2017 Investment Climate Statements: Honduras

Policies Towards Foreign Direct Investment

The Honduran government is generally open to foreign investment, with limited restrictions and performance requirements. Low labor costs, proximity to the U.S. market, and the Caribbean port of Puerto Cortés make Honduras attractive to investors. At the same time, however, Honduras’ investment climate is hampered by high levels of crime, a weak judicial system, corruption, low educational levels, and poor transportation and other infrastructure.

The Constitution of Honduras requires that all foreign investment complement, but not substitute for, national investment. The legal framework for investment in Honduras is provided by the Honduran Constitution, the investment chapter of CAFTA-DR, a self-executing international agreement that takes precedence over most domestic law, and by the portions of the Law for the Promotion and Protection of Investments that are not covered by CAFTA-DR. The Honduran Congress passed this Investment Law in 2011 and the President of Honduras enacted the relevant regulations for the law by executive decree in 2014.

Combined, Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and, compared to earlier legislation, include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors. CAFTA-DR has equal status in Honduras with the Constitution in most sectors of the Honduran economy.

The National Investment Council (CNI) was officially launched by President Hernandez on February 21, 2014 as the ideal means to promote economic growth and development. The council’s main responsibilities include designing investment strategies and plans, providing a pathway to simplifying bureaucratic procedures to start businesses, and preparing proposals for public policy to create and maintain a favorable investment climate. Investors will also be able to subscribe to a Stability Contract for investments greater than USD 2 million dollars and apply for an accelerated investment process.

Stability contracts guarantee that during their duration or for a maximum of 15 years, no new national or municipal taxes or tax increases shall be applied to their investments. In the case of public private partnerships the duration should be as is established on the contract. In the case of projects related to forestry or mining activities, the contract may remain in effect for up to 25 years.

Investors must present an application to CNI which is currently located in COHEP. The application is then reviewed along with information regarding the investment project and the sources of financing. Applications receiving a favorable opinion are submitted to the Cabinet where the final approval is granted in a Cabinet meeting (Consejo de Ministros). After the contract is signed, the CNI may apply charges equivalent to 0.25 percent of the project’s annual sales or services in the concept of a management fee for the duration of the contract.

The accelerated investment process is approved by the CNI or Coalianza after an economic and feasibility analysis of the project. The favorable opinion regarding this application is issued by the President and the Cabinet during a Cabinet meeting and an Executive Decree which declares that the project is of national interest is issued. Additionally, a certificate of incorporation and feasibility is issued. This certificate takes the place of all permits and licenses required by Honduran legislation to develop the project.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, e.g., small firms with capital less than 150,000 lempiras (HNL), which is about USD 7,000. For all investments, at least 90 percent of a company’s labor force must be Honduran, and at least 85 percent of the payroll must be paid to Hondurans. Majority ownership by Honduran citizens is required for companies that wish to take advantage of the Agrarian Reform Law, engage in commercial fishing, forestry, or local transportation activities, serve as representatives, agents, or distributors for foreign companies, or operate radio and television stations.

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.

Foreign investors have the right to own property, subject to certain restrictions established by the Honduran Constitution and several laws relating to property rights. This guarantee includes the right to free acquisition, profit, use, disposition and any other right attributable to property ownership. The major exception is the constitutional prohibition of foreign ownership of land within 40 kilometers of international borders and shorelines, although Honduran law permits foreign individuals to purchase properties close to shorelines in designated “tourism zones.”

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.

Other Investment Policy Reviews

In 2016, the World Trade Organization conducted a Trade Policy review of Honduras. The full text of the review can be found here: https://www.wto.org/english/tratop_e/tpr_e/s336_e.pdf .

Business Facilitation

The Honduran government has simplified administrative procedures for establishing a company in recent years. According to the 2017 World Bank Doing Business Report, the average time required for starting a business in Honduras is 13 days and requires 11 procedures. Honduras’ business registration information portal, www.honduras.eregulations.org , provides information on registering a business, including information fees, agencies, and required documents.

Outward Investment

Honduras does not promote or incentivize outward investment.

A Bilateral Investment Treaty (BIT) between the United States and Honduras entered into force in 2001. The U.S.-Honduras Treaty of Friendship, Commerce and Consular Rights (1928) provides for Most Favored Nation treatment for investors of either country. The U.S. and Honduras also signed an agreement for the guarantee of private investments in 1955 and an agreement on investment guarantees in 1966. Most provisions of these agreements have been superseded by CAFTA-DR.

