Honduran Stock Market as a Way to Attract Foreign Direct Investment in Honduras —Part III

Reflections on the Honduran Stock Market as a Way to Attract Foreign Direct Investment in Honduras —Part III

By Wendy Griffin February 2015

Two years ago I was visiting my sister and she had the books “Outliers”  and "Breakout Nations" by a Morgan Stanley Frontier Markets analyst Ruchir Sharma.  She said she got it because since I lived in Honduras, she wanted to know what a professional financial analyst thought of investing in Honduras.  The basic idea of the book is that developing countries from the point of view of potential financial investors are divided into three groups—Emerging Markets which includes large developed markets like Brazil, Frontier Markets which are for the investor who might want higher returns, but is also willing to take higher risks like Nigeria and Sri Lanka. Wikipedia has an interesting article on Frontier markets and which countries are considered Frontier Markets.

Third group of the other countries in the Third World is, alas, where Honduras falls. These countries are characterized by having a system of law that is not adequate for protecting the investment, or to be honest even the life of the investor.   While it should be discouraging to Honduran politicians trying to sell Honduras as the best place in the world to invest, what is really distressing is the comparison of Honduras as significantly below who he considers to be the best of the Frontier Market group, the Outliers, which are Sri Lanka and Nigeria.

He does admit that yes Sri Lanka had just been through a Civil War that lasted over 27 years, and that it was not possible to get at that time to the North as the road had been damaged by bombing. I had worked in Sri Lanka just two or three months before the civil war broke, so I know that previously the Sinhalese majority has voted to repatriate to India the Tamils who lived in Sri Lanka, most since the 1820’s when the English brought them to work in the tea plantations. Four fifths of the Tamils starved after being repatriated to India where they had no family, no one to give them a head start, according to  the Gandyam Society of Sri Lanka. Faced with the options of starving to death or fighting to stay on their lands in Sri Lanka, the Tamils organized the Tamil Tigers and fought for over 27 years until the Sinhalese decided to let them stay in the country. To anyone following the Garifunas’ troubles in Honduras, does this situation sound familiar?

This analyst also considered Nigeria an outlier, a stellar possibility among the Frontier Market countries. I happened to hear a lot about Nigeria after I read the book, as my ex-husband had a business deal there. Almost every week he would say things like We got the contract signed by the Minister of Oil, but the rebels killed him. They are trying to decide if the contract signed by a dead Minister of Oil is valid. The President of Nigeria was going to sign the contract, but Bokaharam rebels have him pinned in an airport in the North and he can not get out. The lawyer in New York wants 15% of the contract. This was all before the Bokaharam rebels took the 200 Nigerian (and one French missionary’s) daughter which finally made the news. This analyst admits if you want to visit your investments in Nigeria, you should hire an armed guard. A friend in Honduras was reading a novel, I think just called 417, the number of the Nigerian penal code for financial scams, they are so common they are the subject of trade novels.

These are the countries he considered to have much better climates for investment than Honduras. This does not bode well for Honduras’s dream of attracting foreign investment, but some people are going for the possibility of access to minerals or the sea and hoping they can make a killing, because they are going into a high risk area.  Personally I find Honduras much less difficult than apparantly Nigeria is.

For many investors, the days of actually moving to a foreign country like Samuel Zemurray of Cuyamel Fruit, the Vacarro Brother and D’Antonni cousins of Standard Fruit, or Minor Keith of United Fruit and building a company in that country are over. The type of investment the Morgan Stanley analyst was referring to however, was instead the international investor could invest in the local stock market.

This idea raised some interesting questions for me like, does Honduras even have a stock market? If they do, what companies are traded on the Honduran stock market? And if Honduras has a stock market, why do they have a stock market? The World Bank was able to convince Cameroon that to be modern, they should have a stock market, so they opened one, but then did not list any companies on it.

Most Americans, even those who invest in the US stock market, usually do not know what their money is going for. For example, why is the US Treasury dumping money in the US stock market if it is against the law to use the money invested in stocks on the stock market to build factories and other activities which would actually create jobs? Also, according to The Economist magazine in London, there was concern among Third World money managers that the money US Treasury was dumping in the US stock market was actually partly going into Frontier Market funds, and so it seems that this money is not even going to help create jobs in the US, but rather drive economies overseas, including some not very market oriented.

I happened to see The Economist article because the same Korean companies who were interested in the Model City in Southern Honduras based in the Amapala/San Lorenzo area  have also adquired land in Madagascar and investors were investing tens of millions of dollars in an offering of the Madagascar tuna industry which was odd as the fishing was still being done by African men in canoes.   

In the Presbyterian Church (USA)’s webinar on Land Grabs, the reason given for so much money being poured into Land Grabs in Latin America and in Africa was the same reason the Economist and the Morgan Stanley Frontier Market analyst gave that US investor money is being put in Frontier Markets was the interest rates were so low in the US, a decision by the US Federal Reserve Bank, that investors with money could not make a good return in the safe US, so they were trying riskier investments in Frontier Markets and beyond in hopes of better returns.

Honduras does have a stock market which is called La Bolsa de Valores Centroamericana (Literally the Central American Bag of Values). They have a helpful website with a history of the Honduran stockmarket, which they said was almost totally wiped out when Hurricane Mitch hit Honduras in 1998, but it reorganized and in one year of Pepe Lobo’s administration did a billion dollars of business in a year. There are only 10 companies listed on the Honduran stock exchange, all Honduran banks. Actually it does not give me a warm feeling knowing my bank, Banco Atlantida is listed on the Honduran stock exchange as I believe it leaves them open to people who are speculating, and to people suddenly taking most of their money out.  Some Honduran banks like Jaime Rosenthal’s Banco Continental also act as Caja de Bolsa de Valores, which are places Honduran stocks can be bought and sold.

