Return to: Index of "1996 Country Commercial Guides" ||
Index of "Economic and Business Issues" ||
Electronic Research Collections Index ||
ERC Homepage
U.S. Department of State
1996 Honduras Country Commercial Guide
Office of the Coordinator for Business Affairs
1996 COUNTRY COMMERCIAL GUIDE
HONDURAS
TABLE OF CONTENTS
I. COMMERCIAL OVERVIEW
A. OVERVIEW OF IMPORT MARKET
B. BRIEF SYNOPSIS OF COMMERCIAL ENVIRONMENT
C. HOST COUNTRY BUSINESS ATTITUDE TOWARD THE U.S.
D. MAJOR BUSINESS OPPORTUNITIES
E. MAJOR ROAD BLOCKS TO DOING BUSINESS
F. NATURE OF LOCAL AND THIRD COUNTRY COMPETITION
II. ECONOMIC TRENDS AND OUTLOOK
A. KEY ECONOMIC INDICATORS
B. MAJOR TRENDS AND OUTLOOK
C. GROWTH, OUTPUT AND EMPLOYMENT
D. INFLATION
E. MONEY, CREDIT AND BANKING
F. FISCAL OPERATIONS
G. BALANCE OF PAYMENTS SITUATION
H. THE EXTERNAL DEBT
I. ECONOMIC REFORM AND POLICY ISSUES
J. INFRASTRUCTURE
K. NATURE OF LOCAL AND THIRD COUNTRY COMPETITION
III. POLITICAL ENVIRONMENT
A. NATURE OF BILATERAL RELATIONSHIP WITH UNITED STATES
B. MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE
C. SYNOPSIS OF POLITICAL SYSTEM
IV. MARKETING U.S. PRODUCTS AND SERVICES
A. DISTRIBUTION AND SALES CHANNELS
B. USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER
C. FRANCHISING
D. DIRECT MARKETING
E. JOINT VENTURES/LICENSING
F. STEPS TO ESTABLISHING AN OFFICE
G. SELLING FACTORS/TECHNIQUES
H. ADVERTISING AND TRADE PROMOTION - LISTING OF MAJOR NEWSPAPERS
AND BUSINESS JOURNALS
I. PRICING PRODUCTS
J. SALES SERVICE/CUSTOMER SUPPORT
K. SELLING TO THE GOVERNMENT
L. PROTECTING YOUR PRODUCT FROM INTELLECTUAL
PROPERTY RIGHTS (IPR) INFRINGEMENT
M. NEED FOR A LOCAL ATTORNEY
V. LEADING TRADE PROSPECTS FOR U.S. BUSINESS
VI. TRADE REGULATIONS AND STANDARDS
A. TARIFFS AND IMPORT TAXES
B. CUSTOMS VALUATION
C. IMPORT LICENSES
D. EXPORT CONTROLS
E. IMPORT/EXPORT DOCUMENTATION
F. TEMPORARY ENTRY
G. LABELING, MARKING REQUIREMENTS
H. PROHIBITED IMPORTS
I. STANDARDS (E.G. ISO 9000 USAGE)
J. FREE TRADE ZONES/WAREHOUSES
K. SPECIAL IMPORT PROVISIONS
L. MEMBERSHIP IN FREE TRADE ARRANGEMENTS
VII. INVESTMENT CLIMATE
A. OPENNESS TO FOREIGN INVESTMENT
B. CONVERSION AND TRANSFER POLICIES
C. EXPROPRIATION AND COMPENSATION
D. DISPUTE SETTLEMENT
E. PERFORMANCE REQUIREMENTS/INCENTIVES
F. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
G. PROTECTION OF PROPERTY RIGHTS
H. REGULATORY SYSTEM: LAWS AND PROCEDURES
I. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
J. POLITICAL VIOLENCE
K. BILATERAL INVESTMENT AGREEMENTS
L. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
M. LABOR
N. FOREIGN-TRADE ZONES/FREE PORTS
O. CAPITAL OUTFLOW POLICY
P. FOREIGN DIRECT INVESTMENT STATISTICS
Q. MAJOR FOREIGN INVESTORS
VIII.TRADE AND PROJECT FINANCING
A. DESCRIPTION OF BANKING SYSTEM
B. FOREIGN EXCHANGE CONTROLS AFFECTING TRADING
C. GENERAL FINANCING AVAILABILITY
D. HOW TO FINANCE EXPORTS/METHODS OF PAYMENT
E. TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE
F. PROJECT FINANCING AVAILABLE
G. LIST OF COMMERCIAL BANKS
IX. BUSINESS TRAVEL
A. BUSINESS CUSTOMS
B. TRAVEL ADVISORY AND VISAS
C. HOLIDAYS
D. BUSINESS INFRASTRUCTURE
APPENDICES
A. COUNTRY DATA
B. DATA ON BEST PROSPECTS FOR AGRICULTURE AND INDUSTRY SECTOR EXPORTS
C. U.S. AND COUNTRY CONTACTS
D. MARKET RESEARCH LIST
E. TRADE EVENT SCHEDULE
I. COMMERCIAL OVERVIEW
A. OVERVIEW OF IMPORT MARKET
Although a 5-20 percent (of CIF value) tariff covers most products,
certain items such as grains, poultry, leather and textiles have tariffs
that range up to 100 percent. The Government of Honduras eliminated a
10 percent import surtax on 20,000 products but high surtaxes remain on
a number of products. A selective consumption tax is imposed almost
exclusively on imported luxury type items. As a result of the
implementation of progressive policies to dismantle the
statist/interventionist economy, a traditional preference for U.S.
products and healthy levels of economic growth, imports from the U.S.
increased from USD 504 million in 1989 to USD 558 million in 1994.
The immediate response to the implementation of trade liberalization
policies was a rapid increase in imports of consumer goods. In recent
years, capital goods have experienced the highest growth rates. An
escalation in construction and infrastructure has fueled the demand for
construction equipment, building products and hand and power tools. The
government's initiatives to modernize and diversify the country's
economy have stimulated an increase in the demand for agricultural
machinery and equipment, forestry and woodworking equipment and
electrical power systems. The transportation sector has seen strong
growth in the importation of used Japanese-made passenger and utility
vehicles from the U.S., and used school buses that are popular for urban
transportation.
B. BRIEF SYNOPSIS OF COMMERCIAL ENVIRONMENT
Several factors combine to make the commercial environment in Honduras
highly attractive for experienced U.S. exporters. The proximity of
Central America to the U.S. market and the best port facilities in the
region ease logistics. Several airlines have daily direct flights to
Miami, Houston and New Orleans, and the Pacific and Caribbean shipping
routes are well served. This, coupled with a history of social
stability and the recent development of regional economic integration,
makes Honduras an excellent location to penetrate the Central America
market. It is common to find that business and political leaders speak
English. Many were educated in the U.S. and travel there frequently for
business and tourism. Consumer tastes in Honduras are traditionally
oriented toward U.S. products. U.S. dominance of Honduras' foreign
trade, with about a 50 percent share of the import market, illustrates
the strong commercial connection between the two countries. A bilateral
investment treat was signed betwen Honduras and U.S. on July 1, 1995.
All commercial banks in Honduras are privately owned and have
correspondent relationships with U.S. banks. Loan rates start at 36
percent, which is considered high by any economic observer, and
inflation is currently running at about three percent a month. As of
June 21, the Lempira traded at 9.3 to one dollar.
Honduras' legal system does not function on precedent, lacks codified
laws and does not offer the option of a jury trial. As a result,
international investors often find themselves caught up in a nasty web
of contradictory laws and regulations. Frequently, those who believe
they have followed prescribed legal procedures find they do not receive
clear and timely adjudication of their cases. The
Honduran legal system is undergoing reform, including important
contributions from the U.S. Agency for International Development's
Democratic Initiative project. Commercial cases are settled in the
civil courts.
C. HOST COUNTRY BUSINESS ATTITUDE TOWARD THE U.S.
Most Honduran businessmen are at ease with U.S. business practices.
Traditionally, many Honduran families, both from the elite and middle
class, send their children to the United States for education, and
private bi-lingual schools (English/Spanish) abound, so it is common to
find local businessmen and professionals who speak English and have had
some experience with U.S. culture. That familiarity, as well as the
dominance of U.S. media in markets such as cable and network television
and radio broadcasts, also strengthens the Hondurans' taste for U.S.
consumer products and culture. Many Honduran firms have enjoyed
longstanding relationships with U.S. suppliers and trading patterns have
been formed by the proximity to the U.S. market. Most Honduran
businessmen consider U.S. companies and U.S. products reliable.
D. MAJOR BUSINESS OPPORTUNITIES
Electrical generating systems: Honduras is experiencing a severe energy
crisis caused by rising electricity demand and output shortfalls. A
Presidential Decree issued in April 1994 authorizes the National
Electric Company (ENEE) to engage in direct contract negotiations with
firms that offer thermal electric generating systems. Over the next two
years, the U.S. Embassy estimates investment in this area will reach USD
150 million.
Telecommunications: In 1993, the Honduran Telecommunications Company
(HONDUTEL) awarded two contracts, collectively valued at USD 155
million, for the installation of 220,000 telephone lines. HONDUTEL also
awarded a USD 30 million leasing arrangement for private cellular
telephone services. The Government of Honduras has announced that the
privatization of HONDUTEL will take place in the next few years.
Road Construction: While the Reina administration is not likely to
continue to invest heavily in major infrastructure projects, the
Ministry of Communication, Transportation and Public Works (SECOPT)
plans to upgrade approximately 2,000 kilometers of secondary roads,
which are part of Honduras' 14,000 KM official road network. This
upgrading involves widening and repairing the gravel surfaced roads that
connect small towns to the main road system.
Social Housing: The government has announced plans to implement a
program for the construction of low cost housing. The estimates are
between 30-50 thousand units of social housing. The project will be
executed in the next three years. The Central American Bank for
Economic Integration (CABEI) has ventures between foreign and local
construction companies. The project will consist of blocks of between
200-500 units.
E. MAJOR ROAD BLOCKS TO DOING BUSINESS
Impediments to increased U.S. exports stem mainly from the small size of
the market, the low purchasing power of the majority of Hondurans, lack
of financial resources, and a constricted supply of local financing.
Bank interests rates are high, running 36-40 percent, repayment periods
of one year or less are common, and external financing is limited.
While Honduras imports a wide variety of products, few product markets
have much depth. Significant barriers include: tariffs, taxes and fees,
foreign exchange shortages, discriminatory government procurement
practices, IPR infringements, poor administration of justice, investment
disputes and a deficient agricultural distribution system.
F. NATURE OF LOCAL AND THIRD COUNTRY COMPETITION
The U.S. is Honduras' primary trading partner. Approximately 50 percent
of the country's total trade is with the U.S. Hondurans continue to be
partial to U.S. products. While the U.S. enjoys a dominate position in
most sectors, competition varies on a sector-by-sector basis. In recent
years Asian and European firms have made inroads in the Honduran market.
Country Commercial Guides are available on the National Trade Data Bank
on CD-ROM or through the Internet. Please contact stat-USA at 1-800-
STAT-USA for more information. To Locate Country Commercial Guides via
the Internet, please use the following worldwide WEB address: WWW.STAT-
USA.GOV. CCGs can also be ordered in hard copy or on diskette from the
National Technical Information Service (NTIS) at 1-800-553-NTIS.
II. ECONOMIC TRENDS AND OUTLOOK
A. KEY ECONOMIC INDICATORS
(Est.) 1994 1995 1996
Population (millions) 5.4 5.6 5.8
Population growth (percent) 2.9 2.9 2.9
Real GDP (millions of 1978 LPS.) 5,898.0 6,133.9 N/A
Real GDP growth (pct. chg.) 1.4 4.0 N/A
Per Capita GDP (pct. chg.) 3.2 0.6 N/A
Consumer Price Index (pct.chg.)/1 28.9 33.2 15.0
Labor Force (thousands) 1,520.0 1,610.8 1,657.5
Unemployment (pct.)/2 16.1 16.0 15.8
Underemployment (pct.)/2 38.0 38.0 38.0
Government Deficit (pct. chg.) 7.5 4.0 3.0
Government Spending as a % of GDP 27.0 27.0
Balance of payments (USD millions):
Exports (FOB) 866.7 1,124.4 N/A
Imports (CIF) 1,014.7 1,208.5 N/A
Trade Balance 148.0 34.1 N/A
Current Account Balance -215.4 -129.0 N/A
Overall Balance 0.0 300.0 N/A
Foreign Exchange Reserves/3 110.9 0.0 N/A
Foreign Debt (USD millions) 3,248.2 3,868.2 3,925.4
--As Pct. of GDP 115.8 111.5 105.1
--Debt Service 428.5 465.2 105.1
--As Pct. of Exports 37.0 29.8 29.9
Foreign Exchange Rate (LPS./USD):
--Average Market Rate 8.4 9.3 N/A
--Year-end Market Rate 9.4 10.2 N/A
U.S.-Honduran Trade (USD millions):
Exports To U.S. (FOB) 450.1 N/A N/A
Imports From U.S. (CIF) 558.0 N/A N/A
Bilateral Trade Balance -107.9 N/A N/A
U.S. Share of Honduran imports 45.8 N/A N/A
U.S. Assistance (fiscal years) 37.4 25.7 N/A
/1/ Year-end values
/2/ GOH Ministry of Labor estimates
/3/ Preliminary
B. MAJOR TRENDS AND OUTLOOK
The Honduran economy was in the grips of stagflationary conditions in
1994. An unprecedented energy crisis, declining output of key
agricultural products (basic grains and bananas) and a depressed
construction industry led to a 1.4 percent slump in real GDP, or a 4.3
percent decline in per capita terms. A ballooning fiscal deficit caused
by the extravagant public investment policies of the former Callejas
government triggered a major inflationary surge with consumer prices
jumping from 13 percent (in 1993) to 28.6 percent (in 1994). A strong
rebound in coffee export receipts was mostly erased by a weak banana
industry with total merchandise exports rising a meager 2.5 percent.
