The economy of Ecuador is a developing, upper-middle-income economy that is highly dependent on oil exports and remittances from abroad. With a population of almost 17 million people, Ecuador has seen rapid economic growth in recent years, with GDP per capita rising from $3,314 in 2012 to $5,815 in 2018. The country is the largest exporter of bananas in the world and also produces other agricultural products such as coffee, cocoa, and flowers.
According to cheeroutdoor, the main sources of income for Ecuador are oil exports and tourism. Oil exports account for around one third of total exports and are the main source of foreign exchange earnings for the country. Tourism has also become increasingly important for Ecuador’s economy as it has seen a steady increase in foreign visitors each year since 2010. In 2018 alone the country welcomed over 2 million international visitors.
In addition to its natural resources, Ecuador also has a diversified manufacturing sector which includes textiles, pharmaceuticals, food processing, chemicals and electronics. This sector accounts for around 12% of GDP and employs over 1 million people directly or indirectly. The service sector is also an important part of the economy with telecommunications being one of the fastest growing industries due to increased investment into infrastructure development across the country.
The government has implemented various policies aimed at stimulating economic growth such as tax incentives for investors as well as subsidies to promote investment into certain industries such as renewable energy sources and ecotourism projects. Furthermore, the government has also introduced social programs such as free healthcare for all citizens along with free education up to secondary school level for children aged 6-14 years old which have helped reduce poverty levels within its population significantly over recent years.
Overall, despite its small size Ecuador’s economy is slowly improving thanks largely to increased investment into infrastructure development across the country along with various social programs aimed at reducing poverty levels within its population. With continued improvements in these areas – it appears likely that this South American nation could soon become an economic powerhouse within its region that will bring great benefits not only domestically but also internationally too.
Despite rich resources, Ecuador is not an economically rich country. In 2017, GDP per capita was estimated at USD 5848 (World Bank). The 2019 state budget is $ 31,309 million.
Both GDP and the budget have been significantly reduced since a peak in 2014. The reasons for this are declines in oil prices and debt uptake for public projects in the period 2009–2014. From 2017, a gradual improvement has been registered.
Abbreviated as ECU by abbreviationfinder.org, Ecuador is a traditional raw material supplier with little developed own industry, just like the other South American countries. The production and main export products have been agricultural products, especially bananas, cocoa and coffee. From the 1970s, oil extraction has accounted for the largest revenues.
In the 1980s and 1990s, a neoliberal policy was pursued with the privatization of public business and of the oil industry. High inflation and the collapse of the banking system led to the national currency sucre being replaced by the US dollar in 2000. From 2006, the authorities have worked to nationalize resources and control the oil business.
These years have also been characterized by economic growth and welfare development. High oil prices and increases in taxes have resulted in ever-increasing government budgets. Tax revenues for 2006 were $ 4.6 billion, while in 2014 they increased to $ 12.51 billion. Lower oil prices from 2014 have created problems for the budget and sought to compensate with loans from abroad, mainly China, and further taxation.
- COUNTRYAAH: Find major trading partners of Ecuador, including major exports and major imports with latest trade value and market share as well as growth rate.
The earthquake that took place on August 16, 2016 was another blow to the country’s economy.
Even though agriculture has declined compared to other industries, it is still here that most are employed. After the oil industry, agriculture is the main source of export revenue. In the neo-liberal era, intensive use was made of the cultivated land for export. Agricultural policy has recently had a new focus on self-sufficiency, without this having led to a significant shift in agricultural production in the country.
Agriculture is differentiated according to the country’s climatic regions. In the lowlands of the coastal region, large plantations that grow bananas, coffee, cocoa, palm oil, rice and sugar dominate. Most of this is intended for export. In the highlands, potatoes, corn, beans, quinoa, broccoli and wheat are grown. In the Amazon region, agriculture and livestock farming were introduced in the 1960s and 1970s through highland migration and colonialization. The main products are manioc, other root fruits, bananas and a variety of tropical fruits.
