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BUSINESS ISSUE 3 – 1998 EL PASO BRANCH "In 1998 maquiladoras have become the number one source of foreign exchange for Mexico as a result of the sharp decline in the price of oil and the concomitant drop in the country's oil revenues." The Maquiladora Industry in Historical Perspective FEDERAL RESERVE BANK OF DALLAS Chart 1 Maquiladora Plants 3,000 2,500 2,000 (Part 1) 1,500 1,000 The maquiladora industry has grown and evolved over its 33-year life span in Mexico. Today it is one of the Mexican economy’s most important sources of job creation, exports and foreignexchange earnings. Maquiladoras have also been a positive force in the country’s regional and technological development. This article, the first in a two-part series, takes a historical look at the maquiladora industry by evaluating the performance of its key indicators. Part 2 will review the industry’s historical performance by sector and region. Key Indicators Tracking the performance of the maquiladora industry’s key indicators from the early 1980s through 1998, it is evident this sector has progressed substantially. Plants The number of maquiladora plants grew 500 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Jan.–Sep. 1998 SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. from 578 in 1980 to 2,941 in the first nine months of 1998, an increase of 409 percent (Chart 1). Employment Maquiladora employment reached 994,379 workers in January–September 1998, up almost 732 percent from 119,546 in 1980 (Chart 2). In 1980, 85.3 percent of maquiladora employees were direct labor, 9.1 percent were technicians and 5.6 percent were administrative workers. By 1998, direct labor’s share of total employment had fallen to 81.1 percent, while that of technicians and administrative workers had risen to 11.7 percent and 7.2 percent, respectively (Chart 3). The higher proportion of technicians reflects, to an extent, the advanced This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) technological production processes that now characterize the industry. Moreover, the direct labor employed by maquiladoras is no longer strictly unskilled but includes semiskilled and skilled workers as well. Chart 2 Maquiladora Industry Employment Thousands of Workers 1,000 800 600 400 Women continue to constitute the majority of the maquiladora direct-labor workforce, but the employment share of female workers has fallen substantially. More than 77 percent of the industry’s direct-labor workers were women in 1980, compared with a little under 57 percent in 1998. (Chart 4). The maquiladora industry’s contribution to Mexico’s formal and manufacturing employment has increased, especially in manufacturing. In 1983, the industry provided just 2.2 percent of Mexico’s formal employment and 7.2 percent of its manufacturing employment. By 1998, the industry’s share in formal employment had risen to 7.6 percent and its share of manufacturing employment to almost 26 percent (Chart 5). Undeniably, maquiladoras have become increasingly important to job creation in Mexico. In fact, during the country’s 1995 economic downturn, when gross domestic product shrank more than 6 percent and about a half-million jobs were 2 200 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Jan.–Sep. 1998 SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. Chart 3 Maquiladora Industry Employment by Type of Worker January–September 1998 1980 Technicians 11.7 % Technicians 9.1 % Administrative 5.6 % Administrative 7.2 % Direct Labor 81.1 % Direct Labor 85.3 % Chart 4 Maquiladora Industry Direct-Labor Employment, Gender Distribution 1980 January–September 1998 Male 43.4 % Male 22.7 % Female 56.6 % Female 77.3 % Chart 5 Maquiladora Industry Contribution to Mexican Employment Percent To formal employment To manufacturing employment 25 20 15 10 5 0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. 1994 1995 1996 1997 Jan.