Brazil troubles hold no payoff for Mexico

Ordem e progresso
Ordem e progresso

When images of violent protests began streaming out of Brazil last month, some partisans here in Mexico may have felt a silent temptation to gloat.  Certainly no one wants to see people hurt, or property destroyed, in any country.  But considering the free ride Brazil received in international media in recent years – while Mexico was flogged like the family mule – a little tarnish on the South American giant’s reputation at least might be worth a dab of schadenfreude.  We, however, are not feeling it, and the quicker Brazil recovers the path to peace and prosperity, the better for all concerned.

Brazil and Mexico are presented as rivals at times, considering their role as Latin America’s two largest economies and emerging-market stars.  Readers of this blog know that we seize every opportunity to whinge about Brazil’s glamor-puss image while it plays dirty on trade policy.  But to be fair, it really hasn’t been much of a rivalry.  Brazil’s GDP outstrips Mexico’s by a wide margin, and its aggressive push to take a larger role in world affairs reflects a gumption that just doesn’t come naturally to Mexico.  The past year or so, however, has been somewhat kinder to Mexico, which posted higher GDP growth than Brazil in 2012 and became a trending topic in business publications for its growing manufacturing competitiveness and flashy automotive and aerospace industries.  Brazil routinely spanks Mexico in receipt of direct foreign investment, although Mexico is on track to put up big numbers in 2013.

If this were a board game, Mexico could be forgiven for smirking over Brazil’s struggles in the run-up to its high profile hosting of the 2014 football world cup and the 2016 Olympic games.  But Mexico received a similar comeuppance in 1994 when the entry into effect of the ballyhooed North American Free Trade Agreement (NAFTA) was overshadowed by a sensational armed uprising by indigenous guerrillas in the southern state of Chiapas.  In both cases, emerging economies striving to bump elbows with more developed nations were outed by their own citizens for attempting to sweep deep social divisions and inequalities under the rug.  It’s worse than that for Mexico, of course, and the same goes for other up-and-coming Latin American pretenders such as Peru, Chile and Colombia.  Latin America forms part of the worldwide category of “emerging markets,” and Brazil, Mexico, Peru, Chile and Colombia are each pieces of the overall Latin American market.  A sudden flare-up of violence in Brazil not only could send jittery portfolio investors fleeing Latin America funds, but it also contributes to an overall perception of political risk in the region that could have a chilling effect on direct foreign investment throughout.  So in a worst case example, decision makers see mayhem on the streets of Rio de Janeiro and decide not to build a new plant in Puebla because “Latin America is too unstable.”

Brazil holds importance for Mexico as an export market for Mexican vehicle production, particularly as a base from which foreign auto makers can sell into the Brazilian market.  Although Mexico’s auto sales are currently capped by Brasilia’s protectionist measures, they stand to surge again if the import quotas are removed after three years as agreed.  Either way, a happy and healthy Brazil means a keener market for Mexican manufactures, more Brazilian tourists in Mexico and less blight on the oft-sullied image of Latin America.  And as Mexican policy makers are well aware that their own country is hardly immune to massive grass roots rebellions, you can bet they’re hoping all’s well that ends well for their South American rival.

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