Mexico vs Brazil: Who will be the dominant economy in Latin America


On the soccer pitch, Brazil's flashy superstars perennially outshine Mexico's top players. Both sides are good, but it is the Brazilians who are globally famous. The same could be said for the two nation's economies.

Brazil is seen as an exciting, fast-growing "BRIC" country while Mexico's growth is slower and less dynamic.

However, the headlines can be misleading. Mexico's economy is performing better than you think and Brazil has recently lost some of its luster. The race is on to become the dominant Latin economy of the 21st century.

There is no doubt that Brazil has a  lot going for it, including a large, growing population, lots of oil and minerals, a booming agricultural sector, and tons of foreign investment.

"Brazil is a winner and has everything it needs," says Alberto Bernal the head of research at Bulltick Capital Markets

But Bernal acknowledges that Brazilian industry is having a tough time competing and economic growth is slowing. Brazil is not a very efficient place to operate or start a business. Much of Brazil's economic growth is a result of high prices for commodities like oil, sugar, soya, and minerals rather than robust industrial production or technological advances.

Meanwhile Mexico is on the move. During January-March of this year the Mexican economy grew by 4.6 percent compared to just 1.1 percent in Brazil. According to Bernal, in 2012 Mexico is expected to grow faster than Brazil for the second year in a row—4.2 percent compared to 3.2 percent.

Mexico is one of the best places in Latin America to do business. In the World Bank's Ease of Doing Business index Mexico ranks 53rd (out of 182) while Brazil falls in at 126th, behind Argentina (113), Swaziland (124) and Bosnia (125).

These facts don't fit with the general media narrative that everything about Brazil is amazing and sexy while Mexico is backwards, violent, and dangerous. The heavy focus on Mexico's security problems is causing foreigners to overlook Mexico as a key business prospect despite its impressive record.

There are three key things that could boost Mexican growth during the next few decades: geography, demographics and economic complexity.

Mexico shares a border with the richest country in the world and has access to both the Pacific and Atlantic Oceans. It can efficiently export goods throughout the Americas (North, Central, and South) and to Asia and Europe. Brazil does not have a free trade agreement with North America and must ship through the Panama Canal to get to Asia, adding to export costs.

Mexico's population is young and its middle class is actually richer than Brazil's. Per capita income (at purchasing power parity) in Mexico is $14,610 compared to $11,769 in Brazil.

Thanks to steadily improving competitiveness, "Mexico is enjoying a rebirth of industry," says Bernal.

According to Harvard's Atlas of Economic Complexity, Mexico's economy is more complex than any other in Latin America. High-end manufacturing products—like cars, trucks and computer monitors—comprise an important share of Mexico's exports. This is important because the more complex your product set is the easier it is to jump up to higher value sectors, like jet engines or mainframe computers, which attract higher wages and profits.

The security situation, corruption and inefficient government in Mexico are indeed serious constraints but it is important to remember that Mexico isn't the only country facing these problems. Brazil also has a lot of challenges to overcome.

Despite its problems, many economists still favor Brazil. It has a great story and very good fundamentals.

"Brazil is like the most beautiful girl at the party. It doesn't matter what she says or does, she's still beautiful," says Bernal.

That may be true but if you can brave her current problems, Mexico is the girl you'll want to marry.

By Univisión.

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