Only the maquilas are benefiting from our demographic dividend

The growth of the free trade zones in Nicaragua, the conditions for the women who work in them, the improvements and the rollbacks, the role of the government and the women’s demands are all described in this article..

Verónica Gutiérrez

The information shared here was obtained in meetings, forums and focus groups held by the María Elena cuadra Movement of Employed and Unem¬ployed Women with women working in the free trade zones to learn about their working conditions. The Concerted Agenda of the Labor Human Rights of Women Workers of the maquiladora Industries of El Salvador, Guatemala, Honduras and Nicaragua was drawn up based on these gatherings.

First there were 12

It’s interesting to look back at how the free trade zone industry has grown in Nicaragua. When the Somoza dictatorship fell in 1979, there were only 12 maquiladoras [assembly plants for re-export, also referred to as maquilas], all of them textile-related, providing employment for some 8,000 people. With the revolutionary change, 7 left and the 5 remaining employed some 3,000 people. No more came to Nicaragua during the eighties, a period in which the textile-garment maquiladora industry grew rapidly in the rest of Central America, developing an important infrastructure.

Nicaragua’s economic panorama was transformed again by the Chamorro government (1990-1997). The market was liberalized, changes were made in the legislation and the country was opened up to foreign direct investment. Those years saw a rapid boom in the construction of infrastructure, creating conditions that would attract these investments, including free trade zones. The number of maquilas nearly quadrupled, to 19. From then until 2001, during the Alemán government, the number more than doubled again, to 43. That pattern continued during the Bolaños government (2002-2006), reaching 95 maquilas.

Touted for its cheap labor…

Nicaragua began to be touted as a “competitive” investment-friendly country with the argument that we offered a cheap labor force. A worker in a Honduran maquila told me that Bolaños arrived at a meeting with free-trade zone investors she had attended in those years, and told them: “Come to Nicaragua, come and invest, because you will find the cheapest labor force in the region there.”

According to 2014 data from the Nicaraguan Textile and Garment Industry Association(ANITEX), we now have 110 maquilas employing between 110,000 and 130,000 men and women, and the current government continually and enthusiastically talks about attracting more and more companies and installing free trade zones in other parts of the country. There are now plants for leather and footwear, for tobacco in Estelí and for car parts in León; there are also plants for agroindustrial products, and now they’re starting call centers, another of Bolaños’ ideas. But the textile-garment sector still accounts for the largest number of plants. It’s expected to make an even greater comeback after the world recession, because the government wants companies that not only sew together cut goods, but make apparel from scratch. This means dedicating more of the country’s land to cotton, even knowing the ecological disaster that crop already caused in past decades.

The media continually inform us that Nicaragua is going through an economic boom, yet we also repeatedly hear that the main problem is still high unemployment. The only solutions to the lack of jobs right now are migration, informal work and a job in a free trade zone, but the maquilas are only a limited palliative to the unemployment problem, because they employ less than 5% of the country’s economically active population. The government has opened the doors to foreign capital more than any before it, and has continued promoting the image of Nicaragua as an attractive and competitive country given its favorable “business climate.”

…it’s security…

Nicaragua is also promoted for its security: there’s no armed conflict here, no organized crime, no kidnappings, no strikes, no demonstrations… Everything is favorable for investments. Measured in those terms, Nicaragua is certainly better positioned in the area of citizen security than the other Central American countries with the exception of Costa Rica. It’s also better than Mexico and even some South American countries. But these security criteria also attract experienced professionals who perhaps don’t have work in their own countries and come here to fill managerial posts in many of the foreign companies that are arriving.

...its tax exemptions...

The favorable business climate for maquilas is also largely due to the tax exemptions they receive. They don’t have to pay taxes for 10 years either on what they produce or on the raw materials they import. Some 90% of the raw materials used in the free trade zones come from outside the country. If they were to at least set up a plant in an outlying municipality and buy national production, they would generate an economic dynamic that would be beneficial for the country. But as it stands they’re virtually enclaves and function like autonomous territories. Virtually all they have to do is pay for the electricity and water they consume and maintain relations with the Ministry of Labor, Ministry of Health and Social Security Institute.

