Oil and development in Ecuador Ecuador, a small South American country, ranks 83rd. among the 187 countries on the UN Human Development Index. Within Latin America, it is clearly a less developed country, with a per capita income below the regional average (UNDP, 2011)5. Ecuador’s economic diversification remains at a low level, and according to ECLAC, primary products still represent 92% of exports, mostly composed of crude oil, bananas, shrimp, coffee, cacao, fish and flowers (ECLAC, 2009). Petroleum, the single most important product in the economy, accounted for 57% of total export revenue between 2004 and 2010, and oil revenues made up on average 26% of the government’s revenues between 2000 and 2010 (Banco Central, 2011).
In 1967 large oil reserves were discovered in the Amazon region, and from 1972 onwards Ecuador has been an oil exporter. Almost four decades later, it can be concluded that oil contributed little to equitable and sustainable development. Economic growth remained evasive, with an average growth rate of 1.6% in per capita income between 1971 and 2009 (Chart 1). Despite important social achievements from 2006 onwards, social, ethnic, and regional disparities that have historically affected the country remained pervasive, as 39% of the population lived below the poverty line in 2010, underemployment affected 47% of the urban labour force (INEC, 2011), and social inequality barely declined, as the Gini coefficient remained at 0.5 in 2009 (CEPALSTAT, 2011, Larrea, 2010, Falconi, Vallejo, Larrea, and Burbano, 2011).
Since oil extraction in Ecuador is located in a formerly undisturbed region in the Amazon basin, the environmental effects of oil activity have been severe, particularly regarding deforestation, loss of biodiversity, pollution, and human health hazards (Herbert, 2010, Amazon Defense Coalition, 2012).
Most oil exporter developing countries share difficulties in reaching sustained and equitable growth. Several studies have found that oil exports have had negative impacts on development. A comparative World Bank investigation concluded that most oil-exporting countries failed to efficiently channel oil revenues to development during the 1970s. In general, the economic results for national development were disappointing, as “Dutch Disease”6 and other shared problems reduced the possibilities of economic diversification and stability (Gelb et al, 1988).
Jeffrey Sachs, based on a sample of 97 developing countries between 1971 and 1989, found a negative and significant correlation between natural resources exports and economic growth (Sachs, 1995). Albert Berry, based on a comparative analysis of Indonesia, Venezuela, Chile, and Nigeria, found poor outcomes in job creation and income distribution in oil and mineral exporting countries. Rosemary Thorp points out that mining and oil producer countries have serious long-term institutional development problems. In general, countries that are dependent on oil or mineral exports are vulnerable and fragile, and they share poor records in economic growth, diversification, institutional development, job creation, and equity (Berry, 2008; Thorp, 2009, Larrea and Warnars, 2009).
Future oil exports in Ecuador are also constrained by limited reserves. Currently, proven reserves estimates vary between 3.65 (Ecuador’s Government estimate)7, 6.5 (Energy Information Administration, 2011) and 7.2 billion barrels (OPEC, 2011), which in any case will permit less than 30 years of continued net exports, depending on future discoveries (Chart 2). Net oil exports have already declined by 23% since 2004 (Table 1). Therefore, a turn to alternative development strategies is required.