Thread: In The Investor's Sight: Mexico or Brazil?

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In The Investor’s Sight: Mexico or Brazil?

Published on:
Thursday, October 27, 2011


Written by:
Oscar J. Franck Terrazas



With so much money accumulated on the sidelines of the highly volatile markets in America and Europe, international investors are having a tough time selecting a destination for their next investment. According to the 2011 report by the National Commission of Foreign Investment, Brazil rated 5th and Mexico 19th in the list of country recipients of Direct Foreign Investment (DFI) during 2010; with the U.S. placing 1st, China 2nd and Hong Kong 3rd.

Amidst an unstable economy with interest rates drastically low, investors who prefer placing their funds in America face the following alternatives: a) investing in the U.S. or Canada, with lower risks but also lower yields or b) investing in Brazil or Mexico, which have a higher risk level, but provide a much higher initial return on investment. At first sight, Brazil may appear to be a better choice given that it is already a part of the BRIC group of leading emerging economies, while Mexico is a step away from being included in this group. However, after an in-depth analysis of these two prominent Latin-American economies and the collateral key factors that influence their performance and future opportunities, Mexico may be the better choice.

GDP Performance

Though Brazil’s GDP in 2010 was estimated at $2.172 billion, the world’s 8th largest economy, and Mexico’s at $1.567 billion, the world’s 12th largest economy, one has to consider Brazil’s population of 194.946 million compared to Mexico’s population of 113.423 million. Mexico’s economic performance during the past decade has been remarkable. Its GDP grew 170.32% from $920 billion in 2001 to $1.567 billion in 2010, while Brazil’s GDP growth during the same period was 162.08%.

An important factor is Brazil’s economy is not as heavily dependent on the U.S. economy as Mexico’s. 25% of Brazil’s exports go to the U.S., compared to 78% of Mexico’s. Thus, when the U.S. economy declines it has a much greater impact on Mexico than it does on Brazil. During the 2009 recession, Mexico’s GDP had a -6.5% change, compared to Brazil’s -0.2%. Both countries had extraordinary GDP performances in 2010 but Mexico impressed the world posting a +5.5% growth, an 11% total advance from its contraction point the previous year.

Strategic Location, Logistics & Trade

Mexico is the envy of most other countries, due to its strategic location next to the world’s largest economy. It is no surprise to find that Mexico is the world’s No. 1 television screen manufacturer and the world’s 9th largest auto manufacturer. Mexico exports more cars to the U.S. than Japan, Korea, Germany or the UK. In addition, Mexico has free trade agreements with 43 countries, including the U.S., Canada, the UE and several countries of Latin-America, which makes it an ideal country to manufacture and export. This gives Mexico a substantial edge over Brazil, who does not yet have free trade agreements with U.S., Canada, or many of the other countries with whom Mexico has trade treaties. Brazil and the U.S. approach trade policy quite differently, whereas Mexico, the U.S., and Canada have similar approaches which were conducive to the signing of the NAFTA agreement. Brazil is the 15th largest U.S. export market; a distant second to Mexico as the United States’ No. 1 trading partner in Latin America.

Brazil and the U.S. look at trade liberalization from different perspectives. The U.S.’s view is characterized as “competitive liberalization,â€

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