US embassy cable - 04TEGUCIGALPA2276

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 002276 
 
SIPDIS 
 
STATE FOR EB/TPP/ABT:EHEARTNEY, WHA/CEN AND WHA/EPSC 
COMMERCE FOR ITA/OTEXA/MD'ANDREA 
STATE PLEASE PASS USTR 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: KTEX, ECON, ETRD, ELAB, BEXP, HO 
SUBJECT: Honduras: Textile and Apparel Statistics; Both 
Employment and Fear of China Growing 
 
REF: State 184238 
 
1.  Post provides the following information in response to 
reftel. 
 
---------------------------- 
The Limits of the Statistics 
---------------------------- 
 
2.  The two primary sources of information on the Honduran 
textile and apparel sector are the Central Bank, which 
collects statistics on the entire economy, and the Honduran 
Manufacturers' Association (AHM), which collects statistics 
on the maquila sector only.  Unfortunately, neither of these 
institutions collects its information in sufficient detail 
to allow the separation of textile and apparel statistics 
from other maquila sector or manufacturing statistics. 
 
3.  The only breakdown of the maquila sector available is 
that provided below, in which the Central Bank counts all 
"maquila businesses" as belonging to one of four categories: 
 
Category             # of Companies    Percent 
--------             --------------    ------- 
Textile Industry          162           59.3% 
Suppliers                  46           16.9% 
Services to 
  Other Businesses         17            6.2% 
Other Manufacturing 
  Activities               48           17.6% 
 
TOTAL                     273          100.0% 
 
4.  From this breakdown, it is clear that the majority of 
maquila sector activity in Honduras is related to textile 
and apparel production: nearly 60 percent of businesses are 
directly involved, and presumably a similar share of 
suppliers and service companies are as well.  However, there 
is still no way to translate this headcount of companies 
into an accurate accounting of the textile and apparel 
industry per se when it comes to production, value added, or 
employment.  As a result, it is not possible to provide 
precise responses to many of the specific questions posed in 
paragraphs 5 and 6 of reftel.  Where the specific 
information requested is not available, we have provided 
below the closest information possible, with an explanation 
of exactly what is being measured. 
 
---------------------- 
Responses to Questions 
---------------------- 
 
5.  Total industrial production in USD value: 
 
-- 1.27 billion in 2003, according to the Central Bank. 
 
6.  Total textiles and apparel production in USD value: 
 
-- Not available, as such.  According to the Central Bank, 
the value added by the maquila sector in 2003 was USD 705 
million, or 56 percent of the country's total industrial 
production.  However, the Central Bank considers the maquila 
sector as a service industry (in which value is added to 
imported materials for re-export) and not as a group of 
manufacturing industries.  It therefore provides annual 
figures for "value added by the maquila sector", but does 
not disaggregate textile and apparel production from other 
maquila activities. 
 
-- The AHM also provides an annual figure for value added by 
the maquila sector, which uses a different methodology than 
the Central Bank, and as a result is almost always higher 
than the Central Bank's figure.  Post regards the Central 
Bank figure to be the more reliable of the two, as it 
follows standard international practices for collecting 
national accounts.  However, the AHM's figures are more 
frequently quoted in the Honduran press, and even, at times, 
used in official GOH publications.  For sake of comparison, 
below are the two series of estimates for the last ten 
years. 
 
Value Added by Maquila Sector, USD million 
------------------------------------------ 
 
          According to      According to AHM (Honduran 
Year      Central Bank      Manufacturers' Association) 
 
1994          125                     186 
1995          163                     242 
1996          204                     284 
1997          313                     390 
1998          455                     455 
1999          539                     552 
2000          575                     662 
2001          561                     716 
2002          613                     819 
2003          705                     881 
 
7. Textiles and apparel's share of the host country's 
imports and exports: 
 
-- The closest approximation available is the value added of 
the entire maquila sector as a share of imports and exports 
of goods and services.  In the statistics below, maquila 
value added is itself included as a service export, and 
maquila-related imports are excluded from import figures. 
 
in USD million                 2001       2002       2003 
--------------                 ----       ----       ---- 
Maquila Value Added             561        613        705 
Imports                       3,742      3,758      4,061 
Exports                       2,511      2,571      2,711 
Maquila/(Im + Ex)              9.0%       9.7%      10.4% 
 
Source: Central Bank. 
 