Although merchandise imports declined 6.7 percent, Honduras continued to
run large deficits in the current account of the balance of payments.
The Honduran economy is saddled by an external debt which exceeds GDP
and debt service-to-export ratios of close to 30 percent.
On the policy side, in 1994 the new Reina government was slow to come to
grips with the economic crisis. Later in the year, the GOH did succeed
in getting Congress to ratify an IMF-supported fiscal deficit reduction
package. In January 1995, the IMF Board of Directors approved the
second of a three-year enhanced structural adjustment facility (ESAF)
for Honduras. The ESAF paves the way for possible major IDB and World
Bank Club debt rescheduling terms. We expect a booming coffee sector,
an improved energy panorama and the restoration of fiscal discipline to
restore the economy to growth and ease inflationary pressures. However,
the GOH's adoption of austere fiscal and monetary policies combined with
declining living standards has proven politically costly.
C. GROWTH, OUTPUT AND EMPLOYMENT
In 1994, the Honduran economy plunged into recession on the back of the
most severe energy crisis in the nation's history. Three consecutive
years of drought weather conditions caused a precipitous decline in
water levels at Honduras' primary hydroelectric energy facility -- the
Francisco Morazan (El Cajon) dam. Accounting for roughly 50 percent of
the nation's energy output of 500 megawatts, El Cajon's energy
generation declined steadily, reaching a low production of 70 megawatts
of its total 300 megawatt capacity by mid-August 1994. The energy
rationing which began with several hours per day in February, peaked at
14 hours per day from mid-August until mid-December. Overall, the
energy sector's contribution to GDP declined 4.3 percent in 1994. A
steeper decline was offset by major industrial and residential purchases
of thermal generators and major increases in fuel purchases for new
generating capacity.
The energy crisis has had a devastating across-the-board impact on
economic activity. The energy shortages punished the manufacturing
sector with Honduran factories losing entire production shifts on a
daily basis for most of the year. The manufacturing sector, which in
1992 and 1993 registered impressive gains of 6.1 percent and 6.3
percent, respectively, tumbled 2.9 percent in 1994. Services,
particularly travel, restaurants, movie theaters and many retail
operations were badly affected by the blackouts. Overall, services
declined 2.8 percent. The volatile construction industry was also badly
hit by the energy crisis. Cement shortages sparked by massive cement
outflows to El Salvador where prices are higher, and rising interest
rates' dampening of demand for commercial and residential units
compounded the construction sector's woes, with production plunging 17.2
percent in 1994.
The contraction in the agricultural sector was caused by a variety of
factors. First, drought weather conditions in the period June-September
ensured major crop losses to basic grains (corn, beans, rice and
sorghum) production in bad areas of the country. Also, the banana
sector was hurt by the European Union's maintenance of protectionist
import policies, slack world price conditions, and a crippling five-week
worker strike at plantations owned by the U.S. fruit multinational,
Chiquita Brands. A rebound in the coffee industry and continued strong
growth of such non-traditional industries as shrimp cultivation and
melons prevented a stronger downturn in the strategic agricultural
sector.
The GOH's adoption of tight fiscal policies, which successfully slashed
the fiscal deficit from 10.6 percent of GDP (in 1993) to 7.3 percent (in
1994), also imposed additional drag on the economy. The GOH deficit-
cutting policies were primarily achieved by slashing public investment
outlays and defense expenditures. The public sector's contribution to
GDP dropped a steep 10.9 percent. The fiscal deficit problem forced the
Honduran Central Bank to tighten monetary policy as an anti-inflationary
tool. This was principally achieved by raising commercial banks'
reserve requirement which triggered a major increase in commercial bank
interest rates further slowing consumer and investment demand.
On the plus side, the transport sector, buoyed by the ongoing expansion
of Central American Common Market trade, posted solid growth of 5.3
percent. The financial sector, blessed by deregulated interest rates,
grew 5.6 percent. Finally, rising property prices contributed to a 3.5
percent rise in real estate's contribution to GDP. The small but
potentially significant mining industry grew 4.7 percent due to several
major exploration investments being carried out by U.S. - Canadian and
British mining interests.
We are predicting a recovery in 1995. First, while Honduras should
experience some energy rationing in 1995, the problem will not be as
severe as in 1995. The fact that Honduran businesses have invested
heavily in back-up thermal power makes the private sector far less
vulnerable to rationing than in 1994. Also, booming coffee prices and a
bumper 1994-95 harvest will boost real GDP. Current projections are for
1995 coffee exports to more than double to close to USD 400 million.
The coffee bonanza for the country's 80,000 coffee farms will have a
positive multiplier effect on the entire economy. We also project a
mild recovery in the banana industry from its dismal 1994 performance.
Finally, foreign investment in Honduras' maquila industry is again on
the rise, as U.S. firms seek to gain a windfall from the likely approval
by the U.S. Congress of NAFTA parity legislation for the Caribbean Basin
nations. We project a 4 percent increase in real GDP in 1995.
D. INFLATION
Honduras' inflation rate climbed from the lowest in Latin America in
1992 (at 6.5 percent) to 28.9 percent in 1994. Rigid monetary/fiscal
policies were decisive factors in controlling inflationary pressures in
1990-92. By contrast, an expansion in public sector expenditure levels
in 1993 and a weak currency led to a doubling of inflation to 13 percent
on the year.
In 1994, continued monetization of the fiscal deficit, further slides of
the lempira and the energy crisis' and drought's impact on production
levels further aggravated inflation. Inflation (on a point-to-point
basis) more than doubled to 28.9 percent. Measured on a average basis,
food prices led the inflationary prices, also increasim 27.4 percent,
followed by education (23.5 percent), personal care (21.1 percent),
housing (18.4 percent), beverages and tobacco (17.3 percent), transport
(13.3 percent) and clothing (11.5 percent).
Although the GOH adopted austere deficit reduction policies in late
1994, in the first four months of 1995 inflation has been higher than
anticipated. Through April 30, cumulative inflation is more than 13
percent, exceeding the IMF program target for all of 1995. In the past
12 months, as of April 30, 1995, inflation has reached 33.5 percent.
This is attributable at major cost-push pressures caused by the rise in
bus fares, gasoline prices and electricity tariffs. Also, the Honduran
Central Bank has been unable to sterilize the rapid growth in money
supply caused by the jump in coffee export receipts.
We expect the impact of the fiscal deficit reduction measures and
Central Bank open market operations (sale of bonds), aimed at reining in
money supply, to slow inflation in the second half of 1995. We are
currently projecting 1995 inflation of 20-25 percent.
E. MONEY, CREDIT AND BANKING
In recent years, Honduran bank earnings have been bolstered by a series
of financial reforms. Beginning in 1990, the Central Bank began to
promote more efficient financial intermediation by gradually phasing in
interest rate deregulation. Interest rate ceilings were gradually
removed, and in 1992 the Central Bank moved to a free interest rate
regime. Another positive development was the creation of stock
exchanges in San Pedro Sula (1990) and Tegucigalpa (1993). These stock
exchanges have quickly matured into an active market for the trading of
debt instruments and offer future prospects for the raising of equity
through the issuance of publicly traded shares. On the down side,
Honduran commercial banks have faced steep reserve requirements, which
in 1994 hovered in the 36-42 percent range. The onerous reserve
requirement and rising inflation have kept nominal bank loan rates
hovering above 30 percent for most of the year. The Central Bank
initiated a gradual program to reduce the reserve requirement, currently
at 36 percent. In May 1995, the GOH also submitted a financial sector
reform law for Congressional ratification. Although watered down
somewhat during negotiations between the Central Bank and the National
Association of Honduran Banks (AHIBA), the law does strengthen the
regulatory authority and imposes stricter controls on bank lending to
related companies and bank directors. IDB disbursement of a USD 65
million multi-sectoral loan is riding on Congressional ratification of
the financial sector reform package.
In 1994, the weak fiscal accounts were reflected in the monetary
aggregates. M1, (currency in circulation and demand deposits) grew an
expansive 36.9 percent. M2 (M1 and time deposits) grew at a somewhat
slower pace of 27.6 percent. Meanwhile net bank credit to the public
sector was up 19.7 percent, while net credit to the private sector rose
by 24.7 percent. These buoyant monetary numbers have been critical
variables driving up wholesale and consumer prices.
F. FISCAL OPERATIONS
The significant deterioration of the fiscal accounts in 1993 represents
the principal threat to macro-economic stability in HOnduras. The
fiscal crisis was induced by the adoption of highly expansionary
expenditure policies during the last year of President Rafael Leonardo
Callejas' administration. In 1993, public sector investment nearly
doubled to 2.5 billion lempiras. Surging capital account outlays and a
24 percent increase in current account spending (due to lavish wage
hikes for public sector employees) ensured a 40 percent rise in total
expenditures. The consolidated public sector deficit -- as a percent of
GDP-- jumped from 4.3 percent in 1992 to 10.6 percent in 1993. Honduras
badly missed the IMF program target of cutting the consolidated public
sector deficit to 3.8 percent of GDP in 1993.
In 1994, the public sector continued to bleed from the massive fiscal
deficit. The new government of President Reina, however, was successful
in reimposing a measure of fiscal discipline by slashing public
investment. Overall, in 1994, the fiscal deficit was reduced by 3-4
percent of GDP to 7.5 percent. In October 1994, the Honduran Congress
approved an IMF blessed deficit reduction package that included the
creation of one percent tax on net assets, the expansion of the income
tax base on services and the liberalization of the customs exchange rate
(the exchange rate used to value the payment of import tariff duties).
In late 1994 and early 1995, petroleum taxes, domestic telephone rates
and bus fares rose. On the expediture side, the GOH also committed to
reducing public sector employment by 10 percent in 1995. In response to
the credible GOH effort to cut the deficit, in January 1995 the IMF
Board of Directors approved the second year of a three-year enhanced
structural adjustment facility (ESAF) for Honduras and disbursed USD 15
million in blance of payments support.
So far, as of the first quarter of 1995, the GOH has exceeded IMF
program revenue targets. The GOH has also dismissed more than 4,000
public sector employees. While program performance has been good, a
congressionally-mandated one-month increase in public sector wage levels
will raise spending 70 million lempiras above program ceiling levels.
The GOH will also need to adopt controversial increases in electricity
tariff rates in June-July to remain in full compliance with program
conditionality.
G. BALANCE OF PAYMENTS SITUATION
Honduran export performance was mixed in 1994, with total merchandise
exports rising a modest 2.5 percent to USD 866.7 million. Banana
exports, Honduras' traditional export mainstay, plummeted from USD 229.1
million to USD 155 million a 32.3 percent free fall. The European
Union's July 1, 1993 adoption of a restrictive banana import regime has
severely punished this critical industry. A paralyzing five-week labor
strike in June-July, 1993 at plantations owned by the U.S. firm Chiquita
Brands, coupled with unfavorable prices in a glutted U.S. market,
compounded the decline in volume and value levels.
Fortunately, a major rebound in international coffee prices due to
large-scale crop losses in Brazil buoyed the coffee industry. In 1994,
average coffee export prices jumped 51.7 percent and coffee receipts
surged 42.6 percent (to USD 177.7 million) despite a slight 6 percent
drop in export volume. In 1994, coffee surpassed, for the first time in
nearly 20 years, bananas as the nation's leading export commodity. We
believe that Honduras' comparative advantage ( low cost/high quality) as
a coffee producer sustained the industry during the dismal 1989-1993
price era and the country will continue to reap windfall from favorable
prices in the coming several years. Preliminary harvest estimates for
1994-95 suggest major gains in volume and export levels.
The performance of other traditional export commodities was uneven.
Gains were registered for silver, up 25.7 percent in value terms due to
major increases in world prices. Honduras was unable to take advantage
of rises in lead and zinc prices as a result of declines in production
levels. Lead and zinc export values fell 16.7 and 31.3 percent,
respectively.
Large scale foreign and domestic investment continues to strengthen
Honduras' seafood industry. In 1994, shrimp exports, boosted by booming
international prices caused by production shortfalls in China and
Ecuador, triggered a 23.6 percent gain in shrimp export values (to USD
117.7 million). Local sources report that recent evidence suggests that
Honduras' cultivated shrimp farms, which account for 50 percent of
shrimp production, may have been infected with the deadly Taura virus,
which has devastated Ecuadorian shrimp production in recent years.
Industry sources tell us that shrimp yields are down 25-50 percent so
far this year. The Caribbean-based lobster industry grew by 5.3 percent
in 1994 to USD 24 million. Beef exports at USD 38 million were
virtually unchanged from 1993 levels, but still represent a significant
export industry.
