After several attempts to implement the number of free zones in Ecuador, it finally happened with Law on Economic Efficiency and Promotion of Employmentproposed by President Daniel Noboa, however, in order for this mechanism to have the effects that this Government is looking for, complementary measures must be implemented.

Free zones operate in the region, and Ecuador joins them. Analysts also look with optimism at the implementation of the public-private partnership (PPP) regime, but in both cases they believe that the speed of the entities in creating regulations is important.

The Law on Economic Efficiency and Encouraging Employment has been improved, but with doubts as to whether it will be able to generate the expected effects

The establishment of free zones failed in During the regime of Guillermo Lasso, his projects were rejected in the National Assembly and the Constitutional Court. There were three attempts. The first in 2021 “with other chapters” and in 2022 as an investment bill, but was rejected by the legislature, which was dissolved by the death of the cross in May. While the third was when The court rejected it because it was not considered urgent.

According to economic analyst Segundo Camino Mogro, this time the reform failed because of management problems between the executive and legislative branches. It also indicates that the way the law was written when it was sent by the previous president was not adequate in terms of controlling free zones.

The Law on Economic Efficiency and Employment, which has been in force since December 20, defines a free zone as a geographical area limited within the national territory which, in terms of this law, is subject to special regimes determined in matters of foreign trade, customs, tax, financial, agro-industrial, technological and capital treatment, where, among other things, industrial activities of goods, services, commercial activities are carried out, for customs purposes will be considered a customs destination.

Among the objectives of free zones, according to the regulations, are: to promote and be a means of creating jobs, to attract and encourage domestic and foreign investments, among other things.

For the editor weekly analysis, Alberto Acosta Burneo, free zones are an important and interesting mechanism that seeks to attract investments and generate employment, because there is a special scenario that enables the generation of competitiveness by focusing on the external market, because these are activities that cannot be carried out without it. Competitiveness.

What are free zones and which sectors would benefit from the decree law that President Guillermo Lasso sent to the Constitutional Court?

The number of free zones – says Acosta – has succeeded in the region (Colombia, Costa Rica, Dominican Republic), where “it has already been successful and creates a significant number of jobs” and also can give good results in Ecuador, but that this requires complementary measures and he states first and foremost: trust. “Legal security needs to be improved; only with legal certainty will we be able to attract investments.”

This is complemented by two more aspects, that free zones have roads, ports, airports, as well as all kinds of quality services and personnel, for which competitive labor legislation is needed, because the same regulations that apply in the country will apply there.

Among the benefits that a company can get when applying for a free zone or for the creation of a public-private alliance, according to Camino Mogro, are tax exemptions for five years and after that time they will not have a 0% tax exemption, but Yes it will be a smaller percentage compared to other programs.

According to Acosta Burne, the sectors that will be most affected by the introduction of free zones are services, manufacturing, as well as activities in which Ecuador is not competitive, including logistics, packaging and labeling.

Way thinks so ZEDEs (Special Economic Development Zones) should also benefit from these tax incentives and that in these cases a shortened procedure must be done so that the development zones quickly become free zones. “The process to qualify for ZEDE was much more complex than what will now be a free zone, so if you have already gone through a much more complex process, you should have a shortened process to quickly qualify as a free zone. Free zone.”

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As for public-private alliances, Acosta Burneo points out that they are fundamental because they enable investment in infrastructure, in public works with private capital, and this is what the country urgently needs because the state has no funds. “It ran out of resources many years ago, since 2014 when the oil bonanza ended and that has limited investment in many sectors. Unfortunately, we have statist legislation that created this wrong concept of reserving certain sectors for the state and when the state has no more funds, it cannot invest.”

As an example, he cites power outages that, since the power sector is reserved for the state, money has run out and electricity production has not been expanded since 2019.

According to analysts, the results of the new law will be seen in the medium termthey estimate between two and five years, since the regulations will first have to be worked on, which can take up to six months, followed by the implementation of that regulation, which will begin with education in various public institutions.

“The structuring of these projects is not done quickly, but takes years, so we hope that this law will enable faster processing of those projects that were on the way,” says Acosta.

Camino adds that the ministries of production and economy, as well as the Tax Administration (DRI), should already be working on the regulation so that it can be applied immediately.