52
Special Economic Zones
which includes wire harnesses, generated significant amounts of FDI in 2004–05, but this sector has been largely defensive in the 2006–2009 period, and some companies have closed down their operations in Honduras. Canada and the United States were by far the largest sources of FDI inflows in 2004–2007. Overall, the free zone industry captured 34.4 percent of total FDI in 2007 (EIU 2008).
Production and Exports Table 3.3 shows that in 2007, the value added contribution of the free zone/maquila industry to the overall economy (GDP) and to the country’s overall industry production was 7.7 percent and 42.7 percent, respectively. The share of the maquila industry to GDP has been stable in the years following the expiration of the MFA (at least until the beginning of the global economic crisis starting in 2008), which suggests that one or more of the following is happening: the industry is maintaining competitiveness in its traditional apparel-processing activities despite the growing competition from Asian producers; it is shifting to higher value added segments of the sector; or it is diversifying away from clothing. Free zone exports have grown rapidly since the early 1990s. Value added export earnings reached US$3.3 billion in 2007 (EIU 2008), a level 10 times higher than in 1993 (equivalent to 20 percent average growth each year over that period). Recent data by the Central Bank of Honduras also indicate that this expansion continued in 2007 but that the global economic downturn, which started in Honduras’ main export market, the United States, had a negative impact toward the end of 2008 and a strong negative impact in 2009. According to the Maquila Association of Honduras, the country is now the fourth-largest supplier of clothing (garment) products (5.9 percent market share) and the second-largest supplier of electric harnesses to the United States. It is also Table 3.3 Value-Added Contribution by Manufacturing in “Industry” and “Maquila Industry”
Year 2005 2006* 2007*
GDP (Lempira mn)
Gross value added industry (Lempira mn)
Gross value added Maquila (Lempira mn)
Maquila industry (percent)
Maquila/GDP (percent)
183,749 204,685 232,817
35,066 38,129 42,209
13,898 15,558 18,029
39.6 40.8 42.7
7.6 7.6 7.7
Source: Central Bank of Honduras (2008). * = preliminary.