Historically, Honduras is one of the most prominent banana republics. The actual terminology of calling a nation a banana republic began in Honduras in the late 19th Century. In William Sydney Porter’s book Cabbage and Kings, Porter refers to Honduras as a banana repbulic while staying there. The nation was a major exporter to the European empire for banana and received very little in return for their abundant natural resource. Honduras has a long history of colonization
The nation was first colonized by Spain in the early 16th Century by the great, almighty Christopher Columbus. Spain ruled the nation till 1821, when they received independence. The nation has been independent ever since but has always been at the brunt of first world nations’ power. Honduras has had severe political strife since the post-WWII era. The nation became democratic in 1982 for the first time, but just last year, the nation performed a coup d’etat that removed power from the president and transferred to the head of Honduras’ Congress. The nation’s political struggles have continually dampered the nation’s significant economic capacities, which are abundant. Natural disasters, as well, have continually caused issues for Honduras.
The political strife of 2009 has caused the nation to extremely dampen its economic chances. The 2009 Presidential Crisis took power away from then President Manuel Zelaya, and he was deported. The new leader of the party Porfirio Lobo Sosa was elected in the 2009 elections, and slowly, nations have begun to give support to him and his party. Sosa is a conservative politician who is very economically adept. He has a BA from the University of Miami in Business Administration and has vowed to increase private investments. As of this week, the USA has pushed for Honduras to be readmitted into the Organization of American States. A private delegation will be sent there to look into the nation.
The political struggle has taken a toll on the nation along with the economic downturn. The nation was growing at above 6% from 2004 - 2007. In 2008, the nation dropped to 4% growth, but in 2009, the nation declined at more than 3% in its growth. While some of this is due to a downturn, most markets that have seen growth at those rates that saw declines did not go negative. Reuters, however, has published that they think the economy could grow by more than 3% in 2010 as stability has been reached. The economy of Honduras has severe disparity between rich and poor with 50% of the nation below the poverty line. The nation was a Heavily Indebted Poor Country in 2000, and it was eligible for debt relief in 2005. The nation has $3.43 billion of external debt, which is relatively low to GDP, and it has declined by about 50% in the past five years since receiving debt relief.
The debt relief is very good to see for a nation that is attempting to rebuild itself. The nation is an agricultural and natural resource-based economy. Their main exports are coffee, bananas, and shrimp. The nation has gotten its inflation rate downClick to enlarge significantly from 10% in 2000 to below 6% in 2009. The nation has begun to privatize many of its government-run organiztions, such as the telecommunications and energy distribution.
The nation, much like Slovenia covered yesterday, is an extreme export-driven economy by its natural resources. As the American economy, which accounts for 70% of Honduras exports, recovers it will help Honduras significantly. The nation, though, needs to diversify its own economy, improve education and poverty lines, and build more internal demand. The keys to any impoverished nation. Guatemala and El Salvador around Honduras have similar resources, but GDPs $27 billion and $9 billion greater. The potential for Honduras is there.
There is still significant political strife in this nation, but there is great potential for this economy to build itself back up. With the damage the nation did in 2009, it became similar to a bankrupt company that is emerging from bankruptcy. The nation is recovering, and it has plenty of opportunities available to it into the future.
Investing in these developing nations is always tough. Honduras has no stock exchange of its own. The best way to invest in Honduras is through corporations that have major stakes in the country that would be heavily influenced by its success and reestablishment. One such company is Gildan Activewear (NYSE:GIL). They operate more than 50% of their sock operations there and 60% of their activewear. Chiquita (NYSE:CQB) and Del Monte (DLM) have significant amounts of banana stocks in the nation. Technology Research Corp. (NASDAQ:TRCI), a circuit interrupter manufacturer, has its main manufacturing plant in Honduras. Finally, PriceSmart (NASDAQ:PSMT) is the Latin American Costco, and it has stores in Honduras. These companies would all benefit from stability in the country, as would the nation. Unfortunately, no Honduras companies are publicly traded at this time.
Honduras will be playing in its second World Cup since 1982. The nation tied Spain and Northern Ireland and lost to Yugoslavia in 1982. The nation plays its first game next Wednesday against Chile. They are in the same group with them, Spain, and Switzerland. The nation is definitely an underdog against three top teams in Spain, Chile, and Switzerland. The nation qualified for the Cup in the same group as the USA and Mexico. They qualified by going 5-1-4.
The nation is hoping that the World Cup will help to bring them more stability, and they can connect around a common goal. That hope is still yet to be seen…