As designed, the move to a market-based exchange rate system in 1992
continues to boost many non-traditional export industries. In 1994,
these promising sectors grew a combined 11.2 percent to USD 274 million.
Agricultural related non-traditonal activity was principally driven by
solid gains in melons, grapefruits and palm oil. Maquila operations in
Honduras' large and growing free zone and industrial park projects
continue to be a major plus for the balance of payments. Maquila,
however, is counted as an export in the services account.
In 1994, Honduras' slumping economy ensured a 6.7 percent drop in total
merchandise imports to USD 1 billion. The import decline was remarkable
even with most major categories showing drops of 10 to 12 percent.
Rising purchases of industrial and personal thermal power generators
contributed to 1.2 percent increase in petroleum product imports (to USD
182.7 million). The generator purchases are also reflected in the 10.1
percent growth in machinery imports (to USD 197.2 million). Other major
import categories were chemical products (down 12.3 percent to USD 103.4
million), plastics (down 12.3 percent to USD 72.9 million), and paper
products (also down 12.3 percent to USD 63.6 million).
Honduras' net balance in services and interest payments was USD 227.4
million in deficit. Nonetheless, the services deficit actually shrank
almost USD 100 million compared to 1993.
With modest export growth outpacing the drops in import levels,
Honduras' merchandise/services trade deficit fell from USD 525.3 million
in 1993 to USD 375.4 million in 1994. The current account deficit,
which reached a record USD 353.4 million in 1993, fell to a more
manageable level of USD 215.4. Current account transfers, mostly donor
grants, declined slightly to USD 160 million.
Honduras' capital account continues to perform well, recording a hefty
surplus of USD 208.2 million. In recent years the capital account has
been bolstered by a hodgepodge of lower external debt payments - a
direct function of favorable Paris Club debt reschedulings - and IFI
disbursements. In 1994, external debt payments were higher (reaching
USD 490 million), but this was partially compensated by higher private
bank financing, principally related to a USD 155 million 936 window loan
for an AT&T/Siemens 220,000 line telephone project. Also, new
international private bank credit lines have been financing Honduras'
flourishing coffee industry. Paradoxically, Honduras' capital account
was also buoyed by an increase in arrears to Paris Club countries. The
positive capital account numbers permitted a surplus in the overall
balance of USD 32.3 million. Net foreign exchange reserve levels grew
by USD 44.8 million to USD 110 million.
Honduras' balance of payments has improved in 1995. First, the ongoing
coffee boom is projected to increase Honduras' coffee earnings by at
least USD 200 million in 1995. The ailing banana sector, although
continuing to suffer from European protectionism, should recover from
dismal 1995 levels. The improved energy situation and the Mexican crisis
should spur greater investments, and lead to expanding exports in the
prosperous maquila industry. On the down side, the Taura virus is
likely to end a six-year boom in the shrimp industry.
Honduras has already received USD 15 million in balance of payments
support from the IMF. The IMF program also opened the door to continued
favorable Paris Club debt rescheduling terms and major Inter-American
Development Bank and World Bank loans in energy, agricultural and
industrial sectors. Honduras is close to concluding agreements with its
Paris Club creditors this month. Greater IFI support will compensate
for continued declines in bilateral U.S. assistance levels. GOH
maintenance of positive real interest rates will increase short-term
(private) capital inflows into the banking system. These factors should
continue to sustain Honduras' capital account surpluses during 1995.
Overall, we expect the export recovery and increased lending activity by
the multilateral banks to allow for a major - USD 100 million - increase
in net reserve levels, a relatively stable lempira, a substantial drop
in the current account deficit and a hefty surplus in the overall
balance.
H. THE EXTERNAL DEBT
In recent years, Honduras has benefited from more than USD 500 million
in debt forgiveness granted by the United States and other creditor
countries. However, Honduras has continued to take on a new debt and in
1995 total external debt obligation rose USD 200 million to USD 3.6
billion. On the year, debt service (principal and interest) was USD 300
million, or 37 percent of total exports. While Honduras has managed to
remain current on debt service payments to its multilateral creditors,
there are small but growing areas on bilateral commitments.
I. ECONOMIC REFORMS AND POLICY ISSUES
In the early months following his inauguration in late January 1994,
President Reina and his economic team proved frustratingly slow in
recognizing the severity of the crisis and mapping out a cogent strategy
to save the economy. Fortunately, by mid-year, GOH economic
policymakers began to grasp the policy wheel. In June 1994, the Central
Bank sharply raised the reserve requirement and established ceilings on
Central Bank net credit to the public sector -- important anti-
inflationary measures. Later in the month, the Central Bank also adopted
a foreign exchange auction system effectively moving to a tri-weekly
crawling peg foreign exchange regime. These measures helped slow the
inflationary surge and restored a measure of stability to the volatile
foreign exchange market. The GOH also implemented draconian expenditure
reduction measures by freezing most public spending on infrastructure
projects begun under of the Callejas government (except in the
telecommunications sector).
In October 1994, the GOH was able to get Congressional ratification for
an IMF-blessed deficit reduction package. In November, the GOH
implemented complementary measures such as higher petroleum prices
(taxes) and domestic telephone rates. On December 2, 1994, the IMF and
the GOH signed a letter-of-intent for a second year of a three-year
Enhanced Structural Adjustment Facility (ESAF). The program was
approved by the IMF Board in late January 1995.
The GOH has been less successful in tackling the energy crisis. In July
1994, President Reina replaced the honest but ineffective Jorge del
Valle as President of the National Electric Company (ENEE) with the
energetic Chombo Sandoval. Early on, Sandoval's task was helped by
heavy rainfall in September-October, which raised water levels at El
Cajon dam from a precariously low 223 meters (in early September) to 250
meters. Also, ENEE engineers were able to install two of three aging
thermal generators, with close to 40 megawatts of power, donated by
Mexico. ENEE also obtained Congressional approval of an energy sub-
sector law that opened the market for private sector investment in this
sector.
Unfortunately, following more than a year of intensive efforts, ENEE has
only been able to secure one major energy investment, a 40 megawatt gas-
fueled contract to a U.S. firm. A 75-megawatt, 15-year contract with
another foreign energy development firm, ratified by the Honduran
Congress in October 1994, collapsed when the firm could not deliver on
the promised financing package. The GOH's failure to conclude or
implement these contracts makes electricity rationing highly probable
beginning in July 1995.
On trade policy, the Reina administration has generally supported
regional initiatives. The GOH became a GATT member in April 1994 and
was a signatory to the Uruguay Round. The Honduran Congress unanimously
ratified the Uruguay Round accords and WTO membership in December of
1995. On investment, President Reina personally intervened to resolved
the two major American citizen expropiation cases. The GOH has also
been supportive in the resolution of 21 of the 78 registered property
cases. The GOH has also concluded negotiations with the U.S. on a
Bilateral Investment Treaty (BIT), which was signed on July 1, 1995 at
the Denver Ministerial. Substantive progress has also been made to
conclude an intellectual property rights agreement. In the intellectual
property rights area, in May 1995, the GOH submitted to Congress major
U.S.-backed reforms of their copyright regime.
J. INFRASTRUCTURE
Ports: Honduras has ports on both the Atlantic and Pacific oceans that
are served by a number of shipping companies that link the country with
Asia and Europe, as well as the rest of the Western Hemisphere. The
northern port of Puerto Cortes, Honduras' pricipal seaport, operates 24
hours a day and is used also for shipment of goods from El Salvador and
Nicaragua. A recently completed project to expand Puerto Cortes will
provide it with greater dock facilities and cold storage installations.
Honduras has three other ports on the Caribbean and one on the Pacific.
Roads and Highways: Honduras has a 14,000 kilometer official road
network connecting the ports and airports with the secondary cities and
rural areas of the country. The country has good surface communication
with the rest of Central America. The Ministry of Communication,
Transportation and Public Works (SECOPT) plans to upgrade approximetely
2,000 kilometers of secondary roads during the next three years, which
will improve the connection of small towns and rural farming area to the
main road system.
Airports: Four international airports serve the capital Tegucigalpa,
the commercial center San Pedro Sula, the tourism island of Roatan and
the coastal city of La Ceiba. Air freight services are reliable and
efficient. Three gateway cities (Houston, Miami, and New Orleans) are
only 2 1/2 hours (flying time) from Honduras. Direct flights between
Honduras and cities in North and Central America are provided by the
following international airlines: American, Continental, COPA, LACSA,
IBERIA, and Taca. Islena Airlines, a domestic air carrier, connects
Tegucigalpa with the north coast and Bay Islands. Charter service and
aircraft rentals (small single-and twin-engine equipment) are available
from private flying services operating out of Tegucigalpa, San Pedro
Sula, and La Ceiba.
Electrical generating systems: Honduras is experiencing a severe energy
crisis caused by rising electricity demand and output shortfalls at the
country's largest hydroelectric plant. By a Presidential Decree of April
1994, the National Electric Company (ENEE) has been authorized to engage
in direct contact negotiations with firms that offer thermal electric
generating systems. Over the next two years, we estimate investment in
this area will reach USD 150 million.
Telecommunications: In 1993, the Honduran Telephone Company (HONDUTEL)
awarded two contract, valued at USD 155 million, for the installation of
220,000 telephone lines. HONDUTEL also awarded a USD 30 million leasing
arrangement for private cellular telephone services. The Goverment of
Honduras expects to privatize HONDUTEL within the next three years.
Construction: Even though the construction sector in Honduras has been
hard hit by high interest rates, the erection of industrial parks in
most of the secondary cities has kept this sector from total collapse.
The demand for residential housing is greatly undersupplied. The Reina
goverment has announced plans to implement a program for the
construction of low cost housing. The project will be executed in the
next three years.
K. NATURE OF LOCAL AND THIRD COUNTRY COMPETITION
The U.S. is Honduras' chief trading partner, accounting for about 50
percent of the country's total exports and imports. Honduras' other
leading trading partners include Mexico, Japan, Taiwan, Korea and other
Central American countries (El Salvador, Guatemala, Costa Rica, and
Nicaragua). Traditionally, Hondurans have maintained a preference for
products "Made in the USA". In general, receptivity to U.S. products and
services is very high. There is little competition for U.S. exporters
from local domestic suppliers, and competition for U.S. exporters from
third-country suppliers is medium to heavy.
Competition varies on a sector-by-sector basis. Increasingly,
developing and emerging countries are challenging U.S. exporters in many
sectors. Japanese vehicles dominate the new car market, but U.S.
manufacturers are beginning to make a serious effort to regain ground
lost in previous years. U.S. firms still dominate areas such as
electrical power systems, construction equipment, forestry and
woodworking equipment, automotive parts & service equipment,
agricultural machinery and equipment, building products, hotel and
restaurant equipment, computers & peripherals and software, and
telecommunications equipment. However, competition from Asian and
European firms is growing.
III. POLITICAL ENVIRONMENT
A. NATURE OF BILATERAL REALTIONSHIP WITH UNITED STATES
Honduras sees the United States as its most important international
partner by far, and the opinion of the United States is usually
carefully considered by Honduras. While Honduras is no longer as
strategically important to the United States as it was in the 1980's,
when it served as a base for the Nicaraguan Democratic Resistance
(Contra), the U.S. sees Honduras as an integral part of our policy to
promote democracy and stability throughout the region, and the U.S.
continues to provide Honduras with some USD 35 million a year of
economic assistance.
B. MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE
The two most important political issues in Honduras are President Carlos
Roberto Reina's attempt to address serious, endemic corruption via a
"moral revolution," and the current economic crisis involving a yawning
fiscal deficit and a steadily depreciating currency. While President
Reina has said he will stay with the free market economics introduced by
his predecessor, it is possible that under popular pressure generated by
falling living standards he may take more statist/interventionist
measures (e.g. exchange rate controls, price freezes, etc.)
C. SYNOPSIS OF POLITICAL SYSTEM
Honduras has been a democracy since 1982, when the armed forces - who
had governed the country for most of its history since independence from
Spain in 1821 - permitted the return of civilian rule. Since 1982,
there have been four freely elected presidents: two from the Liberal
Party, one from the National Party, and then again one from the Liberal
party, President Carlos Roberto Reina. Reina was elected in November
1993 for a four-year term and took office in January 1994. Although
there are four registered political parties, the National and Liberal
parties together claim the allegiance of about 90 percent of the
electorate, giving Honduras a de facto two-party system. While the
National Party is traditionally regarded as the more conservative of the
two, there is little real ideological difference between them and the
U.S. has worked well with both National and Liberal presidents. In
addition to the President there is a unicameral Congress whose members
are elected on the same ballot as the President. This ensures the
President of a Congressional majority, but factionalism in Reina's
Liberal party means that the current Congress is no mere rubber stamp.
As a result, Reina will have to negotiate with the Congress the economic
measures he will need to take to address the economic crisis. The
Honduran judiciary is weak and riddled with corruption, and often
incapable of effectively protecting property rights.
IV. MARKETING U.S. PRODUCTS AND SERVICES
A. DISTRIBUTION AND SALES CHANNELS
The Honduran agent/distributor law includes a provision for penalties
for wrongful termination that discourages exclusive distribution
agreements. Representatives and distributors tend to carry rather broad
lines on a non-exclusive basis, and the number of full service local
distributors that stock large inventories of parts and equipment is
limited. In order to reduce costs, or because local representatives are
not sufficiently aggressive, many local buyers make direct contacts with
U.S. suppliers at the factory or warehouse level. Store owners ofter
buy goods in small lots from stores, export brokers, or wholesalers in
the U.S., particularly in Miami, New Orleans, and Houston, the principal
gateway cities.
