Mining Can Save Ecuador, Maybe

Ecuador’s new president, Daniel Noboa, has a refreshing vision for Ecuador, but he needs a mining sector free from black market economics to get there.

Reporting from Quito and Tena, Ecuador and Toronto, Canada

Introduction

After ten years of gross mismanagement (2007-2017) and a subsequent restabilization period (2018-2023), optimists agree that Ecuador is on a sustainable path to economic recovery. Improving education and employment opportunities, reducing poverty, and increasing per capita income feel like goals beyond the horizon, but they are achievable. 

Though several hurdles remain, the country’s emergent mining sector holds the potential to be a primary driver for President Daniel Noboa’s plans for economic expansion and government revenue — a posture he confirmed in early March at the Prospector and Developers Association of Canada (PDAC) annual convention in Toronto. 

Noboa’s current focus on combating organized crime and boosting employment is a strategy to secure voter support in the near term, among other things. He has announced his candidacy for another four years, after April 2025. So this upcoming election divides his focus into what is immediately important in the next 12 months and what his administration needs to do over four years to deliver Ecuadorians a sustainable path into the future.

The Next 12 Months

Over the next year, Noboa will need to juggle public security, international relations, debt payments, and a landscape of domestic political minefields. Since entering office, Noboa has prioritized employment, education, and public security. He notched early public security wins in his first 100 days. 

Most of his public security success in the first 100 days was low-hanging fruit. We’ve seen significant interdictions of illegally mined gold and cocaine. Maximum security prisons processed new guests. The country’s military — a well-respected organization — now leads the public security effort. Thus far, the military has placed the country’s organic criminal organizations on a back foot. 

Interviews conducted by long-time journalist friends of mine in Ecuador with mid-level management in Ecuador’s two largest criminal organizations, Los Choneros and Los Lobos, indicate that they remain in a holding pattern. I think they’ll try to cut a deal before trying to do something overly risky. 

Public security is and is not about headlines. Yes, the infamous nota roja always rankles. But public security really distills down to how people feel. On a recent reporting trip to Quito, a taxi driver explained to me that he cannot drive overnight from Quito to Guayaquil for fear of land pirates on the highways. 

“I will feel safe when I can drive from Quito to Guayaquil without being robbed,” he told me.

Still, street vendors, bus drivers and receptionists in Quito see the potential for a brighter future. Commuters in Ecuador’s oriente region, historically a part of the country that is the last to feel any benefit or benevolence from Quito’s policies, were hesitant to talk about the young president at first. But small business owners, two women filling water balloons for a Carnival celebration, and an elderly man convalescing from a heart attack by the river all agreed that there is hope in the “young president.” None voted for Noboa. 

Nor did Putin.

Public security in Ecuador experienced a head-on collision with Russia soon after Ecuador signaled a USD200 million military equipment, intelligence, and training deal with the United States in February 2024. 

The Putin regime, which currently controls just over USD1 billion in annual imports from Ecuador, stopped purchasing bananas in the wake of the US military deal announcement. This high-stakes geopolitical chess move pushed Noboa to scrap the agreement and restore Russian payments for Ecuadorian tropical fruit. A local journalist, who closely covered the imbroglio, told me that Putin “ate Noboa alive.” 

Any plans for an Ecuadorian version of the early 2000s “Plan Colombia” must be weighed against the fact that Moscow is Quito’s number three business partner in 2024.

Concerns for Noboa’s lack of geopolitical brinkmanship extend to how his administration will manage its debt with the Chinese government. After nearly a year of negotiations, former Ecuadorian president Guillermo Lasso restructured Ecuador’s debt with China, effectively pushing back a bulk of payments into 2025. It was a short-term debt relief maneuver that has now locked in a significant balloon payment for Noboa’s administration, despite a possible deal with the International Monetary Fund.

Ecuador’s current caretaker must push and pull on both sides of his government’s profit and loss statement to meet debt obligations while increasing expenditure to cover education and jobs initiatives, and fund public security. Somehow he’ll need to play geopolitical hopscotch with global heavyweights while juggling domestic pressures to fund his government’s USD6 billion budget deficit in 2024. 

International analysis, however, tends to focus mostly on organized crime at home. One trending conclusion that says organized crime threatens Ecuador’s democracy is well founded. But it’s over-hyped. The early January 2024 TV station attack was amateur at best — more a Hail Mary from undisciplined criminals than a premeditated strategic maneuver. And that one attack — admittedly a brazen maneuver — cannot be extrapolated to draw conclusions about the broader landscape of criminal activity, capabilities, and will to fight. Nor is public security the main problem. It’s just a symptom.

