Logistics: Opportunities in Honduras and Central America
The report “The Latin-American Economic Outlook for 2014: Logistics and competitiveness for development”, authored by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), the Organization for Economic Cooperation and Development (OECD) Andean Development Corporation (CAF) revealed the great opportunities and challenges faced in Latin America (LA) on commercial terms in light of current economic conditions prevailing globally as the Chinese economy slowdown, the imminent liberalization of interest rates in the United States of America (USA), “commodities” prices reduction worldwide and an emerging and growing middle class in LA demanding better services to governments, which means more investment in infrastructure and new strategies to alleviate this pressure to improve the citizens living conditions.
The report provides an important emphasis of promoting competitiveness based on “logistics” a little-known and appreciated topic in LA. This stands from the fact that there are few opportunities for LA economies to continue to grow at the pace of recent years and therefore should focus their efforts on domestic markets and review local conditions to make and sustain economic growth. One of these opportunities is represented for logistics since according to the report’s findings transportation costs represent one of the biggest challenges in economic terms as well as guiding public investment in infrastructure such as airports, ports, roads and railways. But infrastructure investment is a long term issue so they recommend use existing infrastructure to provide soft solutions that improve the competitiveness of LA in the short and medium term.
The transportation importance is relevant to the economy as Ballou (2004) asserts: “It just takes to compare the economies of scale of a developed nation against a developing country to understand the transportation effect on the creation of high level economic activity “. In the case of Central America and particularly Honduras has a transportation system operated mostly informally, with few competitors and with many opportunities to incorporate the use of information and communication technologies (ICT) and complementary services such as loading and downloading. “With an underdeveloped transportation system, the market size is limited to the surrounding areas close to the point of production “(Ballou, 2004).
However an improvement in transportation systems must be accompanied by a solid network infrastructure that provides optimal conditions for trade and services. For this particular reason Central America governments have been making efforts from some years back to direct investment into infrastructure, either by improving the existing one or building new alternatives, what has been one of the results on the strategy followed by our countries to counteract the effects of the economic debacle of the years 2008-2009 and timely position our country in an environment that promotes competitiveness, access to new markets and attract foreign investment.
According to ECLAC, OECD, & CAF (2013) examples are the initiatives undertaken by Nicaragua in the construction of a second canal in Central America to join the Pacific coast to the Atlantic, the construction of two seaports and an airport projects would be developed by the Chinese company HK Nicaragua Canal Capital Development. Additionally Honduras currently builds the “Dry canal” to potentially join the seaports of El Salvador to Puerto Cortes in Honduras.
Similarly the Central American governments are considering alternatives for investment in infrastructure; Public Private Partnerships (PPPs) and concessions, of which we have as an example the Puerto Cortes operation concession in Honduras to the company “Operadora Portuaria Centroamericana” subsidiary of International Container Terminal Services (ICTSI). In the meantime the CA5 Highway concession to the company COVI de Honduras for the maintenance and extensioning for the next 20 years for approximately $ 120 million (La Tribuna, 2014).