BUSINESS & ECONOMICS

Monday, February 23, 1998 Online Edition 94

Children state things in a simple and straight forward manner, "Smoking stinks!" The U.S. Surgeon General and doctors agree, but they are more elaborate in their health warnings. New laws and regulations are prohibiting people from smoking in public places and at work, yet smokers want to smoke.

Cigar smoking clubs were the latest underground fad a few years ago, but they are still going strong in every major metropolitan area in the United States. What drives men and women from all ages and all walks of life to sit around and smoke cigars at prices up to $20 each? Many prefer to be with others who also enjoy smoking cigars. For most, it is just a social occasion. Others are chased out of their homes by the complaints of their young children, "Oh dad, your cigar smoke stinks!" For many adults, these smoking clubs offer a friendly, relaxing environment to sit back and enjoy a good cigar.

In Honduras, it is uncommon to see someone smoking a puro (cigar). Most Hondurans are not willing to burn Lps. 26 ($2.00) of their hard earned money for a little smoking pleasure. Low cost cigarettes are readily available and they smell equally disgusting. In a nation of nonsmokers, how is it possible to be a major producer and exporter of cigars? Economics, puro economics.

For the last 20 years, cigar exports have increased 700 percent from 12 million cigars in 1976 to more than 85 million in 1997. In 1979 and 1980, Honduras was the number one exporter of cigars to the United States. Increased competition, low prices and a local tobacco disease stripped Honduras of its number one ranking, now claimed by The Dominican Republic. Honduras has remained the number two exporter of cigars, well ahead of Jamaica and Mexico. Cuban cigars are well known as the best smoke available, but it is virtually impossible to find a real Havana cigar in the United States.

Danli is the cigar center of Honduras, with eight of the country's 11 factories located there. Competition is tough, but the factories are also very cooperative with each other. Most have their own niche in the market.

Placencia Tabacos is one of the largest cigar factories in the world, with an average daily production of 80,000 cigars. Ramon Urrutia, their general manager, says they sold off 20 percent of their capacity within the last year, but they are still operating nine plants and have a total of 6,000 employees working in their operations in rural Honduras and Nicaragua. They are the high volume cigar producer and are most famous for the King Edward brand.

Large volume, low-cost production is not what the Honduran cigar business is all about. Honduran Cuban Tabacos is more typical with their daily production of 10,000 puros. Their strength lies in starting new blends and in the research and development involved. They work with tobacco leaves from around the world to give a special unique blend and limit the total quantity of any particular blend to guarantee quality.

Other factories such as Tabacos Rancho Jamastran specialize in homegrown blends. For homegrown tobacco, Danli is the ideal location. Danli has an average temperature of 75 degrees and an average humidity of 75 percent, making it a perfect natural humidor. The soil is excellent for tobacco production. The area is favorably compared to the world famous cigar farms in Vuelta Abajo Valley in Cuba.

With perfect soil, perfect weather and a continually growing demand for high quality cigars, the Honduran cigar industry is coming on strong again.

The airport departure tax could be raised to Lps. 330 (US$25), the daily La Tribuna reported Monday. In justifying the hike, Congressional President Rafael Pineda Ponce said it isn't fair that Hondurans have to pay $25, $30 or even $40 in taxes and fees at airports in other countries when traveling home. The current tax is Lps. 95 ($7).

The long awaited change from six to seven digit telephone numbers will take place the first week of March. HONDUTEL has made conversion charts available in newspapers as well as on a web page: http://www.comtelca.hn.

An El Heraldo report stated that the number of Mexican companies with facilities in Honduras is growing. This investment boom began in the last half of the 1980s, when competition from the United States and Canada, due to the North American Free Trade Agreement, caused many Mexican companies to seek new markets. Sada Rangel and Landa y Rubio were the first companies to break into the Honduran market, offering electrical services. They were closely followed by several companies offering processed food, including Bimbo bread, Holanda ice cream and Eskimo ice cream. Mexican officials say that Mexican investment in Honduras would be higher if there were more information available from the Honduran consulate in Mexico.

Companies from Germany, Italy and Spain will be attending a two-day tour of facilities in the North Costa Industrial Processing Zones (ZIPs). According to a report in La Prensa, among those attending will be the clothing manufacturer "Replay," owned by Princess Stephanie of Monaco and her ex-husband Daniel Ducruet.

A La Prensa report states that it costs 28 centavos to print each Honduran banknote. The cost for producing 50 centavo coins is 19 centavos while the one centavo coin costs five centavos to mint.

Monday, February 16, 1998 Online Edition 93

Forty percent of the shares of the Industria Cementera Hondurena (INCEHSA), a cement company that belongs to the Armed Forces of Honduras, were sold to Lafarge-Asland, a French consortium. In a La Tribuna report, Rigoberto Padilla Bejarano, general manager of the Instituto de Prevision Militar (IPM), said the sale occurred Feb. 4, and that the action was taken in order to make the company more competitive internationally. Padilla did not reveal the amount paid by Lafarge-Asland, except to indicate that it was a "substantial amount."

The new minimum wage law was published in La Gaceta, the official government newspaper, and went into effect Monday, Feb. 9. According to an El Heraldo report, the increases to the minimum wage range from 15 to 17 percent and affect primarily businesses that employ more than 16 employees. The minimum wage varies according to the type of employment. Agricultural workers must receive Lps. 28.65 daily in companies with less than 16 employees and Lps. 35.40 in companies with 16 or more employees. Workers in manufacturing, restaurant and hotel, or other service jobs will receive Lps. 29.80 daily, and Lps. 36.30 in companies with 16 or more employees. Minimum wage for transportation, real estate, and communication services will be Lps. 32.10 and Lps. 36.65 while banking and financial institutions must pay their employees Lps. 36.15 daily, and Lps. 43.40 for institutions with 16 or more employees. Workers who produce or process export products such as tobacco, coffee, and seafood; railway or shipyard workers, industrial park workers, and mineral miners will be paid Lps. 46.80 daily, regardless of the size of the company.