Provisions for investment are included in free trade agreements between Honduras and Canada, Chile, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Peru, the Dominican Republic, and the European Union. These agreements have superseded many of the provisions of Honduras’ separate Bilateral Investment Treaties with these countries. Honduras also has separate Bilateral Investment Treaties with the Republic of Korea and with Switzerland.

Honduras and the United States signed a Tax Information Exchange Agreement with the U.S. in 1990. In 2014, Honduras and the United States signed an additional bilateral agreement to improve international tax compliance and implement the Foreign Account Tax Compliance Act (FATCA).

Transparency of the Regulatory System

CAFTA-DR requires that proposed regulations that could impact businesses or investments be published for public comment prior to passage. The Secretariat of Economic Development sometimes publishes draft regulations on its website. However, the Honduran government does not routinely publish regulations before they enter into force and there is no formal mechanism for providing proposed regulations to the public for comment. The lack of a formal notification process prevents most non-governmental groups, including foreign companies, from commenting on proposed regulations.

Regulations must be published in the official government Gazette in order to enter into force. Honduras lacks an indexed legal code, and lawyers and judges must maintain and index the publication of laws on their own. Procedural red tape to obtain government approval for investment activities is very common. Foreign market participants who are represented locally and are members of major business organizations essentially have access to the same information as their Honduran counterparts.

Some U.S. investors have experienced 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, the regulatory requirements are complex and lengthy, and may be influenced by political factors, in addition to potentially requiring Congressional approvals if the time duration exceeds the Presidential term of four years.

The Honduran government’s eRegulations website makes information on Honduran regulations available online. This site may be a useful resource for prospective investors: http://honduras.eregulations.org .

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, which was enacted in 1950, is the main legislation that regulates the operations of businesses in the country. The application of the Commercial Code and its regulations falls under the jurisdiction of the Honduran civil court system.

The Civil Procedures Code (CPC), which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The CPC provides for more effective protection of commercial transactions, property rights, and land tenure, as well as a more efficient process for the enforcement of rulings issued by foreign courts.

Despite these codes, U.S. claimants complain about the lack of transparency and the slow administration of justice in the courts. There are also complaints of favoritism, external pressure and bribes within the judicial system. U.S. firms have had difficulty navigating the legal system. Many U.S. citizens also have complained about the quality of legal representation they receive from Honduran attorneys.

Resolving an investment or commercial dispute in the local courts in Honduras is a lengthy process, according to foreign investors in Honduras. Foreign investors report that resolving a dispute 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 frequently prefer to resolve disputes with suppliers, customers, or partners out of court whenever such a resolution is possible.

Laws and Regulations on Foreign Direct Investment

The Investment Law requires that all local and foreign direct investment be registered with the Investment Office in the Secretariat of Industry and Commerce. Upon registration, an investor is issued investment certificates, which provide investment protection under the law and guarantee investors’ international arbitration rights, further provided for under CAFTA-DR. CAFTA-DR establishes a dispute settlement mechanism, as detailed in the Investment Chapter. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may request binding international arbitration. Proceedings and documents submitted to substantiate the claim are generally open to the public.

Additionally, government authorization is required for both foreign and domestic investments in the following areas:

• Basic health services,
• Telecommunications,
• 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, and
• Investigation, exploration, and exploitation of mines, quarries, petroleum and related substances.

In March 2015, the Honduran government implemented the online National Investment Register (Foreign and National) as a starting point for creating a one-stop investment facility; www.prohonduras.hn  / proteccion.inversionista@prohonduras.hn. The government has introduced a new form and streamlined the process for registration of investments, including both foreign and domestic investors. Firms who formalize a business still must go to a municipal or chamber of commerce window to register the business and handle other needed permits. In May 2015, Honduras set up three additional one-stop facilities covering the south, center and east of the country, building on the success of existing municipal-level windows in San Pedro Sula and Tegucigalpa.

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 passed its Competition Law, which established the commission, in 2005 as part its effort to implement of CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions 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.

