GLOBAL BUSINESS FINANCE ASSIGNMENT

ECUADOR

INTRODUCTION
Ecuador officially the Republic of Ecuador which literally translates to the Republic of the Equator) is a representative democratic republic in South America, bordered by Colombia on the north, Peru on the east and south, and by the Pacific Ocean to the w It is one of only two countries in South America, along with Chile, that do not have a border with Brazil. The country also includes the Galápagos Islands in the Pacific, about 1,000 kilometers (620 mi) west of the mainland.
Ecuador straddles the equator, from which it takes its name, and has an area of 283,561 km2, 109,415 sq ml. Its capital city is Quito, which was declared a World Heritage Site by UNESCO in the 1970s for having the best preserved and least altered historic center in Latin America. The country's largest city is Guayaquil. The historic center of Cuenca, the third largest city in the country, was also declared a World Heritage Site in 1999.. Ecuador is also home to a great variety of species, many of them endemic, like those of the Galápagos islands. This species diversity makes Ecuador one of the seventeen megadiverse countries in the world.
Ecuador is a presidential republic and became independent in 1830, after having been part of the Spanish colonial empire and the republic of Gran Colombia. It is a medium-income country with an HDI score of 0.695 (2010), and about 35.1% of the people living below the poverty line.

HISTORY
Evidence of human cultures in Ecuador exists from c. 3500 B.C. Many civilizations rose throughout Ecuador, such as the Valdivia Culture and Machalilla Culture on the coast, the Quitus (near present day Quito) and the Cañari (near present day Cuenca). Each civilization developed its own distinctive architecture, pottery, religious interests etc. After years of fiery resistance by the Cañaris and other tribes, as demonstrated by the battle of Yahuarcocha (Blood Lake) where thousands of resistance fighters were killed and thrown in the lake, the region fell to the Incan expansion and was assimilated loosely into the Incan empire.
GEOGRAPHY
Total area of Ecuador equals 284 square kilometers; population is more than 8 million people. Due to its territory Ecuador is the ninth largest country among states of the South America, and due to its population it holds the seventh place.
Ecuador in Spanish means equator .Kito - that is the capital of the country. Ecuador is economically poor developed country. The base of its economy is formed by rural economy and extractive industry
Ecuador is a republic. The head of the state and the government is President. According to the Constitution of 1978 the highest legislative body is one-chamber Congress.
Due to administrative division Ecuador is divided into 19 provinces and 1 territory (Galapagos Islands).

DEMOGRAPHICS
2009 estimates put Ecuador's population at 14,573,101. Ecuador's population is ethnically diverse. The largest ethnic group (as of 2007) is the Mestizos, who are the descendants of Spanish colonists and the indigenous people which constitute the 65% of the population based on a self-determined census. Amerindians account for 25% of the current population.

ECONOMY
Ecuador is substantially dependent on its petroleum resources, which have accounted for more than half of the country's export earnings and one-fourth of public sector revenues in recent years.
Ecuador's economy has heavily depended on exporting resources such as petroleum, fish, shrimp, timber and gold. In addition, it has rich agriculture: bananas, flowers, coffee, cacao, sugar, tropical fruits, palm oil, palm hearts, rice, roses, and corn.[21] The country´s greatest national export is crude oil. Fluctuations in world market prices can have a substantial domestic impact. Industry is largely oriented to servicing the domestic market, with some exports to the Andean Community of Nations.
Deteriorating economic performance in 1997-98 culminated in a severe economic and financial crisis in 1999. The crisis was precipitated by the El Niño weather phenomenon in 1997, a sharp drop in global oil prices in 1997-98, and international emerging market instability in 1997-98. These factors resulted in a 7.3% contraction of GDP, annual year-on-year inflation of 52.2%, and a 65% devaluation of the national currency, the Sucre, In January 2000, President Jamil Mahuad announced a policy to adopt the U.S. dollar as the official currency of Ecuador, Dollarization stabilized the economy, and positive growth returned in the years that followed, helped by high oil prices, remittances, and increased non-traditional exports.

