HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Honduras

# 					2018 Investment Climate Statements: Honduras			

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													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

The United States is Honduras’ most important economic partner. The Government of Honduras strives to improve the investment climate through initiatives such as Honduras Plan 20/20, which seeks to attract increased foreign direct investment and create 600,000 new jobs by 2020. Recent economic reforms and continued fiscal stability in Honduras have led to a stabilized macroeconomic environment and positive outlooks and debt upgrades from major international ratings agencies. Some foreign companies with investments in Honduras, however, continue to face challenges. Inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low education levels, and poor infrastructure hamper Honduras’ investment climate. Honduras’ political climate has stabilized since the weeks of protests following the November 2017 presidential election.

The Honduran government has implemented several measures to improve investment and trade facilitation. In November 2016, the Government of Honduras launched the Presidential Commission for Integral Reform of the Customs System to simplify import/export procedures and improve relevant efficiency aspects of Honduran customs services. In July 2016, Honduras formally ratified the WTO Trade Facilitation Agreement, which contains provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective cooperation for customs compliance and trade facilitation issues. In June 2017, Honduras and Guatemala initiated a Customs Union to foster and increase efficient cross-border trade. Finally, in July 2017, the Government of Honduras shifted management of product registration from the Ministry of Health to a new, more efficient Sanitary Regulatory Agency to reduce a backlog of 13,000 sanitary registrations.

Many of the approximately 200 U.S. companies with operations in Honduras take advantage of protections available in the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR). Honduras’ participation in CAFTA-DR has enhanced U.S. export opportunities and diversified the composition of bilateral trade. Substantial intra-industry trade now occurs in textiles and electrical machinery, alongside continued trade in traditional Honduran exports such as coffee and bananas. In addition to liberalizing trade in goods and services, CAFTA-DR includes important disciplines relating to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protection.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies toward Foreign Direct Investment**

The Honduran government is generally open to foreign investment. Low labor costs, proximity to the U.S. market, and the large Caribbean port of Puerto Cortes make Honduras attractive to investors. At the same time, however, inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low educational levels, and poor infrastructure hampers Honduras’ investment climate.

The legal framework for investment includes the Honduran constitution; the investment chapter of CAFTA-DR (with precedence over most domestic law); and the 2011 Law for the Promotion and Protection of Investments. The Honduran constitution requires all foreign investment complement, but not substitute for, national investment. Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors. CAFTA-DR has equal status in Honduras with the constitution in most sectors of the Honduran economy.

Launched in 2014, the National Investment Council, or the Consejo Nacional de Inversiones (CNI), is a public-private sector initiative to promote economic growth and development. CNI designs investment plans and strategies to provide pathways to simplifying bureaucratic procedures to start businesses. It also prepares proposals for public policy to create and maintain a favorable investment climate in the national interest. Investors can subscribe to CNI’s stability contracts for investments greater than USD 2 million and apply for an accelerated investment process. Stability contracts guarantee zero increase of taxes on an investment for up to 15 years. Investors seeking stability contracts apply to CNI, which forwards favorable applications to the cabinet-level Council of Ministers for final approval. The CNI may apply charges equivalent to 0.25 percent of the project’s annual sales or services as a management fee for the duration of the contract.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Honduras’ Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, including small firms with capital less than USD 6,300 and the domestic air transportation industry. For all investments, at least 90 percent of companies’ labor forces must be Honduran and companies must pay at least 85 percent of their payrolls to Hondurans. Majority ownership by Honduran citizens is required for companies benefiting from the Agrarian Reform Law, including in sectors of commercial fishing, forestry, local transportation, radio, and television. There is no screening or approval process specific to foreign direct investments in Honduras. Foreign investors are subject to the same requirements for environmental and other regulatory approvals as domestic investors.

