2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013
Report

Openness to, and Restrictions upon, Foreign Investment

Ecuador is relatively open to foreign investment in most sectors, including general manufacturing, retail and services. However, its overall investment climate remains uncertain as its economic, commercial and investment policies continue to change. While some laws and regulations have been enacted to spur increased domestic and foreign private investment, other legal changes have reduced private sector participation in so-called strategic sectors, most notably extractive industries, and negatively affected banking and media sectors. Frequent changes in Ecuador’s tax code make business planning difficult. Ecuador’s business environment and the long-term status of a number of bilateral investment treaties, including with the United States, remain uncertain.

In general, the legal complexity resulting from the inconsistent application and interpretation of existing laws complicates enforcement of contracts and increases the risks and costs of doing business in Ecuador. According to the National Development Plan (“Plan Nacional para el Buen Vivir”), economic growth is not an end in itself and economic development is led by the state. Private investment, therefore, does not constitute a policy priority. Government officials and private Ecuadorian businesses have used regulatory schemes and questionable legal maneuvers to affect foreign company operations in the country. Companies have sometimes been confronted with requirements of additional payments not negotiated in original agreements. Receiving full and timely payments due can be another recurring problem. Business disputes with U.S. companies can become politicized, especially in sensitive areas like the energy sector. Several commercial disputes involving U.S. companies, mostly linked to the energy sector, are currently under international arbitration. The central government and a number of provincial governments are exploring ways to provide investment attraction services to support current investment, facilitate the entry of new investment, and alleviate bureaucratic and other hurdles mentioned above.

Foreign investment with up to 100 percent foreign equity is currently allowed without prior authorization or screening in most sectors of the Ecuadorian economy currently open to domestic private investment. There is no legal discrimination against foreign investors at the time the investments are made. Foreign investors may participate in government-financed research programs. Foreign investors must register their investments with the Central Bank for statistical purposes. Ecuadorian law requires private companies to distribute 15 percent of pre-tax profits to their employees each year.

Ecuador does not have a law in place specifically governing franchises. For license and franchise transactions, no limits exist on the amount of royalties that may be remitted, but the tax on capital outflows was increased from two percent to five percent on November 24, 2011. All license and franchise agreements must be registered with the Ecuadorian Intellectual Property Institute (IEPI).

Articles 313 through 315 of the 2008 Constitution establish that the State is responsible for management of “strategic sectors” through state-owned or controlled companies. Strategic sectors identified include: energy in all its forms, telecommunications, non-renewable natural resources (includes petroleum, natural gas, and mining), transportation, hydrocarbon refining, media, water, and biodiversity, and “genetic patrimony.” Within the last few years, new state companies have been formed in mining, pharmaceuticals, and strategic planning. A unique state-owned enterprise (SOE), FABREC EP, was created by presidential decree in April 2012 with a broad mandate that ranges from importing weapons and security equipment to building infrastructure and manufacturing uniforms.

Selected Strategic Sectors:

Petroleum

Private investment in Ecuador’s petroleum sector has declined in recent years, in part because of unfavorable economic terms, legal uncertainties, government tax policies, environmental liability concerns, and lack of a consistent energy policy. High profile legal cases brought by and against foreign oil companies, often stemming from tax disputes, have dampened foreign investor interest in the sector.

All subsurface resources belong to the state. Ecuador permits investment by foreign oil companies, but has changed the terms for private sector participation in the sector over the last few years. Prior to the change, foreign oil companies were engaged in exploration and development activities under production-sharing contracts with the state oil company Petroecuador, which gave private investors the right to share in finds. In 2010, the government changed these contracts to a fee-for-service model. In 2012, the government signed a few hybrid service contacts, whereby oil services companies have a more traditional oil production company role of financing investments and taking on risks.

Only the state is authorized to participate in domestic fuel distribution, refining, and transport activities. Fuel prices are controlled and subsidized by the central government. Ecuador has insufficient refining capacity to meet domestic demand for refined products and must import many oil derivatives. Ecuador is largely dependent on imports of diesel, spending $1.4 billion to import 10.5 million barrels of diesel from January-August 2012, and heavily subsidizes prices at the pump.

Reforms to Ecuador’s Hydrocarbons Law that came into effect on July 27, 2010, provided the legal framework and deadlines for the Ecuadorian government to negotiate new contracts with foreign oil companies operating in the country. Negotiations with the major foreign oil operators were concluded on November 23, 2010, resulting in new service contracts for seven concessions with five operators. Negotiations were not successful with three other companies, which negotiated the turnover of their operations to the state and left the country. Marginal oil-field operators concluded new service contract negotiations with the government in 2011. Some general features of the new service contract are that the State receives an initial payment of 25 percent of gross revenues as a “sovereign margin;” companies receive a negotiated per barrel tariff for oil produced; and, while international arbitration is not available for tax or contract non-compliance issues, other cases may be heard under UNCITRAL rules by the Arbitration and Mediation Center of Santiago (Chile).

Petroecuador and Petroamazonas, the operator of the former Occidental Petroleum oil field officially merged in November 2012, but the joining of operations is still a work in progress. On November 28, 2012, the president of Ecuador officially launched the “11th Round” of tenders for oil exploration of thirteen oil blocks in southeast Ecuador. Ecuador earmarked three additional fields for public enterprise Petroamazonas, which will enter into exploration agreements with foreign state-owned oil companies, arrangements that will not be open to competitive bidding. The deadline to submit a bid is May 30, 2013, and Ecuador will decide on the fee-for-service four-year contracts by December 2013.

The expected shut down of the Esmeraldas refinery for a major overhaul, initially scheduled for 2012, was postponed until 2013. Financial constraints have delayed the building of the Pacific Refinery (valued at $12 billion), a joint venture between Petroecuador and Venezuelan PDVESA.

A U.S. oil company was affected by a ruling issued in January 2012 by the Appellate Court in Sucumbíos province upholding a $19 billion judgment in a long-standing environmental lawsuit. The plaintiffs are pursuing the company’s assets in third countries. Separately, in May 2012, Ecuador reached a settlement of nearly $217 million with an international oil company following the unilateral termination of the company’s oil concession in October 2010.

In September, Ecuador declared biofuels a national priority based on energy efficiency and national agricultural development goals. By May 2013, premium diesel fuel must include biofuels of vegetable origin produced in Ecuador. Currently, only private companies are involved in biofuel production, but the decree makes Petroecuador responsible for the mixture of basic diesel and biofuels as well as sale to retailers.

Mining

The mining sector is relatively open to foreign investment. Foreigners have the same access to large-scale mining concessions as domestic investors, but are prohibited from investing in small-scale mining operations. Ecuador’s mining potential is concentrated in gold, copper, and silver. Foreign investors must receive permission from the president and the approval of the Ministry of Defense to obtain mining rights in zones adjacent to international boundaries. Although rising commodity prices have led to an increase in interest in mining investment in Ecuador in recent years, problems with the regulatory framework and discrepancies with local communities opposed to mining operations create uncertainties in the sector. Politically controversial draft legislation on water usage that would likely have regulatory consequences for many industries, including mining, is still pending in the National Assembly.

