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BUSINESS ISSUE 4 – 1998 EL PASO BRANCH "The maquiladora industry's history of positive growth in Mexico establishes it as an activity of everincreasing importance for the country's overall economic growth and development." The Maquiladora Industry in Historical Perspective (Part 2) The maquiladora industry is a key component of Mexico’s economy for job creation, exports and foreign exchange (see Part 1, Issue 3). It has also made important contributions to the country’s technological development, especially in the electric and electronics, transportation equipment, and textiles and apparel sectors. Finally, maquiladoras have spurred development in Mexico’s various regions. This article describes maquiladora evolution since 1980 through the current year based on the industry’s sectoral and regional performance. Sectoral Performance Official sources in Mexico classify maquiladora industry activity into 10 specific manufacturing sectors: food; textiles and apparel; footwear and leather goods; furniture and wood and metal products; chemicals; transportation equipment; machinery and tools; electric and electronics; toys and sporting goods; and services (Table 1). There FEDERAL RESERVE BANK OF DALLAS is also a classification of miscellaneous manufactures. The industry’s principal sectors continue to be electric and electronics, textiles and apparel, and transportation equipment (Chart 1). Together these three sectors employ nearly 74 percent of all maquiladora workers. The electric and electronics sector is still the industry’s largest employer, although its share of total employment has come down considerably over the years. While in 1980 electric and electronics employed a majority of maquiladora workers (58.1 percent), in 1998 its employment share had dropped to just over a third (34.2 percent), for a total of 340,117 workers. The maquiladora industry’s secondlargest employer has alternated between textiles and apparel and transportation equipment. As Chart 1 shows, textiles and apparel in 1980 occupied second place in maquiladora industry employment, with a 14.7 percent share; transportation equipment, in third place, represented only 6.3 percent of workers that year. In 1983, transportation equipment moved to second place with a 13 percent employment share, while textiles and apparel dropped to 10.7 percent. Transportation equipment sustained its second-place position up through 1996. However, by 1997 the This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) textiles and apparel sector was almost equal to the size of the transportation equipment sector. Their respective employment shares that year were 19.1 percent and 19.6 percent. This year, textiles and apparel—with a 20 percent employment share—is once again the industry’s secondlargest employer, although by a small margin since transportation equipment’s share is 19.4 percent. Still, transportation equipment’s share has come down from its 1991 peak of almost a fourth of total employment. Employment during January–September 1998 reached 198,530 workers in textiles and apparel and 192,418 workers in transportation equipment. Table 1 Maquiladora Employment by Sector January–September 1998 % Change from Year Earlier TOTAL 994,379 12.7 SECTORS Food Textiles & Apparel Footware & Leather Goods Furniture & Wood/Metal Chemicals Transportation Equipment Machinery & Tools Electric & Electronics Toys & Sporting Goods Other Manufactures Services 11,492 198,530 9,041 47,412 19,239 192,418 10,373 340,117 14,129 112,404 39,224 –4.4 17.9 2.3 8.4 19.5 11.0 13.0 11.6 2.5 15.6 12.4 % Share 1.2 20.0 .9 4.8 1.9 19.4 1.0 34.2 1.4 11.3 3.9 SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. Textiles and apparel’s renewed dynamism since 1991 can be attributed to two factors. First, new NAFTA rules opened up the sector to greater trade and investment so that even in anticipation of these rules, which became effective in 1994, companies reacted with increased investment in this sector. Second, growth in 1995 accelerated