…and a host of other attractions

The latest study on labor market risks published by The Economist Intelligence Unit” listed Nicaragua in second place among Latin American countries where foreign investment runs less risk. This rating measures various factors, such as union strength and salary and contract restrictions—which means that Nicaragua imposes no salary or contract restrictions on the maquila employer. The study also notes that there are no strikes, there’s labor discipline, there are good opportunities for renting the infrastructure where the industrial park will be installed because the government is obliged to build it first to attract the maquilas, and labor disputes are resolved without problems…

There are even facilities that help the maquilas in Nicaragua act on their well-earned reputation as “swallow companies,” named for their migratory tendencies. These companies bring little more than their sewing machines, set up shop and begin to produce, but the minute another country offers more favorable conditions, they pack up and go. Or else they change their company name, leaving behind unpaid obligations and an unemployed work force unable to claim severance pay, vacation pay or other labor rights from them.

They’re eating up our
demographic dividend

Nicaragua’s economically active population consists of 2.9 million people, 77% of whom are under 39 years old. After 2040 we won’t have today’s opportunity because the country will have more old people than working-age youths. Each year thousands of new young people enter the labor market, and as there are no other job opportunities for them, they make the country especially attractive for free trade zone investors. The assembly plants largely employ 16- to 30-year-old workers and many who end up working in them for lack of other opportunities are high school graduates. A study by PRONicaragua, a state agency that promotes Nicaragua abroad, showed that 10% of Nicaragua’s youth also knows English, another plus for investors.

As the only source of mass employment that has prospered in this country, the maquilas are eating up our demographic dividend, our youngest human capital. We all know a country’s human capital is the best thing it has and here the maquilas are the only ones taking advantage of it. We’re forgetting about human development in our current economic model, which is only development in figures—increased gross domestic product, growing exports, more foreign investment—and we’re giving away our youth to foreign assembly plants that invest nothing in the country in return.

All these advantages make Nicaragua very attractive and very competitive for foreign investment. In Latin America, only Haiti has a cheaper labor force. But the maquiladora industry doesn’t want to invest in Haiti because it’s too poor to offer the infrastructure Nicaragua can, so they would have to pay to build it themselves. They also prefer to be here because our workers tend to have a higher education level so learn their assigned tasks quicker. In Haiti they pay the equivalent of US$0.86 per hour while in Nicaragua the hourly wage is US$1.05. Beyond the region, only Bangladesh, Vietnam and rural China beat us, paying less than a dollar an hour. But those countries are at a disadvantage because their transport costs are higher to the United States, the maquilas’ favored market.

The loss of the TPLs

On January 1, 2015, we lost the 10-year tariff preference levels (TPLs) the United States granted only to Nicaragua within the Central American Free Trade Agreement to benefit our textile-garment maquilas. The idea was to give Nicaragua time to develop its ability to provide the percentage of non-US inputs such as cloth that the US market permits for duty-free imports, but Nicaragua didn’t reactivate its cotton production in time and the maquilas simply bought cheap cloth and thread elsewhere to fill that quota. While the negative impact of the expiration of the TPLs was not as strong as expected, textile-garment production has fallen, resulting in some 7,000 people laid off. The 2008-2009 world financial crisis had a much more negative impact: entire maquilas closed, leaving roughly 30,000 workers in the street.

Given that the workload of the remaining personnel has increased with the loss of the TPLs, it wouldn’t be out of order to surmise that the companies are using it as a new excuse to ratchet up workers’ productivity the easy way, by force rather than innovation. We’re seeing that Nicaragua is still attractive and competitive even without the TPLs, given its “labor discipline” and the low wages the government lets these companies pay.

Most mayors in Nicaragua receive the free trade zones designated for their municipality with great fanfare because they provide employment for several thousand people. The mayors don’t stop to think of the aftereffects of the maquilas’ labor conditions on the health of the young people who take those jobs.

Women’s working conditions

If we accept the sad reality that the free trade zones are the beneficiaries of Nicaragua’s demographic dividend, let’s look at how the young people employed there, especially women, have to work. I say especially women because most maquila workers are female and I’ve worked and shared stories mainly with them. I’ll also include references to maquilas from other Central American countries.

