The Ecuadorian Case of ‘premature’ deindustrialization: macro, sectorial and business-based perspectives

This article aims to contribute to Ecuador’s discussion of premature deindustrialization by providing further qualitative and quantitative evidence of its presence, current stage, and potential evolution. The methodology was, at first, a descriptive analysis of the leading industrialization indicators such as value-added, employment, exports, science and technology. Ecuador’s performance was compared to South American countries, particularly Colombia and Peru. Second, a sector decomposition exercise of Ecuador’s Gross Fixed Capital Formation (GFCF) was proposed to understand at which stage the manufacturing sector and products benefit from the investment. Third, a national champions analysis was detailed, at private and public levels, to assess the manufacturing relevance of the top Ecuadorian enterprises. All indicators show a typical premature deindustrialization behaviour -an inverted U shape-. Remarkably, the manufacturing value added and industry employment has decreased sharply in the last two decades. One of the drivers of these patterns may be behind the Gross Fixed Capital Formation (GFCF) composition. Despite Ecuador’s GFCF being relatively higher than Colombia’s and Peru’s, Ecuador’s manufacturing exports are significantly lower than its counterparts. Ecuador’s GFCF decomposition indicates a solid and persistent bias toward other sectors compared with manufacturing. Moreover, the top national champions, including public and private enterprises, come mainly from the primary or tertiary sectors. Big players are focused either on low-value-added activities or domestic markets. The article proposes an innovative analysis linking Ecuador’s standard macro-industrialization indicators with the sector and national champions’ perspectives. The recent trend and composition of all these indicators may suggest that premature deindustrialization will only deepen in the following years. The technological gap regarding global counterparts seems to be amplifying. The country’s historic reprimarización journey seems to have entered a new and pronounced phase.