Changes needed in Honduras to attract more FDI, say experts

Honduras needs to get back to levels of US$1.5bn of foreign direct investment (FDI) in the country by concentrating on improving governance and the legal system, according to experts.

In 2020, foreign direct investment fell 16% to US$372mn, the country’s central bank (BCH) reported last week. The majority of this amount (51.4%) came from North America.

“The decrease in foreign direct investment has been going on for more than six years and this has been because of the lack of institutions and the lack of the rule of law,” Luis Larach, former president of Honduran private business association Cohep, told BNamericas.

Meanwhile former BCH president Hugo Pino told BNamericas that in recent years 65% of FDI to Honduras has been reinvested profits and that the country remains unattractive to foreign investors.

“The average FDI from 2010 to 2017 was around US$1.1bn. From 2018 onwards it has fallen drastically,” Pino told BNamericas. “As long as the president is in power, there won’t be any ways to improve this.”

There is set to be a change of leadership after national elections set for November 2021. The future of President Juan Orlando Hernández is uncertain, particularly after being named repeatedly in the trial of a drug trafficker to the US who was convicted this month, as well as long-standing allegations of corruption.

Current BCH president William Cerrator (pictured) described 2021 as “a challenge” for all countries to attract investment. Honduras is projected to see GDP growth rebound between 3.2% 5.2% this year and return to pre-pandemic production levels by 2023. This follows an historic drop of -9.0% GDP in 2020.

"The only sector out of those presented here that will not grow this year is agriculture, precisely because of the effect of the storms in November and their effects will last throughout 2021," added Cerrato.

Larach, however, does not believe that the storms played a part in the drop in FDI and felt that the way forward was working harder to create jobs.

“We must work to improve these conditions and thus create a better business climate to attract investment,” said Larach to BNamericas. “Even with US$1.5bn of investment, it is the minimum the country requires to generate opportunities for all our population.”