Ecuador, The Center of Great Opportunities for Ethical

InvestmentNew York City- Harvard

4th. Annual Global Investment Symposium “Pathways to Prosperity”

September 20th, 2011

Ecuador´s ethiconomic

development model

• Developing an improved model for the quality of life of our people is at the core of all public policy.

• Ecuador takes care of its people. We believe that the economy should be at the service of its citizen.

• Ecuador respects the rights of all: citizens, investors and nature. We are working to create a balance that allows for all ecuadorians to reap the benefits from social and economic development.

• Ecuador fosters social cohesion as an essential element for stability.

Ecuador´s unique development model

Ecuador is at the center of great

business opportunities

Ecuador is at the center of great business opportunities

Ecuador has a dynamic and

vibrant economy

• Strong internal demand

• Growth of exports: 15%

• Transformation of energy matrix will save an estimated USD $4 billion per year (6% of GDP).

• Productive Transformation Agenda is fostering value added production.

• Wealth of natural resources will generate estimated investments of USD $5 billion.

• Copper and Gold and other metal´s exports will increase an estimated USD $2 billion annually.

Ecuador: a vibrant Economy

10 year non- Oil GDP growth of 5%

Source: BEC

Stable and growing Economy

Source: ECLAD

Record levels of public and private investment well above regional

average.

Source: BEC

Gross fixed capital formation (GFCF)

Ecuador now has a thriving population with higher quality living standards. Household consumption has grown an average of 5.3% in

the last ten years.

Strong Internal Consumer Demand

Source: BEC

Strong Internal Consumer Demand

Source: BEC

Dynamic manufactured export segment

Evolution of manufactured exports

Source: BEC

Diversified export markets

Index of concentration of total exports

Ecuador performed better than regional average during 2009 crisis

4 contagion channels of the international crisis for Latin America

• Ecuador Results:

– Non-petroleum exports: -2.7%

– Total exports: -26%– Fall in remittances:

-11%– Foreign investment:

No change

Source: ECLAD

ECUADORA stable and safe

investment

• Sound macroeconomic policies with public debt of only 24% of GDP.

• Low degree of financial leverage and solid and liquid financial system.

Deposits exceeds receivables

• Lower dependence (25%) of oil revenues as a total of government public spending budget thanks to the increase of more than 4% of GDP in fiscal revenues.

• Dollarized economy with sustained macroeconomic stability and low inflation rate.

• A secure environment in which to conduct business, thanks to economic stability, social cohesion and clear rules, all endorsed by the Production Code.

Ecuador: a stable and safe country for private investment

Low level of financial leverage – Not a highly leveraged economy

Source: CBE

Ecuador offers a solid and reliable economy, with low levels of public and private debt.

Not a highly leveraged economy

Source: CBE

Fiscal Income as a % of GDP grew 4% during the last four years. Progressive

tax system.

Source: CBE

Reduced dependence on oil revenues: 24%

Contribution to fiscal budget 2011 by type of income

Evolved Social Cohesion and Human Talent

• One of the lowest unemployment rate of the region: 5%

• Ecuadorians have a higher quality of life through higher purchase power and improved public services.

• Reduction of poverty and inequality.

• An educated and healthy population furthers social cohesion, stability and labor productivity.

• Over the past four years:• College enrollment rate has increased form 22.9% to

28.3%• 2010: 1,070 scholarships granted for international MBA

and PH.D in technical fields. Goal in 2013 is 7,000 scholarships.

• Between 2006 and 2011, Government has tripled public health investment.