Investors can establish, acquire, and dispose of enterprises at market prices under freely negotiated conditions without government intervention. Private enterprises fairly compete with public enterprises on market access, credit, and other business operations. Foreign investors have the right to own property, subject to certain restrictions established by the Honduran constitution and several laws relating to property rights. Investors may acquire, profit, use, and dispose of property ownership with the exception of land within 40 kilometers of international borders and shorelines. Honduran law does permit, however, foreign individuals to purchase properties close to shorelines in designated “tourism zones.”

**Other Investment Policy Reviews**

In 2016, the World Trade Organization conducted a Trade Policy review of Honduras: https://www.wto.org/english/tratop_e/tpr_e/s336_e.pdf .

**Business Facilitation**

In recent years, the Honduran government has simplified administrative procedures for establishing a company. According to the 2017 World Bank Doing Business Report, the average time required for starting a business in Honduras is 13 days and requires 11 procedures. Honduras’ business registration portal provides information on registering a business, including information fees, agencies, and required documents. The World Bank’s Honduras Investment Regulation Portal provides quantitative indicators on Honduras’ laws, regulations, and practices affecting foreign companies. As referenced above, the Government of Honduras developed the CNI to simplify bureaucratic procedures to start businesses. In April 2018, President Juan Orlando Hernandez appointed Maria Antonia Rivera to launch a public-private sector initiative to reduce bureaucratic inefficiencies in starting businesses.

**Outward Investment**

Honduras does not promote or incentivize outward investment.

							2. Bilateral Investment Agreements and Taxation Treaties					

A bilateral investment treaty between the United States and Honduras entered into force in 2001. The U.S.-Honduras Treaty of Friendship, Commerce and Consular Rights (1928) provides for Most Favored Nation treatment for investors of either country. The United States and Honduras also signed an agreement for the guarantee of private investments in 1955 and an agreement on investment guarantees in 1966. CAFTA-DR has superseded most provisions of these agreements. The United States and Honduras signed a Tax Information Exchange Agreement in 1990. In 2014, the United States and Honduras signed the Foreign Account Tax Compliance Act.

Provisions for investment are included in free trade agreements between Honduras and Canada, Chile, Costa Rica, the Dominican Republic, El Salvador, the European Union, Guatemala, Mexico, Nicaragua, Panama, Peru, and South Korea. These agreements have superseded many of the provisions of Honduras’ separate bilateral investment treaties with these countries. Honduras also has a separate bilateral investment treaty with Switzerland.

							3. Legal Regime					

**Transparency of the Regulatory System**

Though CAFTA-DR requires host governments publish proposed regulations that could affect businesses or investments, the Honduran government does not routinely post proposed regulations. The lack of a formal notification process prevents nongovernmental groups, foreign companies, and other entities from commenting on proposed regulations. The government of Honduras publishes approved regulations in the official government Gazette. Honduras lacks an indexed legal code, requiring lawyers and judges to maintain the publication of laws on their own. Procedural red tape to obtain government approval for investment activities is common.

Some U.S. investors have experienced long waiting periods for environmental permits and other regulatory and legislative approvals. Sectors in which U.S. companies frequently encounter problems include energy, infrastructure, mining, and telecommunications. Generally, regulatory requirements are complex and lengthy, and political factors pose influence. Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Government of Honduras’ eRegulations website.

**International Regulatory Considerations**

As a member of the WTO, Honduras notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

**Legal System and Judicial Independence**

Honduras has a civil law system. The Honduran Commercial Code, enacted in 1950, regulates business operations and falls under the jurisdiction of the Honduran civil court system. The Civil Procedures Code, which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The Civil Procedures Code provides improved protection of commercial transactions, property rights, and land tenure. It also offers a more efficient process for the enforcement of rulings issued by foreign courts. Despite these codes, U.S. claimants have complained about the lack of transparency and the slow administration of justice in the courts. U.S. firms have reported favoritism, external pressure, and bribes within the judicial system, and have complained about the poor quality of legal representation from Honduran attorneys.

Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process. Foreign investors have reported dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system. Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time. Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible.

