Securing success: How the private sector should respond to Ecuador's crime crisis

The rapid growth of drug trafficking in Ecuador, driven by closer ties between Mexican cartels and local criminal gangs, has turned Ecuador, once considered an oasis of calm in Latin America, into one of the most violent countries in the region.

Narco-criminal activities have even permeated into the justice system and public entities, partly because the State has not had sufficient capacity to act or the funds to design an efficient strategy to combat delinquency.

In January, after a surge of attacks, including against police and prison guards, President Daniel Noboa declared war on the gangs and embarked on a program to fight them. Although that has produced some results, it seems that it will likely fall short of providing any long-lasting solutions, given the power and penetration of organized crime, which has established strong roots in the Andean nation, thanks to its proximity to major cocaine producers Colombia and Peru.

BNamericas speaks with two executives at global specialist risk consultancy Control Risks, Theodore Kahn, director for the Andean region, and German Saenz, senior consultant of the security and crisis team, about the local situation and the precautions that the business sector should take to minimize risks.

BNamericas: What do you think of the crime situation in Ecuador? What is the reason for the high penetration of drug trafficking in a country that was quiet until recently?

Kahn: Ecuador is currently facing an unprecedented security crisis that began to take shape in 2021, driven by a confluence of structural and conjunctural factors at the national and international level.

These factors include the limitations in the capacity of public forces and judicial institutions to control and stop drug trafficking, as well as the situation on the border with Colombia, which is quite porous, and which has also been a territory with a heavy presence of armed groups for several years, a situation that suffered a notable deterioration starting in 2018.

We also have to take into account the dollarized economy (which facilitates money laundering), the porous land borders with the largest cocaine producers in the world (Colombia and Peru) and poorly controlled ports.

All of the above has fueled the country's rapid emergence as a key hub for global cocaine trafficking since 2021.

BNamericas: How has the crime affected the private sector?

Saenz: It has had an important impact because, as a result, companies need to make more investments in security for their operations, increasing surveillance and security schemes.

Drug trafficking has had a particular impact on export companies because criminal structures try to use their infrastructure for drug trafficking. Therefore, several of these companies have had to make large investments to protect warehouses, logistics chains and ports to avoid contamination of their products.

Companies have been forced to incur more security costs and consider these factors in their investments in order to protect their people and assets.

However, despite the situation, many companies are optimistic because they believe in the government's policies and are thinking about the medium-long term, which is why they continue to invest in the country.

BNamericas: Which sectors in Ecuador have been most affected by criminal economies?

Kahn: The most affected sectors include the ports, of course, because the main ports on the Pacific coast have been used extensively by drug trafficking. The agroindustrial and transportation sectors are also among the most affected.

Saenz: Export companies have been among those most impacted by criminal economies, as have companies that are located near the main areas of operation of criminal structures, such as the border with Colombia and also the coastal region.

BNamericas: What are the main risks that investors should take into account and what would you recommend to companies to reduce them?

Kahn: I think the next few months before the February 2025 elections are going to be very important.

There are likely to be incidents of political violence again, as we saw in the 2023 elections. Furthermore, as the elections approach, Noboa will face increasing pressure to deliver results on crime. This is a volatile combination.

Saenz: I would recommend that companies focus on taking preventive measures to mitigate risks.

It's essential that they increase their security awareness. To do that, it's necessary for them to analyze the environment of their operations, assess the specific risks to which they're exposed, take the necessary measures to mitigate them and implement risk and crisis management protocols.

BNamericas: Some say that Ecuador is already the largest drug processor in the region. How might that affect companies that operate in the country and those that plan to enter it?

Kahn: Companies have been highly affected in certain areas of the country, especially on the drug trafficking route that passes through the coastal provinces (Esmeraldas, Los Ríos, Manabí, Guayas). Direct threats such as extortion, kidnapping and theft from companies have increased.

There are also indirect effects. In the areas most affected by violence, there are difficulties in finding labor because people are afraid to go to these areas.

Saenz: Companies can take measures to prevent these risks and mitigate the impacts. I recommend constant monitoring of information, intelligence gathering, and setting up threat and risk assessment programs that have specific adjustments for one's operations.

The risks aren't static, so it's important that they constantly monitor the environment to be able to take the necessary preventive measures.

BNamericas: Has the crisis that Colombia is experiencing due to the saturation of the cocaine market led to an aggravation of the problems in Ecuador?

Kahn: Of course, the regional context, with a significant increase in cocaine production in Colombia in recent years, has reinforced the incentives for drug trafficking through Ecuador.

There are also other factors, such as the greater control that has been carried out in Colombian ports for several years, which also encourages the use of Ecuador as a shipping point for consumer markets.

BNamericas: How effective have the actions of Daniel Noboa's government been after his declaration of war on crime?

Kahn: They've had a positive impact on certain indicators (such as homicides) in the short term, and this has produced political gains for the president, but it's not clear how long-lasting this improvement will be, and we're already seeing signs of a resurgence of the violence.

In the medium term, it's clear that the militarization of security in itself doesn't solve the problem.

Saenz: In the private sector, companies have welcomed the measures that the government has taken in terms of security. They're waiting for the evolution of new measures, for example, to find out what's going to happen with control of arms.

This is a transitional government, so many companies are observing how the electoral landscape evolves and are waiting to see what the next government will be.

BNamericas: What can be expected in the short and medium term?

Kahn: In the short term, some deterioration and new incidents of political violence are likely due to the election situation. In the medium term, security challenges are likely to remain, perhaps with some improvement if the government takes strong action to strengthen legal institutions and address the underlying causes of violence, but it's unrealistic to expect that the problems of drug trafficking and organized crime will be resolved in the coming years.

BNamericas: The crisis of violence in Ecuador can transcend borders. In which countries should alerts and preventive measures be taken?

Kahn: Yes, what we've seen at the regional level in recent years is that these problems tend to transcend borders since armed and criminal groups are adept at finding new routes and markets, and they respond to the actions of state forces in one country to take advantage of loopholes in another.

Saenz: The neighboring countries, Peru and Colombia, are the ones that could be most affected, so measures must be taken in these countries.