An April 2017 run-off election is likely to result in victory for opposition candidate Guillermo Lasso, after the first round in February 2017 failed to deliver a conclusive outcome. Protests will continue to affect mining and hydrocarbons projects in 2017, with the potential to turn violent. A Lasso administration would be largely risk positive for international investors, although corruption investigations will elevate contract cancellation risks in the medium term.
The Ecuadorian presidential election will go to an April 2017 run-off between leftist Lenin Moreno and right-leaning candidate Lasso, with victory for the latter the most probable outcome as other opposition presidential candidates rally behind him. Political protest risks will be elevated in the short term, although these are unlikely to escalate into violence. Following the February 2017 election hundreds of opposition protesters gathered in Quito to demonstrate against delays in vote counting.
Protests against oil and mining projects are likely in 2017, sparked by environmental concerns and the displacement of indigenous groups. Demonstrations can affect project areas or urban centres such as Quito. In December 2016 a violent protest over the Chinese-led Panantza-San Carlos copper exploration project led to the death of a policeman and injuries to several security personnel. Soldiers were dispatched to control the disturbance, and President Rafael Correa declared a state of emergency in the Morona Santiago province which is ongoing. Robust security responses to protests can lead to violence, raising the risk of property damage and business interruption for private companies.
Suppressed oil prices have reduced revenues from the country’s largest export, leading to an estimated 2.5% economic contraction in 2016. A return to limited growth of 0.5% is forecasted in 2017. The long term outlook is more positive, driven by greater foreign direct investment and private involvement in oil and mining. If elected, Lasso would likely remove import tariffs that have been used by Correa to control the country’s current account deficit, leading to a rise in demand for imports in the short to medium term. However, as prices recover, a rise in oil export revenues will ensure a stable external position, contributing to a surplus of 0.3% in 2017.
Debt levels have increased significantly in recent years as the government has increased borrowing to offset falling oil revenues. The government debt to GDP ratio is forecasted to reach 39.2% in 2017 from 20.1% in 2012. Chinese lenders have become the country’s largest debtor, with around USD 9 billion of Ecuadorian debt, and it is likely that each presidential candidate would look to extend repayment terms of these loans if elected. In response to increasing debt, the Correa administration cut government spending by 10.5% in 2016, and the country’s fiscal deficit is expected to fall to 3.1% in 2017 from 6.3% in 2014.
A Lasso administration would mark the end of a decade of left-wing rule by Correa, which has seen the adoption of populist policies hinder private investment. Lasso will look to reduce the tax burden on foreign companies and remove tariffs, in an attempt to attract foreign investment and create jobs. However, his attempts to introduce market-friendly reforms will meet with opposition from Moreno’s Alianza País movement, who are likely to retain a majority in the legislature. Environmental regulation risks would also be elevated for companies in the extractive sectors. Contracts related to hydrocarbons exploration in parts of the Yasuní National Park would be at particular risk of revision under Lasso due to environmental concerns.
Corruption will continue to impact international companies operating in Ecuador. In February 2017 further investigations into Brazilian firm Odebrecht were announced by the Ecuador attorney general, with the company estimated to have offered bribes of USD 33.5 million to officials to secure contracts. Both presidential candidates would likely increase corruption probes following the election, elevating the risk of contract cancellations and revision of state contracts in the medium term.
In this month's risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iran, Angola, Lebanon and Chad, all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 60 international sources of data.
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