Honduras is US outpost for Asian garment trade

"Honduras is the centre of the world," says an earnest Ivonne Membreño, staff member of the Honduran Apparel Manufacturers Association, AHM. From a geographical point of view, this couldn't be more true. Honduras is halfway between North and South America and is positioned midway between Asia to the west and Europe and Africa to the east.

There lies one reason no doubt why the tiny Caribbean country with a 6.5 million population has become the third largest apparel exporter to the US after China and Mexico, in the first three months of 2003. The island is host to a number of global apparel brands such as Fruit of the Loom, Tommy Hilfiger, Sara Lee, Bally, Osh Kosh B'Gosh, Jerzees, Russell and Gap.

Honduran garment exports to the US soared from less than US$100 million in 1989 to more than US$2 billion in 2002. Just like Mexico, which is a member of NAFTA, with the US and Canada, since 1994, Honduras enjoys comparative advantages which give it an edge versus some Asian competitors to the US market. The first is proximity to the US (shipping times are just two hours by air and 48 hours by sea) and the second - perhaps more telling - is preferential access.

The Honduran apparel industry is a creation of US trade policy. Via the Caribbean Basin Initiative (CBI) in 1985, the related partnership act in 2000, and an enhanced agreement in 2002, the US has encouraged the rise of a vast industry in Central America and on the Caribbean islands.

Mario Canahuati, Honduras' ambassador to the US, recently pointed out (in the context of the ongoing negotiations between the Central American Republics and the US for a free trade agreement), that 74% of Honduras' textile and apparel exports to the US contain some US imports, against only 0.26% of China's corresponding exports to the US.

Honduras has become the main importer of yarns from the US in the Latin American region, with nearly 35,000 tons imported in 2001.

Among the 14 CBI countries eligible for apparel benefits, Honduras is the number one exporter of apparel to the US, beating the Dominican Republic and El Salvador - testimony to the continuing importance which the US attaches to its relationship with Honduras.

Henry Fransen, executive director of the AHM, explains that the country offers many benefits in addition to tax-free status for exporters, pointing out that Honduras has an excellent port, Puerto Cortés. "Other nations in the region ship from here. There's good airfield access, good roads and a very expeditious Port Authority. Customs agents process paperwork quickly in Honduras. Another plus for manufacturers is that there are no quotas on clothing shipped to the US. Companies can ship in unlimited quantities," says Fransen.

Competitive wage levels, strong training programmes

Minimum salaries in Honduras stand at an internationally competitive level. At US$4.5 per day (August 2002), they are lower than in the Dominican Republic (US$5.3) and El Salvador (US$4.8). These pay levels are, however, higher than in neighbouring countries Guatemala (US$3.8) and Nicaragua (US$2.8).
For the future, labour cost competition is expected in the region from poorer Haiti.
However, most apparel workers in Honduras earn a lot more than the minimum salary. With bonuses included, the average annual salary earned in the Honduran apparel industry in 2002 amounted to US$3,718.

AHM has an ambitious programme on employee training known as PROCINCO. In 2002, some 2,000 employees were trained in production methods and safety. In 2003/2004, PROCINCO will train 28,000 workers in the Maquila Industry. "No other Central American country has such a programme of benefit to the workers and the factories," Henry Fransen explains.

More than 250 companies have invested in apparel manufacturing operations in Honduras since 1990. Most are located in export processing zones. Around 40% of the present investment in the apparel industry (which by the end of 2001 amounted to US$1.4 billion) originates from the US, while Honduran nationals invest another 31%.

Some of the larger US investors in the country are Sara Lee Knit Products, Bestform, Hanes and Wrangler. The Canadian sector leader, Gildan Activewear, employs 4,800 workers.

Quite a number of Asian companies have selected Honduras as a production location for their apparel exports to the US. More than 20% of total investment in the Honduran apparel industry comes from Asia: 15% from Korea, 4% from Hong Kong and 2% from Taiwan.

There are also several Chinese investors such as a Huakang (Shanghai) and Shanghai Dragon. According to AHM, six companies are of Hong Kong origin. They are Charming Garments, Everly Overseas, Ford Glory de Honduras, NYF Garments, Quality Woollen Knitters de Honduras and Monty Industries.

Consultant David Birnbaum points out that in 2002 four products - T-shirts, underwear, casual pants and bras - accounted for 91% of Honduran garment exports. "These are all basic commodities. After 15 years, Honduras should have moved up. If it wants to compete in the US T-shirts market past 2005, it would do well to follow the Turkish model," Birnbaum advises.

Analysts believe Honduras should go in for vertical integration in its clothing industry. In fact, the Honduran authorities are racing down this track, as espoused at the Free Zone Forum and machinery and sourcing show held earlier this year in Pedro San Sula.

Honduras wants to be able to sell garments that are not only assembled in the country, but are also made from locally woven and knitted fabrics and local accessories. The same process would see Honduras developing as a centre for cutting, printing, dyeing and finishing. The president, vice-president and several Honduran ministers attended the Forum, suggesting that the Government fully supports the new policy.

Key suppliers such as Coats, YKK and Paxar are already present in Honduras. The local supply chain needs still further companies such as these to continue its development, say a number of commentators.

But according to David Siegelman, President of the Sewn Products Equipment and Suppliers of the Americas (SPESA) and of Lectra USA, the modernisation of the Honduran apparel industry is already in full swing. Presently, around 90 CAD-CAM systems have been installed, with Gerber the market leader ahead of Lectra, Investronica and Assyst.

Employment is another matter, having fallen in the apparel industry from 125,608 in 2000 to 110,893 in 2001 (mainly due to recession in the US). President Jesus Canahuati of AHM is, however, optimistic about the future. Since 2002, employment has risen again. If Honduras can maintain its preferred status versus the US, Canahuati expects that employment could even double to 230,000 by 2010.

from special correspondent Jozef De Costa, San Pedro Sula

CABC S.A. (Central American Business Consultants)

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