Investment in mining continues to be modest by Andean standards, but is expected to increase over the next several years due to the government’s desire to extract revenue from the sector. In April 2008, Ecuador’s Constitutional Assembly revoked the majority of existing mining concessions, suspending large-scale mining activity for over a year; a mining law was approved in January 2009. Its implementing regulations were published the following November. The law requires all mining concessionaires to pay a minimum five percent royalty on the sale of all primary and secondary minerals; an additional 25 percent income tax; a 12 percent tax on profits; a 70 percent windfall tax on extraordinary profits; and a 12 percent value-added tax.

The mining law also provided a minimum legal framework for companies to resume exploration activities. However, several companies disagreed with the financial and profit sharing arrangements and investment has stalled. In January 2010, the Ecuadorian government established a new National Mining Company (ENAMI) to engage in joint ventures with state and private companies and increase government investment in the sector. According to the mining law, ENAMI has the right of first refusal to establish mining operations in areas considered “of interest” by the government and where no previous concession exists.

In March 2012, a decree was signed requesting approval of the Ministry of Non-Renewable Natural Resources to implement direct or indirect transfers of mining shares. Companies were asked to pay one percent of the total value of the transaction to the government to complete a sale or transfer.

In June 2012, an international mining company sold its stake in a gold concession at a heavy discount. The sale was part of a broader company strategy, but was also influenced by the slow progress in negotiations with the government and general uncertainties in the mining sector. The first, large-scale copper mining contract was signed with a state-owned company in March 2012. After concluding pre-feasibility studies, a large gold and silver project located on the southeast of Ecuador reached a non-binding agreement with the government in late 2011, but discussions stalled in 2012.

Electricity

In 2007, the Ecuadorian government created a new Ministry of Electricity and Renewable Energy to focus more attention on the sector. Ecuador passed two constitutional amendments in May and July of 2008 to restructure the electricity sector. They established a single electricity tariff for distributors, and consolidated the 19 state distributors. Implementation included the creation of the National Electricity Company (CNEL) in late 2008 and the National Electric Company (CELEC EP) in early 2009. CNEL’s mandate is to manage the electricity distribution companies. CELEC EP, a SOE, was created to centralize management of most of the generation companies and the transmission company.

Ecuador’s 2008 Constitution declared the electricity sector as a public service and strategic sector. Some small electricity generation companies were allowed to continue under private ownership but large investments are expected to be publicly-owned. Only one U.S. firm still operates an electricity power generation plant in Ecuador. Another U.S. company sold its gas-fired electricity power plant to the Ecuadorian government in May 2011 after the government declared the company to be in breach of contract regarding its associated gas operations.

The Ecuadorian government is undertaking a large-scale program to expand the country’s generation capacity by over 60 percent, building 10 large wind and hydroelectric projects. To date, however, all construction and equipment contracts have been awarded to Chinese and Russian state-owned companies in a non-competitive bidding process linked to Chinese and Russian-provided financing.

The planned 500 KV high-voltage transmission system to link Quito and Guayaquil to the 1500 MW Coca Codo Sinclair hydroelectric plant, currently under construction in Ecuador, is struggling under financial constraints. For the plant to function effectively, the $500 million transmission project must be completed at the same time as the hydroelectric plant itself. The plant is under construction by the Chinese firm Sinhydro and is scheduled to go on-line in January 2016.

Telecommunications

A 2002 law liberalized the basic telecommunications sector, which was previously controlled by the state. Two private groups with foreign participation were granted concessions in 1993 to develop cellular telephone systems. A third state-owned company was granted a cellular concession in 2003, and was recently absorbed by the landline state company Corporación Nacional de Telecomunicaciones (CNT). In 2004, U.S. company BellSouth sold its assets in Ecuador to the Spanish company Telefónica, the mobile operator with the second largest market share of the two foreign-owned cellular providers. Claro, formerly Porta, the dominant cellular provider, is owned by a Mexican investor. Additional telecommunications legislation, which might increase centralization and government control of the sector, was expected to be introduced in mid-2011 but has been delayed. Satellite and internet services are provided by private companies. In July 2011, the government sold its remaining 35 percent equity in TVCable, a provider of cable and internet services, to a private holding firm.

In 1998, Emetel, the former state telephone monopoly, was split into two corporations (Andinatel in the highlands and Pacifictel in the coastal region). Pacifictel faced severe management challenges and was the focus of several scandals. Andinatel and Pacifictel received approval to merge in 2008 and formed the CNT, which was converted into a fully-public company in January 2010. A new Ministry of Telecommunications was created in August 2009, modifying the role of the sector’s key players. CNT’s cumbersome legal requirements and late payments to the private sector continue to hinder foreign investment.

Ecuador’s government failed to respect the outcome of two court decisions in 2011 and 2012 that found in favor of a U.S. provider of telecom services.

Media

Foreign companies are prohibited from owning more than 25 percent equity in broadcast stations and foreigners are not permitted to obtain broadcast concessions. The government is an important player in the media market since it controls a large share of radio, TV, and other press holdings. Article 312 of the Constitution prohibits financial institutions, their shareholders, board members, and legal representatives from media ownership. In addition, the Organic Law for Regulation and Control of Market Power, enacted in October 2011, prohibits anyone possessing more than a six percent interest in a media company from investing in any other business sector. By July 2012, all media companies had divested their non-media assets in compliance with the law.

Fishing

Foreign investment in domestic fishing operations is subject to approval by the National Fisheries Development Council, based on a favorable report from the National Fisheries Institute. Extractive fishing by foreign companies is permitted provided that the catch is processed in Ecuador. The local sea cucumber population has been nearly eliminated, but shrimp, tuna, and other fish products are harvested by national and foreign flag vessels and are major exports for Ecuador.

Economic and Business Measures/Ranking

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Perceptions

2012

118 out of 176

Heritage Economic Freedom

2012

156 out of 184

World Bank Doing Business

2013

139 out of 185


Conversion and Transfer Policies

In 2000, following a severe financial crisis, Ecuador adopted the U.S. dollar as its official currency. After Ecuador adopted the dollar, inflation rates declined from a high of nearly 100 percent in 2000 to single digits since 2003. According to the Ecuadorian Central Bank, the annualized inflation rate as of November 2012 is 4.8 percent.

Foreign investors may remit 100 percent of net profits and capital, subject to a five percent capital exit tax. Investors may also repatriate the proceeds from liquidation of their investments. There are no current limitations on outflows of funds for debt service, capital gains, returns on intellectual property, or imported inputs. There is also no significant delay for remitting investment returns such as dividends, return on capital, interest, and principal on private foreign debt, lease payments, royalties, and management fees through normal legal channels.

