Ecuador is a geographically small, Andean country rich in history and home to 16.1 million people, which makes it nearly the same size as Chile by population. The capital city, Quito, is officially recognized as a world heritage site by the United Nations. In recent years, Ecuador has transformed into a much more stable place to do business with one of the best performing economies in Latin America.
With relatively easy access to the US, many companies are coming to Ecuador to take advantage of its excellent trade routes, sometimes friendly trade agreements, and dynamic workforce. The minimum wage raised to $375 USD this year, ranking as one of the highest in South America. Ecuador’s close proximity to bordering countries, Colombia and Peru, make it a prime location for trade and a source for cheaper materials.
However, many believe that Ecuador’s size, in comparison to its neighbors, has a significant impact on its economy. Size-wise, the country is smaller than the state of Nevada. Recent declines in oil prices and the dollarization of Ecuador’s currency have played a big role in the country’s current economic state.
In 2000, the dollar was named the national currency of Ecuador, which helped to usher in this new wave of stability for the country after years of economic downturn and 60% inflation. After Ecuador retired the “sucre” after 119 years, the dollarization eased transactions and slowly opened the doors to more foreign investment.
Currently, the corporate tax rate in Ecuador is 22%. This was reduced from 25% in 2011 as a way to promote more investment in Ecuador. This rate can also be lowered ten percentage points more when companies reinvest their profits. In addition, there is an exemption from income tax for five years when an investment is made in the following sectors: food production, forestry, metal mechanic, petrochemical, pharmaceuticals, tourism, renewable resources, logistics in foreign trade, biotechnology, and software. These tax structures have made it easier for entrepreneurs and investors to do business in the country.
Ecuador’s economy is deeply rooted in the petroleum industry, accounting for 40% of the country’s wealth. Additionally, it’s a major exporter of crops like coffee, cut flowers, shrimp, fruit and palm oil. After an increase in government spending over the last decade which many thought would slow GDP growth, GDP was $183.4 billion.
The tax, legal, and regulatory environment can be difficult to navigate without a local expert. The World Bank and IFC rank Ecuador 114th for ease of doing business, which is quite low. The process of starting a business can take one month on average, and construction permits can take over 128 days to obtain.
Compared to its close neighbors, Ecuador’s startup scene has been slow to take off, but it’s starting to pick up. QuitoTech, which started in 2013, is a coworking/incubator space that is paving the way for dozens of other private initiatives.
From edtech to medical companies, Ecuador is experiencing a new influx of innovative companies. One example is Cuestionarix, an online platform designed to help students get ahead and prepare for exams by providing interactive tools. Another, Siplik, is changing the way patients communicate with medical professionals, offering a platform that makes it easy to do consultations and receive results online. And YaEstá is one of the largest e-commerce platforms to come out of Ecuador. Listen to YaEsta’s founder, Alejandro Freund on the Crossing Borders podcast for a deeper understanding of the market.
And of course with an increase in startup companies comes even more incubators, accelerators, and coworking spaces. Ernesto Kruger established Kruger Corporation in 1993, with the goal of promoting innovation and leadership in Ecuador. Kruger is a serial entrepreneur and after his company IPO’d in Spain, he decided to give back to the Ecuadorian startup community by creating Kruger Labs, an accelerator founded in 2013. Kruger Labs, is based in Quito, specializing in digital startups with a laser focus on innovation. The accelerator offers perks like mentoring, public relations, and legal assistance for local companies. Impaqto, located in Cumbaya and Quito, is another coworking space for entrepreneurs, freelancers, and business professionals of all backgrounds. Invernadero Coworking and Buen Trip Hub are also helping to put Ecuadorian startups on the map.
There are plenty of ways to get connected with the thriving startup community in Ecuador. Latinnova organizes frequent events around entrepreneurship, and monthly meetup groups include Lean Quito, Quito Lambda, and Quito Geeks Night.
All in all, Ecuador is a viable option for those looking to invest in or start a business. Over the past few years, there has been a lot of talk about Yachay, a planned city for technological innovation and knowledge-intensive businesses that will help push Ecuador from a commodity-based economy to a knowledge-based one.
As of 2017, Ecuador’s new government does not share the same vision for Yachay, so it remains to be seen if the city is ever fully completed as envisioned. However, there is still plenty to be excited about as Ecuador begins implementing initiatives like these to turn the country into a hub for high-tech innovation.