**Laws and Regulations on Foreign Direct Investment**

Honduras’ Investment Law requires all local and foreign direct investment to register with the Investment Office in the Secretariat of Economic Development. Upon registration, the Investment Office issues certificates to guarantee international arbitration rights under CAFTA-DR. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may pursue CAFTA-DR’s dispute settlement mechanism, as detailed in the Investment Chapter. The claim’s proceedings and documents are generally open to the public.

The Government of Honduras requires authorization for both foreign and domestic investments in the following areas:

- Basic health services;
- Telecommunications;
- Generation, transmission, and distribution of electricity;
- Air transport;
- Fishing, hunting, and aquaculture;
- Exploitation of forestry resources;
- Agricultural and agro-industrial activities exceeding land tenancy limits established by the Agricultural Modernization Law of 1992 and the Land Reform Law of 1974;
- Insurance and financial services;
- Private education services;
- Investigation, exploration, and exploitation of mines, quarries, petroleum and related substances.

In 2015, the Honduran government implemented the online National Investment Register as a starting point for creating a one-stop foreign and domestic investment facility. Formalizing a business, however, still requires visiting a municipal chamber of commerce window for registration and permits.

**Competition and Anti-Trust Laws**

The Commission for the Defense and Promotion of Competition (CDPC) is the Honduran agency in charge of reviewing proposed transactions for competition-related concerns. Honduras’ Competition Law established the CDPC in 2005 as part of the effort to implement CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions an independent regulatory commission.

**Expropriation and Compensation**

The Honduran government has the authority to expropriate property for purposes of land reform or public use. The Honduran National Agrarian Institute, as authorized by the National Agrarian Reform Law, can expropriate and award idle land fit for farming to indigent and landless persons. In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns the law does not specify what the government considers “underutilized.” Honduras has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm.

Government expropriation of land owned by U.S. companies is rare. Seizure actions by squatters on both Honduran and non-U.S. foreign landowners are most common in agricultural areas. Some occupations have turned violent, especially in the Bajo Aguan region in the department of Colon. Owners of disputed land have found pursuing legal avenues costly, time consuming, and legally inconclusive. CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment directly or indirectly, with limited public purpose exceptions with prompt and adequate compensation.

Under the Agrarian Reform Law, the Government of Honduras must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds. The portion paid in cash cannot exceed USD 1,000 if the expropriated land has at least one building and it cannot exceed USD 500 if the land is in use but has no buildings. If the land is not in use, Honduras will compensate entirely in 25-year government bonds.

**Dispute Settlement**

*ICSID Convention and New York Convention*

Honduras is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). Honduras has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

*Investor-State Dispute Settlement*

CAFTA-DR provides dispute settlement procedures between the United States and Honduras. CAFTA-DR’s Investment Chapter dispute settlement mechanism allows an investor who believes the government has not honored a substantive obligation under CAFTA-DR to request a binding international arbitration. Proceedings and documents submitted to substantiate the claim are generally open to the public. The agreement provides basic protections, such as nondiscriminatory treatment, limits on performance requirements, the free transfer of funds related to an investment, protection from expropriation other than in conformity with customary international law, a minimum standard of treatment, and the ability to hire key managerial personnel regardless of nationality.

*International Commercial Arbitration and Foreign Courts*

Honduras’ Conciliation and Arbitration Law, established in 2000, defines arbitration procedures. The Investment Law permits investors to request arbitration directly as a swifter and more cost-effective means of resolving disputes between commercial entities. Arbitrators and mediators may have specialized expertise in technical areas involved in specific disputes.

The following links provide more localized information:

- Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration  ;
- San Pedro Sula Chamber of Industry and Commerce – Center for Conciliation and Arbitration  .

**Bankruptcy Regulations**

Companies in default of payment of their obligations in Honduras can declare bankruptcy. A Honduran court must ratify a bankruptcy in order for it to take effect. The Commerce Code regulates these cases.