further in response to the substantial reduction in dollardenominated Mexican wages brought about by the 1994 peso devaluation. Thus, while employment growth in textiles and apparel had averaged less than 10 percent per year during 1980–91, it rebounded to an average annual growth rate of almost 24 percent 2 Chart 1 Maquiladora Industry Employment Percent 70 60 50 Principal Sectors (Percent Share) Textiles and apparel Transportation equipment Electric and electronics 40 30 20 10 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. during 1992–98. In fact, during 1995–97, textiles and apparel’s growth was above 30 percent each year. By comparison, during 1995–98 annual employment growth averaged 13.3 percent in electric and electronics and 10.9 percent in transportation equipment (Chart 2). Table 2 profiles the maquiladora industry’s three principal sectors. Chart 2 Principal Sectors Percent 70 (Annual Growth) 60 Textiles and apparel Transportation equipment Electric and electronics 50 40 30 20 Of the other sectors, the maquiladora industry’s fourthlargest employer is furniture and wood and metal products, with a 4.8 percent share, followed by services, with 3.9 percent. The remaining sectors’ individual shares are minor, with each Table 2 Maquiladora Industry Employment 10 0 -10 -20 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Jan.–Sep. 1998 -30 SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. Maquiladora Industry: Profile of Principal Sectors January–September 1998 Electric & Electronics Plants Employment Total Raw Materials (Billions of U.S. dollars) Transportation Equipment Textiles & Apparel Jan.–Sep. % Change from 1998 Year Earlier Jan.–Sep. % Change from 1998 Year Earlier Jan.–Sep. % Change from 1998 Year Earlier 607 340,117 6.7 11.6 207 192,418 6.7 11.0 817 198,530 16.5 17.9 15.2 8.3 5.5 –5.5 2.5 19.2 14.9 8.2 5.5 –5.5 2.3 18.0 .27 17.7 .05 –0.4 .12 47.8 2.9 23.0 1.5 8.3 1.1 32.3 17.8 10.3 7.0 –2.9 3.5 22.4 Imported (Billions of U.S. dollars) Domestic (Billions of U.S. dollars) Value Added (Billions of U.S. dollars) Gross Production (Billions of U.S. dollars) SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. 3 representing only between 1 percent and 2 percent of maquiladora employment. The employment share of the miscellaneous manufactures category is 11.3 percent. Chart 3 Maquiladora Industry Employment by Region January–September 1998 1980 Interior 34.1 % Interior 10.8 % Regional Performance Border vs. Interior Although the maquiladora industry is concentrated mostly on the border, cities in Mexico’s interior region have been gaining in their maquiladora participation. In 1998, two-thirds of maquiladora employment—equivalent to 655,403 workers—was found in border cities. However, this is down from the border cities’ 1980 employment share of over 89 percent. A similar trend is observed in the number of maquiladora plants. While in 1980 nearly 89 percent of maquiladora plants were found in border cities, by 1998 this share had dropped to just over 62 percent, for a total of 1,836 plants. Charts 3 and 4 show the evolution of the maquiladora industry’s border and interior presence during 1980–98. The industry’s movement to the interior includes cities in Mexico’s border states. When the industry’s border presence is evaluated under this broader definition to include all cities in border states rather than only cities along the immediate border with the United States, 4 Border 65.9 % Border 89.2 % SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. Chart 4 Maquiladora Plants by Region January–September 1998 1980 Interior 37.6 % Interior 11.1 % Border 88.9 % Border 62.4 % SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. the border participation is higher. Thus, in 1998 border states housed nearly 76 percent of maquiladora plants and employed over 80 percent of the industry’s workers. However, this participation has also come down. In 1980, border states had 92.3 percent of maquiladora plants and 94.1 percent of maquiladora workers. States The border states of Chihuahua, Baja