Impoverished farmer groups sometimes invade or illegally occupy land owned by private companies and then file for the land under the Agrarian Reform Law with the Honduran National Agrarian Institute (INA). If the land is idle and fit for farming, the government can declare it expropriated. In 2013, the government passed legislation regarding recovery and reassignment of concessions on underutilized government assets. Both local and foreign firms have expressed concerns that the law does not specify how the government will determine whether land is underutilized. The government has not published any implementing regulations for the law, nor has the government indicated any plans to use the law against any private sector firm.

While government expropriation of land owned by U.S. companies is rare, disputes related to land seizure actions by squatters occur for both Honduran and non-U.S. foreign landowners, especially in agricultural areas. These occupations have sometimes turned violent, especially in the Bajo Aguan region in the department of Colon. Many landowners have found pursuing legal avenues to be costly, time consuming, and legally inconclusive. The CAFTA-DR agreement contains provisions in the Investment Chapter designed to protect foreign investors and their investments. Section 10.7 states that no party may expropriate or nationalize a covered investment either directly or indirectly. There are limited public purpose exceptions and the treaty provisions require the expropriating government to pay prompt and adequate compensation.

Compensation for land expropriated under the Agrarian Reform Law, when awarded, is to be paid partly in cash and partly in 15-, 20- or 25-year Honduran government bonds. The portion to be paid in cash cannot exceed USD 1,000 if the expropriated land has at least one building; it cannot exceed USD 500 if the land is in use but has no buildings; if the land is not in use, compensation will be paid entirely in 25-year government bonds.

Dispute Settlement

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 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 establishes a dispute settlement mechanism, as detailed in the Investment Chapter. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may request 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 (Decree 161-2000) encourages arbitration and clarifies the procedures under which it takes place. In that same year, the Chambers of Commerce and Industry in Tegucigalpa and San Pedro Sula established Centers for Conciliation and Arbitration. The Investment Law permits investors to request arbitration directly, eliminating the previous requirement to include an arbitration clause in investment contracts. Arbitration and conciliation are generally considered swifter and more cost-effective means of resolving disputes between commercial entities, and there may be the additional advantage that the arbitrator or mediator may have specialized expertise in the technical area involved in the dispute.

Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration: https://www.ccit.hn/cca/ 

San Pedro Sula Chamber of Industry and Commerce – Center for Conciliation and Arbitration: http://www.ccichonduras.org/es/?p=1571 

Bankruptcy Regulations

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 the 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.

Investment Incentives

The 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 the project and permits the duty-free import of goods needed for the project, including publicity materials. To receive benefits, a business must be located in a designated tourism zone to qualify for tax exemptions and duty-free status. 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 in size for tourism or other development projects in designated tourism zones must present an application to the Honduran Tourism Institute at the Ministry of Tourism. In addition to providing the required personal information, the potential buyer must also prove that a contract to buy a specific property exists and that the project is registered with the Honduran Ministry of Tourism. The buyer must also present feasibility studies and plans about the proposed tourism or economic development project.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no direct export subsidies provided by the Honduran government, but it provides tax exemptions to firms in a free trade zone. The Temporary Import Law (RIT) allows exporters to introduce raw materials, parts and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if the input is to be incorporated into a product for export (up to five percent can be sold locally). Export processing zones can be established anywhere in the country, and 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. Companies operating in an export processing zone are permitted unrestricted repatriation of profits and capital and have access to onsite customs facilities. However, companies are required 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’ major commercial city and a transportation crossroads. Industrial parks and export processing zones are treated as offshore operations. Therefore, customs duties must be paid on products manufactured in the parks and sold in Honduras. In addition, if Honduran inputs are used in production, they are treated as exports and must be paid for in U.S. dollars. While most companies that operate in these parks are involved in apparel assembly, the government and park operators have begun to diversify into other types of light industry, including automotive parts and electronics assembly.

Privately-owned tourism zones may be established to promote the development of the tourism industry in Honduras. The law allows for the free importation of equipment, supplies, and vehicles to businesses operating in designated tourism zones with certain restrictions (see the description of the tourism law, above). Additional information on Honduran free trade zones and export processing zones is available from the Honduran Manufacturers Association at http://www.ahm-honduras.com .

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. Investment projects that contribute to employment growth, either directly or indirectly, are more likely to garner government support. U.S. investors in Honduras have not reported any instances in which the government has imposed performance or localization requirements on U.S. investments.

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.

