Seventy percent of export manufacturing firms domiciled in Mexico are headquartered in the US. This translates into maquiladora benefits when the greenback is strong.
Maquiladora benefits due to dollarization of IMMEX operations
Although there are positives and negatives to the current economic conditions that include a strong US dollar when compared in value to the Mexican Peso, maquiladora benefits significantly eclipse any adverse circumstances that the situation might present. This is the case due to the fact that, in the case of maquiladoras that are headquartered in the US, remuneration from sold manufactured product comes in US dollars, while the majority of the expenses related to manufacturing items in Mexico are paid in Mexican Pesos.
During the calendar year between October 2014 and October 2015, firms manufacturing under the IMMEX, or maquiladora, program, reported over two hundred and fifty-nine billion dollars US in exports, and imports valued at just over one hundred and ninety-two billion in the same currency. This resulted in a net positive result of 67.8 billion dollars US.
Federico Serrano, the newly installed president of Mexico’s national maquiladora industry association, or INDEX, recently pointed out that the current US Dollar – Mexican Peso exchange rate situation is favorable in that, also, since a large percentage of products exported from Mexican production plants are destined for the US market, the current exchange rate relationship between the two nations’ currencies is favorable to Mexican goods. According to Serrano, “the dynamics experienced by IMMEX firms in Mexico is highly correlated to the conditions that are prevalent in the US economy.”
The US will register modest growth
According to International Monetary Fund Information (IMF), the US economy grew at a 2.5% clip in 2015. The organization’s prognostication is that the US economy will advance by 2.6% in each of the next two years.
While considerable maquiladora benefits result from the current exchange rate between the Mexican Peso and the US Dollar, there is a negative side of the ledger to be aware of. A strong dollar will most drive up the cost of US exports, thereby making them less competitive globally. Some of this adverse effect, however, might be mitigated by the sourcing of a greater volume of Mexican inputs by those making products in the United States. If this option is chosen, it can be added to the aforementioned maquiladora benefits that accrue from the current exchange rate situation. At the moment the Mexican Peso/US Dollar exchange rate stands in the 19:1 range.