section 3 growth strategies of mexico and brazil...section 3 growth strategies of mexico and brazil...

Section 3 Growth strategies of Mexico and Brazil Brazil and Mexico continued to record high economic growth until the 1970s, but thereafter their

economies slowed down significantly as a result of hyperinflation and debt and currency crises. When they faced these crises, the two countries adopted quite contrasting policies. A look at changes in the two countries’ top 10 export items show that both of them exported mainly primary goods from the 1970s to the 1980s. However, since the 1990s, the trends diverged considerably between the two countries (Table II-2-3-1). Namely, Brazil has continued to export mainly agricultural products and other primary goods, and this trend has recently strengthened further. In contrast, Mexico has made a major shift in export items and now exports mainly industrial products. Moreover, while Brazil’s GDP is larger than Mexico’s, the value of exports in Mexico is larger than Brazil’s. Mexico’s value of exports as a percentage of GDP is around 30% compared with around 10% for Brazil (Figure II-2-3-2).

Below, we look at how Brazil and Mexico overcame their economic crises and how their economic structures changed as a result.

Table II-2-3-1 Export structure of Brazil and Mexico

Brazil’s Major Exports1970 1975 1980 1985 1990 1995 2000 2005 2010 2011

1st Coffee 34.6% Raw sugar 11.4% Coffee 12.4% Coffee 9.2% Iron ore 7.7% Iron ore 5.5% Aircraft 6.3% Iron ore 6.2% Iron ore 14.3% Iron ore 16.3%2nd Iron ore 7.7% Iron ore 10.8% Iron ore 7.7% Iron ore 6.5% Soybean meal 5.3% Soybean meal 4.4% Iron ore 5.5% Soybeans 4.5% Crude oil 8.0% Crude oil 8.4%3rd Raw cotton 5.7% Coffee 10% Soybean meal 7.5% Petroleum products 6.3% Juice 4.8% Coffee 4.2% Soybeans 4.0% Petroleum products 4.1% Soybeans 5.4% Soybeans 6.4%4th Raw sugar 4.7% Soybeans 8% Raw sugar 4.7% Soybean meal 4.7% Coffee 3.5% Raw sugar 3.1% Motor vehicles 3.2% Motor vehicles 3.7% Raw sugar 4.6% Raw sugar 4.5%5th Maize 3.0% Fruit & nuts 5.6% Petroleum products 3.0% Juice 3.1% Footwear & parts thereof 3.5% Timber & pulp 3.1% Soybean meal 3.0% Crude oil 3.5% Chicken 2.6% Petroleum products 3.7%6th Cacao 2.9% Cacao 2.6% Motor vehicles 3.0% Footwear & parts thereof 3.5% Aluminum 3.0% Crude steel 2.9% Coffee 2.8% Chicken 3.0% Coffee 2.6% Coffee 3.1%7th Soybean meal 2.8% Petroleum products 2.1% Soybean oil 2.2% Soybeans 3.0% Soybeans 2.9% Motor vehicles 2.9% Timber & pulp 2.8% Aircraft 2.7% Chicken 3.1% Chicken 3.1%8th Beef 2.6% Timber & pulp 1.9% Soybeans 2.0% Engines 2.5% Engines 2.8% Aluminum 2.7% Footwear & parts thereof 2.5% Soybean meal 2.4% Soybean meal 2.3% Soybean meal 2.2%9th Timber 2.5% Footwear & parts thereof 1.9% Footwear & parts thereof 1.9% Motor vehicles 2.4% Crude steel 2.4% Motor vehicle components 2.6% Motor vehicle components 2.2% Communications equipment components 2.3% Timber & pulp 2.3% Timber & pulp 1.8%

10th Liquid coffee extract 1.6% Soybean oil 1.8% Juice 1.8% Soybean oil 2.4% Petroleum products 2.2% Juice 2.4% Aluminum 2.1% Coffee 2.1% Motor vehicles 2.2% Motor vehicles 1.7%Share 68.10% 56.10% 46.20% 43.60% 38.10% 33.80% 34.40% 34.50% 47.80% 50.90%

$256.0 billionMexico’s Major Exports

1970 1975 1980 1985 1990 1995 2000 2005 2010 20111st Raw sugar 7.7% Crude oil 15.3% Crude oil 60.9% Crude oil 57.2% Crude oil 33.9% Motor vehicles 9.5% Motor vehicles 9.9% Crude oil 13.2% Crude oil 12.0% Crude oil 14.1%2nd Raw cotton 7.0% Coffee 6.8% Natural gas 4% Petroleum products 7.4% Motor vehicles 9.9% Crude oil 9.3% Crude oil 8.9% Motor vehicles 6.3% Motor vehicles 7.7% Motor vehicles 7.6%3rd Coffee 6.3% Raw cotton 6.1% Coffee 2.9% Engines 7.1% Engines 5.3% Insulated cables 4.3% Calculators 4.9% Televisions 4.8% Televisions 7.0% Televisions 5.4%4th Shrimp & octopus 5.5% Shrimp & octopus 5.1% Shrimp & octopus 2.6% Coffee 2.4% Petroleum products 2.4% Televisions 3.7% Insulated cables 4.0% Motor vehicle components 4.6% Communications equipment 6.1% Motor vehicle components 4.8%5th Beef 3.6% Fresh tomatoes 4.3% Silver 2.4% Silver 1.7% Fresh vegetables 1.7% Engines 3.5% Communications equipment 3.1% Calculators 4.3% Motor vehicle components 4.6% Calculators 4.7%6th Fresh tomatoes 3.0% Raw sugar 4.1% Raw cotton 2.0% Shrimp & octopus 1.6% Fresh tomatoes 1.6% Motor vehicle components 2.8% Televisions 3.5% Communications equipment 3.7% Calculators 4.5% Communications equipment 4.5%7th Petroleum products 2.6% Copper 2.3% Petroleum products 1.6% Motor vehicle components 1.1% Motor vehicle components 1.4% Electrical components 2.6% Motor vehicle components 3.5% Insulated cables 3.4% Trucks 3.6% Trucks 3.6%8th Live cattle Motor vehicle components 1.9% Motor vehicle components 1.3% Live cattle 0.8% Coffee 1.4% Communications equipment 2.6% Electrical components 3.1% Trucks 3.3% Insulated cables 2.2% Gold 2.3%9th Lead 2.3% Feldspar 1.9% Fresh vegetables 1.1% Fresh tomatoes 0.8% Calculators 1.3% Trucks 2.3% Trucks 2.9% Electrical components 2.6% Engines 2.0% Insulated cables 2.2%

