The United States is Honduras’ most important economic partner. While the Honduran government has prioritized reforms to attract investment and promote economic growth, meaningful improvement has been slow. In the 2020 World Bank Ease of Doing Business ranking, Honduras fell twelve positions and is now ranked 131 out of 190 countries, with 42 days required to start a business. Macroeconomic reforms and continued commitment to fiscal stability have led to a stable macroeconomic environment, a new program with the International Monetary Fund (IMF), and improved ratings from major international agencies. Foreign investments operating in Honduras continue to face challenges, including inconsistent and expensive energy, corruption, weak institutions, high crime, low education levels, and poor infrastructure. Continued low-level protests and uncertainty present a challenge to the investment climate.
The impact of the COVID-19 pandemic on the economy was both immediate and severe. The March 2020 shutdown of the formal and informal economies placed a tremendous strain on workers who rely on daily wages. Approximately 175,000 Hondurans were temporarily suspended from their jobs, 250,000 became unemployed, and almost 300,000 saw their income decrease by at least 40 percent. In June 2020, the Central Bank reported a 7.1 percent drop in 2020 remittance flows compared with the previous year. The government announced cuts to its budget by 16 percent to account for falling revenues coupled with a dramatic increase in COVID-related spending. The pandemic was still in its initial upward trajectory when this report was compiled and the full impact is still unknown.
The Government of Honduras (GOH) continues implementing measures to improve investment and facilitate trade. In July 2016, Honduras 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 joined 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, decreasing the backlog of 13,000 sanitary registrations. In February 2019, the GOH established the National Trade Committee, chaired by the Minister of Economic Development. In June 2020, Honduras digitized import permits for agricultural products, reducing costs and dispatch times dramatically, while also designating a Minister for Digital Governance to begin developing an e-government ecosystem.
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). Through its participation in CAFTA-DR, Honduras 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.
|TI Corruption Perceptions Index||2019||146 of 198||http://www.transparency.org/
|World Bank’s Doing Business Report||2019May||133 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||104 of 126||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2018||$504.0||https://www.bea.gov/data/intl-trade-
|World Bank GNI per capita||2018||$4,045||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GOH is generally open to foreign investment, and low labor costs, proximity to the U.S. market, and the large Caribbean port of Puerto Cortes make Honduras attractive to investors. At the same time, inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low educational levels, and poor infrastructure hamper Honduras’ investment climate.
The legal framework for investment includes the Honduran constitution; the investment chapter of CAFTA-DR, a self-executing international agreement that takes precedence over most domestic law; and the 2011 Law for the Promotion and Protection of Investments. The Honduran constitution requires all foreign investment to complement, but not substitute for, national investment. Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors. CAFTA-DR has equal status with the constitution in most sectors of the Honduran economy.
Critics complain that lack of clarity and overlapping responsibilities among the multiple entities charged with attracting increased foreign direct investment hinder results. In May 2019, the Government of Honduras merged the National Investment Council, ProHonduras, with an ambitious job creation mandate. It remains uncertain whether these changes will produce significant reforms in trade and investment.
Limits on Foreign Control and Right to Private Ownership and Establishment
Honduras’ Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, including small firms with capital less than $6,300 and the domestic air transportation industry. For all investments, at least 90 percent of companies’ labor forces must be Honduran and companies must pay at least 85 percent of their payrolls to Hondurans. Majority ownership by Honduran citizens is required for companies benefiting from the Agrarian Reform Law, including in sectors of commercial fishing, forestry, local transportation, radio, and television. There is no screening or approval process specific to foreign direct investments in Honduras. Foreign investors are subject to the same requirements for environmental and other regulatory approvals as domestic investors.
Investors can establish, acquire, and dispose of enterprises at market prices under freely negotiated conditions without government intervention. Private enterprises fairly compete with public enterprises on market access, credit, and other business operations. Foreign investors have the right to own property, subject to certain restrictions established by the Honduran constitution and several laws relating to property rights. Investors may acquire, profit, use, and dispose of property ownership with the exception of land within 40 kilometers of international borders and shorelines. Honduran law does permit, however, foreign individuals to purchase properties close to shorelines in designated “tourism zones.”