MACRO ECONOMIC PARAMETERS

1. GROSS DOMESTIC PRODUCT (GDP)

The gross domestic product (GDP) or gross domestic income (GDI) is the amount of goods and services produced in a year, in a country. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living, alternative measures to GDP for that purpose EQUADOR GDP (1996 - 2008)

Purchasing power parity: YEAR | GDP(PPP) | 2010 2009 2008 2007 | $ 113.8 billion$110.4 billion $109.9 billion$102.5 billion |

Official exchange rate:

2009 $55.55 billion

Per capita (PPP): YEAR | PER CAPITA(PPP) | 2010 2009 2008 2007 | $7,952$7,600 $7,700 $7,300 |

Real GDP growth YEAR | PER CAPITA(PPP) | 2010 2009 2008 | 2.9%0.4%6.5% |

Composition by sector:
Agriculture: 6.8%
Industry: 35.2%
Services: 58%

2. FOREIGN DIRECT INVESTMENT (FDI):
Foreign direct investment (FDI) or foreign investment refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.

YEAR | HOME | ABROAD | | 2009 2008 | $11.95 billion $11.3 billion | $8.019 billion $8.405 billion | |

3. CONSUMER PRICE INDEX(CPI)

A consumer price index (CPI) measures changes through time in the price level of consumer goods and services purchased by households. The CPI is defined by the United States Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services

YEAR | CPI | 2009 8.42008 2.282007 3.03 | |

4. EXPORT
The export of primary goods and the import of capital and manufactured products have historically characterized Ecuador's trade. While petroleum remains Ecuador's most important export and economic force, an increasing diversity in export products (most notably the recent dramatic rise in the export of cut flowers; in just a few years Ecuador has become the leading supplier of cut flowers to the United States) is reducing the historical volatility of Ecuador's export revenues and is helping to stabilize its economy.
The United States, European Union countries, Columbia, Chile, and Japan are Ecuador's primary trading partners. In 1998, the United States exported USD 1.6 billion worth of goods to Ecuador, or about 30% of Ecuador's total imports, and received nearly 40% of Ecuador's exports, making it the country's leading import and export partner. Colombia, Japan, Mexico, Venezuela, Spain, Germany, Brazil, and Chile together supplied approximately a 40% share of the Ecuadorian import market and likewise, were the destinations of almost 40% of Ecuador's exports. YEAR | EXPORT | 2009 2008 | $14.35 billion $19.15 billion |

Commodities: petroleum, bananas, cut flowers, shrimp, cacao, coffee, hemp, wood, fish

Exports - partners: (2009)
US 34.41%,
Peru 10.05%,
Chile 7.15%,
Panama 5.3%,
Colombia 4.58%,
Russia 4.11% 5. IMPORTS

Imports, along with exports, form the basis of international trade. Import of goods normally requires involvement of the customs authorities in both the country of import and the country of export and are often subject to import quotas, tariffs and trade agreements. When the "imports" are the set of goods and services imported, "Imports" also means the economic value of all goods and services that are imported. The macroeconomic variable usually stands for the value of these imports over a given period of time, usually one year.

YEAR | IMPORT | 2009 2008 | $14.27 billion $17.28 billion |

Commodities:
Industrial materials, fuels and lubricants, nondurable consumer goods

Imports - partners:2009
US 26.93%,
Venezuela 10.15%,
Colombia 9.42%,
China 8.02%,
Brazil 4.35%

6. INFLATION RATE (CONSUMER PRICES)

The inflation rate is a measure of inflation, the rate of increase of a price index (for example, a consumer price index). It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal.

