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Volume 1, Number 2 * September/October 1994 EL PASO B R A NC H The Changing Dynamics of the Maquiladora Industry (Part 1 of a two-part series) F E D E R A L R E S E R V E BAN K OF D ALLAS The story of the industry in the 1990s is not one of spectacular growth but of consolidation. The explosive plant and employment growth of the 1980s has slowed to a more modest pace. However, significant qualitative developments, particularly in the border cities, are shaping the industry’s new role in Mexico’s modernization strategy. T h e story o f the maquiladora industry in the 1990s is not one o f spectacular growth—as in the 1980s—but o f consolidation. lthough the Mexican maquiladora A program1has existed since 1965, the industry is perhaps best known for its spectacular growth during the 1980s. In 1985, for example, it drew national recognition when then President Miguel de la Madrid declared the industry a national priority because of its high foreign-exchange earning capacity. In that year, the maquiladora industry surpassed tourism as the second-largest generator of foreign exchange in Mexico. It continues to hold this rank today, outperformed only by the petroleum sector. It was also during the mid-1980s that the industry enhanced its international reputation as Asian companies, especially Japanese firms, joined U.S. and European companies in the Mexican maquiladora program. 1 The maquiladora program allows manufacturers in Mexico to import their inputs duty-free as long as 100 percent of the final product is exported from Mexico. Another key incentive of the program is that it allows 100-percent foreign ownership. The Maquiladora Industry’s Boom During its 1983-88 boom, maquila dora industry employment grew an average of 19.7 percent annually. By year-end 1988, the industry employed nearly 430,000 workers, up from 127,000 in 1982. The maquiladora industry’s share in overall Mexican manufacturing employment reached 15.2 percent in 1988, up from just 5.1 percent in 1982. Other measures of maquiladora activity exhibited a similar pattern of significant growth during 1983-88. The number of maquiladora plants increased at an average annual rate of 15.9 percent, reaching a level of almost 1,400 in 1988. The volume of imported raw materials increased at an average annual rate of 27.7 percent and equaled almost $8 billion in 1988, up from less than $2 billion in 1982. Value added reached a level of $2.3 billion in 1988, after growing at an This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) average annual rate of 20.5 percent MAQUILADORA INDUSTRY ACTIVITY during 1983-88. Finally, gross maquiladora production experienced (Annual Growth Rate) 1970s the maquiladoras were clas sified as an unskilled, labor-intensive industry with production processes 5 0 1------------------------------- limited to assembly work, by the average annual growth of 25.4 percent and was worth more than $10 billion in 1988, up from less than $3 billion in 1982. 1980s— especially the latter part of the decade— the industry had incorpo rated higher levels of technology. A Qualified Deceleration Resurgence IP Plants ~ Employment During 1989-91, maquiladora industry growth decelerated, especially in the number of plants and the level of employment. Thus, after increasing 21 percent in 1988, maquiladora employment grew 16.3 percent in 1989,7.1 percent in 1990, and only Production | '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 A slowdown in the U.S. economy was largely responsible for the downturn of plant and employment growth in 1989, Since the great 1.6 percent in 1991. In terms of the number of plants, 24.1-percent growth majority of maquiladora production is destined for the U.S. market, the industry is particularly sensitive to in 1988 was followed by growth rates U.S. growth rates. Also, after of 18.6 percent in 1989 and 17.1 percent in 1990. In 1991, the number of plants declined 0.7 percent. spectacular growth during 1983-88, by 1989, the industry’s labor market While the remaining measures of activity also decelerated during 1989-91, the lessening of the rate of growth was not as dramatic or as sustained. For example, gross production rose 23.2 percent in 1989, down from 41.3 percentgrowth in 1988. During 1990 and 1991, maquiladora production still managed double-digit rates: 12.7 percent and 12.3 percent, respectively. Similarly, value added in 1989 decel erated to a rate of 30.7 percent, down from 43 percent in 1988. The next two years, value added still showed