Other Investment Policy Reviews
In 2016, the World Trade Organization conducted a Trade Policy review of Honduras: https://www.wto.org/english/tratop_e/tpr_e/tp436_e.htm .
The Honduran government simplified administrative procedures for establishing a company in recent years. According to the 2020 World Bank Doing Business Report, the average time required for starting a business in Honduras is 42 days and requires 11 steps. Honduras’ business registration information portal (https://honduras.eregulations.org/ ) provides information on registering a business, including fees, agencies, and required documents.
Honduras does not promote or incentivize outward investment.
3. Legal Regime
Transparency of the Regulatory System
Though CAFTA-DR requires host governments publish proposed regulations that could affect businesses or investments, the Honduran government does not routinely post proposed changes to regulations. The lack of a formal notification process prevents nongovernmental groups, foreign companies, and other entities from commenting on proposed changes or new regulations. The government of Honduras publishes approved regulations in the official government Gazette. Honduras lacks an indexed legal code so lawyers and judges must maintain the publication of laws on their own. Procedural red tape to obtain government approval for investment activities is common.
Some U.S. investors experience long waiting periods for environmental permits and other regulatory and legislative approvals. Sectors in which U.S. companies frequently encounter problems include infrastructure, telecoms, mining, and energy. Generally, regulatory requirements are complex and lengthy, and may be influenced by political factors. Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Honduran government’s eRegulations website (http://honduras.eregulations.org/ ). While the majority of regulations are at the national level, municipal level regulations also exist. No significant regulatory changes of relevance to foreign investors were announced since the last report. Public comments received by regulators are not published. Honduras has made strides, in part with technical assistance from the U.S. Department of Treasury, to make public finances and debt obligations more transparent.
International Regulatory Considerations
As a member of the WTO, Honduras notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
Honduras has a civil law system. The Honduran Commercial Code, enacted in 1950, regulates business operations and falls under the jurisdiction of the Honduran civil court system. The Civil Procedures Code, which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The Civil Procedures Code provides improved protection of commercial transactions, property rights, and land tenure. It also offered a more efficient process for the enforcement of rulings issued by foreign courts. Despite these codes, U.S. claimants have noted the lack of transparency and the slow administration of justice in the courts. U.S. firms report favoritism, external pressure, and bribes within the judicial system. They also mention the poor quality of legal representation from Honduran attorneys.
Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process. Foreign investors report dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system. Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time. Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible.
Laws and Regulations on Foreign Direct Investment
Honduras’ Investment Law requires all local and foreign direct investment be registered with the Investment Office in the Secretariat of Industry and Commerce. Upon registration, the Investment Office issues certificates to guarantee international arbitration rights under CAFTA-DR. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may pursue CAFTA-DR’s dispute settlement mechanism, as detailed in the Investment Chapter. The claim’s proceedings and documents are generally open to the public.
The Government of Honduras requires authorization for both foreign and domestic investments in the following areas:
- Basic health services
- Generation, transmission, and distribution of electricity
- Air transport
- Fishing, hunting, and aquaculture
- Exploitation of forestry resources
- 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
- Investigation, exploration, and exploitation of mines, quarries, petroleum and related substances.
In 2015, the Honduran government implemented the online National Investment Register as a starting point for creating a one-stop foreign and domestic investment facility (www.prohonduras.hn ). Formalizing a business, however, still requires visiting a municipal chamber of commerce window for registration and permits.
Competition and Anti-Trust Laws
The Commission for the Defense and Promotion of Competition (CDPC) is the Honduran government agency that reviews proposed transactions for competition-related concerns. Honduras’ Competition Law established the CDPC in 2005 as part of the effort to implement CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions as an independent regulatory commission.
