Ecuador : Investment Climate Assessment
Improving the investment climate in Ecuador is essential for taking advantage of the opportunities provided by a Free Trade Agreement with the US., as well as for promoting sustained growth and poverty reduction, through higher levels of productivity growth and foreign direct investment. A free trade agreement with the U.S. would provide an important opportunity for increasing Ecuador's degree of integration in the world economy. However, the welfare gains from such a treaty depend on the country's ability to adjust the structure of its economy, as a response to the changes in relative prices caused by trade liberalization, while at the same time avoiding substantial increases in unemployment. Such an efficient adjustment process requires, in turn, that Ecuador manages to improve its overall investment climate, so that resources can move towards the sectors in which their productivity is highest. This report identifies the critical constraints on firms' productivity in Ecuador, and provides policy recommendations for addressing them. The analysis presented hereby is based on a detailed evaluation of the investment climate in Ecuador, using a unique database of manufacturing firms interviewed. The Investment Climate Survey (ICs) covers a stratified sample of firms, and encompasses five provinces - Azuay, Guayas, Manabi, Pichincha and Tungurahua - and manufacturing sectors - oil-derived products, food, beverages, textiles, garments, leather products, wood products, chemicals, rubber and plastic products, and metal products. The results of the ICs indicate that deficiencies in all five areas of the investment climate affect the productivity of Ecuadorian firms, and increase their cost of doing business. Overall, the combined results of intra-national, and international simulations suggest that a national agenda aimed at improving the investment climate, should encompass actions to achieve at least the following objectives: Reduce delays at customs; Reduce the current levels of criminality and corruption; Improve the reliability of infrastructure services; Make bank finance available to a larger fraction of Ecuadorian firms; Increase the amounts of resources invested by firms in research and development activities. The report combines the results of the ICs with other sources of information, in an attempt to provide a diagnosis of the problems that are found in each of the areas of the investment climate that were found to be of greater importance.