Real Property

Secured interests in property, both movable and real, are recognized under Honduran law. The Chamber of Commerce and Industry of Tegucigalpa (CCIT) manages the national property registry. Honduras’ secured transactions law gives a concession to the CCIT to administer the registry.

Inadequate land title procedures have led to numerous 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 have been claims of widespread corruption in land sales, deed filing, and dispute resolution, including claims against attorneys, real estate companies, judges, and local officials. Although some progress has been achieved, particularly in the Bay Islands, the property registration system remains unreliable and represents a major constraint on investment. 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 laws are often not effectively implemented. In these areas, Honduras largely complies with the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement of the World Trade Organization (WTO). Honduran law protects data exclusivity for a period of five years, and protects process patents, but it 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 intellectual property rights, 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, for example, 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 that monetary damages can be awarded even when losses associated with an infringement are difficult to assign.

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. AmCham can be contacted through its Web site: http://www.amchamhonduras.org/ .

Capital Markets and Portfolio Investment

There are no government restrictions on foreign investors’ access to local credit markets. However, the local banking system generally extends only limited amounts of credit. Local banks should not be considered a significant resource for 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.

There are a limited number of credit instruments available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa (http://www.bcv.hn ), but investors should exercise caution before buying securities listed on the BCV. The Central American Securities Exchange is supervised by the National Banking and Insurance Commission (CNBS). Instruments that theoretically can be traded include bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds and land reform repayment bonds. However, in practice, the market is almost completely 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 which have extended out to 3 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 exchange, 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/financial groups represented as shareholders of the exchange, which has led to lax risk management practices and an enduring loss of public confidence in the institution.

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 off-shore banking in Honduras.

Foreign Exchange and Remittances

Foreign Exchange

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), documentation verifying the fund’s origin is required.

The 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, and
• Remittance of dividends and capital repatriation.

In 2011, the Central Bank of Honduras (BCH) replaced the de facto fixed exchange rate that had been in place since 2005 with a crawling peg that allows the lempira to fluctuate by seven percent against the U.S. dollar in either direction per year. The BCH mandated that the crawling peg is subject to the further restriction that any daily price be no greater than 100.075 percent of the average for the prior seven daily auctions. This secondary restriction limits devaluation to a maximum of approximately 4.8 percent annually (assuming the maximum devaluation daily). As of March 2015, the exchange rate is HNL 23.4962 to the U.S. dollar, according to data from the Central Bank of Honduras.

The Central Bank uses an auction system to regulate the allocation of foreign exchange. Regulations governing the auction system establish the following:

• The base price is established every five auctions according to the differential between the domestic inflation rate and the inflation rate of the main commercial partners of Honduras;
• The procedure to determine the base price is set by the Central Bank’s Board of Directors;
• The Board of Directors establishes through resolutions the exchange commission to be charged by the Central Bank 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 expressing the offered price in lempiras with a maximum of four decimals. The offers can be no less than USD 10,000/ HNL 209,600, not more than USD 300,000/ HNL 6,288,000 for individuals, and cannot be more than USD 1.2 million/ HNL 25,152,000 for corporations.

Additional information on the Central Bank’s exchange system is available at http://www.bch.hn. To date, the U.S. Embassy in Honduras has not received complaints from individuals with regard to converting or transferring funds associated with investments.

Remittance Policies

The Investment Law guarantees investors the right to remit their investment returns and also, 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.

Most state-owned enterprises are public utilities, including telephone, electricity, and water companies as well as commercial ports.

The main Honduran telephone company, Hondutel, is state-owned. Yet other telecommunications firms operate in Honduras through contracts with Hondutel. Under this program, eight foreign and domestic carriers have registered with Honduras’s regulatory body, Conatel, as sub-contractors for Hondutel fixed telephony services. Although the elimination of Hondutel’s legal monopoly was a step towards liberalization of the telecom sector, a legal framework through which foreign companies can obtain licenses and concessions to provide long distance and international dialing has not yet been established. Investors remain unsure of whether they may legally establish themselves as fully independent telecommunication service providers. Currently, all contract operators must request a license from the regulator and then sign a contract with Hondutel for interconnection.