8. Total manufacturing employment; Total textiles and total 
apparel employment: 
 
-- Total manufacturing employment was 337,317 in September 
2002, and 381,160 in September 2003 was 385,506, according 
to the National Statistical Institute, which is the GOH 
agency with primary responsibility for collecting employment 
data.  Data is collected by means of a household survey 
conducted in May and September of each year.  However, 
employment data is broken down into only ten broad 
categories, with the textile and apparel sector included in 
the "manufacturing employment" number given above.  Starting 
next year, INE plans to disaggregate its data further to 
include a figure for textile and apparel sector. 
 
-- The Central Bank and the Honduran Manufacturers' 
Association each provide annual data for employment in the 
"maquila sector," defined as those companies which are 
incorporated under either the Industrial Processing Zones 
legislation or Free Zones legislation.  For the reasons 
explained above, "maquila sector" employment statistics 
would overstate employment specific to the textile and 
apparel sector.  Again, figures from the Central Bank and 
the AHM differ slightly, as follows. 
 
Employment in "Maquila Sector" 
------------------------------ 
          According to      According to AHM (Honduran 
Year      Central Bank      Manufacturers' Association) 
 
2001         94,416                  110,000 
2002        105,556                  107,000 
2003        114,237                  123,000 
 
9. A brief description of the relative importance of 
textiles and apparel in overall production and employment: 
 
-- In 2003, value added by the maquila sector accounted for 
26% of Honduras' exports of goods and services (USD 705 
million out of total exports worth USD 2,711 million).  Long 
dependent on traditional exports, such as coffee and 
bananas, the Honduran economy now earns more than twice as 
much from the maquila sector as it does from coffee and 
bananas combined.  As explained above, most maquila activity 
is in the textile and apparel sector, though there have been 
some maquilas established recently which are engaged in 
other activities: for example, assembly of wire harnesses 
for automobiles, other automotive parts, or electrical 
components.  While the hope is that the sector will continue 
to diversify into other forms of light manufacturing, 
textile and apparel production still dominate.  Within the 
textile and apparel sector, the move is increasingly toward 
a full-package model in which businesses import thread from 
the United States and then export a finished product ready 
for market, taking care of the knitting, dyeing, cutting, 
assembly, and printing processes in country. 
 
10. How frequently does the industry or government collect 
and report textile and apparel employment data, i.e., 
monthly, quarterly, annually? 
 
-- The National Statistical Institute (INE) collects and 
publishes national employment data twice a year.  The AHM 
collects data for the maquila sector only and publishes it 
annually.  Neither group collects information on employment 
in the textile and apparel sector specifically. 
11. If monthly employment is unavailable, what is Post's 
assessment of the institutional capacity of the host country 
to collect such data: 
 
-- INE could not move to monthly collection of employment 
data without a complete restructuring of their current 
system for administering national household surveys.  The 
AHM, which gathers its data by means of an annual survey, 
could move to monthly data collection, but at the moment has 
no plans to do so. 
 
12. Comment:  Despite the strength and continued growth of 
the Honduran textile and apparel sector in recent years, 
producers here, whether Honduran or American, view the 
expiration of worldwide quotas as a serious threat to the 
viability of the industry.  One American maquila-owner 
recently reported to EconOff that he has already lost 
several of his regular customers to China, is having 
difficulty getting new orders, and does not know if he will 
be able to hold on until early 2005 when, it is hoped, the 
more flexible sourcing rules of CAFTA-DR come to the rescue. 
Meanwhile, with a nervous eye on Asian competition, 
especially the lower labor costs and higher volumes that 
China will soon bring to the world market, textile and 
apparel producers in Honduras see speed-to-market and 
responsiveness, especially for more complicated orders 
requiring printing or other specialized work, as key to 
sustained future competitiveness.  End comment. 
 
Pierce