Competitive Advantages

MAIN ECONOMIC INDICATORS 2016 – 2018 FOR HONDURAS, ACCORDING TO THE ECONOMIC COMMISSION FOR LATIN AMERICA (ECLA):

MACROECONOMIC PERFORMANCE IN 2018 ACCORDING TO THE CENTRAL BANK OF HONDURAS (BCH)

According to the Monetary Program 2019-2020, the performance of the Honduran economy, the internal environment of gross domestic product (GDP) in real terms was 3.7% in 2018, driven by buoyant consumption and investment by the private sector and external demand products, mainly for processing goods (clothing and machinery and equipment). Financial Intermediation, Manufacturing, Agriculture, Commerce and Communications are the most prominent branches of economic activity in 2018.

As regards the external sector, the fall in international coffee prices and the volatility in oil prices had an impact in terms of less auspicious Exchange, so the current account deficitUN reflex increased from the previous year; toDespite this, this was below the average of the past five years. For its part, the financial account denoted a net inflow of foreign exchange, due to increased external liabilities of the financial and public sector, coupled with Foreign Direct Investment (FDI) in the country. This has to do with coverage of international reserves of 5.16 months of imports of goods and services at the end of 2018.

The deficit of the central government (AC) was 2.1% of GDP, 0.6 percentage points less than in the previous year, influenced in power policy in tax matters and the evolution of current expenditure according to the guidelines of the Fiscal Responsibility Law (LRF).

 GDP PERFORMANCE BY BRANCHES ACTIVITY (2014-2018)

Branches of activity have been more dynamic in recent years are: Agriculture, Forestry, Electricity and Water Distribution, Construction and Communications, observing the same trend in 2018.

When analyzing the figures of economic growth on the supply side during the period 2014 to 2017 the branches of activity that grew in a year are rising levels of foreign and domestic investment in the years in which areas are observed The industry of Electricity shows growth rather accelerated going from negative (2.5%) in the year 2012/2013 period to + 8.8% in the period 2014-2015; Communications slows their growth rising from 5.6% in the period 2012/2013 to 3.8% in 2015/2016 and 3.6% in 2017/2018; Construction of a negative growth (9.6%) 2013/2014 to + 7.3 in the period 2016/2017 and 2017/2018 7.1%; Finally, the branch of agricultural phandle a growth in the period 2014/2015 2.6% to 10.7% in 2016/2017. 2018 the sector contracted down 2.7% of growth (See Table Real GDP series from 2014 to 2018 in thousands of millions of lempiras).

Main PARTICIPATION of INDUSTRIAL REAL GDP 2018

In relation to GDP, the main industries that stand at 31 December 2018 are: Manufacturing (19.3%), financial intermediation (18.7%), agriculture (14.5%), communications (10.1%). Other branches that contribute to real GDP are public administration and defense: compulsory social security schemes 4.9%; trade (9.5%), with 3.0% and construction, respectively.

Producto Interno Bruto 2018 (Precios Constantes)

GDP GROWTH (2017 – 2018)

As can be seen in the following table, the economy grew 3.7% YoY from December 2017 to December 2018, which was less than 4.8% from the  2016/2017 period.

DESCRIPTIVE ANALYSIS OF ECONOMIC GROWTH FOR 2018 ACTIVITY BRANCH

A slowdown in the economy is observed and especially the branch of agriculture, forestry, forestry, hunting and fishing, going from a growth  YoY of 10.8% in 2017 to 2.7% in 2018 fell 8.1%. Similarly, the branch of Mining and Quarries decreased from 12.2% in 2017 to 7.5% in 2018 ie a decrease of 4.7 percentage points and the construction sector despite decreasing 0.2% remains a force growth with an increase of 7.1 %  YoY (7.3% in the previous period). Trade grew 4.3% (3.6% in 2016/2017).

Agriculture was affected by the growth of the coffee sector recorded 1.7% compared to 23.9% for the period 2017/2018, palm oil going from 16.7% to 3.8%, -3.5% to -0.3 banana%; Moreover, 23.7% fishing fell 0.5% and 2.3% step forestry 0.8%, as shown in the following table:

AGRICULTURAL AND AGROINDUSTRIAL EXPORTS, PERIOD 2017-2018
(IN MILLIONS OF DOLLARS AND LEMPIRAS)

The total agricultural and agro-industrial exports totaled $ 3,152.7 million, representing 36.3% of total exports of $ 8,674.9 million. Agribusiness exports totaled US $ 2,337.3 million US dollars (26.9% of exports) projects, the cultivation of coffee with $ 1,115.3 million (47.71%); palm oil $ 336,300,000 (14.38%); $ 233.8 million shrimp (10%) and pure $ 101,300,000 (4.34%). The total exports of these four items amounted to 76.43%. Moreover, agricultural exports totaled $ 815.4 million and representing 9.4% of total exports of which 65.2% were to banana; $ 100,100,000 to vegetables or is (12.27%) and $ 76.0 million melons (9.3%).