10th Feldspar 2.4% Lead 1.6% Iron ore 1.1% Polyethylene 0.7% Live cattle 1.3% Generators 2.2% Generators 2.8% Engines 2.2% Electrical components 2.1% Engines 2.2%Share 43% 49.40% 79.90% 80.80% 60.20% 42.80% 47.50% 48.40% 51.80% 51.40%

$349.5 billionNotes: The percentages at the bottom of each table indicate the share of all exports accounted for by these top ten exports. All values are based on the value of both countries’ exports in 2011.　　　Green indicates primary commodities and their processed derivatives. Yellow indicates industrial products.Source: 2013 annual report of the United Nations Economic Commission for Latin America and the Caribbean.

Figure II-2-3-2 Trends in the value of exports from Brazil and Mexico and values as a share of GDP

0%

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Value of exports from Mexico

Value of exports from Brazil

Value of exports from Mexico as a share of GDP

Value of exports from Brazil as a share of GDP

(Billion dollars)

Source: Data obtained from the IBGE (Brazilian Institute of Geography and Statistics), INEGI (Mexican National Institute of Statistics and Geography), and the CEIC Database.

400

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1. Risk tolerance Based on the lesson of the past crises, which was that the vulnerability of the economic structure

causes crises, both Brazil and Mexico have made efforts to strengthen their economic fundamentals and have enhanced their capability to make policy responses to crises. As a result, in recent years, their risk tolerance has grown compared with at the time of the past economic crises as shown by Table II-2-3-3, although there is the possibility that their economies may be shaken by sudden changes in the external financial environment. For example, although Brazil’s inflation rate is still relatively high, it is much more stable compared with the period of hyperinflation. Meanwhile, Mexico’s current account balance has improved.

Table II-2-3-3 Comparison of economic indicators during past crises in Brazil and Mexico Country / comparison item Brazil Mexico

1990 1999 2013 1982 1994 2013*(1)-3.8 -25.3 -81.4 -5.9 -29.7 -1.6

-0.8% -4.3% -3.6% -2.7% -5.6% -0.5%2947% 4.9% 6.4% 59.2% 7.0% 3.8%

Fiscal balance (% of GDP) 1990 1999 2013 1982 1994 2013－*(2) -5.3% -3.3% -14.7% -0.1% -3.9%

Short-term external debt (% of foreign exchange reserves) *(3) 1990 1999 2013 1982 1994 2013260% 75.4% 9.1% － 39.3% 22.6%

Swap agreements with the U.S. 2008 2008$30.0 billion $30.0 billion

IMF Flexible Credit Line $73.0 billion *(4)2001 2012 2001 2013*（5）

Bank capital adequacy ratio (%) 14.9% 16.7% 14.7% 16.6%

Current account balance (billion dollars)Current account balance (% of GDP)Inflation rate Annual average (%)

Notes: (1) In the figures for Brazil, 1990 was the year when hyperinflation was at its most severe, while 1999 was the year of the Asian financial crisis. In the figures for Mexico, 1982 was the year of its debt crisis, while 1994 was the year of its currency crisis (comparison between past financial crises and 2013). (2) Fiscal balance data for Brazil in 1990 are not available. (3) Calculated on the basis of data from the World Bank and each country’s central bank. (4) The Flexible Credit Line is a credit line system designed to protect countries that have strong economic performance from international financial crises. For Mexico, it is set at a total of $73.0 billion. If a country passes the prior review, it can draw down from this credit line unconditionally. Mexico has never drawn down from it, but it can effectively serve as a foreign exchange reserve. It was first established in 2009. It was renewed in 2011 and stood at $73.0 billion as of 2012. Brazil has received loans and other assistance from the IMF in the past, but it has already repaid these in full, including its Paris Club debt and it has acquired the status of a net creditor. (5) As of March 2013. Compiled from materials from IMF Article IV Consultations, apart from figures for Brazil in 2001 (figures obtained from the Central Bank of Brazil). Source: IMF, World Bank, Banco de Mexico (central bank), Central Bank of Brazil.

Column 10 Brazil’s success in overcoming hyperinflation From the 1940s onward, Brazil achieved growth by actively promoting infrastructure

development, including the building of a new capital, Brasilia. However, as a result of overheated demand and fiscal deterioration, Brazil was hit by inflation (an annual average inflation rate of 31%). Against this backdrop, social unrest arose, and a military regime was established following a coup d’état in 1964.

