Internal and external factors affect the investment

The Productive Development Law is one year and a half in force. The proposal was sent by the Executive in order to make Ecuador a more attractive destination for investments.

Internal and external factors affect the investment

Although this law has allowed new contracts with private companies to be concluded , some structural reforms are still pending to make their impact more palpable.

Two economists consulted by this newspaper analyze the norm and other options so that the country receives more national and foreign income .

The law is characterized by tax incentives such as the exemption of the Income Tax for up to 20 years for new investments or the exoneration of the Exit Tax for the importation of raw materials.

In February 2020, President Lenín Moreno reported that between 2018 and 2019, 76 agreements were signed with national and foreign companies that total $ 2,000 million and generate 10,000 jobs.

But for the law to generate even more conditions for the investment to emerge, ” labor reform and social security reform is necessary,” says analyst Jorge Calderón.

The expert believes that the law has good intentions, “but if it cannot be operated, there are problems in the country’s cost structure and competitiveness is lost, the investment will not come.”

The economist Héctor Delgado also agrees with this point, because he believes that labor reform is a fundamental pillar for any foreign investor. ” Ecuadorian norms are quite rigorous, like the costs of social security .”

Another key point to attract investment is to improve competitiveness through cheaper production costs . Calderón comments that Ecuador has room for this through electric power , for example.

Héctor Delgado adds that there are external factors to the Ecuadorian economy that hinder the arrival of resources. He cited the country risk, which until February 28 was 1,466 points.

This indicator varies mainly with the price of oil . An increase in value was celebrated in January, over $ 60, due to the situation between the US. and Iran .

Now, due to the coronavirus outbreak in China , the price of a barrel is around $ 48. This means that Ecuador receives about $ 40 per barrel, when $ 51 was budgeted. “That shows the vulnerability of the Ecuadorian economy.” , says Calderón. He believes that it is necessary to make a definitive change in the productive matrix and bet on agriculture and livestock , so as not to depend on international events.

Along the same lines, Delgado explains that country risk is the first thing that investors analyze to decide where to place their capital, in addition to legal certainty. He points out that companies are somewhat fearful that 2020 is a pre-election year, “which means that they remain on the sidelines and do not see a revival as such.”

Both specialists have high expectations regarding the future trade agreement between Ecuador and the US . For Delgado, it is an excellent message that the presidents of both economies have sat down to analyze the issue and expects it to subscribe soon. This instrument will help the country to compete primarily with Colombia and Peru that already have agreements with the US.

In addition, Ecuador’s entry to the Pacific Alliance will be facilitated. “But you have to negotiate it well, you must (put on) barriers and conditions so as not to affect certain sectors that over time can modernize and enter into technology and innovation issues, ” he says.

Calderón remembers that the work that the negotiating team has to do must be without impositions. “Ecuador and part of a base that are the sensitive sectors to an agreement.”

https://www.eltelegrafo.com.ec/noticias/economia/4/factores-inversion-ecuador