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Emerging economies are redefining the global political scene, posing new challenges for the European Union foreign relations. 

The growing economic gravitation of Brazil, India, China and South Africa does not always translate into greater political influence or leadership on the global stage. There are mixed outcomes. Surely, changes in global governance institutions are related to such greater influence and the structural transformations of the global economy. Following the global financial crisis, emerging countries successfully prompted a reform agenda in the “IMF” that made the board more representative of their interests. Brazil moved from being a borrower to becoming a lender of the Fund. The remarkable activism of the South-South coalitions like BRICS and IBSA is also indicative of a new correlation of international political forces.

New proposals such as the creation of an IBSA bank, or a region-wide South American development bank shape the decisions regarding the future of the Bank. Indeed, its future depends on how these political relations are managed – whether the Bank will be renewed and become more representative or replaced by the alternative institutional solutions that are being proposed. Thus, even if emerging power configurations indicate different avenues to explore new possibilities for international leadership, it cannot be said that there is a radical shift in global power structures. Nor it can be said that nothing has really changed.

Regional leadership becomes a condition for greater political influence on the global stage. However, here again the recognition of a regional power does not equate leadership. One approach to determine if growing power results into regional leadership is to find out whether such countries satisfy three basic conditions:

  • willingness to act as regional leaders,
  • capacity to do so
  • acceptance of such a leading role by followers.

A general overview of emerging countries’ attitude towards regional leadership suggests that they all share a strong willingness to take a leading role in their respective regions. This does not imply that this is an agreed political goal in each of these countries. In fact, it is often the case that some political and economic actors challenge their government’s aspirations to become regional leaders. 

Their capacity to exercise leadership is nevertheless more difficult to ascertain. Capacity is issue-specific, it takes place in many ways and thus cannot be aggregated into an all-encompassing attribute of state international power. Brazilian leadership’s capacity in South America includes the provision of technical cooperation, commitment to a collective defence policy, mobilization of financial resources for regional infrastructure and fair mediation. Indeed, Brazil also had a crucial role in creating the Union of South American Nations (UNASUR). However, it has been reluctant to downplay the tensions deriving from the obligation to grant its MERCOSUR partners access to its domestic market, and has often flaunted indifference towards MERCOSUR rules. Moreover, Chile, Colombia and Peru in South America have chosen to integrate their economies with western countries signing bilateral trade agreements with the EU and the US among others, opposing Brazilian intent to avoid locking in neoliberal policies. As regards South Africa, its capacity to exert regional leadership relates to its commitment to the provision of public goods in the context of the SACU, where it acts as guarantor of revenue compensation for Swaziland and Lesotho.

Acceptance of the regional leadership by smaller neighboring countries is related to the extent to which leadership is seen to legitimately represent regional aspirations and not the regional power’s narrowly-defined national interests. In this respect, Brazil and South Africa sometimes are regarded as using “BRICS” and “IBSA” as leveraging venues for global leadership without the constraints and the burdens of having to represent their region’s interests. Moreover, infrastructure integration initiatives promoted by Brazil, mainly in the hydro-electrical energy sector, suggest some limits to the acceptance of this country’s role in the region. Brazilian companies are the main beneficiaries of infrastructure, while the projects are a source of conflicts among local communities that are affected by the socio-environmental problems caused by them, and by the asymmetrical distribution of material and environmental costs and benefits in favor of Brazil and its companies. Furthermore, Brazil’s leadership in the region finds limitations caused by the lack of support of MERCOSUR to Brazil’s choice to candidate as chair of the WTO and by Argentina’s reluctance to back the Brazilian aspiration to join the UN Security Council – support that Brazil has instead obtained from China. Acceptance of Chinese leadership is likewise difficult to define in East Asia. Following the Asian Financial Crisis in 1997, regionalism in this area witnessed a rare equilibrium of multi-actor leadership that has been increasingly shaped by the strategic competition between China and Japan for competing liberalization. It is not clear yet who the regional leader is eventually going to be.

A global economic rebalancing is taking place. It does not imply an irreversible decline of the West and an overhaul of the current global economic status quo. Yet, the prospects of emerging countries acquiring a more substantive leadership role in the global stage are linked to their ability to exercise endurable regional leaderships. Regional politics and the provision of regional public goods by regional powers hold the key to future scenarios. More than ever this reality is also a pressing challenge to the EU.