–Sep. 1998 lost, maquiladoras added more than 65,200 jobs to the economy. Raw Materials The value of total raw materials processed by the industry grew from under $2 billion in 1980 to an estimated $38.5 billion in 1998, an increase of over 2,000 percent (Chart 6).The share of imported raw materials has remained at around 98 percent Chart 6 Value of Raw Materials Processed by the Maquiladora Industry Billions of U.S. dollars 40 Domestic raw materials 35 Imported raw materials positive growth in other indicators show. Rather, the decline in value added reflects the impact of the December 1994 peso devaluation on its dollar-denominated value in 1995. In fact, when measured in real pesos, value added in 1995 rose 14.5 percent. Value Added Chart 8 Maquiladora industry value added, under $1 billion in 1980, is expected to reach an estimated $10.6 billion in 1998, an increase of almost 900 percent. As Chart 7 shows, though value-added growth was positive overall during 1980–98, it dropped in 1995. This does not indicate an industry slowdown, however, as 30 25 20 15 10 5 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 NOTE: 1998 value is estimated. SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. inputs. However, some—if not all or at least the majority—of these companies are organized as maquiladoras themselves and may be using imported raw materials to produce the inputs they sell to other maquiladoras. Domesticcontent statistics on raw materials do not capture these inputs, which are essentially produced by Mexican companies. As a result, the maquiladora industry’s use of Mexican suppliers is underestimated. The maquiladora industry exported goods worth about $5 billion in 1984, the earliest year Maquiladora Industry Exports Billions of U.S. dollars 60 50 40 30 20 10 0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 NOTE: 1998 value is estimated. SOURCE OF PRIMARY DATA: Banco de México. Chart 7 Maquiladora Industry Value Added throughout 1980–98, while the share of domestic raw materials has stayed at 2 percent. The low usage of domestic raw materials should not be seen as an indication that maquiladoras are not becoming more integrated with the overall economy. A growing number of Mexican companies are providing the maquiladora industry with direct and indirect Exports Billions of U.S. dollars 12 10 8 6 4 2 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 NOTE: 1998 value is estimated. SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. for which there are official statistics for this indicator. Maquiladora exports in 1998 are expected to reach an estimated $52.7 billion (Chart 8). The industry’s consistent export growth has positioned it as a key sector in Mexico’s overall trade. Maquiladora exports now constitute 44.2 percent of all Mexican exports, up from only 17 percent in 1984. Moreover, their share in 3 manufacturing exports has been consistently high. In fact, in 1991–94, maquiladoras produced more than half of Mexico’s manufactured-goods exports. In 1995, nonmaquiladora manufacturing exports rebounded significantly as a result of the 1994 peso devaluation, driving down maquiladora exports to their 1984 level of 46.7 percent. However, due to the maquiladora industry’s vibrancy since 1995 and a slower growing nonmaquiladora sector, in 1998 maquiladora products made up almost half (49.4 percent) of Mexico’s manufactured-goods exports (Chart 9). Chart 10 Top Foreign-Exchange Generators for Mexico Billions of U.S. dollars 18 16 14 12 Oil 10 8 6 4 Maquiladora The maquiladora industry’s prominent role in Mexican trade has made it one of the country’s largest generators of foreign exchange. In the early 1980s the industry surpassed tourism as the second-largest source of foreign exchange, trailing only the oil sector. In 1998 Chart 9 Maquiladora Exports' Participation in Mexico's Trade Percent Percent share of total exports Percent share of manufacturing exports 55 2 0 -2.0 Tourism 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Jan.–Sep. 1998 SOURCE OF PRIMARY DATA: For the oil sector, data through 1987 is PEMEX; remaining oil data are from Banco de México, Secretaría de Hacienda y Crédito Público and Instituto Nacional de Estadística, Geografía e Informática. Maquiladora and tourism data are from Banco de México. maquiladoras have become the number one source as a result of the sharp decline in the price of oil and the concomitant drop in Mexico’s oil revenues (Chart 10). 50 — Lucinda Vargas Senior Economist 45 40 35 30 25 20 15 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 SOURCE OF PRIMARY DATA: Banco de México. 1995 1996 1997 Jan.–Sep. 1998 Business Frontier is a publication of the El Paso Branch of the Federal Reserve Bank of Dallas. The views expressed are those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System. Subscriptions are available free of charge. To be placed on the mailing list, please write to Public Affairs El Paso Branch – Federal Reserve Bank of Dallas P.O. 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