Mexico Behind the Numbers

The strong Maquiladora Industry export showing in 2011 apparently continued in the first six months of this year, with a forecast that overall exports in 2012 will increase close to 10% in dollar terms.

All indications are that first semester growth was in the 12-15% range, as measured in export value, with particularly good growth in the following sectors: automotive parts and components, consumer electronics (especially TV sets), medical devices and equipment, household appliances and aerospace parts and components.

Whether that pace can be sustained in the second half of this year is questionable. It depends to a very large degree on what happens in the U.S. economy. And the U.S. outlook seems mixed right now.

However, export growth close to double digits is quite probable. Mexico’s overall exports this year are now seen as increasing by 7.5%. This includes crude oil exports, where the growth rate is likely to be considerably below that figure. Traditionally, gross maquiladora exports have been a strong feature of Mexico’s total manufactures exports, standing at more than 50%.

In March, 2012, the latest month for which official data is available, there were 5,061 IMMEX manufacturing/assembly plants in operation, employing 1.93 million persons. 
The comparison with same 2011 months’ figures: 5,113 and 1.85 million.

Qualified estimates are that of the March 2012 totals, there were 2,430 “pure” export maquiladoras (excluding service maquiladoras) with overall direct employment of 1.69 million.

For comparison purposes, look at the December 2006 figures. That was the last month of the 36-year INEGI history of direct monitoring of Maquiladora Industry activities. In December 2006 there were 2,476 maquiladoras (not counting 307 service maquiladoras) with total employment of 1.65 million persons.

But that comparison data is not reflected in overall industry activity as measured by exports. Exports (or reexports) by the Maquiladora Industry appear to have increased considerably in dollar value since 2006, this despite the 2008-09 global monetary and financial crisis and the U.S. recession.

This reflects the continuing upscaling of Maquiladora Industry sophistication and its emphasis on ever higher technology production/assembly. And on balance, it remains much cost competitive.

Once again, qualified estimates are that maquiladora activity in 2011 registered a value added total of $32.70 billion dollars, whereas in 2006 it was for an official $24.38 billion. Prior to 2007, this data was available on an official, monthly basis from INEGI and Banco de Mexico. Unfortunately that is no longer true.

Between 2003 and 2006, these value-added exports rose from $19.75 billion dollars to the aforementioned $24.38 billion in 2006.

Meanwhile, based on official Banco de Mexico figures, new foreign direct investment (FDI) in export maquiladoras apparently reached $935 million dollars in the first quarter of 2012. In recent year, this FDI has been found in the inter-company accounts line item of the balance-of-payments.

In the first quarter of this year, total IMMEX program manufactures exports were $44.96 billion dollars, up 9.7% from January-March 2011, according to CNIMME-INDEX statistics. Those figures do not include exports by the OEM automotive industry, which is not part of the IMMEX scheme.

Of that $44.96 billion, an estimated $33.27 billion represented gross exports by maquiladoras (excluding service maquiladoras). If that figure is annualized out, this would mean gross maquiladora manufacturing/processing exports for $133.1 billion this year.

That in turn would represent an increase of 30% from gross maquiladora exports in 2006, the last year for which official maquiladora data exists. As of 2007, exports by maquiladoras ad companies in such export promotion schemes as Pitex, ALTEX, PROSEC and ECEX were all lumped together in one IMMEX export basket, a parting “gift” for the Maquiladora Industry from the outgoing Fox Administration. In 2006, according to official data, full-fledged maquiladoras accounted for 55.1% of Mexico’s total manufactures exports. That data included automotive industry exports, which that year were 13.6% of overall manufactures exports. Such an official breakdown no longer is public record.

NEW INEGI IMMEX REPORT

The National Statistics and Geographic Institute (INEGI) has now formally introduced a second statistical service for IMMEX companies. It covers registered IMMEX companies which are not in the manufactures category.

The report covers agricultural sector, service exporters (almost all maquiladoras) and foreign trade companies. These latter firms used to be in the ECEX category. According to the new statistical series, there were 1,154 registered non-manufacturing IMMEX companies at end- March, vs. 1,157 in the same month last year. Employment at these firms totaled 283,000.

INEGI reports plans for two new IMMEX statistical series as of the second half of this year. The first would break down IMMEX companies by manufacturing sectors –consumer electronics, auto parts and components, appliances, textiles/apparel, metal products, etc.

Such a breakdown has not been available to maquiladora statistics trekkers since IMMEX came into being in January 2007.