Expropriation and Compensation
The Honduran government has the authority to expropriate property for purposes of land reform or public use. The National Agrarian Reform Law provides that idle land fit for farming can be expropriated and awarded to indigent and landless persons via the Honduran National Agrarian Institute. In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns that the law does not specify what the government considers “underutilized.” The government has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm.
Government expropriation of land owned by U.S. companies is rare. Seizure actions by squatters on both Honduran and non-U.S. foreign landowners are most common in agricultural areas. Some occupations have turned violent. . Owners of disputed land have found pursuing legal avenues costly, time consuming, and legally inconclusive. CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment either directly or indirectly, with limited public purpose exceptions that require prompt and adequate compensation.
Under the Agrarian Reform Law, the Honduran government must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds. The portion to be paid in cash cannot exceed $1,000 if the expropriated land has at least one building and it cannot exceed $500 if the land is in use but has no buildings. If the land is not in use, the government will compensate entirely in 25-year government bonds.
ICSID Convention and New York Convention
Honduras is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) Convention. Honduras has also ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention)
Investor State Dispute Settlement
CAFTA-DR provides dispute settlement procedures between the United States and Honduras. CAFTA-DR’s Investment Chapter dispute settlement mechanism allows an investor who believes the government has not honored a substantive obligation under CAFTA-DR to request a binding international arbitration. Proceedings and documents submitted to substantiate the claim are generally open to the public. The agreement provides basic protections, such as nondiscriminatory treatment, limits on performance requirements, the free transfer of funds related to an investment, protection from expropriation other than in conformity with customary international law, a minimum standard of treatment, and the ability to hire key managerial personnel regardless of nationality.
International Commercial Arbitration and Foreign Courts
Honduras’ Conciliation and Arbitration Law, established in 2000, outlines procedures for arbitration and defines the procedures under which they take place. The Investment Law permits investors to request arbitration directly, a swifter and more cost-effective means of resolving disputes between commercial entities. Arbitrators and mediators may have specialized expertise in technical areas involved in specific disputes. Local courts recognize and enforce foreign arbitral awards issues against the government. Judgements from foreign courts are recognized and enforceable under local courts.
The following links provide more localized information:
- Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration:
- San Pedro Sula Chamber of Industry and Commerce – Center for Conciliation and Arbitration:
Numerous U.S. investors who have been involved with the local judicial system mention it can be inefficient, lacks transparency, and is subject to domestic influence and/or corruption.
Companies that default in payment of their obligations in Honduras can declare bankruptcy. A Honduran court must ratify a bankruptcy in order for it to take effect. These cases are regulated by the Commerce Code.
The judicial ruling that declares the bankruptcy of the company establishes the value of the assets, the recognition and classification of the credits, the procedure for the sale of assets and the schedule for the payment of the obligations, in the case that it is not possible for the company to continue its operations. The ruling must be published in The Gazette. The liquidation of companies is always a judicial matter, except in the case of banking institutions which are liquidated by the National Banking and Insurance Commission.
Any creditor or a company itself may initiate the liquidation procedure, which is generally a civil matter. The Judge appoints a liquidator to execute the procedure. A mechanism that a company has to prevent bankruptcy is to request a suspension of payments from the judge. If approved by the judge and the creditors, the company is able to reach an agreement with its creditors that allows the same administrative board to maintain control of the company.
A company may be prosecuted for fraudulently declaring bankruptcy in the case that the administrative board or shareholders withdraw their assets before the declaration, alter accounting books making it impossible to determine the real situation of the company, or favor certain creditors granting them benefits that they would not be entitled to otherwise.
4. Industrial Policies
The 2017 Tourism Incentives Law offers tax exemptions for national and international investment in tourism development projects. The law provides income tax exemptions for the first 10 years of a project and permits the duty-free import of goods needed for a project, including publicity materials. To receive benefits, a business must be located in a designated tourism zone. Restaurants, casinos, nightclubs and movie theaters, and certain other businesses are not eligible for incentives under this law. Foreigners or foreign companies seeking to purchase property exceeding 3,000 square meters for tourism or other development projects in designated tourism zones must present an application to the Honduran Tourism Institute at the Ministry of Tourism. The buyer must prove a contract to purchase the property exists and present feasibility studies and plans about the proposed tourism project.
