| Ecuador
Real Estate Archive XV
Updated July, 23 2005
By
Gary Scott
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
Learn more about Ecuador real estate and banks.
We have continual Ecuador
real estate tours.
I hope to see you in Ecuador. Until then, good
investing!
Gary
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