Ecuadorians may also export capital, and there are substantial Ecuadorian financial holdings in the United States and other offshore banking centers. However, on November 24, 2011, the Ecuadorian government increased the tax on all capital outflows from two percent to five percent. Several exemptions to the capital exit tax were approved in May 2012, mostly for payments for imports of raw material used to manufacture exports. By mid-2012, more than 3,350 tariff items were exempted.

In 2012, Ecuador designated the U.S. states of Delaware, Florida, Nevada, and Wyoming as “tax havens.” The list also designated Puerto Rico, the U.S. Virgin Islands, American Samoa, and Guam. Companies based in these locations are excluded from competing for Ecuadorian government procurement contracts. Both companies and individuals residing in these locations must pay income tax on dividends (10 percent is retained automatically) and are not eligible for any exception to the five-percent capital exit tax.

Expropriation and Compensation

Expropriation is allowed under Ecuadorian law with appropriate compensation. In cases of expropriation, the affected party has the right to petition a judge to establish a fair price for expropriated holdings. The Agrarian Development Law restricts the grounds for expropriation of agricultural land and makes land cases subject to regular courts. It can be difficult to enforce property and concession rights, particularly in the agriculture, mining, energy, and commercial and residential real estate sectors. In some cases, Ecuador’s judicial system has failed to provide adequate protection from unlawful expropriations or provide investors and lenders with prompt, adequate, and effective compensation for expropriated property.

The 2008 Constitution establishes that the State manages land use and access to lands, while recognizing and guaranteeing the right to private property, “which should fulfill social and environmental functions.” The Constitution provides for the redistribution of land if the land is not in productive use for more than two years. The definition of “productive use” is complicated, particularly for pastures and unexploited land. Access to land for the landless is a major theme of the government’s agricultural policy, but to date, there have not been any public seizures of private assets under the current administration. The Organic Code for Commercial Production and Investment (“Production Code”), approved in 2010, includes expropriation as a possibility to improve the distribution of production factors and enhance opportunities for the rural population. New land-reform legislation, originally expected in 2011, has been postponed given the highly-charged political nature of the issue.

Some local and foreign mining companies have had their concessions occupied by informal miners, who have subsequently sought a share of the concessions or have carried out mining activities without repercussions.

Property, whether land or mobile assets, jointly owned by several persons or companies, can be seized by Ecuadorian courts through judgments or seizure orders. Resolution and compensation typically require many years and significant legal costs. In addition, the Organic Law for the Defense of Labor Rights, approved in September 2012, allows property to be seized by state entities (tax administrator, state-owned banks, and municipal governments) when debts have not been serviced. The law eliminated the protections provided by Limited Liability Companies (LLCs) by extending corporate debts to their shareholders, their heirs, or third parties that have a relationship with the debtor. In 2012, the tax authority used the law’s mandate to seize the assets of an export-oriented conglomerate.

Under Ecuador's existing bilateral investment treaty (BIT) with the United States, expropriation can only be carried out for a public purpose, in a nondiscriminatory manner, and upon payment of prompt, adequate and effective compensation.

There are a number of expropriation disputes related to the oil sector that are still pending in international arbitration proceedings. In 2012, international arbitrators found in favor of U.S. companies in two important oil-sector disputes. Both awards are subject to appellate proceedings.

Dispute Settlement

Systemic weakness in the judicial system and its susceptibility to political or economic pressures constitute important problems faced by U.S. companies investing in or trading with Ecuador. The Ecuadorian judicial system is hampered by processing delays, unpredictable judgments in civil and commercial cases, inconsistent rulings, and limited access to the courts. Criminal complaints and arrest warrants against foreign company officials have been used to pressure companies involved in commercial disputes. There have been cases in which foreign company officials have been prevented by the courts from leaving Ecuador due to pending claims against the company. Ecuadorians involved in business disputes allegedly can sometimes arrange for their opponents, including foreigners, to be jailed pending resolution of the dispute.

Concerns have been raised in the media, and by the private sector, that Ecuadorian courts may be susceptible to outside pressure and are perceived as corrupt, ineffective, and protective of those in power. Legislative oversight was restricted following passage of the Law for Legislative Affairs in 2009. The resource-starved judiciary continues to operate slowly and inefficiently. After a public referendum in May 2011, the judiciary is operating under an emergency decree that gives the executive branch power to restructure the judiciary. Approximately $500 million have been spent in the restructuring process. As part of the restructuring, officials representing the legislature, the executive, and the participation council appointed hundreds of new judges in all courts in 2012, following a selection process. Neither legislative oversight nor internal judicial branch mechanisms have shown a consistent capacity to investigate effectively and discipline allegedly corrupt judges. In January 2010, Ecuador withdrew from the World Bank’s International Center for Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”).

According to the Rule of Law Index of The World Justice Project, Ecuador ranks very low (zero being the lowest and 1 highest score) in Regulatory Enforcement (0.46/1), Civil Justice (0.42/1), and Criminal Justice (0.44/1), among 97 countries. In December 2012, an international oversight committee submitted a report with conclusions and recommendations on the reform implementation. Currently, there are over 55,000 laws and regulations in force. Many of these are conflicting, which contributes to unpredictable and sometimes contradictory judicial decisions. Enforcement of contract rights, equal treatment under the law, IPR protection, and unpredictable regulatory regimes are major concerns for foreign investors.

The existing U.S.-Ecuador Bilateral Investment Treaty (BIT) provides for binding international arbitration of disputes between the government and investor in a venue of the investor's choosing, including the ICSID Convention. Alternative arbitration venues available to U.S. investors include: ICSID’s Additional Facility; ad hoc arbitration under UNCITRAL rules; and arbitration administered by any other arbitral institution to which the parties agree. Should the Ecuadorian government terminate the U.S.-Ecuador BIT, the BIT’s provisions would be fully in effect for one year from the date of termination notice, and for an additional 10 years for investments existing on the one-year anniversary of the termination notice (see the section on “Bilateral Investment Agreements” for more details).

Ecuador’s Production Code and Planning and Public Finance Code contain provisions which allow the state to negotiate the inclusion of an international arbitration clause within contracts with private investors or country creditors. These contracts remain unproven.

A number of U.S. companies operating in Ecuador, notably in regulated sectors such as petroleum and electricity, have filed for international arbitration resulting from investment disputes. Investors in more lightly-regulated sectors have had fewer disputes.

Performance Requirements and Incentives

There are no formal performance requirements associated with foreign investment in Ecuador. The country’s Production Code establishes tax incentives to attract both domestic and foreign investment in certain priority sectors: fresh and processed food, forestry, agro-forestry, metalworking, petrochemical products, pharmaceuticals, tourism, renewable energies, logistical services, biotechnology, applied software, and those determined by Ecuador’s president to be “strategic import substitution” sectors. Some incentives, which may take the form of tax exemptions, income tax deductions, as well as a five-year tax holiday, are mostly applicable for investments made outside of Quito and Guayaquil and for new investments. To qualify for the tax incentives, an investment proposal must be approved by a Technical Secretary of the Sectoral Council for Production. To date, few companies have applied for these incentives. Implementing regulations for the Production Code were published in April 2011.

