Published : 13 years ago, on 25/05/2012

Goldman Sachs considered to be one of the leading investment banking and securities firm in the USA, has already declared that Brazil and Mexico will be among the six leading economies in the world.  So how does that impact the European Union? As far as the countries of Latin America are concerned (esp. Brazil and Mexico) they are dependent upon the European investments.

Latin America consists of several countries that include North America, Central America, Caribbean, South America, Brazil, Mexico, Venezuela, etc. among other nations. As far as the economy is concerned, there are countries (within the purview of Latin America) displaying strong economy with a stabilizing effect. Let us look at the Chile economy. The government of Chile has been working towards strengthening its economy and has already achieved its goal at large. With the study of globalization, the analysts’ have concluded that it consists of five factors: a) foreign trade, b) capital movement, c) exchange of technology and ideas, d) labor movements, and e) cultural integration.   And although the United States is still the main destination of Latin American and Caribbean exports, Asia is becoming an increasingly important market for goods based on natural resources.

With the ongoing globalization trend, wherein the policy-makers are looking into diversifying their economic opportunities to adopt structural reforms aimed at increasing productivity and thus boost real GDP growth. During the past four years, Latin America has attracted a yearly average of $61bn in foreign direct investment. Brazil is one of the countries in this region which has attracted a significant amount of foreign direct investments’. One of the biggest competitors of Latin America is China, which has emerged as a financial powerhouse catering to its consumers on major commodities. Another country facing strong competition from China on the trade front is Mexico.

One of the key responsibilities for the various nations in this region is to work towards fostering economic relations and Spain and Italy joint seem to be working towards it.

In fact, the businesses run in Latin America are also showing a positive trend towards welcoming wealth using foreign investments. Another trend followed by large economies is one country tying up with the other and thus land into a joint venture for a particular commodity.  For example, in 2006, Italy’s Fiat Group and the India’s Tata Motors established a joint venture to make passenger vehicles and engines in India. The following year, they extended their partnership to Latin America producing a Tata pick-up truck at Fiat’s factory in Cordoba, Argentina, with an investment of $80m.

With a much closer observation, analysts’ say that there are some of the major European corporations will be following the path tread by Latin America. A group of Small and Medium Enterprises are evolving in the European community promising new hikes in the global panorama. This European experience is now being widely studied in Latin America.

Brazil and Mexico are the key Latin American countries. As far as EU’s association with Mexico is concerned, they share an economic relationship that is 10 years old. However, EU is yet to establish a partnership with Brazil on such grounds. This is partly because of the never-ending negotiation process with Mercosur, the troubled Latin American customs union that is still incomplete. The EU therefore needs to urge its Latin American counterparts for further assimilation.

A full throttle towards a more liberalized and philanthropic Latin America can be attained by a concrete strategy as against the European strategies. Greater trade openness would be beneficial for economic growth. In order to achieve success in the trade front, the economists’ should work towards lowering the trade costs which will eventually target the tariffs and quotas and thus better trade flows. Most importantly, getting an unhindered market access can work wonders for Latin America. Let us take a look at the current exports and trade flow by Chile to other European countries. This has markedly increased with the establishment of the EU-Chile free trade area. But in the case of EU-Mexico trade liberalization, the growth of imports from the EU has exceeded the growth of exports to Europe, resulting in a widening Mexican trade deficit with the EU.

During the Rio Earth summit 1999, the European Union has promulgated the news that Latin America is one of their indispensable partners endeavoring strategic, political and economic aid to them. Although the EU does not have a strategic partnership with Brazil, it intends to do collaboration shortly.

The new start by the EU, focused on the two most important players, Brazil and Mexico, could prove a promising one, because of the “pull” effect it might have on the other countries. However, this must be accompanied by measures to keep all Latin American countries on board. Otherwise, Latin America may well prove to be Europe’s next missed business opportunity.