FDI BY ACTIVITY BRANCH 2016-2018

According to BCH in its “Flows of foreign direct investment” to the fourth quarter of 2018, the branch of agriculture, forestry, hunting and fishing reflects inflows of foreign direct investment negative compared to other industries with a negative flow $ 7.6 million.

The maquila industry is really flows recorded for an amount of $ 392.6 million or 32%. The second branch of activity that reflects FDI flows including Baca services, insurance and business services by $ 379.6 million or 31%.

Trade policy remains a very important element to foster the development of highly productive sectors, technology transfer and job creation.

Honduran trade policy remains main objectives:

• Job creation, attracting investment,
• The advantage of opportunities generated by regional trade agreements and the multilateral trading system;All this in order to generate sustainable and equitable economic growth.

The main objectives of the Honduran trade policy are:

REGIONAL TRADE AGREEMENTS

Honduras has a number of regional trade agreements (RTAs), most of which are pluripartitos. RTAs in which Honduras participates cover both trade in goods and services and include provisions on foreign investment and on non-tariff measures, for example customs procedures, trade protection, public procurement and competition. These agreements have been notified to the WTO.

REGIONAL TRADE AGREEMENTS

Honduras has a number of regional trade agreements (RTAs), most of which are pluripartitos. RTAs in which Honduras participates cover both trade in goods and services and include provisions on foreign investment and on non-tariff measures, for example customs procedures, trade protection, public procurement and competition. These agreements have been notified to the WTO.

1. Free Trade Agreement Central America- Dominican Republic
2. Free Trade Agreement Central America, the United States and the Dominican Republic (CAFTA-DR)
3. Free Trade Agreement Central America-Chile
4. Free Trade Treaty Honduras, El Salvador and Chinese Taipei
5. Free Trade Agreement Central America – Panama
6. Free Trade Agreement El Salvador, Guatemala, Honduras-Colombia
7. The Free Trade Costa Rica, El Salvador, Guatemala and Honduras and Nicaragua to Mexico
8. Association Agreement between the European Union and Central America
9. Honduras Free Trade Treaty -Canada
10. Honduras Free Trade Agreement -Perú

FUTURE TRADE AGREEMENTS OR UNDER NEGOTIATION

In the case of Ecuador, since 2015 they began negotiations to reach a Partial Agreement of Economic Complementation between the two nations.

TRADE FACILITATION

Honduras as a member of the World Trade Organization (WTO) adopted the Decision on the Agreement on Trade Facilitation in the framework of the “Package Bali” with a view to providing flexibility to the movement, release and clearance through customs goods, including goods in transit issues and trade facilitation.

GROUP WITHIN THE FRAMEWORK OF NEGOTIATIONS

Honduras is a member of the following groups within the framework of the negotiations.

• SVE
• G-33
• Joint Proposal (Intellectual Property)

ACCEPTANCE OF MULTILATERAL INSTRUMENTS

• 2005 Protocol amending the TRIPS Agreement (Accepted on December 16, 2011)
• Protocol to the Agreement on Trade Facilitation 2014 (Accepted July 14, 2016)

ADHERENCE TO THE PLURILATERAL AGREEMENTS

Signatory to the Agreement on Information Technology

Honduras make tangible the Customs Union with Guatemala in 2017, the GDP of the two countries reaches $ 72, 781 million USD and with the incorporation of El Salvador are expected  the creation of the eighth largest economy in Latin America was created, forming the Customs Union of the Northern Triangle of Central America.

Legal certainty is the guarantee of equality of all before the law, so that the rights of all persons and their property are respected and guaranteed.

It is the certainty of the right of citizens to their legal status is not modified rather than by standard procedures and established previously and duly approved legal channels. The Constitution of the Republic, says that no one can be judged only by the competent court, the formalities, rights and guarantees established by law; In addition, the State has signed and ratified international instruments committing to actual compliance with the guarantees of due process, which are essential and effective actions of all institutions that protect legal certainty in Honduras.

The legal certainty thus conceived is a right of all people, particularly those on trial or go to court or have been convicted.

From an economic projection, when there “Predictability of the rules” (Ie, legal certainty, and if the standards are met both really managed to state managers) are possible formal commercial enterprises and generating productive jobs on a large scale, because a healthy environment of clear rules can take investment risks.

Those risks of capital (investment risks) if you are focused on market issues (prices, costs, competition, etc.) formal businesses tend to thrive and grow; however, totally opposite it occurs when there is a constantly changing standards (generating widespread uncertainty (lack of legal certainty) added to it, authoritarian and disrespectful behavior of law plus an incentive unproductive savings and investments sleazy , result in the flight of both domestic production and foreign investment.

