MAQUILA SOLIDARITY NETWORK

Prepared for the MFAF Americas Working Group Mexico Subcommittee

August 19-20, 2010

Update on the Mexican garment sector

The Mexican economy: Signs of recovery?

2009 was the worst year on recordRecovery in 2010 has been limited to export-

oriented manufacturingMany of the new jobs are low-wage,

precarious, and informalOECD on Mexico: “expected GDP growth will

not be sufficiently robust to absorb the deteriorations in the labour market which accumulated during the crisis,”

Some growth in first quarter of 2010Source: INEGI

Manufacturing sector leading recovery

Of note …

Although the manufacturing sector is now leading the economic recovery, it is important to remember that manufacturing was also the hardest hit sector during the crisis, accounting for the largest GDP drop and much of the job losses. In the first quarter of 2010, however, total manufacturing GDP increased almost 10%, well above the overall GDP growth in the same quarter.

Exports also recovering…

Total exports were up 28.8% in June 2010 from the previous year and up 36% for 2010 so far (June YTD, $ value).

Manufacturing exports were up 36.5% in June 2010 compared to June 2009.

Export & manufacturing growth led by auto sector

Source: Mexican Auto Industry Association

PeriodTotal Mexican auto Production Total exports

Jul-08 144,714 122,144

Jul-09 108,897 90,872

Jul-10 180,083 143,521

Jul 08 YTD 1,199,510 930,771

Jul 09 YTD 711,357 575,561

Jul 2010 YTD 1,257,734 1,031,393% change Jul 08 - Jul 09 -25 -25.6% change Jul 09-Jul 2010 65 58% change Jul 08 YTD - Jul 09 YTD -25 -26% change Jul 09 YTD - Jul 10 YTD 77 58

Auto exports are up 58% in 2010, compared to 2009 (July YTD)

Despite sharp drop in auto sector in 2009, in 2010 both total Mexican auto production and exports have actually surpassed pre-crisis levels

Reduction in unemployment rate?

In June 2010, the unemployment rate was 5.05% slightly down from 5.17% where it was at a year ago. The underemployment rate was also slightly down in June 2o10 at 8.1%, from 8.9% in June 2009.

But unemployment rate predicted to remain above pre-crisis levels until at least 2011.

Of note …

The Mexican unemployment rate tends to be lower than that of most industrialized countries because the “economically active” population includes those working in the informal sector, and those who receive some form of remuneration but consider themselves under-employed. More than half of all Mexicans are said to be employed in the informal sector.

The underemployed rate consists of those who are employed but who express the need and availability to work more hours.

Informal, out-sourced, and low-wage jobs…

INEGI: 1 out of every two new jobs created in 2009 were in the low wage sector (around 22 $USD a day or lower).

Though maquila jobs were up 8.9% in April 2010 compared to the previous year, directly employed personnel only increased by 6.3% whereas sub-contracted jobs grew by 19% in the same month.

Some increase in Mexican retail sales

ANTAD sales were up 3.1% in 2010 (May YTD), from 2009 (May YTD)

ANTAD Clothing sales for 2010 (May YTD) were also up 9.7% from 2009 (May YTD).

Retail expansion in 2009: Wal-Mart opened 174 new stores; Cherokee Group, Gap, and Inditex also expanded in Mexico

But discouraging US retail sales

Total US retail and food services sales were down for the second month in a row in June 2010, dropping 0.5% from May, what some analysts say is a sign of a slowing US economy.

But retail sales for June 2010 were still 4.8% above June 2009

And clothing sales fared better posting a 0.6% rise in June 2010 from May, and a 5.7% increase compared to June 09.

Mexico’s textile and apparel sector

Accounts for 5.3% of manufacturing GDP, 2% of manufacturing exports

Sixth most important economic sector in Mexico Mexico is largest apparel suppler to the US in

the Latin American region Fifth largest apparel exporter to US market in

world Generates aprox. 400,000 jobs in apparel sector Generates aprox 130,000 jobs in textile sector 35% of the market goes to export, with 65%

destined for national market

Textile and apparel maquila jobs by stateFuente: INEGI

Contribution by state to total sector GDPSource: CNIV

Recovery of garment sector post-crisis?

Jobs:CNIV: Between March 2008 and March 2009, an

estimated 50,000 jobs were lost in the textile and apparel sector

From May 2009, to May 2010 12,521 direct jobs recovered

Exports:Mexico’s apparel exports to the US increased

8.7% ($ value) and 20.6% (in quantity, square meter equivalent, or SME) for May 2010 YTD compared to previous year

This is above the world averages of 7.9% and 15.6% respectively.

International Apparel TrendsSource: OTEXA

International Apparel trends (cont’d)Source: OTEXA