California Norte and Tamaulipas continue to have the highest maquiladora employment. In 1998, these three states represented over 62 percent of maquiladora workers, though this share is down from nearly 73 percent in 1980. Chihuahua, though still the industry’s largest employer, has seen its employment share reduced over the years. In 1980, it was the source of over one-third of maquiladora employment; by January–September 1998, its share had dropped to 26 percent, equivalent to 258,964 workers. On the other hand, Baja California—the industry’s second-largest employer—has seen an increase in its employment share. In 1980, this state employed just over 17 percent of maquiladora workers; during January–September 1998, its employment share jumped to over 21 percent, for a total of 212,029 workers. Tamaulipas, like Chihuahua, has suffered a reduction in its employment share, slipping from over 19 percent in 1980 to less than 15 percent in January–September 1998, equivalent to 147,016 of the industry’s workers (Chart 5). While border states have retained their investment appeal, other states in Mexico have emerged as important maquiladora locations. As seen in Table 3, which lists states that have received new maquiladora investments this year, maquiladoras today are in every region of the country— north, central and south; east and west (see map). Cities The top locations for the maquiladora industry are the border cities of Cd. Juárez in Chihuahua state and Tijuana in Baja California Norte. Together, these two cities employ 348,929 workers and represent over 35 percent of total maquiladora employment. Cd. Juárez continues to be the city with the largest maquiladora Chart 5 Maquiladora Industry Employment Principal States 1980 January–September 1998 Chihuahua 36.1 % Tamaulipas 14.8% Chihuahua 26.0 % Tamaulipas 19.4% Baja California Norte 21.3 % Baja California Norte 17.1 % Other States 27.4 % Other States 37.8 % SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. presence, with 204,454 workers and a 20.6 percent share of employment during January–September 1998. Cd. Juárez’s share in maquiladora employment, however, is down from 33 percent in 1980. Tijuana, on the other hand, has seen its employment share rise. While in 1980 this city employed 10.3 percent of maquiladora workers, during January–September 1998 its share rose to 14.5 percent, for a total of 144,475 workers. (See page 7 for a more detailed discussion of the maquiladora industry in Cd. Juárez and Tijuana.) As seen in Table 4, which shows maquiladora industry employment by selected cities, other border cities with an important maquiladora presence are Reynosa/Río Bravo and Matamoros, both in the state of Tamaulipas; Mexicali, Baja California Norte; and Nogales, Sonora. While the area of Reynosa/Río Bravo has gained in importance over the years, Matamoros has seen its employment share reduced from almost 13 percent in 1980 to under 6 percent during January–September 1998. Similarly, Nogales saw its employment share of almost 11 percent in 1980 slip to just over 3 percent in 1998. Though Mexicali’s employment share this year, at 4.8 percent, is lower than its 1980 share of 6 percent, this city has exhibited some of the most dynamic growth in the industry in recent years and hence is gaining in importance. In terms of important locations in Mexico’s interior, Chihuahua city has the largest maquiladora presence, with 4 percent of the total. Although other cities in the interior have been gaining momentum in maquiladora investment, they each employ 2 percent or less of maquiladora workers. 5 Table 3 New Maquiladora Plants Authorized by State January–July 1998 "Maquiladoras today are in every region of Mexico— north, central and south; east and west." TOTAL Aguascalientes Baja California Norte Campeche Chihuahua Coahuila Distrito Federal Durango Guanajuato Jalisco México Morelos Nayarit Nuevo León Puebla Querétaro Quintana Roo San Luis Potosí Sinaloa Sonora Tamaulipas Tlaxcala Veracruz Yucatán Zacatecas Inittial Investment Plants Workers 330 16 92 1 31 25 7 7 5 16 8 6 1 17 16 1 1 6 1 27 30 2 1 10 3 67,677 2,421 28,670 186 4,572 3,807 577 1,139 313 3,063 1,281 1,719 150 1,821 2,942 26 30 343 20 4,764 3,671 2,613 47 2,806 696 SOURCE OF PRIMARY DATA: Secretaría de Comercio y Fomento Industrial. States shown in blue received maquiladora investment in 1998. 