March 15, 2019 / Modified mar 15, 2019 5:19 p.m.

Boosting Mexico’s Border Economy

How efforts to stimulate Mexico's economy could pay off for Arizona.

Every year, more than $25 billion worth of goods travel between Arizona and Mexico. As Mexico's new president marks 100 days in office, his administration has already taken steps to boost the economy along the country's northern border. New incentives include nearly doubling the minimum wage and reducing sales and federal income taxes. This week, Arizona 360 looked at how that push is playing out and its impact on Southern Arizona.

At the start of 2019, people earning minimum wage went from making a little less than $5 per day (88 pesos) to more than $9 (176 pesos). In Nogales, Sonora, Lorraine Rivera met with Manuel Hopkins, whose family operates CS Food Service. The company imports restaurant supplies and distributes them across Mexico. Starting pay is well above the minimum wage at more than $13 per day (260 pesos). Hopkins explained why higher wages are part of the company's business model.

"Our strategy is that if we have a better pay salary as a base we feel confident our people will stay here," Hopkins said. "We have to be competitive as far as salary is concerned."

Maquilas make up one of Nogales, Sonora's biggest economic drivers. The factories manufacture and transport products for companies around the world. Marcel Joffroy serves as president of the Business and Organizations Board of Nogales, Sonora, which represents the maquilas. He explained how increased minimum wage and lowered taxes along Mexico's border have affected the industry since being introduced at the beginning of the year.

"I think it will take more than three months or six months or a year to understand how things are impacting on a positive level," Joffroy said. "For now, it's business as usual."

According to Joffroy, many of the assembly plants in Nogales already offer salaries above the minimum wage.

Mexico's efforts to stimulate its border economy by raising the minimum wage and lowering certain taxes don't necessarily extend to the customs brokers tasked with getting goods across the border's ports of entry. Rene Vidal, president of the Association of Customs Brokers in Sonora, explained why brokers are cautious about applying some of the new incentives. Mainly, the reduction in sales tax rate from 16 percent to 8 percent.

"We still don't know where our responsibilities are going to lie down the future. So, we've heard talks that if we apply the 8 percent and we charge only 8 percent of the tax, that if for some reason the federal government sees that something wasn't done correctly … they can go ahead and charge us for what we didn't charge," Vidal said.

Mexican customs officials still apply the full 16 percent sales tax on items imported at the border, according to Vidal. "In no way is it any type of benefit to reduce for 8 percent for anything that has to do with customs purposes."

Maquilas in Nogales, Sonora, have an estimated 2,000 vacancies, mainly due to the industry's growth in the region. The recent influx of migrants from Central America could be a potential source of labor for employers. Lorraine Rivera discussed the possibility with Wendee Molina, president of the city's maquila association.

"First of all, they need to comply with legal immigration policy in Mexico. After they comply they can be candidates to be employed in the industry," Molina said. In Tiijuana, about 1,500 immigrants from Central America have already found employment in Baja California's maquilas, Molina said.

Nogales, Arizona is less than a quarter of the size of its Mexican neighbor Nogales, Sonora, but the city also boasts its own robust import and export industry. However, at 9 percent Santa Cruz County's unemployment rate is about three points higher than the rest of the state. At the Santa Cruz Center, the county's provisional community college district, Executive Director Stella Perez discussed how programs are geared toward educating the local workforce in hopes of improving the region's economy.

“The overall goal is that students who are born here, who grow up here, who choose to stay here can in fact find and build their educational career here in Santa Cruz County,” Perez said. “That’s been the goal in vision of the governing board and it really is something that we hope that they see in their future.”

A healthier economy along Mexico's northern border could provide a windfall for Arizona, given the estimated $2.3 billion shoppers from Mexico already spend in the state annually. On average, the ports of entry record more than 23 million trips from Mexico each year. Visit Tucson is one organization tracking the numbers. Felipe Garcia serves as executive vice president of the group's Mexico marketing department, Vamos a Tucson. He discussed factors that encourage tourism from Mexico.

“We don’t rebate sales tax in Arizona. … Most of our revenue at a local level comes from sales tax,” Garcia said. “We all benefit from that Mexican national coming with money in their pockets to spend money in our community.”

A factor that extends beyond the borderlands but shapes the relationship between Arizona and Mexico concerns the value of the peso. Currently, $1 is equal to 19 pesos. A recent study from the University of Arizona Eller College of Management looked into how peso devaluations impact Mexicans' willingness to spend in the U.S. Eller economist George Hammond explained the college's findings.

Arizona 360
Arizona 360 airs Fridays at 8:30 p.m. on PBS 6 and Saturdays at 8 p.m. on PBS 6 PLUS. See more from Arizona 360.
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