Coming into 2015, Ecuador was one of the fastest growing Economies in Latin America over the last 8 years. However that growth has since slowed due to a rising dollar, falling oil prices, and misguided tax proposals.
As a member of OPEC, Petroleum is responsible for more than half of Ecuador’s exports and revenues. As one of only three Latin American countries using the US dollar as legal tender, it faces a liquidity crunch as capital leaves the country due to political concerns and the opportunities available by taking advantage of the favorable exchange rates in neighboring countries.
Proposals for new Estate and Capital Gains taxes to fill the revenue gap by increasing rates and lowering the threshold for eligibility were not received well. Although the administration has since taken them off the table, the damage to consumer and investor sentiment was done. This has hit the construction industry particularly hard as Banks simultaneously have begun to reign in credit.
As a result, many liquidity-starved builders are facing one of three challenges. They either have a completed project sitting unsold, lack capital to complete an existing project, or have approvals and permissions to break ground on a new project but lack financing to do so.
That said, there is a Silver lining to every cloud. The liquidity crunch has created opportunities to buy condos, productive farmland, and other types of real estate from motivated sellers at a discount.
In an effort to relieve the structural challenges the government faces by being over reliant on oil revenues, they have created incentives in what they consider “strategic industries”. One these industries is Agriculture.
Productive farmland can not only meet your own food needs, but you can take advantage of planted acreage subsidies for cash crops like avocados and coffee that would cover up to 20% of your cost.
Ecuador’s small size, fertile land, varied topography, world-class infrastructure, proximity to Panama, and low water and energy costs make it an interesting location for manufacturing a wide variety of finished goods.
Inputs to sustainable building materials, paper, packaging, hair, and skin care products can all be grown here with relative ease. Processing inputs here as oppose to exporting them can also increase profitability.
With a multilateral free trade agreement with the EU due to take full effect in September of 2016, Ecuadorian goods will be granted full access to one of the largest markets in the world. This also means that European goods will be cheaper and more widely available than they currently are. This will also coincide with the expiration of tariffs on imported goods that was enacted last year to offset the impact of a strong dollar.
This confluence of events has made Ecuador and more specifically Southern Ecuador one of the most attractive locations in Latin America to start a business, and/or purchase property.