The judicial ruling that declares bankruptcy of a company establishes the value of the assets, recognition and classification of the credits, procedure for the sale of assets and the schedule for the payment of the obligations, in cases where it is not possible for the company to continue its operations. The Gazette must publish the ruling. The liquidation of companies is always a judicial matter, except for banking institutions whereby the National Banking and Insurance Commission oversees.

Any creditor or the company itself may initiate the liquidation procedure, which is generally a civil matter. The Judge appoints a liquidator to execute the procedure. A company can attempt to prevent bankruptcy by requesting a suspension of payments from the judge. If approved by the judge and the creditors, the company is able to reach an agreement with its creditors that allows the same administrative board to maintain control of the company.

A company may be prosecuted for fraudulently declaring bankruptcy if the administrative board or shareholders withdraws their assets before the declaration, alter accounting books making it impossible to determine the real situation of the company, or favor certain creditors granting them benefits they would not be entitled to otherwise.

							4. Industrial Policies					

**Investment Incentives**

The 2017 Tourism Incentives Law offers tax exemptions for national and international investment in tourism development projects. The law provides income tax exemptions for the first 10 years of a project and permits the duty-free import of goods needed for a project. To receive benefits, a business must be located in a designated tourism zone. Restaurants, casinos, nightclubs and movie theaters, and certain other businesses are not eligible for incentives under this law. Foreigners or foreign companies seeking to purchase property exceeding 3,000 square meters for tourism or other development projects in designated tourism zones must present an application to the Honduran Tourism Institute at the Ministry of Tourism. The buyer must prove existence of a contract to purchase the property and present feasibility studies and plans about the proposed tourism project.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

The Honduran government does not provide direct export subsidies, but does offer tax exemptions to firms in a free trade zone. The Temporary Import Law allows exporters to introduce raw materials, parts, and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if a manufacturer incorporates the input into a product for export (up to five percent can be sold locally). Honduras allows the establishment of export processing zones anywhere in the country. Companies operating in export processing zones are exempt from paying import duties and other charges on goods and capital equipment. In addition, the production and sale of goods within export processing zones are exempt from state and municipal income taxes for the first 10 years of operation. Honduras permits companies operating in an export processing zone unrestricted repatriation of profits and capital. Companies are required, however, to purchase the Lempiras needed for their local operations from Honduran commercial banks or from foreign exchange trading houses registered with the Central Bank.

Most industrial parks and export processing zones are located in the northern department of Cortes, with close access to Puerto Cortes, Honduras’ major Caribbean port, and San Pedro Sula, Honduras’ major commercial city. Honduras treats industrial parks and export processing zones as offshore operations and therefore companies must pay customs duties on products manufactured in the parks and sold in Honduras. In addition, the Government of Honduras treats domestic inputs as exports, which companies must pay for in U.S. dollars. Most companies operating in these parks are involved in apparel assembly, though the government and park operators have begun to diversify into other types of light industry, including automotive parts and electronics assembly. Additional information on Honduran free trade zones and export processing zones is available from the Honduran Manufacturers Association.

In 2013, the Government of Honduras signed a law to allow establishment of Economic Development and Employment Zones (ZEDEs) to boost job growth and attract foreign investment. Following a backlash from local and international NGOs concerned about labor rights, land issues, and environmental protection, the push for ZEDEs remained dormant until August 2017, when President Hernandez revived the concept as a key job creation tool in conjunction with Honduras Plan 20/20 and his reelection campaign. Per the Tourism Law, privately owned tourism zones permit free importation of equipment, supplies, and vehicles.

**Performance and Data Localization Requirements**

The Government of Honduras encourages foreign investors to hire locally and to make use of domestic content, especially in manufacturing and agriculture. Honduras looks favorably on investment projects that contribute to employment growth, either directly or indirectly. U.S. investors in Honduras have not reported instances in which the government has imposed performance or localization requirements on U.S. investments.