Great Social Cohesion and Human Talent

One of the lowest unemployment rates in Latin America

Monthly Unemployment urban rates, several countries

Source: INEC

Social Investment as a % of GDP

Improved social security benefits coverage

Source: IESS

Real Income has grown steadily

Gap between household income and expenditure

Source: INEC

There are less poor people and the poorest are less poor

Source: SENPLADES

The lowest inequality index of the last two decades

Source: SENPLADES

School enrollment rates

Source: SENPLADES

Investment in graduate scholarships More time to pay loans (number of years)

Significant investment in human talent 6X

Fair and equal scholarship opportunities for MBA and Ph.D´s abroad

Increased financial support and greater access to education

Source: SENPLADES

Top Infrastructure and Logistics

Investment of 8% of GDP in infrastructure and logistics

Investment of 8% of GDP in infrastructure and logistics

Logistic corridors

STA. ELENASALINAS

PUERTOLOPEZ

MANTAPORTOVIEJO

STO DOMINGO

QUEVEDO

MACHALA

HUAQUILLAS

ESMERALDAS

EL PANGUI

S.P. COFANES

SHUSHUFINDI

MACAS

PUYO

TENA

COCA

NUEVA LOJA

GRAL. L. PLAZA

SUCUA

MENDEZ

YANZATZA

GUALACEO

CUMBARATZA

TOTORAS

GUAYAQUIL

TULCÁN

IBARRA

QUITO

LATACUNGA

AMBATO

RIOBAMBA

AZOGUES

CUENCA

GUARANDA

BABAHOYOCountrywide telecommunications and information technology coverage.

Expansion of telecommunication services

2006:1,413 km of fiber optics

2011: 6,780 km of fiber optics23 provinces

Sources: Ministry of Telecommunications and Informational Society

Expansion of telecommunication services

Clear Rules and Incentives for Investment

General Investment Incentives

Reduction of Income Tax (IT) rate:Reduction from 25% to 22%. 1% each year beginning in 2011. Exemption from the minimum Income Tax calculation for incremental expenses for new jobs or salary increases, purchases of new assets for productivity and technology improvements, cleaner production.

For new companies: exemption from the minimum tax payment for the first 5 years.  Exemption from Currency Outflow Tax (ISD) for payments sent overseas to pay foreign loans, with a term of over one year and at a rate not higher than that authorized by the Ecuadorean Central Bank (BCE).

Incentives for New Investment in Priority Sectors

Tax Holiday for first 5 years

Fresh and Processed food

Metal WorksPetrochemical Tourism

Strategic import substitution and export -fostering sectors are also beneficiaries of this incentive. www.mcpec.gob.ec

Pharmaceuticals Renewableenergy

Logistics Services

Biotechnologyand Applied software

Forestry and Agroforestry

chain, and resulting

manufactured products

Incentives for SME

National Guarantees Fund for SME.

Benefits to access the stock market.

Co-financing programs for development of SME´s (innovation, quality, entrepreneurship).

Support programmes to encourage exports from SME´s.

Incentives to foster SME productivity

Extra income tax deductions for expenditure and investments in the following items:Technical training geared towards R&D and innovative technology (up to 1% of the annual wage and salary expenses).

Expenditures toward improving productivity (up to 1% of sales).

Expenditures on the international promotion of the company and its products (up to 50% of promotional and advertising expenses).

Green Production

For Income Tax calculation purposes, there will be an additional deduction of 100% from the expense of purchasing machinery and equipment for cleaner production and for the implementation of renewable energy systems (solar, Aeolic, or similar).

Special Economic Development Zones

A further reduction of 5 percentage points on Income Tax for managers and operators of ZEDE on a permanent basis (17% total). If said managers and operators are in a Preferential Sector and it is new investment, 0% income tax applies for 5 years.

The import of goods will have a 0% VAT rate.

Foreign goods, while they remain in said territory, will have no tariff payments.

Managers and operators will have tax credit on the VAT paid on their local purchases of services, supplies, and raw materials for their production processes.

Exemption from the Currency Outflow Tax (ISD in Spanish) for payment of imports and payments sent overseas to pay foreign financing.

Incentives for private companiesto offer employees stock ownership

programs

Companies choosing to open up their capital structure and offer shares to their workers, will have the following benefits:

Deferment of 5 years on Income Tax and IT Anticipated payments.

