The United States is Honduras’ most important economic partner. While the Honduran government places a priority on improving the investment climate as a means of attracting investment and promoting economic growth, meaningful reform has been slow. As of April 2019, the Honduran Congress is debating plans to merge the three institutions charged with attracting increased foreign direct investment: the National Investment Committee, ProHonduras, and President Hernandez’s signature Honduras 20/20, an ambitious initiative to create 600,000 new jobs by 2020. Economic reforms and continued commitment to fiscal stability in Honduras have led to a stabilized macroeconomic environment and positive outlooks and debt upgrades from major international ratings agencies. Some foreign companies with investments in Honduras, however, continue to face challenges. Inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low education levels, and poor infrastructure hamper Honduras’ investment climate. While the political climate has stabilized since the weeks of protests that followed the November 2017 presidential election, continued low-level protests and uncertainty also pose a challenge to the investment climate.
The Honduran government implemented several measures to improve investment and trade facilitation. In November 2016, the Government of Honduras launched the Presidential Commission for Integral Reform of the Customs System to simplify import/export procedures and improve relevant efficiency aspects of Honduran customs services. In July 2016, Honduras formally ratified the WTO Trade Facilitation Agreement, which contains provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective cooperation for customs compliance and trade facilitation issues. In June 2017, Honduras and Guatemala initiated a Customs Union to foster and increase efficient cross-border trade. El Salvador subsequently approved joining the Customs Union in July 2018. In July 2017, the Government of Honduras shifted management of product registration from the Ministry of Health to a new, more efficient Sanitary Regulatory Agency, leading to a decrease in the backlog of 13,000 sanitary registrations. Finally, in February 2019, the Government of Honduras established the National Trade Committee, chaired by the Minister of Economic Development.
Many of the approximately 200 U.S. companies that operate in Honduras take advantage of protections available in the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR). Honduras’ participation in CAFTA-DR has enhanced U.S. export opportunities and diversified the composition of bilateral trade. Substantial intra-industry trade now occurs in textiles and electrical machinery, alongside continued trade in traditional Honduran exports such as coffee and bananas. In addition to liberalizing trade in goods and services, CAFTA-DR includes important disciplines relating to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protection.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||132 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||121 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||105 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$1.4 Billion||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$2,250||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
2. Bilateral Investment Agreements and Taxation Treaties
A Bilateral Investment Treaty (BIT) between the United States and Honduras entered into force in 2001. The U.S.-Honduras Treaty of Friendship, Commerce and Consular Rights (1928) provides for Most Favored Nation treatment for investors of either country. The United States and Honduras also signed an agreement for the guarantee of private investments in 1955 and an agreement on investment guarantees in 1966. CAFTA-DR supersedes most provisions of these agreements. Honduras and the United States signed a Tax Information Exchange Agreement in 1990. In 2014, Honduras and the United States signed the Foreign Account Tax Compliance Act.
Provisions for investment are included in free trade agreements between Honduras and the United States, Canada, Chile, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Peru, the Dominican Republic, Colombia, Taiwan, South Korea, and the European Union. These agreements supersede many of the provisions of Honduras’ separate Bilateral Investment Treaties with these countries. Honduras also has separate Bilateral Investment Treaties with the Republic of Korea and with Switzerland.
8. Responsible Business Conduct
Awareness of the importance of Responsible Business Conduct (RBC) is growing among both producers and consumers in Honduras. An increasing number of local and foreign companies operating in Honduras include conduct-related responsibility practices in their business strategies. The Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) leads efforts to promote transparency in the business climate and provides the Honduran private sector, particularly small- and medium-sized businesses, with the skills to engage in responsible business practices. FUNDAHRSE’s members can apply for the foundation’s “Corporate Social Responsibility Enterprise” seal for exemplary responsible business conduct involving activities in health, education, environmental, codes of ethics, employment relations, and responsible marketing.
RBC related to the environment and outreach to local communities are especially important to the success of investment projects in Honduras. Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities. Efforts to pass legislation in support of International Labor Organization Convention 169 on Indigenous and Tribal Peoples has stalled in congress, although nascent efforts within the business community to revive the legislative process are underway. Successful foreign investors in Honduras implement a proactive strategy to build trust and effective dialogue with local communities. Investors should both meet Honduran legal obligations and employ international best practices and standards to engage with communities to reduce the risk of conflict and promote sustainable and equitable development.
Examples of international best practices include the following:
- Voluntary Principles on Security and Human Rights Initiative
- The UN Guiding Principles on Business and Human Rights
- The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$15,029||100%||Total Outward||$2,273||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$308||100%||All Countries||$10||100%||All Countries||$297||100%|
|International Organizations||$193||63%||Panama||$6||60%||International Organizations||$193||65%|
|United States||$95||31%||United States||$5||50%||United States||$90||30%|
14. Contact for More Information
Economic Counselor Lisa Miller
Avenida La Paz
Telephone: (504) 2236-9320, Ext. 4531