Guayaquil – A Glimpse of Latin America’s New Normal?

Ecuador’s largest city has controlled Latin America's most devastating Covid-19 outbreak. With life there returning to some semblance of normality we investigate the lessons for investors elsewhere in the region...

In April we explained how Ecuador’s coastal city became Latin America’s Covid-19 epicentre and analysed what other countries could learn from its failures. Three months on, Guayaquil has made a surprisingly quick recovery and its success in controlling coronavirus gives some interesting pointers for the rest of the region.

First a quick disclaimer: LatAm INVESTOR is an investment magazine, not an institute of epidemiology. We have no idea if a second wave is about to hit Guayaquil, if the city has got close to herd immunity or how long Covid-19 immunity lasts for. Coronavirus has consistently surprised the experts so nobody really knows the answer to those questions. However, our correspondent in Guayaquil has noticed a phenomenon that’s worth sharing…

Guayaquil didn’t have Latin America’s earliest confirmed coronavirus case – that dubious honour fell to Brazil – but it was certainly the first city in the region to be overwhelmed by the disease. According to Financial Times analysis, between March and June the province of Guayas had the world’s second-largest increase in excess deaths. The 285% jump in mortalities from the historical average led to a death toll of around 15,000 in the city and surrounding province. Bodies were dumped on the streets and protective military roadblocks were placed around hospitals as Guayaquil failed to handle the pandemic.

Return to ‘normality’

But now Guayaquil is back to its bustling best. The centre is heaving with people again, albeit everyone is wearing the obligatory mask, while the resourceful street vendors now sell alcohol and latex gloves. Bars have found a way around restrictions by serving food while shopping centres are open and offering big discounts. Even more heartening are the scenes in the residential neighbourhoods, where parks, football pitches and playgrounds are all back in use. The mood is of cautious optimism.

It’s been a month since Guayaquileños began returning to some semblance of normality yet Covid-19 remains under control. Excess deaths have been in line with normal trends for the last 45 days. Local studies estimate that 50% of the population of Guayaquil have already had coronavirus. If so, that high level of community immunisation would explain why the virus has more difficulty spreading in the city. Improved public health policies must also be a factor. Guayaquil has implemented rudimentary contract tracing and mobile medical units are being sent to poorer neighbourhoods to contain outbreaks among those with no access to healthcare. Being the first major Latin American city to be overwhelmed by Covid-19 cost a lot of lives but one consolation is that the public authorities and medical profession have become more adept at managing the pandemic.

"It’s been a month since Guayaquileños began returning to some semblance of normality yet Covid-19 remains under control…"

Elsewhere in the country the situation is more complicated. Despite being one of Latin America’s smaller countries, Ecuador is notoriously divided, with big differences between the jungle, highlands, coast and Galapagos, When Guayaquil was getting hammered by Covid-19 in April, most other parts of the country had low rates of infection. Now, Guayaquil has recovered but elsewhere infection rates are still rising. Cities in the coastal provinces, such as El Oro to the south and Manabí to the north, are still in the highest level of lockdown. Meanwhile Quito’s intensive care units are fully occupied, with Guayaquil sending doctors and supplies to the capital. Ecuador’s government has been criticised for its coronavirus response but the regional differences in infection rates are actually a significant victory for the travel restrictions placed during lockdown. It means that the worst patients can be brought from the coastal provinces to Guayaquil, where there is now a surplus of ventilators and hospital beds.

The pattern is repeated around the region. Countries that seemed to have it under control early on, think Peru and Colombia, are now struggling to contain an uptick in deaths. Many are extending restrictions or going back into lockdown.

The impact of coronavirus

During the pandemic Ecuadorian president, Lenin Moreno, described the country’s battle against coronavirus as a war. One should normally be wary of peacetime politicians that use military metaphors although given the enormous death toll it seems fair in this case. Indeed, just like a war, the massive trauma of Covid-19 on Ecuadorian society is already having unexpected economic and political consequences.

The health crisis focused attention on the country’s underperforming public hospitals, which soon uncovered layers of corruption. As we highlighted in our April article on Guayaquil, a 2018 Inter-American Development Bank study found that Ecuador has one of the least-efficient health systems in the region. Now it’s become clear the main reason for that inefficiency is corruption. Of course, corrupt public officials are nothing new in Ecuador. But the trauma of the pandemic increased public ire. The public prosecutor has responded with a fierce campaign against high-level, but corrupt, figures. Public health and corruption are likely to be key themes in next year’s general election. Indeed the early candidates, right-of-centre Guillermo Lasso, and left-of-centre former Vice President Otto Sonnenholzner, both led efforts to control the pandemic.

Ecuador was already in a precarious financial position and receiving an IMF bailout before the pandemic. Now the crisis has forced it to negotiate restructured payments with its creditors. The provisional agreement that’s been reached buys Ecuador some time. But ultimately it needs structural economic changes to start growing again. Under Rafael Correa it went from being Latin America’s thriftiest state – as a proportion of GDP – to its most spendthrift. When oil prices fell, the bloated state was maintained through unsustainable debt. The trauma of the crisis and the spectre of losing the dollar – which has a 97% approval rate – may be enough to force much-needed labour reform, end costly fuel subsidies and reduce the size of the state. Indeed Ecuador's emergency coronavirus law (Ley Humanitaria) already took some steps towards these aims.

The government had already begun to disband state monopolies but it seems likely coronavirus will accelerate the process. That’s partly because many of the state companies run at a loss but also because they haven’t proved very efficient at developing the country’s resources. Enami the state miner set up by Correa in 2010 hasn’t produced an ounce of gold or a pound of copper, while in less time international investors have built and opened Ecuador’s first large-scale mines of both metals. The economic liberalisation that is coming to Ecuador will create opportunities for international investors. Moreover, if their projects generate investment and employment, which is desperately needed, they will enjoy strong public support.