BUSINESS & ECONOMICS

The Honduran Association of Coffee Producers and the Honduran Coffee Institute predict that coffee production will reach 3 million sacks (100 lbs.) during the next season, which runs from Oct. 1, 1997 to Sept. 30, 1998. According to a report in El Heraldo, this will result in 2.8 million sacks for export, which will bring in $420 million for producers and exporters.

In the first seven months of this year, the minimum cost of feeding a family of five has gone up 22.85 percent, according to estimates by the Food and Agriculture Organization. In a report by El Heraldo, some of the products with price increases included sugar, eggs, vegetable oil, meat, cheese, and bread. Products which experienced a reduction in prices included rice, flour, milk, and tomatoes.

The National Electric Company (ENEE) has been seeding clouds in an effort to increase rainfall over the El Cajon reservoir. Due to the El Nino weather phenomenon, the area has received only 35 percent of the average rainfall. According to an economic report in La Prensa, El Cajon generates nearly 50 percent of the electricity used in Honduras. The operation has increased rainfall by 10 percent, and by using this method the ENEE hopes to avoid electricity rationing, as was required due to low rainfall in 1994 and previous years.

The trade deficit for the first trimester of 1997 was $208 million, with imports at $914.5 million and exports at $706.5 million. According to El Heraldo, this figure is less than that of the same period last year, when a deficit of $271.8 million was recorded. Higher coffee prices as well as greater production of zinc, lobster, and other products contributed to the deficit reduction.

The government announced last week that there has been no firm interest by foreign telecommunications companies in buying HONDUTEL, the state-owned phone company. In 1996 when the company was put on the market, there was interest from many large telecommunications enterprises but according to the business section of La Prensa, the lack of firm offers is due to the small size of the market, as well as the powerful 5,000-strong workers' union which has negotiated extremely high salaries for many of the company's workers.

A new law regulating weights and measures will be debated in the National Congress, according to a report in the daily El Heraldo. The legislation, which will regulate products sold internally as well as export products, is designed to protect the consumer and improve Honduras' credibility in the export market.

Foreign investment in Honduras increased by 65 percent from 1994 to 1996, according to an El Heraldo Report. The greatest areas of increase in foreign investment were in the apparel industry, construction of commercial centers and hotels, fast food franchises, and gas stations.

Gasoline prices fell this week, the daily La Prensa reported. Premium gasoline went down 75 centavos from Lps. 26.34 to Lps. 25.59 and regular gasoline dropped 43 centavos from Lps. 25.37 to Lps. 24.94. Diesel fell 54 centavos from Lps. 16.51 to Lps. 15.97. Kerosene fell 43 centavos from Lps. 14.38 to Lps. 13.95, while the 25 lb. tank of LPG went down 41 centavos from Lps. 86.84 to Lps. 86.43.

Honduran investments: know what you're getting

Growing in Greater Honduras

By Mas Dinero

As a small country with low average per capita income, the variety of investments available in Honduras is limited. There are a few companies that have acciones (common stock) outstanding, owned by generally unknown third parties, but the market is limited. There is no active stock market like there is in most of the developed world.

For most investors, the choice is to whether they will invest in their own business, real estate, or in the various interest bearing accounts or in specific interest instruments like government bonds.

Many investors, local and international, choose to invest in real estate. It has generally been a good investment, appreciating more rapidly than inflation, which was running around 30 percent per annum in 1995 and 1996. Bank account interest payments normally are less than the rate of inflation, and many turn to real estate as an inflation hedge. Many real estate investors seem to be doing well, and for the foreign visitor, there are some lovely areas to buy with a view to developing the land later. Laws, as everywhere, are somewhat complex, so it is imperative to work with a reputable, bilingual attorney before you put your money at risk. Some buyers have been swindled, but of course this can happen anywhere in the world. It has been noted that some of the swindles have been cases of North Americans swindling other North Americans.