The Honduran government and courts can require foreign and domestic investors operating in Honduras to turn over data for use in criminal investigations or civil proceedings. Honduran law enforcement, prosecutors, and civil courts have the authority to make such requests.

							5. Protection of Property Rights					

**Real Property**

Honduran law recognizes secured interests in movable and real property. The Chamber of Commerce and Industry of Tegucigalpa (CCIT) manages the national property registry. Honduras’ secured transactions law gives a concession to the CCIT to administer the registry.

Inadequate land title procedures have led to investment disputes involving U.S.-national landowners. Title insurance is not widely available in Honduras and approximately 80 percent of the privately held land in the country is either untitled or improperly titled. Resolution of disputes in court often takes years. There have been claims of widespread corruption in land sales, deed filing, and dispute resolution, including claims against attorneys, real estate companies, judges, and local officials. Although Honduras has made some progress, particularly in the Bay Islands, the property registration system remains unreliable and represents a constraint on investment. In addition, a lack of implementing regulations leads to long delays in the awarding of titles in some regions.

**Intellectual Property Rights**

The legislative framework for protection of intellectual property rights, which includes the Honduran copyright law and its industrial property law, is generally adequate but often poorly implemented. Honduras implements its obligations under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). Honduran law protects data exclusivity for a period of five years and protects process patents, but does not recognize second-use patents. The Property Institute (IP) and Public Ministry handle protection and enforcement of intellectual property rights.

CAFTA-DR Chapter 15 on Intellectual Property Rights further provides for the protection and enforcement of a range of intellectual property rights, which are consistent with U.S. and international standards as well as with emerging international standards for the protection and enforcement of intellectual property rights. Additionally, CAFTA-DR provides authorities the ability to confiscate pirated goods and investigate intellectual property cases on their own initiative.

The Honduran legal framework provides deterrence against piracy and counterfeiting by requiring the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. The law also provides statutory damages for copyright and trademark infringement and assurance of monetary damages even when losses associated with an infringement are difficult to assign.

**Resources for Rights Holders**

A list of local attorneys is available at https://hn.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/. The Honduran-American Chamber of Commerce works with U.S. and Honduran companies when commercial challenges, including intellectual property rights issues, arise. For additional information about national laws and points of contact at local IP offices, please see World Intellectual Property Organization’s country profiles.

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit. Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying listed securities listed. Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds. In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have placed fixed rate and floating rate notes extended to three years in maturity, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange. Any private business is eligible to trade its financial instruments on the BCV, and participating firms are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency. Historically, traded firms have had economic ties to the different business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

**Money and Banking System**

The Honduran financial system is comprised of 15 commercial banks, and other state-owned banks, savings and loans institutions, and financial companies. There is no offshore banking or homegrown blockchain technology in Honduras.

**Foreign Exchange and Remittances**

*Foreign Exchange Policies*

Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment. Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport. For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.

The Investment Law guarantees foreign investor access to foreign currency needed to transfer funds associated with their investments in Honduras, including:

- Imports of goods and services necessary to operate;
- Payment of royalty fees, rents, annuities, and technical assistance;
- Remittance of dividends and capital repatriation.

The Central Bank of Honduras instituted a crawling peg in 2011 to allow the Lempira to fluctuate against the U.S. dollar by up to seven percent per year. The Central Bank mandates any daily price of the crawling peg be no greater than 100.075 percent of the average for the prior seven daily auctions. These restrictions limit devaluation to a maximum of 4.8 percent annually. As of April 2017, the exchange rate is 23.70 lempira to the U.S. dollar.

The Central Bank uses an auction system to allocate of foreign exchange based on the following regulations:

- The Central Bank sets base prices every five auctions according to the differential between the domestic inflation rate and the inflation rate of Honduras’ main commercial partners;
- The Central Bank’s Board of Directors determines the procedure to set the base;
- The Board of Directors establishes the exchange commission and the exchange agencies in their foreign exchange transactions;
- Individuals and corporate bodies can participate in the auction system for dollar purchases, either by themselves or through an exchange agency. The offers can be no less than USD 10,000, no more than USD 300,000 for individuals, and no more than USD 1.2 million for corporations.