In some of these plants the women make up to 20,000 repetitive movements a day. That continuous repeating of the same movement and the postures forced on their bodies for hours, days and months have obvious consequences, producing muscle and bone disorders that can leave a person with lifelong disabilities. The women in the apparel maquilas also have to listen for hours on end to the disturbing vibration noise of sometimes hundreds of sewing machines.

Some textile maquilas don’t provide masks to protect the women from all the fibers floating in the air, while in others they have to breathe the toxic chemicals used. Some plants have either very high or very low temperatures in closed spaces with deficient lighting. In Nicaragua’s Caribbean Coast, the women who pack shrimp into boxes for export have to stand on wet cold cement floors wearing rubber boots, with the constant dampness leading to respiratory problems and foot fungus.

Grueling work schedules

The work rhythm in the maquilas is grueling, with the women required to reach ever higher production targets. When some companies have big orders and little time to fill them, they apply the 4 x 4 and 3 x 4 formula, which means working three or four days of virtually 24-hour shifts with only a few hours of breaks, followed by four days off. The plant keeps cranking out the product non-stop, day and night. While one group works the other rests and unachievable production goals are set for them. They are told, for example, that each woman has to sew on 3,000 shirt collars and if a woman’s capacity is only 1,500 collars she has to work overtime until she meets her quota, and doesn’t get paid extra for those extra hours because that was the target. The women are paid overtime only if they exceed the production target set for them by the company. And of course if the company sees that the quota is generally being met, it’s a clear signal that the women could be pushed to produce more in the same period of time.

The work schedules are exhausting, with little or no autonomy of movement. In some companies the bathrooms are only unlocked for an hour in the morning and an hour in the afternoon, as if one could program one’s body to use the toilet only on command. When we were drawing up labor rights agenda for the women in the maquilas, we learned that one Honduran company had required the women to wear diapers so they could go through the entire workday without a bathroom break. The women’s protests were insistent enough to end this abuse.

Health consequences

Many illnesses result from these labor conditions. In Honduras, for example, a women’s organization called CODEMUH did a study of the health consequences for women who work in the maquilas. They detected muscular-skeletal disorders due to being in a single position for hours repeating the same movement; skin disorders and respiratory disorders (pneumonia and bronchopneumonia) from being closed up for long hours in unhealthy environments; and gastritis, colitis and urinary tract diseases due to the companies’ refusal to respect meal times, make bathrooms available and allow women to get up and drink enough water… The women also suffered eye disorders, hypertension, myalgia and neuralgia.

There are also pre- and post-partum problems. Pregnant or nursing women have the same work hours in the same conditions as the other women workers, putting their health and the baby’s at high risk. In some companies they’re prevented from getting pre- and post-natal medical check-ups, or if they are allowed to they have to make up the appointment time. In some cases these intense work schedules lead to high arterial pressure, preeclampsia, hemorrhaging and other problems.

A women’s organization in Guatemala did a study in a rural municipality that had a noticeable number of children with deformities. The study was able to demonstrate that the mothers of all these children worked in the maquilas. Being bent over for long hours picking vegetables, having to sit or stand in the same position and breathing in the powerful chemicals used in the companies while they were pregnant were shown to be the cause of their children’s deformities.

These working conditions also brought on premature aging in those who held the job for a number of years. It was detected that both male and female workers suffered from stress and all sorts of psychological disorders due to working under pressure, sleeping poorly, putting up with interminable factory noise and the like. Although many of these problems have been directly produced by the working conditions, the social security institutes do not consider them labor-related illnesses.

And if working in the factory wasn’t enough, the women find an additional workload waiting at home, because we still haven’t progressed much in men’s co-responsibility for housework. The double day is also one of the causes of domestic violence in these women’s homes.

These conditions in the maquilas leave thousands of young women with health problems, sometimes for the rest of their life. They also leave thousands of young men and women stuck, with no possibility of developing themselves professionally. Their work schedule prevents them from attending school, and even if their hours permitted, they’d be too exhausted when they get off work to be able to study anyway. The majority of the companies also work on Saturdays until 1 pm, which even eliminates the possibility of Saturday classes.

