Dollars and roses preoccupy Ecuador’s voters

Listen to this article

00:00
00:00

Bolivar Cevallos remembers the day he and thousands of other flower farmers stopped the traffic on Avenida Amazonas, one of the main streets in northern Quito. “We marched, holding roses in our hands, to show our support for a bilateral trade agreement with the US,” he says.

Six months on, the prospects for Mr Cevallos’s industry have become more bleak. As Ecuadoreans go to the polls on Sunday, the frontrunner in the race to be president is Rafael Correa, a radical nationalist allied to Hugo Chávez, the anti-American president of Venezuela. Mr Correa has vowed that if he wins, he will shelve trade talks with Washington for good.

For Mr Cevallos, who owns a rose plantation in Tabacundo, in the highlands 70 km north of Quito, that means that when the current trade preferences expire at the end of the year, his tariffs to export roses to the US will rise from zero to 6.8 per cent.

As president of Expoflores, an association of Ecuadorean flower producers, Mr Cevallos is acutely aware of how that will affect an industry that directly employs more than 60,000 workers. “There’s concern and uncertainty across the sector,” he says. “All new investment has been suspended and we’re seeing our competitors in Colombia benefiting at our expense.”

Ecuador is the world’s top exporter of roses, and although about 75 per cent of its exports go to the US, the industry may be able to diversify into other markets.

However, other export industries such as fishing, textiles, vegetables and tropical fruits could face a slow decline. Manuel Chiriboga, Ecuador’s former trade negotiator, estimates that up to 30,000 jobs could be lost every year without the low-tariff regime.

Mr Correa’s campaign, has received some support from Ecuador’s business sector. His emergence as the frontrunner, his protectionist trade plans and the perception that he is the candidate most likely to end Ecuador’s six-year adoption of the US dollar have all won him support among entrepreneurs.

“Correa wants a return to import substitution and high tariffs,” says Walter Spurrier, of the Universidad Casa Grande in Guayaquil, Ecuador’s largest and wealthiest city. “For businesses that cannot compete internationally, those are attractive policies.”

However, most of the country’s business associations view Mr Correa with concern: his platform includes pledges to review contracts with foreign investors in the oil industry, to restructure the country’s debts, and to ramp up social spending. Ecuador is South America’s fifth biggest oil producer and the region’s second biggest exporter of crude to the US, but the country’s reputation as a destination for foreign investment took two blows this year.

First, a new law levied taxes of 50 per cent on “extraordinary profits” earned by foreign investors; then, in May the country expelled Occidental, a US company that was the biggest foreign investor, and seized $1bn (€800m, £539m) of its assets, accusing it of having broken its contract. Occidental is pressing for international arbitration.

Rene Ortiz, head of the Ecuadorean Association of Oil Companies, which represents private investors in the sector, says uncertainty over Mr Correa’s plans has not helped improve Ecuador’s reputation. “If Correa were to win, private investment would be put on hold,” he says. “The industry would be in wait-and-see mode.”

Of the candidates most likely to face Mr Correa in a second-round run-off in November, the most business-friendly is perhaps Alvaro Noboa, a banana magnate who owns more than 100 companies in Ecuador.

But the possibility of a Noboa-Correa contest, which many analysts are now tipping as the most likely outcome of Sunday’s poll, would be likely to lead to polarisation and political turbulence in one of the region’s least stable democracies.

That would in particular affect sectors such as roses, which are based in poor rural areas, home to much of the social unrest of recent years. Mr Cevallos reckons that the flower industry lost up to $500,000 a day during protests by indigenous groups in April.

Another worry is the future of dollarisation, which most business people say has brought predictability and improved business conditions.

Mr Correa has called it “the worst economic decision we’ve ever taken” but says he has no plans to reverse it.

Mr Cevallos says that as well as job losses, there would also be an opportunity cost if Ecuador fails to grow. “Under favourable conditions, agriculture could create 40,000 more jobs in the next few years,” he says. “If there’s instability and protectionism, those people will remain unemployed.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.