Ecuador : investment climate comparison study

This study compares the foreign direct investment (FDI) regimes of the four countries in an effort to answer this question. It is found that while Ecuador has, at least on paper, recently enacted the most liberal FDI regime of the four countries, other factors combine to make it unattractive to investors. These factors include exchange rate volatility, a bloated public sector with high deficits, inflation, massive external debt, persistent government intervention in the economy, scarcity of private investment financing, an officious bureaucracy, an anti-entrepreneurial labor regime, and, with specific reference to FDI, property rights problems, bureaucratic violations of the law forbidding discrimination against foreigners, and poor intellectual property rights protection. In sum, investors lack confidence in Ecuador"s economic stability and in the continuity of its policies. Recommendations are that Ecuador: (1) establish a "one-stop-shop" to coordinate FDI policy and promotion programs and provide related services; (2) develop an FDI promotion strategy; (3) establish a public-private FDI Promotion Commission addressing only FDI issues, as well as bilateral private sector groups to work with major investing nations; (4) enact a unified Foreign Investment code; (5) grant investment regime guarantees against changes in FDI "rules of the game;" (6) abolish remaining sectoral and geographic restrictions on FDI; (7) enact the Modernization Law initiative; (8) reform the bureaucracy and the labor regime; (9) complete its accession to the General Agreement on Tariffs and Trade; and (10) develop a tourism policy and privatize the tourist industry. A detailed treatment of basic FDI concepts is included among the appendices.