Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
Corruption – U.S. firms have found corruption to be a continued constraint to successful commercial activities in Honduras. Compared to the previous year, in 2021, the level of corruption rose slightly as Honduras ranked 157th out of 180 countries in Transparency International’s (TI) Corruptions Perceptions Index, which ranks perceived levels of public sector corruption by experts and businesspeople. At present, Honduras and the UN are negotiating the form, function, and timing of an UN-led International Commission Against Corruption and Impunity (CICIH).
Lengthy Due Process – While open to foreign investment with limited restrictions and performance requirements, companies have experienced long waiting periods for regulatory and legislative approvals.
Energy Sector - Improving reliability and decreasing end-user costs within the electricity sector is a critical area for Honduras. The sector needs improvements in energy generation, transmission and distribution infrastructure, and reduction of technical and non-technical losses. A new energy law approved in May 2022 declared energy as a human right and consolidated the government’s control over the sector and reversed previous reforms that mandated the unbundling of the generation, transmission, and distribution functions of the state-owned electric utility. Currently, the energy utility is seeking to renegotiate the price of energy stipulated in power purchase agreements with electricity generators. The law states, if these negotiations fail, the state may purchase the electricity generating assets at a “just price” determined by the government. The law also sharply curtailed the ability of private firms to purchase electricity from private generators. Additionally, it requires that 51 percent of all projects in generation, transmission, and distribution be state-owned. The impact of the energy law on the sector, the overall economy, and the investment climate for Foreign Direct Investment is yet to be determined, but investors frequently cite the high costs of electricity and unreliable service as impediments to doing business in Honduras.
Fiscal Imbalance – In 2021, the balance of external public debt is estimated at 50.90 percent of the country’s Gross Domestic Product, 7.80 percent more than in 2017. Efforts to improve fiscal transparency and the Honduran Central Bank’s commitment to macroeconomic stability are perceived as instrumental to improving conditions for sustainable economic growth, strengthening its external commercial position, and bolstering investors’ confidence.
Social Investment – Honduras’ business climate is hampered by low education levels and a weak healthcare system. A stronger focus on human capital investments by the new government is expected to improve social outcomes and foster economic opportunities.
Large Informal Economy – An estimated 73 percent of the economically active population is engaged in the informal sector, which competes with formally registered firms for domestic market share.
Starting a Business - Although efforts are underway to streamline administrative procedures to start a new business, obtaining some licenses can still take a few months and burdensome regulatory requirements remain a challenge. Companies often cite complex tax policies as a constraint for further expansion.
Security – Citizen security is one of the government’s highest priorities and remains a major concern in Honduras. Although the homicide rate has dropped by more than half since 2011 (from 87 murders per 100,000 inhabitants to 39 in 2021), it remains high by international standards. The cost of crime and violence in Honduras is estimated to equal 6.5 percent of GDP. Violent gangs have threatened citizen security and are known for carrying out extortion rackets against businesses and communities across the country. Theft, pickpocketing, and armed robberies can occur in urban areas.
Climate Change and Natural Disasters – Honduras is highly vulnerable to extreme meteorological events. Severe economic and critical infrastructure damage occurred after hurricanes Eta/Iota hit Honduras in late 2020. These weather-related phenomena have affected over 4.5 million Hondurans and 68.2 percent of the productive sector, generating serious infrastructure, social, and environmental damages that constraint growth and compromise food security. An Emergency Response and National Reconstruction and Mitigation plan is currently being undertaken by the Government of Honduras, aimed at sustainable and resilient remediation.
Covid-19/Variants –According to Honduran Central Bank’s data, the GDP contracted by 9 percent in 2020 but rebounded 12.5 percent in 2021 and is forecasted to return to pre-COVID growth levels (approximately 3.4 percent) in 2022. As COVID mitigation control measures have been relaxed, coupled with open mobility and less social distancing restrictions, the country’s business activity is gradually recovering from the collapse of cross-border tourism, an interruption of supply chains, and an overall decrease in consumer demand.
Port of Cortes – Importers of bulk grains such as corn, soy, wheat, and rice that pass-through Port of Cortes report shortages of what is received versus what is offloaded. Documented losses have reached a cumulative total of $8 million USD over the past three years.
Land Tenure - Land title procedures have been an issue leading to investment disputes involving U.S. nationals and corporations who are landowners. 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. Additionally, there are reports of members of farmers’ cooperatives blocking access or even invading property owned by U.S. entities ahead of the case being resolved in the court system. The Castro administration has been reluctant so far to take any significant enforcement actions against land rights violations.
Other Challenges – Market participants are currently faced with policy uncertainty, weak rule of law, and digital piracy.