Why Ecuador has failed to attract private investment

Reforms to attract private investment are becoming urgent in Ecuador, as high interest rates and inflation impose restrictions on public spending and push up costs for businesses.

President Guillermo Lasso's administration has failed three times to pass investment reforms in the national assembly and has not detailed new PPP regulations.

“The government is having difficulties making the urgent structural changes it needs to boost private investment, which must fill the void left by public investment,” Alberto Acosta, an analyst at local consultancy Grupo Spurrier, told BNamericas.

“Dealing with problems like slow management and political pressure, Lasso has not been able to unlock private investment, has not been able to strengthen the mechanism of public-private partnerships, and it seems difficult that he will achieve these objectives in the two years his government has left.”

A plebiscite on security, environmental issues and reducing the number of lawmakers will be held to a vote during local elections on February 5. According to pollsters, the government’s proposals could be approved, but major changes should not be expected.

The government aligned its proposals with popular opinion to increase chances they are approved, which would enable it to create some political space in the national assembly.

A vote in favor would not equal support for the government, however, and the ruling party’s failure to forge alliances in the assembly is magnified by the opposition’s efforts to remove Lasso, according to Acosta.

The central bank projects growth of 3.1% this year, driven by household consumption, although a slowdown is expected due to scarcity of credit and falling remittances. The IMF forecasts 3%.

Acosta said the finance ministry will have to pay more for loans this year, a problem the private sector will also face.

He added that credit will become more scarce since the maximum interest rates established by authorities are based on politics, in an environment of easy consumer credit, while loans for the productive and business sectors are difficult to access.

At 3% growth, it would take Ecuador 22 years to reach Costa Rica’s GDP and over 40 years to reach Chile’s, “which demonstrates the urgency to accelerate growth, for which the private sector plays a fundamental role,” Acosta said.

After the plebiscite, the government's actions must be closely monitored, especially in the oil and mining sectors, for which it has offered greater security in the face of violent threats. Avoiding attacks would help the economy and private investors would take note, according to Acosta.