Under the military regime, inflation was initially curbed due to an austerity policy. Later, the country achieved an economic growth which was called the “miracle of Brazil” as a result of active public investment. However, after it was struck by two oil crises, Brazil experienced an economic stagnation that was called a “lost decade.” In the 1970s, the inflation rate mostly stayed between 10% and 60%.

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After a transition to civilian rule in 1985, a populist fiscal management accelerated inflation. Although the Cruzado Plan, which froze prices, wages and the exchange rate, was implemented, its effects were limited. Starting in the late 1980s, Brazil plunged into hyperinflation, with the inflation rate soaring to 2,948% in 1990. In 1994, the hyperinflation dramatically lessened following the introduction of the Real Plan, which pegged the Brazilian currency to the U.S. dollar, and in 1996, the inflation rate plummeted to 16%. Although the inflation rate in Brazil is still relatively high compared with other countries, it has mostly been in single digits213.

Based on the experience of this hyperinflation, Brazil is still managing monetary policy in a manner that is very sensitive to inflationary pressure. In addition to adopting an inflation targeting policy, which seeks to guide the inflation rate to the target range (4.5%±2％) through policy interest rate adjustments, Brazil is striving to maintain fiscal discipline.

2. Growth strategy (1) External economic policy

Following the debt crisis in 1982, Mexico shifted from an import substitution policy intended to protect and foster domestic industries to a free trade policy. First, Mexico transferred around 80% of the items covered by an import licensing system to a quota system in 1985. In 1986, Mexico acceded to GATT (which is now the WTO) and reduced the ratio of items covered by the import quota system from 83% at the beginning of 1985 to around 27% in 1986 in accordance with the protocol on accession. In addition, in order to stabilize inflation through international competition, it promoted trade liberation measures, such as lowering the top tariff rate to 20%214. On the other hand, Brazil acceded to GATT in 1948, but following the Mercosur (or Mercado Común del Sur regional trade agreement that was signed in 1991 and took effect in 1995), it set inter-regional and extra-regional tariff rates separately. According to the World Bank, until 2003, the average applied tariff rate (simple average basis) stayed at between 15 and 16% for both Brazil and Mexico, but in 2010, it stood at 2.8% for Mexico and 7.2% for Brazil (Figure II-2-3-4). Meanwhile, Mexico actively participated in establishing a free trade network involving countries and regions around the world and strengthened international economic partnerships, for example by acceding to NAFTA in 1994 and concluding 17 free trade agreements (FTAs) with 21 countries including Central and South American countries, European countries and Japan. However, Brazil has long continued a policy of protecting and fostering

213 Yasushi Ninomiya (2011), Burajiru Keizai no Kiso no Chishiki 2nd ed., pp. 2-72 JETRO (in Japanese)

Ryohei Konta (ed.) (2013), Yakudo Suru Burajiru – Atarashii Henyou to Chosen, pp. 55-65, Institute of

Developing Economies (in Japanese) IMF, World Economic Outlook database, April 2014, Banco Central Do Brasil 214 P. Aspe (1993), Economic Transformation the Mexican Way, The MIT Press, L.Agama, and C.A.

McDaniel (2002), “The NAFTA Preference and U.S. -Mexico Trade” U.S. International Trade

Commission

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domestic industries and has basically focused mainly on economic partnerships with South American countries (Table II-2-3-5).

Moreover, Mexico has recorded an increase in inward foreign direct investments and has grown from a resource exporter to a manufacturing and export base of industrial products as a result of promoting deregulation of foreign ownership of Mexican companies and privatization (Figure II-2-3-6). Direct investments in Brazil have also increased in recent years (Figure II-2-3-7). In Mexico, direct investments in manufacturing industries in particular have increased, but in Brazil, services, mining and agricultural industries have attracted large amounts of direct investment.

As for Brazil’s manufacturing industries, although some companies are internationally competitive, the proportion of primary goods in exports has grown and the proportion of industrial products has declined against the background of increasing resource demand and rising resource prices in recent years. Another possible background factor of the decline in the proportion of industrial products in exports is that manufacturing industries’ production and exports face downward pressure from the overvaluation of the real due to a commodity boom215 and the high level of policy interest rates and domestic loan rates due to concerns over inflationary pressure (Figure II-2-3-8)216.

215 According to the real effective exchange rates (Figure II-2-3-9) indicated in Ryohei Konta (ed.) (2013),

Yakudo Suru Burajiru – Atarashii Henyou to Chosen, pp 72-5, Institute of Developing Economies, the

exchange rate has tended to be higher in Mexico. However, as is clear from changes in major export

product items indicated in Table II-2-3-1, Mexico mainly exported industrial products in the 1990s, while

Brazil depended heavily on primary goods for export. When its currency appreciated, the Brazilian

economy depended on services, for which trade is not very important, and presumably as a consequence of

this, Brazil became a domestic demand-led economy. 216 Compare this with “Figure II-2-3-10 Changes in Mexico’s policy interest rate and inflation rate.”

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Figure II-2-3-4 Trends in tariff rates

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5019

89

1990

1991

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2008

2009

2010

2011

2012

BrazilMexicoOECD member countries

(%)

Notes: The break in the line for Mexico indicates that no data are available for this period. Simple average.Source: WDI (World Bank).

