By Drew Tulchin, Managing Partner of Social Enterprise Associates with assistance from Analyst Kevin Lynn and crackerjack intern Sachit Sood.
I recently returned from a trip to the Latin American country of Ecuador. Great country! Worth the tourism visit, with lots of interesting things happening in commerce and politics.
The presidential elections took place February 17, 2013. Rafael Correa, the current President, who is moving in sentiment and behavior towards his colleagues leading Venezuela and Bolivia, handily won his third term. He was able to avoid a run-off for two elections in a row, the first time a democratically elected leader in that country won outright.
To find out what to expect in the weeks leading up to the election, I sought out experts on the matter - taxi drivers. The conventional wisdom from my ‘scientific' polling is that people say he is going to win, regardless of their true beliefs and interests. His official popularity rating is high. The sentiment appears to come from ‘conventional wisdom', sense of corruption with inevitable conclusions, and in some cases - fear of reprisal - which holds the greatest concern.
Ecuador's economy: the price of gas, alcohol, and transparency
In terms of commerce, the country is a curious mix of opportunity and entrenched banana republic. The capital, Quito, the second highest in elevation in the continent, leads the purported second poorest country in Latin America - first place for both honors goes to Bolivia. The economy is dollarized, to hold inflation. Basic stats on the country are:
Gas, thanks to local production and subsidies, is cheap at $2 / gallon with diesel costing even less. This makes bus rides super cheap - easy for locals and great for the backpacking tourist. Taxis are also easy. Food is expensive in grocery stores, which is hard on locals. Restaurants are reasonable. In tourist circles, amounts seemed to be $6-10 per meal, no matter what ordered - not super cheap, but never expensive. Grilled Ecuadorian guinea pig, or cuy, is a common street food (photo right).
There are some financial barriers to smoothing the economy. Transparency international ranks Ecuador 118th. New laws, taxes and regulations are reported springing up all the time. Taxes on imported alcohol are reported in the triple digits. My hosts lamented not asking me for more from Duty Free. Domestic production- beer, rum and cane alcohol (rot-gut) is well priced.
Who builds the roads?
Public works, particularly roads and also public buildings are being thrown up everywhere, with great signs stating "Main roads are in good shape," which is quite something given the varied terrain and altitude of the country. Construction projects all come with a large sign stating, "Built with funds thanks to the revolution." Not quite Animal Farm, but a bit self-referential.
In the coastal town of Mampiche, a surfer and backpacker hang out worth the trip now before it is spoiled by too many visitors. A beach barrier was built after Main Street flooded (again) to keep the town's main asset - the beach - from literally washing away. Locals complain that hundreds of thousands of dollars was spent to move a few rocks, surely money going into local politician's pockets, and the work that was done was shoddy, with improper drainage, uneven surfaces, and incomplete work. We avoided the street at night as it had no lights and gross standing water.
Trading with China
My political science experts (remember, taxi drivers) also expressed concern that the populist president leaning towards totalitarianism is selling the country's future. By that, they referenced news reports that China has covered extensive international payments for Ecuador and that there seems to be a sizable increase in trade.
The concern is that the government has promised away the nation's oil to get in bed with the devil. Truckloads of hardwood forest trees are reporting heading straight from the disappearing forests to ports, put on boats to China. There are many tree farms by the roads, which have already been clear cut, generally teak and palm trees. These are curious choices. Teak grows straight, the wood is strong but light, and prices are high - today. But, it is not native, takes a very long time to grow, and isn't cheap to manage. Palm, promoted as ‘healthy oil,' has become a commodity with low margins. Once trees grow, it is challenging to repurpose that land for other uses (roots grow very deep, very difficult to remove, etc). Extractive development at its best.
Oil companies vs. indigenous peoples
I didn't get to the Amazon on this trip, a sure must for everyone's bucket list. The challenged balance there is worth noting between nature and commerce - reported in the regular press in extensive detail. The problem is far reaching for national efforts - which treat workers and the environment badly, desecrate the beautiful forest, threaten indigenous people and create conflict situations in national parks rather than collaboration.
Law suits with big multi-nationals continue to arise - which ‘the little guy' might actually win, at least in Ecuador, but potentially in the US. One of the many latest stories is that a recent years old legal fight might rule against the oil company to the tune of $40 billion. This is significant, but - after legal fees - leaves less. And, it is miniscule for the company, a few days of profits. The precedent and the principle appear to be worth fighting for by the company. A biologist I spoke with lamented, "It is a shame how much Amazon and other forested land is being completely obliterated before we can even begin to understand it. Entire species wiped out that we aren't even aware of."
Environmental mortgages to save the rainforest
For my work there, I visited the Mache-Chindal Ecological Reserve with Josh Donlan of Advanced Conservation Strategies. This area, near the coast, is a 121,000-hectare ecological reserve in the northwest of Ecuador. It is not known due to isolation from other forested areas. Deforestation is happening literally in front of our eyes - estimated at 4% a year! There are some fifty poverty stricken communities within its borders that pre-date the area being established as a protected area. These communities have little government engagement and little political support.
Surrounded by old-growth rainforest, Mache-Chindul's inhabitants lack land ownership rights to benefit from the forest's natural capital, such as carbon sequestration and biodiversity credits. Consequently, they are hacking away at their greatest asset for a pittance of its worth, one tree at a time.
Our work centered on the concept of an environmental mortgage, or ‘e-mortgage'. This new concept seeks to place the rich natural habitat in trust, and used as collateral or leverage for indigenous people who live there to use this asset to leverage capital to fund economic improvements that preserve the environmental value. In this case, cacao farmers can continue organic harvest while preserving bigger trees, and even reforesting, as chocolate is effectively shade grown with little soil amendments. Inhabitants of the threatened region gain new avenues for livelihoods, and reduce pressure to extract finite resources - cutting down trees.
Ecuador is a country in transition and there is much to be done. I'm proud to work with my colleagues on an innovative approach to both conservation and economic development, and e-mortgages are a tool that can be used in any similar situation. This was my first visit to Ecuador, but it won't be my last.
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