Not Just Public Security

Decades’ old networks of corruption are at the root of Ecuador’s security crisis. Several sources over the years have shared — and still agree — that former president Rafael Correa (2007-2017) established Ecuador as a haven for money laundering, and wholesale smuggling and trafficking. This system was installed in 2008-2009, and has been growing — thriving — since Noboa entered office in late 2023. There was an abrupt halt to the surface-level activity. But deeper illicit structures will not be so easily extracted.

Ecuador’s public organization for money laundering investigation and analysis, whose budget has been cut by some 50% in the past seven years, is today a largely defunct organization. It was “intentionally neutered,” according to one source. 

If this is true, it provokes questions about how Ecuador’s banking system has managed to remain reliable for Ecuadorians, Ecuadorian businesses and international markets while convincing anyone who cares to look that their pipes are not clogged with dirty money. 

Centralized anti-money laundering watchdog understaffed and underfunded: check. 

Dollarized economy: check. 

Decades of storing, transporting, and exporting illegal products:  check. 

One of the world’s most open visa regimes:  check.

Noboa’s team will push and pull against the undergirding system of corrupt fiber that connects networks across criminal organizations, politics, law enforcement, the courts, and several — as of yet — undiscovered embedded international business interests. But proceed with caution. Changes to this system require really careful navigation. 

Pulling apart these threads will move Ecuador in the right direction, generally speaking, but the policies and efforts that challenge this status quo directly impact an embedded system that is more powerful than Noboa’s political mandate — as a caretaker — to clean it out. 

Unintended consequences splash back. This is why he will likely not pull or push too hard on reformative policies that attack these underlying structures before April 2025.

Funding the Next Mandate

The strongest sentiment felt on the streets of Quito and the Ecuadorian oriente, where I spent 10 days in February 2024, points to Noboa’s election in April 2025. Given his administration’s desire to grow closer to the “West” — namely Washington, Ottawa, London, and Tel Aviv — Noboa will want to separate Ecuador from the ties that bind his country with Russia and China. Trade is a large part of the answer.

The US government should take a step beyond the US-Ecuador Partnership Act of 2022 to move at pace to ratify a free trade agreement between the two countries. This legislation package would serve the people of Ecuador (and the Noboa administration) more than any other single act of support that Washington could show for Quito, including military aid.

Later this year, and into 2025, “American isolationism” will be a real challenge for Ecuador regardless of the next US president. Noboa will need to look beyond Russia and China for trade. He will also need local industry to support his growing need for cash. 

Ecuador’s oil industry, a historical driver for public revenue, has a limited horizon. It is a resource of slowly and steadily declining economic returns, with its production hovering at just under 500,000 barrels a day for the past several years. Ecuador’s future trade status with the world’s major markets are bilateral and multilateral agreements, some of which show promise but are slow to mature. They are even slower to generate real profits for the government on the back of taxing net inbound revenue. 

This landscape of opportunities and challenges are set to impact Ecuador’s bottom line, leaving the country’s mining sector as the most promising opportunity for future public revenue. This is why Noboa was the first Ecuadorian president to give a speech at the PDAC convention — Toronto’s marquee mining conference. 

Noboa knows that his 2024 budget deficit nears USD6 billion. He will leverage a combination of loans and spending cuts to bridge the gap, but he can’t keep betting against the future of his people to pay for past sins. He needs a sustainable way out. Mining might be the answer. It already has traction.

The US International Trade Administration (ITA) assesses that the Ecuadorian mining sector could generate as much as USD4 billion of taxable revenue by 2025. A high growth curve extends into the latter half of this decade. Ecuador’s mining sector could soon overtake bananas as the small South American nation’s third-largest export.

An Established and Growing Mining Sector

In 2022, the mining sector stepped up as the fastest-expanding segment of Ecuador’s GDP, growing 33 percent year over year, according to the ITA. Mining added some 180,000 jobs and contributed USD590mn to public revenue that year, on the back of USD2.8bn in total annual exports. This amount of growth was due largely to the increase in commodity prices with a modest bump in mining operations. But the industry has been largely prevented from growing through new concessions since 2018 because the mining “cadastro,” a registry of concession ownership, has been offline since then. The new cadastro is expected to be back online by late 2025. 

Meanwhile, environmental approvals have also been stuck, largely due to political reasons as far as sources can agree. Good news: Noboa’s administration is focused on streamlining the process to move from concession to operation, freeing up hundreds of millions of dollars in investment for construction, all conceded and approved. 

