Econ 1011 : Ecuador Economic Assessment Answers

Answer:

Ecuador Country Analysis

Generally, the Ecuador economy is highly relying on the petroleum sector at large which takes into account about 50% of the country’s exportations with almost 25% of the government sector over the past years. Between 2014/2017, there has been an effect on the economy as a result of the financial crisis which, which caused a tremendous decline in the country’s GDP rates with the poverty levels increasing to substantial standards (Flores-Mena, Jara-Tamayo, Herrera-González & Gea-Izquierdo, 2017). Therefore in March 2014, the Ecuadorian government proposed the legalizing of the US dollar which would help them recover from the financial crisis. As a result of the dollar approval, the Ecuador economy was stable leading to a positive growth rate of the country’s economic levels.

Noticeably, in 2014 the country’s economy had risen to an average of 5.3% annually between 2014/2017. Lately, Ecuador has borrowed loans from China which has helped boost its financial levels, by also permitting the national government in upholding high levels through the regulation in the country’s social spending. The Chinese government lends the Ecuadorian a sum of $9.9 billion with an astute of boosting their oil sales, financing of the country’s projects, and budget support for loans in December 2014. Due to certain unfavorable challenges in Ecuador such as the crowding effect of public investments, insufficient rule of law and unfavorable environment has caused a substantial decline of foreign investment in the country.

With the 2013 economic deficit of approximately $1.1 billion raised various mechanical hindrances in order to trade in 2015 which rose huge tension with the country’s potential investors. On the contrary, Ecuador also legalized the use of rational assets which the violated country’s set laws in 2014. In 2015, there was imposition of tariffs on the imports in Ecuador from 5% to 45% (Granderson & Paul, 2015).  There was a rapid increase in the production of oil in 2014 which stabilized Ecuador’s economy, although in 2014 the prices also decline which highly impacted the country’s revenue. Thus the country underwent a recession in 2015 which and remained is such a state in 2016. Over time the country’s recession was cut down and normal economic levels resumed in 2017.

Ecuador economic Performance indicators

According to the research analysis economic indicators are very useful in providing substantial information on a country’s economic progress. It enables financiers determine whether a country is under expansion or rather a contraction. Majority of economic indicators which are released by the government every month always provide activity’s data which have been carried out in the past few months and years which are essential for comparison purposes. Moreover the GDP of any economy basically provides important information about the value of the goods or service produced by a particular economy thus knowing is the economy is declining or on a rise (MOORE, 2015). Thus the national government will institute certain estimation which enables it come up with possible solutions to the problem.

                                                                        Figure 1: Ecuador economic indicators

Indicators such as labor forces are the major determinant for evaluating the economy’s performance rates. Labor involves concepts such as job creation which has happened in the prior months. Labor forces generally take into account certain firms and other national related unemployment rate levels. Costs on consumer spending are projected to cover about 2/3 of Ecuador’s economic processes and provide rigid valuation of the country’s consumption health levels. Thus the Ecuadorian’s commerce unit annual release has provided the general income and outlays which provides detailed explanation about consumer usage (Moreno Brieva & Peñaherrera-Patiño, 2018). Additionally, it provides data about inflation levels by explaining the price index levels which evidently shows the consumption rate of each individual.

Benefits of investing in Ecuador 

According to the research analysis done from the Ecuadorian’s market analysis, it is seen that Ecuador’s economy is among the best performing economies present in Latin America. Therefore, this implies that the country opens widely for investors to chip in and exploit the country’s present resources. The country has consistently eased up the investment processes through permitting of trade free zones by provision of supplements in the preset domestic firms which attracts investors in the country (International Business Publications, 2015).  Since much of the labor force is already employed in the farming industries, the government’s main aspiration is renovating the industrial and the technical sector which will provide effective working conditions for investors. Therefore below are factors which makes it suitable for investors to work in Ecuador, they include:

• Provision of financial aid upon investing in certain sectors of Ecuador’s economy. There is allocation of fiscal credits and unlimited remissions in every area of the economy.
• Low tax income rate to attract investors
• Minimization of 10 points which will initiate investment processes

Challenges to investing in Ecuador 

Similar other emerging economies in the world Ecuador are also encountering various challenges in the process of boosting its economic levels. Ecuador faces different challenges such as natural pandemic like floods, landslides, earthquakes etc which makes it unfavorable for investment processes to occur. The country is known to be prone of active volcanoes which affect the social and economic living of the people in the country (Ampah, Besan?n?on, Niang & Srot, 2014). The eruptions affect the water channels in the country thus affecting the country’s diary and food production industries which directly affects Ecuador’s economy.

Emerging Sectors in Ecuador 

In the economy of Ecuador, the major emerging sectors are oil, tourism, lumber, fishing, plastics, chemical production, paper products, metal works, and textile industries. Due to these emerging markets in Ecuador’s economy, there has been an increase in the inflation level leading to a high gross domestic growth of the country (Fakier, 2014). Additionally with the high influence of the government foreign investment will raise which will improve the country’s economy. Moreover the entrepreneurial activities are current being motivated by the country which will help the country grow.