Lousy wages

On top of all these hardships, the wages are very low. According to official information hyping Nicaragua’s current “economic success,” exports from the free trade zones doubled between 2010 and 2014, while the wages of those who actually produce those exports remained static. According to Doing Business 2015, a World Bank publication, the minimum wage in the free trade zones in Panama, the country with the best economy in the region, is equivalent to US$520 a month, compared to US$359 in Costa Rica, US$288 in Guatemala, US$265 in Honduras, US$210 in Salvador and a mere US$141 in Nicaragua.

Moreover, in some companies lunch hours aren’t respected and women who take longer than the set time either to eat lunch or use the bathroom have their wages docked. Any extra minutes not at their station are noted.

What the women in Nicaragua’s free trade zones earn doesn’t even cover 30% of the cost of the basic basket. One of these women’s demands is for the minimum wage to be included in the negotiations among government officials and union and business representatives in the Minimum Wage Commission, which meets twice a year.

Discrimination against women

There’s also discrimination against the women in the free trade zones. The best-paid posts—supervisors and the line bosses responsible for each line of sewing machines the women work on—are largely reserved for men. Women’s possibilities of promotion or labor development are much more limited. In some companies they also suffer disrespect, humiliation, abuse, threats of being fired, sexual violence and harassment on the job. In all plants men and women are patted down by the guards every day upon entering and leaving to be sure they haven’t stolen some piece of clothing, humiliating treatment that also lends itself to sexual abuse. And if the supervisor takes a particular interest in a women, she may be subjected to perverted looks and gestures and even more frequent evaluations.

In clinics where the medical personnel form part of the company, medical evidence is often ignored and the illnesses the women workers complain of as a result of the work they do are shrugged off. Their pay is also docked for any days off due to illness. Thus another of the women’s demands is that the clinics attending them not be within the company, or at the least that the medical personnel specialize in labor medicine, not answer to the company and be rotated so the same personnel aren’t always in the same company.

Some companies don’t cover pregnancy leave and others have no social security coverage. In still others the workers’ social security contribution is withheld but never attributed to their policy. Some pay via a chit and when the workers go to the bank to withdraw their wage they find that a different amount has been withheld than was on the slip they signed at the company to receive the chit. When they complain the company refuses to take responsibility because the worker signed the receipt.

Many companies hire workers for a trial period of three to six months, during which they are paid wages but have no right to any social benefits such as severance pay or workers’ comp for job injuries. Although that’s illegal, it’s permitted and no one speaks up for fear of losing his/her job. Another demand by the women workers is that assembly plants starting up in the country be required to leave a deposit to cover the social benefits due workers who would otherwise be left with no compensation if the company suddenly leaves or changes its name.

Of course not all these abuse occur in all companies. In fact, in some of the most progressive ones the women are provided mammograms, pap smears, eye exams and other medical examinations. In the gatherings we held with maquila workers we asked the women to tell us the company’s name to avoid generalizing.

The Ministry of Labor’s role

Yet another of the women’s demands is for the Ministry of Labor to make surprise inspection visits to the company rather than scheduling them ahead of time. The women say that many companies, knowing the ministry inspectors are coming, turn on the air conditioning, use the proper protection and only have the best machines working. The minute the inspectors leave, the oldest, noisiest machines are turned back on and the air conditioning is shut off.

The women also want the inspectors to talk to the actual workers, rather than just interviewing the line bosses, who only rave about the company’s wonders, or the union reps, who don’t say much of anything. Unions have historically been the most useful tool for defending workers’ labor rights, but regrettably those operating today in the free trade zones aren’t belligerent. In some companies union organizing is even prohibited and anybody who tries to organize one is fired.

And what do the Labor Ministry inspectors do when they find irregularities? They simply send the company a notification, nothing more. They don’t follow up on the cases, which should be a priority to improve the working conditions.

Gains and losses

It’s true that if we compare the working conditions today with those of years back there have been some improvements. One worker told us there was a time when the line bosses slapped the women around to repress them. That’s no longer allowed. If someone hits a worker she can denounce it.

Another advance is that a woman seeking work in the free trade zones used to be examined to prove she wasn’t pregnant before it was decided whether or not to give her the job. That abuse is now prohibited by the Ministry of Labor. It still happens in some companies, but if she denounces it publicly the company can get in trouble.

