ECUADOR ENGLISH

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Ecuador: Investment and Trade Potential

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Market Potential Easy access to markets Mid point between North and South America Mid point in the East Coast of the Asian-Pacific Basin Close proximity to the Panama Canal Geographical and environmental diversity Strategic Location

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Less that seven flight-hours from any capital city of the continent, and less than 10 hours from the main cities in America. Market Potential Strategic Location

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Strategic Location to main markets in Asia and Oceania. Interconnection point between the Pacific, the Amazon, and the Atlantic basins. Market Potential Strategic Location

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Entrance to South America, through its four international ports: 1. Esmeraldas 2. Manta 3. Guayaquil 4. Puerto Bolívar Market Potential Strategic Location

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Privileged Access to Global Markets Population (2003): 15’665.216 Territoty : 736.902 km2 GDP (2003): US$72,056 million Partial scope agreement effective since January1995, that has permitted an increase in bilateral trade. Trade Agreements Economic Complementation Agreement with Chile (ACE 32 - ALADI): Population (2003): 120 million Territory: 4’710.000 km2 GDP (2003): US$243 billion Free Trade Zone – Custom Union under development Andean Community - CAN: Source: www.comunidadandina.org Since: www.chileinfo.com Market Potential

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Population: 212 million Territory: 11’910,462 Km2 GDP: US$800 billion Free Trade Zone – Custom Union in final phase Nowadays, Venezuela, Colombia and Ecuador as CAN members has finished a Free Trade Agreement with Mercosur, which is effective since January/2005 SOUTHERN COMMON MARKET – MERCOSUR: Market Potential Trade Agreements Privileged Access to Global Markets

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The majority of industrial and agricultural Ecuadorian products benefits of duty free access to the European Union, thanks to this System, which renders special preferences as compensation in exchange of the activities developed against drugs in the country and the region. Tariff Preferences ANDEAN GENERALIZED PREFERENCE SYSTEM – ANDEAN GPS (European Union): ATPDEA – Andean Trade Preferences for Drugs Eradication Agreement Unilateral benefits rendered by the United States to Bolivia, Colombia, Ecuador and Peru, aimed to increase the commercial flows among benefit countries; to generated employment and investment; to contribute to consolidate the values, principles and democratic practices in the region; as well as to continue with the fight against drugs and terrorism. More than 5000 Ecuadorian products are benefit of the ATPDEA. Market Potential Privileged Access to Global Markets

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Population: 800 million for 2010 Territory: 42 million km2 approximately (34 countries) GDP: US$85 billion approximately Continental Free Trade Area, that starts in year 2005 Free Trade Area of the Americas – ALCA (FTAA) Latin American Integration Association – ALADI (LAIA): Population (2003): 475 million Territory: 20 million Km2 GDP (2003): US$1,927,806 million Umbrella institution that covers Partial scope Agreements, Free Trade Areas and Custom Unions Source: www.aladi.org Source: www.foodfirst.org/alca Market Potential

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Multiple Areas of Regional Development Ecuador is an urban community with: 2 cities with more than 2 million people 5 cities with more than 300 thousand people 14 cities with more than 80 thousand people Ecuador is divided by four regions, which constitute an interesting market opportunity for any investor, because they allow different economic activities: Insular Region - Tourism Costal Region - Industry, agriculture and forestry, fishery and aquaculture, services Andean Region - Industry, agriculture and forestry, fishery and aquaculture, services Amazon Region - Mining, petroleum exploration, and agriculture Market Potential

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Economic Performance

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Economic Growth In 2005, the economy grew 3.9% and it is expected to grow 3% in 2006. Economic Performance

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Economic Performance Economic Growth

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Main Indicators The dollarization has achieved its goal of reducing the inflation index down to international standards. The accumulated inflation rate for 2005 was 3.14%. Economic Performance

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Country Risk (EMBI) Economic Performance

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International Trade Ecuadorian Exportable Offer Petroleum and Petroleum Products Gold Bananas Cocoa Coffee and extracts Flowers Mango Passion Fruit Heart palms Pepper Broccoli Wood, furniture and construction materials Bamboo Aromatic and medical herbs Organic products Tuna Shrimps Tilapia Toquilla Straw Software Ivory Nut

