Business Leadership Along the U.S.-Mexico Border

1. Business Leadership Along the U.S.-Mexico Border The Honorable Lucy Killea Senior Fellow International Community Foundation Kenan Institute Cornerstone Conference Chapel Hill, North Carolina November 14, 2002

2. Presentation Overview • About ICF • An Overview of the U.S.-Mexico Border • A Review of the Maquiladora Industry • Making the case for Business Leadership • Case Study: Sempra Energy • Conclusion

3. About ICF • A community foundation committed to assisting U.S. donors with international giving. • Assets over $1 million and 41 funds. • Over $895,000 in grants during FY-02. • Geographic focus: the Americas and Asia with an emphasis in Mexico. • Over 46% of grants made to non-profits and charitable causes in Baja California border region. • Primary Areas of focus: Environment, Health, Education, Sustainable Communities, and Culture. • Close working relationship with FINCOMUN, the community foundation for Baja California.

4. The U.S.-Mexico Border • A 200-kilometer zone that extends 100 kilometers on either side of the border stretching 3,141 kilometers or 1,952 miles from the Pacific Ocean to the Gulf of Mexico. • Home to more than 10.5 million people, with about 6.2 million in the United States and 4.3 million in Mexico • Fastest growing region in North America. • Border population expected to double to 24 million by 2020. • US. Border area is poorest region in the country. • 39 Mexican municipalities, 25 U.S. counties and 14 pairs of sister cities along the international border. • Communities sharing natural resources (including water, air, flora/fauna) along a common border with a wide range of trans-boundary socio-economic and environmental challenges.

5. Rank Metropolitan Area 2000 1990 Change • 1 Detroit-Windsor 5,801,926 5,447,569 6.50% • 2 San Diego-Tijuana 4,065,359 3,245,397 25.30% • 3 Ciudad Juarez-El Paso 1,930,756 1,389,709 38.90% • Buffalo-St. Catherines-Niagara 1,547,877 1,549,992 0.10% • 5 Mcallen-Reynosa-Rio Bravo 1,073,720 760,221 41.20% • 6 Mexicali-Imperial County 913,787 711,241 28.50% • 7 Matamoros-Brownsville 752,460 563,413 33.60% • Nuevo Laredo-Laredo 509,451 352,807 44.40% • San Luis Rio Colorado-Yuma 283,762 217,425 30.50% • 10 Piedras Niegras-Eagle Pass 177,763 134,563 32.10% • Sources: National Census Bureau data for Mexico, 1990 and 2000, United States 1990, Canada 2000, Demographia, estimates for United States 2000 and Canada 1990. North America’s Border Sister Cities

6. Population Growth RateBaja California versus rest of Mexico 5.94% 4.15% 1.85% Source: INEGI, 2000 Baja California has the fastest growth rate along the border and is 2nd in Mexico only to Quintana Roo, located on the southern border with Guatemala. The current rate of growth is unsustainable.

7. San Diego/Baja California Border Regional Issues • Sustainable Communities: • Population 2000: 4.1 million. 2020: 6.4 million • 80,000 new residents to Tijuana per year—mostly through migration • Infrastructure (social, physical) not keeping pace with population growth • 50% of all new housing stock is in squatter communities without adequate sewer hook ups or potable water. • Environment: • A variety of trans-boundary environmental issues : conservation of natural resources; protection of endangered species; air quality; water quality and supply; hazardous waste management, emergency response. • Health: • HIV/AIDS; TB; Hepatitis, substance abuse, mental health issues, high percentage of residents on both sides of border are uninsured. • Education: • Educational attainment and skills gap issues; high drop out rate among migrant children/youth. • Family and Children’s Issues: • Domestic violence; drug/gang violence; teen pregnancy; few safe recreational areas and after-school programs for children/youth

8. 50% of Tijuana’s growth is in squatter communities like Maclovio Rojas, where basic infrastructure is limited and the environmental, health and social impacts are great. • 80% of adults in Maclovio Rojas work in the maquiladora industry. • Because of the border’s high cost of living, the majority of households require two incomes to provide for their basic needs.