The second new statistical series will break down nonmanufacturing/ processing IMMEX companies by sectors. This will include service companies, an area heavily dominated by maquiladoras. At last official count (December 2006), there were 307 service maquiladoras employing 53,000 persons.

CNIMME DEVELOPMENTS

Related to maquiladora activity, the National Maquiladora and Manufactures Exports Council (CNIMME) has adopted a new name –the National Export Industry, Spanish language acronym INDEX. The new name is being phased in by the 20 different local maquiladora associations in the country.

The CNIMME was first started back in 1973 as the National Maquiladora Industry Council. At that time, it was a branch of the National Transformation Industry Chamber (CANACINTRA).

The old CNIMME (the Council’s official name as of 2007) and the new INDEX hopes to launch four new local associations later this year –Aguascalientes, San Luis Potosi, Veracruz and Zacatecas. The existing local associations which comprise CNIMME-INDEX currently have some 1,200 members. An overwhelming majority are full-fledged maquiladoras. One new local association –Queretaro—was already formed in 2012.

A long-in-place maquiladora program that of shelter operators, appears to have continued successfully in the first months of the year. Shelter operators have been a steadfast, integral part of maquiladoras in Mexico since the concept was first launched in the early 1970s at Nogales, Sonora by Richard Campbell Sr.

Report sindicate continuing growth for shelter activities in cities along Mexico’s northern border as well as off-border locations in the northern states such as Chihuahua and Sonora.

As just one example: San Diegobased shelter operator North American Production Sharing reports that in the past 18 months its maquiladora shelter clients added some 400,0000 square feet of additional manufacturing operations space. The shelter company is active in both Tijuana and Ciudad Juarez.

MORE IMMEX DELISTINGS

In mid-June there was a new pruning of the IMMEX registry list. The Secretariat of Economy suspended the registry of several hundred companies for failure to comply with reporting requirements under terms of the 2006 IMMEX Decree and subsequent modifications. It was not possible to immediately identify what percentage of the companies suspended are (or were) “pure” maquiladoras. These suspensions, it should be noted, are not as yet outright program cancellations.

Interestingly enough, the Secretariat has always made public –via the Federal Official Daily since 2007—the names of those IMMEX companies whose program have been suspended prior to eventual cancellations. But it never publicly announces those companies which have had their programs reinstated. Suspended companies have a grace period in which to comply with IMMEX annual reporting requirements.

However, the Secretariat does publish occasionally the names of new companies that have received IMMEX program accreditation.

New Customs requirements relating to import-export procedures for maquiladoras went into effect as of June 1. Mexico’s foreign trade rules were modified and it has now become mandatory for maquiladoras (importers, exporters) and their Customs brokers to file all Customs data electronically. This must be done via the Single Window foreign trade system (VUCEM).

THE KPMG FISCAL REPORT

A “down” note for the Maquiladora Industry came recently from the KPMG fiscal consulting group. Their report put Mexico in a “least favorable” position vis-à-vis competing countries in the export processing industry field.

The KPMG study, prepared for CNIMME-INDEX, covered specific export processing tax regimes for a series of countries that have long been considered maquiladora competitors for Mexico. The report compared the total fiscal cost to maquiladoras or their export processing counterparts in six different countries which all compete in the U.S. market. “Total fiscal cost” includes corporate taxes and obligatory tax payment schemes for social welfare and payroll programs.

KPMG ranked the different “total fiscal costs” of these countries on a 0 to 100 scale, with 0 being “Must Favorable” and a 100 reading “Least Favorable”. Mexico wound up at 100, as can be seen in the following table:

In referring to the study results, CNIMME-INDEX president Luis Aguirre was quoted as stating “Mexico’s tax scheme is just too complex and this hurts us in competitiveness. If we had a more efficient (fiscal) system… it would not be necessary to invest so much time and money so that (maquiladora) companies are able to comply with the country’s fiscal regulatory framework”.

EXPORTS REMAIN STRONG DESPITE OIL

Mexico’s merchandise exports through April continued to grow at a double digit rate, even though petroleum exports in the period were basically flat. The big gainers: the automotive, consumer electronics and mining sectors.

Overall in the January-April period, according to official data, exports rose by 10.1% to $120.71 billion dollars. And in April, even though it was a holiday month, exports reached $31.0 billion. That was a year-on-year increase of 11.6%.

And in April, Mexico continued to enjoy a merchandise trade surplus –$560 million dollars, even though in the month the favorable trade surplus in the petroleum sector was slashed by $673 million from the March level to $1.02 billion. For the first four months, the trade surplus totaled $2.32 billion dollars. The surplus in the like 4-month period last year was $2.51 billion.