In November 2012, the National Assembly approved the Organic Law for the Redistribution of Income for Social Expenditures that President Correa had proposed as “economically urgent” legislation. The legislation eliminates tax incentives that benefitted the financial system when reinvesting profits. The Production Code also contains measures to promote establishment and growth of small and medium enterprises (SMEs). The measures are designed to improve access for SMEs to public bank financing and the stock market, and to develop credit guarantee institutions and a special guarantee system for SME financing. Ecuador passed ten tax laws between January 2006 and December 2012 that significantly modified economic incentives and caused substantial uncertainty.

Under the Andean Community Common Automotive Policy, Ecuador and Colombia impose local content requirements on automobiles assembled in country in order to qualify for reduced duties on imports. The WTO Agreement on Trade-Related Investment Measures (TRIMS) prohibits such requirements. Although under the TRIMS Agreement Ecuador was obliged to eliminate local content requirements by 2000, the local content requirement is still in place; in 2012 the requirement was 24.3 percent.

Ecuador is a beneficiary of the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which renewed and expanded the original Andean Trade Preference Act (ATPA). The primary goal of this program is to promote export diversification and provide sustainable economic alternatives to drug-related activities in the Andean region. The current program provides Ecuador with duty-free access to the U.S. market for over 6,000 products, and has helped promote growth in Ecuador's cut-flower, pouch tuna, textile, apparel, wood, fruit, and vegetable exports. In October 2011, the U.S. Congress approved the extension of the ATPDEA program through July 2013, with retroactive benefit, following the program’s lapse in February 2011. Ecuador is also a beneficiary of the Generalized System of Preferences trade program, which was also renewed through July 2013.

Through its InvestEcuador program, the Government of Ecuador promotes and facilitates local and foreign investment, particularly in areas of special interest for development. In May 2011, Ecuador launched the Institute for Export and Investment Promotion (PRO ECUADOR), which to date has focused more strongly on export promotion. A number of Ecuador’s provinces are also working to attract investment, often as public-private collaborations between provincial governments and private commercial associations and universities. In addition to conducting international road shows to attract foreign direct investment (FDI), the provincial investment promotion agencies seek to assist both current and prospective investors to open new facilities, increase existing investments, and overcome bureaucratic hurdles. Visa and residence requirements do not inhibit foreign investment.

Right to Private Ownership and Establishment

Foreign and domestic private entities can own business enterprises and engage in almost all forms of business activity. Private entities can compete freely with the public sector. In August 2008, Ecuador’s Constituent Assembly passed a new public contracting law, which grants priority to locally-produced products and services in public purchases, although foreign suppliers can compete for the contracts. The National Institute for Public Contracting (INCOP) has regulated the process for evaluating proposals. Local origin content is not the only factor evaluated in awarding a contract; other factors such as price and quality are also assessed. The law eliminates a requirement to obtain approval from the Attorney General and the Controller prior to awarding a government contract, and charges INCOP with ensuring transparency and timeliness of the contracting process. Emergency decrees for public procurement are used frequently and allow public entities to by- pass the procurement processes established in the law.

In the utility sector, Ecuador has fostered the creation of mixed companies that fall under a special tax and procurement regime. In 2012, the government regulator registered 120 mixed economy companies, including joint ventures with foreign state-owned enterprises, like the Rio Napo Consortium that operates the Sacha oil field with Venezuelan capital.

Protection of Property Rights

There have been numerous instances where the judicial system has not adequately protected property owners’ rights. U.S. investors in real estate should exercise caution when considering a land purchase in Ecuador.

Ecuador's intellectual property regime is governed by the 1998 "Law on Intellectual Property." The law is intended to provide criminal and administrative relief to right holders. Ecuador has ratified the Berne Convention for the protection of literary and artistic works, the Geneva Phonogram Convention, and the Patent Cooperation Treaty. Ecuador is also bound by Andean Community Decisions 345, 351, and 486. Decision 486 improves intellectual property protection by expanding the definition of patentability and strengthening data exclusivity provisions. Ecuador is not a party to the Madrid Protocol on trademarks.

The Ecuadorian Intellectual Property Institute (IEPI) was established in January 1999 to handle patent, trademark, and copyright registrations. Ecuador has been on the Special 301 Watch List of the Office of the United States Trade Representative since 2003. Enforcement against intellectual property infringement remains a serious problem in Ecuador. The national police and the customs authority are responsible for carrying out IPR enforcement orders, but enforcement of court orders can be problematic. There is widespread local trade in pirated audio and video recordings, computer software, as well as counterfeit activity in brand name apparel. On the other hand, local registration of unauthorized copies of well-known trademarks has been reduced.

Patents

Ecuador’s IPR law extends patent protection for 20 years from the date of filing. In infringement cases, the burden of proof lies with the alleged infringer. Although Andean Community Decision 486, issued in late 2000, represents a significant improvement over Decision 344, it still does not provide adequate protection for "second use" patents. In 2010, Ecuador established compulsory license regimes for pharmaceutical and agrochemical products. As of December 2012, two compulsory licenses have been issued for two antiretroviral drugs. Both allow local firms to import or manufacture the drug.

On October 23, 2012, the Ecuadorean Institute of Intellectual Property issued a resolution that significantly increased the maintenance fees for patents and plant varieties. Over 20 years, the fees would amount to approximately $145,000 for patents and $170,000 for plant varieties. Prior to the resolution, patent maintenance fees were less than $6000 in Ecuador.

Ecuadorian government health authorities continue to approve the commercialization of new drugs that are the bioequivalent of patented drugs, thereby denying the originator companies effective patent protection for innovative drugs. A modification to Ecuador's health code in late 2006 permits the granting of sanitary registrations without regard to whether a medication is patented.

Presidential Decree 181, issued on December 21, 2009, established a National Pharmaceutical Company (ENFARMA) which has been selling imported generics from Cuba. It is now conducting feasibility studies to build a production plant in Quito.

Copyrights

Printed and recorded works are in theory protected under the IPR law for the life of the author plus 70 years. Computer programs and software are also protected. However, pirated CDs and DVDs are readily available on many streets and even in shopping malls. One of Ecuador’s largest outdoor markets (La Bahia) is listed on the United States Trade Representative’s “Notorious Markets” watch list. Weak copyright enforcement remains a significant problem, especially concerning sound recordings, computer software and motion pictures. The government has not taken action to clarify that Article 78 of the 1999 Law on Higher Education does not permit software copyright infringement by educational institutions. Ecuador mandates the use of open source software for all government agencies. Software company representatives are critical of the measure, saying it has the unintended consequence of encouraging the acquisition of pirated commercial software.

Trademark registration is permitted for renewable 10-year periods, but registration may be canceled if the trademark is not used in the Andean region for a period of three years. The IPR law provides protections for well-known trademarks. A trademark registration cannot be cancelled without the consent of the trademark owner.

