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The last major news out of Ecuador was about Correas’ victory in the presidential elections. Correa is Ecuador’s left-leaning populist president, friend and ally of Venezuela’s former Hugo Chavez, and setting Ecuador on an increasingly unknown path. At least for those of us who live here.

Unfortunately, there’s not a lot of close coverage on the ground about what is actually happening in the country first hand, and how his policies are affecting people.

As my readers know, we’ve been struggling with compliance issues for our chocolate business. When we  first went to get our Ministry of Health operating permit renewed this year, and read the list of new requirements, I was already sure the writing was on the wall. But as a few weeks and months passed, the requirements didn’t seem so insurmountable, and I had a faint hope we might be able to continue operating without too much concern. We did everything we could within reason and reasonable expense to comply.

One of the requirements was to implement a system of good manufacturing practices, which we did within reasonable cost and effort. Like many small businesses here in Ecuador, we operate in what was once an older building, and obviously many of the construction standards do not fit within good manufacturing practices criteria. The cost in time and money to retrofit the building is beyond our budget, and would be beyond most small business’ ability to do. We thought maybe the inspector might be pragmatic and flexible.

She came this morning, and wouldn’t bend an inch. Typical of bureaucrats, both here and probably everywhere else, she was utterly by the book and unwilling to be accommodating.  Inflexible and narrowminded, maybe without even the slightest idea that by adamantly and overzealously enforcing regulations that don’t fit with the reality of the country, she’s going to close businesses and put people out of work.While I understand the government’s effort to professionalize the production of goods and services in Ecuador, there’s also a need for pragmatism and flexibility.

This would mean that bureaucrats would be given the leeway to interpret regulations in such a way that most of the time it would benefit most of the people. However, and this is an idiosyncrasy commonly found in Ecuador, most of the time there is little flexibility and individuals are unwilling to do anything that might put at risk their job or position. And, they are also willing and able to subject you to arbitrary whims, as it’s almost impossible to go to a higher up or someone else who might hold them accountable for their decisions.

Therefore, no one rocks the boat, no one is willing to take a chance, no one is willing to help you out if it means it might jeopardize their position, challenge their knowledge, or otherwise put them in a position where a superior might question their judgement. Of course, that means looking at the bigger picture is out of the question-it would never cross someone’s mind to say “Well, I decided we could be flexible on that, otherwise we’d have to shut them down.” Nope, just doesn’t happen, and probably never will.

While it’s bad enough that we see our business being squeezed, what makes it worse is that we see this happening with other business owners we know in a variety of sectors. Also, we are seeing our childrens’ school being squeezed by the Ministry of Education, and it’s looking like things are heading in a downward spiral towards mediocrity. I’ll cover that topic in another post.

When I first opened my chocolate business in Ecuador,  I naïvely assumed that getting paid would be a reasonable and not too time-consuming task. How wrong I was. Getting paid for your goods or services is not only onerous, but arduous and time-consuming. My experience is that  this is the rule and not the exception, just like dealing with paperwork. It will always take 10 times longer than you think, and you will have to visit at least two or three more offices or service windows than you expected. It’s hard to get paid, whether it’s chocolate or anything else. I have confirmed this issue with many of my business colleagues.

Need to get paid? Be prepared for hassles, waiting, and often, responses lacking in kindness or warmth, to your inquiries. If you can’t adjust to this form of doing business, don’t bother starting a business in Ecuador.

Companies will usually ask for 15 to 30 days credit. No one uses credit cards as the bank commission fees are ridiculously high. If you’re fortunate enough to have a unique product that people really want, and you are well established, you can ask for cash on the spot. Still, some businesses will balk. This is our strategy after 5 years. We may lose some business because of this policy, but I’d lose more sleep at night and have more stress all day trying to collect from deadbeat accounts.

Or, as some of our purveyors do, you can make the process for requesting credit so onerous that it is well nigh impossible. Bank references, commercial references, last three months of tax filings, financial statements-you can ask for all of these. It’s a polite way of simply not extending credit, though you might lose business, or you might find yourself reviewing a lot of paperwork and having no good reason to deny credit-though arbitrary decisions are usually not questioned here.

It’s a fine line to walk when it comes to collecting. The Ecuadorian way is to use cutesy, kind phrases as if you’re asking for a favor when collecting on invoice. “No seas malito, ayúdeme con esta factura,¨which translates roughly to “Please, lend me hand, help me out by paying this invoice.” If you’re straightforward about it, you may find yourself being stonewalled, delayed, and just basically ignored. If the pay date comes and goes and the company is behind on payments, and requests more product or services, there’s only one safe way to play it. Politely tell them they have an outstanding invoice and that the account is suspended until it’s paid in full. Don’t extend credit for multiple invoices for large amounts of money.

Never ever be rude or threatening, it will get you nowhere. In general, be prepared to be treated by your clients as if they were doing you a favor buying your goods or service and an even bigger favor by paying you. Respond only with courtesy, patience, compassion and humility, and cut your losses early when necessary.

