Monday, January 30, 2006

Brazil and Mexico: Twin Engines of Growth?

January 28, 2006
World Economic Forum Annual Meeting 2006

The following is a summary of table discussions regarding the rising economic power of Brazil and Mexico, in comparison to China and India. The discussions took place at the World Economic Forum Annual Meeting. The World Economic Forum is a “an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.”

Brazil and Mexico are similar in size when it comes to economic power: both are worth approximately USD $600 billion. These countries have the benefit of low foreign investment, but both are feeling pressure from China and India in terms of trade and capital investments.

In order to attract the types of investments that are profitable for Brazil and Mexico, there must be political stability and developed financial markets within the country. José Natividad González Parás, Governor of the State of Nuevo Leon, Mexico, believes that people in Latin America lack the drive and ambition to change their current economic situation. Unfortunately, stability is not always enough; economic growth must be the focus of Brazil and Mexico, both countries that are approximately equal to India in economic size, but very much behind them in terms of investment success and potential.

Although Mexico and Brazil can’t compete with China and India in terms of labor cost, there is a need for investment in human capital, in terms of education, research, and technology. Mexico and Brazil both dominate the same region, and thus would stand to gain by cooperating as opposed to competing. These countries offer several benefits to investors, such as peace with neighboring countries, one national language, democracy and energy self-sufficiency. In spite of these benefits, there is still the problem of wealth distribution. There is a very high discrepancy between the rich and the poor in Mexico and Brazil, and thus there is an imbalance of between education and industry needs.

In order to safeguard future success, Brazil and Mexico need to refine worker’s skills in order to develop a more attractive labor force, as well as achieving greater productivity. These are lofty goals, and are likely to be complicated by the upcoming 2006 elections in both countries; however, there is hope that the new administrations will continue the work that has already been done.

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