But while there have been advances, there have also been setbacks. For example, the 4 x 4 work schedule is an expression of the relatively new phenomenon of “labor flexibilization” that some applaud.

Yet another form of labor flexibilization is subcontracting. Let’s look at an example: a textile maquila gets a big order for uniforms and subcontracts doña María, who has 10 women working for her, to deliver 300 uniforms. It also subcontracts doña Panchita to sew up another 300, and thus little by little covers the order. It pays María and Panchita for the uniforms, but who assumes the company’s savings in electricity and water, or the wear and tear in machines used by the two women? They do, not the company. Nor does the company pay the social benefits of either the subcontracted women or those working for them even though it gets the same price for those uniforms as for the ones it actually makes in-house.

Subcontracting is now taking place in Nicaragua, although not as much as in the rest of Central America. In some Latin American countries this modality of family shops working for big companies even predominates. They say it “benefits” the women because they don’t have to leave home and can therefore continue caring for their children and use the bathroom whenever they want as long as they fill the order on time. But this more relaxing work environment doesn’t change the fact that this is just another form of economic exploitation and a double workday.

With this level of exploitation and these labor conditions, and with so many advantages for the companies, the maquilas have distorted the national labor market. Given the conditions women must endure in the majority of these companies we can’t consider their work in the maquilas to be a dignified, decent job. That’s why the María Elena Cuadra Women’s Movement has put so much emphasis on its slogan of “Employment yes, but with dignity.” That’s all the women want to achieve; that’s what they’re fighting for.

We need other alternatives for our young people

Couldn’t Nicaragua create other job opportunities for our youth? The United Nations Development Programme’s 2011 Human Development Report for Nicaragua, which looked particularly at young people, gives us some ideas. One consists of technical education to prepare our youth for more decent and better remunerated jobs.

The companies in Costa Rica’s free trade zones train their workers. That country has maquilas that assemble computers, cell phones, informatics material and other technological apparatuses, all of which require skilled labor and pay better. Nicaragua should invest lots more in technical education, and also not rely only on what’s offered by the National Technological Institute (INATEC) in Managua. Technical institutions are needed throughout the country to provide training on a variety of technical professions, not just teaching women how to bake cakes and cut hair. We need a technical education that isn’t based on the gender division of labor and prepares our youth as a skilled labor force. Doing so is the only way to take advantage of the demographic dividend before it’s too late.

The government should also support micro and small businesses more. The tourism sector, for example, is a promising way to develop productive chains in the communities, because agricultural producers, artisans, people from the service sector and many more benefit when tourists go there. So far, however, the tourism laws only offer fiscal incentives to large-scale tourist businesses.

It’s regrettable that free trade zones are also being set up in areas traditionally dedicated to handcrafts, and very good ones at that. For example, families in what are known as the “Pueblos Blancos,” traditional indigenous communities of the central plateau southwest of Masaya, traditionally specialize in making furniture, hammocks, pottery and other wonderful artisanry, or growing ornamental plants, based on culturally valuable skills handed down for generations. Nonetheless, many of today’s youth from those towns don’t want to work in the family business. They see the young people who work in the free trade zone flashing expensive cell phones and sporting the latest fashions, so they turn their back on their people’s traditions to get a job in a maquila, unaware of how that work will affect their health. They also don’t realize that the company itself has sold those latest model smart phones to the young men and women who work there, which they pay for out of their salary each month. It’s a great deal for the company because it earns interest from the time payments; anchors the youths to their job, at least until the phone is paid for: and the fancy phone act as bait to seduce inexperienced youths as workers.

We know that our country’s demographic dividend has an expiration date. We will be in big trouble if we still have a largely unskilled labor force that can’t provide for its elderly population. We need to start demanding that the government provide other labor alternatives in the municipalities and technical education, as well as supporting the development of micro and small businesses that can stop our youths being forced into the free trade zones for lack of any other option. We want the universities to produce professionals capable of making it with their own small businesses, not just aspiring to work as an administrator in some big corporation. We want technical schools all over the country to develop new capacities in our youth.

Verónica Gutiérrez is an economist specializing in gender issues.

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