Brazil & Mexico: Latin America's Two Biggest Economies Are Surprisingly Similar
Brazil is portrayed as the poster child for Latin American potential, while Mexico is the symbol for what's gone wrong. But with near identical growth rates and similarly ambivalent trading relationships with China, Brazil and Mexico share simila
Over the past decade, the respective global perceptions of Mexico and Brazil have grown ever more divergent. Mexico is portrayed as the caricature of a failing Latin American state, on the verge of being controlled by drug lords. Brazil, meanwhile, is seen as something like China's happy little brother.
But the truth is far more complicated, and it shows that the two countries, with Latin America's two largest economies, are not quite as different as some might think. Just look at their expected growth numbers for 2012: 3.3% for Mexico and 3.6% for Brazil.
In fact, a closer look shows that the two countries share the same problem: the impossibility of accelerated development; and the same challenge: overcoming that impossibility. Both countries find themselves at a historic crossroad in their development. They can either choose to take advantage of both recent difficulties and successes to change themselves. Or they can miss this unique opportunity. Though Brazil does seem to be much more ready to take the leap than Mexico, all the cards have yet to be played.
Rubens Ricupero, Brazil's former Finance Minister, says that: "The economies of Mexico and Brazil are oriented differently, but their growth rate is very similar. That shows that both have structural problems, although those problems are probably different."
For example, says Ricupero, Brazil's economy is essentially the opposite of China. "Our investment rate is 19% (China's is 40%), our savings rate is 16% (China's is 40%), and consumer goods make up about 63% of our production, while for China that number is 34%." With those numbers, even a growth rate of 6% is nothing but a dream.
One of Brazil's strengths is agriculture, with major exports of both soy and corn. But the high amount of fertilizer needed to produce soy in the nutrient-poor tropical soil, and the resulting rising costs of agricultural production, mean that Brazil cannot depend on the agricultural sector to continue powering growth.
Chinese dumping, domestic demography
While Mexico is the world's largest exporter of avocados, it is also a net food importer; and even under ideal conditions, it would remain dependent on the United States agriculturally. That means that Mexico has to step up other areas of production, especially in industry and services, to make sure that it continues to be able to pay for its food imports.
But like Brazil, Mexico's trade relationship with China is both an asset and a liability. China's purchases from both countries are overwhelmingly raw materials, which carries a risk of the so-called Dutch Disease, or excessive reliance on a few raw material exports. Brazil has accused China of "dumping" in around 70 cases. China is Mexico's second largest supplier of imports, but only its seventh largest customer. In both countries, there is a risk that Chinese industries will overwhelm domestic production of many goods, leaving the economies' competitiveness crippled.
Both countries face demographic challenges in the coming years. Brazil is already feeling the crunch of an aging workforce and generous pensions. Mexico, with a higher birthrate and higher retirement age, still has a perfectly healthy ratio of workers to retirees, but loses a large proportion of its most qualified workers to emigration. Such a "brain drain" can be just as detrimental to the country's long-term growth as Brazil's lower birth rate.
These are just some of the two countries' challenges. They both also have a poverty rate that is far too high, an undereducated population and serious infrastructure problems. In both places, though, a solid tourist industry helps stabilize the economy.
As the Brazilian philosopher Roberto Mangabeira Unger says, all Latin Americans share a vitality and love of life and creativity. The challenge for all of the governments and companies in the region is to abandon doctrines and prejudices to free up this great resource. When they do that, Mexico and Brazil are, luckily, quite different. That is good. Prosperity, freedom and equality taken together give birth to flourishing creativity. For the world does not need any more twins.
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Photo - Roberto Stuckert