Interest exemption on loans taken for financing the purchase of shares

Incentives for investing in depressed areas

Companies making investments in economically depressed areas may take advantage, for the first 5 years, of the additional 100% deduction on expenditure for new jobs created in the area.Priority given to productive investment.

A “depressed area” will be defined by indicators, such as lower human, economic, and social development.

Private investment protection

Incentives Agreed arbitration

Investment contracts

Safe Investment

All these instruments of Ecuadorean Law work together to protect private investment

Public and Private Partnership towards competitiveness: Productive

Transformation Agenda

• Production Transformation Agenda 2010-2015

• Production Code 2011

• 25 Provincial Productive Agendas

• Logistic National Agenda

• Innovation National Agenda

• 21 Competitiveness Sectorial Plan

Public and Private Partnership geared toward fostering competitiveness

The most mega-diverse compact

country of the world

• Ecuador is the most mega-diverse compact country of the world and earths eco-center.

• When you visit Ecuador for a week, it is like exploring all Latin America in 7 days.

• Because of its location, Ecuador has strong comparative advantages.

• Its geography and luminosity allows for high-yielding productivity and the potential to grow crops year around.

• International reputation for the worlds finest roses, cacao ¨fino de aroma¨, shrimp and bananas among others.

• It is a natural biodiversity laboratory with great potential for biotechnology applications.

Ecuador's´ unique mega-diversity

An Ecological Reserve

The extent of Ecuador´s Natural Reserves and National Parks is equal to the entire territory of Costa Rica.

The Constitution of Ecuador is the first one in the world to recognize the rights of Mother Nature (Pacha Mama: Mother Earth in Kwicha)

The Constitution of Ecuador is the first one in the world to recognize the rights of Mother Nature (Pacha Mama: Mother Earth in Kwicha)

Ecuador. Where the world is in your hands.

Completely different worlds in only a few minutes’ flight:

The Galápagos archipelago, the Pacific Coast, the Andes, the Amazon jungle.

The Galapagos Archipelago

Cuenca and Quito: Cultural World Heritage Cities

Sangay National ParkSangay National Park

For several consecutive years, Ecuador has been ranked in First Place as a

best place to retire

Source: International Living magazine

USD $5 BILLION ENERGY AND OIL REFINERY INVESTMENT

OPPORTUNITIES

Installed capacity 2006 20163.770MW 6.779MW

Significant investment opportunities for energy generation projects

In 2016, we expect to double the country´s installed capacity, with an investment of USD $5 billion.

Energy Matrix Change

o Amistad Field-Term gas El Oro

o Liquefying planto LPG storage at

Monteverdeo Substitution of diesel

for natural gas.

Benefits:Import reduction: USD $3 Billion per yearConstruction jobs: Direct 25,000Operations jobs: Direct: 2,500 Indirect: 10,000

Source: Ministry of Electricity and Renewable Energy

Pacific Refinery

USD $5 BILLION MINING PLAN

Job generation:Direct: 7,200Indirect: 25,000Estimated investment: US.$ 5,1 billion

The Mining Sector is being responsibly reactivated under the principles of sustainability and efficiency.

Source: Ministry of Electricity and Renewable Energy

Mining

USD $6 BILLION INFRASTRUCTURE DEVELOPMENT PLAN 2011-2013

Sto. Domingo-Quevedo

Manta-Guayaquil-Sta. Elena

Naranjal-Huaquillas

Highways available for concession

Puerto Marítimo

Ports and Airports

Seaports:2011- 2012

MantaEsmeraldas

2013Puerto Bolívar

Airports:2011

Baltra: already granted 2012 – 2013

MantaLatacunga

TenaSanta Rosa

Investment US$1,527 millions

Irrigation and Flood Control Projects

The national government is investing in public works projects with an focus to will ensure the vital cycle of water, its quality and fair distribution, human consumption, its responsible use, and return

to its sources.

By 2013, construction of 9 projects will start

Investment Promotion Agencies

www.mcpec.gob.ec

www.proecuador.gob.ec