Consumer oriented merchandising of the North American variety is becoming more common here, and of course few know modern business practices better than North Americans. There is real opportunity here, but again, laws are complex. Furthermore, laws sometimes seem to be unevenly applied. If you upset your competition, and the competition is well connected, the legal establishment could begin to apply pressure. In general, you should be bilingual to consider opening your own business. Some business owners try to overcome problems with a bilingual Honduran associate. Sometimes the associate turns out to be crooked in the end. Far better if the associate has significant capital of his own at risk in the same project.

For many of us, the most practical investment turns out to be either a bank account, or with a little more work, investments in a wide variety of instruments offered through the Honduran Central Bank or one of the Bolsas de Valores.

Those in the developed countries can buy interest equivalent investments with plazos (maturity) ranging from overnight to 30 years or more. Here, the plazo is generally short, nearly always one year or less. Yield in percent, is called rendimiento in Spanish. In the last few months, the rate of inflation in lempiras has been well below that of 1996, and as a result interest rates on lempira investments have dropped from about 33 percent to about 22 percent annually. Most instruments sold seem to mature in 30, 90, 180 and 360 days. In most, you buy the instrument at a discount and receive the face value at maturity. If you buy a Lps. 10,000 bono (bond) at a 22 percent interest rate for a one year term, you will need to pay Lps. 8,196.72 today to receive Lps. 10,000 one year from now.

Papers regularly quote the going interest rates on investments of various sorts, and also publish details on instruments being offered at weekly auctions held by the Banco Central de Honduras.

Since you know the plazos (lengths) of maturities being offered, you can calculate how much you need to pay now to buy a bond of a given size. The formula is:

C = M/(1.0 + I * (T/360)) (Note: * = times, i.e. 3*2 = 6; /= divide, i.e. 6/3 = 2)

Where:

C = Amount you need to pay for the discounted bond

M = Value of the bond at maturity. You can select any amount, usually Lps. 10,000 or more.

I = Interest rate, per cent per annum/100

(Interest of 22% = 0.22) Averages are published regularly.

T = Maturity term, days (plazo)

As an example, we will calculate how much we need to pay today for a 10,000 Lempira bond maturing in 180 days.

C = 10,000/ (1 + 0.22*(180/360))

C = 10,000/ (1+ 0.11)

C = 9009.01 lempiras

Thus, you will need to pay Lps. 9,009 today to receive Lps. 10,000 in six months.

You can deal directly with the Banco Central de Honduras on many offerings, but for a modest fee, one of the Bolsas de Valores will do the paperwork for you.

There are also a variety of U.S. dollar instruments available, and interest rates seem to be around 11 percent at present. With dollar inflation tending to be quite low on average, (but not so the past six months) these are high real interest rates. [Real interest equals interest received after adjustment for inflation and taxes paid. Note that in the past eight months, lempira prices have risen 11.4 percent, but the lempira has remained at about 13.00 per U.S. dollar, thus dollar-based inflation was about 11 percent in the period January 1 through August 31, 1997! Not so good for those with a dollar-based income.]

For most of us, it is probably best to talk with a few of the puestos de bolsas of the one of the Bolsas de Valores to determine the one you are most comfortable dealing with. These guys do all the paperwork for you. A fairly large part of their offerings are obligations of the Central Bank of Honduras, and should be very low risk instruments. Others are from a variety of private and quasi-private organizations, and there may be more risk. The rate of interest is slightly higher, and depending on your viewpoint, it may or may not be worth it.

The World Trade Organization ruled in favor of removing quotas which limit the amount of bananas that can be exported to the European Community, according to the daily El Heraldo. In addition the export tax will be lowered from US $0.50 to US $0.05 per boxes. With these new measures, it is hoped that banana exportation will increase from 28 million boxes to nearly 45 million boxes, and that independent producers will benefit from a wide open market.

