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This op-ed piece in the NY Times today sure got me thinking. It makes a lot of points relevant to Ecuador.
Not that Ecuador is a magnet for immigration, even if it did open its doors. However, if Ecuador were to overcome a few minor obstacles-lack of a transparent, non-politicized judicial system, arbitrary and whimsical interpretation of laws, general lack of political and economic stability, protectionist policies, etc. etc-it could attract investment, which it desperately needs. As it stands, the current policies of Correa´s government only seem to perpetuate Ecuador´s image of a country where arbitrariness, uncertainty, and fear of the unknown dominate.
The one point that resonated with me most from the article, however, was this, from Subhash B. Dhar, a member of the executive council that runs Infosys, the well-known Indian technology company that sends Indian workers to the U.S. to support a wide range of firms:
Do you know that for an Indian company, it is still easier to do business with a company in the U.S. than it is to do business today with another Indian state?
The same has been my experience in Ecuador. It is easier for me to do business with a company in the U.S. than it is to do business with a company in Ecuador. Why is this?
First, since there is almost a total lack of third-party credit providers (i.e. banks, credit card companies), everyone here operates on credit. All my clients want 15 days, 30 days, or more, and the 15th or 30th day comes and goes, and they still often don´t pay. They don´t pay simply because either the boss isn´t around to sign the checks (electronic transfers are rarely used here, and there´s too much distrust to allow anyone but the business owner the authority to transfer funds), or they don´t have the money, or they need just a few more days for whatever reason. If they don´t pay, or don´t pay on time, it´s almost impossible to charge and collect on interest, because there is no judicial system to back up contracts and agreements.
Second, because of the high duties and tariffs paid for imported goods, many of the products clients might want are priced out of reach of the local market. There are a few clients who recognize and will pay for quality and uniqueness; but most want what is the slogan for doing business in Ecuador-it has to be ¨bonito, barato, y bastante¨. That would be a attractive, cheap, and a lot, the second factor being key. The only factor most people/businesses pay attention to here is price. Not value, not uniqueness of the product, not packaging, but price. For our business, this means that while some of my inputs might have a higher cost here than elsewhere, these costs are still offset by the overall lower cost of doing business here, making my product competitive in the U.S. market, where quality, value, and packaging are all parts of the mix that makes our products unique.
Finally, despite a few onerous bureaucratic hoops that I have to jump through to ship a product out of the country, it’s no more difficult, if not easier, than delivering a $200 order to somewhere in Quito, collecting payment, and making sure the client is happy. Customs/freight brokers take care of all the red tape for a reasonable cost, my U.S. based clients pay 50% up front and 50% on delivery with no questions asked, and I ship an order 10x or 20x or 40x the typical order placed here.
Another good point from the article mentions the dangers of protectionism. As is not unusual in this part of the world, Ecuador has now implemented further protectionist measures, with the aim of protecting the dollar, by limiting imports. While preserving the dollar, which has brought unprecedented stability to the economy here, may be worthwhile, the side effects of this policy will only increase prices locally and hurt business. Case in point: recently, a property next door to my business was purchased by the rep for a foreign tire brand. He was going to open a new tire location based on his agreement with the company. Soon after the purchase, Correa implemented policies putting quotas on the import of certain items. Due to the quotas, it’s no longer cost effective for this man to import tires, and he had to shutter his plans to open the new location. It goes without saying, jobs are lost, sales are lost, the cost of tires (and so many other goods now limited by the quota system) are going up, and this is being repeated throughout the economy in various sectors.