In the last decade, economic growth in Ecuador has been largely stagnant, rising just 0.2 percent on average between 2014 and 2022. In addition to the major impact of the pandemic, the country has had to endure a number of unexpected political transitions and a steep and unprecedented increase in insecurity.

Can Ecuador do more to increase growth?

Yes, of course. Opportunities abound for Ecuador to make a qualitative and quantitative leap in its quest to achieve high-income country status. In this regard, the three key sectors are agriculture, mining, and tourism.

The new World Bank report, “Ecuador: Growing Resilient for a Better Future,”  explores some of the options that could be implemented by unleashing the potential of the state and the private sector to work actively together.  This report will guide us as we analyze these development opportunities in this blog.

Targeting three sectors

The combination of Ecuador’s decades-long reliance on oil revenues and the associated fluctuations in oil prices have conditioned the country to live in a constant cycle of boom and bust.  This is why diversification is so important. In this regard, Ecuador can look to three sectors that have the potential to boost the economy and become sources of sustainable income generation in the long term. Ecuador can look to three sectors that have the potential to boost the economy and become sources of sustainable income generation in the long term.

Currently, one in three Ecuadorians is employed in agriculture, with the sector accounting for 42 percent of the country’s exports. Blessed with fertile soil and favorable climatic conditions, Ecuador produces a wide variety of quality crops, including cocoa, dragon fruit, and broccoli, that open the door for the country to expand into international markets. 

However, further diversification into value-added crops needs to be encouraged along the lines of the country’s production of avocado oil or the wide variety of chocolates manufactured with the fine flavor cocoa that is harvested in many regions of the country. At the same time, farmers need to become well-versed in efficient irrigation techniques and technically sophisticated cultivation methods.  This will help unlock the country’s agricultural potential and promote the implementation of environmentally sustainable practices.

Formal mining is another sector with significant potential to generate major revenue flows. With US$220 billion in mineral reserves, Ecuador is the second most attractive destination for mining investment in the region, according to the Fraser Institute’s Investment Attractiveness Index.

Moreover, exports from the sector have increased more than seven-fold in recent years, climbing from $282 million in 2018 to $2.2 billion in 2022.

Job growth in this sector has been on a similar trajectory. In 2021, formal mining generated 37,000 direct jobs.  The industry is projected to employ more than 273,000 people by 2025, while another 80,000 indirect jobs will be created. 

A regulated mining sector is one in which the exploitation of mineral resources is properly controlled. It may well prove difficult to keep the sensitivity of this issue in at the forefront of society, as there are no efficient communication plans in place to raise public awareness of the advantages and development possibilities that can ensue from formal mining.

The report proposes some alternatives that could help strengthen this sector, including:

• Training programs for local governments on the implementation of development projects with mining revenues.
• Implementation of technologies that minimize the environmental footprint.
• Promotion of laws that guarantee prior consultation with Indigenous peoples and nationalities in order to ensure a more responsible and sustainable industry.

And, last but not least, we have tourism.  Ecuador is a unique destination with an inexhaustible range of attractions.  It has an immense and diverse natural heritage and a rich culture and history.

However, Ecuador has not been able to capitalize on the economic potential of tourism.  Tourism accounts for only 2.9 percent of GDP and 4.8 percent of employment, among the lowest rates in the region. By contrast, tourism accounts for over 5 percent of GDP in Peru and Costa Rica and more than 13 percent in Mexico.

By developing a country brand that distinguishes Ecuador as one of the world’s most unique destinations, the country could attract more tourists from high-income countries. Before the pandemic, 57 percent of tourists were from such countries, spending almost $1,500 dollars per person on their visits.

Tourism is a source of development that promotes the creation of public and private infrastructure while energizing different sectors of society. 

Improving economic conditions

In order to boost growth, actions must be taken to improve competitiveness.  And this is where the State can play a key role.

One key condition is, for example, the maintenance of fiscal responsibility that strikes a sustainable balance between spending and revenue generation.  It is also essential to empower the private sector, but this must be supported by removing barriers that stifle competitiveness.

Some key conditions might include the following: overhauling rigid labor regulations, and fostering competition by supporting small and medium enterprises, and investing in human capital through education reforms that produce a more skilled and productive workforce.

Reforms are definitely needed, but above all, the country must face the future strategically.  Ecuador has the potential and the conditions to achieve this. 

What else is needed to take the plunge?