In September 2012, IEPI issued a resolution that raises the fees established in June 2011 and May 2010. IEPI justified the new fees on the basis of a new system of surcharges for late payments, allowing discounts to universities, small and medium enterprises, public entities and farmers, and adopting new prices for validation of inventions or processes over a 20-year period.

Other Protections

The IPR law covers protection for industrial designs and extends protection to industrial secrets and geographical indicators. Semiconductor chip layouts are protected. Plant varieties and other biotechnology products are also, in theory, protected.

Registrations and Enforcement

The Ecuadorian National Police and Customs service are responsible for carrying out IPR enforcement, but do not always enforce court orders. IEPI can take enforcement actions through an administrative process that can result in sanctions and/or interception of counterfeit goods by Ecuadorian Customs. In early 2011, IEPI initiated an enforcement initiative aimed at stores selling pirated DVDs and CDs. This initiative was not sustained, however, and sales of pirated goods resumed.

Transparency of the Regulatory System

The GOE enacted the Organic Law for Regulation and Control of Market Power, otherwise known as the “Anti-Monopoly Law” in October 2011. It issued implementing regulations for the Anti-Monopoly Law in April 2012 and the provisions include mechanisms to prevent, control, and sanction market power abuses, restrictive market practices, economic concentration and unfair competition. The regulatory body began operations in October 2012. Sanctions for companies found to be in violation of the law can range from a formal warning up to a fine of 12 percent of previous year’s gross revenues.

The Superintendency of Banks and Insurance regulates financial and insurance institutions. The 2008 Constitution calls for the creation of separate regulatory agencies for the public, private, and informal sectors. The Constitution also mandates that each financial institution have an ombudsman office. The Law for the Creation of a Financial Safety Net, which was approved by the National Assembly in December 2008, improved coordination of the financial regulatory agencies. In October 2009, the National Assembly passed a law reforming the Central Bank Charter, eliminating its autonomy and redefining the composition of its Board. The new Charter gives the executive branch total control over Central Bank policies and operations. Reportedly, the purpose of this law was to align the Central Bank Charter with Articles 302 and 303 of the 2008 Constitution.

The National Secretariat of Telecommunications (SENATEL) establishes the regulatory framework for fixed-line and wireless communications services. The Superintendency of Telecommunications (SUPERTEL) controls and establishes sanctions to fixed-line and wireless communications services. The National Council of Radio Broadcasting and Television (CONARTEL), which previously regulated broadcasters, became part of SENATEL after the creation of the new Ministry of Telecommunications in August 2009. The Superintendency of Companies regulates all other firms and, via the National Securities Council, the Quito, Guayaquil, and Over-the-Counter stock exchanges.

Policies, regulations, and standards, particularly in regards to agricultural trade, often are not based on scientific principles and discriminate between local and imported products. Political appointees in the Ministries of Agriculture and Health control imports of agricultural goods, and customs procedures are cumbersome. Ecuadorian regulators currently provide little or no opportunity for public comment on newly proposed laws and regulations, particularly those related to food safety, sanitary and phytosanitary and other trade-related matters. A new agency for sanitary regulation and control (ARCSA) was created by decree in August 2012 in parallel with the National Institute for Public Health Research (INSPI). Ecuador does not always comply fully with WTO notification requirements.

In addition, ministries, parastatals, and regional and municipal governments all impose their own requirements and regulations on commercial activity.

Efficient Capital Markets and Portfolio Investment

The 1993 Capital Markets Law set up a modern regulatory structure, opened stock market trading to banks and other firms, and encouraged the issuance of commercial paper. However, Ecuadorian capital markets remain underdeveloped. Most large industrial groups are privately held and are financed largely through debt, commercial paper, or retained earnings. Some firms maintain external credit lines or other forms of foreign financing; however, the five-percent capital exit tax applies to external payments and increases the cost. Thus, many companies have switched to cheaper sources of financing, like issuance of commercial paper. The bulk of activity on the country's two small stock exchanges currently involves trading in fixed income securities, mainly government bonds and privately issued commercial paper. Most stock trades involve shares in a handful of banks and companies. Public institutions are not legally required to trade securities through the stock exchanges; therefore the terms of the transactions are unknown. The Social Security Institute and Social Security Bank (BIESS) are the main players in the government bond market.

A new securities’ market draft law has been on the GoE agenda during the last six years. In November 2012, the Superintendency of Companies announced that a new law will not be sent to the legislature and, instead, several reforms will be passed by administrative resolutions, including the creation of a clearinghouse for the securities’ market; allowing entry of new agents to the market; unification of self- regulation measures between the exchanges of Quito and Guayaquil; and new information requirements for fund administrators, securities’ traders, and trustees. Some steps were taken in 2012 to consolidate Quito and Guayaquil’s trading information systems.

In 2012, the financial system was the target of numerous new restrictions. By July 2012, most banks had sold off their brokerages, mutual funds, and insurance companies to comply with constitutional changes following a May 2010 referendum. The amendment to Article 312 of the Constitution required banks, its senior managers and shareholders with more than six percent equity in financial entities to divest entirely from any interest in all other non-financial companies by July 13, 2012. These provisions were incorporated in the Anti-Monopoly Law passed in September 2011. Non- liquidated assets were placed into a trust managed by a state development bank and must be liquidated by January 2013.

With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 an urgent law proposed by the president, which allows homeowners to default on their first home and car loan without penalty if they forfeit the asset. The provisions do not apply to homes valued at more than $146,000 or vehicles worth more than $29,200. In addition, the law mandates the Superintendency of Banks to set specific annual targets for mortgage activity for each financial institution based on its portfolio. This allows the government to direct banking operations, in line with trends in the financial sector. The legislation had led to reduced lending for cars and homes.

In April 2012, the Superintendency of Banks approved a regulation that prohibits financial institutions from charging clients for the issuance and renewal of credit cards, as well as the issuance of account statements. As a consequence, banks have claimed sharp reductions in profits, and adjustments in the quality of service they are able to offer.

The Central Bank issued Regulation 29 in July 2012, requiring all financial transfers (inflows and outflows) to be channeled through the Central Bank’s accounts starting November 2012. Due to operational hurdles, the measure did not take effect until January 3, 2013. In principle, the monetary authorities want to increase their oversight and prevent banks from netting their inflows and outflows to avoid paying the five-percent capital exit tax.

In November 2012, the National Assembly passed a law that severely restricts the operations of private credit risk rating agencies (bureaus). The law grants exclusive rights to credit-related data to an entity that stores all public databases. Private credit bureaus, while not prohibited from operating, are obliged to give up their databases to the government and can no longer receive data directly from the financial sector. The law will still almost certainly restrict lending to smaller, less-well-known borrowers that will be required guarantees due to a lack of reliable credit analysis services.

In November 2012, the National Assembly passed a law increasing taxes on banks to partially finance a government cash-transfer program, seriously undermining financial profitability. In addition, the law lifts banking secrecy and enables tax authorities to access credit information directly, with no interference from the banking regulator.

