The United States is Honduras’ most important economic partner. While the Honduran government places a priority on improving the investment climate as a means of attracting investment and promoting economic growth, meaningful reform has been slow. As of April 2019, the Honduran Congress is debating plans to merge the three institutions charged with attracting increased foreign direct investment: the National Investment Committee, ProHonduras, and President Hernandez’s signature Honduras 20/20, an ambitious initiative to create 600,000 new jobs by 2020. Economic reforms and continued commitment to fiscal stability in Honduras have led to a stabilized macroeconomic environment and positive outlooks and debt upgrades from major international ratings agencies. Some foreign companies with investments in Honduras, however, continue to face challenges. Inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low education levels, and poor infrastructure hamper Honduras’ investment climate. While the political climate has stabilized since the weeks of protests that followed the November 2017 presidential election, continued low-level protests and uncertainty also pose a challenge to the investment climate.
The Honduran government implemented several measures to improve investment and trade facilitation. In November 2016, the Government of Honduras launched the Presidential Commission for Integral Reform of the Customs System to simplify import/export procedures and improve relevant efficiency aspects of Honduran customs services. In July 2016, Honduras formally ratified the WTO Trade Facilitation Agreement, which contains provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective cooperation for customs compliance and trade facilitation issues. In June 2017, Honduras and Guatemala initiated a Customs Union to foster and increase efficient cross-border trade. El Salvador subsequently approved joining the Customs Union in July 2018. In July 2017, the Government of Honduras shifted management of product registration from the Ministry of Health to a new, more efficient Sanitary Regulatory Agency, leading to a decrease in the backlog of 13,000 sanitary registrations. Finally, in February 2019, the Government of Honduras established the National Trade Committee, chaired by the Minister of Economic Development.
Many of the approximately 200 U.S. companies that operate in Honduras take advantage of protections available in the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR). Honduras’ participation in CAFTA-DR has enhanced U.S. export opportunities and diversified the composition of bilateral trade. Substantial intra-industry trade now occurs in textiles and electrical machinery, alongside continued trade in traditional Honduran exports such as coffee and bananas. In addition to liberalizing trade in goods and services, CAFTA-DR includes important disciplines relating to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protection.
Table 1: Key Metrics and Rankings
Despite being one of Europe’s youngest and poorest countries, Kosovo has recorded positive economic growth rates, averaging almost four percent, during the last decade. Kosovo has significant potential to attract more investment, but will not be able to do so until it addresses serious structural issues.
In 2017 (the most current statistics), net flow of foreign direct investment (FDI) in Kosovo was estimated at USD 323 million, up from USD 247million in 2016. The stock of portfolio investment in 2017 totaled USD 2.14 billion, with equity securities of USD 1.67 billion and debt securities of USD 472 million. These totals compare to USD 1.47 billion in equity securities and USD 540 million in debt securities in 2016. Real estate and leasing activities receive the most FDI, followed by financial services and construction. The food, IT, infrastructure, and energy sectors are growing and hold the most potential to attract new FDI.
Though law enforcement remains weak, Kosovo’s laws and regulations are consistent with supporting and protecting investment. Kosovo has a flat corporate tax of 10 percent. In 2016, Kosovo ratified a strategic investment law intended to ease market access for investors in key sectors, and the government partnered with USAID and other international donors to launch the Credit Guarantee Fund, which improves access to credit. With USAID assistance, the Ministry of Trade and Industry embarked on a program to improve Kosovo’s rank in the World Bank’s Doing Business Index. Kosovo has a good legal framework for protecting intellectual property (IP), but enforcement remains an issue, largely due to lack of resources. While there is IP theft in Kosovo, it is not widespread.
All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices. Publicly-listed companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation, regulations are often passed with little substantive discussion or stakeholder input.
A number of factors make sustainable economic growth in Kosovo challenging, including: limited regional and global economic integration; political instability; corruption; an unreliable energy supply; a large informal sector; and tenuous rule of law, including a glaring lack of contract enforcement. The country continues to rely on significant international financial support and remittances.
The public consistently ranks Kosovo’s high unemployment rate (officially 29.6 percent in 2018) as among its greatest concerns. Unemployment levels for first-time job seekers and women are considerably higher than the official rate. Many experts cite a skills gap and high reservation wage as significant contributing factors.
Despite the challenges, Kosovo has attracted a number of significant investors including several international firms and U.S. franchises. Some investors have been attracted to Kosovo’s relatively young population, low labor costs, proximity to the EU market, and natural resources. Kosovo does provide preferential access to the EU market through a Stabilization and Association Agreement (SAA).
Table 1: Key Metrics and Rankings
Paraguay has a small but growing open economy, which for the past decade averages 4 percent GDP growth per year, and has the potential for continued growth over the next decade. Major drivers of economic growth in Paraguay are the agriculture, retail, and construction sectors. The Paraguayan government encourages private foreign investment. Paraguayan law grants investors tax breaks, permits full repatriation of capital and profits, supports maquila operations (special benefits for investors in manufacturing of exports), and guarantees national treatment for foreign investors. Standard & Poor’s, Fitch, and Moody’s all have upgraded Paraguay’s credit ratings over the past several years. Most recently, Fitch improved Paraguay’s credit rating to BB+ in December 2018 with a stable outlook.
Paraguay scores at the mid-range or lower in most competitiveness indicators, judicial insecurity hinders the investment climate, and trademark infringement and counterfeiting are major concerns. In April 2018, Paraguay elected President Mario Abdo Benitez in a peaceful election. His government is proposing new legislation to combat money laundering. Previously, the government has taken measures to improve the investment climate, including the passage of laws addressing competition, public sector payroll disclosures, and access to information. A number of U.S. companies, however, continue to have issues working with government offices to solve investment disputes, including the government’s unwillingness to pay debts incurred under the previous administration and even some current debts.
Paraguay’s export and investment promotion bureau, REDIEX, prepares comprehensive information about business opportunities in Paraguay.