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Foreign Direct Investment in Honduras

by | Feb 1, 2024

Leonardo Morazán
Foreign Direct Investment Consultant
Tegucigalpa, Honduras

LATAM FDI: Today we have Leonardo Morazán with us. Leonardo is somebody who’s worked several years, quite a few, as a matter of fact, as an investment consultant to both private sector and public sector entities. Most recently, he’s done work to promote foreign direct investment in Honduras with the Consejo Nacional de Inversion and USAID. But I won’t say more. I’ll let you introduce yourself, Leonardo. Thank you for joining me.

Leonardo Morazán: Thank you, Steven. It’s a pleasure to be with you. As you say, for the last 10 years I have been a consultant with different entities promoting foreign direct investment in Honduras and advising companies in which industries to invest. I had previous experience as the CEO of an international Spanish company involved in software development that has a presence in Honduras. We began with the company here in 2014 and worked to make it grow. We had the chance to go public on the stock exchange in Madrid. So, it was a really interesting road to make a business grow and sell it. So that gave me a lot of insight into how Honduras could be a potential ally for investment worldwide, especially in Central America.

LATAM FDI: Well, that’s good that you have both private sector and public sector experience. It’ll help to orient the listeners to our discussion today about foreign investment in Honduras. With that, how would you describe the current investment climate in Honduras, and what factors make it attractive or provide challenges that people have to face?

Leonardo Morazán: Okay. One of the principal attractions of Honduras is its geographical position. We’re the heart of the Americas and have good opportunities in diverse sectors. We are used to working with American companies. There are a lot of nearshoring investments, and we are now open to various sources of investment. The Northern Triangle has been focused on different efforts to develop new economic opportunities and avoid migration. We have many people and a thriving workforce and are interested in attracting more foreign investment. Our national investors are aggressive. We have four or five groups that are expanding in the region. Currently, 90% of the investment comes from Honduran nationals, and only 10% comes from foreign investors. So, there’s an interesting opportunity to develop investments that take innovation, and new technologies to the region and use Honduras as a hub, a logistics hub, to distribute products and services through Latin America.

LATAM FDI: Those are the upsides. What are the challenges that companies face?

Leonardo Morazán: Okay. As in every country, we have a government that has to work on promoting investments. However, in recent history, most of our investments in the country face the challenge of how the laws and the rules of the game change. This happens when we shift politically from one spectrum of policy to another. This creates kind of a struggle. Projects with a return on investment over 10,15 or 20 years must have the same business conditions during the life of the investment. So, stability usually comes from two particular factors, how your market moves is the most important one. Now, we see a lot of movement in textiles and other types of manufacturing because of market shifts and the changes we are having from Asia to closer options near the markets for their products. This is the near-shoring effect. And the other factor is how the country gives stability to investors, to the employees, and the society as a whole.

LATAM FDI: Given what you just said, can you give any recent regulatory or economic developments in Honduras that have impacted the landscape for investors?

Leonardo Morazán: Yes. One of the principal attractions of our country is the free trade zones law. When we have a special regime to import goods, transform, and export them. It used to be a law specifically for exportation. Companies were not allowed to sell their products in the domestic market. It was a really strong motor for development. In the last three or four years before COVID, a regulation allowed those players to sell at least 50% of their production in the country. So that shifted a lot of the opportunities, and the players in the local market got upset because now they had to compete with industries with a lot of experience and technology.  Before this change, even though they were our neighbors, they didn’t have to compete with international investors. As a result, local investors had to seek other markets and try to compete.

LATAM FDI: So, just getting back to one of the things that you just said, people in special economic zones were allowed to sell into the domestic market. I would assume one of the issues that came up was that the people in the special economic zones were probably getting some tax incentives that were not enjoyed by the people who are domestic investors. Would that have been an issue?

Leonardo Morazán: Yes, they already had the tax incentives upon their establishment. So, once you have an open market, you already have most of the return on your investment. So, the prices could be competitive. However, the product has a tax on sales, which created some revenue for the government.

LATAM FDI: What sectors in Honduras are looking up these days? Where’s the activity?

Leonardo Morazán: Mostly, we have a really strong BPO service sector. People in Honduras have a really good English level and speak several languages. Our time zone is also appropriate for call centers and IT development, especially for America. That’s one of the industries where the most demand for workers is. The government finds these enterprises very attractive for the government because they usually create good jobs. And another industry is growing fast as well, manufacturing. Honduras is really powerful on textiles. We’re the number one selling socks, jerseys, and shirts to different markets. Then, the largest part of the country has an agribusiness industry. We are one of the top exporters of coffee. And in that line, most of the agribusiness industry has tried to diversify, and we’re exporting vegetables and fruits worldwide. However, it’s a primary product. I mean things such as bananas and coffee. We have to move forward to sell finished products and more value-added agriculture. That requires investment, knowledge, and access to markets. So, there is one big opportunity for international companies to see Honduras not only as a tropical country with no winter but only a rainy and dry season.

As a result, the agricultural business is really good because companies can produce twice or even three times a year. Additionally, our position is strategic to distribute these products all around the world.

LATAM FDI: How is the government working to promote investments? Are they doing anything actively to try to bring business to the country?