(Year)

Table II-2-3-5 FTAs concluded by Mexico and Brazil Mexico BrazilNAFTA: the U.S., Canada (1994) Mercosur: Argentina,Colombia, Venezuela (1995) (Note 1) Uruguay, Paraguay (Note 5) (1991)Costa Rica (1995) (Note 2) Chile (Mercosur) (1996)Nicaragua (1998) Bolivia (Mercosur) (1996)Chile (1999) Mexico (Mercosur: Auto Sector Agreement) (2002)Guatemala, El Salvador, Honduras (2001) Peru (Mercosur) (2005)Uruguay (2004) Andean Community (Colombia, Ecuador,Guatemala, El Salvador, Costa Rica, Honduras, Venezuela) (Mercosur) (Note 6) (2005)Nicaragua (2011) Cuba (Mercosur) (2007)Peru (2012) Uruguay (Economic Complementation Agreement) (Note 7) (2008, 2011)Israel (2000) Israel (Mercosur) (2010)EFTA (European Free Trade Association): Norway, Switzerland, Iceland, India (Mercosur) (2009)Liechtenstein (2001)EU (2000) 15 countries (Note 3)EU (2004) Another 10 countries (Note 4)EU (2007) Another 2 countries: Bulgaria & RomaniaEU (2013) Another 1 country: CroatiaJapan (2005)Pacific Alliance (signed 2014, not yet in force)

(Note 1) Venezuela withdrew in 2006.(Note 2) Costa Rica, Nicaragua, El Salvador, Guatemala, and Honduras concluded a unified agreement in 2011. This entered into force in 2013. All of the original individualagreements have therefore expired.(Note 3) Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal, Finland, UK, Sweden(Note 4) Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, Slovakia(Note 5) Paraguay was suspended over matters concerning the policies of its former president. The present regime is eligible to participate in meetings.(Note 6) Venezuela withdrew from the Andean Community with a view to formal accession to Mercosur.(Note 7) An agreement to cover the period until the Mercosur Automotive Policy enters into force.(Mercosur) Launched as a customs union in 1995, following the 1991 signing of the Treaty of Asunción, which had as its goal the abolition of tariffs within the region. Tariffswithin the region are zero, except on motor vehicles and their parts, and sugar (however, there are exemptions for certain goods in individual countries). It is difficult for Brazil toconclude FTAs in its own right, as Mercosur has set a common external tariff for around 85% of goods.( ) indicates the year of entry into forceSource: Membership of the WTO and Other Agreements (JETRO website).

349

Figure II-2-3-6 Foreign direct investment in Mexico (left) and direct investment by Japan in Mexico (right)

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Overall Agriculture MiningManufacturing Electricity, water supply and gas ConstructionServices

Source: INEGI (Mexican National Institute of Statistics and Geography), CEIC Database.

(Hundred million dollars)

(Year)

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-1,500

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-500

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(Million dollars)

(Year)

Notes: Negative figures indicate that withdrawals from Mexico exceeded investment in the country. Source: Directorate General for Foreign Investment of Mexico’s Secretariat of Economy.

350

Figure II-2-3-7 Foreign direct investment in Brazil (left) and direct investment by Japan in Brazil (right)

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500

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Overall

Mining, Agriculture

Manufacturing

Services

(Hundred million dollars)

Source: Central Bank of Brazil, CEIC Database.

(Year)

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1.0

2.0

3.0

4.0

5.0

6.0

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8.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(Million dollars)

Source: Central Bank of Brazil, CEIC Database.(Year)

Figure II-2-3-8 Trends in Brazil’s domestic lending rate (left) and its bank rate and inflation rate (right)

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3 4 5 6 7 8 9 1011 12 1 2 3 4 5 6 7 8 9 1011 12 1 2 3 4 5 6 7 8 9 1011 12 1 2

2011 2012 2013 2014

Loans of working capital to corporations (under 365 days)

Loans to ordinary households (individuals)

(%) (p.a)

Source: Central Bank of Brazil, CEIC Database.(Year, month)

6.15

11.00

0

2

4

6

8

10

12

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16

1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4

2008 2009 2010 2011 2012 2013 2014

Inflation rateBank rate

(%)

Source: Central Bank of Brazil, IBGE (Brazilian Institute of Geography and Statistics), CEIC Database.

The inflation rate is the cumulative rate for 12 months; inflation rate and bank rate (%)

(Year, month)

Figure II-2-3-9 Real effective exchange rates of the Brazilian real and the Mexican peso

0

20

40

60

80

100

120

140

1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Brazil

Mexico

Notes: Broad basis.Source: BIS (Bank for International Settlements).

(Indices; 2010=100)

(Year, month)

351

Figure II-2-3-10 Trends in Mexico’s bank rate and inflation rate

3.5

3.5

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1.0

2.0

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9.0

1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4

2008 2009 2010 2011 2012 2013 2014

Bank rate

Inflation rate

Source: Banco de Mexico (central bank), CEIC Database.

The inflation rate is based on a comparison with the same month of the previous year; the bank rate is the figure for the month in question(%)

(Year, month)

(2) Fostering the domestic market

According to a survey conducted by the government of Mexico, approximately 96% of business facilities located in Mexico have a workforce of 10 employees or less. In manufacturing industries, the ratio of such business facilities reached approximately 93% and sales by such business facilities accounted for approximately 4.3% of the total sales, meaning that most business facilities are small in business scale (II-2-3-11)217.

While Mexico has grown into a manufacturing and export base because of its cost advantage, including low-cost wages, the problem of income inequality has been pointed out. According to a breakdown of households into 10 income brackets based on a household budget survey conducted by the government of Mexico, the top 20% (Brackets IX and X) account for around 50% of the overall incomes (Table II-2-3-12). This is presumably because of the presence of many non-regular employees (workers in the informal sector218 in particular).