The Central Bank regulates and caps interest rates. Starting in July 2012, it also required banks to maintain as liquid reserves at least two percent of their deposits in securities issued by the non-financial public sector, in addition to maintaining at least 60 percent of their liquid reserves in Ecuador.

Competition from State-Owned Enterprises

The 2009 Organic Law of Public Enterprises regulates state-owned enterprises (SOEs). SOEs are most active in sectors designated as strategic under the 2008 Constitution, especially non-renewable natural resources, telecommunications, and transportation.

In general, regulations allow SOEs greater flexibility in the use of public resources. They follow a special procurement regime with greater flexibility and limited oversight. The Law of Public Enterprises requires SOEs to follow generally accepted accounting principles; however, SOEs are not required to specifically follow the same accounting practices as the central government, nor do they have to participate in the electronic financial management system used in most of the public sector for budget and accounting management. Ecuador does not have a sovereign wealth fund, and its asset management bureau is responsible for fixed assets only. SOEs are eligible for government guarantees, and face a lower tax burden than private companies

The Production Code softened some of the restrictions on the private sector introduced in the Constitution and in the Organic Law of Public Enterprises by allowing private investment in strategic sectors. However, the Production Code is secondary to the relevant sector laws of the strategic sectors.

Corporate Social Responsibility

There is substantial awareness of corporate social responsibility (CSR) among the large businesses operating in Ecuador. Many multinational and large domestic companies maintain corporate social responsibility strategies, following generally accepted CSR principles. They are active in areas such as sustainability, clean environmental practices, and education. Consumer awareness of CSR is less pronounced than producer awareness. Ecuador’s investment promotion body, InvestEcuador, emphasizes on its website that opportunities are available for investors who maintain an ethical commitment to their workers, nature, the State, and the community.

Political Violence

Ecuador does not have a tradition of substantial guerrilla activity, nor of frequent violence as a result of demonstrations or political instability. Crime is a serious and growing concern, especially in the larger cities.

Student, labor union, and indigenous protests against government policies have been a regular feature of political life in Ecuador. While disruptive, especially to transportation, violence is usually limited and localized. Protesters often block city streets and rural highways, and public transportation tends to be disrupted during these incidents. Protestors also occasionally burn tires, throw Molotov cocktails, engage in destruction of property, and detonate small improvised explosive devices during demonstrations, but fatalities as a result of protests have been rare. Pamphlet bombs are sometimes used to disseminate political literature. Six such bombs exploded in November and December 2011, without serious injury to person or property (although one had the potential to be lethal) and none aimed at businesses or business interests. Popular protests in 1997, 2000, and 2005 contributed to the removal of three elected presidents before the end of their terms.

Some communities have successfully used protests and strikes to obtain promises of increased government spending on social benefits and infrastructure. Some indigenous communities opposed to development have blocked access by petroleum and mining companies. In September 2009, one individual was killed near the city of Macas during protests by indigenous communities demonstrating against the government’s proposed mining and water laws. The government has increasingly filed legal charges or opened investigations against protesters who blocked roads or impeded public services. The government charged demonstrators with “terrorism and sabotage,” or similar charges that effectively criminalized protest, for obstructing roads and public services. It is against the law for non-Ecuadorians to engage in political activity that starts or promotes civil wars or international conflicts. In 2012, there were no significant political protests, likely a result of the government’s aggressive prosecution of protesters in previous years.

The political violence present in neighboring Colombia has a spillover effect in northern Ecuador. Security on the northern border with Colombia, where the majority of Ecuador's oil deposits are located, is particularly tenuous. The area is used as a transshipment point for precursor chemicals used in illegal drug production as well as arms and supplies for Colombian insurgent groups and narco-traffickers. Businesses in the area continue to report being extorted for protection money. Kidnappings have occurred and foreigners have been targeted. The U.S. Embassy in Quito advises against travel to the northern border of Ecuador – to include the provinces of Sucumbios, Orellana, Carchi, and parts of Esmeraldas. The Ecuadorian military and government agencies are increasing efforts to promote development and provide security in this area. Kidnappings are more often committed for economic rather than political motivations. Since 1998, at least 12 U.S. citizens have been kidnapped in Ecuador. In July 2012, an American citizen was kidnapped near the jungle city of Lago Agrio and held for ransom. After several weeks, the victim was rescued after an intensive investigation involving Ecuadorian, Colombian, and U.S. law enforcement.

Violent crime has significantly increased over the last few years, with American citizens being victims of crimes, including homicides, armed assaults, robberies, sexual assaults, and home invasions.

Corruption

Corruption is a serious problem in Ecuador. Transparency International consistently ranks Ecuador poorly among countries it surveys in the region. Ecuador ranked 118 out of 176 countries surveyed for Transparency International's 2012 Corruption Perceptions Index and received a score of 32 out of 100 (100-very clean, 0-highly corrupt). In comparison with other countries in the Western Hemisphere, Ecuador ranks better than Nicaragua, Guyana, Honduras, Paraguay, Haiti, and Venezuela, but worse than its closest neighbors, Peru and Colombia.

Ecuador has laws and regulations to combat official corruption, but they are inadequately enforced. Illicit payments for official favors and theft of public funds reportedly take place frequently. Dispute settlement procedures are complicated by the lack of transparency and inefficiency in the judicial system. In addition, there are frequent allegations by the private sector that local authorities demand bribes to issue necessary permits.

Offering or accepting a bribe is illegal and punishable by imprisonment for up to five years. The Controller General is responsible for the oversight of public funds and there are frequent investigations and occasional prosecutions for irregularities. These investigations can be politically motivated. Autonomous agencies are subject to little effective oversight. Government officials and candidates for office often make an issue of corruption, but there is little follow-through once in office. Politically-motivated corruption scandals are a feature of Ecuadorian political life, but even high-profile cases often become stalled after they are remanded to lengthy and often inconclusive judicial proceedings.

Ecuador is not a signatory to the OECD Convention on Combating Bribery, nor has Ecuador complied with the main requirements of the OAS Inter-American Convention Against Corruption. The 2008 Constitution created the Transparency and Social Control branch of government, tasked with preventing and combating corruption, among other things. In December 2008, President Correa issued a decree that created the National Secretariat for Transparency to investigate and denounce acts of corruption in the public sector. Both entities can conduct investigations into alleged acts of corruption but responsibility for prosecution remains with the Office of the Prosecutor General (the “Fiscalia”).

Bilateral Investment Agreements

The existing U.S.-Ecuadorian Bilateral Investment Treaty (BIT) provides for national treatment; unrestricted remittances and transfers; prompt, adequate, and effective compensation for expropriation; and binding international arbitration of disputes. However, in September 2009, the Ecuadorian government requested approval by Ecuador’s National Assembly to terminate the U.S.-Ecuador Bilateral Investment Treaty, along with the BITs of 12 other nations, claiming the treaties’ international arbitration provisions for resolution of investor-state disputes conflicted with the country’s 2008 Constitution. Article 422 of the 2008 Constitution states that “Ecuador will not enter into international agreements or instruments under which the Ecuadorian State would have to cede sovereign jurisdiction to international arbitral tribunals in contractual or commercial matters between the State and individuals or corporations.” The National Assembly has approved termination of five of the BITs, but did not approve termination of another four; it has not yet voted on the U.S. BIT. Only one BIT has been formally terminated.