In certain sectors such as automobiles, computers, and electric power
generation equipment, U.S. companies are represented by local firms who
also represent other foreign competitors. In other cases, U.S.
companies are not represented locally. As a result, U.S. products are
not aggressively marketed or supported by local representatives and lose
opportunities in a market that is traditionally receptive to U.S.
products.
B. USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER
While there is a law of agents, representatives and distributors of
foreign firms in Honduras, foreigners exporting to Honduras are not
required to sell through an agent or distributor who has been registered
in the country for a specified period of time. However, exporters of
pharmaceuticals, agrochemicals, and animal feeds and medicines, are
required to register their products before they can be sold in the
Honduran marketplace. Pharmaceutical-related products must be
registered with the Ministry of Public Health and agrochemicals and
animal feeds and medicines must be registered with the Ministry of
Natural Resources.
Only Honduran nationals or Honduran legal entities registered with a
local chamber of commerce and the Ministry of Economy and Commerce may
represent foreign firms. The principal-agent relationship is governed
by the civil and commercial codes. Principals may not terminate the
contract without just cause unless they fairly compensate the agent for
damages suffered.
The U.S. Department of Commerce offers several services that are
available to U.S. firms interested in finding a partner or distributor
for their product or service. The U.S. and Foreign Commercial Service
(US&FCS) offers free and intensive, one-on-one counseling plus low-cost,
highly effective programs to help U.S. businesses establish or expand
their markets. The Commercial Section of the Embassy can locate
interested, qualified representatives in potential markets in Honduras
through its Agent/Distributor Service (ADS). A U.S. firm may check the
background and reputation of a prospective partner through the World
Trader Data Report (WTDR) service. Scheduling appointments, arranging
translators and making reservations are available through the Section's
Gold Key Service (GKS). ADSs, WTDRs, and other valuable services are
available for a nominal fee through the District Offices of the US&FCS
located in 68 U.S. cities.
C. FRANCHISING
In recent years the number of U.S. franchises operating in Honduras has
grown rapidly. There are about 20 U.S. firms now operating in Honduras
under franchising agreements. Most of these firms are fast-food
restaurants. The Commercial Section has received an increasing number of
requests about U.S. franchises. This is an area well worth exploring by
interested U.S. firms. Regional stability and the growth in investor
confidence have contributed directly to the increase in the availability
of U.S. franchises. On May 29, 1992, the Honduran Congress passed a new
investment law that is increasingly responsive to foreign investors'
needs. Among other things, the new investment law provides for national
treatment for most foreign investment, guaranteeing the right to
foreigners to freely establish, acquire, and dispose of interest in
business enterprises within constitutional bounds.
D. DIRECT MARKETING
This method of marketing is still new in the country. This is mainly
because telecommunications and mail delivery infrastructures are not
well developed for this type of marketing. However, there is a limited
amount of direct marketing by television. Direct marketing in Honduras
has been developed moderately through door-to-door sales (e.g. Avon,
Amway and Books).
E. JOINT VENTURES/LICENSING
The most promising opportunities are offered to joint venture
operations. The 1992 investment law provides that, with few exceptions,
there are no limits on the percentage of capital which can be owned by a
foreigner. Thus, foreign invested firms may be wholly owned or joint
ventures. Corporations organized under Honduran law can take the
following forms: Corporation (Sociedad Anonima or Sociedad Anonima de
Capital Variable). Corporations can buy back their own stock under a
limited partnership (Sociedad de Responsabilidad Limitada).
The Commercial Section regularly reports to the Department of Commerce
Honduran firms interested in pursuing joint ventures. In recent months,
there has been an increase in firms interested in joint venture
partners. The licensing process usually takes place between the
interested parties without need for help from the Commercial Section.
The use of licenses of U.S. firms is legally established in a contract
signed by both parties and is governed by the Honduran Commercial Code.
The constitution of Honduras requires that all foreign investment must
complement and not substitute for national investment. In certain types
of industries, majority Honduran ownership is required (see section VII.
Investment Climate, Openness to Foreign Investment). There are also
limits on the amount of land a single corporation may own. Foreigners
are also barred from ownership of small businesses with a capital
requirement of less than 150,000 Lempiras (USD 18,000). Licensing of
foreigners to practice law, medicine, engineering and other professions
is tightly regulated by national professional organizations.
Except for foreign currency earned by companies operating in free-trade
zones and industrial parks, Honduran law requires that all foreign
exchange earnings on exports from Honduras be repatriated. However, the
progressive liberalization of Honduras' foreign exchange regime now
makes it easier for companies operating in the country to remit
dividends and royalties, return capital overseas, and make payments on
foreign debt. Foreign exchange authorizations by the Central Bank have
been eliminated, and foreign debt authorizations now take less than 48
hours to obtain. Remittances of dividends and royalties must still be
approved by the Central Bank, but the approval process now only takes
around one month. Although foreign exchange regulations have
liberalized considerably, businesses should still be aware of foreign
exchange shortages as the main constraint to repatriating in-country
earnings.
Taxation is an important issue to consider when investing in Honduras.
The corporate tax rate is 15 percent on the first LPS. 100,000 of
taxable income and 35 percent on any income above that amount. Income
tax on amounts between LPS 500,000 and LPS. 1 million is assessed a 10
percent surcharge while amounts over LPS. 1 million are charged a 15
percent surcharge. Except for firms operating in the industrial parks,
located at the free tourism zones (ZOLT) or under the Temporary Import
Regime, income tax is payable on income derived from operations within
Honduras.
Income on profits obtained by foreign companies through operations of
branches, subsidiaries, or legal representatives in Honduras is taxed at
35 percent. A 15 percent tax is assessed on corporate dividends and
royalties on patents and trademarks. Capital gains are taxed as normal
income while capital losses can be used only to offset capital gains in
the same period.
Personal income tax is applied on a progressive scale ranging from zero
to 40 percent. The highest rate is applied to those earning more than
LPS. 1 million. Nonresident aliens are only required to pay for income
derived from within Honduras. Interest, dividends, rents, and royalties
are subject to a five, 15, 30, and 35 percent tax, respectively. A tax
surcharge is also levied at the same rate as the corporate income tax.
There is a sales tax of seven percent on most goods, five percent for
new cars, and 10 percent for alcohol, cigarettes and tobacco products.
A one percent tax is applied on the FOB value of all articles exported.
Honduras also collects excise, property, and municipal taxes. Exports
of coffee, bananas, seafood, and beef are under a special tax structure.
As of early 1994, there is a one percent tax on net assets in Honduras.
This tax applies to companies whose capital is greater than Lps.
750,000. However, the income tax paid by these companies is credited
against the net assets tax and many companies do not have any additional
liability.
Apart from the Tax Information Exchange Agreement (TIEA), signed between
the United States Government and the Government of Honduras in 1991,
there are no tax treaties between the U.S. and Honduras.
F. STEPS TO ESTABLISHING AN OFFICE
The U.S. Embassy recommends that all U.S. businessmen interested in
establishing an office in Honduras first contact the District Office of
the U.S. Department of Commerce. These offices are located in 68 cities
throughout the United States. We also strongly suggest that all U.S.
businessmen make contact with the Commercial Section of the U.S. Embassy
for counseling and advice. In addition to the general information
provided by commercial officers and specialists, the Commercial Section
maintains a number of lists and directories of Honduran trade contacts
and professionals, including business lawyers.
Locating and securing a suitable local partner is one of the most
important steps in establishing a base of operations in Honduras. When
doing so, U.S. business representatives should keep in mind that
contracts and agreements are binding and fall under the jurisdiction of
local laws.
To establish a local corporation, interested parties must secure the
services of an attorney. Attorneys will guide investors through the
procedures of incorporation, registration, and local taxation. In
addition, there are several other notarial acts that must be carried out
before establishing a business that require the services of an attorney.
In recent years the time to establish an office in Honduras has been
reduced considerably. With the exception of a few strategic areas that
require special permission from the government, an office can be set up
with a few days. The Honduran government has a special One Stop Shop in
the Ministry of Economy to deal with investors. Through this department
an office can be set up in a matter of hours. (For further information
see Section VII. of the Investment Climate Statement, Openness to
Foreign Investment)
G. SELLING FACTORS/TECHNIQUES
When selling in Honduras, U.S. exporters must take into account that,
for marketing purposes, the country is divided into two regions; the
North Coast, including San Pedro Sula, the country's commercial and
industrial capital; and the Central region, where Tegucigalpa, the
political capital, is located.
Large importers and distributors in Honduras usually have offices in
both cities to take advantage of market opportunities. In other
instances, large international firms have granted exclusive distributor
rights, i.e., one exclusive distributor in San Pedro Sula and another in
Tegucigalpa. These types of arrangements are acceptable under current
Honduran laws.
Because of high interest rates, importers/distributors, as well as
Government of Honduras agencies, often have problems in securing the
funds to purchase imports. U.S. exporters that offer attractive
financing terms on sales to Honduran traders have the best chances of
gaining market share. This is particularly true for large-scale
projects. International firms, however, must exercise due caution when
granting credit to Honduran trading partners.
As in most Latin American countries, a good personal relationship with
prospective customers is basic to penetrating the market. While it may
take a little longer than usual to consummate a business relationship,
the investment in time usually pays off in long-lasting and mutually
profitable alliances. Honduran businessmen seem to seriously take the
local expression that "deals are consummated at the restaurant table and
signed at the office."
H. ADVERTISING AND TRADE PROMOTION - LISTING OF MAJOR NEWSPAPERS AND
BUSINESS JOURNALS
Tegucigalpa Based Newspapers
Name Language/Distribution Telephone Fax
El Heraldo Spanish/Daily (504) 36-6000 36-6284
La Tribuna Spanish/Daily (504) 33-1283 33-1188
El Periodico Spanish/Daily (504) 34-3086 34-3090
Honduras This Week English/Weekly (504) 31-5821 32-2300
San Pedro Sula Based Newspapers
Name Language/Distribution Telephone Fax
La Prensa Spanish/Daily (504) 53-3101 53-4020
El Tiempo Spanish/Daily (504) 53-3388 53-4590
El Nuevo Dia Spanish/Daily (504) 38-0445 36-5781
I. PRICING PRODUCTS
There are no price controls, except on certain basic food items and
cement. The price of gasoline, diesel and liquid propane gas is also
controlled by the government. There is a seven (7) percent sales tax on
most goods.
J. SALES SERVICE/CUSTOMER SUPPORT
Firms that sell equipment, machines or electric appliances should
provide effective customer support. The availability of adequate
service and support frequently makes the difference in decisions on
purchases, especially by the government.
K. SELLING TO THE GOVERNMENT
To participate in public tenders, foreign firms are required to act
through a local agent. By law, local agency firms must be at least 51
percent Honduran owned, unless a government procurement is classified as
an emergency. All purchases by government ministries or autonomous
institutions over LPS. 200,000 must be made through a public bid. The
government publishes a tender in the major newspapers of Honduras and
sends written notices to the embassies. Bid evaluations cover cost,
delivery time, reputation of the firm, technical support, performance in
previous contracts and specific aspects related to each particular bid.
Interested U.S. businesses can access many of these bids through the
Trade Opportunities Program (TOP), the National Trade Data Bank (NTDB),
and the Electronic Bulletin Board (EBB), which are product services of
the U.S. Department of Commerce.
L. PROTECTING YOUR PRODUCT FROM INTELLECTUAL PROPERTY RIGHTS (IPR)
INFRINGEMENT
Although Honduras was pended in the 1992 and 1993 Generalized System of
Preferences (GSP) review under the IPR criteria, the Government of
Honduras has taken recent actions to substantially improve the IPR
climate. Traditionally, well-known trademarks have been routinely
infringed, computer software piracy and audio and video tape bootlegging
have been common, patents were difficult to enforce and the protection
afforded them under local law did not approach international standards.
As part of the GSP review process, Honduras has committed to implement
the comprehensive IPR legislation passed in 1993. The government
complied with the legislation's requirements by creating in 1994 an
intellectual property rights office in the Ministry of Economy to
implement and enforce its copyright, trademark and patent laws.
Important amendments to the country's copyright law are now being
considered by the Honduran Congress. As a signatory to the Uruguay
Round agreements and member of the World Trade Organization (WTO),
Honduras has accepted the new TRIPS standard. In addition, Honduras is
expected to conclude a bilateral IPR agreement with the U.S. in 1995.
Honduras is also expected to become a signatory to the Central
American Convention on Industrial Property.
To be protected under Honduran law, patents and trademarks must be
registered with the Ministry of Economy and Commerce. The life of a
patent ranges from 10 to 20 years depending on the importance of the
invention. Trademarks are valid up to 10 years from the registration
date. "Notorious marks" are protected under the Pan-American Convention
(1917) of which Honduras is a party. Illegal registration of a
notorious mark, however, must be contested in court if the original
holder is to exercise the rights. (Also see Section VII. G.)
M. NEED FOR A LOCAL ATTORNEY
The selection of a competent and reliable local attorney is an important
first step to doing business in Honduras. The advice and counsel of a
local attorney are essential to opening a business, preparing contracts
and understanding the legal system. The Commercial Section maintains a
list of attorneys that have experience assisting U.S. firms. The list
is regularly updated and screened by several U.S. Government agencies.
