Mexican Border Factory Output Is Slowing

For the first time in more than a decade, employment and output at the foreign-owned factories along the U.S.-Mexico border are in decline. This has prompted concerns that investment in Mexico’s manufacturing sector could slow, rippling across the broader economy.

After 12 years of steady growth, the output at these factories, known as maquiladoras, could slide by 3% for all of 2001, said Rolando Gonzalez Barron, president of Mexico’s maquiladora trade association.

The root cause of the unfamiliar malaise, he told reporters here late last week, is the slowdown in the U.S. economy, the final destination for 95% of all goods produced at maquiladoras.

More than 1 million Mexicans work at maquiladoras, making everything from car parts and apparel to furniture and television sets at about 3,500 border plants. Jobs at these factories have always been a safety hatch where Mexicans could go to find work.

Even when Mexico underwent a wrenching recession after the 1994 peso crisis and devaluation, the maquiladora industry managed to expand and add jobs, attracting workers from throughout Mexico.

This migration has swelled the population of the northern Baja California region, which includes the cities of Tijuana, Rosarito and Mexicali, by an annual rate of 5% or more in recent years.

But with the U.S. economy having entered into a possible recession and with consumers buying fewer goods, Mexican border plants have been forced to slow production and lay off thousands of workers. Mexican industry officials see no end to the maquiladora slump until next spring at the earliest.

More bad news could be on the way. The drop in maquiladora jobs will be followed in 2002 by a decline in foreign investment in Mexico, said economist Rogelio Ramirez de la O.

As of the end of July, jobs at the 3,500 maquiladoras concentrated mostly along the U.S.-Mexico border had fallen by nearly 100,000, or 7.5%, since the beginning of the year. The decline has been only slightly less, about 7%, in Tijuana and the rest of Baja California over that period.

Fifty thousand more jobs could be lost by the end of 2001 if electronics, textiles and automobile parts output continues to slide, Gonzalez said. Long border delays and higher transportation costs since Sept. 11 have added to the industry’s troubles.

A broad array of Mexican manufacturers has been hit by the slowdown, especially those making discretionary or luxury items such as consumer electronics. The television industry in Tijuana, including big employers such as Sony and Hitachi, are among those directly affected.

Jorge Carrillo, a sociologist at the Colegio de la Frontera Norte in Tijuana, said that job losses are not yet serious enough to have noticeably affected the border region, where workers put up with often substandard housing and a lack of city services to earn an average of $2.20 an hour, four times the minimum wage.

“This does add an element of uncertainty between the industry and the Mexican bureaucracy, which is already at odds,” Carrillo said.

Some maquiladora owners, complaining of high taxes, an overvalued peso, tariffs and wages growing faster than the rate of inflation, have threatened to move their businesses to China, where labor costs are a fraction of those in Mexico.

Colegio de Mexico economist Alfonso Mercado said that cities such as Ciudad Juarez, with its heavy concentration of consumer electronics factories, have been hit especially hard with job losses.

Cities such as Nuevo Laredo that host auto parts and other heavy manufacturing plants have been less affected than consumer electronics hubs because the effect of declining auto sales has taken longer to filter down to Mexican suppliers.

But if U.S. vehicle sales continue to slump, the Mexican auto industry will inevitably feel more pain. U.S. sales of new vehicles fell about 8.7% in September, according to Autodata Corp.

A consensus of Mexican economists last week said the economy would grow by only 0.21% in 2001, instead of the 7% growth Mexico experienced last year and the 5% growth target President Vicente Fox’s administration set last December.

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Times researcher Rafael Aguirre in The Times’ Mexico City bureau contributed to this report.

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Factoring Fewer Jobs

After a decade of steady growth, the border-area factories called maquiladoras this year arelaying off workers as U.S. demand for manufactured goods slows:

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Year Number of employees Rate of Change 1990 446,436 1991 467,352 4.7% 1992 505,698 8.2 1993 542,074 7.2 1994 583,044 7.6 1995 648,263 11.2 1996 753,708 16.3 1997 903,528 19.9 1998 1,014,006 12.2 1999 1,140,528 12.5 2000 1,285,007 12.7 2001* 1,187,525 -7.5

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* Through July

Source: Mexico’s maquiladora trade association