Cablegate: American Business Committee Sees Both Good and Bad Under

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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

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