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
A. MATRIX OF BEST PROSPECTS FOR INDUSTRY SECTOR EXPORTS
1. ELECTRICAL POWER SYSTEMS
2. AUTOMOTIVE PARTS AND SERVICE EQUIPMENT
3. MEDICAL EQUIPMENT
4. AGRICULTURAL MACHINERY AND EQUIPMENT
5. BUILDING PRODUCTS
B. BEST PROSPECTS FOR AGRICULTURAL PRODUCTS
1. CORN
2. RICE (MILLED)
3. WHEAT
4. SOYBEAN MEAL
5. CONSUMER-READY PRODUCTS
A. Rank of Sector: 1
B. Name of Sector: ELECTRICAL POWER SYSTEMS
C. Three-letter ITA Industry Sector Code: EPS
1993 1994 1995*
(U.S. Dollars)
D. Total Market Size 10,213.00 50,500.00 65,300.00
E. Total Local Production 0.00 0.00 0.00
F. Total Exports 0.00 0.00 0.00
G. Total Imports 10,213.00 50,500.00 65,300.00
H. Imports from the U.S. 6,563.90 35,600.00 45,900.00
I. Exchange Rate (Lps-USD 1.00) 6.70 8.25 10.00
*1995 Statistics are unofficial estimates
J. Best Sales Prospects:
Hydraulic Turbines, (not over 1000 Kva)
Parts of gas turbines
Transformers
Transformers (16 - 50 Kva)
Parts of transformers
Insulated electric conductors
Parts for steam and other vapor turbines
Electric rotary converters
Other rectifiers adn rectifying apparatus
Other apparatus for protecting
Electrical connectors
Comments:
Honduras is experiencing a severe electric energy crisis because of
chronic difficulties at its main source of energy, the Francisco Morazan
Hydroelectric Project. The National Electric Power Company (ENEE) is in
the process of refurbishing several diesel and gas powered electric
generation plants and is to privatize generation of electricity in the
future.
A. Rank of Sector: 2
B. Name of Sector: AUTOMOTIVE PARTS AND SERVICE EQUIPMENT
C. Three-letter ITA Industry Sector Code: APS
1993 1994 1995*
(US Dollars)
D. Total Market Size 46,492.30 53,466.20 61,486.10
E. Total Local Production 0.00 0.00 0.00
F. Total Exports 0.00 0.00 0.00
G. Total Imports 46,492.30 53,466.20 61,486.10
H. Imports from the U.S. 22,817.80 26,240.50 30,176.50
I. Exchange Rate (Lps-USD 1) 6.70 8.35 10.00
*1995 Statistics are unofficial estimates
J. Best Sales Prospects
Engines and parts for Japanese made light vehicles,
including manufacutred specifically for the U.S. market.
Engines and parts for American-made heavy-duty and passenger
transportation equipment.
Engines and parts for sport utility and 4X4 vehicles.
Tires for all types of motor vehicles.
Bearings for all purposes in motor vehicles.
Electrical parts for motor vehicles.
Comments:
An aging car population, as a result of economic hardship and limited
consumer purchasing power, continues to fuel demand for automotive parts
and accessories in Honduras. Local importers and distributors of these
products prefer to buy them directly from U.S. based suppliers. The
automotive parts aftermarket is one of the most promising subsectors.
A. Rank of Sector: 3
B. Name of Sector: MEDICAL EQUIPMENT
C. Three-letter ITA Industry Sector Code: MED
1993 1994 1995*
(US Dollars)
D. Total Market Size 6,313.60 7,197.50 7,917.30
E. Total Local Production 0.00 0.00 0.00
F. Total Exports 0.00 0.00 0.00
G. Total Imports 6,313.60 7,197.50 7,917.30
H. Imports from the U.S. 2,914.00 3,351.10 3,686.20
I. Exchange Rate (Lps-USD 1) 6.70 8.25 10.00
*1995 Statistics are unofficial estimates
J. Best Sales Prospects
Medical disposables, especially needles, syringes,
examination gloves, infusion sets, catheters, collection bags
for blood, urine, etc.
X-ray equipment
Fluoroscopes
Mammographs
Cardiac monitors
Ultrasonic imaging equipment
Spectrophotometers
Microscopes
Surgical tables
Surgical lights
Comments:
The main forces driving the local market for medical equipment include
the Government of Honduras' regional hospital program and the
modernization of private hospitals.
A. Rank of Sector: 4
B. Name of Sector: AGRICULTURAL MACHINERY AND EQUIPMENT
C. Three-letter ITA Industry Sector Code: AGM
1993 1994 1995*
(USD 000'S)
D. Total Market Size 23,945.6 25,603.30 27,356.4
E. Total Local Production 1,850.0 1,961.00 2,059.1
F. Total Exports 0.0 0.00 0.0
G. Total Imports 22,095.6 23,642.30 25,297.3
H. Imports from the U.S. 9,601.1 10,273.10 10,992.2
I. Exchange Rate (Lps-USD 1) 6.7 8.35 10.0
* 1995 Statistics are unofficial estimates
J. Best Sales Prospects:
Disc Plows
Disc Harrows
Row Crop Unit Planters
Harvesting Machines for Corn, Rice and Sorgum
Farm Tractors
Comments:
Honduras continues to strengthen its position as the main producer of
agricultural basic grains in the Central American region. The
Government of Honduras is placing strong emphasis on basic grains
production and has agreed on a program of price incentives with the
largest agricultural operations in the country for that purpose.
A. Rank of Sector: 5
B. Name of Sector: BUILDING PRODUCTS
C. Three-letter ITA Industry Sector Code: BLD
1993 1994 1995*
(US Dollars)
D. Total Market Size 248,614.2 226,893.70 271,173.2
E. Total Local Production 227,675.3 204,907.80 245,889.4
F. Total Exports 0.0 0.00 0.0
G. Total Imports 20,938.9 21,985.90 25,283.8
H. Imports from the U.S. 8,373.6 8,792.30 10,111.2
I. Exchange Rate (Lps-USD 1) 6.7 8.35 10.0
* 1995 statistics are unofficial estimates
J. Best Sales Prospects
Ceramic bathroom fixtures
Glass bricks and tiles
Aluminum doors, windows and door frames
Door locks
Door closures
Comments:
Construction activity in Honduras is expected to accelerate by the
second half of 1995. This growth will be driven by an ambitious low-
cost housing program that will be executed by the Reina administration,
including the construction of about 20 thousand new homes for low-income
families.
A. Rank: n/a
B. Name of Sector: Corn
C. ITA or PS&D Code: 0440000
1993 1994 1995*
(000 MT)
D. Total Market Size 615 645 680
E. Total Local Production 589 518 615
F. Total Exports 3 3 3
G. Total Imports 36 128 65
H. Imports from the U.S. 36 128 65
*1995 statistics are unofficial estimates
Comments:
The above data are on a July/June basis. The indicator years specified
above correspond to the first year of the split marketing year.
Corn is the grain produced on the largest scale in Honduras. Lack of
affordable credit for grain farming, poor seed, several consecutive
years of weather anomalies, and other factors have prevented Honduras
from becoming self-sufficient, however. Given the fact that Honduras
produces mostly white corn which is utilized mainly for human
consumption, imports of yellow corn from the United States have been
necessary to fuel a growing feed demand. However, U.S. imports have
declined in recent years at the expense of European and Canadian feed
grade wheat.
Nonetheless, prospects for U.S. corn remain high in the Honduran
market. First of all, U.S. corn should eventually regain some market
share from European and Canadian feed grade wheat. Moreover, a rather
aggressive production incentive plan put forth by the Honduran
Government in 1995 is expected to yield little success. A poor start to
the 1995 rainy season has already resulted in some plantings to be lost.
Therefore, imports ranging from 50,000 to 100,000 (depending on the
outcome of the local crop) may be needed during the 1995/96 year.
Similar import levels can also be expected in upcoming years.
A. Rank: n/a
B. Name of Sector: Rice (Milled)
C. ITA or PS&D Code: 0422110
1993 1994 1995
(000 MT)
D. Total Market Size 59 60 63
E. Total Local Production 30 29 33
F. Total Exports 0 0 0
G. Total Imports 33 25 29
H. Imports from the U.S. 7 15 29
Comments:
The above data are on a July/June basis. The indicator years specified
above correspond to the first year of the split marketing year.
Of all the grains produced in Honduras, rice is the one produced on the
smallest scale. Chronic production problems have not allowed domestic
rice farmers to increase their output and keep up with demand. As a
result, rice imports have become a necessity in Honduras. Historically,
all rice imports have been sourced from the United States. However, in
recent years imports of inexpensive Vietnamese rice have displaced U.S.
rice sales in Honduras. In 1994 Honduras, together with its Central
American neighbors, agreed to ban the importation of rice from
Southeastern Asia for plant health reasons. This ban, coupled with a
more relaxed import policy for rice from other sources, should pave the
way for increased exports of U.S. rice to Honduras.
A. Rank: n/a
B. Name of Sector: Wheat
C. ITA or PS&D Code: 0410000
1993 1994 1995
(000 MT)
D. Total Market Size 219 236 205
E. Total Local Production 0 0 0
F. Total Exports 0 0 0
G. Total Imports 256 249 200
H. Imports from the U.S. 167 152 170
Comments:
The above data are on a July/June basis. The indicator years specified
above correspond to the first year of the split marketing year.
Because its land and climate characteristics are unsuitable for large
scale wheat farming, Honduras does not produce wheat in any significant
quantities. Therefore, Honduras depends strictly on imports to fill its
growing wheat demand. Historically, Honduras has filled virtually all
of its wheat needs with U.S. wheat. During calendar year 1994, Honduras
imported a record high 145,734 MT of U.S. wheat worth US$21.9 million.
The PL-480 program, USDA's Export Enhancement Program (EEP), and
commercial sales have been the main vehicles of U.S. imports in recent
years. Traditionally only a small amount of wheat is imported from
other sources and it is mostly in the form of donations.
However, commercial imports of feed grade wheat from Europe and Canada
grew considerably during 1993 and 1994. These imports are partly
responsible for the rather large surge in total market size during
1993/94 and 1994/95. While consumption of feed grade wheat is
eventually expected to decline (it is largely a temporary phenomenon
motivated by prices of this wheat relative to corn), human consumption
is still expected to remain on the upswing. Consequently, the Honduran
wheat market should continue to provide excellent opportunities for U.S.
suppliers.
A. Rank: n/a
B. Name of Sector: Meal, Soybean
C. ITA or PS&D Code: 0813100
1993 1994 1995
(000 MT)
D. Total Market Size 44 46 48
E. Total Local Production 1 1 1
F. Total Exports 0 0 0
G. Total Imports 43 45 47
H. Imports from the U.S. 43 45 47
Comments:
The above data are on an October/September basis. The indicator years
specified above correspond to the first year of the split marketing
year.
Rapidly growing poultry, shrimp, and swine sectors in Honduras have
triggered a growing demand for soybean meal in recent years.
Traditionally, Honduras has filled virtually all of its soybean meal
demand with U.S. product. Domestic production is negligible and is not
likely to increase significantly in the near future. Even though
production problems in both the poultry and shrimp sectors resulted in a
temporary decline in feed demand during 1994, expectations of renewed
growth in the poultry sector and continued expansion of swine operations
lead to a positive outlook for soybean meal demand in the foreseeable
future.
A. Rank: n/a
B. Name of Sector: Consumer-Ready Products
C. ITA or PS&D Code: n/a
1994 1995 1996
(USD mill.)
D. Total Market Size n/a n/a n/a
E. Total Local Production n/a n/a n/a
F. Total Exports n/a n/a n/a
G. Total Imports 50 53 56
H. Imports from the U.S. 19 21 24
Comments:
The above data are on a calendar year basis.
The former image of Honduras as a limited market for consumer-ready
products is changing fast. In fact, imports of consumer-ready products
have soared in recent years, reaching an estimated US$ 50 million in
1994. Rapid development in the food distribution system, close
proximity to the United States, ample port facilities, commitment toward
trade liberalization, and strong business and social ties with the
United States, make Honduras an excellent market for U.S. consumer-ready
products.
During 1994 Honduras imported US$19.4 million in consumer-ready products
from the United States, just shy of the record high US$19.6 million
imported during 1993. Despite a serious economic recession during 1994,
Honduras established new highs in its imports of U.S. snack foods, red
meat (prepared/preserved), eggs & egg products, fruit and vegetable
juices, wine & beer, and pet food. In fact, over the past three years
Honduras has established record import levels from the United States in
12 of 16 sub-categories of consumer-ready products.
Domestically and regionally produced breakfast cereals, snacks, canned
goods, juices and beers may offer a significant degree of competition.
Nonetheless, U.S. consumer-ready products enjoy a significant edge in
Central America. Virtually all of the middle-income and wealthy
consumers in the area have been to the United States. They know the
quality of U.S. products and they are familiar with U.S. brands.
Moreover, many Hondurans have access to U.S. cable TV, which helps
influence the purchasing habits and diet of many consumers.
VI. TRADE REGULATIONS AND STANDARDS
A. TARIFFS AND IMPORT TAXES
Honduras' customs administrative procedures are burdensome. There are
extensive documentary requirements and red tape involving the payment of
import duties, selective consumption taxes, consular fees and warehouse
levies. The duty assessed by the Honduran government at the time of
customs clearance ranges between 5 to 20 percent for most items.