Despite setbacks, Ecuador’s mining sector grew another 19.8%, calculated by total exports, in 2023. Another 96,000 direct and indirect jobs were added, where 90% of those employed by miners were Ecuadorian nationals, Noboa said. A total of 377,000 Ecuadorians benefitted from the sector’s 2023 expansion, according to Noboa’s PDAC presentation.

Though these numbers are impressive and set up 2024 for another solid growth year, we should still expect some speed bumps. Modernizing the mining concessions database alone is a mammoth task. Not to mention processing the backlog as Noboa aligns the interests and needs of the mining industry with the priorities of his broader domestic agenda.

Which, down the list, includes how, when, and where to take on illegal mining — declared a national security threat by former president Guillermo Lasso in early 2023.

And Established and Growing Illegal Mining Sector

Ecuador is home to several heavy-hitter criminal organizations. But groups from Colombia, Mexico, Albania, Italy, Russia, and others still rely on homegrown Ecuadorian organizations. These so-called transportistas receive, store, move and facilitate the export of illicit products from Ecuador to the rest of the world. Most of this product comprises cocaine and people. Increasingly, it’s also gold.

After 2009, once previous president Rafael Correa had cemented control, Ecuador became an open market for illicit activity. Cocaine transport and storage was just one of many businesses I’ve watched thrive since then. Ecuador has been a human smuggling and trafficking “trampoline” into North America for over 20 years. Young but quickly growing, the illicit gold business took root in 2018. It was the same year that Ecuador’s mining operations first flowered and established today’s potential for the juggernaut of an extractive sector. 

Illegal mining operations have surfaced in the same places as concessions: in the North near the Colombian border, in the Napo province near the small Amazonian city of Tena, and in the South from the interior border with Peru along the Cordillera de Condor toward the coast.

The criminal underworld does not employ geologists. It relies on mining exploration companies to determine where the gold lies in the ground. Nimble teams then quietly move to exploit known deposits.

Criminals do not conduct environmental studies. They don’t fund multi-million dollar construction projects. They don’t need a community relations team or any special financing. They just need a lot of excavators, a little know-how, and someone to make a market.

One excavator driver I interviewed told me that he was paid USD75 a day working for an illegal mining “company.” This was over double his usual daily rate of USD30.

And at an estimate of USD3.6 million in top-line revenue a month, Los Lobos — a well-known criminal brand in Ecuador — could afford to pay dozens of excavator drivers this amount. Los Lobos controls at least 20 different illegal gold mining sites in the country, according to one investigative journalist I spoke with.

The gang extorts another 30 legal mining operations and also runs some 40 different mining teams across the country. It likely exports most of its refined product through Ecuador’s Machala port in the South, where I’m told there is less government oversight and plenty of market makers.

Many sources agree that Chinese-owned and operated companies make the market for traders looking to offload illegal gold. According to one study, Ecuador exported a total of 76 tons of gold to China in 2019. In that same period, China stated that it had imported a total of 339 tons of gold from Ecuador. The difference, 263 tons, is a mystery. This number suggests the size of the illicit gold market in Ecuador as a starting point. It also points to a direct relationship between the licit and illicit gold markets. As one grows, so likely does the other. This is not a new phenomenon — it’s simply new to Ecuador.

Looking Ahead

President Noboa has a clear-eyed vision for the future. He has to win the April 2025 election. He needs to keep his country financially solvent. He must rekindle an old flame with Washington as he expands relations with Canada, the UK and others.  Legacy relationships with Russia and  China must be managed. 

Jobs, education, and public security are his first steps on a long, arduous path. Oil is no longer his primary driver for public revenue. Mining does show significant promise, but a modern concessions system and efficient environmental permissions process requires more time than we want to predict. Yes, improvements are on the way, but illegal miners remain a problem. They benefit from a public concessions database but don’t play by the rules, operating largely in the dark far from public security controls.

Illegal mining is more than a nuisance. It is a parasitic, illicit economic system that is deeply entrenched and interwoven with Ecuador’s legal mining sector. As the host grows and thrives, so does the parasite. 

Ecuador’s illegal mining operations contribute to a well-oiled financial system that supports and benefits the drug trade, human smuggling and trafficking, money laundering, and other illegal activities. This deviant system must be removed, but not kill the country — or Noboa’s dreams — in the process. The mining industry sits upon the precipice of an unprecedented opportunity to make or break a bright future for an entire nation. All Ecuador’s miners need to do is responsibly operate and stop illegal mining in their own backyard.