Another interesting thing about the website of the Honduran stock exchange is that there is a note that section for foreign companies listed on the Honduran stock exchange is “under construction”.   Even though Honduras has more millionaires than any other Central American country, it is a safe thing to say that most Hondurans are not in the market for stocks, foreign companies or local. You do not become a millionaire in Honduras selling beans and corn.

When I was a university professor in Tegucigalpa, I thought it would be a good thing to teach my students in Business English about how stock markets work. They might work for an international company like the Tela Railroad (Chiquita in Honduras) or Standard Fruit (Dole in Honduras), or since foreign companies play such an important part in the Honduran economy and Honduran policies and politics, I thought it would be useful for them to understand. When I was a little girl, my family bought stocks for my brother and I and we would watch them to see how they went up or down in the newspaper.  I thought we could pretend that we had bought the stocks and try to understand why companies sold stocks and why people invested in stocks.

I will have to admit that class went worse than almost anything I ever tried in my teaching career, and it did not work. My university level students could not understand the basic concepts. I now realize part of the problem is that the words used in Spanish in Honduras to describe stocks and stock markets and stock brokers usually mean other things. For example, the word for stocks in Honduras is “acciones”, literally “actions”. The place where you buy stocks, the stock market is a “Bolsa de Valores”, literally a bag of values. In Honduras “valores” usually includes things like being honest or even a folk dance or eating machuca are considered cultural values.  To make it worse, a stock broker is called a “Corredor de la Balsa de Valores” (a runner of the Bag of Values). Quite frankly does it not sound like a stock broker is a man running down the street carrying your money in a bag?  

I have tried teaching small business skills to rural Hondurans. For example if you have a carpentry shop, and you sell a door for $60, that $60 is not the “ganancias” the profit. First you have to take out the $30 that you spent on the wood and the tools, and the $30 left over is the “ganancias”. Quite frankly, most people I told that to did not believe me, and most of the businesses they started failed because they spent all the money they brought in from a sale as “ganancia” and that meant when they had to buy more Coca Cola for their small store or more flour and eggs  to make bread to sell they did not have it.

The best people could do to understand the concept is that I have sell this much bread to buy more materials to make bread, and if I sell any of the breads over that, often only 10 of them, that is where I will have my profit to go and buy something for dinner. Almost no one who owns a small business in Trujillo knows how to take into account the electricity they use to keep ice cream or beers cold or gas to cook bread into their costs, and I would guess many of them are taking money from other sources of income like money from their relatives to pay for their business which they are actually working all day long, but at a loss, because the price they put on their goods do not cover their costs.

If most Hondurans can not figure out the profit and loss of something in front of them, like coconut bread or cheese and corn donuts (rosquillas), it is no wonder that they can not grasp really what is the stock market or why it has anything to do with for example, the price of fish, beef, milk or orange juice in Honduras or how much their children working in maquila industries are paid.    

However, a very wise reporter wrote that it was true that the US young people who were the main participants in the Occupy Wall Street movement did not know how the securities derivatives that were based on bundling US mortgages together and selling them to overseas government banks worked, apparently then again, neither did the salespeople who sold them, and that is how they had brought the world economic system to near collapse.

The Hondurans, like my Garifuna friends, know that now there is “crisis”, for some reason now work is harder to get both in Honduras and for their children in the US, that the jobs now available do not pay well, that the Honduran government has trouble getting the money to pay the teachers and other employees and so they have trouble paying the little stores, their land ladies, they don’t order new furniture from the carpenters. But where this crisis is coming from and what caused it, most Hondurans have no clue.  

The interconnectedness of what is happening on Wall Street in the US and what is happening  in US stores or US government policies both in the US and in Honduras, however, plays out in many ways that investors and consumers and US government officials are also not paying much attention to. Different US based movements, like thinking of where your food like bananas, coffee, shrimp and cantaloupe comes from and how is it produced, or where do your clothes come from and how they produced (Honduras is the 5^th largest clothing manufacturing country in the World), or who are the sailors who bring us all these things (Honduras has the second largest number of merchant marines in the World after Philippines) are trying to raise the consciousness of consumers.

Many consumers are also investors, such as through their pension funds or IRA’s, that they often do not even know what their savings are invested in or even in what country, much less what stock. US College students in particular have raised in recent years questions like, “Where are their university endowments invested?” and “Where are the T-shirts and sports clothes their universities sell coming from?”. US taxpayers also seem to be investors and it would seem that more of them should be asking, “What are our tax dollars being invested in?” and “What are the effects on the local people of investing there?”

An interesting book about one woman’s search to find out the story behind the internationally made clothes in her wardrobe is the 2013 book “Overdressed: The Shocking High cost of Cheap Fashion” by Elizabeth Cline. Food First offers a blog and a number of books about the issues related to food including Tanya Kerssen’s 2013 book “Power Grab” which includes not only information about the Honduran African palm industry in the Lower Aguan Valley, but also reflections on the growth of the maquila industry based in the San Pedro Sula area as a part of the agrarian crisis in the Honduran countryside.

The Food Information Action Network (FAIN) also has a website with good information, including about the situations of the Garifunas, the Lower Aguan, the Lencas, and responses of different social groups to the World Bank’s response to its own Omnibudsman report about its Honduran loans to Miguel Facusse’s DINANT Corporation, which is not on the Honduran stock exchange and  FICOHSA, which is on the Honduran stock exchange, and its involvement with loans to Miguel Facusse and other hot spots like the dam to be built in the Lenca area at Rio Blanco, Intibuca which COPINH  has been resisting for almost two years..