YEAR | INFLATION | 2009 2008 | 4.3%8.4% |

7. EMPLOYMENT

The Organization for Economic Co-operation and Development defines the employment rate as the percentage of the working age population (ages 15 to 64) who are currently employed. According to the International Labour Organization, a person is considered employed if they have worked at least 1 hour in "gainful" employment

Labour force:
4.503 million (urban) Country comparison to the world: 79

Labour force - by occupation:
Agriculture: 8.3%
Industry: 21.2%
Services: 70.4% (2009)

Unemployment rate:
8.5% (2009)
Country comparison to the world: 100
7.3% (2008)

8. BANK RATE

Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.

Central bank discount rate:
9.19% (31 December 2009)
Country comparison to the world: 52
9.14% (31 December 2008)
Commercial bank prime lending rate:
19% (31 December 2009)
Country comparison to the world: 102
9.14% (31 December 2008)

CURRENCY RATES
The US Dollar (USD) is the official currency in Ecuador. In 2000 the sucre was replaced by the dollar as the legal currency, but despite dollarization, the sucre will likely persist in rural areas for a while longer. It is recommended that travellers bring both US dollar notes and travellers cheques as other foreign currencies are difficult to exchange outside of Quito, Guayaquil and Cuenca. Small denominations in good condition are the easiest to exchange outside of the main cities. In the main centres most currencies can be exchanged at banks and exchange houses at variable commission rates. ATMs are available in the cities, and major credit cards are accepted in tourist areas and large hotels although a commission of 6-8% is often charged.
US Dollar was adopted as Ecuador Currency with the aim of affecting some improvement in the economic condition of the country, thereby accelerating the process of poverty elimination.
According to the current currency conversion rate of Ecuador, 25000 Sucre is equal to 1 US dollar. The money that is circulated includes notes and coins. Notes are of the denominations of US$100, 50, 20, 10, 5, 2 and 1 while the coins are found in denominations of US$1 and 50, 25, 10, 5 and 1 cent.

EXCHANGE RATES: Ecuador Sucres per US$1

2001 | 25,000 | 2000 | 24,988.40 | 1999 | 11,786.40 | 1998 | 5,446.60 | 1997 | 3,988.30 | 1996 | 3,189.50 |

STOCK MARKET
Ecuador is generally considered to be one of the best Latin American countries to invest in and one of the easiest ways to do this is to invest on the stock market in Ecuador. There are a number of reasons why Ecuador enjoys such a favorable investment climate. One of these is that the political situation is quite stable – especially when compared to that of other Latin American countries. Another is that Ecuador has an abundance of natural resources – many of which have only started to be tapped for economic purposes. Ecuador also enjoys a dollarized economy and low wage levels, so you can really get the most for your money and you don’t even have to worry about currency conversion.
However, just because there are many positive aspects about investment on the Ecuador Stock Market, it doesn’t mean that there are no negative aspects. Ecuador still struggles with the problems of inflation and poor infrastructure.
There are currently two main bases of operation for the Ecuadorian Stock Exchange. The first is in Quito and the second is in Guayaquil. Quito, being the capital of Ecuador, is obviously home to the biggest and most popular stock market but the one in Guayaquil is not far behind.

ECUADOR INDEX
Quito Stock Exchange: ecuindex-973.9(2010-12-03)

SWOT ANALYSIS STRENGTHS | WEAKNESSES | OPPORTUNITIES | THREATS |

Population below poverty line:

35.1% (2008)

Household income or consumption by percentage share:

lowest 10%: 1.2% highest 10%: 43.3% note: data for urban households only (2007)

Distribution of family income - Gini index:

47.9 (2009) country comparison to the world: 31
50.5 (2006) note: data are for urban households

Investment (gross fixed):

24.2% of GDP (2009 ) country comparison to the world: 52

Budget:

revenues: $18.28 billion expenditures: planned $21.15 billion (2009 )

Public debt:

19.7% of GDP (November 2009 ) country comparison to the world: 108
25.3% of GDP (2008 )

Stock of narrow money:

$5.201 billion (31 December 2009 )
$4.965 billion (31 December 2008 )

Stock of broad money:

$19.01 billion (31 December 2009 )
$15.29 billion (31 December 2008 )