Monday, February 9, 1998 Online Edition 92

Like good wine, cigar quality depends on curing process

Special to Honduras This Week

LA CEIBA -- Although Cuba under the communists manufactures good Havanas, free enterprise, nonetheless, produces the best products including cigars. And Honduran cigars seem to be the rage now, especially for aficionados in the United States, Canada, Europe and the Far East. But what about Honduran cigars?

A cigar, quite simply, is like wine: its excellence or lack of it is due to the way its content is cured. You can take an acre of tobacco, or grapes, and give half to one person and half to another. The outcome of the quality, fullness, aroma, will depend on how the two persons cure their tobacco/wine. The results can differ as night and day. Good tobacco, for example, has probably been aged from three to four years, the leaves constantly turned to enhance the fermenting process.

Cigars, regardless of size or shape, are made with long filler tobacco or short filler tobacco. A long filler cigar is made from whole leaves and generally are the high-dollar, custom-made cigars. Outside of Honduras, they cost anywhere from $7.00 to $25.00 each. Short filler cigar, on the other hand, are made from the pieces of the leaves left over from making long filler cigars and are a lot less expensive.

Taste, depending upon the blends of tobacco used, can be mild, medium, strong, or aromatic, and can consist of blends of Havana seed, Honduran, Costa Rican, Mexican, and Dominican Republic, among others. The exterior leaf of the cigar -- the wrap -- can be Indonesian ($), Ecuadoran ($$) or Connecticut ($$$) wrap tobacco. Sizes can vary from 4" to 8" long and 26/64" to 54/64" in diameter. Most short fillers are 5" to 7" long by 50/64" in wide. A 5" cigar is a "Robusto," a 6" is a "Torro," and a 7" is a "Churchill," all with a Indonesian wrap from Sumatra. Of course, there is the torpedo shape, wider at one end than at the other; but it is a long filler cigar.

Since there are so many brands of cigars to chose from, the only sure way to choose a good puro is to know who made it. That is, each cigar maker has his or her own method of curing and forming cigars and consistently produces his or her own particular flavor/taste/aroma.

Many cigar makers such as the Phoenix Tobacco Company of Honduras make only private label cigars. As such, they do not label their own cigars but sell to companies who label and market the cigars under the company name. But if you know, for example, that "Good Smoke" label cigars are made only by the Phoenix Tobacco Company of Honduras, the you will pretty well know what are you getting each time you light as a "Good Smoke" cigar. Usually the cigar maker can supply any custom labels as well as boxes, which range from an attractive plywood box to a great cedar or Honduran mahogany box.

If you are going to ship to the United States in quantity, remember the recipient will have to pay U.S. Customs $30.00 per 1,000 cigars and the Federal Excise Tax of 2.7 percent of the invoice plus $1.14 per kilo. Shipping by air will cost about 25 to 35 cents per pound. The bottom line in all of this is about 10 cents for each cigar. Not bad.

Finally, remember to never put your cigars in the ice box. They are like good wine and should be treated as such.

W.C. Fields would have loved Honduras, and maybe he did.

A donation of food products worth Lps. 8 million to the Honduran government will be resold to collect funds for various projects. According to an El Periodico report the funds raised from the sale of sugar, powdered milk, rice, spaghetti, and sunflower oil will benefit rural development projects in Yojoa and Agro-forestry development in the Río Choloma area.

A new chain of pharmacies is planning to open within the next six months, offering only generic and Honduran medicines. Miguel Flores, an established pharmaceuticals manufacturer in Honduras, said in an El Heraldo interview that the new pharmacies will offer medicines produced nationally that are approved by the government and of proven quality, and will be sold at a price accessible to the Honduran public.

"The Honduran pharmaceutical industry is no longer producing placebos that have only coloring and no active ingredient," said Flores. "We want to collaborate with the Honduran public and this will be the first step." Flores also plans to incorporate the sale of generic medicines in the new pharmacy chain to be called "Farmacias Nacionales y Genericos."

Bus operators in Tegucigalpa have asked the government permission for a fare hike. In an El Periodico report, bus operators have requested that the fare be raised from Lps. 0.80 to Lps. 1.50 or Lps 2.00.

Twenty European companies plan to attend an upcoming tour of the tax free zones (ZIP) in Honduras. According to a La Prensa report, the conference and tour of the North Coast manufacturing facilities will take place Feb. 23 and 24 in San Pedro Sula and is organized by Eurocenter Honduras, a private institution dedicated to the promotion of trade and investment between Honduran businesses and the 15 countries of the European Community.

The San Pedro Sula customs office received Lps. 943.6 million in import taxes in 1997. This is up Lps. 272 million from the 1996 figure of Lps. 672.4 million. In an interview with La Prensa, Guillermo Salinas Castro, administrator of the customs office, attributed the sharp rise to the new Tax Code that went into effect last year. Importers and customs agents are now acting more responsibly when they make customs declarations, due to the large fines and prison sentences that are now used to sanction tax evaders. The new Tax Code also provides severe punishments for customs agents who participate in fraud. A simplification of the paperwork involved in the import process has also promoted an increase in importations, especially in construction materials. The majority of imported items, however, are destined for the tax free industrial zones (ZIP), and do not pay taxes.

An agreement for reciprocal treatment and non-discrimination in land transport between the Central American countries and Panama will go into effect this month. According to press releases by the Secretary for Economic Integration of Central America, the agreement, which was signed in July 1997, eliminates all taxes on merchandise in transit, putting an end to the conflict over land transport between Central America and Panama.