Sensitive items such as automobiles will be assessed a higher rate, up
to a 35 percent ceiling. Additionally, in order to comply with the
General Agreement on Tariffs and Trade (GATT) adhesion requirements, the
administrative customs service has been reduced from 5 to 3 percent, and
is expected to be reduced to 1.5 percent before December 31, 1995.
B. CUSTOMS VALUATION
As part of the Government's economic structural adjustments, the customs
valuation rate (FVA) has been liberalized. The current FVA rate is
applied according to the value or base price established in the Central
Bank's foreign exchange auction system.
C. IMPORT LICENSES
In the bilateral negotiations on Honduras' accession to GATT, the
Honduran Government committed to using GATT consistent measures to
protect basic grains and poultry. Nonetheless, although all import
licensing requirements have been eliminated, Honduras has an onerous
phyto-sanitary requirement system that limits market access to U.S.
agricultural products such as chicken parts, rice and corn. In
addition, a price band mechanism for yellow corn, sorghum, rice and
soybeans has been in place since August 1992. Imports entering with
values within the defined band are assessed a 20 percent tariff.
Imports entering with prices above the band are assessed lower duties,
according to a predetermined schedule, and those imports priced below
the band are assessed a higher tariff.
D. EXPORT CONTROLS
There is a one percent export tax on the FOB value of goods exported
from Honduras, although certain exceptions exist. In May 1994 the
Government of Honduras abolished a variable levy of seven to thirteen
percent of their value on bananas exported from new or refurbished
banana plantations.
E. IMPORT/EXPORT DOCUMENTATION
Documents required for Import/export:
-Commercial Invoice
-Bill of Lading (for ocean or surface freight)
-Airway Bill (for air freight)
-Certificate of Origin or Certificate of Title for vehicles
-Honduras Consular Legalization of the Commercial Invoice and
Bill of Lading or Airway Bill or a Consular Invoice
-Phyto-Sanitary Certificate (where appropriate)
By law, no import permits are required and no quotas are imposed.
However, all commercial shipments to Honduras must be legalized by a
consulate of Honduras. The issuing consulate requires the legalization
of both the commercial invoice and the bill of lading or airway bill. A
company must submit, in Spanish, the original commercial invoice plus 3
copies that include a detailed description of the items to be exported
including:
-The name of the vessel
-Sailing date
-Names of the departure and final destination ports
-Gross and net weight in kilograms
-Country of origin
For ocean freight or surface freight, the original bill of lading must
also be submitted in Spanish along with 3 copies. For air freight, the
original airway bill must also be submitted in Spanish along with 3
copies. A company may request a Consular Invoice instead of the
legalization of the commercial invoice and the bill of lading or airway
bill.
Documents may be legalized in the following Honduran consulates:
Baltimore, Houston, Los Angeles, New York, and Miami. There is a
nominal variable fee for the legalization based on the FOB value; and
expedited service is available for an additional fee. The Honduran
Government insists that phyto-sanitary permits be obtained for imported
foodstuffs. All commercial imports must also be accompanied by proof
that the dollars used to purchase them were acquired from the Honduran
commercial banking system.
Honduran law requires all exporters (except for free trade zone or
export processing zone exporters) to inform the Central Bank, in
advance, about the quantity, value, and destination of the goods to be
exported, as well as the probable date of export and the value and
currency of anticipated export revenues.
F. TEMPORARY ENTRY
The temporary import law (RIT), enacted in 1984, allows exporters to
bring raw materials and capital equipment into Honduran territory exempt
from customs duties and consular fees -- as long as the product is to be
exported outside of Central America. This law also provides a 10 year
tax holiday on profits from these exports under certain conditions.
G. LABELING, MARKING REQUIREMENTS
Honduran law requires that all processed food products be labeled in
Spanish (or if written in a foreign language, accompanied by the
appropriate translation) and registered with the Ministry of Health.
The following information should be included.
-Product name and origin
-List of ingredients
-Batch identification
-Expiration date
-Net content
-Sanitary registration number
As a result of the Government's implementation of the new Health Code
and sanitary regulations, these requirements are strictly enforced at
the present time.
H. PROHIBITED IMPORTS
The Honduran Government forbids the import of items that compete with
certain domestic industries. These protected industries vary over time,
but at present include cement and sugar and rice from southeastern Asia.
Import restrictions are also imposed on firearms and ammunitions,
pornographic material and narcotics.
I. STANDARDS (E.G. ISO 9000 USAGE)
The Honduran Government does not follow these standards. Nevertheless,
the Government has requested project assistance from the Inter-American
Development Bank (IDB) in order to establish regulations for the
creation of technical norms.
J. FREE TRADE ZONES/WAREHOUSES
A company that locates in a free trade zone, industrial park or export
processing zone (ZIP) is exempt from payment of import duties on goods
and capital equipment, charges, surcharges, selective consumption taxes,
and sales taxes. In addition, the production and sale of goods within
these areas are exempt from Honduran and municipal taxes. Firms
operating in these zones are exempt from income tax for 20 years and
municipal taxes for 10 years, and there are no controls or restrictions
over the use of foreign exchange or the repatriation of capital profits.
The movement of imported components and exported products is handled
with a minimum of paperwork and is normally done within hours.
Privately-owned Tourism Zones (ZOLT) may be established to promote the
tourism industry development in Honduras. Legislation covering ZOLTs
allows the free importation of equipment, supplies and transportation
vehicles that will exclusively benefit the ZOLT.
K. SPECIAL IMPORT PROVISIONS
There are no special import provisions aside from those mentioned above.
L. MEMBERSHIP IN FREE TRADE ARRANGEMENTS
Honduras is a member of the Central American Common Market (CACM), which
also includes Costa Rica, El Salvador, Nicaragua, and Guatemala.
Panama, although not a full member of the CACM, has participated in
activities. This group is currently negotiating free trade agreements
with Mexico, Venezuela, and Colombia.
Honduras benefits from two preferential trade arrangements with the
United States. Special export arrangements have been established
through the Caribbean Basin Initiative (CBI I & II) and the Generalized
System of Preferences (GSP). Both of these programs provide unilateral
and temporary duty-free trade preferences to designated countries,
including Honduras, by the United States.
Recently, the U.S. Government proposed new legislation that would
enhance the CBI program, mainly through the passage of the "Caribbean
Basin Trade Security Act". This bill would provide treatment equivalent
for Caribbean and Central American countries to that being provided to
similar Mexican goods under NAFTA. The products that would be subject
to bilateral agreements include textiles and apparel, footwear,
petroleum and petroleum products, canned tuna, handbags, luggage, flat
goods, work gloves and leather-wearing apparel. The bill is currently
under consideration by the U.S. Congress. The expectation is that
countries will finalize the negotiations for accession to NAFTA or an
individual free trade agreement with the U.S. by the end of the ten year
duration of parity benefits. The proposed legislation provides for the
revocation of benefits if certain criteria, including intellectual
property, investment and worker rights protection, are not met.
VII. INVESTMENT CLIMATE
A. OPENNESS TO FOREIGN INVESTMENT
Honduras welcomes foreign investors, and can offer them a range of
benefits. The ratification of the 1992 investment law, existence of
free trade zones and reduction of trade barriers have made Honduras
increasingly attractive to investors.
The 1992 investment law guarantees national treatment to all private
firms in Honduras. The law does not limit foreign ownership of
businesses, except for those specifically reserved for Honduran
investors, i.e., small firms with capital less than 150,000 lempiras
(USD 18,000), or which require special government authorization. These
are:
- Basic health services.
- Telecommunications.
- Generation, transmission and distribution of electricity.
- Air transport.
- Fishing, hunting and aquaculture.
- Exploitation of forestry resources.
- Investigation, exploration, and exploitation of mines,
- quarries, petroleum and related substances.
- Agricultural and agro-industrial activities exceeding land
- tenancy limits established by the agricultural modernization
- law of 1992 and the land reform law of 1974.
- Insurance and financial services.
- Private education services.
According to the 1992 investment law, all local and foreign investment
must be registered with the Ministry of Economy. Registration is to be
carried out immediately and the investor is to be issued an investment
certificate within twenty four hours of presenting the request. If the
activity requires special government approval, the Ministry of Economy
must submit the case to the appropriate agency which must recommend
approval or disapproval of the registration within sixty days. If the
opinion is favorable, the investment is to be registered immediately.
In practice, registration can take much longer.
Foreign investors face some discriminatory treatment in Honduras. To
participate in public tenders, foreign firms are required to act through
a local agent. By law, local agency firms must be at least 51 percent
Honduran owned. Dividends paid to foreign investors are taxed at 15
percent, while local investors pay only a 10 percent tax on dividends.
Finally, Honduran professional bodies heavily regulate the licensing of
foreigners to practice law, medicine, engineering and other professions.
While the law does not permit discriminatory or preferential export and
import policies affecting foreign investors, some do exist. The 1992
investment law guarantees freedom to export and import to all foreign
investors, and eliminates the requirement of prior administrative
permits and licenses, except for statistical registries or customs
procedures. In practice, however, the Government of Honduras has used
phyto-sanitary requirements to prevent import of U.S. poultry and feed
grains to Honduras.
U.S. citizens wishing to travel to Honduras do not have to obtain a visa
prior to arrival. Foreigners interested in working in the country must
first apply and obtain a resident visa from the Honduran Ministry of
Government. In addition, they must obtain a work permit from the
Ministry of Labor. The time required to complete the resident visa and
work permit process may take up to three months; however, there is no
knowledge or evidence of discrimination against foreigners in the
granting of these documents.
Although there is a clear preference on the part of the Government of
Honduras for new foreign investment in export industries, there are no
officially mandated requirements which foreign investors must satisfy as
a condition for investing in Honduras. There is a requirement that a
privately-operated industrial park must generate 5,000 new jobs within
five years of start up, but this applies to all owners, foreign or
national. Few investment incentives are currently in force. In the
view of many senior Honduran officials, the country's natural resource
base, freedom of entry, competitive exchange rate and political
stability are the best incentives. The following special incentives are
available.
1. Industrial Parks and Free Trade Zones.
A company, either local or foreign, that locates in one of the specially
designated areas enjoys the following benefits:
- Duty-free import of machinery, equipment, fixtures, parts, raw
materials and supplies needed for operations (except vehicles).
- Exoneration from all income, export, sales, or consumer taxes.
- Unrestricted repatriation of profits and capital, and on-site
customs facilities.
The principal free trade zone in Honduras is located in Puerto Cortes
and is operated by the Government of Honduras through the National Port
Authority. Privately-owned free trade zones are legal extensions of the
free trade zones. In terms of operations and incentives, they are
identical to the privately operated industrial parks. In addition,
individual companies may obtain the benefits of free trade zone status
if they are located in specially designated areas.
The number of industrial parks has grown dramatically in the last five
years. In addition to the incentives listed above, a company that
locates in one of these parks can benefit from management services
offered by the operators. These parks and zones are treated as if they
were offshore operations, i.e., if products manufactured in them are
sold in Honduras, customs duties must be paid on them; and, if Honduran
raw materials are used to produce the products, these materials are
treated as exports and must be paid for in dollars. Ninety percent of
the companies that operate in these parks are involved in apparel
assembly; however, park operators are seeking to attract other types of
light industry, such as footwear, automotive parts, and electronics
assembly, as well as data processing services.
At present, a group of Taiwanese investors is planning to build
Honduras' first agroindustrial park. The construction of an
agroindustrial plant will involve cultivation, processing, packaging and
shipment.
2. The Temporary Import Law.
This law allows exporters to introduce raw materials, parts, and capital
equipment into Honduran territory without payment of customs duties or
consular fees when the final product of the process is exported outside
Central America. The law also provides a ten year tax holiday on
profits from these non-traditional exports. Interested parties may
obtain authorization for this program through the Ministry of Economy.
Companies that do not operate in free trade zones or export processing
zones fall under the jurisdiction of the Temporary Import Law.
According to the 1992 investment law, foreign investors are eligible for
the same benefits as are local investors. Performance requirements
linked to incentives established in certain laws apply equally to
foreign and Honduran investors.
B. CONVERSION AND TRANSFER POLICIES
The 1992 investment law guarantees foreign investors access to foreign
currency needed to transfer funds associated with their investments in
Honduras. This includes:
- Imports of goods and services necessary to operate.
- Payment of royalty fees, rents, annuities and technical assistance.
- Remittance of dividends and capital repatriation.
In practice, there is a chronic shortage of foreign exchange in Honduras
that can preclude foreign investors from obtaining the dollars they need
within a reasonable period of time.
In a move to stop the continued devaluation of the lempira against the
U.S. Dollar, the Central Bank established an auction system to regulate
the allocation of foreign exchange more tightly. According to the
auction system regulations, the dollar purchases are conducted at one
percent above or below the base price regularly established every 21
days. During the latest auctions, the Central Bank has been
adjudicating $25 million. All individuals, either foreign or national,
can participate in the auction system dollar purchases.
C. EXPROPRIATION AND COMPENSATION
Complaints to the U.S. Embassy about land invasions by squatters or
property disputes with Honduran citizens have increased sharply in
recent years. Many U.S. investors have encountered title problems on
property purchased in Honduras, especially in the Bay Islands and along
the Caribbean Coast.
