under the conditions of international treaties, which Ecuador has signed.

27. Foreign Investment Legal Framework Tax Benefits Law • Exoneration from Income Tax • Exoneration from payment of the customs tax, the importation of machinery, equipment and new spare parts and raw material that is not produced in the country, and which are required for the production of goods and services • Total exoneration of the duties and taxes that are charged to the constitution acts of the • societies or companies • d) The municipalities may lower up to 95% the amounts corresponding to the taxes to • which they are entitled to

28. Foreign Investment Legal Framework Productive Sectors beneficiated by the Tax Benefits Law • The new hydroelectric generation and the non-conventional electric one, which are produced and sold at competitive prices at an international level. • b) The refining and industrializing of hydrocarbons and the production of petrochemical goods, whose industrial process demands the latest leading technology. • c) The industrial manufacturing of high technology electronic instruments and those from optical fiber and other devices for digital and electronic communication. Industrial assembly plants for electronic and digital integrated circuits , microprocessors, memories, electronic cards and portable computers, scientific sensors, software and hardware.

29. Foreign Investment Legal Framework Productive Sectors beneficiated by the Tax Benefits Law • The development, implementation, installation and operation of regional distribution • centers for air traffic and/or interconnecting cargo for international flights • e) The construction and operation of deep water ports and for international transference of • cargo and containers. In like manner, the construction of dry and river ports • f) The manufacture of machinery and equipment for agricultural or agro industrial use, non existent in the country at present, as well as the production of goods that are non existent, • starting from the transformation processes as a consequence of new agro industrial investments • g) The environmental protection through productive investments geared to the preservation and improvement of the hydraulic potential for the hydroelectric generation, as well as the new investments for the production of oxygenate additives derived from the renewable raw material, such as the anhydride ethanol.

30. Investment Potential Sectors Productive Sectors Selection Criteria

31. Investment Potential Sectors Forestry Ecuador needs to import wood to covers the domestic demand. For example, the country imports 90% of the newspaper used. This supply could be met if we afforest 300,000 hectares. Ecuador has a great advantage regarding the soil content and luminosity which allows an accelerating pace for forests. In Canada, a forest grows 1.6 mts3 per hectare a year, in the United States 2.6, in Finland 3, in Chile 12 and in Ecuador 26 mts3. Ecuador has twice the potential than Chile for forestation purposes, and Chile’s forestry industry exports the same amount as Ecuador’s petroleum industry.

32. Investment Potential Sectors Forestry Ecuador has a great advantage regarding the soil content and luminosity which allows an accelerating pace for forests. In Canada, a forest grows 1.6 mts3 per hectare a year, in the United States 2.6, in Finland 3, in Chile 12 and in Ecuador 26 mts3. Ecuador has twice the potential than Chile for forestation purposes, and Chile’s forestry industry exports the same amount as Ecuador’s petroleum industry. Ecuador is part of the group of countries with average costs of CO2 reduction of US$5/ton vs US$250-US$500/tons in developed countries.

33. Investment Potential Sectors Forestry

34. Investment Potential Sectors Tourism Ecuador has an unique topography, large variety of climatic zones, multiple vegetable and animal species that has been considered as one of the 17 countries with the largest biodiversity in the world. This particular characteristic makes it possible to develop different type of tourist activities. Main opportunities in this sector are concentrated in the lodging infrastructure development, area in which Ecuador has nowadays a deficit, as well as in the offer and promotion of the wide variety tourist options each region offers.

35. Investment Potential Sectors CENTRAL AND NORTHERN HIGHLANDS Cultural, historic and ethnographic tourism; ecotourism, mountain adventure tourism; business, conventions and events tourism COAST Ecotourism; sea and river adventure tourism; sun and beach tourism; business tourism; cultural and archeological tourism SOUTHERN HIGHLANDS Cultural and historic – ethnographic tourism; ecotourism AMAZON Ecotourism; cultural tourism and community tourism GALAPAGOS Ecotourism Tourism

36. Investment Potential Sectors Tourism

37. Investment Potential Sectors Agribusiness Due to its geographical location, in Ecuador exist different types of climates which allow the culture of a wide variety of agricultural products, creating a big and real development perspective for agribusiness. Nowadays, this activity is growing in Ecuador, its support and development would generate an increase of value-added products, which will translate in higher incomes to investors in general. Moreover, these products will improve Ecuadorian exportable offer, which is mainly composed by primary products.

38. Investment Potential Sectors Agribusiness

39. Investment Potential Sectors Agribusiness

40. Investment Potential Sectors Fishery There is a great variety of marine species caught in Ecuadorian waters that have still not been exported. The most exported variety is the tuna-fish. Tuna processing factories fulfill the requirements o international sanitary regulations and quality standards. Moreover, the Ecuadorian tuna fleet has been catalogued as “Dolphin Safe”. There is a growing effort from the sector to diversify its markets and exportable offer, becoming this an investment opportunity due to the technology improvement required in certain areas of the industry.

41. Investment Potential Sectors Aquaculture: Shrimp Once solved the problem of the white spot virus, there are interesting investment opportunities in this productive sector: Before the white spot virus, Ecuador had over 180 thousand hectares of shrimp plantation, from which actually only 90 thousand hectares producing. One alternative for investment in the shrimp industry is in greenhouse for shrimp pools.

42. Investment Potential Sectors Fishery and Aquaculture

43. Investment Potential Sectors Mining In terms of minerals Ecuador is the least explored nation in South America and presents virgin opportunities, based on its metallic and non-metallic natural resources: gas, gold, pumice stone, coal, copper, silver, zinc, etc.

44. Investment Potential Sectors Mining • The mining concession is a real right granted to the concession holder via a contract with the National Government of Ecuador. Under no circumstance can the government revoke this right unless a failure to comply with the mining law persist. • All government royalties or additional taxes other than the National Corporate Tax have been eliminated. Provinces, municipalities and local district governments are no longer allowed to dictate a local mining policy or demand a local tax on mining. • Several studies indicate the presence of favourable geological conditions for the existence of metallic mineral deposits. In non metallic mining, development has been focused principally on the exploitation of limestone and clay for the four principal cement plants of the country.

45. Investment Potential Sectors Mining

46. Investment Potential Sectors Other Sectors

47. Additional Information For further information about Ecuador and its business environment, visit our web sites: www.ecuadorinvest.org www.ecuadorexporta.org www.corpei.org