Ecuador is the world’s largest producer of bananas and supplies 1/3 of what is found in this fruit on the world market. Revenue amounts to approximately $ 2 billion annually. However, there has been a problem with overproduction and falling prices. Many major manufacturers have changed their strategy and started to grow other products. Small producers sell off at low prices or go bankrupt.
Cocoa was the most important export product in the early 1900s. This led to a period of economic recovery on the coast of Guayaquil, known as the cocoa era. Eventually other countries like Brazil took over the hegemony internationally. Today, mainly cocoa beans are exported and to a small extent processed goods. In 2012, cocoa brought in $ 346 million in export revenue.
Coffee production has problems with low profitability and lack of investment in technology. Coffee plantations have also been heavily affected by fungal attacks. Revenues in 2012 totaled $ 274 million.
Flower production is a relatively new activity, about 30 years old. Unlike the aforementioned products, flower production takes place in the highlands. Ecuador sold roses and other flowers to the United States, Western Europe and Russia for $ 766 million in 2012.
For internal consumption, corn, rice, wheat and potatoes are grown.
African palm trees were introduced in 1953 for the production of palm oil for industrial purposes. The production and lack of control of this has led to pollution of fields and water reservoirs.
20 percent of the land is devoted to livestock. There are most cows (8.3 million), but also pigs and sheep. The highlands account for 51 percent of the brotherhood. The lowland on the coast has 36.7 percent and the Amazon 12.3 percent.
Fishing and farming
The most important export product in Ecuador after oil is shrimp, which brought in $ 3234 million in 2018 (Banco Central del Ecuador). However, shrimp farming along the coast, especially in the province of Esmeraldas, has been debated as it threatens the mangrove forests.
Extensive fishing is conducted along the coast of Ecuador and around Galápagos. In addition to internal consumption, large quantities of tuna and canned fish are exported.
Ecuador has high deposits of copper, gold, silver and lime. Mining has until recently been characterized by small and medium scale enterprises. From the end of the 1980s a number of licenses were distributed to major foreign players, and today several international mining companies have established themselves in the country.
The Mirador project, run by the Chinese company EcuaCorriente, and the Fruta del Norte project, run by the Canadian company, Lundin Gold, will in the next few years initiate the extraction of copper, gold and silver. Both of these projects are located in the Amazon rainforest. Several other international companies are in the start-up phase.
In 2009, the mineral sector in Ecuador was regulated in a new mining law. However, this was modified in 2013 to secure foreign investment. Ecuador is considered to be a country that paves the way for foreign mining companies.
Both small-, medium- and large-scale mining operations have serious environmental consequences, and pollution to water sources, rivers and water systems is a particular challenge. The major mining projects have caused protests and actions by Ecuador’s environmental and indigenous organizations. The question of Ecuador’s aiming to align the economy with industrial mineral extraction is one of the most inflamed political issues in the country.
The Ecuadorian oil adventure was started in 1964 by the Texaco Gulf in Lago Agrio, the northern part of Amazonia. In 1972, the state oil company CEPE, later Petroecuador, was established. In 1976 CEPE held the majority of the shares in companies operating in the oil business. However, its role was gradually weakened in the neoliberal period, until privatization was reversed from 2006.
Ecuador supplies about 0.5 percent of the world’s annual oil consumption. With all known deposits, including in the conservation area of the Amazon rainforest, reserves are estimated at 3,538 million barrels of oil. With today’s production, it can be maintained until 2032.
In 2012, Ecuador exported crude oil worth $ 12 715 million. 70 percent of this was pre-sold to China to cover loans and credits.
There are three major oil refineries in the country, in Esmeraldas, in La Libertad and in Shusufundi. The largest in Esmeraldas has a capacity of 110,000 barrels daily.
Despite its own production of oil derivatives such as gasoline, diesel and gas, Ecuador still has to import for its own consumption.
Yasuni ITT initiative
Extraction of oil in the rainforest area is controversial. The desire to preserve as much rainforest as possible and the diversity of species found there are weighed against the economic interests of recovery. Large parts of Ecuador’s oil reserves are located in the so-called Yasuni ITT region, located in Amazonia. It is also believed that people live in voluntary isolation in these areas. In 2007, the Ecuador presented the Yasuni initiative at the UN. Against a world community compensation equivalent to half the estimated value of the oil reserves, Ecuador would undertake not to recover them. In 2013, President Rafael Correa noted that the plan had not had a sufficient impact and decided to implement plan B, which will involve the most gentle recovery. The decision has led to protests from environmental protection organizations.
