POLICY ROADMAP

The Ecuadorian economy has been adversely affected by a number of factors in recent years, including high crime rates and widespread insecurity. Ecuador’s GDP fell in Q1 2023 after having grown by 3% in 2022. Ecuador’s dollarized economy shields it from much inflation volatility, although Ecuadorian entrepreneurs continue to see their costs increasing. In addition, more than half of all employment is estimated to be in the informal sector (the black economy).

Ecuador introduced new legislation in 2020 (the Organic Law of Entrepreneurship and Innovation,
and the Simplified Stock Company Law), seeking to formalize enterprises by simplifying business registration and encouraging them into the formal economy. Since then, more than 6,000 simplified stock companies have been created.

2023 Framework Conditions Review1

Ecuador’s previous participation in the GEM National Expert Survey (NES) was in 2019, before the COVID-19 pandemic and war in eastern Europe. Some limited comparisons will be made between 2019 and 2023.

In 2023, the quality of the Ecuadorian entrepreneurial environment was given an overall score of 3.9, according to national experts. This was both less than sufficient and less than the 4.2 it had scored in 2019. Ecuador ranked 38th of 52 economies for the quality of its entrepreneurial environment in 2019. In 2023, it was 42nd of 49 economies.

Of the 13 individual Entrepreneurial Framework Conditions (EFCs), 11 were assessed as lower in 2023 than in 2019, with just two higher. The largest falls were for Entrepreneurial Education at School and Physical Infrastructure, while the largest increase was for Government Policy: Support and Relevance. In
2019, four of 12 EFCs were assessed as sufficient (score ≥5.0). By 2023 this had reduced to just two: Social and Cultural Norms, and Physical Infrastructure. So, while legislation to encourage formalization has helped, there remains much to do to improve the quality of the entrepreneurial environment in Ecuador.

Finally, new questions in 2023 asked national experts to assess the quality of social support to women entrepreneurs, and those women’s access resources to compared to that of men. For social support, Ecuador scored 3.2 (34th of the 49 GEM economies) and for access to resources 5.0 (28th). So there is much to do here, too.

2023 Entrepreneurial Activity Review

Recent Global Reports have noted the emergence of the Latin America & Caribbean region as a global hub for entrepreneurial activity. GEM Adult Population Survey (APS) results for 2023 are entirely consistent with this: the four highest levels of Total early-stage Entrepreneurial Activity (TEA) were all in this region (Ecuador, Guatemala, Chile and Panama), with Ecuador leading the way with a TEA rate of 32.7%. In other words, almost one in three adults in Ecuador was starting or running a new business in 2023, with women slightly more likely to be new entrepreneurs than men. Nor was this lead confined to new entrepreneurs: Ecuador also had the highest rate of Established Business Ownership at 24%, with the next highest being the Republic of Korea at 20%. So, despite what is clearly a difficult entrepreneurial environment, Ecuador had the highest levels of both new and established entrepreneurship of the 45 economies in the 2023 GEM APS.

Not surprisingly, entrepreneurship has a very high profile in Ecuador, with two in three adults knowing someone who has recently started their own business. Three in four adults consider themselves
to have the skills and experience to start their own business, and more than a half see good opportunities locally. However, three in 10 of those seeing good opportunities would not start a business for fear it might fail, a proportion that sounds high but is the fourth lowest of the 49 economies. More than half of those not currently doing so expect to start a business in the next three years.

Given the state of the Ecuadorian economy, it is no surprise that half of adults reported their household income had fallen in 2023. Meanwhile, the motivation to earn a living because jobs are scarce was agreed
by nine out of 10 new entrepreneurs. Very few (about one in 20) new entrepreneurs had customers beyond Ecuador, and fewer still (around one in 50) expected to employ another six people or more within the next five years.

1 A brief description of the GEM approach is given in the footnote on p. 107.