Mexico or Brazil?
Investors may be surprised at the comparison of these two countries.
so much money accumulated on the sidelines, rising prices for U.S. trophy
properties, and highly volatile European markets, international real estate
investors are looking for new markets to conquer. According to the 2011 report
by the National Commission of Foreign Investment, Brazil rated No. 4 and Mexico
No. 15 for direct foreign investment during 2011.
to the U.S. or Canada, investing in Brazil or Mexico provides a higher risk
level, but also a much higher return. At first sight, Brazil may appear to be a
better choice given that it is already a part of the BRIC, or Brazil, Russia,
India and China, group of leading emerging economies. However, after a more
in-depth analysis of these two prominent Latin-American countries and the
collateral key factors that influence their performance and future
opportunities, investors might be more inclined to choose Mexico.
2011 gross domestic product was estimated at $2.2 billion, making it the world’s
sixth largest economy. Mexico’s 2011 GDP of $1.2 billion made it the world’s 14th
largest economy. However, one has to consider Brazil’s population of about 195 million,
compared to Mexico’s 113 million, which is 58 percent smaller.
economic performance during the past 15 years has been remarkable, spurred by
the exports of energetics and products covered under the North American Free
Trade Agreement that came into effect in 1994, and under a fertile environment
of economic stability and fiscal responsibility.
economy is not as heavily dependent on the U.S. economy: only 25 percent of its
exports go to the U.S., compared to Mexico’s 78 percent. Thus, when the U.S. economy
takes a downturn, it has a much greater impact on Mexico. During the 2009
recession, Mexico’s GDP fell 6.5 percent, compared to Brazil’s 0.2 percent
decline. Both countries had extraordinary GDP performances in 2010 but Mexico
impressed the world by posting a 5.5 percent growth, an 11 percent total increase
from its contraction point the previous year. Moreover, in 2011 Mexico’s
economic growth was 3.9 percent, while Brazil’s was 3.0 percent. The January
24, 2012, World Economic Outlook
projects the Mexican economy to grow 3.5 percent during the present year, while
the projection for Brazil is 3.0 percent. Mexico’s Central Bank Governor,
Agustin Carstens, has indicated that the economy could grow 4 percent in 2012
if the U.S. economy continues improving.
Logistics and Trade
strategic location next to the world’s largest economy is the envy of most
other countries. Mexico is the world’s No.1 TV screen manufacturer and the world’s
ninth largest auto manufacturer, exporting more cars to the U.S. than Japan, Korea,
Germany, and the U.K.
has free trade agreements with 43 countries, including
the U.S., Canada, the European Union, and several Latin American countries, giving
it a substantial edge over Brazil, which does not have free trade agreements
with U.S. or Canada.
Brazil is the 15th largest U.S. export market; Mexico is the United
States’ No. 1 trade partner in Latin America. Although the United States is
Brazil’s largest single-country trading partner, Brazil has resisted increasing
trade liberalization with the U.S. Brazil’s trade preferences are with Mercosul,
an economic and political agreement among several South American countries.
Mexico’s strategic location, the other key factor determining Mexico’s success
in attracting major automobile and aerospace manufacturing firms has been the
openness of its trade policies. The latest example of a major project landing
in Mexico instead of China or Brazil (which were in competition) is the new
Mazda manufacturing facility to be built in Salamanca, Guanajuato, with an
investment of $500 million and a potential capacity to produce 140,000 units
per year. Nissan, which already manufactures autos in Mexico, recently
announced the building of a new plant in Aguascalientes with an estimated
investment of $2 billion. Mexico´s auto production reached 2.5 million units in
2011, exporting 2.1 million. Mexico is already the world´s sixth largest
automobile exporter and likely to take fifth place in 2012.
real is the Brazilian currency and most of its contracts and monetary policies
are based on the real. Brazil has been trying to contain inflation for the past
decade. Inflation in 2011 stood at 6.5 percent and expectation for 2012 is 5.5
percent. The real-U.S. dollar rate of exchange has been quite volatile, standing
around 1.7 in late 2011.
inflation has been kept under control since 2003. In August 2011, Mexico’s
annual inflation rate was set at 3.4 percent, 3.1 percent lower than Brazil’s
annual inflation rate.
comparison to Brazil, Mexico’s economy is highly dollarized. Most international
transactions are U.S.-dollar based and for the most part large business
transactions -- especially real estate sales or lease contracts -- are made in
Crime and Image
to UNESCO’s 2011 study on homicide rates by country, Brazil has a homicide rate
of 22 per 100,000 inhabitants and Mexico’s rate is 18 per 100,000. (As a point
of comparison, the U.S. homicide rate is five per 100,000 inhabitants.) Obviously
Brazil has been much more effective handling its public image than Mexico. One
of Mexico’s top priorities should be developing and enforcing a successful
formula to get organized crime under control and to launch an effective
campaign to improve its public image to the world.
Ease of Business
most recent Doing Business Economy
Rankings by the World Bank and the International Finance Corp., benchmarked
to June 2011, ranked Mexico as No.53 out of the 183 economies rated on the ease
of doing business. It outranks not only Brazil at 126, but also India (132) and
China (91). Thus, Mexico’s ease to do business is rated considerably higher
than three of the four countries comprising BRIC.
has had an extraordinary performance as one of the world’s leading emerging
economies. However investors analyzing Mexico’s comparative performance, open
market policies, trends and unique opportunities in manufacturing, real estate,
and tourism industries may find it a worthy competitor for investment. Providing
the country adheres to the strong commitment to fiscal consolidation that has characterized
its past, continues moving forward in its infrastructure expansion, and betters
its public image, Mexico appears to be on the threshold of a new era of
extraordinary expansion that could place its economy among the world’s top group.
Sandy Flockhart, HSBC´S managing director, estimates that Mexico will rank 10th
among the leading global economies by 2050.
Oscar J. Franck
Terrazas, FRICS, is managing director of Integra Realty Resources de Mexico.
Contact him at email@example.com. An earlier version of
this article appeared in the publication