1. MAQUILA SOLIDARITY NETWORK Prepared for the MFAF Americas Working Group Mexico Subcommittee August 19-20, 2010 Update on the Mexican garment sector

2. The Mexican economy: Signs of recovery? 2009 was the worst year on record Recovery in 2010 has been limited to export-oriented manufacturing Many of the new jobs are low-wage, precarious, and informal OECD on Mexico: “expected GDP growth will not be sufficiently robust to absorb the deteriorations in the labour market which accumulated during the crisis,”

3. Some growth in first quarter of 2010 Source: INEGI

4. Manufacturing sector leading recovery

5. 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.

6. 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.

7. Export & manufacturing growth led by auto sector Source: Mexican Auto Industry Association Period Total Mexican auto ProductionTotal exports Jul-08144,714122,144 Jul-09108,89790,872 Jul-10180,083143,521 Jul 08 YTD1,199,510930,771 Jul 09 YTD711,357575,561 Jul 2010 YTD1,257,7341,031,393 % change Jul 08 - Jul 09-25-25.6 % change Jul 09-Jul 20106558 % change Jul 08 YTD - Jul 09 YTD-25-26 % change Jul 09 YTD - Jul 10 YTD7758 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

8. 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.

9. 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.

10. 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.

11. 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

12. 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.

13. 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

14. Textile and apparel maquila jobs by state Fuente: INEGI

15. Contribution by state to total sector GDP Source: CNIV

16. 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.

17. International Apparel Trends Source: OTEXA

18. International Apparel trends (cont’d) Source: OTEXA