Once again, the automotive sector turned in a strong performance in April. Exports (dollar value) rose by 19.6% from the same month last year. Overall, manufactures exports in April were up 13.9% y-o-y, vs. the total export gain of 10.7% (In May, automotive exports rose 5.7% from May of last year, based on units shipped abroad, despite declines in unit exports to the U.S. and the Euro zone).

OIL EXPORT PRICES DROPPING

Where Mexico was not as strong in the January-April period was in crude oil exports. There was only a marginal increase in export liftings, and the export price for the Mexican mix declined from its lofty levels of late last year and January-February 2012.

Through April, oil exports were up 7.3% from the same 4-month period of 2011, totaling $19.09 billion dollars. Non-oil exports on the other hand were up 10.7%. In the month of April, oil sector exports amounted to $4.65 billion, including $4.14 billion worth of crude oil.

In April, crude exports averaged 1.24 million barrels/day vs. 1.28 million one month earlier. Meanwhile, the April average crude export price was $111.03 dollars/barrel, down from $114.68 in March.

Because of global conditions, the price for Mexican crude has declined steadily as of end-February of this year, when it was $117.54 dollars/barrel. By mid-June, this had dropped further –to $91.94 dollars.

Along with manufactures exports, there has been good growth for agricultural and livestock products and for minerals. Particularly good strength was registered for the agriculture sector exports through April, somewhat surprising given the continuing severe drought problems in Mexico’s northern and north-central states.

Overall, said exports were up 10%, led by sales of cattle, mangos, fresh strawberries and frozen shrimp. The rise in cattle exports may be somewhat misleading however, since for the most part they were “forced” exports of cattle because of the drought conditions.

On the downside, Mexico’s imports of basic grains jumped 75% (dollar value), the direct result of the aforementioned drought. The value of imports shot up from $2.16 billion dollars in January-April 2011 to $3.8 billion in the comparison period this year. Said imports totaled 11.2 million tons, up 47.5% from 7.6 million last year.

Analysts are already forecasting that this will be a record year for basic grain imports, primarily corn and wheat.

Also a contributing factor in this year ‘s 75% value run-up: higher spot market prices for grains plus exchange rate shifts.

Corn imports for example were up almost 68%, to 3.77 million tons, with an increase of 122% in dollar value.

Minerals exports were paced by gold, silver and copper. On an overall basis, the January-April value of minerals exports totaled $15.69 billion dollars.

Overall exports growth to the U.S., Mexico’s principal market, was very good through April. This was a reflection of a pickup in the U.S. economy in the period, a pickup which showed signs of macroeconomic staggering as of May. In any event, April non-oil exports to the U.S. were up 14.7% from the same month last year, vs. an increase of just 1.5% y-o-y one month earlier. This included a 19.7% jump in the value of automotive subsector exports.

Other good April export growth to the U.S. market was registered for chemicals, foodstuffs, vegetable oils and diverse manufactures.

Crude oil exports to the U.S. (measured in dollars) declined 11.3% in April from the same prior-year month.

For the first four months of the year, according to U.S. Commerce Department statistics, Mexico’s total exports to the U.S. rose by 10.5% from the January-April 2011 period, to $92.04 billion dollars.

The bottom line was a trade surplus for Mexico of $21.64 billion, up 2.7% from the like 4-month period of 2011.

THE PACIFIC ALLIANCE ACCORD

Directly related to Mexico’s foreign trade, in early June Mexico signed the multi-nation document officially creating the Pacific Alliance Agreement. The PAA seeks to gradually create broad-based integration between Mexico, Chile, Colombia and Peru in its first phase, incorporating Costa Rica and Panama later on.

Mexico already has Free Trade Agreements with all of these countries, the most recent being with Peru.

It is presumed that in the not too distant future, the PAA will become a key part of the proposed Trans- Pacific Strategic Economic Partnership agreement (TPP).

The Pacific Alliance Agreement, signed for Mexico by President Calderon, encompasses a market of 212 million persons with an overall Gross Domestic Product of $1.68 trillion dollars. Combining the four initial signatory nations converts this bloc into the globe’s 9th largest economy.

One of its first announced goals: negotiating a common free trade agreement with member nations of the Southeastern Asian Nations Alliance (ASEAN). Member nations of that bloc include Singapore, Thailand, Indonesia and Vietnam. Several of those countries are already TPP proponents, as is Mexico.

The proposed 10-nation TPP accounts for 27% of world GDP. China, South Korea and Japan are not part of the TPP as yet.