United Arab Emirates’ Economic relation with Ecuador 

Lately, there has been close relation of the UAE and Ecuador’s economies. Both countries have been striving to improve their countries’ economies through cooperating with one another.  The two countries overall trade exchange in the year 2016, was found to be about $55 million which that the two countries have been financial partners over a long period of time. The United Arab’s Emirate’s economic is said to substantially benefit from Ecuador’s economy with the country’s interests and aspirations attained (Arnold, 2014). Their cooperation has motivated both countries to explore different fields and acquire profitable partnership at national and private levels. Additionally, both countries are targeted to share knowledge and skills in the development of harbors which will increase the relation to an upper level.
2019/2020 Short-Term and Long-Term Prospects/Forecasts 

According to the results should in figures above the projected expenditure on GDP of Ecuador in the coming years is projected to decrease with the private consumption levels decreasing from 2.2 to 0.4, government consumption from 0.5 to 0.3, gross fixed investments from 5.5 to 0.1, exports of goods and services from 5.0 to 2.7 and imports of goods and services from 6.2 to 3.7. On the other hand, the origin of GDP levels will increase in the agricultural and the industrial sector while exhibiting a constant decline in the service sector. Analysis of these figures shows that the economy of the country is aspired to increase as a result of the employed measures.

Foreign investments to Ecuador 

About 80% of the Ecuador foreign investments are all targeted in boosting the oil sector. In 2015, the country reached acquired $1.3 billion, while in the second year there was a decrease in the FDI levels. Additionally, in 2017, about $606 million was attained which was 20% less than in 2016 and 50% less compared to 2015. As a result of foreign investment processes there was an increase in the FDI to about $17 billion which made the Ecuador’s GDP be about 17% (Adrian, 2016). According to the central bank of Ecuador there is a notable decrease in the FDI rates which negatively impacts the foreign investment processes in Ecuador. As a matter of fact, the business processes in the country is continually experiencing many challenges due to the tough labor regulations rules and regulations, and the government intervention process always tend to be intervening specifically in the oil sector. Therefore, based on the foreign investment activity the country is ranked to be 118/190 presently according to business reports accessed by the World Bank.

                                                     Figure 2: 2015/2016 foreign investment of Ecuador

Financial Market Performance, Future Outlook and Investment Opportunities

According to the World Economic Outlook, Ecuador’s financial market performance has portrayed strong progress, thus indicating that the country has recovered quickly from its initial financial crisis resulting to the country’s economy rising by 0.6% in 2018. Although in 2016 there was a poor recovery rate of -1.6% and a 1% growth rate in 2017 which was data presented by the economic commission for Latin America. The commission adds by stating the figures are dissimilar with those of 2018 and the records presented by CEPPAL which show 1.3% and 1.8%-2.0% published by the Ecuador’s central bank (Alfred, 2016). The fruitful market performance of Ecuador is as a result of the intervention by the government in formulating economic programs which boosted the public expenditure and other foreign debts in the country.

The future prospects of the country are projected to increase through excellent performance in market levels and the country’s GDP levels (Pérez, Fernández, Méndez, Méndez & Fernández, 2018). In the near future the economy of Ecuador will increase to considerable size making it to attract potential investors in investing the country’s economy. Additionally, the due to the emerging markets in the country there will be numerous investment opportunities as a result of the government providing funds which will boost the emerging sector. Thus it is projected that in the near future the economy of Ecuador will increase greatly reaching other great nations like USA, China, and Japan etc.

References:

Adrian, M. (2016). Ecuadorean projects requiring foreign investment participation (3rd ed., p. 678). [Quito? Ecuador]: Centro de Desarrollo Industrial del Ecuador.

Alfred, G. (2016). Ecuador: Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Ecuador. IMF Staff Country Reports, 16(288), 1. doi: 10.5089/9781475532593.002

Ampah, M., Besan?n?on, L., Niang, C., & S??rot, A. (2014). Creating Fiscal Space for Poverty Reduction in Ecuador (1st ed., p. 342). Washington: World Bank Group.

Arnold, G. (2014). The Resources of the Third World (2nd ed., p. 68). Hoboken: Taylor and Francis.

Fakier, K. (2014). Socio-Economic Insecurity in Emerging Economies (4th ed., p. 456). NewYork: Routledge.

Flores-Mena, K., Jara-Tamayo, K., Herrera-González, P., & Gea-Izquierdo, E. (2017). Prevalence and major risk factors of diabetic retinopathy: A cross-sectional study in Ecuador. Bionatura, 2(4), 427-431. doi: 10.21931/rb/2017.02.04.3

Granderson, G., & Paul, C. (2015). Cost Structure and the Measurement of Economic Performance: Productivity Growth, Utilization, Cost Economies, and Related Performance Indicators. Southern Economic Journal, 68(1), 202. doi: 10.2307/1061525

International Business Publications, U. (2015). Ecuador investment and business guide (3rd ed., p. 567). NewYork: Intl Business Pubns Usa.

MOORE, K. (2015). The Comparative Performance of Economic Indicators in the United States, Canada, and Japan. Economic Inquiry, 9(4), 419-428. doi: 10.1111/j.1465-7295.1971.tb01685.x

Moreno Brieva, F., & Peñaherrera-Patiño, D. (2018). Panorama de la Economía de Ecuador desde 1994 hasta 2014 // Overview of the Economy of Ecuador from 1994 to 2014. Ciencia Unemi, 11(26), 38. doi: 10.29076/issn.2528-7737vol11iss26.2018pp38-50p

Pérez, C., Fernández, C., Méndez, V., Méndez, P., & Fernández, A. (2018). Evolution of GDP and its impact on the pharmaceutical sector of Ecuador (2007-2016). Journal Of International Studies, 11(1), 288-296. doi: 10.14254/2071-8330.2018/11-1/22