Leonardo Morazán: Yes. Five different institutions have promoted foreign direct investment in Honduras in the last four to five years. Foreign policy, the economic department, and the National Investment Council. It was a dispersed effort. In 2023, a new strategy focused all the investment attraction activities on the same organization. The National Investment Council right now has board members, a steering committee, the economy minister, the president,  and even the environmental head of state. The efforts to attract foreign direct investment in Honduras are more concentrated and focused. The new relationship with China has brought new opportunities to the country, especially from Asian companies, including Korea, Japan, and China. These companies seek to develop investments in the Americas, especially to access Honduras’s free trade agreements with South America, North America, and Europe. From the point of view of what the government is doing, the market, in some instances, is shifting away from Mexico. The government in Mexico has increased the minimum wage by over 20%. So that makes some of the production, both in agriculture and manufacturing, more competitive for those companies that seek to make foreign direct investment in Honduras.

LATAM FDI: Are there any notable success stories or case histories about foreign businesses that have thrived in the Honduran market? What lessons can others learn from their experience?

Leonardo Morazán: This is fresh information. Ten years ago, one company produced wooden car tables, especially for BMW and Mercedes Benz. It was a German company, and that was the only part of the car that we produced. In recent years, many electrical components were built in Honduras for Toyota, Nissan, and several other brands. Now, we even receive some companies interested in building leather seats. Slowly, we are transitioning from textile to automotive manufacturing, at least some of the components. That has become a new pole of development because now you need electrical engineers and electric technicians who are labor resources with many more skills. Luckily the country has a wide offer of higher education and technical education that has allowed companies to grow. One of them was a Canadian company, a really small company. It has grown because of access to adequately skilled labor. They had an interest. Our experience in textile factories gave us the infrastructure and the keys that other industries could use. Additionally, we have a really good port for shipping products in Puerto Cortes.

We have a US Customs office in the port. Companies have free clearance of any products that go to us. So, the US market is close, both in distance and ineffectiveness for exporters. So that was one of the best stories we have. It generated a lot of jobs and put another industry on the map that usually stays in Mexico or maybe in Brazil.

LATAM FDI: If you had to give one piece of advice to a foreign investor regarding what they should most look out for in terms of opportunities and a manner of doing business in Honduras, what would be the advice that you give them?

Leonardo Morazán: I’ll take the idea from agriculture, but it could be applied to most industries in Honduras. The country has all the components to generate innovation and value-added processes. We have a great workforce with several capabilities, both on the management side and in operations. Our people are really good workers. With the correct leadership, especially focusing on social and environmental issues, most companies grow and thrive because the communities are aware that the company not only generates profit but also jobs, economy, and social benefits. Overall, most companies build the roads to their factories and help the communities develop their infrastructure and electrical power. Our country has lots of sunshine. We have a lot of factories with solar panel systems to get not only green energy but also more cost-efficient energy. Honduras’ energy matrix is diversified. It has hydroelectric, wind and solar. As a result, the energy industry has grown a lot in recent years, and there’s a lot more room to grow. Our country is part of the Central American electric network, so we can also export energy to other countries.

All the issues that an energy company usually has are easy to tackle because of the potential that the country has because of its location. In any country, especially small countries, we need a lot of development, and there is a lot of red tape on most of the industries. But we have identified at least four to five profitable sectors. Tourism, manufacturing, agribusiness and energy. Even though there are some obstacles to overcome, companies will discover that the profits are really good. And there’s a lot of chance of growing in Honduras and the region. We have a connection, a customs connection, both with Guatemala and El Salvador. Many companies seeking foreign direct investment in Honduras see Central America as a block. They know all the alliances that can be built regionally and realize that it is a good commerce route to Mexico and North America.

LATAM FDI: As you know, we’ve had a pretty good discussion with an overview of the environment for foreign direct investment in Honduras. I’m sure that some of the listeners who sit through and listen to this conversation will have some questions, and maybe some of them will need someone to help orient them in their activities in Honduras. That being the case, Leonardo, how would people contact you? What we’ll do is, in the transcript section of the podcast page, we’ll put a link to your LinkedIn profile. But are there any other ways that people might get in touch with you?

Leonardo Morazán: I usually use my LinkedIn profile. I like networking and trying to understand the needs and views of the industries because transparency is one of the values that I think helps a lot of businesses. If you work with government entities, They typically highlight the opportunities and the good things. They often avoid discussing the negative, which usually causes problems because those making a foreign direct investment in Honduras want to focus on avoiding and solving problems. My recommendation usually is to work with someone who could have both views from the government and the private sector. You want to talk with the investors that are already here in Honduras and understand what are the benefits they perceive and what are the challenges that they have had. One of my biggest concerns is that there’s not enough information about our country available. Usually, the media and the news are about bad, negative things. If you want to know about minimum wage and the cost of electricity, there’s little information about it. That is where an experienced consultant is valuable.

Usually, you have to contact consultants with market knowledge or companies to get that information. That’s just preliminary information to make an accurate decision based on data. One of my focuses and our team usually focused on getting updated information online, both in English and Spanish, that will trigger questions and investigations about the potential of our country. I’ll be more than pleased to point anyone interested in making a foreign direct investment in Honduras in the right direction.

LATAM FDI: We will ensure that the link to your profile is there, and anybody with further questions on Honduras can seek you out as a source of good information. How would that be?

Leonardo Morazán: That would be great.

LATAM FDI: Well, thanks for joining me today. Have a good rest of the day.

 

 

 

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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