Abstract
According to BMI’s estimates, the economy grew by 2.6% in real terms in
2008. A significant increase in
the growth rate is not expected for the
future years.
The political risk premium has risen significantly in
Ecuador the past quarter. This is partly because of
high profile events
such as the expulsion from the country of Brazilian construction giant
Norberto
Odebrecht. The government’s dispute with Odebrecht relates
to the problems at the (temporarily offline)
San Francisco hydro-electric
plant, which was built by the Brazilian company. However, the government
has also sequestered Odebrecht’s interests in other projects. This was
followed by a warning on global
port operator Hutchison Port Holdings that
the government is considering revoking the company' s
concession for the
construction and operation of the cargo terminal in the port of Manta, due to
delays in
the implementation of the project.
The Inter-American
Development Bank, and other organisations, are keen to promote regional
development through initiatives such as the Initiative of the South American
Regional Integration
(IIRSA). The basic concept is that exports - both
within the region and between the region and other parts
of the world
– could grow dramatically if transport costs are reduced. Initiatives
such as the Multi-Modal
Corridor between Manta and Manaus, Brazil will pay
dividends for Ecuador if they come to fruition. (The
Corridor involves the
transhipment of containers between the Pacific and the Atlantic and is, in
essence,
an alternative to the Panama Canal). Ecuador’s challenge is
that a major source of funding for such
projects is the national
development bank of Brazil – which may be unwilling to commit new money
to
Ecuador until the dispute with Odebrecht is resolved. In BMI’s
Q109 Ecuador Infrastructure Report we
forecast that the construction and
infrastructure sector in Ecuador will see virtually no real growth in 2009
and slide marginally to the negative side in 2010. Government capital
investment is also expected to slow.
Other, if smaller areas of
opportunity include the remodelling of the public transport systems in Quito
and
Cuenca and – perhaps – the redevelopment of the Manta air
base. President Correa is committed to nonrenewal
of the lease on the base
to the US military: the current lease expires in 2009. Non-renewal will
likely give rise to some alarming headlines in the mainstream media. However,
Ecuador’s economy could
benefit significantly over the longer run
if, as the President hopes, the base is redeveloped – probably by
Hong Kong/Chinese interests – as a civilian and commercial facility.
Aside from a volatile political environment, which impels President Correa to
maintain a populist – and
anti-business – approach to
decision-making, infrastructure deals also often face significant opposition
on
environmental grounds. This is partly because of their nature (given
that hydro-electric projects involve
flooding and, usually, relocation of
people) and partly because of international sensitivities concerning the
Amazon basin, which extends into Ecuador.
In the short term, public
finance problems, together with a more challenging environment for the
country’s energy sector, mean that BMI is believes GDP will shrink by
2.3% in real terms in 2009, after
growing by 5.4% in 2008.
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