In October 2018 President Hernandez introduced legislation creating a number of new tax incentives to promote job growth for small and medium enterprises. The new laws entered into effect in November 2018 following publication in the official Gazette. The legislation provides access to credit and tax relief to encourage existing businesses to go through the formal registration process as well as encourage the creation of new companies. The legislation includes provisions granting tax exemptions on national and municipal taxes and reduced permitting and licensing fees for new businesses.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Honduran government does not provide direct export subsidies, but does offer tax exemptions to firms operating in a free trade zone. The Temporary Import Law allows exporters to introduce raw materials, parts, and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if a manufacturer incorporates the input into a product for export (up to five percent can be sold locally). The government allows the establishment of export processing zones anywhere in the country. Companies operating in export processing zones are exempt from paying import duties and other charges on goods and capital equipment. In addition, the production and sale of goods within export processing zones are exempt from state and municipal income taxes for the first 10 years of operation. The government permits companies operating in an export processing zone unrestricted repatriation of profits and capital. Companies are required, however, to purchase the Lempiras needed for their local operations from Honduran commercial banks or from foreign exchange trading houses registered with the Central Bank.
Most industrial parks and export processing zones are located in the northern Department of Cortes, with close access to Puerto Cortes, Honduras’ major Caribbean port, and San Pedro Sula, Honduras’ largest commercial city. The government treats industrial parks and export processing zones as offshore operations, requiring companies to pay customs duties on products manufactured in the parks and sold in Honduras. In addition, the government treats Honduran inputs as exports, which companies must pay for in U.S. dollars. Most companies operating in these parks are involved in apparel assembly, though the government and park operators have begun to diversify into other types of light industry, including automotive parts and electronics assembly. Additional information on Honduran free trade zones and export processing zones is available from the Honduran Manufacturers Association (http://www.ahm-honduras.com/ ).
In 2013, the Government of Honduras signed a law to allow establishment of Economic Development and Employment Zones (ZEDEs) to boost job growth and attract foreign investment. Following a backlash from local and international NGOs concerned about labor rights, land issues, and environmental protection, the push for ZEDEs remained dormant until August 2017, when President Hernández revived the concept as a key job creation tool in conjunction with his reelection campaign. In 2019, two companies received Government of Honduras (GOH) approval to move forward with ZEDE planning and development.
Performance and Data Localization Requirements
The Honduran government encourages foreign investors to hire locally and to make use of domestic content, especially in manufacturing and agriculture. The government looks favorably on investment projects that contribute to employment growth, either directly or indirectly. U.S. investors in Honduras have not reported instances in which the government has imposed performance or localization requirements on investments. However, the Honduran government and courts can require foreign and domestic investors that operate in Honduras to turn over data for use in criminal investigations or civil proceedings. Honduran law enforcement, prosecutors, and civil courts have the authority to make such requests.
5. Protection of Property Rights
Honduran law recognizes secured interests in movable and real property. The Chamber of Commerce and Industry of Tegucigalpa (CCIT) and the Chamber of Commerce and Industry of San Pedro Sula (CCIC) both manage their own merchant records. The national property registry is managed by the Property Institute. Honduras’ secured transactions law gives a concession to the CCIT and CCIC to administer their own merchant registries.
Land title procedures have been an issue leading to investment disputes involving U.S. nationals who are landowners. Title insurance is not widely available in Honduras and approximately 80 percent of the privately held land in the country is either untitled or improperly titled. Resolution of disputes in court often takes years. There are claims of widespread corruption in land sales, deed filing, and dispute resolution, including claims against attorneys, real estate companies, judges, and local officials. Although Honduras has made some progress, the property registration system is perceived as unreliable and represents a constraint on investment, particularly in the Bay Islands. In addition, a lack of implementing regulations leads to long delays in the awarding of titles in some regions
Intellectual Property Rights
The legislative framework for protection of intellectual property rights (IPR), which includes the Honduran copyright law and its industrial property law, is generally adequate but often poorly implemented. Honduras implements its obligations under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). Honduran law protects data exclusivity for a period of five years and protects process patents, but does not recognize second-use patents. The Property Institute (IP) and Public Ministry handle protection and enforcement of intellectual property rights.
