<i> Maquiladora</i> Growth Down Considerably in ’89

Affected perhaps by political uncertainty and insufficient labor and water supplies, the growth in maquiladora permits issued in the Tijuana region slowed considerably in 1989 contrasted with the previous year.

Maquiladoras, the plants operated by foreign manufacturers in Mexico to take advantage of low-cost labor, reached a total of 680 in the Tijuana-Tecate area at year’s end, up 17% from the 579 foreign-operated plants in operation a year ago. The total of new permits issued in 1988 represented a 45% increase from the previous year.

Despite the decline, Mexican officials said the permits demonstrate that maquiladoras are still popular among foreign manufacturers, particularly those making products destined for the U.S. market. Employees working at the plants in the Tijuana area increased over the year to 70,758, up 34% from the 52,957 workers employed at the end of 1988.

And maquiladoras should continue to proliferate in 1990 if the recently liberalized rules governing them have the desired effect of boosting applications, said Jose Luis Ascolani, the Baja California delegate of the federal Secretary of Commerce and Industrial Development, the agency responsible for issuing maquiladora permits.

Among the changes decreed Dec. 22 by the Mexican federal government is the centralization of seven different permits and approvals required to open a maquiladora within the regional SECOFI offices, Ascolani said, a move that should considerably streamline and shorten the time required for permit approval.

The new laws also ease the transference of supplies and components among foreign manufacturers in Mexico, and increase the percentage of goods produced by maquiladoras that can be sold inside Mexico, from 20% to 50%.

The laws, which also allow foreign companies for the first time to bring their own telecommunications equipment into Mexico, also make maquiladora permits good for an indefinite period, as opposed to the two-year limit previously in force.

In another move to attract more maquiladoras, the Mexican government, in response to protests lodged by foreign manufacturers, has indefinitely shelved a proposed 2% tax on maquiladora assets, Ascolani said.

Some foreign manufacturers considering moves to Mexico were discouraged last year by the shortage of labor in the Tijuana area, a condition that has resulted in fierce competition for workers and a high rate of employee turnover, said Tony Ramirez, vice president of Made in Mexico, a Chula Vista-based consulting company that assists manufacturers in setting up maquiladoras.

Political uncertainty caused by the election in July of Ernesto Ruffo Appel as governor of Baja California. Ruffo, who was a candidate for the National Action Party, or PAN, opposing the entrenched Institutional Revolutionary Party, or PRI, may also have given some companies pause, industry observers said.

Shortages of water and power in certain areas of Tijuana may also have been responsible for the drop-off in maquiladora permit applications in early 1989, Ramirez said. He said interest has rebounded in recent months, however, largely because some of the shortages have been alleviated.

Acknowledging problems with Mexico’s “infrastructure,” the broad-based term used to describe utilities, public works, transportation and labor, Ascolani said the government hopes to improve the situation in part by privatizing many state-owned corporations, a move designed to attract increased foreign investment.

For many manufacturers, Mexico’s disadvantages are obviously outweighed by its pluses, led by low hourly wages. Including taxes and benefits, average hourly wages are about $1.30, a fraction of the cost of comparable labor in the United States, Ramirez said.

“The maquiladora concept is generating a lot of interest in other than U.S. companies,” Ramirez said. “We have seen a lot of European interest, electronics companies mainly. Manufacturers of wood-related products, such as furniture and cabinetmaking, also showed increased interest last year.”

The largest category of maquiladoras at year’s end was electronics, with 131 plants, Ascolani said.