YUCATAN MAQUILADORA INDUSTRY CAUTIOUS ABOUT ITS FUTURE

UNCLAS MERIDA 000222 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EIND ETRD PGOV MX SUBJECT: YUCATAN MAQUILADORA INDUSTRY CAUTIOUS ABOUT ITS FUTURE ¶1. (SBU) Summary. Approximately 200 leaders of Yucatan's business community gathered in Merida on October 23rd to celebrate the 21st anniversary of the Maquiladora Association and 26 years of maquiladora activity in the state. Business leaders report already feeling the pinch of the U.S. economy's downturn. End Summary. ¶2. (U) There are 32 active maquiladoras in the State of Yucatan, with approximately 20,000 employees. About half of the factories are geographically centered around the state capital of Merida while the others provide key economic support to smaller towns. According to the association, these companies export annually to the U.S. market goods valued at approximately 300,000,000 Mexican pesos. The companies fall into three principal product sectors: clothing manufacturing; low to mid-range jewelry production; and manufacturing of dental implements, devices, and tools. The jewelry and dental companies benefit from easy and relatively low cost shipping to the USA. Most of the clothing manufactured by Yucatan-based maquiladoras is shipped by sea from the Port of Progresso to Florida for markets on the Eastern Seaboard. ¶3. (U) At their annual dinner, the head of Yucatan's Maquiladora Association and industry representatives celebrated 21 years as an organization and looked backwards to past successes. The current U.S. economic downturn is clearly having a negative affect on the industry. Most hard hit appears to be the jewelry sector with industry leaders easily conceding that in a period of economic downturn, luxury items are cut first. Dental industry representatives report less turmoil. And clothing manufacturers report a mixed picture. Ganzo Azul, a company manufacturing uniforms for law enforcement officers indicates that business is steady. In contrast, companies manufacturing clothing for large scale retailers report decreased orders for the holiday season and corresponding cuts in production, staffing, and income. ¶4. (U) All sectors report some impact from increased transportation costs. However, they remain hopeful that their relative geographic proximity the U.S. market provides a sufficient cost advantage over other production centers, particularly those located in Asia. ¶5. (SBU) Comment. Although Yucatan based maquiladoras have been suffering over the last several years from lower labor costs in other countries (principally Central American and China),they have remained optimistic that their geographic proximity to U.S. markets and the relative security of the peninsula would improve their competitive advantage. The U.S. economic downturn appears to have had a more rapid effect on production levels and schedules than was anticipated. Pessimism in certain sectors is spreading. End comment. MARTIN