More than 20,000 free zone workers are unemployed after the crisis in the region

More than 20,000 free zone workers are unemployed after the crisis in the region

181 companies operating under the free zone arrangement closed last year with jobs generated at their lowest level in the last two years, leading to massive job destruction that left more than 20 thousand workers unemployed by last December. As revealed by concluding Central Bank of Nicaragua (BCN) data.

As of last December, the free zone ended with a payroll of 120,020 workers; 13,084 less than the 133,104 counted in December last year. However, the decrease is more than 20,000 compared to July 2022 when the employment crisis in the sector began.

In July 2022, 187 companies operated in the free zone, employing a record 140,866 workers, their highest level recorded to that date. Since then, and due to decreased demand for clothing in the United States, a total of 20,846 workers have become unemployed. Six companies have also suffered losses due to this crisis.

cause of crisis

The free trade sector is facing a widespread employment crisis. At the time, Pedro Ortega, secretary of the Sandinista Workers’ Central, reported that in Central America, United States brands were placing fewer orders due to a decline in demand for clothing, as Americans prioritized purchasing food and fuel. Effect of inflation.

In fact, inflation in the United States shows no signs of slowing down in 2024. This Tuesday, the US Labor Department reported that the consumer price index rose again to 0.4 percent in February, putting inflation at 3.2 percent for the second month of the year, figures that were higher than expected.

Added to the previous factor is that during the pandemic in 2020, these companies filled their reserves, which they are gradually releasing. Due to this the demand for clothes in the area has reduced.

The unemployed depart for the United States.

“We received information from colleagues in Honduras that a company making products in the textile sector had closed down and what the workers did, they organized and formed a caravan that goes to the United States. So what it is generating is immigration, because of unemployment in the maquila area in Central America, people seek migration to the United States or other countries, especially Salvador, Guatemala and Honduras, who become unemployed, They organize and form their own caravan to that country,” Ortega said on October 6 last year.

In Nicaragua, in December alone, free zone companies, which were forced to implement an 8 percent minimum wage adjustment in January this year, fired 2,512 workers after two months of restoring jobs, however, they were retained. Could not be kept. Time.

Maquilas, hardest hit

In fact, Nicaragua’s total exports were impacted by the decline in income of the maquilas, which generate a large share of employment under this tariff regime.

In the fourth quarter of last year, gross exports from the free zone totaled $781.3 million, registering a year-on-year decline of 13.9 percent ($907.5 million in the same period of 2022). Thus, accumulated exports till December totaled $3,509.0 million, implying an inter-yearly decline of 8.9 per cent.

The greatest impact of this reduction in income in the free zone was felt in the maquilas. As of December, exports from the textile sector totaled $1,916.6 million, down from the $2,259.9 million reported in 2022.

In maquilas, a decrease of 15.2 percent in value and 13.6 percent in terms of volume was recorded. The main destination markets of these exports were: the United States (83.9 percent of the total), Honduras (11.8 percent) and Mexico (1.1 percent), of which the US market declined by 6.2 percent and exports declined by 48.2 percent. To Honduras.

Sectors that escape crisis

Central Bank data shows that only specific sectors are currently safe from the export crisis. For example, shipments of harnesses contributed $868.2 million, an increase of 17.7 percent last year, and Mexico was the main destination market (80 percent of the total).

Tobacco exports ($413.5 million) saw an increase of 8.8 percent; The main destinations were: the United States (78.9 percent of the total), the Dominican Republic (4 percent) and Honduras (3.2 percent), markets which captured 86.1 percent of these exports.

Along with textiles, fishing products and African palm oil are also at risk. The first region contributed only $108.8 million, 30.2 percent less than that recorded in the same period of 2022 (155.8 million), and their main destination markets were: Mexico (34.5 percent), Spain (15.5 percent), United States United States (12.4 percent) and Guatemala (8.8 percent), among others.

Similarly, African palm oil exports recorded a year-on-year decline of 38.5 percent at $59 million in 2023 and its main destination market was Mexico (86.3 percent).

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