The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Executive Summary
Honduras has many characteristics attractive to international and domestic investors: the proximity to U.S. markets, legal protections and low tariffs provided under the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), a skilled labor pool with well organized labor unions, a rich endowment of natural resources, and productive agricultural zones. Investors report, however, that persistent uncertainty caused by security concerns, corruption, inadequate rule of law, expensive and unreliable electricity, problems with licensing and permitting, and deteriorating infrastructure continue to present significant challenges for enterprises of all sizes. According to the International Monetary Fund (IMF), real Honduran GDP grew by 4 percent in 2022 and IMF economists predict the economy will have grown by 3.7 percent by the end of 2023.
The administration of Honduran President Xiomara Castro has continued to push forward with its plan to “re-found” the country, purporting to reign in the country’s systemic corruption and establish an economic system that benefits all Hondurans. Many of these efforts appear well intentioned, but investors report that the fast pace of legal and regulatory changes, persistent government messaging blaming the private sector for the country’s poverty and corruption, and lack of rigorous cost-benefit analysis underpinning economic policymaking has created a climate of uncertainty that has driven a decline in private investment and job creation.
Many entrepreneurs and business owners, including more than 200 U.S. companies, operate thriving enterprises in Honduras, but nearly every company in contact with the Embassy has reported significant disruptions during the past year due to government policies such as the repeal of the regulatory framework allowing temporary per-hour employment, elimination of the public procurement infrastructure, and monetary and exchange rate policies that have led to widespread shortages of U.S. dollars in the highly import-dependent economy. Armed and frequently violent land invasions of private property are increasingly widespread throughout Honduras; the government recently announced the creation of a commission to resolve land disputes and enforce legal titles, which has created cautious optimism among private investors. Honduran businesses report continued problems in the electricity subsector, with many new businesses being refused hookups due to electricity shortages, and reliable service only possible through private generation. As of June 2023, the government started to implement a plan of scheduled blackouts to ration electricity throughout the country. Efforts to reform the subsector have not been successful – electricity remains prohibitively expensive and unreliable – and the loss-making state-owned utility continues to lose almost 40% of the electricity it generates to theft and technical losses, according to government data.
As of June 2023, the National Assembly is debating a tax law that, if passed, would eliminate the country’s existing tax incentives for new investment, replacing them with two vaguely defined new structures. Many private business groups have publicly expressed concern that this law would negatively affect the investment climate, and the current debate has contributed to additional concern about the predictability of investment returns.
The administration’s messaging on international trade has also been a source of uncertainty in the investment climate. Despite the potential benefits of CAFTA-DR to both Honduran exporters and consumers, President Castro has repeatedly made public statements that Honduras would seek to renegotiate the agreement. In the meantime, non-tariff measures have increased, which investors perceive to be directed largely against U.S.-sourced agricultural imports.
Despite all these challenges, there are still lucrative business and investment opportunities in Honduras, and many multinationals are expanding their footprint in the country. Potential investors considering projects in the country should nevertheless ensure their projected returns include an appropriate risk premium.
To access the ICS, visit the U.S. Department of State Investment Climate Statement website.