Although most electricity generation in Honduras is in private hands, the state-owned National Electric Energy Company (ENEE) is undergoing a reform process and will lose its monopoly over transmission, distribution, and commercialization. In September 2016, a subcontractor took over management of ENEE’s distribution system with a goal of reducing losses, increasing collections, and upgrading the system with smart meters. Despite their stated goal of finding a transmission system operator in 2017, this remains an issue due to political factors and a lack of necessary regulations. 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. ENEE continues to lose money and in January 2017, the Honduran government issued USD 700 million in sovereign bonds to cover payment arrears and refinance more expensive existing debt. Lowering the cost of power generation, increasing tarrifs, investing in transmission upgrades, reducing losses (currently at 34 percent), and implementing the needed reforms will be required for ENEE to achieve financial solvency.

The government has brought additional renewable power onto the grid, mainly from new hydroelectric and solar projects. The Honduran government is winding down these incentive programs as the cost of integrating variable renewable energy projects become clear. By 2014, the National Congress had 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 be built. Of the 2000 megawatts, approximately 400 megawatts of new solar capacity came on-line in 2015. Additionally, 200-300 megawatts of other renewable/non-renewable generation will be built in the short-term. Many businesses are opting to install their own 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 themselves and to grant concessions to private enterprises. San Pedro has granted a 30-year concession in 2013 to a private company. The municipalities of Puerto Cortés and Choloma have also created public-private partnerships. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) still manages Tegucigalpa’s water distribution.

The Honduran National Port Company (ENP) is the state-owned organization that oversees port management at all four of the country’s government operated maritime ports. These ports are Puerto Cortes, La Ceiba, Puerto Castilla, and San Lorenzo. The Honduran government has privatized the operation of Honduras’ principal port, Puerto Cortes. In a competitive bidding process, the government awarded concessions for private companies to operate its container and bulk shipping facilities. Central American Port Operators (OPC) and Maritime Ports of Honduras (PMH) won the 30-year concessions for container and bulk shipping operations, respectively. Both companies are in the process of expanding and modernizing the port’s terminal and storage facilities.

Privatization Program

The Honduran government does not have an overall privatization program for state-owned enterprises. However, it is trying to increase private sector participation and ownership in its electric system. As part of the International Monetary Fund (IMF) December 2014 standby arrangement, the Honduran government was required to reform the state-owned energy company ENEE and create an independent Electric Energy Regulatory Commission. The reformed ENEE will become a holding company with four components: 1) a distribution company with an operations subcontractor supported by a trust agreement with Banco Ficohsa; 2) a concession for the transmission network supported by a trust agreement with Banco Atlantida; 3) a not-for-profit organization with public and private ownership that will control and monitor the overall electrical system; and 4) a privatized generation company that owns all existing ENEE generating facilities. To date, three years after the energy reform law was passed by the Honduran Congress, virtually no efforts have been made to break up ENEE. Some progress was achieved in 2016, when a sub-contract to manage energy distribution was awarded to a Colombian-Honduran consortium.

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) was established in 2003 and is successfully leading efforts to promote transparency in the business climate and to provide the Honduran private sector, particularly small- and medium-sized businesses, with the skills to engage in responsible business practices. FUNDAHRSE’s members can apply for the foundation’s “CSR Enterprise” seal for exemplary responsible business conduct involving activities in health, education, environmental, codes of ethics, employment relations, and responsible marketing.

Responsible Business Conducts regarding the environment and outreach to local communities are especially important to the success of investment projects in Honduras. Major foreign investment projects in Honduras have stalled or encountered difficulties because of community opposition to their environmental impact, land rights issues, lack of transparency, and consultative processes with local communities, particularly indigenous communities. If an investment project does not observe environmental standards, it can lead to community or political opposition. Successful foreign investors in Honduras implement a proactive strategy to build trust and effective dialogue with local communities. Investors should not only meet Honduran legal obligations, but also employ international best practices and standards to engage with communities to reduce the risk of conflict and promote sustainable and equitable development for all. Examples of international best practices include the following; i) the Voluntary Principles on Security and Human Rights Initiative, ii) the United Nations Guiding Principles on Business and Human Rights, and iii) the Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.

