Infrastructure market in Ecuador

Ecuador has a wide range of opportunities in areas including renewable energy, mining, roads, new forms of transport such as trains, and future planning. 

Ecuador is the eighth-largest economy in Latin America, with a GDP per capita of US$6.217 (2017), and it offers plenty of potential business opportunities. Between 2008 and 2015, Ecuador experienced high levels of growth, mainly driven by increased fiscal revenues from high oil prices and public investment in infrastructure-related sectors. Since 2016, reduced oil prices demonstrated the need to strengthen the country’s fiscal position, increase productivity, and stimulate national and international private investment. One of the Ecuadorian government’s priorities is to transition to a private sector-led growth model by strengthening the public-private partnership (P3s) model.

Key opportunities for Canadian infrastructure companies in Ecuador

• Airports
• Hydroelectricity
• Ports
• Roads
• Water and waste water
• Mining
• Renewable energy

Notable challenges for Canadian infrastructure companies in Ecuador

• Since the Ecuadorian government has minimal funds allocated toward infrastructure projects, successful foreign engagement would require financial solutions.
• Having a local partner is highly recommended when doing business in Ecuador to facilitate communication and enable a better understanding of the local business culture.

Business landscape in Ecuador

Ecuador is working towards the improvement of the national road network’s service level and connectivity between the cities of Loja and Catamayo in the southern part of the country, La Cadena – Jipijapa, the Cuenca - Molleturo - El Empalme. Other projects concern the design, financing, construction, operation and maintenance of a new bridge over the Guayas River. The viaduct will optimize travel times, and decrease traffic congestion in the city of Guayaquil and improve connectivity with the city of Durán and the Puerto Inca-Naranjal highway.

Since being elected in April 2017, the President of Ecuador has undertaken several actions to dismantle the legacy of the country’s 10-year left-wing rule and is making efforts to shape the country’s public policies toward closer cooperation with private companies to boost the country’s productive sector. In addition, actions taken to address corruption in public sector companies and the open invitation to private national and international companies to invest in the country within a framework of structural reforms are significant changes in the Ecuadoria market. Several developments that were not previously available to foreign investors include tax-exempt incentives, the creation of the P3 secretariat, the Ps secretariat’s support for project monitoring and investment facilitation, and investment protection contracts.

Ecuador recently announced its intention to become an active member of the Pacific Alliance in the near future and its interest in potentially joining the OECD.

Infrastructure sector highlights

Significant investments have been made in Ecuador’s infrastructure sector over the last ten years, making Ecuador a country full of potential business opportunities, for both large- and small-scale infrastructure projects. The current government has been developing strategies to attract investment through a range of projects, particularly in the areas of transportation, electricity, water, construction and telecommunications.

To make these projects happen, Ecuador needs private sector participation. Most of the projects are being promoted through P3s, supported by a sound legal framework issued in 2015 seeking to attract investment and delegate activities related to public services to the private sector. The P3 law provides legal security in contractual relationships and several tax incentives, including the following: a 10-year income tax exoneration from the first year of operation; exoneration of the 5% tax on capital outflows on imports, financing and dividend payments; exoneration of tariffs on imports related to the project; and VAT exemption on project-related imports and guarantee of international arbitration in case of disputes.

Furthermore, Ecuador is working with the support and technical cooperation of several multilateral organizations to promote projects under the P3 model that may help to modernize and expand the country’s infrastructure and productivity. An inter-institutional committee has also been created to evaluate and approve the implementation of potential P3 projects.

Main opportunities

Transportation

Over the past decade, Ecuador has focused on expanding the state road network of approximately 99,000 km and it is seeking national and foreign investment to maintain and improve its road infrastructure. The Ministry of Transportation and Public works is leading 21 road projects, representing 38% of the state road network, under the P3 model. Ecuador plans to save about US$1.9 billion in road infrastructure investments and about US$500 million in maintenance through P3 model.

Ecuador has 2 international airports in Quito and Guayaquil, and Quito’s airport has the most incoming air cargo activity. New projects to improve and expand these airports are expected in the future.

Three transportation projects have already been approved through the P3 model and are being operated by private companies:

• the Port of Puerto Bolívar operated by Turkish company Yilport, worth US$750 million
• the Port of Posorja built by DP world from Dubai with an investment of US$1.2 billion
• the Road Rio Huaquillas built by a Colombian-Ecuadorian consortium worth US$665 million

Electricity

Over the past decade, Ecuador has invested a total of US$8.928 million in hydroelectricity generation projects, which led to electricity coverage increasing from 89% in 2001 to 97.3% in 2017. The electricity sector is one of the main sectors for investment in the upcoming years, including improving energy distribution, completing the 500 kW line and completing 5 hydroelectricity plants under construction. New electricity projects will be needed in the future as demand continues to grow. The sector is developing competitive bids for new generation projects valued at over US$1 billion and work is being done to promote projects under the P3 model for generation, operation and maintenance.

Water

Provincial and mP3unicipal governments are responsible for providing drinking water, water sanitation services and irrigation projects. However, due to budgetary restrictions, other institutions from the central government and private sector companies need to take part. Three water infrastructure projects valued at US$727 million have been prioritized for the use of water resources. These projects were contracted with companies from China and Spain through P3s. The Municipality of Quito is also seeking to build a waste water treatment plant for the city through a P3. This project requires an investment of US$900 million and includes a 26-km tunnel and 3 hydroelectric plants.

Summary

Ecuador is an attractive market that is continuously growing thanks to the range of investment areas. As a dollarized country, investment is more attractive, and there is permanent support from the P3 secretariat to protect and preserve projects and foreign investments. Canada’s expertise in the use of P3s is an asset that can be shared with Ecuador, as the implementation of P3s projects is at an initial stage. Canada can position itself as a key partner for Ecuador.

For more information on infrastructure in the Ecuador, market please contact edgar.Brito@international.gc.ca.