The lawsuit against Chevron
Since 1993, there has been a process primarily between the multinational oil company Chevron and a group of Amazon Surfers. The oil company Texaco, which later merged with Chevron, extracted oil from Lago Agrio from 1964 to 1990. This business caused significant environmental damage, emissions into rivers and swamps, health damage to people in the area, dead animals and damaged crops. In 1993, a lawsuit was brought in New York, where Texaco had its headquarters. The plaintiffs represented the indigenous peoples Cofàn, Siona, Secoya, Huaroani and the Amazonaskichwa. They demanded complete cleanup of the contaminated areas, new drinking water reservoirs, medical assistance and compensation for all concerned. After ten years, the lawsuit was dismissed in New York and referred to treatment in Ecuador. In 2011, Chevron was sentenced to pay $ 9150 million in damages in another instance in the province of Sucumbios. Chevron has since contested the verdict and worked to have it annulled by international courts.
There is little industrial activity in Ecuador, even by Latin American scale. The goods produced are mainly for internal consumption and some exports to neighboring countries. The most important industrial products are oil derivatives such as diesel and gas, fish canning and metals. Given that oil reserves will cease, it is an expressed desire by the authorities to develop more high-tech industry.
Tourism is an increasingly important source of income for Ecuador. It has been steadily increasing. In 2012, 1,271,953 tourists arrived. It brought in $ 849 million to the country. The most attractive are the Galapagos Islands. Next comes the old towns of Quito and Cuenca with its colonial settlements. Both are designated UNESCO World Heritage Sites. Ecuador also has several major national parks located in the Andes and Amazonia. There is great capacity for ecotourism.
Note: the capital city of Ecuador is Quito with a population of 1.9 million (estimate 2019). Other major cities include Guayaquil with a population of 2.3 million, Cuenca with a population of 330,000, Santo Domingo with a population of 306,000, Machala with a population of 242,000 (2010 census).
The informal economy
By informal or black economy is meant business carried on by persons or associations that are not registered as traders or employees. They do not pay taxes and have no social rights attached to their business. We do not have specific figures on the extent of this, but analyzes show that for Latin America as a whole, it is estimated that as much as 60 percent of all work done can be put into this category.
The informal economy is very visible as it is practiced by thousands of ambulatory street vendors and shoe polishers. There are also craftsmen, construction workers and cleaners in this niche. Many combine informal work with formal.
The reason for the scale of the informal economy is the lack of jobs. The prices of the goods or services offered by the informal economy are low appreciated and leave little room for payment of government fees or taxes.
Transport and Communications
The country’s topography, dense forests and scattered settlement make the development of a transport network difficult and expensive. The Pan-American Highway passes through central Ecuador for a length of about 1400 kilometers, with side roads down to the Pacific coast.
Most major cities have air services. International airports can be found outside Quito (Mariscal Sucre) and Guayaquil (Simón Bolívar). The main port cities are Guayaquil, Esmeraldas, Manta and Puerto Bolívar.
The earthquake on August 16, 2016
The earthquake, which was measured at 7.8 on Richter’s scale, caused significant material damage in addition to the loss of 668 lives.
The quake particularly affected the province of Manabi which is located on the coast. A large number of buildings are destroyed. Thousands have lost their homes. There is significant damage to public buildings, such as schools and hospitals, and the road network.
The Department of Planning (Secretatía Naciónal de Planificación) has calculated that it will cost USD 3 344 million to repair the damage.
Ecuador received relief from a number of countries and international institutions immediately after the quake. Norway contributed NOK 15 million.
For long-term reconstruction, the country has received loans from the World Bank, the International Monetary Fund, the Banco de Desarrollo de America (CAF) and the Banco Interamerícano de Desarrollo (BID) for a total of USD 1,000.