According to AMAI (Association of marketing and opinion research companies in Mexico), approximately 53% of Mexican households regard themselves as belonging to the middle class (lower- or upper-middle class) (Figure II-2-3-13).

On the other hand, in Brazil, people who constitute the middle class categorized as “Class C” has increased remarkably and have come to account for more than half of the total population as a result of securing of employment (particularly regular jobs) associated with the commodity boom, a minimum wage hike and an anti-poverty program called Bolsa Familia (under which families can receive cash

217 In Japan’s case, business facilities with a workforce of 10 employees or less account for around78% of

all business facilities. In manufacturing industries, the rate is around 69%. (Statistical data of “2012

Economic Census for Business Activity - Tabulation of Establishments - Aggregated Across Industries,”

Ministry of Internal Affairs and Communications and Ministry of Economy, Trade and Industry). 218 Workers in the informal sector, as defined by the Mexican authorities, refer to “all activity implementators who do not have juridical personality and who are of a nature similar to a domestic industry.”

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benefits if they fulfill the duty of ensuring that children undergo health checks and attend school219). The middle class has acted as a driving force of consumption, supported by an increase in consumer credit, and Brazil has grown into a major market attracting global attention (Figures II-2-3-14, II-2-3-15 and II-2-3-16).

Figure II-2-3-11 Scale of businesses in all sectors and in the manufacturing sector in Mexico

10 people or fewer95.5%

11-50 people3.6%

51-250 people

251 people or more

Source: INEGI (Mexican National Institute of Statistics and Geography), 2008 Economic Census.

10 people or fewer92.5%

11-50 people5.1%

51-250 people

251 people or more


251 people or more71.3 %

51-250 people17.8 %

11-50 people6.6 %

10 people or fewer4.3 %


Table II-2-3-12 Family income and expenditure surveys in Mexico

2006 2008 2010 2012Sample decile

Comparedwith 2006

Comparedwith 2008

Comparedwith 2010

I 2,599 2,379 2,211 2,332 1.8% 100% -10.3% -1.9% 5.5%II 4,502 4,153 3,891 3,931 3.1% 98.2% -12.7% -5.3% 1.0%III 5,927 5,597 5,204 5,245 4.1% 94.0% -11.5% -6.3% 0.8%IV 7,387 6,995 6,550 6,504 5.1% 88.9% -11.9% -7.0% -0.7%V 9,024 8,543 7,991 7,971 6.3% 82.6% -11.7% -6.7% -0.2%VI 10,870 10,500 9,686 9,621 7.6% 75.1% -11.5% -8.4% -0.7%VII 13,452 13,127 11,868 11,857 9.3% 65.7% -11.9% -9.7% -0.1%VIII 16,929 16,695 15,030 14,950 11.8% 54.0% -11.7% -10.5% -0.5%IX 23,065 23,053 20,378 20,338 16.0% 38.0% -11.8% -11.8% -0.2%X 51,095 51,842 42,438 44,334 34.9% 34.9% -13.2% -14.5% 4.5%

Average total income (total) 14,566 14,288 12,525 12,708 -12.8% -11.1% 1.5%Notes: Income brackets have been divided into equal deciles, ranked in order from the households with the lowest income to those with the highest. The component ratio is the proportion of totalhousehold income accounted for by the total income of each income bracket.Source: INEGI (National Institute of Statistics and Geography), ENIGH (Family Income and Expenditure Survey) 2012.

Income bracket(frequency distribution)

Trends in average income (monthly) by bracket (pesos)

Income amount Income amount Income amount Income amountComponent

ratio

Cumulative component

ratio

Change (%)

2012

219 This program was praised as effective in providing relief to the poor considering its expenditure size as

a proportion of GDP (F.V. Soares (2011)). In 2013, Bolsa Familia was given an Award for Outstanding

Achievement by the International Social Security Association, an international non-profit organization

affiliated with the International Labor Organization (ILO).

353

Figure II-2-3-13 Awareness of income brackets

0

5

10

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30

35

40

45

50

2007 2008 2009 2010 2011 2012 2013

Wealthy Upper-middle Lower-middle Poor

(%)

Notes: Opinion poll asking “Are you wealthy, middle-class, or poor?”Source: AMAI (Mexican Association of Marketing Research and Public Opinion Agencies ).

(Year)

Figure II-2-3-14 Trends in Brazil’s minimum wage (left) and number of regular employees (right)

0

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800

1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20132014

Source: Brazilian Ministry of Labor and Employment, CEIC Database.

(Reals)

0

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1,500

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2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Source: Brazilian Ministry of Labor and Employment, CEIC Database.

(Million people)

25

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5

Figure II-2-3-15 Bolsa Familia (number of families in receipt, scale of expenditure as a share of GDP)

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14

2004 2005 2006 2007 2008 2009 2010 2011

Number of families (million) (left axis) Bolsa Familia expenditure as a share of GDP (right axis)

(Million families)

Source: Brazilian Ministry of Social Development and Hunger Alleviation (MDS).

(%)

(Year)

354

Figure II-2-3-16 Trends in the share of population by income bracket in Brazil

8.31 11.7615.5

38.64

55.0556.553.62

33.19

28

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2014

A/B C D/E

(Year)

Notes: Figures for 2014 (figures at the furthest right-hand side of the graph) are estimates. The other figures are figures for 2011.Source: New Middle Class Prospects in Brazil (FGV (Fundação Getulio Vargas)).