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Immagine

BRAZIL’s economy is seen growing at just 2 % this year (↓), below the 2.7 % last year and below the 4 % target set by the government in January. For some economists Brazil has to return to a reform agenda.

They are complaining about the tax burden and infrastructure and a government that seems to argue that the big problem is a lack of demand. There is not a lack of demand, but more of an issue of supply to meet that demand.  There is a frustrated growth.

Brazil’s Gov (President ROUSSEFF will launch the initiative personally) is set to launch the first in a series of measures that could inject up to $50bn into the economy over the next 5 years.

The first part of the plan includes:

  • privatising about 14,000 Km of railways and roads.
  • privatisation of ports, lower energy costs and incentives for industry will soon follow.

“The Gov realized that Privatizations  are a way to boost investment”

says Felipe Salto, an economist at Tendencias, a leading consulting firm in Brazil.

The package is designed to boost what have been disappointing growth levels.

Prior to these measures, the Gov had been counting mainly on rising levels of domestic consumption – fuelled by credit growth and rising income among poor Brazilians – alongside investments by state companies. Although the previous strategy had helped BRAZIL become the 6th largest economy in the world in 2011, overtaking BRITAIN, the Gov has not been able to maintain high growth rates

The recent weak growth has been attributed mainly to ↑ debt rates among the population and the global downturn, which reduced demand for Brazilian products:

  • Expensive energy,
  • poor infrastructure
  • and increasing labour costs

Now the Gov will increase the role played by private investors, who were seen to have lost ground during the Gov of Luiz Inacio LULA da Silva, Brazil’s president from 2003-2010. Ms Matos (economist, professor at Getulio Vargas Foundation) believes the new package will tackle some key economic problems, but says Brazil faces other serious issues such as increased public spending and an inefficient tax system. Without reforms in these areas, she says, the country’s economy will remain vulnerable.

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Immagine

For decades, Brazilians said and believed they were living in the country of the future: “o pais do futuro.” 

But after nearly seven years of a commodity led economic boom, BRAZIL has moved into the future, however Brazil is not the country it once was. Indeed nowadays, “o pais do futuro” is giving way to “el pais del futuro”, MEXICO.

Most investors don’t look too far into the future. But there are plenty of mutual funds and corporate investors who need to have a vision of what the world will look like in 10 years. Getting the future right is how company’s and investors succeed.

These days, investors are in love with Mexico. Nevertheless over the last years, Brazil is considered as the most powerful and largest economy south of Texas, seen as safer than Mexico, more mature, more diverse economically, and a benefactor of the China boom. That might change. In some respects, it already is changing.

Tony Volpon, managing director of Nomura Securities and Benito Berber, have been considering this for some time. Volpon’s from Brazil and he knows the country intimately. Mexico’s economy might even be bigger than Brazil’s within 10 years.

BRAZIL / MEXICO

Brazil and Mexico grew similarly throughout the (1990s – 2004). After that, the Brazilian economy boomed.  Looking back, the real game changer for Brazil was the coming of CHINA into the world economy. The massive commodity demand that came from China was a blessing to BRAZIL, the world’s leading exporter of iron ore, sugar, coffee, orange juice and a major exporter of soybeans after the U.S.

The election of LULA da Silva in 2003 nearly killed the Brazilian real, pushing the forex to about four to one at the start of the commodity bull cycle.  It was nearly impossible to compete with Brazil on price and the country captured that market quickly. To this day, Brazil is a haven for all types of agricultural investment. Brazil had, and still has, a natural competitive advantage and attracted billions in foreign direct investment. Plus, Brazil had very low credit demand in the early 2000s. It was under 30 % of GDP and rose to 50 % of GDP as the country got richer, labor markets improved and investment capital poured in.

On the MEXICAN side meanwhile, China’s accession to the WTO put Mexico in 3rd place in terms of % of U.S. imports. China became No.1. Canada was No.2. That’s changing… says Berber. Mexico is now producing more cars for the U.S. market than Canada.

