Ecuador now has the best profile among Andean countries for foreign investment, analysts say

Walter Spurrier Baquerizo and Alberto Acosta Burneo analyzed forecasts.

With a sense of optimism for the progress of vaccination and a government that "is friendly" with private investment, the second semester of this year is likely to register a better performance against initial projections.

That is the perception of analyst Walter Spurrier, who along with Alberto Acosta Burneo, editor ofWeekly analysis,He reviewed the political and economic scenarios on Thursday 2021-2022.

The analysts agreed that some sectors show symptoms of a recovery and could end up with growth, although there are challenges to reach levels before the pandemic.

Spurrier mentioned that trade would expand 3.7 % in 2021 after a contraction of -7.8 % in 2020 and manufacturing would recover 3.1 % after the fall of -6.9 % the previous year. While agriculture would benefit from a 2.9 % recovery this 2021.

One of the sectors that will continue to fight for the contraction will be the construction, which had a fall of -11 % in 2020 and would slide into –1.4 % in 2021.

Although Ecuador would not have a strong growth rate in 2021, Spurrier estimated that the official estimate of 2.8 %is probable, and from 2022 Ecuador could initiate a stage of strong growth.

On an external level there are factors that could pay an improvement for the country. Spurrier considered that the high prices of raw materials improve the balance of payments and fiscal accounts of Ecuador.

The oil has risen and an average price is hinted over over $ 62 per barrel for Ecuadorian exports this year. According to Spurrier, that would mean approximately $ 2.5 billion more than in 2020 net exports.

In addition, Ecuador now has the best profile among Andean countries for foreign investment, says the analyst.

Citing a study ofForbes, Spurrier mentioned that Ecuador is the second country, after El Salvador, where optimism is recorded on the economic future.

At the regional level, Peru has taken a turn with a leftist government, while in Colombia and Chile that trend grows.

One of the challenges of this government, according to Spurrier, will be to find a solution to the fiscal crisis. "Ecuador needs to turn a fiscal deficit in surplus, which means that any additional government income would be used to reduce the deficit, not to increase spending," he says.

Another problem to be solved is in the electric field, with hydroelectric plants that fail to achieve its maximum nominal power and some thermal plants that are offline. "Next year, Ecuador may not be able to meet the demand and there could be a return to the blackouts," said Spurrier.

Alberto Acosta Burneo, who reviewed foreign trade figures and the financial system, stressed that the government is considering the productive sector for the adoption of some changes such as the construction of a modern industrial policy and the decision to seek free trade agreements and be part of the Pacific Alliance.

For the analyst, one of the challenges that this government will have will be in the National Assembly, which must endorse or reject proposals for labor, banking reforms, taxes and commercial agreements.

Acosta Burneo indicated that the signals that this government has given point to greater private participation. In that sense, he cited, for example, changes in investment contracts, the creation of a new legal framework to encourage private participation in areas currently reserved for the State, the new Petroleum Regulation that promotes private participation via oil assets.

One of the issues that disturb this analyst is related to the mechanism that is sought to implement for the reduction of interest rates.

Until August 30, the Central Bank of Ecuador (ECB) must publish a methodological document for the calculation of the interest rate and from October 1 the new methodology progressively must be applied in all credit segments.

"Unfortunately, this new attempt to set interest rates is based on an important theoretical error: to think that costs are those that set prices," said Acosta Burneo.