Ecuador Real Estate Report

Free Five Year’s of Ecuador Real Estate History

Ecuador Real Estate Archive XV

To help you get a feel of Ecuador real estate we have posted this special archive that lists many of the hundreds of messages we have shared with our readers about Ecuador real estate this decade.

Ecuador Point of View

This recent message from an Ecuadorian friend shows what insiders think is happening to the economy there now.

Dear International Friend,

Friend and eClub advisor Andres Cordova recently sent me this following note on what is happening in Ecuador.

“Let me tell you Gary, the perspectives for Ecuador for the next few years are good. There are several elements that lead me to believe this.

The country has successfully weathered one of its worst economic crisis in many decades, and is coming out strongly. As I always say, the road ahead is going to be rough and bumpy, but better times do seem to be on the horizon.

Ecuador’s economy has been completely Dollarized for several months now. This, among other things, has brought a great measure of stability to the country.

During the first months after the onset of the Dollarization regime, inflation continued to be high, but analyst now regard this as a normal catch-up situation that had to happen due to the severe distortions we had in the economy. The rate of inflation has now decreased significantly, and is expected to continue to decrease in the next several months. We are now with the lowest inflation rate in two decades.

One of the results of Dollarization and the high inflation rate of the first several months, is that Ecuador may no longer be regarded as one of the least expensive countries in the World for foreigners. We may still be inexpensive compared to other countries or standards, but not by the significant margins of before.

The Dollarization regime certainly has its drawbacks. For example, Ecuador exports will loose a competitive edge as they become more expensive. This will force our producers to be more productive and competitive, but some will not be able to play in this new field.

But for the moment, Dollarization appears to be doing much more good than not. And this may hold true on the long run too.

This new stability we have found in the Dollar, as well as in several other factors, has contributed to a great sense of renewed faith and optimism in the country. I believe this positive attitude, is of great importance for all of us.

National and foreign investment is certainly on the rise in Ecuador investments maintain their value in Dollarized economy -.

The Wall Street Journal Americas, a few days ago published a short article stating that local and foreign investment in Ecuador during the first seven months of 2001, more than tripled that of the same period in the previous year. And this is not including the oil sector, which would make the figures significantly better.

It is a widespread opinion in qualified circles of economists, politicians, lawyers, etc. in Ecuador that the next few years will be good for Ecuador. It appears that we are already experiencing a high level of growth, that may currently be the best of Latin America, calculated at 6% to 7% for 2001, and at 3% to 6% for 2002.

Of course, we are coming up from way down, so this growth, however significant, has to be taken in this perspective.

One of the factors that will most influence Ecuador’s sustained recovery in the next few years is without a doubt the new heavy crude oil pipeline (OCPin Spanish), to begin construction in a short time.

Ecuador has significant oil reserves and the potential to more than double its oil exports. If we consider that the OCP will be able to carry a significantly larger amount of oil than the current pipeline, and that Ecuador’s economy depends on more than 50% on oil exports, then it is easy to figure the enormous impact the OCP is going to have on the economy.

The OCP should begin operation by mid year 2003, and it is widely reputed that this will bring a new bonanza period for the country, similar to that of the early 70s.

During this time until the new pipeline is ready to operate, there should be a direct investment of over $1.2 billion in the construction of the OCP, with an additional $1.2 billion per year invested in oil exploration and exploitation. High investments in this last concepts, however, should continue for many years from now, due to what will be Ecuador’s added structural capacity to export oil .

Some estimates have that during the next 22 years, the OCP could generate$29 Billion in oil exports, and $7.5 Billion in taxes. We are talking about very significant numbers for an economy like Ecuador’s.

The current good price of oil is another plus for Ecuador. If it were to plummet, however, we would face important consequences. In any case, it is not foreseeable that oil prices should drop too much, given the growing tensions in the Middle East and OPEC’s current policies. Lets hope the slowdown in the World’s economy does not affect the price too much.

There are other important elements to consider, other than the Dollarization regime and the OCP.

Ecuador is opening up to private investments in electricity, telecommunications and roads. New laws are being issued and new ground is being broken in this regard. In the next few years Ecuador should see significant investments in these areas.

Of course, we should anticipate delays and complications. These processes hardly go smoothly, anywhere. But I should note that the modernization of our mind set as well as that of our laws in this regard is a real thing to be considered.

In speaking of concessions, one of the most important one to be given in the next few months will be that of Quito’s new international airport.

This will be an investment of over $350 million. An amount in itself quite significant to our local and national economy, but most of all important for it will continue to help us along the path of modernization.

The new airport will surely bring added tourism and commerce, as well as a myriad of accessory investments, like hotels, etc. This airport will be constructed in a zone 40 minutes from Quito which pretty much has nothing right now, so the turnaround is going to be substantial.

The new international airport of Quito will be financed in its entirety by a foreign corporation, that will then operate the airport for several years.

The process for the concession of Quito’s new international airport is going smoothly. It is expected that the concession be granted before the end of the year. The new airport has been on Quito’s wish list for much more than a decade right now, so this process of today, fast and effective, speaks volumes on how many things are changing in Ecuador.