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Exports International Trade

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International Trade Exports

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Export Trade Incentives In-bound (maquila) processes are allowed by law to be developed anywhere in the country. Benefits of establishing in a Free Trade Zone: 100% exemption, with the possibility of extension, on: import and export duties on all goods and services authorized Taxes on profits for 20 years Export taxes, local sales, as well as on repatriation profits for 20 years municipal and capital taxes fro 20 years Operational tariffs of trademarks or royalties for 20 years ZONAS FRANCAS No restrictions on profits repatriation or foreign currency management Special Custom Regime Possibility of selling products to other companies on the FTZ The labor force can be contracted in temporal regimes, allowing to hire and fire them with relatively no costs. International Trade

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International Trade Imports

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Foreign Investment FDI Flows

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Foreign Investment FDI Flows by Sector

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Foreign Investment FDI Flows by Origin

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Legal Framework FDI is allowed in any sector of the economy, without requiring a previous authorization. There are equal rights and treatment for both FDI and national investment Right to repatriate profits. Tributary stability agreements. The Ecuadorian Constitution recognizes the international judgement and allows investors to take any judicial problem to international means under the conditions of international treaties, which Ecuador has signed. Andean Community: Decision 24 (1971) Decision 220 (1987) Decision 291 (1991) Ecuador: Foreign Trade and Investment Law (1997) Law of Investment Promotion and Guarantee (1997) Investment Promotion Plan (2001) Foreign Investment

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Legal Framework Foreign Investment Political Constitution of Ecuador The juridical stability is a fundamental right that the State recognize and guarantee to all people All contracts by parts can not be modified in a unilateral way by the creation of laws or other dispositions, modification has to be made by mutual agreements The State guarantee all capital invested by nationals or foreigners, aimed to produce goods or services for the internal consumption or for exportation. Contracts can be celebrated with investors to establish guarantees and special securities All rights and guarantees established in the Constitution and in all international instruments can be immediately applicable by and to any authority.

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Legal Framework Foreign Investment FDI is allowed in any sector of the economy, without requiring a previous authorization. There are equal rights and treatment for both FDI and national investment Right to repatriate profits. Tributary stability agreements. The Ecuadorian Constitution recognizes the international judgement and allows investors to take any judicial problem to international means under the conditions of international treaties, which Ecuador has signed. Foreign Trade and Investment Law (1997)

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Legal Framework Foreign Investment Tax Benefits Law Exoneration from Income Tax Exoneration from payment of the customs tax, the importation of machinery, equipment and new spare parts and raw material that is not produced in the country, and which are required for the production of goods and services Total exoneration of the duties and taxes that are charged to the constitution acts of the societies or companies d) The municipalities may lower up to 95% the amounts corresponding to the taxes to which they are entitled to

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Legal Framework Foreign Investment Productive Sectors beneficiated by the Tax Benefits Law The new hydroelectric generation and the non-conventional electric one, which are produced and sold at competitive prices at an international level. b) The refining and industrializing of hydrocarbons and the production of petrochemical goods, whose industrial process demands the latest leading technology. c) The industrial manufacturing of high technology electronic instruments and those from optical fiber and other devices for digital and electronic communication. Industrial assembly plants for electronic and digital integrated circuits , microprocessors, memories, electronic cards and portable computers, scientific sensors, software and hardware.

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Legal Framework Foreign Investment Productive Sectors beneficiated by the Tax Benefits Law The development, implementation, installation and operation of regional distribution centers for air traffic and/or interconnecting cargo for international flights e) The construction and operation of deep water ports and for international transference of cargo and containers. In like manner, the construction of dry and river ports f) The manufacture of machinery and equipment for agricultural or agro industrial use, non existent in the country at present, as well as the production of goods that are non existent, starting from the transformation processes as a consequence of new agro industrial investments g) The environmental protection through productive investments geared to the preservation and improvement of the hydraulic potential for the hydroelectric generation, as well as the new investments for the production of oxygenate additives derived from the renewable raw material, such as the anhydride ethanol.