Rules and laws pertaining to property titles in Honduras are uncertain
and unreliable. Nearly 100 property dispute cases involving U.S.
citizens have been registered with the offices of the United States
Departments of State and Commerce in Honduras. These cases are at many
different levels of settlement within the Honduran judicial/legal system
and some date back for many years. For instance, even though the
Honduran Congress passed laws authorizing the purchase of coastal
property and tourism zones, there are constitutional restrictions
prohibiting the foreign ownership of coastal property.
The U.S. State and Commerce Departments are involved in ongoing activity
to help resolve the cases that are pending and are working with the
Honduran government to help avoid these problems in the future. It is
recommended that, until these cases are resolved and a clearer and more
reliable process can be implemented by the Honduran government, U.S.
citizens should not purchase real estate in coastal areas or the Bay
Islands. In any case U.S. citizens are advised to exercise extreme
caution in any purchase of property in Honduras.
D. DISPUTE SETTLEMENT
Settlement of any contractual or property dispute involving the Honduran
government or its citizens must take place in the Honduran courts. This
process is generally slow and very expensive. The U.S. Government
signed a Bilateral Investment Treaty (BIT) that establishes the option
of binding arbitration out of Honduran courts, most notably in the
International Centre for the Settlement of Investment Disputes (ICSID).
E. PERFORMANCE REQUIREMENTS/INCENTIVES
Exporters that have applied for benefits under the temporary import law,
including duty-free introduction of equipment and materials and a ten-
year income tax holiday, must export their production outside Central
America and generate a minimum number of permanent jobs.
Export processing zones, on the other hand, must generate at least 5,000
new permanent jobs within five years after start up. In addition, firms
that operate under this regime must comply with all Honduran labor and
social security laws. While firms that operate in these zones do not
pay income taxes and enjoy free repatriation of profits, they are now
required to purchase the lempiras needed for their local operations from
Honduran commercial banks or foreign exchange trading houses registered
with the Central Bank. In the past, they were allowed to do so in the
open market.
The investment law of 1992 eliminated all local ownership requirements
for foreign investments. However, as indicated above, there are certain
economic activities that are reserved exclusively for Honduran firms, or
that require prior government approval if foreign investment is to be
recognized.
F. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
The investment law guarantees both local and foreign investors the right
to own property without limitations besides those established by the
Honduran constitution and the corresponding laws. This guarantee
includes the right to free acquisition, profit, use, disposition and any
other right attributable to property.
In addition, investors have the right to freely establish, acquire, and
dispose of interests in business enterprises at market prices, under
freely negotiated conditions, and without government intervention.
Private enterprises compete on an equal basis with public enterprises
with respect to access to markets, credit, and other business
operations. Access to credit by private enterprises, however, has been
limited as a result of the Central Bank's high legal reserve requirement
on commercial bank deposits, which is being used to finance the
government's fiscal deficit. This high reserve requirement makes loans
relatively expensive and, according to businesses, puts them at a
disadvantage against government entities.
G. PROTECTION OF PROPERTY RIGHTS
Protection of Intellectual Property Rights is handled by the Ministry of
Economy. In 1994 the Ministry set up an office which handles
registration of patents, trademarks and copyrights, as well as any
complaints regarding their infringement. The government complied with
the legislation's requirements by creating in 1994 an intellectual
property rights office in the Ministry of Economy to implement and
enforce its copyright, trademark and patent laws. Important amendments
to the country's copyright law are now being considered by the Honduran
Congress. As a signatory to the Uruguay Round agreements and member of
the World Trade Organization (WTO), Honduras has accepted the new TRIPS
standard. In addition, Honduras is expected to conclude a bilateral IPR
agreement with the U.S. in 1995. Honduras is also expected to become a
signatory to the Central American Convention on Industrial Property.
H. REGULATORY SYSTEM: LAWS AND PROCEDURES
Most of the Honduran laws dealing with business, trade, labor, and
finance are old and outdated. The country lacks a basic/indexed legal
code; laws are published in periodically circulated gazettes which
lawyers and judges must maintain and index on their own. The Government
of Honduras often lacks the resources to implement or enforce those laws
on the books (or, more accurately, in the gazettes.) Property
registration often is not up to date, nor can the results of title
searches be relied upon. There is no title insurance in Honduras.
In an effort to update the legal system and bring the country on stream
with modern business practices, the former Callejas administration
created a state modernization commission. At present, the commission
has conducted regular meetings in order to discuss policy priorities
such as the privatization of state-owned enterprises, electoral reforms
and environmental protection. However, red tape is still very common on
procedures and activities that require government approval.
Nonetheless, significant progress has been made. The passage of the
investment law in May 1992 is one of the best examples. As a result of
the passage of the law, the Ministry of Economy and Commerce created a
one-stop export and investment registration window to deal with
procedures related to the registration of exports and investment in the
country.
The Government of Honduras, along with the interested parties, is
currently discussing passage of new labor and financial sector
legislation.
I. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
There are no government restriction on foreign investors' access to
local credit markets. However, the local banking system is highly
conservative and generally has limited credit available. The situation
has been made much worse by a recent increase in the legal reserve
requirement on commercial bank deposits. Therefore, local banks should
not be considered a significant source of start-up capital for new
foreign ventures, unless they use specific business development credit
lines made available by bilateral or multilateral financial
institutions, such as the Central American Bank for Economic Integration
or the Inter-American Development Bank. Otherwise, loans from banks
tend to be short-term (one year or less) with substantial collateral
and/or guarantee requirements.
There is a limited number of credit instruments available in the local
market, and two stock exchanges now operate in the country: the Honduran
Stock Exchange (BHV) is located in the industrial capital of San Pedro
Sula and started operations in 1990. The Central American Stock
Exchange is headquartered in Tegucigalpa and began operations in 1993.
Both stock exchanges are supervised by the Central Bank of Honduras.
The instruments that are traded in these exchanges include bankers
acceptances, reposition agreements, short-term promissory notes, and
Government of Honduras private debt conversion bonds and land reform
repayment bonds.
While, in theory, any private business is eligible to trade in the stock
exchanges, firms that participate in them are subject to a rigorous
screening process. In addition, they generally have economic ties to
the different business/financial groups represented as either
shareholders of the stock exchanges or exchange trading houses.
The Honduran Commercial Code is the main legislation that regulates the
operations of businesses in the country. This code, however, is more
than 50 years old and local lawyers often argue that much of it needs to
be updated to bring it on line with current business trends. A general
revision of this Code has been scheduled after Congress discusses
reforms on a New Criminal Procedures Code. The application of the
Commercial Code and its regulations fall under the jurisdiction of the
Honduran civil court system.
There is no regulatory body for the accounting profession in Honduras.
The College of Public Accountants, however, is responsible for
certifying practicing professionals. In general, Honduran businesses
adhere to international Generally Accepted Accounting Principles (GAAP).
These principles are normally applied following guidelines from the
Ministry of Finance's General Directorate for Taxation.
The five largest banks in the country hold an estimated USD 1 billion in
total assets. About ten percent of the total asset base of all banks is
classified as non-performing.
The Honduran financial system is made up of 20 banks, most of which are
associated with powerful economic groups. Most of these banks lend
primarily to businesses owned by the economic group of which they are a
part. The system has been criticized for permitting excessive amounts
of unsecured lending to major stockholders or bank principals.
A new financial system law has been proposed, which would restrict
lending to stockholders and bank officers, permit more control by the
Superintendent of Banks over the financial system, favor increased
financing for industrial reconversion, and institute a deposit insurance
scheme. To date, the overwhelming opposition of Honduran banks has
proven an insurmountable obstacle to these reforms.
Public ownership of business is almost non-existent in Honduras. The
largest corporations in the country are owned by small groups of
families. Admission of new stockholders to the firms must first be
approved by the existing shareholders since the commercial code allows a
company's incorporation charter to indicate how new owners will be
admitted. Likewise, any mergers or acquisitions must also be approved
following the same procedure.
In general, there are no specific practices by local firms or government
to restrict foreign investment participation in economic activities
besides those specified in the Investment Law of 1992.
J. POLITICAL VIOLENCE
Acts of politically motivated violence have been rare in Honduras in
recent years. In December 1991, a liquid storage facility owned by a
local subsidiary of U.S.-based Castle and Cooke suffered an isolated
attack with a rocket-propelled grenade. Following the early February
1993 firing of a number of workers in a corporate restructuring, the
general manager of Exxon's local operations received death threats
against himself and his family. His car was also badly damaged by
unknown vandals. Exxon has retained a security firm to protect the
general manager and his family.
U.S. fruit companies in Honduras employ upwards of 15,000 Honduran
workers. With the E.U. decision to restrict Central American banana
imports into Europe, the U.S. banana companies in Honduras may well be
forced to cut their production -- and labor force. If this take place,
some type of protest and perhaps isolated cases of violence could occur.
As a result of deteriorating economic conditions, teachers' unions and
other state workers unions have recently asked for substantial salary
increases from the government. In most instances the government has
offered salary raises well below the expectations of the unions. The
largest federations of labor and peasant unions have also been pressing
for economic reforms that would benefit their interests. In many cases
their actions have resulted in the taking of some of the most important
roads in the country for several hours thus halting all vehicular
traffic in some of the most important economic areas of Honduras.
K. BILATERAL INVESTMENT AGREEMENTS
The U.S. - Honduras treaty of Friendship, Commerce and Consular Rights
(1928) provides for most favored national treatment for investors of
either country. The U.S. and Honduras also signed an agreement for the
guarantee of private investments in 1955 and an agreement on investment
guarantees in 1966. Honduras signed a Bilateral Intellectual Property
Rights Agreement. An Exchange of Tax Information Agreement was signed
with the U.S. in 1992. On July 1, 1995 Honduras and the U.S. signed the
Bilateral Investment Treaty (BIT) at the Hemispheric Trade Ministerial
in Denver, Colorado.
Honduras also has trade and preferential treatment agreements with other
Central American countries, Panama, and several Latin American
countries. Provisions for bilateral investment are included in the
commercial treaties Honduras has signed with Costa Rica, El Salvador,
Guatemala, and Panama. In addition, Honduras, along with Guatemala and
El Salvador, are in the process of negotiating a free trade agreement
with Mexico, Venezuela and Colombia. The agreement is expected to
include investment provisions. In 1993 Honduras signed bilateral
investment agreements with Great Britain and Spain.
L. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
The U.S. Overseas Private Investment Corporation (OPIC) currently offers
financing for U.S. citizens who invest in Honduras as well as insurance
against risks of war and expropriation. Other countries, including West
Germany, the United Kingdom, Taiwan, Spain, Italy, Switzerland, and
Japan provide insurance and guarantees for their companies doing
business in Honduras. In addition, Honduras is a party to the
Multilateral Investment Guarantee Agency (MIGA).
M. LABOR
Since May 1994, the Honduran Government has been tested by a number of
strikes, most notably labor conflicts in the government-owned postal
service. This dispute ended November 21, 1994, when President Reina
declared a 15-day strike illegal and ordered the postal workers back to
their jobs. Workers at the Tela Railroad Company, a subsidiary of
Chiquita Brands, went on a 5-week strike that severely crippled the
company's 1994 banana exports, causing a loss in employment and
reduction in the country's foreign exchange reserves.
Even though President Reina, who assumed office on January 27, 1994,
received heavy support from the labor sector in winning 56 percent of
the vote, there are growing doubts among union officials that his
government is responsive to labor's demands or able to provide the type
of economic environment it needs for growth and strengthening of the
labor movement.
For the most part, criticism centers on the inability or unwillingness
of the Ministry of Labor to enforce workers' rights, particularly the
right to form a union. Labor leaders and workers alike are critical of
Reina's slowness in making decisions, describing his Liberal government
as weak and lacking political definition.
In May 1994, the American Institute of Free Labor Development (AIFLD)
transferred the majority of its functions to the regional office in San
Salvador. In June 1995, this regional office was closed and its
functions moved to Washington.
The three main labor organizations of Honduras represent approximately
20 percent of the total work force. These are the Confederation of
Honduran Workers (CHT), the General Workers' Central (CGT), and the
Unitary Confederation of Honduran Workers (CUTH). The largest
organization, CTH, led by Francisco Guerrero, has an estimated 160,000
members in 3 federations. The largest of these is the Federation of
Unions of National Workers of Honduras (FESITRANH), headed by Mario
Quintanilla since 1989. (Quintanilla was elected President of CTH in
August 1994).
The FESITRANH is the country's most powerful labor federation, with an
estimated 50,000 members. It enjoys the reputation as one of the
leaders of the Honduran labor movement. In addition, the National
Association of Honduran Campesinos (ANCACH), representing some 60-80,000
members, is affiliated with FESITRANH, as are the unions of the U.S.-
owned fruit companies. The CTH and FESITRANH have formal ties with the
AFL-CIO and informal ties with other U.S. labor groups, such as the
International Ladies Garment Workers Union.
With 1994 per capita income estimated at $630, Honduras remains one of
the poorest and least developed countries in the Western Hemisphere.
Since 1990, the purchasing power of the lempira has declined
substantially, while salaries have not kept pace. To labor, the
dramatic increases in the price of the basic food basket need to be met
with commensurate increases in the workers' salaries. As the economy
declined in 1994 by 1.4 percent, anxious workers seeking salary
increases of 40 to 100 percent have at times engaged in damaging work
stoppages particularly aimed at the maquiladoras and Honduras' largest
banana producer/exporter, Chiquita Brands.