Should the Ecuadorian government terminate its BIT with the United States, the treaty would remain fully in effect for one year from the date of a formal notice to terminate, and would apply for an additional ten years for investments made prior to the one-year anniversary of the termination notice. Given Ecuador’s withdrawal from the ICSID Convention, alternative arbitration venues identified in the U.S. BIT include ICSID’s Additional Facility; ad hoc arbitration under UNCITRAL rules; and arbitration administered by any other arbitral institution to which the parties agree.

OPIC and Other Investment Insurance Programs

Ecuador has had an Investment Guarantee Agreement with the Overseas Private Investment Corporation (OPIC) since 1986. Ecuador has signed and ratified the Multilateral Investment Guarantee Agreement (MIGA).

Labor

Ecuador's population is about 15 million. Semi-skilled workers are relatively abundant at low wages, although widespread emigration over the past few years has led to shortages of skilled workers in some parts of the country.

Minimum compensation levels for private sector employees are set annually by the National Compensation Council and Ministry of Labor Relations. The minimum basic salary for 2012 was $292 per month, but mandatory bonuses and other contributions pushed total compensation to over $400 per month. In December 2012, President Correa announced a nine percent private sector wage hike for 2013, raising the minimum wage to $318 plus mandatory bonuses and contributions. Ecuador’s Production Code, enacted in December 2010, requires that workers be paid a “dignified wage,” defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford a basic basket of necessities. The cost of the basic necessities basket is determined periodically by Ecuador’s Statistics Institute (INEC). At the beginning of 2012, the basic needs basket was valued at $595.70, requiring a “dignified wage” of $372.31 per month. Should the average monthly compensation for the year not reach the dignified wage, companies are required to pay the difference in the form of bonuses, before claiming any profits. By the end of 2012, Ecuador’s urban unemployment rate was estimated at 4.6 percent, with underemployment of 42.3 percent.

Ecuador's periodic economic difficulties during recent decades have contributed to high levels of emigration. According to the latest U.S. census, almost 600,000 people of Ecuadorian ancestry live in the United States. Approximately 610,000 people, or 18 percent of Ecuador’s labor force, emigrated between 2002 and 2009, principally to Spain and to the United States.

The public education system is tuition-free and attendance is mandatory from ages six to fifteen. The current government has dramatically reduced the illegal practice of schools requiring parents to pay for education-related expenses and transportation costs. Many children drop out before age fifteen and in rural areas only about one-third complete sixth grade. The government is striving to create better programs for the rural and urban poor, especially in technical and occupational training. However, government funding for such training has not kept up with demand. In recent years, the government also has been successful in reducing illiteracy. The 2008 Constitution requires the central government to increase the budget allocation for primary and secondary education by at least 0.5 percent of gross domestic product (GDP) annually until reaching six percent of GDP. Since 2008, expenditures on education have grown in absolute terms, but short of the mandated growth rate. Public universities have an open admissions policy. In recent years, however, large increases in the student population, budget difficulties, and politicization of parts of the university system have put a strain on maintaining academic standards.

A weak public university system produces a surplus of semi-qualified graduates in some professions. Trained financial professionals and engineers can be difficult to attract and many graduates require additional training to reach international standards. There are relatively few R&D and high technology investments in Ecuador, limited mostly to agricultural research, with a small amount of government activity as well as that of some foreign firms. Little post-graduate education exists in Ecuador, and scientists and medical professionals are nearly all foreign-trained. At this point, none of the Ecuadorian universities offers doctorate programs beyond limited offerings in social sciences at two institutions. Masters-level degrees are widely offered, but relatively few are competitive with international quality levels. Upper-level Ecuadorian business managers have frequently been educated abroad, most often in the United States. With the new Higher Education Law, which went into effect on October 3, 2010, the Executive will regulate and oversee higher education and may demand that all institutions adhere to the National Development Plan in their program offerings. It also calls for the professionalization of the faculty by requiring a Ph.D. or equivalent degree for full time positions, although there are not enough Ecuadorians with doctorates to fulfill this requirement.

Cumbersome labor regulations apply equally to both foreign and domestic firms and tend to inhibit investment and foster evasion. In 2006, the Ministry Labor Relations worked with an ILO representative to draft a revised Labor Code to better comply with ILO standards. The Labor Code provides for a 40-hour work week, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits. By law, companies must distribute 15 percent of pre-tax profits to their employees.

There is special legislation regulating labor in export processing zones. Most workers in export processing zones are hired on temporary contracts, and, while technically covered by the Labor Code, enforcement of the Code is weak.

The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits strikes in most of the public sector. Provisions that virtually eliminate hourly labor contracts and labor contracts through third parties are aimed at employers who avoid benefits for full-time employees, but the provisions also reduce flexibility in the labor market.

Most workers in the private and parastatal sectors have the constitutional right to form trade unions and local law allows for unionization of any company with more than 30 employees. However, less than two percent of the work force, mostly skilled workers in medium- to large-sized enterprises or state industries, is officially organized. Private employers are required to engage in collective bargaining with recognized unions. The Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation board process. The Code also prohibits discrimination against union members and requires that employers provide space for union activities.

The International Labor Organization and prominent NGOs believe international labor standards are not respected in Ecuador. Workers fired for organizing a labor union are entitled to limited financial indemnification, but the law does not mandate reinstatement. The Public Service Law enacted in October 2010 prohibits the vast majority of public sector workers from joining unions, exercising collective bargaining rights, or paralyzing public services in general. The Constitution lists health; environmental sanitation; education; justice; fire brigade; social security; electrical energy; drinking water and sewerage; hydrocarbon production; processing, transport, and distribution of fuel; public transport; and post and telecommunications as strategic sectors. Some of the sectors defined as strategic exceeded the ILO standard for essential services. The few public workers who are not under the Public Service Law may join a union and bargain collectively since they are governed by the provisions under the Labor Code.

With assistance from the ILO, Ecuador has been taking ambitious steps to eliminate child labor, which is still common in the informal sector, particularly in family-owned businesses. Economic realities leave families more than ready to send their children to work, even if it means pulling them out of school and placing them in fields, mines, or factories where they are exposed to hazardous conditions for little or no pay. Labor advocates in Ecuador assert that only a significant increase in wages will keep families from sending their children to work in the fields.

