Border Economy Slow Recovery From Pandemic

Border Economy Slow Recovery From Pandemic

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By Nancy J. Gonzalez

Even though the supply chains around the globe are restoring little by little, the economic effects the Coronavirus pandemic left in the communities are here to stay. At the U.S.-Mexico border the economic recovery is going to be slow but the region might develop new opportunities, economists agreed.

The COVID-19 pandemic forced businesses to temporary shutdown operations in early April and only allow essential activities to remain open. Some workers were sent to do home-office, while others were laid off or they signed a temporary contract with the company to reduce their salary while taking time off.

At the border, the business temporary shutdown is more visible because, in the Mexican communities, most of the jobs are maquiladora-related. In this region almost half of the manufacturing sites were closed and workers sent home. The reminder of these companies remains open arguing they are essential businesses, but in many cases, workers are worried of getting be infected with this new virus and in some places, they are missing days or are demanding to leave home.

The service and hospitality sectors are almost paralyzed and many have closed temporarily. Some restaurants are trying to survive by offering delivery and pick-up services.

Moreover, non-essential travel is banned at the ports of entry and only trade-related activities are conducting business as usual, but some ports of entry have reduced their operation schedule.

“Trade operations at the U.S.-Mexico border continue to be completely operative and will remain functioning, as well as all Mexican ports of entry, giving certainty to importers and exporters that Mexico is prepared to strengthen its efforts to overcome this crisis,” expressed Carlos Martinez Gonzalez, vice president of the North America Affairs Commission of the Confederation of Customs Brokers Associations of the Mexican Republic (CAAAREM).

Even though trade continues as usual, there are not many goods to move from one country to the other because maquiladoras are temporary shutting down operations due to the pandemic.

This situation is replicated along all the border communities. Economist said the impact of this global pandemic at the U.S.-Mexico border is going to be more difficult to overcome than the 2008 crisis, and businesses will have a hard time recovering while unemployment will increase exponentially. Also, some bankruptcies will be filed in the U.S.

“We are going to experience a U-shape recovery that might take eight quarters or two years,” explained in a webinar Doctor Thomas Fullerton, Economics Professor at the University of Texas at El Paso. “Recoveries from pandemics like these can be very rapid, but we do face uncertainty. It’s going to be a bumpy ride.”

Luis de la Calle, managing director and founding partner of De la Calle, Madrazo, Mancera, S.C. (CMM), a consulting firm specialized in economy, regulatory processes, and matters related to international trade, agreed in a Wilson Center’s audio conference the recovery will be a U-Shape but his forecast is less positive than Fullerton’s.

“Once you have closed things down—facilities, supply chains—it takes a long time to recover the strength of the consumption and investment and get the machinery going,” de la Calle added. “We need to marshal our significant industrial capacity. Mexico has become in the last 20 years one of the main suppliers for medical devices to North America. So, the capacity exists, so we should exploit it.”

An analysis published by the San Diego Workforce Partnership says job losses caused by the pandemic will vary by industry, but the most affected sectors in that county will be retail, leisure and hospitality, which employs more workers than any other sector in the regional economy. Non-essential retail and food-service businesses especially face an immediate threat to solvency.

In San Diego, hospitality has seen a dramatic contraction. At an early stage of the pandemic, the Convention Center had 19 event cancelations adding up to 115,000 lost attendees. As a result, hotel occupancy dropped 33%, and at least 37 hotels were temporarily closed, and now half of the facilities are closed. The Convention Center Corporation estimates these cancellations will cost them US$3.7 million and claims will cost the region nearly US$200 million in lost economic impact.

Unemployment claims have skyrocketed in the U.S. southern border cities and more will be filed in the upcoming months.

“By June the U.S. unemployment rate will rise all the way to 16%,” explained Fullerton. “In border communities such as El Paso, the unemployment rate will probably reach 18%; in McAllen, Texas, that city has the potential to go beyond 20% by June.”

Fullerton said the reason border communities could have higher unemployment rates compared to the rest of the nation is their dependence on cross-border trade.

On the other side of the border, the scenario is very different and even darker. The maquiladora is the main employer in this region. Nowadays, almost half of the sites are closed and workers are uncertain if they will have a job when the companies resume operations.

During the 2008 crisis, half of the maquiladora workers in Mexico’s northern border lost their jobs, and they are afraid this pandemic could lead to closures or temporary shutdowns.

Jesus Salayandia, president of Canacintra Juarez, said some small maquiladora suppliers will not be able to survive this pandemic and many might lay off their workers soon because the industrial activity is almost shutdown, and these businesses do not have the financial strength to support their activities without any income.

“There are a lot of automobile parts manufacturers, all the way from Tijuana to Matamoros, Mexico, and the full extent of what’s going to happen in the automobile industry is not understood at this point, but it is going to cause a lot of disruptions,” Fullerton said. “It’s probably going to lead to a lot of workers on the Mexican side of the border relocating back into central and southern Mexico because of widespread layoffs that are likely
to occur.”

The impact of the maquiladora activity will also affect the sister cities in the U.S., because most of the warehouses, logistics, and brokers depend directly of the manufacturing activity in Mexico.

Jon Barela, The Borderplex Alliance CEO, is positive the region will emerge from this economic hardship. He explains that the U.S.-Mexico border is resilient, and it will emerge from this crisis stronger than ever.

“As the fourth largest manufacturing hub in North America, I firmly
believe that once this virus is defeated, the Borderplex region will play a vital role in reigniting the global economy,” said Barela. “Already, we are receiving keen interest from logistics and other companies along
the supply chain looking to move or expand to our region to accommodate business growth when the COVID-19 crisis is over.”

Gustavo de la Fuente, executive director of the Smart Border Coalition, said
U.S.-Mexico border cities must overcome this crisis together.

“We do not have a binational policy to manage a crisis of this magnitude,” he said in a webinar.

He expressed the impact is still not quite visible, but tourism, hospitality and restaurant industries in the region have borne the brunt of the impact.

“Hotel occupancy is below 20%, and most restaurants have
closed and are attempting pick-up services. Manufacturing in Tijuana is starting to feel the pinch. Capacity in the medical and electronics industries is at 75%; the automotive and aerospace sectors are at 50% levels or lower,” de la Fuente added.

Still, no one knows the actual impact the Coronavirus pandemic is going to have at the U.S.-Mexico border. The U.S. border states have started the
reopening of their economies while the businesses at the border
communities have started operations depending of the industry they belong to. Economist said the economic recovery at this region is going to be slow, but the region has the potential to overcome the effects of the COVID-19 pandemic.