Stock of domestic credit:

$14.56 billion (31 December 2009) country comparison to the world: 84
$14.3 billion (31 December 2008)

Market value of publicly traded shares:

$4.248 billion (31 December 2009) country comparison to the world: 83
$4.562 billion (31 December 2008)
$4.266 billion (31 December 2007)

Agriculture - products:

bananas, coffee, cocoa, rice, potatoes, manioc (tapioca), plantains, sugarcane; cattle, sheep, pigs, beef, pork, dairy products; balsa wood; fish, shrimp
Industries:

petroleum, food processing, textiles, wood products, chemicals

Industrial production growth rate:

-0.6% (2009 ) country comparison to the world: 75

Electricity - production:

16.42 billion kWh (2007 ) country comparison to the world: 75
Electricity - consumption:

15.81 billion kWh (2007 ) country comparison to the world: 75
Electricity - exports:

20.68 million kWh (2007 )
Electricity - imports:

1.12 billion kWh (2007 )

Oil - production:

485,700 bbl/day (2009 ) country comparison to the world: 32
Oil - consumption:

181,000 bbl/day (2009 ) country comparison to the world: 58
Oil - exports:

327,600 bbl/day (2009 ) country comparison to the world: 37
Oil - imports:

54,190 bbl/day (2007 ) country comparison to the world: 83
Oil - proved reserves:

6.542 billion bbl (1 January 2010 ) country comparison to the world: 22

Natural gas - production:

260 million cu m (2008 ) country comparison to the world: 71
Natural gas - consumption:

260 million cu m (2008 ) country comparison to the world: 99
Natural gas - exports:

0 cu m (2008 ) country comparison to the world: 63
Natural gas - imports:

0 cu m (2008 ) country comparison to the world: 88
Natural gas - proved reserves:

7.985 billion cu m (1 January 2010 ) country comparison to the world: 82

Current account balance:

-$337.4 million (2009 ) country comparison to the world: 104
$1.087 billion (2008 )

Debt - external:

$13.48 billion (31 December 2009 ) country comparison to the world: 76
$16.85 billion (31 December 2008 )

Reserves of foreign exchange and gold:

$3.792 billion (31 December 2009 ) country comparison to the world: 91
$4.473 billion (31 December 2008 )

Small but turbulent Ecuador

It is no secret that Ecuador has been through several political troubles and crises. This perennial unrest pushes the economy through a roller coaster ride of booms and busts, as democratic regimes and dictatorships alternate.

Ecuador’s annual average GDP growth from 1996 to 2006 is 3.2%, falling only from 1998-1999 by 6.3%. Its biggest expansion was in 2004, registering an increase of 7.9% in its GDP. It registered a GDP growth rate of 4.4% from 2005-2006, with a GDP per capita of US$3,081 in 2006.

1999 was a bad year for Ecuador. It experienced a financial crisis, a banking sector collapse, and around 400% currency devaluation against the US dollar. Inflation jumped severely from 36.1% in 1998 to 96.1% in 2000. In an effort to salvage the situation, Ecuador adopted the US dollar in place of the Ecuador Sucre in 2000.

In 2006, political newcomer Rafael Correa won the elections, becoming the 8th president of Ecuador in 10 years. The leftist president is pushing for many radical political and economic reforms, like rewriting the constitution.

Earlier, Correa expressed the intention to default on the government’s payment of bonds due on February 15, and resolve into a 30-day grace period instead. This was despite the apparent ability of the government to pay its debt. Nevertheless, the government ordered to push through with the payment the day before the deadline.