“Mexico is producing more cars for the U.S. and China share of U.S. imports is stabilizing while Mexico’s share is rising gradually. On the investment side, a lot of investment into Mexico was interrupted by the 2008 crisis, but that is also recovering.”

What will influence growth in these countries over the next 10 years?

From a total factor productivity standpoint, BRAZIL grew 1.2 % over the last 8 years ending 2010, while MEXICO grew just 0.1 %. MEXICO was reforming at the time, basically privatizing the banking sector and floating the exchange rate. Moreover, growth in the U.S. real estate market took a lot of labor out of Mexico and moved it into the U.S.  That is expected to reverse, helping Mexico’s human capital, keeping wages stable to low as supply improves.

The 2 sectors that are growing in BRAZIL are commodities and services, but they don’t require a lot of technology like manufacturing does. Commodities, with the exception of petroleum, do not incorporate technological change as rapidly (< investment and could mean < employment growth)

Brazil is also becoming more of a service economy, so productivity overall will fall because services and raw commodities are not areas requiring massive investment and productivity, especially in the services sector.  As a result, Brazilian economic growth should oscillate around 3 % for the next decade.

In MEXICO, there are 2 sets of things that will support growth.

1)     The first has to do with external factors

As labor costs ↑ in China, more countries are moving to Mexico in manufacturing (labor intensive and capital intensive). Also, the type of manufacturing Mexico is attracting is the “value-added type”; high end, like aerospace for example, which of course is very high cost and human capital intensive. 

2)      “In terms of labor, the construction sector and services sector in the U.S. are not doing well, so that implies that a lot of migrant workers are coming back to Mexico. And those that would like to go to the U.S. are staying in Mexico,” Berber says, adding that the country is still dependent on structural reforms of the new government if it is to make their call correct.

So the Mexican economy could overtake Brazil as early as 2022 to 2030!

“Our call is predicated on the approval of labor reform by the Mexican congress,” Berber says.  ”It is very difficult to fire people in Mexico, so that makes it harder to hire people.

Labor, fiscal and energy REFORM are all important.  Energy is dominated by the state, but the new government has been very adamant about the private sector being involved in the energy sector. If that happens, that could boost total production in the Mexican economy.”

Well, Mexico overtaking Brazil?

At least it’s not Argentina… but that could ultimately lead to a rethinking of economic policy in a Brazil that will unlikely take falling to No. 2 without a fight.

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Immagine

Italia es el 3 socio comercial de México entre los países de la Unión Europea (UE), después de Alemania y España. Por su parte, México es el 2 socio comercial de Italia en América Latina, después de Brasil.

A partir de la entrada en vigor del Tratado de Libre Comercio Unión Europea-México (TLCUEM), el intercambio comercial entre México e Italia ha crecido 154.7%, al pasar de 1,824.6 millones de dólares (mdd) en 1999 a 4,648.2 mdd en 2010. Las exportaciones de productos mexicanos al mercado italiano se han incrementado 271%, de 175.2 mdd en 1999 a 651.3 mdd en 2010, que constituye el valor más alto registrado a la fecha. En el mismo periodo, las importaciones de productos italianos se incrementaron 142.3% al pasar de 1,649.4 mdd en 1999 a 3,996.9 mdd en 2010; el máximo histórico fue registrado en 2007 por un valor de 5,560.5 mdd.

Los principales productos exportados por México a Italia fueron:

  • trigo duro (19.5%); formas en bruto de oro (incluido el oro platinado), semilabrado o en polvo (11.1%); y cinc sin alear con un contenido de cinc superior o igual al 99.9 en peso (5.5%).

Los principales productos italianos importados por México fueron:

  • gasolina excepto gasolina para aviones (5.2%); productos laminados en caliente, de acero inoxidable, enrollado de espesor entre 3 y 4.75 mm (3.4%); y productos laminados en caliente, de acero inoxidable, enrolladas, de espesor < a 3mm (3.3%). 

Oportunidades de exportación de México a Italia

El TLCUEM ha abierto nuevas oportunidades de exportación con ventajas arancelarias para México respecto a los principales proveedores de Italia, en sectores como: automotriz, prendas de vestir, plásticos, pieles y cueros, y maquinaria y equipo eléctrico, entre otros.