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Investment Potential Sectors Productive Sectors Selection Criteria

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Investment Potential Sectors Ecuador needs to import wood to covers the domestic demand. For example, the country imports 90% of the newspaper used. This supply could be met if we afforest 300,000 hectares. Ecuador has a great advantage regarding the soil content and luminosity which allows an accelerating pace for forests. In Canada, a forest grows 1.6 mts3 per hectare a year, in the United States 2.6, in Finland 3, in Chile 12 and in Ecuador 26 mts3. Ecuador has twice the potential than Chile for forestation purposes, and Chile’s forestry industry exports the same amount as Ecuador’s petroleum industry. Forestry

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Forestry Ecuador has a great advantage regarding the soil content and luminosity which allows an accelerating pace for forests. In Canada, a forest grows 1.6 mts3 per hectare a year, in the United States 2.6, in Finland 3, in Chile 12 and in Ecuador 26 mts3. Ecuador has twice the potential than Chile for forestation purposes, and Chile’s forestry industry exports the same amount as Ecuador’s petroleum industry. Ecuador is part of the group of countries with average costs of CO2 reduction of US$5/ton vs US$250-US$500/tons in developed countries. Investment Potential Sectors

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Investment Potential Sectors Forestry

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Tourism Ecuador has an unique topography, large variety of climatic zones, multiple vegetable and animal species that has been considered as one of the 17 countries with the largest biodiversity in the world. This particular characteristic makes it possible to develop different type of tourist activities. Main opportunities in this sector are concentrated in the lodging infrastructure development, area in which Ecuador has nowadays a deficit, as well as in the offer and promotion of the wide variety tourist options each region offers. Investment Potential Sectors

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CENTRAL AND NORTHERN HIGHLANDS Cultural, historic and ethnographic tourism; ecotourism, mountain adventure tourism; business, conventions and events tourism COAST Ecotourism; sea and river adventure tourism; sun and beach tourism; business tourism; cultural and archeological tourism SOUTHERN HIGHLANDS Cultural and historic – ethnographic tourism; ecotourism AMAZON Ecotourism; cultural tourism and community tourism GALAPAGOS Ecotourism Tourism Investment Potential Sectors

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Tourism Investment Potential Sectors

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Agribusiness Due to its geographical location, in Ecuador exist different types of climates which allow the culture of a wide variety of agricultural products, creating a big and real development perspective for agribusiness. Investment Potential Sectors Nowadays, this activity is growing in Ecuador, its support and development would generate an increase of value-added products, which will translate in higher incomes to investors in general. Moreover, these products will improve Ecuadorian exportable offer, which is mainly composed by primary products.

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Agribusiness Investment Potential Sectors

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Agribusiness Investment Potential Sectors

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Fishery There is a great variety of marine species caught in Ecuadorian waters that have still not been exported. There is a growing effort from the sector to diversify its markets and exportable offer, becoming this an investment opportunity due to the technology improvement required in certain areas of the industry. Investment Potential Sectors The most exported variety is the tuna-fish. Tuna processing factories fulfill the requirements o international sanitary regulations and quality standards. Moreover, the Ecuadorian tuna fleet has been catalogued as “Dolphin Safe”.

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Aquaculture: Shrimp Once solved the problem of the white spot virus, there are interesting investment opportunities in this productive sector: Before the white spot virus, Ecuador had over 180 thousand hectares of shrimp plantation, from which actually only 90 thousand hectares producing.   One alternative for investment in the shrimp industry is in greenhouse for shrimp pools. Investment Potential Sectors

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Fishery and Aquaculture Investment Potential Sectors

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In terms of minerals Ecuador is the least explored nation in South America and presents virgin opportunities, based on its metallic and non-metallic natural resources: gas, gold, pumice stone, coal, copper, silver, zinc, etc. Mining Investment Potential Sectors

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The mining concession is a real right granted to the concession holder via a contract with the National Government of Ecuador. Under no circumstance can the government revoke this right unless a failure to comply with the mining law persist. All government royalties or additional taxes other than the National Corporate Tax have been eliminated. Provinces, municipalities and local district governments are no longer allowed to dictate a local mining policy or demand a local tax on mining. Mining Investment Potential Sectors Several studies indicate the presence of favourable geological conditions for the existence of metallic mineral deposits. In non metallic mining, development has been focused principally on the exploitation of limestone and clay for the four principal cement plants of the country.

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Mining Investment Potential Sectors

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Other Sectors Investment Potential Sectors

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Additional Information For further information about Ecuador and its business environment, visit our web sites: www.ecuadorinvest.org www.ecuadorexporta.org www.corpei.org