To date, the U.S. Embassy in Honduras has not received complaints from individuals with regard to converting or transferring funds associated with investments.

**Remittance Policies**

The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested. Foreign investors may remit their investment proceeds from Honduras through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras. These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.

**Sovereign Wealth Funds**

Honduras does not have a sovereign wealth fund.

							7. State-Owned Enterprises					

Most state-owned enterprises are in commercial ports, electricity, telecommunications, utilities, and water. The main state-owned Honduran telephone company, Hondutel, has private contracts with eight foreign and domestic carriers. The Government of Honduras has yet to establish a legal framework for foreign companies to obtain licenses and concessions to provide long distance and international calling. As a result, investors remain unsure if they can become fully independent telecommunication service providers.

The state-owned National Electric Energy Company (ENEE) is currently undergoing a reform process to privatize its commercialization, distribution, transmission and functions. In September 2016, a subcontractor took over management of ENEE’s distribution system with a goal of reducing losses, increasing collections, and upgrading the system with smart meters. Despite ENEE’s stated goal of finding a transmission system operator by 2017, a lack of necessary regulations and political will has stalled the establishment of an independent system operator. ENEE experienced an operational deficit of USD 191.4 million in 2017, up USD 28.4 million from the previous full year. In 2017, the Honduran government issued USD 700 million in sovereign bonds to cover payment arrears and refinance the most expensive existing debt. ENEE can reduce its deficit with lower cost of power generation, increased tariffs, investment in transmission upgrades, and reduced losses.

ENEE controls most hydroelectric generation, which accounts for about one-third of total capacity. Approximately 50 percent of all power generation comes from diesel and bunker fuel oil plants and the remaining 20 percent comes from biomass, solar, and wind. Following a push for renewable energy in 2014, the Government of Honduras approved more than 80 contracts between ENEE and private producers for almost 2000 megawatts of new clean energy, although many of these projects are unlikely to materialize. Honduras is winding down incentive programs for renewable power due to high costs. Many businesses have installed on-site power generation systems to supplement or substitute for power from ENEE due to high costs and uncertainty about the semi-privatization process.

Honduran law grants municipalities the right to manage water distribution and to grant concessions to private enterprises. Major cities with public-private concessions include Choloma, San Pedro Sula, and Puerto Cortes. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) manages Tegucigalpa’s water distribution. The Honduran National Port Company (ENP) is the state-owned organization with oversite of the country’s government-operated maritime ports, including in La Ceiba, Puerto Castilla, Puerto Cortes, and San Lorenzo. Private companies Central American Port Operators and Maritime Ports of Honduras have 30-year concessions to operate container and bulk shipping facilities at Honduras’ principal port in Puerto Cortes.

**Privatization Program**

The Honduran government is not actively seeking to privatize state-owned enterprises, though it is seeking to increase private sector participation in the electric system. As part of the International Monetary Fund (IMF) December 2014 standby arrangement, Government of Honduras initiated reform of the state-owned energy company ENEE and created an independent Electric Energy Regulatory Commission. When finally complete, a reformed ENEE will become a holding company with four components: a distribution company with an operations subcontractor supported by a trust agreement; a concession for the transmission network; a not-for-profit organization with public-private ownership to control the overall electrical system; and a privatized generation company with ownership of all ENEE generating facilities. Many of the reforms have stalled, with exception of a 2016 sub-contract by a Colombian-Honduran consortium to manage energy distribution.

							8. Responsible Business Conduct					

Awareness of the importance of Responsible Business Conduct (RBC) is growing among producers and consumers in Honduras. An increasing number of local and foreign companies operating in Honduras include conduct-related responsibility practices in their business strategies. The Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) leads efforts to promote transparency in the business climate and provides the Honduran private sector, particularly small and medium-sized businesses, with the skills to engage in responsible business practices. FUNDAHRSE’s members can apply for the foundation’s “Corporate Social Responsibility Enterprise” seal for exemplary responsible business conduct involving activities in codes of ethics, education, environmental, employment relations, health, and responsible marketing.

