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An Economic Snapshot of Honduras

A diversifying economy and a healthy tourism sector create strong demand for hotels in this Central American hotspot.

Even in light of the current global economic situation, Honduras has retained a favorable investment climate. Over the past nine years, the Honduran economy has grown steadily, and the U.N. Economic Commission for Latin America and the Caribbean (ECLAC) is predicting continued growth of 4.0% in 2009, down just slightly from the 4.5% growth rate in 2008.

Economic Drivers in Honduras

Traditionally, the economy has relied on the export of such commodities as bananas and coffee. More recently, government and economic development agencies have intensified efforts to diversify the economy and attract more foreign investments. FIDE Investment and Exports, a private non-profit organization created in 1984 to promote investment in Honduras, has identified four principal growth sectors that provide the most promising investment opportunities: light manufacturing, agribusiness, services, and tourism. These sectors account for approximately 75% of the foreign direct investment in Honduras.

The following table illustrates the amount of foreign direct investment (FDI) in each of the Central American countries since 1993.

Net Inflow of Foreign Direct Investment – Millions USD

Four-Year Averages
 
% Change
Country
1993-1997
1998-2002
2003-2007
 
2006
2007
2006-2007
Belize
26
36
84
 
100
92
(8.0)
Costa Rica
343
552
1,082
 
1,469
1,889
29.0
El Salvador
22
448
555
 
9
1,526
597.0
Guatemala
89
325
280
 
354
536
51.0
Honduras
65
259
608
 
674
816
21.0
Nicaragua
100
235
262
 
282
335
19.0
Panama
502
651
1,429
 
2,574
1,825
(29.0)

Source: ECLAC

Between 2006 and 2007, FDI in Honduras increased by 21%. The majority of this investment originated in the United States, and much of it was directed to the tourism sector. Between 2003 and 2007, the total number of inbound tourists in Honduras increased by 13% on an average annual compounded basis1, helping to make tourism one of the largest employment sectors in the country.

Tourism, Business, and New Developments

Long a scuba diver’s haven known for its charming family-run dive resorts and bed-and-breakfast inns, the island of Roatán is rapidly becoming a major international destination with the planned introduction of branded luxury hotels and a number of resort-residential developments. The Westin Roatán Island Mystic Harbor Resort & Spa and the Nikki Beach Resort & Spa at Blue Ocean Reef are just two of the projects expected to open in the next two years. Furthermore, both Royal Caribbean Cruises Ltd. and Carnival Cruise Lines are investing heavily to create new and improved cruise ship facilities and welcome centers that, when complete, will include retail shops, restaurants and bars, and other entertainment attractions.

While Roatán and the Bay Islands have seen the greatest amount of tourism development in recent years, destinations such as La Ceiba, Tela, and Copán (a UNESCO World Heritage Site) are also expected to benefit as Honduras gains more worldwide attention. According to the World Economic Forum’s Travel and Tourism Competitiveness Report, Honduras improved its position dramatically in 2008 by rising to the rank of 75 out of 130, up from 87 of 124 in 2007. This competitiveness will increase further when a new, small-craft airport is opened near the Copán Ruinas in mid-year 2010. This new facility will enhance that area’s accessibility and allow travelers to more easily combine visits to more than one region during the same trip.

The country exhibited a similar improvement in the general Global Competitiveness Report 2008-2009, also published by the World Economic Forum. Competitive advantages noted for Honduras include the quality of the port infrastructure, FDI and technology transfer, the prevalence of foreign ownership, the extent and effect of taxation, and the time required to start a business. In 2007, FIDE estimated that 13,000 new jobs were created in such sectors as the automotive industry, textiles, chemicals, and call centers.

As new businesses are opened and existing ones expand, the country will see increased demand for internationally branded, business-oriented hotels. According to FIDE, a Courtyard by Marriott and a Holiday Inn Express are in the pipeline for San Pedro Sula, the industrial center of Honduras, and San Pedro Sula and Tegucigalpa, the capital, each have an as-yet-unbranded five-star property in early development.

Conclusion

While Honduras still has many challenges to overcome on its way to becoming a Central American powerhouse, it has made major strides in creating a welcoming climate for business owners, developers, and tourists alike. An increasingly diversified economy, a strong financial foundation, an advantageous geographic location, and a commitment to sustainable growth should help keep the country on track during the current international slowdown.

HVS Mexico City works extensively on consulting and valuation assignments for hotels and resorts throughout Mexico, Central America, and the Caribbean. Please visit us at www.hvs.com/Offices/Mexico to learn more.


 1 Instituto Hondureño de Turismo (Honduras Tourism Institute)

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