Following anticorruption protests in late spring and early summer 2015, President Hernandez signed an agreement in January 2016 with the OAS to form the Mission Against Corruption and Impunity in Honduras (MACCIH). MACCIH arrived in Honduras in April 2016 and established four principle objectives: i) preventing and combating corruption and impunity; ii) criminal justice system reform; iii) political and electoral reform; and iv)public security. To date, MACCIH worked closely with the Public Ministry to investigate and prosecute those implicated in the Honduran Institute of National Security cases, as well as establish a national anti-corruption court in conjunction with the GOH. MACCIH has made significant strides on justice reform, including the lobbying and subsequent passage of the Law on Financing, Transparency and Oversight of Political Parties in Honduras, and presenting draft legislation for a Law of Effective Collaboration (similar to plea bargaining) to the Honduran authorities. MACCIH has established a special integrated investigation team of international prosecutors and created a Civil Society Observatory to monitor the criminal justice system in the country.

U.S. businesses and citizens reported corruption in the public sector and the judiciary to be a significant constraint to successful investment in Honduras. Historically, corruption is pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system. Since 2012, the Honduran government 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 Corportation in the development of an e-procurement platform and public procurement auditing.

Honduras’s Rankings on Key Corruption Indicators

The United States Foreign Corrupt Practices Act (FCPA) makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or 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 detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/ .

The U.S. government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements.

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 anticorruption agreement and requires countries to establish criminal penalties for a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging 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 Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Anti-bribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery.

Honduras is a member of the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, 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 wish to contact one or more of the following organizations that fight corruption in Honduras to request assistance.

Public Ministry
Yuri Dagne Nunez
Assistant to the Director of Prosecutors
consultoriaexternamp@gmail.com

The Public Ministry is the Honduran government agency responsible for criminal prosecutions, including corruption cases.

Association for a More Just Society (ASJ)
Yazmina Banegas
Residencial El Trapiche, 2da etapa Bloque B, Casa #25
+504-2235-2291
info@asjhonduras.com

The Association for a More Just Society is a nongovernmental Honduran organization that works to reduce corruption and increase transparency. It is an affiliate of the international nongovernment organization Transparency International.

National Anti-Corruption Council (CNA)
Alejandra Ferrera
Executive Board Assistant
Colonia San Carlos, calle Republica de Mexico
504-2221-1181
aferrera@cna.hn

The National Anti-Corruption Council is a Honduran civil society organization that works to fight corruption. Its members are a coalition of Honduran business groups, labor groups, religious organizations and human rights groups.

Problems, including alleged corruption by the Honduran government or competitors encountered by U.S. companies, can be brought to the attention of appropriate U.S. government officials at the embassy:

Attention: Economic Section
U.S. Embassy Tegucigalpa, Honduras
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 at: http://tcc.export.gov/Report_a_Barrier/index.asp .

In the country as a whole, levels of crime and violence are high. Crime and violence represent an added cost and constraint on investment. Please read the latest travel warning, located on the State Department website: https://travel.state.gov/content/passports/en/alertswarnings/honduras-travel-warning.html

Honduras has significant labor available for industries requiring relatively low-skilled workers. Given the low average education level, there is a limited supply of skilled workers in all technological fields, including medical and high technology industries. At the end of 2015 (most recent data available), the unemployment rate in Honduras was 7.31 percent according to statistics from the Honduran government’s National Statistical Institute (INE). A significant number of the Honduran labor force is underemployed, with INE estimating 55 percent at the end of 2015. A 2009 report from the International Labor Organization, also the most recent data available, estimated that 58 percent of workers were in the informal economy.

Honduran law lays out a multitier system for calculating minimum wage, based on the employment sector and size of the company. The specific starting levels are renegotiated on a multi-annual basis between the Ministry of Labor, private sector, and labor confederations, with most recent negotiations at the end of 2016.

The Honduran labor law prescribes a maximum eight-hour workday and 44-hour 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 workdays after one year, and 20 workdays after four years. 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.

Many employers hire employees on a temporary basis under the Temporary Employment Law. In some cases, employers will renew employees under short-term contracts many times, sometimes over a period of years. Labor groups have alleged that employers use temporary contracts to avoid responsibility for severance or employee benefits or to avoid union formation.

The Secretariat of Labor and Social Security (STSS) is responsible for registering collective bargaining agreements. Honduran legal precedent now requires both parties to a collective bargaining agreement to submit the agreement for registration.

