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The Country Commercial Guide provides a 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), which was signed by the US, Honduras, El Salvador, Nicaragua, Costa Rica, Guatemala, and the Dominican Republic in August 2004. Honduras was the second country to ratify CAFTA-DR, which entered into force for Honduras on April 1, 2006, one month following El Salvador and the United States. CAFTA-DR eliminates most tariffs and other barriers to U.S. goods destined for the Central American market, provides protection for U.S. investments and intellectual property and creates more transparent rules and procedures for doing business. CAFTA-DR also aims to eliminate inter-Central American tariffs, and facilitate increased regional trade, benefiting U.S. companies manufacturing in Honduras.
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 extensive and include: franchising; food processing, hotel, and restaurant equipment; processed foods, 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. For the period January-November 2007, Honduran imports of tractors, telecom equipment, electrical generators, industrial machinery, and general consumer goods all showed the most increases.
The U.S. is the chief trading partner for Honduras, supplying almost half of Honduran imports and purchasing approximately 65 percent of Honduran exports. U.S. exports to Honduras in 2007 were $4.5 billion, up approximately 21 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. goods can now enter the region duty-free, with tariffs on the remaining 20 percent to be phased out within 10 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 flow of foreign direct investment (FDI) into Honduras in 2007 was $814.9 million, up from $674.1 million in 2006. Of the total FDI flows, 72.6 percent is directed towards the general business sector, and 27.4 percent towards the export processing (maquila) sector. The U.S. continues to be the leading investor in the maquila sector, participating with 41.1 percent of FDI flows in 2006, followed by Canada with 35.5 percent. During 2006, the maquila sector received a total of $184.7 million in FDI, the second highest amount recorded in the last seven years (exceeded only by $195.8 million in 2005). With respect to all other business sectors, the U.S. is also taking the FDI lead with $263.3 million, followed by the UK ($45.2 million) and Canada ($41.7 million). The sectors reporting the highest amounts of FDI flows are retail, restaurant/hotels, financial/insurance, and telecommunications. During 2006, Honduras also consolidated itself as the second largest recipient of FDI flows in Central America (23.0 percent), after Costa Rica (37.4 percent). The stock of U.S. direct investment in Honduras at the end of 2006 on a historical cost basis was $517 million.
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.
Honduras marked 25 years of unbroken civilian, constitutional rule in 2007. José Manuel “Mel” Zelaya of the Liberal Party was elected President for a four-year term in November 2005. Economic growth over the last two years has averaged more than 6 percent, led by the construction, agricultural and financial sectors. Remittances from Hondurans living in the United States, more than a quarter of Honduran GDP, have made a major contribution to domestic demand in recent years.
Overall Central America and Honduras enjoy relative stability, growing economies and proximity to the U.S., all of which make these markets attractive for U.S. exports. Regional integration should spur investment, growth, trade and continued market opportunities for U.S. firms in coming years.