General Political Environment:
Divisiveness and poor governance are defining characteristics of Ecuadorian politics. Congress often has serious problems in passing legislation and the fragile political system precludes even a strong leader from implementing constructive policies. Policy uncertainty is further exacerbated by frequent ministerial resignations and protractedly unstable administrations. In Ecuador’s recent history, few presidents have been able to complete their full term.
Rafael Correa, a leftist with no party representation in Congress, won a run-off against Álvaro
Noboa of the PRIAN party in November 2006 presidential elections. President Correa took office in
January 2007. His Country Alliance party is comprised of politicians with a broad range of ideological preferences.
In April 2007, a referendum was held approving the creation of a National Constituent Assembly
(ANC) to rewrite the country’s 1998 constitution. The new constitution, ratified in September 2008, gives the government many new responsibilities and it remains to be seen whether Correa will have sufficient financing to fund these undertakings. Also, the executive’s powers are strengthened. On April 26, 2009 Correa was re-elected with about 51% of the vote; his AP party won 59 of 124 seats in Congress. Passing legislation mostly requires mustering support on a case-by-case basis.
Investment Environment:
The Correa government seeks to assert greater state control over the country’s strategic sectors.
Foreign investors, specifically in the oil and gas sector, have been engaged in contractual disputes with the government over fiscal matters. President Correa’s tactics have been very heavy-handed but nonetheless have mostly secured agreements with foreign investors. A number of international oil companies filed arbitration proceedings at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) against the Ecuadoran government over an oil windfall tax. The tax, which dates back to 2006, originally required oil companies to pay almost 50% of all extra revenues to the state when oil reached a certain price. However, in late 2007, President Correa raised the tax rate to 99%. As of January 2010, Ecuador is no longer a member of ICSID, which removes an important arbitration forum for investors.
Corruption and the lack of rule of law are serious issues for foreign investors in Ecuador.
Protesters often manage to block operations at large projects, particularly in the extractive sector.
In April 2008, Ecuador’s Constituent Assembly approved a controversial new mining decree (“the
Mining Mandate”) which revoked many mining concessions and suspended the operations of mining firms. A new mining law was enacted in January 2009, which was to open the door for companies to resume operations. The regulations were signed in late 2009, but the government’s unpredictability and occasional hostility towards foreign investment gives companies only shaky ground to stand on.
Canada and Ecuador have signed a double taxation treaty and a Foreign Investment Protection
Agreement (FIPA). Ecuador has unilaterally rescinded several foreign investment protection agreements, and the status of the Canada-Ecuador agreement going forward is uncertain.

http://www.gfmag.com/gdp-data-country-reports/281-ecuador-gdp-country-report.html

http://www.ecuadorexplorer.com/html/vital_stats.html
National income
In 1996 gross domestic product (GDP) of Ecuador formed approximately 19 billion dollars or equivalently 1630 dollars per capita. Taking into account relatively keen prices (economists call it purchasing-power parity) GDP per capita formed about 4000 dollars.
In 1996 the share of oil production industry was 11% of GDP, manufacturing industry was 21%, trade industry was 20 % and that of agricultural industry – 12%. After exceptionally high rates of growth – 7,5% – during the period under oil boom conditions, in the 1980s dramatic drop of growth in economics became evident, when the year-on-year increase didn’t exceed 2%. After some increase in the early 1990s (in 1991 increase formed 5%) the rates of growth were slowed down again and in 1995 came up to those of the 1980s. Average increase of GDP in 1991-1996 formed 3,4% a year. From 2002-06 the economy grew 5.5%, the highest five-year average in 25 years. The poverty rate declined during this period but remained high at 38% in 2006. After moderate growth in 2007, the economy reached a growth rate of 6.5% in 2008, in large part due to high global petroleum prices. Poverty levels declined to about 35% by the end of 2008. President Rafael CORREA, who took office in January 2007, raised the specter of a sovereign debt default and followed through on those threats in December 2008, defaulting on $3.2 billion in international bonds, representing over 80% of Ecuador's private external debt. Economic policies under the CORREA administration - including an announcement in late 2009 terminating 13 bilateral investment treaties, one with the US - have generated economic uncertainty and discouraged both domestic and foreign private investment. The Ecuadorian economy contracted in 2009, mainly due to the global financial crisis, and also the sharp decline in world oil prices and remittance flows.