Manufacturing in the El Paso/Juarez Region

Oct. 4, 2009
The electronics and medical device sectors are growing quickly in this region despite safety concerns.

Annually, more than $300 billion in trade occurs between the U.S. and Mexico, of which about 15% is transported via ports of entry that connect El Paso, Texas and Juarez, Mexico.

With more than 1,100 manufacturing operations in the region, it is one of the most important industrial centers in all of North America. A wide range of global corporations from more than 20 nations congregate here to produce automotive parts, consumer electronics, medical devices and more-and these operations typically consume an estimated $8 billion in component parts, raw materials and services on an annual basis. There are some challenges, however.

Like most major Mexican cities-particularly those located on the border, the Juarez economy rises and falls with manufactured exports to the United States. Less than 20 months ago, there were more than 262,000 persons employed by manufacturing companies in the region, more than 85% of whom were in Ciudad Juarez. Today, slightly more than 190,000 manufacturing jobs exist in the bi-national region -- a significant 25% drop in manufacturing sector employment since late 2007. More than 2.6 million persons reside in the El Paso/Juarez region, also referred to as the "Borderplex," making it one of the world's most populous bi-national border communities.

Mexican exports to the U.S. are down approximately 24% through the first half of 2009 compared to the same period last year. (Note: Imports from Mexico into El Paso have declined only 16% through the first six months of this year, compared to Laredo, San Diego and the Arizona border which are down 24%, 19% and 21% respectively.)

The precipitous decline in regional manufacturing employment corresponds almost directly with the decline in Mexican exports to the U.S. with economic woes in the U.S. largely responsible. The U.S. unemployment rate now stands at 9.8%. Additionally, real gross domestic purchases (purchases by U.S. residents of goods and services wherever produced) have declined for seven consecutive quarters dating back to the 4th quarter of 2007. Such purchases decreased 8.6% in the first quarter of 2009, followed by a 2.5% decrease in the second quarter of this year.

The automotive and electrical products sectors, which collectively provide almost 60% of all manufacturing jobs in Juarez appear to be the most heavily impacted by the recession. In the El Paso region alone, Mexican imports from each sector declined approximately 11% from 2007 to 2008. Preliminary information for 2009 indicates that automotive sector imports could be down as much as 34% and electrical products down by 25% this year.

Yet, some sectors in our region are still growing despite the economic downturn. In 2008, approximately $7.89 billion in electronics products were imported into the U.S. via El Paso's ports of entry, 31% greater than 2006. There have been 22 new electronics manufacturers that have located in the Juarez industrial complex since 2000, led by Asian companies such as Enlight, Foxconn, Tatung and Wistron (formerly Acer). Both Foxconn and Wistron are undergoing significant expansions at present. Foxconn announced in 2008 that it would establish a campus just west of Juarez that will ultimately employ as many as 20,000 individuals, and Wistron will bring on-line more than 250,000 square feet of additional production space at their Juarez campus in the coming months.

The medical device sector is also thriving in the region. A 2009 study commissioned by our organization revealed that there are almost 300 FDA-registered medical devices (mostly Class 2 and 3) produced in our region across 16 medical specialties. About 70% of these devices are produced in Cd. Juarez by companies such as 3M, Accellent, Cardinal, GE Healthcare and J&J. The study revealed greater opportunities for production in cardiovascular, OBGYN and general surgery medical devices.

Medical device imports through El Paso's ports of entry stood at $980 million in 2008, an 8% increase over 2007 and a 34% increase over 2006 levels. If medical device imports equal their performance during the first six months of 2009, imports in this sector could top $1.2 billion in 2009.

Drug Cartels Not Targeting Violence at Expatriates Nor their Investments

Much has been written about the more than 3,000 homicides that occurred last year in our sister city of 1.6 million people, but the reality of the situation is far different from what is generally reported in the media. More than 98% of these deaths involved drug cartel members, police and military personnel. Only 30 innocent civilians were victims of homicide in Juarez last year, and not all of those were victims of cartel-related violence. The question which is "top of mind" with many companies considering Juarez is, "Can I operate in Mexico and also protect my people, facilities and supply chain?" The answer is a qualified "yes," but it is instructive to take a look at what the violence has not apparently impacted.

In 2008, Mexico's Secretary of the Economy issued 51 new operating permits for "maquilas" (manufacturing operations) in Cd. Juarez, an 88% increase over the number approved in 2007. Through the first eight months of 2009, the number of new permits is running slightly behind 2008 (26 versus 35), but still ahead of the 2007 level).

Cd. Juarez also attracted more than $800 million in foreign direct investment and absorbed approximately 4.2 million square feet of industrial space, making 2008 one of the top four years of absorption in the past decade. No other city on the Mexican border came close to Juarez' performance in absorption. The next largest cities, Tijuana and Reynosa, absorbed a combined 3.4 million square feet of industrial space.

My organization has the primary responsibility for attracting new investment to both El Paso and Juarez. Our neighbor to the south is an integral part of our regional success and has shown remarkable resilience and competence in containing the violence to a very specific segment of the population-principally those involved in organized crime. As a result, not a single one of our clients (as of the writing of this article) has rejected Ciudad Juarez as a business location due to the current security environment. During 2008/2009, ten companies have notified my office of their intent to establish or expand their presence in Ciudad Juarez. These 10 companies are expected to create approximately 2,770 new jobs. At present, we are working with nearly 40 additional corporations that are considering operations in Cd. Juarez.

That is not to say that there is not concern about the violence in Juarez. As we assist our clients with conducting in-depth due diligence related to the current security environment in Juarez, we are able to demonstrate that the vast majority of violent crimes have been perpetrated in specific geographic areas of Juarez, located well away from our modern industrial parks, where more than 80% of the expatriate manufacturing and distribution business is conducted. There has only been one homicide reported in or around a Juarez industrial area in the past 20 months and close to 85% of all reported crimes in the industrial areas has been non-violent in nature.

Upon conducting the proper due diligence, our clients typically conclude that since the organized drug cartels are not targeting violence at legitimate manufacturing and distribution organizations, common sense measures can be implemented to mitigate against potential opportunistic crime-the same types of measures one would undertake when operating in any major city in the world.

Why El Paso/Juarez?

In conclusion, I should point out that there has been no discernable spillover effect in El Paso. For more than a decade, El Paso has enjoyed the distinction of being one of the three safest major cities in America (according to FBI Uniform Crime Statistics). While El Paso's heart aches for our sister city, we remain undaunted in our effort to develop El Paso as a "world class" city. We are building America's newest four-year medical school, constructing a $4.5 billion expansion at Fort Bliss, our Army installation, undertaking a major downtown redevelopment effort, and my office is currently working with 176 corporations considering jobs and investment in El Paso alone.

And, despite the recession and the much publicized activities of organized crime in Mexico, the factors which make Juarez a globally competitive location are fully in tact. More than 100,000 regional citizens are enrolled in universities, technical colleges and other institutions of higher education on more than 30 campuses, and the transportation and supplier infrastructure remain the best on the U.S.-Mexico border.

As the peso's value compared to the dollar weakens, manufacturing costs in Mexico are even more attractive. While the peso has made a modest 4% gain versus the dollar since the beginning of 2009, the July value still remained 22% below the July 2008 level. The peso, currently at around 13.0 to the U.S. dollar, is expected to devalue further in 2010, but should level off around 13.40.

Bob Cook is President of El Paso Regional Economic Development Corp. (REDCo). REDCo is a private, non-profit corporation dedicated to recruiting business and industry and military missions to the El Paso region, which also includes Ciudad Juarez, Chihuahua and Las Cruces, New Mexico.

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