The Responsible Business Conduct related to the environment and outreach to local communities are especially important to the success of investment projects in Honduras. Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities. Successful foreign investors in Honduras implement a proactive strategy to build trust and effective dialogue with local communities. Investors should meet Honduran legal obligations and employ international best practices and standards to engage with communities to reduce the risk of conflict and promote sustainable and equitable development.

Examples of international best practices include the following:

- Voluntary Principles on Security and Human Rights Initiative;
- The UN Guiding Principles on Business and Human Rights;
- The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.

							9. Corruption					

Following anticorruption protests in 2015, President Hernandez signed an agreement with the Organization of American States to form the Mission Against Corruption and Impunity in Honduras (MACCIH). MACCIH has four principle objectives:

- Prevent and combat corruption and impunity;
- Criminal justice system reform;
- Political and electoral reform;
- Public security.

Since its inception in April 2016, MACCIH has worked with the Public Ministry to achieve success on several significant cases, including against current and former public officials. MACCIH has advanced justice reform by lobbying the Honduran Congress to pass a law on Financing, Transparency, and Oversight of Political Parties in Honduras. MACCIH also presented draft legislation for a Law of Effective Collaboration (similar to plea-bargaining) to the Honduran authorities. MACCIH established a special integrated investigation team of international prosecutors and created a Civil Society Observatory to monitor the criminal justice system in the country. MACCIH has faced recent challenges, including the February 2018 resignation of the spokesperson and de facto head of mission.

U.S. businesses and citizens report corruption in the public sector and the judiciary is a significant constraint to investment in Honduras. Historically, corruption has been pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system. Since 2012, the Government of Honduras has signed agreements with Transparency International, the Construction Sector Transparency Initiative, and the Extractive Industry Transparency Initiative. Honduras is also receiving support from the Millennium Challenge Corporation in the development of an e-procurement platform and public procurement auditing.

Honduras’s Rankings on Key Corruption Indicators:

- TI Corruption Index (2017) – Score: 29.0/100; Rank: 135 of 180;
- World Bank Doing Business (2017) – Rank:115 of 190;
- MCC Government Effectiveness (2018) – -0.30 (13 percent);
- MCC Rule of Law (2018) – -0.73 (10 percent);
- MCC Control of Corruption (2018) – -0.16 (37 percent).

The U.S. Foreign Corrupt Practices Act (FCPA) deems it unlawful for a U.S. person and certain foreign issuers of securities to make corrupt payments to foreign public officials for the purpose of obtaining or retaining business for directing business to any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more information, see the FCPA Lay-Person’s Guide.

Honduras is a member of the United Nations Anticorruption Convention, which entered into force on December 14, 2005. The UN Convention is the first global comprehensive international anticorruption agreement and requires countries to establish criminal penalties for a wide range of acts of corruption. The UN Convention covers a broad range of issues from basic forms of corruption such as bribery and solicitation, embezzlement, and trading in influence, to the concealment and laundering of the proceeds of corruption. The UN Convention’s transnational business bribery provisions are functionally similar to those in the Organization for Economic Cooperation and Development Anti-Bribery Convention.

Honduras is a member of the Inter-American Convention Against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its states parties in areas such as mutual legal assistance and technical cooperation.

**Resources to Report Corruption**

Companies encountering corruption-related challenges in Honduras may contact the following organizations to request assistance.

Public MinistryYuri Dagne NunezAssistant to the Director of Prosecutorsconsultoriaexternamp@gmail.comThe Public Ministry is the Honduran government agency responsible for criminal prosecutions, including corruption cases.