significant growth— 18.1 percent in 1990 and 14.2 percent in 1991. conditions had tightened, especially in the more popular border locations. The price of labor, therefore, rose substantially. The average wage paid in the maquiladora industry in 1988, for example, rose 23.2 percent in dollar terms; the following year, it rose 17.9 percent. Thus, as labor rates rose and U.S. market conditions turned recessionary in 1990 and 1991, maquiladora employers became more conservative in their hiring. Despite the U.S. recession, productivity gains resulting from growing technological sophistication enabled the industry to maintain growth in the other measures of activity. Whereas in the 1960s and In 1992-93, the maquiladora industry experienced a resurgence as all measures of activity rebounded from their 1989-91 levels. For example, employment grew 8 percent in 1992, up from 1.6-percent growth the previous year. Employ ment growth of 7.1 percent followed in 1993. The number of maquila dora plants rose 7.8 percent in 1992 and 4.5 percent in 1993, after having contracted 0.7 percent in 1991. The gross production growth rate re bounded to 19.7 percent and 20.7 percent in 1992 and 1993, respec tively, up from 12.3 percent in 1991. It is clear, then, that the maquila dora industry of the early 1990s is undergoing consolidation yet thriv ing. Dramatic employment increases have slowed to single-digit yet stable growth rates. Production, on the other hand, has registered strong gains despite the smaller increases in employment. In essence, the maqui ladora industry’s productivity is improving with the growing use of state-of-the-art technology by an increasingly skilled labor force. Moreover, emphasis in the industry < no longer seems to be strictly on increased as its employment share quantitative performance. Qualita tive developments have assumed has grown to 28.2 percent in 1993 from 11.4 percent in 1984. All 31 greater importance, especially in light of the new rules dictated by the states in Mexico now have at least one maquiladora plant, and some The stronger production perfor mance and slower employment North American Free Trade Agree ment (NAFTA). (Part 2 of this series interior cities now have an estab lished and growing maquiladora growth seen in the industry as a whole in the 1990s is also evident in will elaborate further on this subject.) industry. But although the interior is becoming a region of growing those individual border cities. This is especially true in the two top ones, On the Border importance for the industry— and certainly developments there should Ciudad Juarez and Tijuana, which combined hold a 38.7-percent share The story of the maquiladora industry’s growth and change is not be disregarded— the border remains the site of most maquiladora in maquiladora employment. Ciudad Juarez, for example, which employs really one of industry developments on the U.S.-M exican border. Al activity. about one-fourth of all maquiladora workers in Mexico, registered a though the border’s share of maqui Along the border, the cities that have the greatest and most extended significant production gain of 8.3 percent in 1990, despite an employ maquiladora presence are Ciudad Juarez in the state of Chihuahua; Tijuana and Mexicali in Baja ment increase of only 1.7 percent. The following year, production ladora activity has been decreasing, it continues to hold the majority. In 1993, the border was home to 71.8 percent of maquiladora workers and 72.7 percent of the industry’s plants. industry performance in these cities during 1990-93. growth was even more vigorous as it registered a 15-percent increase, California; Nogales, Sonora: and In 1984, the border’s share of maquila dora employment was higher at 88.6 Matamoros, Reynosa, and Nuevo Laredo in the state of Tamaulipas. percent; it had an 88.5 percent share in the number of plants. In 1993, these seven border cities were home to 62.4 percent of despite a 2.3-percent decrease in maquiladora employment. In 1992 93, maquiladora production in Ciudad Juarez maintained its maquiladora workers and 57.8 percent of the industry’s plants. The dynamism, while employment recovered with low single-digit table below shows maquiladora growth rates. At year-end 1993, Correspondingly, the maquiladora industry’s presence in the interior has MAQUILADORA INDUSTRY ACTIVITY National and by Major Border City (Annual Growth Rate) 1990 Plants* cmplt.* I % NATIONAL Juarez Tijuana Mexicali Nogales Matamoros Reynosa N. Laredo 17.1 £1.1 5.2 2.7 -5.5 4.6 13.3 12.5 7.1 1.7 93 1.6 -12.6 .7 3.9 9.6 1992 1991 Proa.