6 (Millions of U.S. dollars) 1,100.45 1.62 418.79 .52 112.06 2.32 .15 .76 .34 240.05 11.25 116.82 – 4.85 8.70 .06 – 1.18 – 21.39 99.68 18.21 .06 17.68 24.96 Cd. Juárez and Tijuana: Top Maquiladora Exporters The maquiladora industry has played a key role in positioning Mexico as Latin America’s largest exporter and the 13th largest in the world. About half of Mexico’s manufactured-goods exports and over 44 percent of its total exports are derived from the maquiladora industry. Moreover, the majority of maquiladora goods is produced in two cities—Cd. Juárez and Tijuana. dedicated to the engineering and design of auto parts used in GM plants throughout the world; by 1998, GM had tripled the capacity of this center. Because of the maquiladora industry’s sustained growth in Cd. Juárez and Tijuana, these locations—like others that have a significant maquiladora Open Unemployment Percent México, Cd. Juárez and Tijuana 70 Tijuana is known as the “TV manufacturing capital of the world.” Maquiladora companies produce more than 12 million television sets there each year. Tijuana’s largest employers, for example, are Sony and Sanyo. While Cd. Juárez has its share of TV manufacturers— Thomson–RCA, Philips, Toshiba and Zenith, for example—it is known mostly for its concentration of maquiladoras by the world’s largest company, General Motors, which employs some 21,500 workers in 15 plants. Moreover, GM has recently undertaken more sophisticated investments in Cd. Juárez. In 1995, the giant automaker opened its Delphi Mexico Technical Center, presence—have traditionally exhibited lower open-unemployment rates vis-à-vis Mexico as a whole (see chart below). Undoubtedly, these locations owe much to the maquiladora industry, just as the industry owes much to them in reaching an important place in Mexico’s economy in job creation, exports and foreign exchange generation. 60 México total Cd. Juárez Tijuana 50 40 30 20 10 0 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. Maquiladora Industry Key Indicators Cd. Juárez, Chihuahua Tijuana, Baja California Norte Jan.–Sep. % Change from 1998 Year Earlier Plants Employment Total Raw Materials (Billions of U.S. dollars) Imported (Billions of U.S. dollars) Domestic (Billions of U.S. dollars) Value Added (Billions of U.S. dollars) Gross Production (Billions of U.S. dollars) 259 204,454 6.0 6.0 .05 1.5 7.5 –7.8 8.6 14.9 16.9 –64.4 6.7 14.6 Jan.–Sep. % Change from Year Earlier 1998 656 144,475 5.3 5.1 .13 1.2 6.4 11.0 7.4 –18.0 –19.2 87.2 18.8 –13.9 SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. 7 Table 4 Maquiladora Employment by Selected Cities January–September 1998 % Change from Year Earlier TOTAL 1980 % Share 1990 Jan–Sep. 98 994,379 12.7 204,454 144,475 55,659 55,378 47,256 32,684 30,334 20,379 14,467 9,842 9,479 8.6 7.4 15.6 9.0 14.7 13.5 11.6 2.9 18.6 13.3 22.5 33.0 10.3 4.6 12.7 6.0 10.8 2.5 2.1 2.2 – – 27.4 13.4 5.6 8.6 4.6 4.4 3.4 3.6 1.8 1.2 .5 20.6 14.5 5.6 5.6 4.8 3.3 3.1 2.0 1.5 1.0 1.0 39,968 19,604 15,365 14,406 10,456 3,612 3,357 8.9 44.6 23.6 13.8 14.7 4.1 34.2 3.1 – – – – – – 6.6 .8 .9 .8 .5 1.2 .3 4.0 2.0 1.5 1.4 1.1 .4 .3 Border Cities Cd. Juárez Tijuana Reynosa/Rio Bravo Matamoros Mexicali Nogales Cd. Acuña Nuevo Laredo Piedras Negras Tecate San Luis Rio Colorado Interior Cities Chihuahua Torreón Hermosillo Guadalupe Ensenada Guadalajara Monterrey SOURCE OF PRIMARY DATA: Instituto Nacional de Estadística, Geografía e Informática. Conclusion The maquiladora industry’s history of positive growth in Mexico establishes it as an activity of ever-increasing importance for the country’s overall economic growth and development. — Lucinda Vargas Senior Economist 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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