In 2011, there were only 500 companies specializing in IT services in Ecuador. Today, according to the data from the Ecuadorian Chamber of Innovation and Technology (CITEC), there are around 3,000. Of these, 56 fintechs, a vertical of real strength in Latin America, where high numbers of smart phones rub up against a poorly banked population.
In the Nearshore world, Ecuador is beginning to awaken. While the country remains heavily capital-centric, other regions are growing in status and help diversify the service provision of the small nation of less than 18 million.
“Quito accounts for around 70% of the developer community. This is because before the Nearshore market existed, tech’s major client was the government. But there are also thriving communities in Guayaquil, and Cuenca Loja too,” said David Meza, head of technical operations at US-based SDA Solutions.
“Ecuador is a very unique market that provides a lot of benefits for launching startups that can then scale regionally,” said Fernando Rivera, managing partner at BuenTrip Ventures, a tech-focused VC firm.
Though the population is small, Ecuador is among the most densely populated country’s in the region outside of the Caribbean. Internet penetration, especially through cell phones, is strong and infrastructure reliable. Geographically it’s very diverse. All of these add up to make Ecuador a great place to begin Latin American operations.
“The most famous use case is Waze. When it landed in Latin America, the first market outside of its native Israel, it landed in Ecuador. We’re a good place to pilot company ideas, to work out kinks and find a market fit for the region,” he said.
The foundation of technological innovation in Ecuador has been existent since the 1980s, when the country was known for developing core banking systems. The 1999 financial crisis the country suffered, which very nearly bankrupt the country, devastated the nation’s business sector and brought in the dollar as Ecuador’s official currency, put an end to that renown. “The crisis wiped out 60% of the banks and took most of the associated software companies with it too,” Rivera said.
The tech industry, then, was once strong. NASA had a base in Ecuador for some time. The industry is not growing from nothing. With a few adjustments, it can be strong again too.
Now, with the potential for remote working and tech clearly seen over the last two years, the country’s education system is re-engaging with the industry.
Leslie Jarrin, former managing director for ThoughtWorks Ecuador and current chief information and innovation officer at meditech company Goctors, says that the difference between when she began her tech career is profound.
Jarrin, who has recently returned to work as a professor of digital transformation and software development at Universidad Técnica Particular de Loja (UTPL), explained that the tech scene was so small that, at the time, most of her hires were former students. While the aptitude was there, the skills needed to be taught.
“I’m coming back to university because I’m seeing a change,” she said. “I’ll have 300 students this year. That was previously unheard of.”
The disconnect between Ecuador’s tech industry and education system is no longer as severe. Though Jarrin says there is a lot of work to be done to bring university courses up to speed, a recent law change that allows universities to offer both the traditional four to five year technical paths as well as short courses of only two years, is one such step in the right direction.
Legislative advances are also being made after the superb performance of Ecuadorian tech companies during the pandemic. While the country’s traditional industries struggled with lockdowns, tech continues to grow.
“Many technology companies grew up to 400% during the pandemic. We’ve been able to accelerate through a decade of technological transformations in just one year,” said CITEC Director Gisela Montalvo.
A business-friendly government headed by Guillermo Lasso is reversing long-held disinterest in the sector, said Paula Alomía, part of CITEC’s legal team. “Past governments did not view technology as a strategic economic sector with growth potential,” she explained.
There are already incentives for small businesses, such as not paying income tax for the first year in operation, but now the Ministry of Telecommunications and the Ministry of Production are focusing on technology-specific incentives, as well as promoting technology within Ecuador’s traditional industries like agriculture. The result is that technology is gaining strength within the economy and the potential of nearshore services is being firmly on the economic map.
“Right now the ministries are in the process of approving a new law for investment and digital transformation, which include tax free zones for the exportation of technology services,” said Alomía.
Companies exporting from these zones will reap additional tax benefits, while also being able to acquire technologies from foreign entities without paying tax – a first for the country.
In addition, a legislative barrier that has restricted the growth of service exports is also being modified. While companies that work in Ecuador are currently obligated to locate databases and servers that client information is stored and passes through within Ecuadorian territory, modification will allow companies to avoid this additional cost. Companies will be able to locate their databases wherever they want but will have to meet international data security standards, and CITEC are expecting to see strong growth in service exports as a result.
“We’ve spoken with many international companies who told us that they want to work in Ecuador but said that they could not carry the cost of hiring a third company to operate databases within the country,” explained Montalvo.
Inclusivity and the Future
Legislative changes must be matched by efforts in equality, Lourdes Serrano, managing director of Girls in Tech Ecuador believes.
“The reality is that the ecosystem software development companies and related technology producers in Ecuador is still small. Therefore opportunities for women in tech in Ecuador are reduced,” said Serrano.
There is a generational gap between company owners and female workers, she says. An outdated culture whereby women are viewed as somehow less reliable workers still exists, and this has carved open a gap between the number of women now taking technology-focused undergraduate degrees and the number of women going on to have successful tech careers in the country. Serrano expects this to change eventually, but believes that the best opportunities for Ecuadorian women in tech lie beyond the country’s borders.
“The future is global, it isn’t only within Ecuador,” Serrano said. “Over the past two years, we’ve altered the mindset of our educational programs to demonstrate to our students that they’re competing in a global marketplace. This is where we see the best chance to find opportunities for them. The local market isn’t going to grow enough within the next five years to offer opportunities for everyone, but it’s a great place for multinational companies and the opportunities they bring. But English abilities are key.”
English does need improvement in the country. The Education First English Proficiency Index 2021 rated the country among “Very Low Proficiency” nations and one of the lowest in Latin America.
Though Girls in Tech Ecuador receives educational programs from the US branch, they needed to be translated for students in the country. “All of the programs we receive from the US have to be translated into Spanish. The level of general English in Ecuador isn’t low, but it’s not sufficiently high enough to have technical courses taken in English.”
Population: 17.6 million (as of 2020)
Capital City: Quito (1.93 million)
Currency: US dollar (adopted in 2000)
GDP per capita: 5,600 USD as of 2020 (down from 6,222 USD in 2020)
GDP Growth: -7.75% (2020)
Literacy Rate: 92.8% (2017)
Unemployment Rate: 6.11% (2020)