(%)

(3) Trade structure

While Mexico has concluded FTAs with countries and regions around the world, it is closely linked with the U.S. economy, a huge consumer market, due to its proximity. Exports to the United States accounted for 79% of Mexico’s overall exports in 2013. In recent years, Mexico has also been attracting attention as a gateway into Central and South American countries (Figure II-2-3-17).

For the United States, China is the largest import source country, with a share of 19%, compared with a share of 12% for Mexico (Figure II-2-3-18).

A look at the top 10 items of export to the United States from Mexico and China shows that there are five overlapping items, including the top three items for both countries (Table II-2-3-19). In recent years, Mexico has been exploring ways of diversifying export destination countries in order to mitigate its tendency to be affected by the U.S. economy (Figure II-2-3-20).

Meanwhile, amid growth in demand for primary goods in emerging economies, including China, Brazil’s exports to China in particular have increased. In 2009, China became the largest export destination country for Brazil, and primary goods, such as iron ore, soybeans and crude oil have become major export items (Figure II-2-3-21)220.

In particular, exports to China increased steeply between 2008 and 2010, and as a result, Brazil’s GDP growth rate recovered rapidly. While the effects of tax reduction221 have also contributed to the GDP growth, robust demand from China presumably acted as a driving force of the Brazilian economy. Although Brazil’s export dependence as a percentage of GDP is not high, its trade structure is prone to be affected by the Chinese economy and movements in international commodity prices (Figures II-2-3-22 and II-2-3-23).

220 The EU as a whole is the largest export destination, but China is only slightly behind. 221 Reduction of the industrial product tax applicable to automobiles.

355

Figure II-2-3-17 Mexico’s export partners

US78.8%

Canada2.8%

Spain1.9%

China1.7% Colombia

1.4%

Brazil1.3%

Germany1.0% India

0.9%

Japan0.6%

Other9.6%

Source: Global Trade Atlas.

2013 total: $380.1 billion

Figure II-2-3-18 Major sources of imports to the U.S. as of 2013

EU18%

China19%

Canada15%

Mexico12%

Japan6%

ROK3%

Other27%


Figure II-2-3-19 Goods imported to the U.S. from China and Mexico

Total value of imports from China 440,434 Share (%) Total value of imports from Mexico 280,455 Share (%)

Electrical machinery (HS85): Televisions,cellphones, etc.

117,532 26.7Transport equipment (HS87): Motor vehicles,etc.

53509 21.2

General machinery (HS84): Computers, etc. 100,445 22.8Electrical machinery (HS85): Televisions,cellphones, etc.

56816 20.5

Furniture (HS94) 24,124 5.5 General machinery (HS84): Computers, etc. 42314 15.2

Toys (HS95) 21,678 4.9 Mineral fuels (HS27): Crude oil, etc. 39823 12.4

Shoes and other footwear (HS64) 17,009 4.0 Precision instruments (HS90): Medicalequipment, etc.

10354 3.8

Apparel (HS61): Sweaters and other knittedgoods

15,578 3.5 Furniture (HS94) 7838 3.0

Apparel (HS62): Women’s clothing other thanknitwear

14,901 3.4 Precious metals (HS71): Gold, etc. 9633 2.5

Plastics, etc. (HS39) 12,928 2.9 Vegetables (HS07): Tomatoes, cucumbers, etc. 5644 2.0

Transport equipment (HS87): Motor vehicles,etc.

9,813 2.2 Plastics (HS39) 4458 1.8

Precision instruments (HS90) 9,523 2.2 Fruits (HS08) 3774 1.5

Source: Global Trade Atlas. Notes: Special classification items (HS98) have been excluded fromfigures for imports from Mexico.

356

Figure II-2-3-20 Mexico’s reliance on the U.S. in its exports

50

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Exports the U.S. Reliance

(Billion dollars)

Source: Banco de Mexico (central bank), CEIC Database.

(Year)

400

350

300

250

200

150

100

50

(%)

Figure II-2-3-21 Trends in Brazil’s export goods and destinations thereof

0

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Other Industrial products Semifinished goods Supplies and materials

(Billion dollars)

Source: Brazilian Ministry of Development, Industry, and Trade.

300

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50

(Year)

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

China the U.S. Japan


(Billion dollars)

(Year)

50

45

40

35

30

25

20

15

10

5

Figure II-2-3-22 Brazil’s export partners (2013) and trends therein

EU2720%

China19%

the U.S.10%

Argentina8%

Japan3%

Venezuela2%

ROK2%

Other36%


0%

5%

10%

15%

20%

25%

30%

-

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Value of exports China EU27 the U.S. Japan


(Billion dollars)

300

250

200

150

100

50

0(Year)

357

Figure II-2-3-23 Destinations for Brazilian exports of iron ore, soybeans, and crude oil (2013)

China47%

EU2721%

Japan9%

ROK5%

ASEAN103%

Other15%

Iron ore

China75%

EU12%

ASEAN104%

Taiwan2%

Japan2%

Other5%

Soybeans

China23%

US20%

EU19%

India9%

ASEAN104%

Other25%

Crude oil


(4) Future challenges

Both Mexico and Brazil promoted reforms following economic crises. Mexico promoted structural reforms such as trade liberalization and privatization after experiencing a debt crisis in 1982 and a currency crisis in 1994 and actively implemented a policy of opening up by making the most of its proximity to the United States as an advantage, thereby growing into a manufacturing and export base. On the other hand, while Brazil actively accepted inward foreign direct investments, it grew its domestic market by fostering domestic industries and expanding the middle class. In addition, in recent years, Brazil has continued to achieve development while maintaining a trade surplus through resource exports. While both countries have pursued their respective growth strategies, they face many challenges.