Honduras has negotiated a reduction of payments to the Central American Bank of Economic Integration, one of the country's largest creditors. According to a report in La Tribuna, payments to this institution will be reduced from $90 million annually to $45 million, although none of the debt will be forgiven.

The Ministry of Finance announced that Lps. 8 million will be spent to remodel the offices of the customs department. The daily La Prensa reported that this amount will only provide the most necessary improvements to 15 offices, many of which operate in wooden shacks. The customs service brings in 20 percent of the national budget, nearly Lps. 2 billion annually.

Personnel from the health ministry will be working over the Independence day holiday to monitor street food vendors, in order to prevent outbreaks of hepatitis or cholera, according to a report in El Heraldo.

Malaysian and Honduran business leaders met this week to discuss expanding African palm production in the country. According to a La Prensa report, the Malaysian companies are interested in moving their production facilities to Central America to be closer to the U.S. market.

According to studies by the Association of Municipalities of Honduras (AMHON), and the Social Housing Fund (FOSOVI), more than 300,000 lots currently occupied by families have not been properly registered. The majority of these lots with "legal" problems are located in areas surrounding major cities and house very low income families who have migrated to the cities. According to a report in El Heraldo, AMHON and FOSOVI will be holding the First National Forum on Housing where they will discuss the possibility of legalizing ownership of these lots in the so-called "misery belt."

El Heraldo reported the findings of a recent International Labor Organization study of the unemployment situation in Honduras. According to the organization, which monitors workers' conditions around the world, the unemployment rate in Honduras is 4.3 percent, while the rate of under-employment is 24.5 percent. The unemployment rate would be higher if it were not for the common practice of "informal employment," such as street vendors, which generates 30 percent of employment in Honduras.

Taiwan has announced that it will be increasing by nearly 300 percent its aid contribution to Central America, including Honduras. According to a report in La Prensa, Taiwan had initially offered $100 million in aid to the region, but after the five countries backed out of a free trade agreement with Taiwan, the offer tripled. A member of the Taiwanese diplomatic corp said, "The rejection [of the free trade agreement] was interpreted as a demand for more economic assistance."

There was a decrease in kerosine and diesel prices this week, La Prensa reported. Diesel prices fell 14 centavos to Lps. 16.51 in Tegucigalpa, and kerosine prices fell 5 centavos to Lps. 14.38.

The Ministry of Finance announced that Lps. 8 million will be spent to remodel the offices of the customs department. The daily La Prensa reported that this amount will only provide the most necessary improvements to 15 offices, many of which operate in wooden shacks. The customs service brings in 20 percent of the national budget, nearly Lps. 2 billion annually.

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The National Congress has proposed a measure which would authorize the Honduran Telecommunications Enterprise (HONDUTEL) to operate band "B" of the cellular telephone frequencies in Honduras. Band "A" is currently contracted to the Motorola company for their exclusive concession, according to the daily El Heraldo.

New legislation prohibits the collection of coral "from natural colonies." According to the government newspaper La Gaceta, only the collection of small pieces of black coral that are accidentally caught in shrimping nets, and coral naturally separated from its environment by currents will be permitted, and a permit will be required for this activity.

Minister of Industry, Commerce and Tourism Fernando Garcia has proposed reforms to Article 107 of the Constitution that prohibits the sale of land located on the nation's borders to foreigners. In a La Prensa interview, García indicated that as an incentive to tourism and foreign investment, reforms would be considered that would allow foreigners to purchase land in border areas.

The National Congress will begin debating a new Law for the Protection of the Consumer, as reported by El Heraldo. Many manufacturers and retailers are opposed to the measure, which in addition to regulating quality and weight standards, will monitor and control interest rates on past due accounts and sales on credit.

La Prensa reported that the municipality of San Pedro Sula has a debt of over Lps. 800 million. According to a financial analysis by a municipal advisor, the debt is a result of poor budgeting and the improper collection of taxes and municipal fees. The majority of the balance is owed to international financial institutions.