9. OverviewMaquiladora IndustryEffective October 2002 • Number of Plants: 3,375 • Employment: 1,047,587 • % of women in workforce: 60% • Average Direct Labor Wage/Hr.  US$ 2.38 (Fully burdened rate including benefits) • Gross Production $ 7.11 billion Sources: Maquila Portal; Ceimex-WEFA

10. Boeing • Canon Business Machines • Casio Manufacturing • Chrysler • Daewoo • Eastman Kodak/Verbatim • Ericsson • Fisher Price • Ford • JVC • GM • Hasbro • Hitachi Home Electronics • Honeywell, Inc. • Hughes Aircraft • Hyundai Precision America • Matsushita • Mattel • Maxell Corporation • Mitsubishi Electronics Corp. • Motorola • Philips • Pioneer Speakers • Samsonite Corporation • Samsung • Sanyo North America • Sony Electronics • Toshiba • Zenith Examples of Border Area Maquiladoras

11. Maquilas by Country January 2001 US Maquilas represent the majority of total activity

12. Border Area Maquiladora Industry by Sector Source: INGEGI, 1998

13. Maquila Industry in Transition • Maquiladora employment has declined due to a number of key factors • Rising labor rates • NAFTA Article 303 results in tariff benefit elimination • Post 9/11 tightening of border. • US recession and decreasing consumer demand. • Strong Mexican peso • Growing foreign competition (e.g. China-.$043/hour, El Salvador-$1.59/hr; Dominican Republic-$1.53 ; Vietnam-$.05; versus $2.38/hour in Mexico) • Foreign investment in the maquiladora sector has strunk 23% within the last year. • Between June 2001 and March 2002, some 240,000 maquiladora jobs, 18 % of the total we lost--350 plants shut down • Baja California lost 63,000 jobs during this time frame. • Still, those industries with need to be close to US market remain (e.g. Heavy industry; automobile; some electronics)

14. A Sample of Recent Tijuana Maquilas Defections • Saft, French battery producer • Aldila, a golf club maker • Kisho Electronics, a Korean TV and computer circuit-board maker • Cannon, Inc, a Japanese ink-jet-printer factory (shifted production to Vietnam) • Casio, a Japanese electronics manufacturer. A March 2002 poll by the Japanese Maquiladora Assn found that 40% of the 71 companies surveyed said they were considering eliminating assembly operations or moving entire factories elsewhere Source: Business Week, April 29, 2002

15. Maquiladora Employment Percentage Change Workforce employment has been down since 2001, a product of the US recession, foreign competition and 9/11 among other factors ] Source: Latin Focus, 2002

16. Making the Case for Business Leadership Along the U.S.-Mexico Border • Since the passage of the North American Free Trade Agreement (NAFTA), the population and industry has grown along the U.S.-Mexico border but investment in social services and infrastructure has not kept pace. • While maquiladora employment has declined, unemployment and poverty have increased so the need for greater corporate leadership is now very critical. • At the same time, corporate philanthropy on the border has been marginal at best: • Absence of strong corporate HQs along border has kept region largely out of the loop on corporate foundation support. • Maquilas are cost centers and generally not disposed to philanthropy with a few exceptions (GM, Levi Strauss, Sony,. Mattel). • Other key non-maquila companies are beginning to show leadership (ATT, Citibank, Sempra)…but more needs to be done.

17. Case Study:Sempra Energy • A Fortune 500 company based in San Diego with over 12,000 employees • 350 employees in Baja California • Has been active in Baja California for over 15 years and currently has several projects throughout the state. • Natural Gas pipeline from US to Mexico (BajaNorte) • Gas-fired power plant under construction (Mexicali) • Planned LNG facility in Ensenada • Natural gas offered to consumers via its Eco-Gas subsidary in Mexicali (50,000+ residents to date) • Also operates in the border states of Chihuahua and Coahuila. • A committed corporate philanthropist, working through ICF to support a wide range of causes in the border area including the environment, education, health and social services.

18. A few Sempra’s Corporate Philanthropic Initiatives through ICF in Baja California Museo Sol del Niño Mexicali Construction of Visitors Center Exhibit area, San Pedro Martir National Park, Baja California in conjunction with re-introduction of the California condor. Sports facilities and women’s center in Maclovio Rojas, Tijuana, B.C.

19. Conclusion • The U.S.-Mexico border faces severe socio-economic, health and environmental issues that warrant serious attention by companies and corporate foundations with a presence on the border. • While the lagging US economy hurting maquila production short-term, the sustainability of the border region is of strategic importance to a wide range of US and foreign companies. • Border area grantmakers (foundations, government, corporations) need to work together, leveraging resources and lessons learned to make a difference in this important underserved region of North America.