Mexico’s challenges include income inequality and structural reform of the energy sector. In this respect, expectations are growing for President Enrique Pena Nieto’s structural reform efforts, and the efforts so far made have been appreciated by the market to a certain degree (Table II-2-3-24).

While the savings rates in Central and South American countries are generally said to be low compared with the rates in Asian emerging economies, the rate in Brazil is particularly low. Brazil needs to improve its underdeveloped infrastructure, which is an element of the “Brazil cost,” by increasing the savings rate and promoting investments and also curbing inflation (Table II-2-3-25).

Brazil has become prone to be affected by changes in the external financial environment, as it has continued to record a current account deficit due to an increase in imports caused by the growth of the domestic market. A U.S. credit rating agency downgraded Brazil’s foreign-currency and long-term sovereign debt rating, so attention needs to be paid to whether the country can maintain fiscal discipline (Figure II-2-3-26).

In addition, the household debt ratio has been rising in Brazil in recent years, while the growth in the balance of loans provided by private banks has remained stagnant (Figure II-2-3-27). The level of debts owed by the middle class is higher than the average for major Central and South American countries (Argentina, Brazil, Chile, Colombia, Peru and Mexico), and it has been pointed out that there has been no progress in capital formation by the private sector222. In Brazil, the domestic market has

222 Ferreia, Francisco H G., Julian Messina, Jamale Rigolini, Luis-Felipe Lōpez-Calva, Maria Ana Lugo

and Renos Vakis (2013), Economic Mobility and The Rise of The Latin American Middle Class, World

Bank

358

grown considerably in recent years due to a strong consumption appetite in an emerging middle class. For example, Brazil overtook Germany and became global No. 4 in terms of domestic automobile sales. Brazil was able to pursue a policy of limited opening up compared with Mexico presumably because of its huge domestic market and abundant reserves of various resources. Attention needs to be paid to how Brazil will secure the sustainability of a domestic demand-led economy driven by domestic consumption, including how it will handle external economic relationships.

Table II-2-3-24 Ratings of foreign currency denominated government bonds issued by Mexico and Brazil

Brazil Outlook Mexico OutlookS&P BBB－ Stable BBB＋ PositiveMoody's Baa2 Positive A3 StableFitch BBB Stable BBB+ StableAs of Tuesday, March 25, 2014

Table II-2-3-25 Domestic Total savings rate (comparison with emerging economies in Asia)

2005 2006 2007 2008 2009 2010 2011 2012 2013

Brazil 17.8 18.0 18.4 19.0 16.3 18.0 17.6 15.1 14.7

Chile 23.5 25.3 24.7 22.3 22.4 24.1 22.5 21.6 20.5

Colombia 18.9 20.5 20.1 20.7 20.4 19.1 20.9 20.4 20.9

Mexico 21.3 22.7 22.0 22.6 22.0 21.7 21.2 22.0 20.4

India 33.5 34.7 36.8 32.0 33.7 33.8 31.4 30.0 32.7

Indonesia 25.6 28.0 26.5 27.8 33.0 33.0 33.1 32.0 30.4

Thailand 27.1 29.4 32.8 29.9 29.5 29.1 27.8 29.3 28.5

Malaysia 36.8 38.8 38.8 38.5 33.4 34.2 34.9 31.9 30.1Unit (%)Source: WEO, April 2014 (IMF).

359

Figure II-2-3-26 Trends in Brazil’s primary balance to GDP ratio and targets for this

3.72 3.79

3.20 3.31 3.42

2.00

2.70

3.11

2.38

1.90

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Primary balance to GDP ratio Target

(%)

Notes: Figures are actual values. (Primary balance to GDP ratio)Source: OECD, Central Bank of Brazil.

(Year)

Figure II-2-3-27 Trends in Brazil’s household debt burden (left) and in its bank lending balance as a share of GDP (right)

0

5

10

15

20

25

30

35

40

45

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01/2

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10/2

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014

Debt as a percentage of monthly income

Of which, interest burden rate

Debt as a percentage of annual income

(%)

Source: Central Bank of Brazil’s time series statistical data service.(Month, year)

0

10

20

30

40

50

60

1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9 1 5 9

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Public sector

Private sector banks

Total

Source: Central Bank of Brazil’s time series statistical data service, CEIC Database.

(%)

Private sector banks take a more rigorous attitude to credit and the public sector makes up for this

(Month, year)

Column 11 Resource-producing countries’ economic structures and initiatives to reduce dependence on resources ― Russia and Australia

Generally speaking, resource producing countries are said to be vulnerable in that they are prone to be affected by movements of prices of primary goods. However, although both Russia and Australia are resource producing countries, they were affected in different ways by the deterioration of the global economic conditions after the collapse of Lehman Brothers. In this column, we examine these two countries’ dependence on resources and their differences and describe their initiatives to reduce their dependence on resources.

(1) Russia (A) Dependence on resources

A breakdown of Russia’s real GDP growth by demand component shows that personal consumption supported its high growth before the collapse of Lehman Brothers. However,

360

immediately after the collapse of Lehman Brothers, all of personal consumption, fixed capital formation, exports and inventories recorded negative growth, and in the second quarter of 2009, real GDP posted a steep contraction of 10%. Subsequently, real GDP returned to positive growth in the first quarter of 2010, and the real GDP growth rate has mostly stayed at around 4% since then, with personal consumption and exports contributing to the continuous positive growth. In particular, among factors behind an increase in exports is presumably a rise in the price of crude oil (WTI) (Column Figure 11-1).

