BRICs go into battle: Brazil vs Mexico

Round one: the Latin American giants

In each issue this term, The Gateway will be pitching one of the four BRIC economies - Brazil, Russia, India and China - against one of the second tier of emerging markets nations. Which country has the brightest future? We'll try to decide.

This week, BRIC Brazil takes on upcoming Mexico.

Cut from the same cloth

On the surface there is very little to distinguish between Brazil and Mexico. Both are relatively new states, forged out of a mixture of European and Amerindian heritage. Both boast large landmasses and populations to go with them; Brazil has the world's fifth largest population, while Mexico ranks 11th. Both are the economic powerhouses of their respective regions; Brazil's backyard being South America, and Mexico's Central America.

The economic history of both states has also followed a similar path. Mexico's proximity to the United States has kept the country in the shadow of the world's largest economy, relegating it to the position of a provider of cheap manufactured goods to its wealthier neighbour. In the era of globalisation, Mexico's economy still remains overwhelmingly reliant on the US for growth, with some 80 per cent of the country's exports heading north of the border.

Mexico's situation is one that Brazil has long been familiar with. Economists, well known for their sense of humour, used to say that when the US caught a cold, Brazil got pneumonia, such was the South American state's reliance on American investment and imports.

Diverging fortunes

While Mexico remains to many minds overly reliant on the US for its economic survival, over the past ten years, Brazil has found itself able to cut the apron strings. Much of the country's economic success over the past decade - Brazil's GDP has grown consistently while inflation has remained stable - has been down to its ability to diversify its export sector. While a large proportion of manufactured goods, cars and machinery, for example, are destined for the US market, in 2009 China overtook the United States as the largest recipient of Brazilian exports. China's thirst for raw materials, such as oil and iron ore, has provided a major platform for Brazil's economic development, allowing the country to sidestep the economic crisis in the west relatively unscathed.

No such luck for Mexico, which has found itself dragged into the mire surrounding the US debt crisis in recent weeks. With the International Monetary Fund (IMF) cutting its outlook for US GDP growth for the second time in two months in July, it's likely to be only a matter of time before Mexico suffers a similar downgrade to its growth projections.

It's all about governance

Brazil's economic success over the past decade can be attributed, in large part, to the successful governance of former president Luiz Inácio "Lula" da Silva, who oversaw successful campaigns to reduce poverty levels across the country, while also spearheading much needed investment in education and public services. As a result, the country's notoriously high crime levels have started to fall, in stark contrast to those of Mexico, which has seen a flare-up of violent crime in its northern border areas in recent years.

The verdict: Brazil sneaks it

With the world economy increasingly taking its direction from Beijing, the countries with the most promising futures are likely to be entrusted to those economies that can follow in the slipstream of the Chinese success story. Brazil's promising relationship with China should mean the South American country thrives over the next few years, while the recently elected President Dilma Rousseff looks well placed to continue the developmental policies instigated by her predecessor.

Meanwhile, countries such as Mexico which still find themselves chained to the fortunes of the United States seem set to struggle as consumption levels, and hence demand for cars and other manufactured goods from abroad, fluctuate over the next few years.