Demand In Ecuador Expected to Rise Post Election

Ecuador’s economy is expected to begin a long-needed recovery this year following the April election of President Guillermo Lasso, a former banker and the first pro-business leader in the country for over a decade. The new government has already taken initial steps to inject needed funding into the oil, infrastructure construction and housing markets

New growth is expected to foster greater demand for U.S. products, including paint and coatings for the architectural and industrial segments.

Economic turnaround

Unlike his more socialist predecessors, Lasso is globally oriented to free trade.

“Lasso, if nothing else, is very pragmatic, and in Ecuador today that demands close relationships with the United States and also China,” said Michael Shifter, president of the Inter-American Dialogue, a Washington-based policy group, in a recent Dow Jones report.

While the Ecuadorian economy contracted close to eight percent last year, the Central Bank projects three percent growth this year. The economy is the eighth largest in Latin America, generating about $110 billion per year. In 2000, Ecuador adopted the dollar as its currency, putting an end to decades of monetary instability.

Ecuador’s population of close to 18 million has a corresponding per-capita gross domestic product (GDP) of about $6,400. That figure may rise under Lasso, who vowed to raise minimum wages as part of a general war on poverty.

COVID-19 took a massive toll on Ecuador, with some 360,000 cases and nearly 18,000 deaths as of late April, according to the World Health Organization. While only some 460,000 vaccines had been administered by April 21, Lasso has established a goal of 9 million vaccines given during his first 100 days in office.

The World Bank Board approved $150 million in additional financing for the COVID-19 Emergency Response Project in Ecuador on April 5. This is the World Bank’s first financed operation in Latin America and the Caribbean for COVID-19 vaccine procurement, the bank reported.

Oil dependent economy

Much of the GDP loss last year was due to reduced oil exports, which bring in most of the country’s revenues. While Ecuador is Latin America’s fifth-largest oil producer, it has lagged in oil investments for several years, and snow-balling maintenance needs have slowed refining production.

Oil and gas exports traditionally represent about two-thirds of the country’s total exports, which have been driven down over the past several years by low oil prices. The US imported 67.9 million barrels of Ecuadorian crude oil last year, down from 74.6 million barrels in 2019, according to the U.S. Energy Information Administration (EIA).

One potential new investment in the oil industry is a $3 billion 25-year lease being proposed for the Esmerelda refinery by a consortium led by South Korea’s Hyundai and U.S. engineering contractor KBR, with financing led by Morgan Stanley, according to Argus Media. Esmerelda, which produces 110,000 barrels per day, is Ecuador’s largest refinery.

Debt rebalancing continues

The government of Ecuador began in July 2020 to refinance the terms of $17.4 billion worth of its foreign-held bonds. “The outbreak of the COVID-19 crisis and its severe impact on Ecuador, and the significant drop in the export price for Ecuador’s crude oil have compromised severely Ecuador’s ability to meet its domestic and foreign commercial and financial obligations,” according to a government statement at the time.

By September 2020, The International Monetary Fund (IMF) agreed to a $6.5 billion financing arrangement for “budget support” including foreign debt servicing and domestic programs. The election in April drew supportive comments from the international financial community.

“Bonds should react very positively to the election results…With a supportive few months ahead, including continued IMF co-operation, we think gains will be sustained and turn bullish,” Morgan Stanely said in April.

The financial relationship between the U.S. and Ecuador is expected to strengthen under Lasso. In December 2020, the two governments signed the Protocol on Trade Rules and Transparency, which includes elements of customs administration, trade facilitation, regulatory practices, anti-corruption, small and medium-sized enterprises (SMEs) support, and tax agreements.

Ecuador is also seeking greater trade through agreements with the European Free Trade Association (EFTA – including Iceland, Liechtenstein, Norway and Switzerland), the United Kingdom and Chile. At the same time, Chinese investments in Ecuador are climbing in industries like fishing and oil.

In January, the U.S. International Development Finance Corporation (DFC) announced a $2.8 billion loan to Ecuador to refinance Chinese debt. “This framework agreement allows DFC to streamline support for projects that refinance predatory Chinese debt and help Ecuador improve the value of its strategic assets,” DFC’s CEO Adam Boehler said.

The DFC also may help finance new investment in the Esmerelda refinery. There is also discussion in Ecuador about the privatization of PetroEcuador, the state oil company that owns Esmerelda.

Construction, housing are key targets

Expanded housing for low-income families has been a key target for several past governments in Ecuador. One campaign promise from President Lasso was the construction of 200,000 new rural housing units.

The Inter-American Development Bank (IADB) estimates that there is a housing shortage of about 2 million units in Ecuador. IADB approved a $200 million credit line designed to ease the housing shortage in 2019, within the Homes for Everyone Sectorial Plan. This year, Ecuador launched a $400 million Social Bond to fund social housing in the program supported by the IADB. The social housing fund offers loans at subsidized interest rates to middle-income Ecuadorians.

The French Development Agency also approved a parallel co-financing of $80 million in the IADB program. Across all sectors, IADB’s cumulative support for Ecuador under its 2018-2021 national strategic plan is worth about $2 billion.

Similarly, the IMF financial package includes a plan for targeted social assistance for some 270,000 low-income families.

Apart from new housing, hotel construction also is slated to recover in Ecuador, especially in Quito, a UNESCO World Heritage site and the most populated city in the country. Hampton by Hilton’s Carolina Park Quito, the brand’s first property in Ecuador, is scheduled to open this year in Quito with 135 rooms.

Paint, coatings demand should rise

Among multinational paint and coatings manufacturers that would gain from a recovery of the Ecuadorian economy is Sherwin-Williams, which in 2010 acquired the then-largest manufacturer in the country, Pinturas Cóndor. Sherwin-Williams now lists 34 paint stores on its Ecuador website.

Akzo-Nobel, Brenntag, Hempel, PPG, Sika, SunChemical and other multinational players are also well established in Ecuador.

One regional paint and coatings manufacturer poised to gain from the rise in Ecuador’s GDP is Colombia’s Pintuco, which operates the Tiendas Pintuco store chain in Ecuador, including the Pintec brand.

DIY distributors like Home Depot, which has a store in Samborondón, in Guayas province, also will help commercialize imported paints and coatings.

Among smaller domestic players, Pinturas Superior, based in Guayaquil, the main industrial city in Ecuador, produces architectural, automotive and industrial paints and coatings under the Superior brand.