Ecuador's next president will have to deal with investor caution

Low foreign direct investment in Ecuador is one of the challenges Daniel Noboa will face when he takes office, which is tentatively set for December 1.

According to the latest statistics from the central bank, FDI totaled just US$107mn in the first half of 2023, a year-on-year contraction of 87% which experts attribute to the political uncertainty and crime levels that affect the country.

The first months of the year were marked by the impeachment trial of President Guillermo Lasso, the subsequent dissolution of the national assembly in May and the call for snap presidential and legislative elections.

Added to the uncertainty were the referendums in which voters opted to ban metallic mining in the Chocó Andino district and to end oil extraction at block 43, also known as Ishpingo-Tambococha-Tiputini (ITT). 

“The impeachment trial and the call for early elections generated caution among potential investors who were not clear about who they would have to deal with later. When it’s not known who will be in power, investment decisions are postponed or rejected,” economist Felipe Hurtado, a consultant at political risk advisory firm Prófitas, told BNamericas.

Noboa’s term will end May 2025 but he has said he will run for re-election in February that year so he will have to dedicate himself to the next presidential campaign from the end of 2024.

Experts say Noboa, a conservative businessman, will have to demonstrate that Ecuador offers conditions to invest.

INVESTOR CAUTION

The votes to ban oil production at ITT and mining in Chocó have generated concern that similar things could happen in other areas of the oil and mining sectors, which are considered strategic for Ecuador.

Added to the above is the fact that companies await a definitive decision by the constitutional court that in May suspended a presidential decree that regulates environmental consultation, which has halted some 200 projects in various sectors including mining.

"All of this generates caution among potential investors, putting the extractive sectors in a complex situation, and explains why foreign direct investment is so low," said Hurtado.

The analyst adds that future investment will depend greatly on the signals given by the new government, the announcements it makes, the formation of Noboa’s cabinet – especially in the economic and productive spheres – and concrete actions to confront the security crisis that affects the country, as well as measures to solve economic problems.

Given the elections to choose a four-year government in February 2025, local analysts believe that major investment decisions will only be adopted in 2025, when the direction the country is taking becomes clear.