Ecuadorian shoppers flock to Colombia and Peru for big Christmas savings

By John Morrison

According to the director of the Ipiales, Colombia Chamber of Commerce, as many of 15,000 Ecuadorians arrive in this border city each weekend, with thousands more coming during the week.

Business is booming in Ipiales, Colombia.

Why do they come: “Why not?” asks Arturo Díaz. “They save a lot of money here because prices are so much higher in Ecuador. Wouldn’t you come here for your Christmas shopping if you were an Ecuadorian?”

Examples of the savings are not hard to spot. Prices for such items as big-screen televisions and liquor run about half in Ipiales, population 125,000, what they do south of the border in Ecuador. Even toilet paper runs 40% less in Ipiales.

The scene at the Colombian border repeats itself south of Machala, as Ecuadorians seek out lower prices in Peru. On both the Colombian and Peruvian frontier, Ecuadorians seem more than willing to wait in traffic jams that stretch for miles to save on major purchases.

“Even driving all the way from Cuenca, I save hundreds of dollars on new tires and a television,” says Oscar Estevez, who was stuck in traffic Monday at the Peruvian border. “Once my government fixes the problem, I will be more than happy to shop in Cuenca,” he adds

The reason for the price differences between Ecuador and Colombia and Peru is mostly the result of hefty import duties and consumption taxes the Ecuadorian government has slapped on hundreds of consumer products. An exchange rate differential between the U.S. dollar, which is used in Ecuador, and the Colombia peso and Peruvian sol, is a major contributing factor.

Ecuador’s government claims the duties and taxes are necessary to protect local manufacturers and business people from depreciation of Colombian and Peruvian currency, but many disagree. “What these outrageous fees are doing is hurting the Ecuadorian consumer and creating massive smuggling operations,” says conservative presidential candidate Guillermo Lasso. “They’re also a bonanza for Colombia and Peru.” The other six Ecuadorian presidential candidates agree with him, although Lenin Moreno has been quiet on the issue since accepting the nomination of President Rafael Correa’s Alianza País party.

Last year, Moreno said he would consider eliminating most of the import taxes, saying they were not doing what they were intended to accomplish.

It is also possible that the World Trade Organization (WTO), which is currently reviewing the taxes, will order them eliminated prior to Ecuador’s announced phase-out dates, which the government has twice extended.

Quito economist and university professor Ivan Palacio says that the fees and taxes are devastating, not protecting, Ecuadorian manufacturing and merchants. “The people who are operating legally are the ones who are hurt the most,” he says, adding that smuggling, not the Ecuadorians who cross the border to shop, are doing the most harm.

“There are large smuggling networks spread across the country selling electronics, clothes and liquor and other products. In some cases, with liquor and tvs, smugglers may account for as much as 50% of all Ecuadorian sales,” says Palacio.

“Anyone living in Quito or Cuenca can pick up the phone for home delivery of these goods and it’s killing the legitimate business people. How can a guy selling televisions compete with a smuggler who can sell the same model for 50% less and offers home delivery? This is why his sales are down 60% to 70% in the last two years. Do you call this protecting Ecuadorian businesses? I don’t think so.”

Palacios says he expects dramatically lower import fees following next year’s elections. “The situation is untenable and will collapse under its weight if the government doesn’t act soon.”