Ecuador--For Retirement, Yes...For Investment, Not So Much
Touring around Ecuador these past 10 days, I’ve been enjoying the infrastructure improvements since my last visit eight years ago. The roads, especially, are in vastly better condition than when I was last here in 2005. You now travel a new six-lane highway at least part of the way from Quito north to Otavalo and Cotacatchi, and the long-awaited new airport in Quito (this has been promised since the first time I was in the country more than a dozen years ago) finally opens this week (causing great confusion for people who arrived at the old airport but must now leave from the new one).
The infrastructure improvements continue. A new subway system is planned for Quito, and a tram system is being installed in Cuenca.
All of these public works are part of the legacy of President Rafael Correa, in office since 2007 and re-elected yesterday for his third term with more than 60% of the vote. Seven candidates ran against him; the second-place candidate garnered only a bit more than 20% of the vote. Ecuador, it seems, has more improvements to look forward to over the coming four years.
Correa has brought Ecuador out of what I’d call a Fourth World situation into a solid Third World position. Along with the infrastructure improvements, poverty levels have been reduced. Still, Ecuador has a ways to go before catching up to other countries in the region on all fronts, including the quality of the infrastructure and the state of the economy. Correa’s agendas now focus on improved health care and education.
Correa has been criticized for opening Ecuador’s borders and allowing visa-free travel for citizens from most every country in the world (it was every country until certain countries abused the privilege). The United States sees the country’s open-border policy as an opportunity for drug lords of Latin America to use Ecuador as a meeting point. Local tour guides in Ecuador, meantime, see it as a boost to tourism. Potatoe, Potato. As with everything, individual priorities skew perspective.
Of course, all the improvements Correa has been investing in cost money. Ecuador is an oil-producing country, and Correa benefited early in his first term from high oil prices. The concern is that, if he continues to spend money at the same rate during his second term, he will put the Ecuadorian government in a dangerous financial position. Some are predicting that Ecuador will no longer be able to afford to use the U.S. dollar as its currency and will be forced to revert to the sucre.
What Does This Mean For The entrepreneur, Investor, Or Retiree Considering Ecuador?
For the entrepreneur, the improvements in infrastructure provide better access to many areas of the country, opening markets and reducing the time required to move products. However, Ecuador is still a poor country with extremely low prices. Business margins in the country are generally low, meaning that any business venture should target the tourist and foreign markets. And, bottom line, doing business in this country remains (as it was a decade ago when Kathleen and I ran a business here) an exercise in insanity according to all businesspeople we’ve spoken with this visit. One couple of American entrepreneurs who have been doing business in Quito for six years told us that they are regularly frustrated to the point of considering hopping on the next plane out of town.
On the real estate front, it’s worth noting that local mortgages are available under dollarization, which is helping the local middle class. People can buy decent housing and improve their lifestyles. Still, real estate prices are extremely low on a global scale, especially outside the major cities.
Thanks to the ever-increasing numbers of expats moving to Ecuador, especially to Cuenca, a well-chosen rental investment could make sense, for yield and, perhaps, for some appreciation. Still, I wouldn’t put much money in this market if you’re not planning to live here, mostly because I don’t see much upside potential anytime soon. In addition, you want to remember that capital gains in Ecuador are taxed at income rates, and, to add insult to injury, Ecuador imposes a 5% tax on money transferred out of the country.
For me, the best revenue-related opportunities in Ecuador today, as over the past 10 years, are in the export arena. Ecuador is a good source of low-cost, hand-made goods, from textiles from Otavalo to leather goods from Cotacachi and wood products from San Antonio de Ibarra. Identify a niche product or line of products that interest you and export them to your home town or high-end galleries in select locations or market through a website. There’s money to be made this way, and we heard from some who’ve had good success with this at last week’s Live and Invest in Ecuador Conference.
However, I’d say today that, again, just as I believed a decade ago, the real opportunity in Ecuador is not to make money but to reinvent your life. A retiree on a budget could enjoy a very comfortable and interesting city retirement lifestyle in Cuenca, for example, or escape to a super-low-cost laid-back beach life on the coast.
Bottom line, I’ve been reminded this visit why I didn’t invest in Ecuador years ago, and, as well, why my wife continues to promote the place as an ideal retirement haven.