* "Tlanu % 12.8 8.3 16.3 35.9 -8.5 31.6 2.9 -.9 % -.7 -9.3 -7.4 -13.3 -5.8 1.1 13.2 -4.8 cm p lt. Prod Plants % % % 1.6 -2.3 ^ t.l -4.3 -6.7 -3.2 12.1 -.2 12.3 15.0 9.4 -4.3 6.0 1.0 9.2 17.4 7.8 4.7 10.5 6.1 0 4.3 15.6 -3.3 1 Figures show average annual growth in the number of maquiladora plants. 1 Figures show average annual growth in the number of maquiladora workers. 3 Figures show annual growth in maquiladora production stated in billions of U.S. dollars. Emplt % 8.0 4.6 13.4 -3.7 3.7 .8 12.0 1.8 Prod. % 19.7 20.5 28.3 -21.2 12.2 -.6 22.7 38.8 Plants 1993 Emplt. Prod. 4.4 -4.9 7.6 7 -4.6 -1.0 2.3 -5.2 7.1 2.3 11.9 2.5 -1.2 14 11.2 -3.4 20.7 16.0 22.1 36.1 21.4 5.2 34.4 10.5 tm % % % < 254 maquiladora plants in Ciudad Juarez employed more spectacular growth in 1990. Matamoros holds the third- than 132,000 workers, and gross production totaled some $5.8 billion. largest share of maquiladora employment. At year-end 1993, it employed 38,000 workers in 96 plants, and maqui ladora production was worth $2.1 billion. Although Tijuana's concentration of maquiladora workers— about 14.3 percent of the total—is second only to that of Ciudad Juarez, Tijuana has the largest share of Conclusion plants, with slightly more than 25 percent. Maquiladora production growth in Tijuana exceeded employment growth The maquiladora industry has become an important component of the Mexican economy. In 1993, it contributed throughout 1990-93, posting double-digit increases for all years except 1991. Production growth was especially robust in 1992, increasing 28.3 percent, followed by 22.1percent growth in 1993. Although employment increases $5.5 billion in foreign exchange to Mexico, making it the country’s second-largest source of international reserves. were more modest throughout 1990-93, in contrast to Ciudad Juarez, Tijuana’s employment registered double from just 5.1 percent in 1982. digit increases during 1992-93, after a 4.1-percent decrease in 1991. At year-end 1993, Tijuana employed more than The industry’s performance in the early 1990s was characterized by dynamism in production and stabilization in 77,000 workers in 554 maquiladora plants, and maquila dora production was worth $4.1 billion. employment. In 1990-93, very low and even negative growth rates for plants and employment replaced the boom Maquiladora growth patterns conformed, with some Also, the maquiladora industry’s share in overall Mexican manufacturing employment reached 23 percent in 1993, up ing rates of the 1980s. Looking solely at these two vari ables, one would conclude that the maquiladora industry’s individual variations, to those of Ciudad Juarez, Tijuana, and the country, as a whole, in 1990-93. Matamoros, performance in the beginning of this decade was disappoint ing. However, the strong performance of maquiladora however, seems to present a unique case. It registered the largest production gain in 1990 but failed to sustain dy namic growth in the subsequent years. Production there production during this period indicates that the industry is, in general, thriving and gaining productivity. This overall rose almost 32 percent in 1990, yet only 1 percent in 1991. In 1992, production contracted 0.6 percent but recovered to 5.2 percent-growth in 1993. Employment’s performance in Matamoros followed the pattern seen in the other cities during 1990-93, with mostly low single-digit gains and picture of the industry is supported, to varying degrees, by trends in the major border cities. The next issue of Business Frontier will discuss the industry’s 1994 performance and the new rules for maquila doras under NAFTA. negative growth in 1991. It seems, then, that production in Matamoros underwent a consolidation during 1991-93 after Business Frontier is a bimonthly publication o f the El Paso Branch o f the Federal Reserve Bank of Dallas The views expressed are those o f the author and do not necessarily reflect the positions o f the Federal Reserve Bank o f Dallas or the Federal Reserve System. Subscript], ns are available free o f charge. To be placed on the mailing ust, please write to Lucinda Vargas El Paso Branch - Federal Reserve Bank of Dallas P.O. Box 100 El Paso, Texas 79999 Tel: (915) 521-8233 Fax: (915) 521-8284 Articles, or portions thereof, may be reprinted on the condition that the source is credited and a copy of the publication containing the reprinted material is provided to the Research Department, El Paso Branch Federal Reserve Bank o f Dallas. — Lucinda Vargas Economist
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