Thu August 4, 2011
Business Booms On Border Despite Violence
Originally published on Thu August 4, 2011 8:01 am
Over the last four years of the Mexican drug war, the country's northern border has become one of the most violent parts of the country. Yet recently that same part of Mexico has been booming economically.
The duty-free maquiladora assembly plants along the border are rapidly adding jobs, and exports to the United States are reaching record levels.
Juarez, just across from El Paso, Texas, is the murder capital of Mexico and one of the world's most violent cities. Drug-related violence in Juarez killed more than 3,000 people last year. Extortion, carjacking and kidnapping are rampant.
That might not seem like an ideal business environment, but foreign companies are investing heavily in Juarez and other violence-plagued cities along the border. Cheap labor and proximity to the huge U.S. market are outweighing concerns about security.
Juarez Bouncing Back
El Paso-based TECMA is one such company. It runs a huge, 180,000-square-foot factory near the Juarez airport.
Some of the maquiladoras — plants that can import raw materials and ship out finished products across the border duty-free — produce a specific product for a specific company. But in this plant, TECMA runs seven different operations for seven different U.S. companies. One area manufactures customized dashboard covers. Another produces electronic components for modems. Yet another makes plastic mannequins.
The company's business also includes "reverse logistics" — refurbishing used products. For instance, the factory will take an old or inoperative credit card reader from Wal-Mart, clean it, replace any worn-out parts, update its software and then send it back to the retailer.
TECMA runs a total of 17 plants across Juarez.
The border city, with a population of just over 1 million people, was hard hit by the recent recession. Between 2008 and 2009, Juarez lost nearly 85,000 jobs out of 250,000, or 33 percent.
But the city is rapidly bouncing back, and local officials expect that by the end of this year employment levels will have returned to their 2007 peak. Even with a smaller workforce, exports in 2010 reached an all-time high. The value of trade between Juarez and El Paso jumped a stunning 47 percent from 2009 to 2010. And similar gains are being reported in other border cities, such as Matamoros, Reynosa and Nuevo Laredo.
Alan Russell, TECMA's president, says the Mexican border has a huge logistical advantage over China or other industrial hubs in Asia.
"We have another operation that ships the same day that the orders are received," he says. The specialized medical products are made that day, sent to the border, go through customs and are shipped via FedEx or UPS for next-day delivery anywhere in the U.S.
Foreign Factories Unscathed By Violence
But one issue about Juarez that Russell always has to address with potential clients is security — what he calls "the elephant in the room."
Convoys of thousands of Mexican soldiers and federal police racing back and forth across Juarez are an everyday reality. The nervous troops wear full battle gear and clutch assault rifles.
Yet Russell and other business leaders say that for the most part, violence from the drug war hasn't affected the maquiladoras.
"To date, we have not had those kinds of problems, as you would think that could happen in an environment like this — but just hasn't happened," he says.
The factories don't have much cash in them or products that could be easily resold on the black market — for example, air filters for the latest model GM car. The gangs also may be leaving them alone because the maquiladoras are an established and important source of income for much of the population.
But if the foreign companies working in Juarez have been immune to the recent crime wave, local businesses have not.
The local newspaper El Norte estimates that 90 percent of small businesses in Juarez are forced to pay local gangs for "protection." The head of the local restaurant association pegs the extortion rate at 60 percent to 70 percent.
Those who don't pay risk being killed or having their businesses torched. The gangs have even been trying to extort teachers and parking lot attendants. "Everyone pays," says one restaurant owner, who closed temporarily late last year because of criminal demands for "rent."
'Two Different Realities'
Maria Soledad Maynez, the head of economic development and promotion for Juarez, says extortion is dampening the city's economic recovery.
"There [are] a lot of small businesses that ... right now, if they want to work, they have to pay. Yes, it's a big issue for the small businesses, more than the big ones," she says.
However, Maynez says she's confident that Juarez will overcome its current crime problem soon. There seems to be a feeling from her and others that at some point the violence simply has to pass. And she says foreign businesses continue to be interested in moving into the area.
For instance, a new slaughterhouse is being built in a free-trade zone on the western edge of Juarez. Maynez says the plant will be able to slaughter and process animals at a significantly lower cost than in the United States.
She says many companies currently operating in the U.S. could operate far cheaper in Juarez. Wages in the maquiladoras start at about $10 a day. Once products are moved back into El Paso, they can be moved quickly by truck, rail or plane throughout the U.S. and Canada.
Manuel Ochoa with the El Paso Regional Economic Development Corporation says the violence doesn't appear to be significantly affecting the rebound of the Juarez economy.
He says it's as if there are "two separate realities" unfolding in Juarez: The city's murder rate rivals that of a war zone, yet its factories are exporting products at a record level.