In talking about airports, I should note that the airport of Manta is being greatly improved, mostly due to the US Base operating there.

These new improvements should allow this Manta airport an international category or capacity. As a statement to this I can say that Continental Airlines, from the US, appears to have opened offices in Manta and to be planning on having direct flights there.

Guayaquil’s current airport is being greatly improved too.

With regards to the US base in Manta, it is a double edged sword. On the one hand, it does help the local economy and provides assistance in the control of criminal activities, mostly related to drug trade; but on the other, it is an excuse for some aspects of Colombia Plan to affect us. In any case, a big majority of the population supports the base.

Although we have so far received far fewer Colombian refugees than anticipated and experienced what I should call very minor incursions from Colombian Guerrillas. The Colombia problem should not in any way taken lightly in Ecuador, for a spill over the border could happen and intensify somewhat in the future.

There are troubling reports from some towns bordering Colombia, some increased criminal activity is observed there. Ecuador is considering the implementation of more stringent control measures in the borders, which until recently were pretty much open by any standard.

In other things, Ecuador’s Government economic policy suffered a blow when the Constitutional Tribunal declared unconstitutional the increase from 12to 14% in the Value Added Tax (IVA in Spanish).

This increase in the IVA, that held for a few months, appeared to be having a good effect on the economy, with few to none of the bad effects some predicted, such as an increase in inflation, for among other things it helped balance the budget as well as to secure IMF support.

Although the taking down of the IVA does not appear to have hurt relations with the IMF due to Ecuador’s sound economic performance so far (better than expected tax collection accounts for this), it is an element of instability nonetheless.

As much as many people believe the Constitutional Tribunal should have left the IVA as it was, at 14%, for it was working well, I disagree. The raise in the IVA was obtained by the Government after some struggles with Congress that ended in an unconstitutional procedure by the executive branch.

I believe that this decision is much better for Ecuador on the long run. Its better to uphold the constitution and the law, than to allow these things to pass.

This ruling, I believe, makes the country mature, however bad the actual effect may be on the short term.

Several rulings of unconstitutionality respective to Government acts, that the Government consider setbacks, I believe are allowing the country to be less tolerant with unconstitutionality and illegality. This should be regarded as positive. It works in favor of legal security.

The terrible crisis of 1999 and 2000, produced a swarm of migrants as the country had never seen before. Most left for Spain and Italy, countries that are in need of labor.

This situation, however sad as it leaves broken families among other consequences, has reduced the unemployment rate in Ecuador and is the source of very significant income for the country, as these migrants have begun to send substantial amounts of money back to their relatives here.

This, for example, has made Cuenca, a lovely city to the south of Ecuador that was home to a great percentage of these migrants, an expensive city in Ecuador, were real estate, specially in some regards, has begun to rise considerably.

Tourism is another of the pillars in which I believe Ecuador will be supporting its economy in the next several years. Tourism in Ecuador is on the rise. The importance of this sector appears to have set in the authorities, tourist operators and normal people. The next few years should be witness to an important effort on Ecuador’s part to exploit its great tourist potential.

I believe one of the areas that would most merit investment in the next few years is tourism. No doubt about this. Ecuador is a small country that has pretty much everything. Jungles, islands, volcanoes, beaches, colonial cities, handicrafts. Many things at hands reach.

We have a long way to go in this regard, granted. Among other things, we lack infrastructure. But if we were there already, than maybe tourism would not provide for the sound investment it may be right now.

As you may know, Ecuador held a border war with Perú in 1995. This was the consequence of years of mutual mistrust and animosity. This war lead to a significant peace effort, that concluded in a Peace Treaty, signed in 1999,with the support of several American nations, including the US.

As a consequence of this, relations and trade with Perú are on an all time high, and should continue to increase and consolidate. Ecuador’s and Peru’s economies are regarded to be more complementary than competitive, and this creates an important opportunity for both countries to become strong trade partners.

Ecuador has suffered a banking collapse as it never experienced before. More than 70% of the banks are now State owned. The last chapter in this story is the case of Filanbanco, which was State owned too, which shut its doors a few weeks back.

This bank crisis became a huge money drain for the State. Its about over, with a few standing banks bound to slowly capitalize out of this collapse. The worst is over and this should be noted. There are a few banks that I believe may have with some risk to them, so caution should be exercised.

The worst is behind, and better times should come as Country is nurtures its wounds after the bank crisis.

Several modernization, promotion and investment protection laws have been issued in recent years. There have been several changes in the law to allow for a safer, sounder and easier investment scenario, for both locals and foreigners. We are still not there yet, we will likely never be. Who is? But these are steps forward nonetheless and because of this, significant.

Ecuador has to mature. We have to strengthen our institutions and stop reinventing ourselves every few years. There is a strong current in this regard.

Many things can be done in Ecuador, the time is good.

Best regards, Gary,

Andrés”

You can obtain more details from Andres at afcordova@accessinter.net

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I hope to see you in Ecuador. Until then, good investing!

Gary

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