In 2003, Honduras had a gross national product (GNP) per capita of US$860, a high incidence of poverty, and poor social indicators. Economic growth had been low and variable for over 30 years, and between 1997 and 2000, gross domestic product per capita (GDP) contracted 1.6 percent, largely due to the effects of Hurricane Mitch. The overriding challenge for reducing the country’s poverty and inequality rates in the long-term was to break the cycle of low and narrowly-based economic growth. Achievement of sustainable and equitable growth required not only macroeconomic stability but also an approach that addressed productivity constraints – such as low private investment.
The World Bank employed a cross-sector approach that addressed a broad range of obstacles to private sector development, from burdensome business registration procedures to lack of adequate training options to inefficient logistics. The project was designed specifically to advance the Central America Free Trade Agreement’s complementary agenda. More specifically, project activities aimed to respond to identified weaknesses that might prevent Honduras from taking full advantage of the new trade agreement. The Bank relied on a multifaceted design, reflecting expectations that it would address a wide variety of issues. Examples of activities included, among others, establishment and strengthening of a competition commission and a consumer protection directorate, the implementation of one-stop-shops to facilitate business registration, the establishment of a technology innovation center for crafts and tourism, provision of matching grants to firms to obtain international certifications, and the strengthening of public and private training institutes.
The “Enhancing Competitiveness” project had several important results, including:
- In the first year after the first reforms, business registrations jumped 60 percent from 4,201 to 6,705 firms in 2006 following the establishment of business portals in Tegucigalpa and San Pedro Sula.
- By providing Puerto Cortes with new equipment and technical assistance, the port was able to obtain international certification from the International Maritime Organization. The certification helped the port become a reliable and secure international trading hub, with cargo managed by the port climbing from 7 million tons of cargo in 2004 to 8 million tons in 2009.
- Sector-specific Foreign Direct Investment campaigns led to 33 new investments, US$60 million in new foreign investment, and 5,815 new jobs by 2009.
- The establishment of national quality institutions – the Office of Accreditation, the Honduran Metrology Center, and the Honduran Standards Organization – resulted in the accreditation of 11 laboratories, 2,000 equipment calibrations, and the publication of 69 standards.
- Matching grants helped 110 firms (including 87 MSMEs) obtain quality certifications, creating a multiplier effect that saw 324 firms with certification in 2010, compared with only 25 in 2004.
- Training activities for 394 SMEs in the bean, coffee, and shrimp sectors led to a 150 percent increase in productivity, and a 200 percent increase in sales by 2010.
- Training provided to 150 small producers of mango and oriental vegetables resulted in a 30 percent increase (or higher) in income, and mango producers became first-time exporters by 2009.
The total cost of the project was US$34.3 million. The Bank contributed US$28.8 million through a loan from the International Development Association (IDA). The Government of Honduras contributed US$5.5 million.
The project implementation agency, the Foundation for Investment and Exports (Fundación de Inversión y Exportaciones - FIDE), was the Bank’s main counterpart and principally responsible for most of the project’s impacts. The project benefitted from strategic relationships with several partners, such as the Ministry of Finance, the Ministry of Natural Resources and the Environment, the National Quality Council, the Commission for the Defense and Protection of Competition, the Consumer Protection Directorate, the National Port Protection Commission, and municipal governments. Other project partners included the Multilateral Investment Guarantee Agency, International Finance Corporation, the Honduran Council on Private Enterprise, and private training institutions.
The vast majority of reforms and impacts from project activities will continue after the close of the project. In some cases, the government has already taken ownership of project activities, such as the reforms in the competition and consumer protection agencies. In other cases, the private beneficiaries, such as matching grant recipients or local competitiveness participants, are leveraging the project’s investments to continue to improve their businesses or to obtain other financing.
The beneficiaries for the project were three broad groups. The first was the private sector in general that benefitted from reduced costs of doing business, improved technology and skills, and increased export opportunities. The second group was more specifically MSMEs and firms operating in high-growth potential sectors (maquila, tourism, forestry, and agricultural industries). The third group was selected government institutions, such as the National Quality Council. Beneficiaries also included lower-income segments of the population, particularly with the local competitiveness activities that targeted and assisted small producers in vegetables, shrimp, cashews, and mangos. Also, artisans that benefitted from the technology innovation center for crafts and tourism were primarily lower-income indigenous women.