In December 1994, the government decreed increases ranging from 15 to 33
percent in the minimum wage, the first such increase since June 1993.
Daily pay rates vary by sector of the economy affected and geographical
zones: the lowest minimum wage is $1.60 per day in the agriculture
sector. The highest minimum wage is in the mining sector, at $2.79
daily. Urban workers earn slightly more than those in the countryside.
However, even after the most recent increase, the minimum wage is
considered insufficient to provide a decent standard of living for a
worker and family. The Constitution and the Labor Code stipulate that
all labor be fairly paid, but the Ministry of Labor lacks the staff and
other resources for effective enforcement.
The law prescribes a maximum 8-hour work day and a 44-hour work week.
There is a requirement for at least one 24-hour rest period every week.
The Labor Code provides for a paid vacation of 10 work days after one
year and 20 work days after four years. However, employers frequently
ignore these regulations due to the high level of unemployment and the
lack of enforcement by the Ministry of Labor.
N. FOREIGN-TRADE ZONES/FREE PORTS
See A.5. above.
O. CAPITAL OUTFLOW POLICY
Given its economic condition and the need for export and job generation,
Honduras is dependent on foreign capital. The Government of Honduras
does not have a policy that promotes Honduran investment overseas.
While current government policies are designed to promote the return of
flight capital that many Hondurans have deposited in overseas banks, in
practice, Honduras is a net exporter of capital. Pension funds are
obliged to invest only in Honduras.
P. FOREIGN DIRECT INVESTMENT STATISTICS
The following table provides an estimate of the stock of foreign
investment in Honduras by country of origin. Foreign investment figures
in Honduras are hard to obtain. Most of the data below have been
obtained directly from the firms themselves or through publicly
available documents.
COUNTRY OF ESTIMATED DIRECT
ORIGIN INVESTMENT
(IN MILLION US DOLLARS)
United States 475.0
Japan 40.0
El Salvador 35.2
Korea 30.0
Hong Kong 28.0
Taiwan 25.2
Spain 20.0
United Kingdom 9.7
Germany 6.5
Guatemala 5.5
Venezuela 4.8
Costa Rica 4.1
Other 25.7
Total 709.70
APPAREL INVESTMENT IN HONDURAS
ORIGIN NUMBER OF COMPANIES TOTAL INVESTMENT (USD MILLIONS)
American 47 76.58
Oriental 32 42.16
Honduran 35 21.00
Total 114 139.74
There are no records kept on Honduran investments abroad.
Q. MAJOR FOREIGN INVESTORS
The following is a partial list of the major foreign investments in
Honduras, with a description of the type of investment and country of
origin.
INVESTOR COUNTRY TYPE OF INVESTMENT
Castle & Cooke U.S. Banana, pineapple, citrus;
vegetable oil processing;
bottling and brewing; carton box
manufacturing
Chiquita Brands Intl. U.S. Bananas, melons, winter
vegetables, pineapples; vegetable
oil processing; plastic products
manufacturing
Seaboard Corp. U.S. Winter fruits and vegetables;
aquaculture; ocean freight
Nestle Switzerland Food products
Domino's Pizza U.S. Fast food
Pollo Campero Guatemala Animal feed; poultry processing;
fast food restaurants
Wendy's Intl. U.S. Fast food
America's Favorite U.S. Fast food
Chicken
Pizza Hut Intl. U.S. Fast food
Burger King Inc. U.S. Fast food
Taco Bell U.S. Fast food
RJR-Nabisco U.S. Food products
Cargill U.S. Animal feed, poultry and meat
processing
Citrus Develpmnt Corp. U.S. Citrus production and
processing
CPC International U.S. Corn starch
Circle K Corporation U.S. Convenience store
Van Ommeren-Ceteco Neth. Trading/retailing
Phelps-Dodge U.S. Electric wire and cable
manufacturing
Kimberly-Clark U.S. Paper products; pharmaceutical
products
Scott Paper U.S. Paper products
Xerox U.S. Business machine sales
Sarah Lee Corp. U.S. Apparel assembly
IBM U.S. Business machines and computer
software
Pan American Life Ins. U.S. Life insurance
American Home Assurance U.S. Casualty insurance
Oshkosh B'gosh U.S. Apparel assembly
United Technologies
Automotive U.S. Automobile electronics assembly
Midas International U.S. Automotive Parts and
Services
Breakwater Resources Canada lead/zinc/silver mining
BAT industries U.K. Tobacco products
Parker Tobacco U.S. Cigars
U.S. Tobacco U.S. Cigars
Texaco U.S. Petroleum products marketing
Lloyd's Bank U.K. Banking
Citibank U.S. Banking and financial services
Ernst & Young Intl. U.S. Accounting and Auditing Services
Price Waterhouse U.S. Accounting and Auditing Services
VIII. TRADE AND PROJECT FINANCING
A. DESCRIPTION OF BANKING SYSTEM
The Honduran banking system has been involved in a drive towards
modernization and increased competition. There are currently 20
commercial banks, up from 14 just two years ago. All Honduran banks
have correspondent relations with US banks. Most of these banks are
associated with powerful economic groups, and lend primarily to
businesses owned by the group of which they are a part. The system has
been criticized for permitting excessive amounts of unsecured lending to
major stockholders or bank principals.
The Central Bank of Honduras has proposed a new Financial System Law
which would restrict lending to stockholders and bank officers, permit
more control by the Superintendency of Banks over the financial system,
and institute a deposit insurance scheme. To date, the overwhelming
opposition of the commercial banks has proven an insurmountable obstacle
to these reforms.
The five largest banks in the country control an estimated USD 1 billion
in assets. About 10 percent of the system's total asset base is
estimated as non-performing.
B. FOREIGN EXCHANGE CONTROLS AFFECTING TRADING
Until early 1990, Honduras maintained a fixed official exchange rate of
2 lempiras (Lps.) to the U.S. dollar. In March 1990, with the passage
of a sweeping economic reform package, the Central Bank of Honduras
devalued the lempira vis-a-vis the dollar, and later permitted it to
float freely. This system of currency valuation, the interbank rate of
exchange, has been used for all purposes, except payment of official
debt which was maintained at the LPS2/USD1 rate. The interbank rate of
exchange was initially set at LPS.4/USD1, and as of June 1995 was
LPS.9.26:USD1.
The Foreign Exchange Repatriation Law passed in September 1990 requires
all Honduran exporters, except those operating in free-trade zones and
export processing zones, to repatriate 100 percent of their export
earnings through the commercial banking system. Until recently,
commercial banks were allowed to use 70 percent of export earnings to
meet their clients' foreign exchange needs. The other 30 percent had to
be sold to the Central Bank at the prevailing interbank rate of
exchange.
However, in a move to stop the continued devaluation of the lempira
against the U.S. Dollar in mid-1994, the Central Bank established an
auction system to regulate the allocation of foreign exchange more
tightly and improve transparency of foreign exchange transactions.
Commercial banks are now required to sell 100 percent of repatriated
foreign exchange earnings to the Central Bank, which in turn auctions up
to 60 percent of them daily in the open market.
C. GENERAL FINANCING AVAILABILITY
There is limited short-term trade financing available from local
commercial banks. The financing situation has deteriorated recently
because of Central Bank contractionary monetary policies aimed at
halting inflation and stabilizing the value of the lempira against the
U.S. dollar. The Central Bank recently lowered the legal reserve
requirement on commercial bank deposits to 35 percent. Bank interest
rates on commercial loans remain high. However, bank liquidity is so
tight that, even at such a high rate, they are not disbursing funds to
their preferred customers.
D. HOW TO FINANCE EXPORTS/METHODS OF PAYMENT
Because of a chronic shortage of foreign exchange, U.S. exporters should
exercise caution when extending credit on sales to Honduran trading
partners. Cash in advance and irrevocable letters of credit, confirmed
by U.S. banks, are the most appropriate methods of payment for U.S.
exporters selling to Honduran firms.
E. TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE
The United States Export-Import Bank (EXIMBANK) offers short and medium
term financing for U.S. exports to Honduran private sector buyers. At
present no local bank has direct access to EXIMBANK's credit lines.
These lines, however, are available through U.S. commercial banks.
EXIMBANK's credit facilities available to Honduras include the Working
Capital Guarantee Program, Exporter Insurance Program, Bank Letter of
Credit Policies and Financial Institution Facilities.
F. PROJECT FINANCING AVAILABLE
Long-term financing is generally available only through special funds of
the Central Bank of Honduras, the Central American Bank for Economic
Integration (CABEI) and the Inter-American Development Bank. The
programs that are available from these institutions concentrate on
export projects, including export processing zones and industrial parks.
The U.S. Department of Agriculture (USDA) provides loan guarantees
(GSM), concessional credits (PL-480) and export subsidies such as the
Export Enhancement Program (EEP). The USDA financing programs are aimed
at encouraging U.S. agricultural exports.
The U.S. Small Business Administration (SBA) provides financial and
business development assistance to encourage and help small business
develop export markets. SBA offers both loans and loan guarantees.
The U.S. Trade Development Agency (TDA) provides grant loans for pre-
feasibility studies overseas on projects with high U.S. products and
services export potential.
Assistance from the Overseas Private Investment Corporation (OPIC) is
available for new investments, privatizations, and for expansions and
modernizations of existing plants sponsored by U.S. investors. The
investors must contribute additional capital for modernization and/or
expansion to be eligible. Financing is not available for projects that
can secure adequate financing from commercial sources.
G. LIST OF COMMERCIAL BANKS
Banco de El Ahorro Hondureno, S.A.
P.O. Box 3185
Tegucigalpa, D.C.
Honduras
Tel: (504) 37-5161
Fax: (504) 37-4638
Banco Atlantida, S.A.
P.O. Box 3164
Tegucigalpa, D.C.
Honduras
Tel: (504) 32-1742
Fax: (504) 32-1273
Banco La Capitalizadora Hondurena, S.A. (BANCAHSA)
P.O. Box 344
Tegucigalpa, D.C.
Honduras
Tel: (504) 37-1171
Fax: (504) 37-2775
Banco del Comercio, S.A. (BANCOMER)
P.O. Box 160
San Pedro Sula, Cortes
Honduras
Tel: (504) 53-3600
Fax: (504) 53-3128
Banco Continental, S.A.
P.O. Box 390
San Pedro Sula, Cortes
Honduras
Tel: (504) 53-1310
Fax: (504) 52-2750
Banco Financiera Centroamericana, S.A. (FICENSA)
P.O. Box 1432
Tegucigalpa, D.C.
Honduras
Tel: (504) 38-1661
Fax: (504) 38-1630
Banco de las Fuerzas Armadas, S.A. (BANFFAA)
P.O. Box 877
Tegucigalpa, D.C.
Honduras
Tel: (504) 31-2051
Fax: (504) 31-3832
Banco Hondureno del Cafe (BANHCAFE)
P.O. Box 583
Tegucigalpa, D.C.
Honduras
Tel: (504) 32-8370
Fax: (504) 32-8332
Banco de Honduras, S.A. (CITIBANK)
P.O. Box 3434
Tegucigalpa, D.C.
Honduras
Tel: (504) 32-6122
Fax: (504) 32-6164
Lloyd's Bank
P.O. Box 3136
Tegucigalpa, D.C.
Honduras
Tel: (504) 36-6864
Fax: (504) 36-6417
Banco Mercantil, S.A. (BAMER)
P.O. Box 116
Tegucigalpa, D.C.
Honduras
Tel: (504) 32-0006
Fax: (504) 32-3137
Banco de Occidente, S.A.
P.O. Box 3284
Tegucigalpa, D.C.
Honduras
Tel: (504) 37-0310
Fax: (504) 37-0486
Banco SOGERIN, S.A.
P.O. Box 440
San Pedro Sula, Cortes
Honduras
Tel: (504) 53-3888
Fax: (504) 57-2001
Banco de Los Trabajadores, S.A.
P.O. Box 3246
Tegucigalpa, D.C.
Honduras
Tel: (504) 37-9501
Fax: (504) 37-8422
Banco de la Exportacion, S.A. (BANEXPO)
P.O. Box 3988
Tegucigalpa, D.C.
Honduras
Tel: (504) 39-4256
Fax: (504) 39-4265
Banco del Pais, S.A.
P.O. Box 314
San Pedro Sula, Cortes
Honduras
Tel: (504) 52-5202
Fax: (504) 52-5229
Banco Corporativo (BANCORP)
P.O. Box 3827
Tegucigalpa, D.C.
Honduras
Tel: (504)39-2263
Fax: (504)39-3286
Banco de la Produccion (BANPRO)
P.O. Box 5151
Tegucigalpa, D.C.
Honduras
Tel: (504)39-2800
Fax: (504)39-2911
Banco Hondureno de Credito y Servicios (BANHCRESER)
P.O. Box 2948
San Pedro Sula, Cortes
Honduras
Tel: (504)57-3438
Fax: (504)57-3439
Banco Ficohsa
P.O. Box 1671
Tegucigalpa, D.C.
Honduras
Tel: (504)39-6380
Fax: (504)
IX. BUSINESS TRAVEL
A. BUSINESS CUSTOMS
The U.S. is Honduras' main trading partner and U.S. citizens are
considered to be trustworthy. The contract is a formality t