Los sectores prioritarios de fomento son:

  • alimentos frescos; alimentos procesados; bebidas y tabaco; productos eléctricos y electrónicos; calzado y artículos de cuero; materiales de construcción. Asimismo, se está promoviendo otros sectores como: productos del mar; flores de ornato; y productos químicos.

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Berlusconi hints at political comeback

Italy’s former PM Silvio Berlusconi, who quit amid a string of scandals, gives hints he could stand in next elections.

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Immagine

According to data published by INEGI, Puebla State ranks the No.1 in Manufacturing growth thanks to a growth rate of 33.59 percent over the same month in 2011 (higher than the national average, 3.55 %).

Among the factors of this growth, the Manufacturing sector accounts nearly 30 % of Gross Domestic Product (GDP);

  • almost 54 % belongs to the automotive sector (automobiles & automobile parts), which is about $5 billion and represents almost 16% of the State economy.

Puebla’s economy can be comparable to economies of countries such as Panama, El Salvador, Bolivia and Estonia. Indeed, the Puebla economy ranks as the 7th largest non – Oil economy of Mexico.

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Immagine

As the West struggles to recover from the 2008 financial crisis, it is only natural that many have looked to Asia with envy. While Americans contend with a housing bust and joblessness, and Europeans suffer through their debt crisis, much of Asia (except Japan) seems to gain economic power, wealth and competitiveness year after year. The East looks like it is eating the West’s lunch.

We can see that in the current slowdown in the region. Despite Asia’s burgeoning wealth, its economies are still to a great degree dependent on the advanced economies of the West, and as the recovery there sags, so have Asian exports, manufacturing output and GDP growth. 

China is likely to post its worst economic performance in 13 years in 2012. 

South Korea notched its slowest growth rate in nearly three years in the second quarter.

Growth in India has fallen precipitously as well.

The IMF predicts the economies of developing Asia will expand by 7.1% in 2012 – not bad, of course, but a sharp drop from the 9.7% recorded in 2010. Clearly, there is a limit to how much Asia can defy the gravity of the global economy.

Most in Asia assume that this slowdown is a temporary, cyclical phenomenon, fixed by a bit of easy money and the eventual global recovery…. 

As Neumann and Mukherjee point out, Asia was able to accelerate growth through massive gains in productivity brought about by shifting cheap labor from farms to industry and adding in healthy doses of new technology provided by foreign investment.

The problem is that as this process increases wages and economies become more industrialized, new gains in productivity have to come from improvements in efficiency, advances in technology and better management, both at a corporate and a national level. That’s not easy. Not many developing countries have successfully jumped into the ranks of the truly advanced. Those that fail get stuck in what’s called the “middle-income trap,”  in which they hit a ceiling in income levels before they reach the highest echelons of the global economy.

In their study, Neumann and Mukherjee uncovered a few worrying trends. First, they noted that growth has slowed down in Asian countries as they become richer. They charted income levels (on a purchasing power parity, or PPP, basis) versus average annual GDP growth over the past decade (PPP / GDP growth) and found that low-income nations grew about two percentage points faster than those with high incomes

Malaysia, Thailand, Sri Lanka and the Philippines have not markedly improved their position with respect to the United States. China, India, Indonesia, and Vietnam, however, have graduated from low income to middle income status, while Korea, Taiwan, Singapore and Hong Kong have moved from the middle to the high income bracket.

The fact is that jumping from a poor country to a middle-income one is relatively easy. It just requires a generally stable policy framework that allows under-utilized resources (labor and capital) to get tossed into building an industrialized economy. Taking the next step from there requires a degree of reform that in certain respects is much more challenging:

  • Companies have to transform themselves from simple manufacturers to innovators and designers.
  • Education systems must churn out workers with creative thinking skills, not just basic skills.
  • Policymakers have to forge an environment in which entrepreneurs and executives are willing to take risks by investing in R&D. 

In other words, if Asia wants to keep its economic miracle alive, it needs to engage in some pretty serious reform.

The question is: Will Asia’s policymakers take those necessary measures? If they don’t, Asia could find itself mired in many of the same problems the West is facing today.

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