BizCLIR

Infrastructure is an important component of a well-developed trading community. Without it, a region would find it impossible to participate in the world of international trade. Thus, implementation of a highly efficient, user-friendly infrastructure system, offering cost-effective and reliable services, is easily recognized as a competitive advantage. In a broader context, there is a direct link between economic growth and infrastructure quality. Implementation and administration of a high-quality infrastructure system reduces costs, expands market reach, and induces demand for increased services. Within the context of CAFTA and its participating countries, regional competitiveness is an emerging theme, with infrastructure playing an important role.

Honduras’s stock of trade infrastructure presents two pictures, depending on one’s perspective within the country. Honduras enjoys two primary production/consumption zones: one located within the nation’s capital, Tegucigalpa; the other along the nation’s Atlantic coast at Puerto Cortez/San Pedro Sula. These locations present a stark contrast to each other with regard to installed capacity, infrastructure quality, and overall effectiveness. Installed infrastructure in the Tegucigalpa consumption/production zone suffers from capacity constraints and poor service quality, ultimately hurting the nation’s overall competitiveness. In contrast, installed infrastructure within the Puerto Cortez/San Pedro Sula consumption/production zone benefits from relatively thoughtful planning and targeted investment, providing a comparatively solid competitive environment. That said, it is important to note that the nation’s overall stock of trade infrastructure suffers from organizational issues that prevail across the nation. These issues include a high level of direct government involvement in implementing and operating many of the nation’s key infrastructure components.

Observations and interview results indicate that Honduras has consistently experienced marginal success in implementing its infrastructure investment programs. This pattern of marginal success can be attributed to frequently shifting national priorities, resulting from the turnover of the central government administration during election years. Interviews also indicated that a large number of the public positions responsible for implementing many of the nation’s trade infrastructure components are also rotated when the administration changes. This practice has produced an environment in which priorities shift frequently, resulting in little momentum behind infrastructure improvement projects with durations spanning multiple administrations.

A key to realizing significant infrastructure improvement within Honduras is the reduction of direct central government involvement in infrastructure implementation. It is recommended that concerted efforts be made to decentralize many of the existing infrastructure components and to involve the private sector in their implementation as appropriate. Priority areas include electricity, telecommunications, and seaport operations. The nation has recently privatized the operations of its airport facilities; however, interviews indicated mixed success in this area. Consequently, the nation has exhibited trepidation concerning continued privatization of its national assets. It is highly recommended that efforts be made to build public awareness of the benefits of privatization.
In terms of infrastructure capacity and service improvements, Honduras should focus on the following areas.

a. Roadways
Honduras’s roadway infrastructure requires significant upgrades along its primary north-south corridor connecting the nation’s Caribbean coastal communities of San Pedro Sula and Puerto Cortez to its major consumption zone at Tegucigalpa. Current improvement plans include upgrades to this corridor, with a fair amount of funding already secured. In addition, the nation requires development of bypass corridors around major population centers. This need is particularly pronounced at Tegucigalpa. Plans are under way to develop a strategic logistics corridor from Comayagua to the El Salvador frontier. This 100-kilometer corridor should be considered a national priority, considering the port development initiatives under way at Port Cutuco in El Salvador.

b. Seaports
Honduras’s seaport infrastructure is critical to the nation, as well as to the overall region. The facility has not seen significant investment over recent years, despite the level of economic activity near it. To grow, the facility will require an infusion of capital to complete ongoing projects and execute its capacity-building master plan. To allow flexibility in the plan’s implementation, Honduras must minimize central government involvement in port operations. Port privatization has been an ongoing subject of discussion; however, successful execution has not occurred. Support is required to develop a port privatization program, enabling the implementing institution to develop the port into a highly efficient facility.

c. Airports
Honduras’s airport infrastructure is mixed in capacity and service levels. Although San Pedro Sula is considered a solid facility, the nation’s primary international terminal at Tegucigalpa is considered old and inadequate to facilitate trade going forward. Efforts should be made to develop a new international airport facility to serve the Tegucigalpa population zone. Technical support in transportation economics and facility planning will be required going forward.

d. Railroad
Currently, Honduras has no operating rail network.

e. Border Crossings
Honduras’s border crossing facilities are considered serviceable; however, experience shows bottlenecks at approach points outside the immediate jurisdiction of the implementing institution. Honduras should consider enacting and enforcing policy to prevent vehicle parking along highways approaching the nation’s border crossings. Because regional initiatives include removal of border crossing facilities, in Honduras, as in other Central American countries, little to no investment is currently contemplated for the country’s borders.

f. Electricity
Honduras’s electricity sector suffers from comparatively high electricity costs and organizational inefficiency. The nation’s power generation capacity is highly dependent on fossil fuel thermal generating plants, resulting in highly variable input costs. Promotion of new generation facilities based on renewable energy sources, such as hydroelectric power, is recommended going forward. Honduras’s energy sector also suffers from significant cost impacts from technical and non-technical distribution losses, currently estimated at 27 percent. Finally, the nation’s electricity service provider is a government-run entity with monopolistic control over power transmission and distribution. This entity is considered highly inefficient in executing its services. It is now widely thought that privatization of portions of the energy sector is required to improve services. Support of privatization of the nation’s electric company is recommended.

g. Telecommunications
Honduras’s telecommunications sector currently operates within a monopolistic environment for fixed lines and international calls. There is a significant disparity between Honduras and other countries in the region with respect to the costs associated with local and international calls. Going forward, Honduras will face significant challenges in rebalancing rates while building teledensity within the nation. Significant support will be required to involve the private sector in the nation’s telecommunications market.