Foreign-Trade Zones/Free Ports

Provisions within the 2010 Production Code superseded Ecuador’s 1991 free trade zone law. The Production Code authorizes the creation of Special Economic Development Zones (ZEDEs). ZEDEs are subject to special trade, tax, and financial rules; imported goods entering these zones are exempted from tariffs. ZEDEs are not intended to operate solely for the manufacture of exports. In granting ZEDE status to a project, the government will consider the extent to which the project promotes technology transfer, innovation, industrial diversification, and development of multimodal services. Existing free trade zones were permitted to continue to operate according to their original authorization, but administrators and users had to adjust to new administrative procedures defined for ZEDEs. A maquila (in-bond processing) law has been in effect since 1990. The majority of maquila operations in Ecuador are in the textile and fish-processing sectors.

Foreign Direct Investment Statistics

Traditionally, FDI has been focused primarily in the oil sector. Construction of the Trans-Andean Heavy Oil Pipeline (OCP) by a consortium of five foreign oil producers, completed in October 2003, resulted in inward investment of $3.5 billion, including direct project investment of $1.4 billion. Major foreign oil companies invested billions over the last decade for exploration and production of concessions. However, since 2006, a number of major oil and gas companies have departed Ecuador. With the negotiation in November 2010 of new service oil contracts, participating companies have committed to invest $1.2 billion in production and exploration, spread over four to five years. If mining companies are able to move from the exploratory phase into production over the next several years, foreign investment in that sector would increase significantly. Foreign investment in the communications, commerce, services and agricultural sectors has become more prominent as FDI in the oil sector has declined.

Although some sizeable one-time investments have been made in recent years, foreign direct investment (FDI) in general remains modest. In 2011 there was a net inflow of FDI into Ecuador of $640 million (0.8 percent of GDP), down from a high of $1.0 billion in 2008. The FDI/GDP ratio over the period 2006-2011 has hovered between 0.2 and 1.7 percentage points, far below Latin American standards.

Petroleum companies engaged in exploration and production are, as a group, still the largest foreign investors in Ecuador. The major investors include: Andes Petroleum and Petroriental (Chinese); YPF/Repsol (Spain/Argentina); AGIP (Italy); and Ivanhoe (Canada). U.S. oil service companies Baker Hughes, Halliburton, Weatherford and Hartbert are also present. U.S. firm Duke Energy is active in the electricity sector. Exxon Mobil (U.S.) and Shell (Holland/UK) distribute fuels at service stations across the country.

U.S. firms active in the manufacturing sector include: General Motors, which holds an interest in two automotive assembly plants; Philip Morris (cigarettes); Mead Johnson (baby formula); Avon (cosmetics and lingerie); The Coca-Cola Co. (beverages); Sherwin Williams (paint); Kellogg’s (cereal); Colgate-Palmolive, The Clorox Co., Johnsonwax, and Kimberly Clark (toiletries and cleaning products); and Johnson & Johnson, Eveready, and 3M (consumer goods).

Other U.S. companies operating in Ecuador include: Bristol-Myers Squibb; Merck Sharp & Dohme; Abbott; Janssen Pharmaceutical; Eli Lilly; and Pfizer. Baxter owns four renal units and has 10 joint-ventures with private and public hospitals and clinics in the country. Also present: Proctor & Gamble (personal care products); Kraft (processed food); E.G. Hills Flowers, Transmar Commodity Group (cocoa products); Muehlstein International Ltd. (plastic products); Pioneer (agriculture), Monsanto (agriculture), Payless Shoes (footwear); Barnett Corporation (Paper), and UPS and FedEx (courier services).

Seaboard Flour has a strong presence in the Ecuadorian milling market. Continental, along with several other U.S. firms, is a major investor in shrimp farming. U.S. firms Dole, Chiquita Banana, and Del Monte are involved in the banana industry from production to marketing and shipping. Several U.S. franchises now operate in Ecuador, including Yum! Brands (Pizza Hut/Kentucky Fried Chicken/Taco Bell), Burger King, McDonalds, Tony Roma’s, Johnny Rockets, TGI Fridays, Chili’s, Papa John’s, Domino's Pizza, Carl’s Jr., Subway, Quizno’s, Hooters, Martinizing, Heel Quick, Swisher, Gymboree, Fast Track Kids, and New Horizons. Citibank has commercial banking operations, while Helm Bank has a representation office in Ecuador. U.S. airlines Delta, United, and American, as well as IBM, Xerox, Microsoft (hardware and software), DirecTV, ACE, Pan-American Life, BMI, AIG, Aon (insurance), and McCann Erickson (advertising) are also active. U.S. citizens have also invested in the textile and agricultural sectors (flowers, fruit, and vegetables).

Among third-country investors, General Tire (Germany) manufactures tires; Holderbank (Switzerland) produces cement; Akzo Nobel (The Netherlands) makes paints, fibers, and textiles; Borden (The Netherlands) manufactures chemicals; and Eternit (Switzerland) fabricates construction materials. British SAB Miller and Belgian Anheuser-Busch InBev own major breweries, and Nestle (Switzerland) manufactures consumer goods. Kinross-Aurelian (Canada) has a gold mine concession and Ecuacorriente (China) has a copper mine concession. Lloyd's (U.K.) commercial banking operations were sold to local Banco Pichincha in 2010.

Net Flows of Foreign Direct Investment (In Millions of Dollars)

Investment Statistics Table (millions of dollars) 1

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

2007

2008

2009

2010

2011

Net Flow of FDI

194

1,056

305

161

640

FDI Net flow/GDP ( percent)

0.38%

1.71%

0.50%

0.24%

0.82%

Panama

77

67

117

139

33

Canada

49

58

65

105

252

China

85

47

56

45

80

Uruguay

2

-37

-13

40

3

Bahamas

-117

-25

-2

39

11

Netherlands

8

-8

-4

11

7

Spain

85

190

50

-18

50

Venezuela

16

20

8

14

24

Peru

3

32

14

13

7

Colombia

21

21

-0.4

19

21

Italy

11

17

0.9

10

25

Brazil

100

46

3

10

10

United States

50

-29

-607

-535

12

By Sector:

Oil/Mining

-103

244

-6

178

379

Manufacturing

99

198

118

119

121

Wholesale and Retail Trade

92

120

83

93

78

Services

85

141

-24

66

43

Construction

20

49

-14

28

50

Community and social services

17

13

18

23

28

Agriculture

25

20

52

9

-0.8

Electricity

12

-7

3

-6

- 11

Transport, Storage and Communications

-52

277

64

-350

-47

1Notes: All figures are listed in millions of dollars unless otherwise noted. Data is from the Central Bank of Ecuador. Numbers from prior years in this chart differ significantly from charts in previous versions of the Investment Climate Statement, because the Central Bank made major revisions to these figures in late 2012. The Central Bank only publishes FDI calculated as net flows.

Web Resources

Foreign Trade & Investment Council: http://www.mcpec.gob.ec/index.php?option=com_content&view=article&id=848&Itemid=78

Central Bank of Ecuador - Foreign Investment Department: www.bce.fin.ec

Superintendency of Companies: www.supercias.gob.ec

InvestEcuador: www.investecuador.ec

PRO ECUADOR: www.proecuador.gob.ec

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