Raul Larios

Part 2 – The Reality…

Flag 4In Part 1 (The Sales Pitch), I wrote about the many features that in theory make San Pedro Sula, Honduras a desirable Business Process Outsourcing (BPO) destination for small manufacturers and BPO providers. Except when you look into the issues of crime, violence and general insecurity. One BPO sales team explained it away as mere petty street crime and gang fights over territory. However, my findings tell a much different story.

Part 2 — The Reality…2012 was a Record Year for Murders in Honduras, and they are not solely gang-related.

When I visited Honduras recently, many people were still talking about the circumstances surrounding the murder of the former Police Chief’s son.  You see, earlier this year several masked gunmen murdered his 17-year old son (execution style) alongside his 2 bodyguards in a trendy restaurant.

The former Police Chief, who was fired in May 2012 over two high profile murders that happened during his watch (that of the country’s deputy drug czar and of a renowned investigative journalist), angrily claimed that it was the new chief of police who ordered the hit against his son, and that the execution was carried out by police officers.  After such incendiary accusations, he was forced to flee the country and, according to family members interviewed by a local newspaper, he is now hiding in the United States.

It is worth noting that the former Chief’s allegations regarding his replacement are not out of the realm of possibility.  The rumors are that the substitute has been involved in a number of murders, allegedly carried out by death squads under his command.  Although the new Chief was exonerated of one of the murders that went to trial, the Obama administration felt there was enough compelling evidence to temporarily freeze all security aid to Honduras in August of last year for a policy re-assessment.

Just a few days after my arrival in San Pedro Sula, the topic of conversation changed abruptly from police death squads to the national ramifications of a professional assassination carried out in the capital city of Tegucigalpa.  The victim this time was the chief of the government’s anti-money laundering unit.  An attorney with close ties to U.S. authorities, he was the primary author of Honduras’s 1997 anti-money laundering law.  He was shot 7 times while driving home in a perfectly synchronized professional hit involving several accomplices working in coordination on foot, car and motorcycle.

According to the United Nations 2011 Global Study on Homicide, the number of murders in Honduras have been rising steadily, and in fact doubled between 2005 and 2009 (from 35.1 murders per 100,000 to 70.7).  This rate jumped another 16% in 2010 to 82.1, making Honduras the most dangerous country in the world in terms of homicides.  The state of affairs have gotten so bad, that the Obama administration suspended its Honduran Peace Corps program early last year and evacuated all its volunteers.

What’s even more troubling is that whereas the situation is getting worse in Honduras, it is improving in the neighboring countries of Guatemala and El Salvador (collectively referred to as the “Northern Triangle” region of Central America).  According to the country’s largest public university which tracks all violent crime nationwide under a program known in English as the “Honduran Observatory on Violence”, the nation suffered 7,172 murders in 2012, an increase of 68 homicides over 2011.  This is in sharp contrast to its Northern Triangle neighbors where both countries saw a decline in homicides.  El Salvador tabulated a drop of 40%.  Meanwhile, Guatemala is on track for a third year of fewer murders, a much welcome trend.

Coincidentally, the Observatory announced that in 2012 San Pedro Sula suffered 159 murders per 100,000 residents.  That ranks San Pedro above Ciudad Juarez, Mexico — which has topped the list for the past 3 years as the most violent city in the world.

Although Mexico’s violence often makes the news in the U.S., the fact is that the murder rate in the Northern Triangle of Central America is far, far worse.  The average homicide rate in the Northern Triangle is 63.1 per 100,000.  This is 350% worse than Mexico’s 18.1.

As allegations of police death squads working directly for the Chief of Police were circulating in the news, another high ranking government official was assassinated.  Thus, I began to wonder whether there isn’t something much, much bigger going on in Honduras than mere petty gang-related turf wars.

However, don’t get me wrong.  There’s plenty of that supposed “petty” crime going around — but it’s not limited to the gang-controlled neighborhoods.  Consider that just in the few weeks that I was there, I became aware of three crimes against persons whom I knew personally, or who were only 1 to 2 degrees separated.  One was the kidnapping (and subsequent murder despite 2 ransom payments) of a well-known event planner’s spouse.  Another was the “24-hour” kidnapping of a personal yoga instructor.  In Honduras, these 24-hour kidnappings are known as “secuestros express” due to their typically small ransom demands, usually ranging from about the equivalent of US $1,000 to US $5,000 so that the ransoms can be paid within 24 hours.

The third crime was a shooting rampage in a public bus that killed 1 and injured 3.  The office manager of a dear friend of ours was one of the severely injured.  Happily, she survived an emergency operation to remove a bullet lodged just 2 cm. above her thoracic region.  She was recently released from the hospital and, as of the writing of this post, is still recovering at home.  It was the person sitting right next to her who died (3 gunshots).  The assailants are still at large.

