President-elect of Mexico Andres Manuel Lopez Obrador arrives for a meeting with the Ambassador of the Republic of China in Mexico Qiu Xiaoqi (out of frame), in Mexico City, Mexico, 02 August 2018. Obrador will seek the adjustment of the trade balance with China, for which a Mexican delegation will travel to the Asian countryLopez Obrador will seek adjustment of trade balance with China, Mexico City - 02 Aug 2018

MEXICO CITY – Mexico’s textile and apparel industry is hoping new populist President-elect Andrés López Manuel Obrador will help revive its flagging fortunes, even as the NAFTA free-trade agreement hangs in the balance.

“We feel very optimistic and very comfortable with our president-elect’s vision, which we feel is totally correct,” said Jose Cohen, the industry’s lead NAFTA negotiator and president of textiles lobby Canaintex. “Our sector is a big contributor to industrial jobs and if we cut corruption, our numbers will immediately improve and shift into a positive trend for the next few years.”

Cohen was referring to Obrador’s campaign pledges to fight endemic corruption, under which the nation’s political elite are said to graft 5 percent of GDP annually, according to the Mexican Competitiveness Institute (IMCO).

After a landslide victory July 1, the ‘people’s president’ said he will punish corruption and prioritize aid for the “poorest and most forgotten” in President Peña Nieto’s departing administration, where he and other cabinet members were slammed for purchasing mansions with public funds.

As part of a $7.5 billion package to help impoverished youth and the elderly, Obrador will launch a paid apprenticeship program for 2.6 million youngsters who will receive a monthly stipend of 3,600 pesos (roughly $150). He will also dole out scholarships and grants to help improve the labor force. All of this will be paid by slashing bloated public official salaries and boosting pay for those at the bottom.

The skills training program is music to the shrinking textile and apparel industry.

“We are very big employers and have one of the smallest capital spending requirements,” said Alfonso Zepeda, general manager of apparel federation Canaive’s branch in Guadalajara, adding that the largest chunk of the labor aid will go to the textiles, apparel and footwear manufacturing sectors, helping boost fortunes through more qualified labor.

On-the-job training will also help revive Jalisco State’s sagging apparel production, driven by a nearly 50 percent collapse in Mexican exports since the mid-2000s that destroyed employment, Zepeda added.

Currently the industry, which has failed to survive a competitive onslaught from China, Vietnam and Bangladesh to supply U.S. brands, employs 350,000 in the apparel segment and 150,000 in textiles, Zepeda said, adding that jobs should rise sharply with Obrador.

Anna Fusoni, a fashion consultant, said the new leader’s plans to reactivate Mexico’s impoverished southern states, such as Oaxaca and Chiapas, will benefit local indigenous and artisan communities, which many designers use to make value-added garments.

Rising designers Carmen Rion and Francisco Cancino “already employ communities there and with this interest in handmade and slow fashion going on in the world, this could be very good for the communities and Mexican fashion,” Fusoni said.

Guanajuato State’s struggling footwear sector is also expected to get a lift as Chinese rivals continue to dent its fortunes.

“Competing with China has never been easy and everyone has been trying to do so for years,” Fusoni said. “But I think the paid apprenticeship plan will be very good and provide more qualified labor. This is very important because we want to sell quality products with reasonable prices.”

As Obrador, also known as AMLO, focuses on developing national brands, “our products should become higher-end and we should have new niche products,” Fusoni said. Already, a spate of good local clothing labels including Julio, Ivonne, Lob, Sexy Jeans, Brito and Cuidado con el Perro [beware of the dog] — seen as the country’s answer to Zara — are gaining traction.

But Obrador inherits a spinning and sewing industry reeling from soaring Asian imports and a stubborn informal economy accounting for six-of-10 sold garments, something the outgoing administration failed to extinguish in its six-year term.

Illegal, cents-on-the dollar imports are spiking so much, Cohen expects they could fuel a 6 percent to 8 percent decline in local clothing sales this year. This is despite retail lobby ANTAD’s reports that June same-store sales surged 8 percent, driven by buoyant consumer spending ahead of the World Cup and the electoral result, which has boosted spirits.

“We have had five consecutive quarters of negative growth,” Cohen insisted. “There is a discrepancy between our numbers and those of ANTAD.”

On the upside, Cohen said a low peso (hammered by the continued uncertainty over NAFTA) is bolstering U.S. sales, which could grow 3.5 percent to $6.5 billion this year.

As for NAFTA, Cohen confirmed a coordinated effort is underway to forge a deal as soon as possible.

“There is willingness to reach an initial agreement and work on it 24-7 before U.S. mid-term elections and before Peña Nieto leaves office,” he said, adding that the garment industry remains confident that some of its requests will be met if a win-win accord is reached.

Some of those include Mexico retaining the key Tariff Preference Level (TPL) to import scarce raw materials to streamline production in exchange for more ambitious border security from Mexico, as WWD reported earlier this year.

Maria Pia Medrano, an analyst with Fitch Ratings in Mexico City, said major fashion retailers Grupo Axo, Liverpool, Chedraui and others are closely watching Obrador — who some critics say could build a Venezuela-like government to Mexico — before boosting expansion investments, which she said could decline 15 percent this year.