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The Country Commercial Guide provides useful starting point for U.S. business persuing export and investment opportunities in Honduras.
Market Overview
U.S. exporters enjoy an enviable position in the Honduran market, and saw this position improve after the 2006 implementation of the Central American Free Trade Agreement (CAFTA-DR). The US, joined by Honduras, El Salvador, Nicaragua, Costa Rica, Guatemala, and the Dominican Republic, signed the Central American Free Trade Agreement (CAFTA) in August 2004. Honduras was the second country to ratify CAFTA. This agreement entered into force for Honduras on April 1, 2006, one month following El Salvador and the United States. CAFTA-DR lowers tariffs on U.S. goods destined for the Central American market. Over the past decade, U.S. exports to Honduras have increased both in terms of absolute dollar value and in terms of market share. Strong prospects for exports of goods and services are not limited to a few industries but run the gamut, including: franchising; food processing, hotel, and restaurant equipment; auto parts and transportation machinery; safety and security equipment; computers and peripherals; building products; electrical machinery; textile fabrics and apparel; telecommunications, and electric power generation equipment. Honduran imports of textiles and apparel input materials, oils and lubricants, industrial chemicals, plastic materials, paper and related products, electrical materials and equipment and medical supplies all showed increases in 2006.
The U.S. is the chief trading partner for Honduras, supplying over half of Honduran imports and purchasing 65 percent of Honduran exports. U.S. exports to Honduras in 2006 were $3.7 billion, up approximately 14 percent from the previous year. Honduran tariffs on most goods from outside the Central American Common Market (CACM) are currently within the zero to 15 percent range. With CAFTA-DR in effect, about 80 percent of U.S. industrial and commercial goods can now enter the region duty-free, with the remaining tariffs phased out over ten years. Nearly all textile and apparel goods that meet the Agreements rules of origin became duty-free and quota-free immediately, promoting new opportunities for U.S. fiber, yarn, fabric, and apparel manufacturing. Honduras is one of the largest exporters of apparel and textile products by volume to the U.S. market behind such countries as Mexico and China, and the first among Central American and Caribbean countries.
According to the Central Bank of Honduras, the stock of total foreign direct investment (FDI) in Honduras in 2005 was $567.8 million, up from $464.6 million in 2004. New U.S. investment totaled $131.3 million and represented 35.3% of new investment in Honduras in 2005. During the first semester of 2006, Honduras received $226.2 million in new investment. In the first 6 months, 71.5 percent of new FDI in the maquilas (light assembly) sector (or $52.1 million total) and 73.8 percent of new FDI in non-maquila sectors (or $167.0 million total) came from the United States. The Honduran government is generally open to foreign investment, with limited restrictions and performance requirements, although some U.S. investors have experienced unexpectedly extensive waiting periods for environmental permits and concessions. CAFTA-DR also aims to eliminate inter-Central American tariffs, and facilitate increased regional trade, benefiting U.S. companies manufacturing in Honduras.
The close proximity of Honduras to the United States and recognition of the high quality and reliability of American products constitute advantages for U.S. exporters and manufacturers. With CAFTA-DR implementation, lowered tariffs grant additional competitiveness for U.S. goods.
Prospects for the Central American region are good. Central America offers a market of 32 million people with annual manufactured imports from the U.S. of more than USD 9 billion. This makes Central America a better market today for U.S. exporters than many markets where the competition and travel distance is much greater. Worker remittances from families in the U.S. are an important source of foreign exchange and help to guarantee funding for continued imports of U.S. goods and services. Regionalization is quickly becoming a fact for business. Factories and distribution facilities have been and are being located to serve a regional market. Rarely does a U.S. businessperson visit just one Central American country. New investors weigh the advantages each country offers as they look to locate new plants. Regional managers are becoming the norm with responsibilities for multiple countries within the market. Trade among the countries of Central America has increased dramatically. Leading sectors for U.S. exports and investment include safety and security equipment, automotive parts & service equipment, computers and peripherals, food processing and packaging equipment, textile machinery, equipment & fabrics, franchising and electrical power systems.
Central America and Honduras enjoy relative stability, real market opportunities and substantial U.S. exports in a market that is close to the U.S. and growing. Regional integration will spur investment, growth, trade and continued market opportunities for U.S. firms. Corruption, drug trafficking, and poverty are factors limiting the potential of this market.