CAFTA-DR Chapter 15 on Intellectual Property Rights further provides for the protection and enforcement of a range of IPR, which are consistent with U.S. and international standards as well as with emerging international standards of IPR protection and enforcement. There are also provisions on deterrence of piracy and counterfeiting. Additionally, CAFTA-DR provides authorities the ability to confiscate pirated goods and investigate intellectual property cases on their own initiative.
The Honduran legal framework provides deterrence against piracy and counterfeiting by requiring the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. The law also provides for statutory damages for copyright and trademark infringement, to ensure monetary damages are awarded even when losses associated with an infringement are difficult to assign.
Honduras is not listed in USTR’s Special 301 report or the Notorious Markets List.
Resources for Rights Holders
A list of local attorneys is available at https://hn.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/. The Honduran-American Chamber of Commerce works with U.S. and Honduran companies that encounter commercial challenges, including intellectual property rights issues (http://www.amchamhonduras.org/ ). For additional information about national laws and points of contact at local IP offices, please see World Intellectual Property Organization’s country profiles: http://www.wipo.int/directory/en/ .
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit. Investors should not consider local banks a significant capital resource 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.
A limited number of credit instruments are available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying securities listed on it. Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds. In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.
A few banks have placed fixed rate and floating rate notes extended to three years in maturity, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange. Any private business is eligible to trade its financial instruments on the BCV, and firms that participate are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency. Historically, traded firms generally have had economic ties to the different business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.
Money and Banking System
The Honduran financial system is comprised of commercial banks, state-owned banks, savings and loans institutions, and financial companies. There are currently 15 commercial banks operating in Honduras. There is no offshore banking or homegrown blockchain technologies in Honduras.
Foreign Exchange and Remittances
Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment. Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport. For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.
The Investment Law guarantees foreign investors access to foreign currency needed to transfer funds associated with their investments in Honduras, including:
- Imports of goods and services necessary to operate
- Payment of royalty fees, rents, annuities, and technical assistance
Remittance of dividends and capital repatriation
The Central Bank of Honduras instituted a crawling peg in 2011 that allows the lempira to fluctuate against the U.S. dollar by seven percent per year. The Central Bank mandates any daily price of the crawling peg be no greater than 100.075 percent of the average for the prior seven daily auctions. These restrictions limit devaluation to a maximum of 4.8 percent annually. As of mid-July 2020, the exchange rate is 24.93 lempira to the U.S. dollar.
The Central Bank uses an auction system to allocate of foreign exchange based on the following regulations:
- The Central Bank sets base prices every five auctions according to the differential between the domestic inflation rate and the inflation rate of Honduras’ main commercial partners.
- The Central Bank’s Board of Directors determines the procedure to set the base.
- The Board of Directors establishes the exchange commission and the exchange agencies in their foreign exchange transactions.
- Individuals and corporate bodies can participate in the auction system for dollar purchases, either by themselves or through an exchange agency. The offers can be no less than $10,000, no more than $300,000 for individuals, and no more than $1.2 million for corporations.
To date, the U.S. Embassy in Honduras has not received complaints from individuals with regard to converting or transferring funds associated with investments.
The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested. Foreign investors that choose to remit their investment proceeds from Honduras do so through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras. These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.
Sovereign Wealth Funds
Honduras does not have a sovereign wealth fund.
7. State-Owned Enterprises
Most state-owned enterprises are in telecommunications, electricity, water utilities, and commercial ports. The main state-owned Honduran telephone company, Hondutel, has private contracts with eight foreign and domestic carriers. The Government of Honduras has yet to establish a legal framework for foreign companies to obtain licenses and concessions to provide long distance and international calling. As a result, investors remain unsure if they can become fully independent telecommunication service providers.