I’ve come to the conclusion that Honduras is practically at war for its very sovereignty (both at the highest levels of government as well as on the streets).  And I believe few foreign investors are actually aware of what’s going on in this country; of who the warring factions are; and — if you are already doing business down there — of what your financial AND legal liabilities might be. (I will delve into these issues in part 3).

What’s worse, I believe that in the foreseeable future, Honduras will continue to lose battle after battle in this war — leaving behind an ever rising number of victims without prejudice to their social status, gender, nationality, employment situation, age or neighborhood that they live in.

Therefore, unless you are in the war business, think long and hard before putting your employees, managers, executives and/or capital at risk in Honduras.

Part 3 — If you are an American doing business in Honduras, your risks are far more than just financial.  There is this law called the Foreign Narcotics Kingpin Designation Act that makes it a crime for Americans to engage in “any transaction” with persons designated as drug kingpins.  Penalties for violations of the Kingpin Act range up to $10 million and 30 years in jail…To be continued next month.

July 2, 2013 Posted by | New York | , , , , | 2 Comments

Want to Invest in Honduras? Tread Carefully!

Honduras map 7Part 1 — The Sales Pitch… I recently accompanied a client to a sales and marketing presentation by a leading Business Process Outsourcing (BPO) provider in the United States extolling the benefits of outsourcing to San Pedro Sula, Honduras.  The sales team talked about how this Central American city offers just about everything that a light manufacturer or outsourcer could want, and even more.  Chief among them is the abundant supply, quality and stability of an inexpensive bilingual labor force.

With over 400 bilingual schools and 7 universities, Honduras graduates thousands of English-speaking high school and university students every year — far more than all other Central American countries combined!  Not only are they well educated, but their English is generally considered to be “accent neutral”, meaning that it cannot be recognized by the average American as being from any particular region of the world (as in the case with India or the Philippines).

Tragically, the underemployment rate in Honduras is crushingly high (58% in 2012 according to the National Institute of Statistics or INE in the Spanish acronym), but this offers significant opportunities to potential employers.  There’s a deep pool of inexpensive talent from which to choose, and once hired, most Hondurans hang on to their jobs for dear life.  Job hopping is not very common, so attrition is quite low (under 20% by several accounts).

Other advantages include a phenomenal information and communications technology (ICT) infrastructure with three fiber optic cable networks to ensure less than 80 milliseconds latency.  In addition, San Pedro is only an hour’s drive from the largest and deepest seaport in Central America.  In fact, Puerto Cortes is 1 of only 6 seaports in the world that have been certified under the U.S. government’s “Megaport Initiative” that scans for radiation and other risk factors prior to shipment.  When combined with the presence of a local U.S. Customs and Border Protection office that inspects all containers prior to departure, it means that your cargo will unload much faster upon arrival in the U.S., avoiding your company the slow, time-consuming process of customs paperwork and inspections.

Finally, San Pedro Sula is an economic powerhouse, producing two thirds of Honduras’ entire GDP.  Business is the name of the game in San Pedro, and the local business community is highly professional, efficient and competitive — very important factors to consider for your supply chain.

It’s no wonder then that these unique features have persuaded dozens of textile manufacturers over the last 20 years, and a half dozen BPO outsourcers in the last 18 months, to set up shop in San Pedro Sula — including the one whose presentation I alluded to at the beginning of this blog post.

What surprised me was their response to the questions on crime, violence and general insecurity.  They explained it away as mere petty street crime and gang turf fights over territory: “you avoid it as you would in any other big U.S. city — simply stay away from the low-income, high-crime neighborhoods and you’ll be fine…”

The BPO sales team made San Pedro Sula sound so attractive that my client wanted to move forward with several projects.  However, I was highly skeptical. And it breaks my heart to say it because this is where I grew up.  This is where I learned my English; the land of my childhood memories…

Maybe things have improved, I thought to myself.  After all, I stopped following local events after the signing of the National Reconciliation Agreement of October 2009 that sort-of resolved the pseudo-military coup d’état and subsequent constitutional crisis that erupted earlier that year.  But from what I knew just prior to the coup, I could not in good conscious recommend Honduras to my clients as a “safe” country to invest — notwithstanding my personal feelings.

Since I was going down there anyways on a family matter, I offered to research the issue of violence.  With my client’s permission, I’m sharing some of my findings and recommendations in this series of blog posts I’m entitling “Want to Invest in Honduras? Tread carefully!”

Part 2 — The Reality… 2012 was a Record Year for Murders in Honduras and they were not merely gang-related.  Moreover, Honduras now ranks as the country with the highest number of murders per 100,000 residents in the world, and San Pedro Sula replaces Ciudad Juarez, Mexico as the most violent city…  To be continued next month.

June 8, 2013 Posted by | New York | , , , , , , , , , , , , | 2 Comments

   

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