VZCZCXYZ0002
RR RUEHWEB

DE RUEHQT #0883/01 2621403
ZNR UUUUU ZZH
R 181403Z SEP 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9385
INFO RUEHBO/AMEMBASSY BOGOTA 7742
RUEHCV/AMEMBASSY CARACAS 3181
RUEHLP/AMEMBASSY LA PAZ SEP LIMA 2802
RUEHGL/AMCONSUL GUAYAQUIL 3801

UNCLAS QUITO 000883 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ELAB PGOV EC
SUBJECT:  American Business Committee Sees Both Good and Bad under 
the Correa Administration 
 
¶1.  (SBU) Summary.  Representatives of the U.S. business community 
in Ecuador provided the Ambassador an overview of the business 
climate in Ecuador.  They reported a mixed picture, with some 
highlighting the difficult investment climate created by the 
uncertain direction of economic policy, while others said that they 
have good working relations with the Correa Administration and are 
enjoying expanding business.  They would like to see an early 
extension of the Andean Trade Preferences Act, and some will visit 
Washington to lobby for its extension.  End summary. 
 
¶2.  (U) On September 11, the Ambassador met with 14 members of the 
American Business Committee (ABC).  The American Business Committee 
is comprised of the heads of U.S. corporations in Ecuador and U.S. 
owners of Ecuadorian companies who provide advice to the Ambassador 
and her Economic-Commercial team on Ecuador's commercial 
environment.  The ABC members gave an overview of the challenges and 
opportunities that they face in Ecuador's financial, mining, energy, 
information technology, flower, textile, automotive, travel and 
tourism markets. 
 
Companies Worried about Uncertainty, Labor Rules, and Draft 
Constitution... 
------------------------------------ 
 
¶3.  (SBU) Many of the ABC members stated that the investment climate 
has been undermined by industry's uncertainty about the direction of 
the Correa administration's economic policies.  They reported that 
some investment is taking place in established lines of business, 
but the uncertainty has largely frozen plans to expand or enter into 
new areas. 
 
¶4.  (SBU) The participants said that the business uncertainty is 
compounded by the draft constitution, up for approval in a September 
28 referendum, since it includes many ambiguous provisions.  In 
addition, they said that the draft constitution would centralize 
power in the presidency, which would have considerable flexibility 
in interpreting the new provisions.  Several representatives said 
that they believe President Correa would be pragmatic in 
implementing the new constitution, but were concerned about the 
power and discretion that it would give to his successors. 
 
¶5.  (SBU) The ABC representatives said that the labor market was a 
concern, citing more rigid labor rules and a large increase in the 
minimum wage, with the prospect of additional sizable wage 
increases.  They said that the provision banning most forms of 
outsourcing will greatly limit their ability to run flexible, 
efficient business operations.  They added that the increasing 
minimum wage is eroding Ecuador's competitiveness.  A representative 
of the flower sector said that the minimum wage increase is 
comparable to the total wages paid by their African competitors. 
 
¶6.  (SBU) One company that works in the petroleum sector reported 
that foreign oil companies have essentially ceased investment, 
noting that it has downsized its workforce from 3,400 a year ago to 
only 400 currently. 
 
...but Able to Work with Correa and Some Enjoy Good Business 
Opportunities 
------------------------------------- 
 
¶7.  (SBU) On the flip side, the U.S. companies believe that the 
Correa Administration wants to do what is right for Ecuador. 
Government officials are accessible, open to positive 
recommendations to resolve problems and have taken positive actions 
to resolve problems.  One manufacturer said that if the company was 
viewed as part of the solution, the present government would often 
use the company's recommendations to resolve problems.  Some 
companies reported that the Correa Administration had resolved some 
long standing customs issues and that it was focused on job 
creation.  One company official commented that he met with a 
government official who ordered his staff to resolve importation 
issues because it would create manufacturing jobs in Ecuador. 
 
¶8.  (SBU) Several participants said that their impression was that 
corruption was appreciably lower under the Correa Administration. 
They noted that they have not heard any rumors of bribe requests by 
administration officials, and added that government officials have 
asked them to report any issues that they have to the government. 
 
¶9.  (SBU) A number of the representatives stated that business has 
been good in their sectors.  One reported that his company had 
expected sales to drop by about 15 percent in 2008, but instead 
sales had grown by over 30 percent and his company was working at 
full capacity.  Another said that thanks to improved customs 
enforcement that keeps out contraband, demand for goods produced by 
his factory had increased, and he was planning to increase capacity 
by 50 percent. 
 
 
ATPA 
---- 
 
¶10.  (SBU) Members of the American Business Committee would like to 
see the Andean Trade Preferences Act (ATPA) extended as soon as 
possible, since business decisions are already being made for next 
year.  A representative of the flower growers said that a December 
expiration was the worst possible timing for the flower industry, 
since it would create uncertainty just before the peak Valentines 
season, and predicted that if it were not renewed by December a 
number of Ecuadorian producers would go broke.  He added that 
uncertainty created by multiple short-term extensions had forced 
flower producers to look at alternative markets, notably Eastern 
Europe and Russia.  Others remarked that they do not understand 
reluctance to extend ATPA for a longer period, since the program 
provides employment in textile and flower production, reducing the 
attraction of narco-trafficking, and also created jobs in the United 
States. 
 
¶11.  (U) Several participants reported that they would visit 
Washington the week of September 15 to lobby for ATPA renewal. 
 
Comment 
------- 
 
¶12.  (SBU) The comments by the American Business Committee reflect 
the broader business climate under the Correa Administration. 
Uncertainty has hampered long-term investment, and abrupt changes in 
policy have been particularly challenging for regulated sectors such 
as petroleum and mining.  But at the same time a number of business 
sectors have established working relationships with the Correa 
Administration, and many are also enjoying good years since domestic 
demand has remained strong, supported in large measure by high oil 
prices, growing non-petroleum exports and relatively strong 
remittances.  The positive assessment of diminished corruption also 
reflects the broader Ecuadorian business assessment. 
 
Hodges