The state-owned National Electric Energy Company (ENEE) is the single greatest contributor to the country’s fiscal deficit. According to the IMF, in 2019, ENEE’s total losses reached 1.2 percent of GDP, while its $3.2 billion debt level was almost ten percent of GDP. Energy reform legislation, passed in 2014, called for the separation of ENEE into three independent units for distribution, transmission, and generation. But according to a World Bank study, lack of political will and vested interests stalled efforts to unbundle ENEE. The electrical sector faces serious structural problems, including high electricity system losses, a transmission system in need of upgrades, vulnerability of generation costs to volatile international oil prices, an electricity tariff that does not reflect actual costs, and the high costs of long-term power purchase agreements (PPAs).
ENEE controls most hydroelectric generation, which accounts for about one-third of total capacity. Approximately 50 percent of all power generation comes from diesel and bunker fuel oil plants and the remaining 20 percent comes from wind, solar, and biomass. Following a push for renewable energy in 2014, the government approved more than 80 contracts between ENEE and private producers for almost 2000 megawatts of new clean energy, although many of these projects are unlikely to materialize. In 2018, the government cancelled an incentive program offering a $0.03 per kilowatt-hour for renewable power due to high costs. Many businesses have installed on-site power generation systems to supplement or substitute for power from ENEE due to high costs and uncertainty about the semi-privatization process.
Honduran law grants municipalities the right to manage water distribution and to grant concessions to private enterprises. Major cities with public-private concessions include San Pedro Sula, Puerto Cortes, and Choloma. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) manages Tegucigalpa’s water distribution. The Honduran National Port Company (ENP) is the state-owned organization that oversees management of the country’s government-operated maritime ports, including Puerto Cortes, La Ceiba, Puerto Castilla, and San Lorenzo. Private companies Central American Port Operators and Maritime Ports of Honduras have 30-year concessions to operate container and bulk shipping facilities at Honduras’ principal port Puerto Cortes.
The Honduran government is not actively seeking to privatize state-owned enterprises though it is seeking to increase private sector participation in the electric system. As part of the International Monetary Fund (IMF) December 2014 Stand-By Arrangement (SBA), concluded in December 2017, the Honduran government initiated reform of the state-owned energy company ENEE and created an independent Electric Energy Regulatory Commission. Under a new IMF SBA signed in July 2019, the Honduran government is preparing a plan to separate ENEE. While the structure of the new entity is unclear, under the previous SBA, Honduras was supposed to reform ENEE by creating a holding company with four components: a distribution company with an operations subcontractor supported by a trust agreement; a concession for the transmission network; a not-for-profit organization with public-private ownership to control the overall electrical system; and a privatized generation company that owns all ENEE generating facilities. These reforms were not realized, with the exception of a 2016 sub-contract by a Colombian-Honduran consortium to manage energy distribution.
8. Responsible Business Conduct
Awareness of the importance of Responsible Business Conduct (RBC) is growing among both producers and consumers in Honduras. An increasing number of local and foreign companies operating in Honduras include conduct-related responsibility practices in their business strategies. The Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) has become a strong proponent in its efforts to promote transparency in the business climate and provides the Honduran private sector, particularly small- and medium-sized businesses, with the skills to engage in responsible business practices. FUNDAHRSE’s around 110 members can apply for the foundation’s “Corporate Social Responsibility Enterprise” seal for exemplary responsible business conduct involving work in areas related to health, education, environment, codes of ethics, employment relations, and responsible marketing.
RBC related to the environment and outreach to local communities is especially important to the success of investment projects in Honduras. Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities. Although the International Labor Organization Convention 169 on Indigenous and Tribal Peoples was ratified by the GOH in 1995 and Honduras voted in favor of UN’s Indigenous People’s rights in 2007, there is still much to do in the area. There is still a need for foreign investors to build trust with local communities, while employing international best practices and standards to reduce the risk of conflict and promote sustainable and equitable development.