Association for a More Just Society (ASJ)Yazmina BanegasResidencial El Trapiche, 2da etapa Bloque B, Casa #25+504-2235-2291info@asjhonduras.comASJ is a nongovernmental Honduran organization with a goal to reduce corruption and increase transparency. It is an affiliate of Transparency International.

National Anti-Corruption Council (CNA)Alejandra FerreraExecutive Board AssistantColonia San Carlos, calle Republica de Mexico504-2221-1181aferrera@cna.hnCNA is a Honduran civil society organization comprised of Honduran business groups, labor groups, religious organizations, and human rights groups.

U.S. Embassy Tegucigalpa, HondurasAttention: Economic SectionAvenida La PazTegucigalpa M.D.C., HondurasTelephone Numbers: (504) 2236-9320, 2238-5114Fax Number: (504) 2236-9037

Companies can also report corruption through the Department of Commerce Trade Compliance Center Report a Trade Barrier website.

							10. Political and Security Environment					

Despite some recent progress on improving security in Honduras, crime and violence rates remain high and add cost and constraint to investments. Following a disputed November 2017 presidential election, widespread violent demonstrations led to significant disruption to economic activity. U.S. citizens should be aware that large public gatherings might become unruly or violent quickly. For more information, consult the Department of State’s latest travel warning.

							11. Labor Policies and Practices					

Honduras has a large supply of low-skilled labor. Due to low average education levels, there is a limited supply of skilled workers in all technological fields, including medical and high technology industries. While the unemployment rate in Honduras is 7.4 percent, 44 percent are underemployed. Approximately 72 percent of workers are in the informal economy. Honduran law lays out a multitier system for calculating minimum wage, based on the employment sector and size of the company. The Ministry of Labor, private sector, and labor confederations renegotiate specific starting levels on a multi-annual basis.

The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week. The Labor Code requires paid vacation of 10 workdays after one year, and 20 workdays after four years. Most employment sectors also receive two months bonus as part of base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively. New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary per year of employment to employees terminated without cause. Companies do not owe severance to employees who they terminate for cause or who resign. Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.

Many employers hire employees on a temporary basis under the Temporary Employment Law. In some cases, employers will renew employees under short-term contracts, sometimes over a period of years. Labor groups allege some employers use temporary contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation. The Honduran Secretariat of Labor and Social Security (STSS) is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14, but grants special permission for minors between ages 16 and 18 to work evenings as long as it does not affect schooling. The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.

While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws. Labor organizations allege the Honduran Ministry of Labor has failed to enforce labor laws, including the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health. A U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras. In March 2016, the U.S. Department of Labor report concluded STSS had made significant progress toward meeting the MAP benchmarks.

According to the U.S. Department of State Country Report on Human Rights Practices, a number of labor and human rights compliance issues affect the Honduran labor market. These include employers’ anti-union discrimination, refusal to engage in collective bargaining, threats against union leaders, employer control of unions, blacklisting of employees who support unions, and refusal of Honduran labor inspectors.

							12. OPIC and Other Investment Insurance Programs					

The U.S. Overseas Private Investment Corporation (OPIC) provides loan guarantees (typically used for large projects) and direct loans reserved for projects sponsored by or substantially involving U.S. small businesses and cooperatives. OPIC can normally guarantee or lend between USD 100,000 to USD 250 million per project. OPIC also offers insurance against risks of currency inconvertibility, expropriation, and political violence. The U.S. Export-Import Bank also provides project financing in Honduras. Honduras is a party to the World Bank’s Multilateral Investment Guarantee Agency. In December 2017, OPIC announced a USD 1 billion private investment plan in the Northern Triangle countries of Honduras, Guatemala, and El Salvador over the next two years.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Table 3: Sources and Destination of Foreign Direct Investment*

*Table 4: Sources of Portfolio Investment*

							14. Contact for More Information					

Lisa Miller, Economic Section ChiefU.S. EmbassyAvenida La PazTegucigalpa, M.D.C.Tel: (504) 2236-9320, Ext. 4178E-mail: MillerLD@state.gov

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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