Honduras has invested in recent years in the promotion of legal security of the country by strengthening the justice operators, creating laws with tax incentives, mechanisms for conflict prevention and support for the formalization company which has the effect of encouraging investment both domestic and foreign, such mechanisms are also aimed at maintaining and sustainability of companies investing in the country in order to prevent leakage of the investment.

Similarly public institutions have been set up aimed at encouraging and promoting investment, always in strict adherence to generate greater legal certainty in the country. (Source: Constitution of the Republic, Honduran Laws, written opinions Newspapers, Legal Advisory Opinion CNI)

The Central American region makes financial investments to strengthen its maritime port, aviation-airport, rail, road infrastructure, coordinated border management and urban logistics and promote a range of logistics services that position themselves as a logistics hub for world-class year 2030.

Equally, derived from regional integration strategies the Government of Honduras has allocated funds for the construction of an efficient road system (corridors) and large air and maritime projects positioning Honduras as one of the countries that have improved their regional competitiveness.

According to the World Bank Index of logistics development (2018) Honduras over Ranking 112 with a score of 2.46 in 2016 to a ranking of 93 with a score of 2.6, improving 19 positions which is the result of investments in road corridors, air and sea up to HNL 60,000.00 million.

LOGISTICS PERFORMANCE INDEX

The World Economic Forum (WEF) ranks Honduras positions among the top three nations with greater investment in road infrastructure and second in construction of offshore projects

Honduras is geographically positioned in the heart of America with access to both oceans. It is being achieved leadership in the region by having maritime infrastructure facilities in the Atlantic (Puerto Cortes and Puerto Castilla) and the Pacific Ocean with the Port of Henecan and Amapala.

DISTRIBUTION OF OWNERSHIP OF COMMERCIAL BANKS IN HONDURAS

The performance of the national financial system is characterized by its remarkable dynamism, emphasizing the consolidation of the growth of financial intermediation activities, mainly commercial banks.

Similarly, the level of coverage of financial intermediaries has expanded nationwide. This is evidenced by the presence geographically, financial inclusion, financial deepening, banking and deposit growth and portfolio.

In Honduras, efforts to promote financial deepening and banking are not recent, since various public and private entities have implemented strategies and related financial inclusion programs. This endeavor has promoted the issuance of new regulations and amendments to existing ones to improve and facilitate access to credit of the Honduran population, and to promote social and economic development of the country (BCH, 2016, p.25).

ADEQUATE REGULATORY FRAMEWORK

Honduran regulatory framework has adequate laws and regulations that guarantee financial intermediation activity based on sound banking practices. Internationalization of financial activity and connectivity capital markets require regulatory authorities to control hazards through regulations based on international standards such as Basel I and Basel II.

According to the report of the National Commission on Banking and Insurance (CNBS, 2016) supervision focused its efforts on consolidating a supervision model based on best practices for risk management, which has allowed him to perform in a timely manner preventive and remedial measures appropriate to maintain healthy resource managers of the public, either in the form of deposits, insurance premiums and contributions to pension, thus promoting the stability of the national financial system institutions. This is reflected in favorable indicators of solvency, liquidity, adequacy of reserves, technical reserves and coverage investments, among others (pag.2).

STRUCTURE OF THE BANKING INDUSTRY

According to the CNBS (2017) the National Financial System (SFN) constitute public and private banks, savings and loan associations, financial corporations, and any other institutions engaged routinely and systematically collecting deposits and placing loans and investments.

The SFN has fifteen (15) commercial banks, ten (10) financial corporations, one (1) state bank, one (1) representative office, one (1) second-tier bank and the Central Bank of Honduras (BCH) twelve (12) insurance companies, ten (10) financial corporations, five (5) public pension funds and five (5) private,

The National Financial System is led by commercial banks that is distributed in 9 banks with foreign capital and six national capital. In 2018 the assets of the commercial banking system amounted to 79.7% of SFN assets.

Commercial Banks offer 92% service coverage nationwide.

The maquila sector specific “Manufacture of Textile and Apparel and Manufacturing of Harnesses and auto parts” are among the fastest growing sectors with a large export supply to the United States, generating a considerable amount of jobs. It is estimated to generate approximately 166,000 direct jobs. Many companies recognized global name and operating free zones highlight the quality of Honduran labor excelling high productivity, ability, dedication and commitment of Honduran workers. The development of the textile sector has allowed thousands of Hondurans develop the skills required for successful performance in the sector and other sectors.

FEATURES HONDURAN LABOR

• 50% of the population of Honduras is relatively young. The segment of the population in the range 16-29 years is 1,500,471, representing 37% of the economically active population (EAP) of 4,336,377 people.
• We have bilingual young people.
• Honduras ranks fourth as a global exporter of clothing to the US market and the fourth leading exporter of electrical harnesses, indicating the high productivity of Honduran workers.
• For mid-level management, there is a great availability of highly trained professionals with experience in production, marketing, administration and logistics.
• The availability of labor is abundant, low-cost, skills and abilities in the textile and automotive (harnesses).