Examples of international best practices include the following:
- Voluntary Principles on Security and Human Rights Initiative
- The UN Guiding Principles on Business and Human Rights
- The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.
Despite international pressure, President Hernandez allowed the four-year mandate of the OAS Mission Against Corruption and Impunity in Honduras (MACCIH) that expired in January 2020. MACCIH began work in 2015 following widespread anti-corruption protests in the wake of a scandal involving Honduras’ social security fund. During its tenure, MACCIH worked with the Public Ministry to bring cases against current and former public officials and to advance justice reform, including by presenting draft legislation for a Law of Effective Collaboration (similar to plea-bargaining law) to the Honduran authorities which remains under consideration in Congress. MACCIH and the Public Ministry created a special anti-corruption unit (UFECIC) to pursue large-scale corruption cases which continues to exist despite the end of MACCIH’s mandate. Its replacement, UFERCO, operates within the Public Ministry with fewer resources and personnel.
U.S. businesses and citizens report corruption in the public sector and the judiciary is a significant constraint to investment in Honduras. Historically, corruption has been pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system. Civil society groups are critical of recent legislation granting qualified immunity to government officials and a law that gives the highly politicized government audit agency a first look at corruption cases. In 2018, Congress passed a revision of the 1984 penal code that lowered penalties for some corruption offenses and critics argue contributes to a culture of impunity. The new code went into effect in June 2020. Since 2012, the Honduran government has signed agreements with Transparency International, the Construction Sector Transparency Initiative, and the Extractive Industry Transparency Initiative. Honduras is also receiving support from the Millennium Challenge Corporation in the development of an e-procurement platform and public procurement auditing.
|TI Corruption Index||2019||26.0/100, 146 of 198|
|World Bank Doing Business||Oct 2019||133/190|
|MCC Government Effectiveness||FY 2019||-0.19 (30 percent)|
|MCC Rule of Law||FY 2019||-0.66 (15 percent)|
|MCC Control of Corruption||FY 2019||-0.10 (37 percent)|
The United States Foreign Corrupt Practices Act (FCPA) deems it unlawful for a U.S. person, and certain foreign issuers of securities to make corrupt payments to foreign public officials for the purpose of obtaining or retaining business for directing business to any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more information, see the FCPA Lay-Person’s Guide: http://www.justice.gov/criminal/fraud/ .
Honduras is a member of the UN Anticorruption Convention, which entered into force on December 14, 2005. The UN Convention is the first global comprehensive international anti corruption agreement and requires countries to establish criminal penalties for a wide range of acts of corruption. The UN Convention covers a broad range of issues from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The UN Convention contains transnational business bribery provisions that are functionally similar to those in the Organization for Economic Cooperation and Development Anti-Bribery Convention.
Honduras is a member of the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its states parties in areas such as mutual legal assistance and technical cooperation.
Resources to Report Corruption
Companies that face corruption-related challenges in Honduras may contact the following organizations to request assistance.
Coordinator for External Cooperation
The Public Ministry is the Honduran government agency responsible for criminal prosecutions, including corruption cases.
Association for a More Just Society (ASJ)
Yahayra Yohana Velasquez Duce
Director of Transparency
Residencial El Trapiche, 2da etapa Bloque B, Casa #25 +504-2235-2291
ASJ is a nongovernmental Honduran organization that works to reduce corruption and increase transparency. It is an affiliate of Transparency International.
National Anti-Corruption Council (CNA)
Executive Board Assistant
Colonia San Carlos, calle Republica de Mexico
CNA is a Honduran civil society organization comprised of Honduran business groups, labor groups, religious organizations, and human rights groups.
U.S. Embassy Tegucigalpa, Honduras
Attention: Economic Section
Avenida La Paz
Tegucigalpa M.D.C., Honduras
Telephone Numbers: (504) 2236-9320, 2238-5114
Fax Number: (504) 2236-9037
Companies can also report corruption through the Department of Commerce Trade Compliance Center Report a Trade Barrier website: http://tcc.export.gov/Report_a_Barrier/index.asp .