In July 2015, Honduras published the Framework Law for the Social Protection System in La Gaceta, the Honduran government outlet responsible for publishing new laws. The Framework Law aims to provide universal health coverage for all Honduran citizens and foreign residents. It also provides new rules for the administration of retirement and pension funds and creates a “labor reserve” funding mechanism that is meant to ensure the payment of 50 percent of an employee’s severance regardless of the causes for job termination. Although the new law came into legal force in September 2015, law remains suspended pending resolution of legal challenges and clarification of how to implement the law. The government of Honduras will have to pass several additional laws to fully implement the Framework Law. Additionally, the government of Honduras has not implemented the law’s provisions because the Honduran public health agency IHSS is operating under the supervision of a special board of trustees as the result of a massive corruption scandal in 2014.

The Constitution and Labor Code prohibit the employment of persons under the age of 14; the law regulates the hours and type of work that minors up to age 18 may perform, prohibiting hazardous work as defined in Honduran law, night work, and overtime. The STSS can grant special permission for minors between ages 16 and 18 to work in the evening if it does not affect their schooling. By law all minors between 14 and 18 must receive special permission from the STSS to work and have written parental consent, and the STSS must perform a home study to verify that there is an economic necessity for the child to work and that the child will not work outside the country or in hazardous conditions, including in offshore fishing. If the STSS grants permission, children between ages 14 and 16 may work a maximum of four hours per day, and those between ages 16 and 18 may work up to six hours per day.

The Honduran Children’s Code prohibits a person of 14 years of age or less from working, even with parental permission, and establishes prison sentences of three to five years for individuals who allow children to work illegally. An employer who legally hires a 14 or 15-year-old must certify that the young person has finished or is finishing compulsory 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 law. In 2012, 26 Honduran labor organizations in conjunction with the AFL-CIO filed a submission with the U.S. Department of Labor that alleged that the government of Honduras was in violation of Chapter 16 (labor law enforcement) of the CAFTA-DR. The petition cites examples of the Ministry of Labor allegedly failing to enforce labor laws, such as the right to form a union, bargain collectively, be reinstated when unjustly fired for union organization activities, child labor, minimum wages, hours of work, and occupational safety and health.

In February 2015, the U.S. Department of Labor published a report in response to the submission. This report raised serious concerns regarding the effective enforcement of labor laws in Honduras under Chapter 16. The report provided recommendations to address the concerns and called for a monitoring and action plan (MAP). U.S. and Honduran Secretaries of Labor signed in December 2015 a Monitoring and Action Plan with 38 lines of action to improve labor law enforcement in Honduras. In March 2016, the U.S. Department of Labor released a one-year assessment of the 2015 report, which found that overall, the Honduran Secretariat of Labor and Social Security (STSS) has made significant progress toward meeting the MAP benchmarks, in most cases within the timeframes specified in the MAP.

The U.S. Department of State Country Report on Human Rights Practices describes a number of labor rights and human rights compliance issues that affect the Honduran labor market. These include employers’ antiunion discrimination, refusal to engage in collective bargaining, threats against union leaders, employer control of unions, blacklisting of employees who support unions, and refusal to admit Honduran government labor inspectors. The Honduras Country Report can be found here: http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport.

For employees laid off or terminated without cause, the standard severance in Honduras is one month’s pay per year of employment. Employers do not owe severance to employees they terminate for cause. Employers can only terminate employees for one of a list of causes specified in the Labor Law. When terminated for cause, employees can contest the basis for the termination in court in order to claim a severance payment. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may be entitled to have early access to their accumulated pension funds.

Employees who resign are not owed severance according to the law. However, it is common practice for employers to pay a voluntary, negotiated severance to employees who have several years with the company and who are resigning voluntarily.

In case of any resignation or termination, employers must pay employees for time worked and for accrued vacation. They must also pay terminated employees a portion of their annual and/or biannual bonuses, pro-rated according to the proportion of the current year. For example, a company that terminates an employee on March 31 would owe him 25 percent of his annual and/or biannual bonuses.

The U.S. Overseas Private Investment Corporation (OPIC) provides loan guarantees, which are typically used for large projects, and direct loans, which are reserved for projects sponsored by or substantially involving U.S. small businesses and cooperatives. OPIC can normally guarantee or lend from USD 100,000 to USD 250 million per project. OPIC also offers insurance against risks of currency inconvertibility, expropriation and political violence.

Honduras is a party to the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Data not available.

Deputy Economic Counselor and Commercial Officer Paul Neville
U.S. Embassy
Avenida La Paz
Tegucigalpa, M.D.C.
Tel: (504) 2236-9320, Ext. 4178
E-mail: NevillePW@state.gov