Finding high-quality reasonably priced computer accessories is not possible in Ecuador. Since I run two blogs, two websites, and store all my business info on several computers, having good backup is crucial. Over the years, I’ve hand carried several hard disks back from the US to use as backup storage, but sooner or later they have failed, been damaged, or run out of space. This conundrum led me to use Sugarsync for sometime. I know this is not a technology blog, but my experience has been so poor with Sugarsync that it merits a posting.

When using just one computer, Sugarsync was a decent service. But as soon as I added multiple computers, I began getting improperly synced files, backups of backups all over the place, and it soon became unmanageable. For lack of a better solution, I stuck with it for some time, and used backup drives. Ultimately though, I was unsatisfied with these solutions.

Dropbox came around a few years ago and I began to play with their free plan. I finally subscribed to a 50 GB plan a few months ago, and it has worked flawlessly since then. If you’re looking for an online storage solution that’s easy to use, reasonably priced, and will work across all your devices and operating systems, I recommend Dropbox.

We once had artisan certification. In Ecuador, that means you don´t have to collect VAT tax, you only have to file taxes bi-annually as opposed to annually as a business, and your municipal fees are lower. As a small business owner and artisan chocolatier in Ecuador, anything we can do to be more competitive counts. Ecuadorian chocolate is not cheap, even here, and if we can save a dime, we will. But we had lost our artisan certification a few years ago.

The process to get an official artisan certification entitling us to the benefits meant taking a lengthy course, filing multiple documents, and time, lots of time. I must now applaud the Ministry of Productivity for removing the onerous burden it was to maintain an artisan certification, and taking control of the process away from the Mafia it was that ran it. You can now go online, download the necessary forms, gather your documents and hand them over to the Ministry and wait for a decision.

It´s the most transparent, easy process I´ve yet seen with the government here. Two weeks ago we handed in the folder of documents and required photos. We now must wait approximately one more week. The secretary explained the documents would be scanned and sent out to a virtual committee, who will review them and then render a final decision. I don’t know that it’s all that transparent of a process as I have no idea what the exact criteria are for qualifying us or disqualifying us, but as a chocolate maker in Ecuador, it was cost-free and easy. Stay tuned! Your chocolates might just become a little bit cheaper!

It’s true, it’s ridiculous, and hopefully it won’t happen, but Ecuador plans to raise the tax on money sent outside the country from 2% to 5%.It will only raise prices as importers will be forced to cover their costs somehow. It’s all part of the antiquated, outdated, protectionist and erroneous strategy of import substitution the country has been practicing for the last few years. Supposedly this is going to protect local producers of goods to enhance and improve the business environment for local industry-by, no less, making imported goods more costly and thus less attractive. Yet Ecuador produces very little of high quality in the first place. And if the country wants to move towards a strategy of increasing industrial production of quality goods-well, it needs to import equipment from abroad to make those goods in the first place! The only thing we’re going to end up with here are more mediocre locally produced goods, and high-priced, low quality goods from China! And if you listen to the rhetoric in the clip here, it sounds like they’re also terrified of a liquidity crisis in the country as too many dollars are moving out, too few moving in, and they have no tools for monetary policy to control the outflow other than the proposed measure.

There is an article published about it here in Spanish and I’m including a version of it below, with my edits, in English.

QUITO . The Departure Tax on Foreign Exchange (ISD) will rise from 2% to 5%, as presented by the new tax reform will be sent to the Assembly as a matter of urgency by the Executive.

This was confirmed by the director of the Internal Revenue Service (IRS), Carlos Marx Carrasco, in Guayaquil during a seminar organized by the Ecuadorian American Chamber of Commerce and the Human Factor.

According to a report by the Bureau of Analysis, the new reform, which would be the eleventh in this government, provides for three fundamental changes: increase of 2% to 5% tax on foreign exchange outflow, extending from 3 to 6 year period expiration of the given capacity of SRI, and a tax exemption for sporting weapons.

About the ISD, the proposal remains is to tax the export amounts to remain abroad and added an increase of three points.

According to Carrasco, on this issue there are a number of important exemptions which deal with the allocation of tax credits, which will not affect production. But imports of consumer goods and luxuries, he said.

Employers yesterday rejected the measure. Bernardo Acosta, vice president of the Chamber of Industry of Pichincha, called it wrong and harmful to the productive apparatus.

He explained that it is worrying that the government insist on a measure that does not meet the purpose for which it was created, ie, keeping capital in the country. Rather, it discourages investments, it is not attractive for foreign investment in Ecuador if you then will have to pay taxes when you take them out. “The measure not only is a loser for business, but for consumers,” he said.

Joaquin Carvajal, president of the Ecuadorian American Chamber of Commerce of Guayaquil, deemed the measure excessive. There should be a tiered tax, depending on how much capital you are sending out of the country.

The ISD has increased from 0.5% to 1% and then to 2% during this administration.

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Welcome to Destination Ecuador!

Welcome to Destination Ecuador! My family and I have been living in Ecuador for the last four and a half years. We’ve dealt with the worst kinds of red-tape, searched out or ended up making hard-to-find ingredients ourselves, imported equipment for making chocolate confections, learned the import-export business...Continue >>


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