10. Political and Security Environment
Despite recent progress on improving security in Honduras, crime and violence rates remain high and add cost and constraint to investments. Continued low-level protests and uncertainty pose a challenge to ongoing stability. Tensions could increase significantly in advance of the 2021 presidential election.
U.S. citizens should be aware that large public gatherings might become unruly or violent quickly. For more information, consult the Department of State’s latest travel warning: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Honduras.html.
11. Labor Policies and Practices
Honduras has a large supply of low-skilled labor and faces a limited supply of skilled workers in all technological fields, including medical and high technology industries. The 2019 unemployment rate in Honduras was 5.7 percent and nearly half of Hondurans are underemployed. Honduran law lays out a multitier system for calculating minimum wage, based on the employment sector and size of the company. The Secretariat of Labor and Social Security (STSS), private sector, and labor confederations renegotiate specific starting levels on a multi-annual basis.
The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week. The Labor Code provides for paid national holidays and annual leave. Most employment sectors also receive two months bonuses as part of the base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively. New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary to employees terminated without cause. Companies do not owe severance to employees who resign or are terminated for cause. Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.
Many employers hire employees on a temporary basis under the Temporary Employment Law. In some cases, employers will renew employees under short-term contracts, sometimes over a period of years. Labor groups allege that some employers use temporary contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation. The STSS is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14, but grants special permission for minors between ages 16 and 18 to work evenings as long as it does not affect schooling. The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.
While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws. Labor organizations allege the STSS fails to enforce labor laws, including the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health. A U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras. In October 2018, the U.S. Department of Labor released a MAP assessment update noting significant progress toward addressing areas of concern and extending the MAP’s mandate.
The U.S. Department of State Country Report on Human Rights Practices describes a number of labor and human rights compliance issues that affect the Honduran labor market (https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/honduras/). These include employers’ anti-union discrimination, refusal to engage in collective bargaining, threats against union leaders, employer control of unions, and blacklisting of employees who support unions.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
The U.S. International Development Finance Corporation provides loan guarantees and direct loans for investments in priority areas: energy, healthcare, critical infrastructure, technology, small and medium enterprises and women-owned businesses. DFC maintains direct links to USAID and development impact aims, with investments prioritizing low and low-middle income countries and a USAID employee seconded to the DFC as Chief Development Officer. With a global investment cap at $60 billion (increased from OPIC’s previous cap of $29 billion) the DFC is expected to invest aggressively in Honduras, facilitated by numerous agencies at post. Loans range from $1 million to $250 million with loan guarantees mobilizing potentially more. The DFC also offers political risk insurance, technical assistance for financial institutions, and in the coming year the possibility of local currency lending and limited equity authority. The Export-Import Bank of the U.S. also provides project financing in Honduras. Honduras is a party to the World Bank’s Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical Source||USG or International Statistical Source||Source|
|Host Country Gross Domestic Product (GDP)||N/A||N/A||2019||$25.095 billion||World Bank Honduras
|Foreign Direct Investment||Host Country Statistical source||USG or International Statistical Source||Source|
|U.S. FDI in Partner Country||N/A||N/A||2019||$1.3
|Host Country’s FDI in the United States||N/A||N/A||2018||$-84||BEA Data
|Total Inbound Stock of FDI as % host GDP||N/A||N/A||2016||65.79%|
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||Amount||100%||Total Outward||Amount||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||476||100%||All Countries||8||100%||All Countries||468||100%|
|International Organizations||177||37%||United States||6||71%||International Organizations||177||38%|
|Unites States||77||16%||Panama||2||28%||United States||71||15%|
|Costa Rica||23||5%||Belgium||0||1%||Costa Rica||23||5%|
14. Contact for More Information
Deputy Economic Counselor Matt Yarrington
Avenida La Paz
Tel: (504) 2236-9320, Ext. 4531