Figure Column 11-1 Russia’s real GDP growth rate (broken down by degree of contribution)

-25

-20

-15

-10

-5

0

5

10

15

20

25

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010 2011 2012 2013

Inventory ImportsExports Gross fixed capital formationGovernment consumption Consumer spendingGDP growth rate

(Comparison with the same period of the previous year, %, percentage points)

(Quarter, year)

Notes: Real values with 2008 as the base year.Source: Federal State Statistics Service, CEIC Database.

By item, mineral fuels such as petroleum, petroleum gas and coal accounted for around 60%

(worth 186.2 billion dollars) of Russia’s overall exports in 2013, reflecting the country’s heavy dependence on resources for export. Meanwhile, industrial products, such as general machinery, automobiles and electrical machinery accounted for around 40% (worth 125.6 billion dollars) of overall imports (Column Figures 11-2 and 11-3).

361

Figure Column 11-2 Russia’s exports

0

50,000

100,000

150,000

200,000

250,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Petroleum & bituminous oil

Liquefied petroleum gas & other gaseous hydrocarbons

Coal & briquettes

Aluminum

Semifinished iron or unalloyed steel goods

Wood

Wheat & meslin

Fertilizer ingredients

Nickel

Nitrogen fertilizer

(Million dollars)

Source: Global Trade Atlas.(Year)

Petroleum & bituminous oil

37%

Liquefied petroleum gas & other gaseous hydrocarbons

22%

Coal & briquettes4%

Steel6%

Fertilizer3%

Aluminum & its products3%

Timber & timber products, charcoal

2%

General machinery

2%

Grains2%

Copper & its products2%

Organic chemicals1%

Nickel & its products1%

Other14%

Exports (2013)

$290.1 billion

Major Exports to the EU27- Petroleum & bituminous oil

(47.7%)- Liquefied petroleum gas & other gaseous hydrocarbons(25.7%)

- Coal & briquettes (3%)- Nickel (2.2%)- Semifinished iron or unalloyed

steel goods (1.5%)


Figure Column 11-3 Russia’s imports

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

General machinery

Motor vehicles

Electrical machinery

Pharmaceuticals

Plastics & plastic products

Precision instruments

Steel products

Edible fruits & nuts

Meat & edible meat offal

Steel

(Million dollars)

Source: Global Trade Atlas. (Year)

General machinery18.7%

Motor vehicles13.3%

Electrical machinery11.8%

Pharmaceuticals5.0%Plastics & plastic products

3.6%Precision instruments

2.8%

Steel products2.6%

Edible fruits & nuts2.2%

Meat & edible meat offal2.1%

Steel1.8%

Other 36.1%

Imports(2013)

$287.0 billion

Major Imports from the EU27- General machinery (21%)- Motor vehicles (14.1%)- Medical supplies (8.9%)- Electrical machinery (8.4%)- Plastics & plastic products (4.3%)


As for trading partners’ shares, Europe’s shares of Russia’s exports and imports have mostly stayed at around 50% and 40%, respectively. Russia’s trading partners are mostly European countries, although it does not depend heavily on specific countries within Europe. This indicates that Russia’s trade is prone to be affected by the European economic conditions (Column Figures 11-4 and 11-5).

Figure Column 11-4 Russia’s export partners

53%52% 55%

60%

53%51%

49%

50%

54%

57%

53%

57%

55%

57%

54%

53%

53%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

EU27 Turkey Ukraine China

Japan the U.S. ROK Switzerland

Taiwan Uzbekistan

(Million dollars)


EU27 53%

Turkey 8.1%

Ukraine 7.5%

China 5.7%

Japan 3.3%

the U.S. 2.7%

ROK 2.2%

Switzerland 1.7%

Taiwan 1.5%Uzbekistan 1% Other 13.2% Major export destinations

among the EU27－Netherlands(12.8%)－Italy(7.3%)－Germany(7%)－UK(4.2%)－Latvia(3.5%)

Exports (2013)$290.1 billion


362

Figure Column 11-5 Russia’s import sources

48%48%

47% 44%47% 50%

48%

46%

44%

44%

43%

42%

43%

40%

43%43% 43%

0

50,000

100,000

150,000

200,000

250,000

300,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

EU27 China the U.S. Ukraine

Japan ROK Turkey Brazil

India Switzerland


(Million dollars)

(Year)

EU27 43.2%

China 18%

the U.S. 5.6%

Ukraine 5.2%

Japan 4.6%

ROK 3.4%

Turkey 2.5%

Brazil 1.2%India 1%

Switzerland 1%Other 14.2%

Major import sources among the EU27－Germany(12.4%)－Italy(4.8%)－France(4.2%)－UK(2.7%)－Poland(2.7%)

Imports(2013)

$287.0 billion


Next, we look at how oil price movements affect the Russian economy. A breakdown of Russia’s national budget shows that oil and natural gas account for around 50% of its revenue. The ratio of resource-related revenue to overall revenue is particularly high in Russia compared with in other primary goods exporting countries (Column Table 11-6).

Table Column 11-6 Breakdown of Russia’s national budget (revenue) (January – December 2013)

Malaysia Indonesia Mexico

Budget(Billion rubles) Share (%)

Budget(Billion rubles) Share (%)

Petroleum & natural gas-related 6453.2 50.2% 6534 50.2% 18.0% 21.7% 33.3%

Revenue 12853.7 13019.9Notes: Figures for Malaysia, Indonesia, and Mexico are a moving average for the previous three years. Figure for Indonesia is a moving averagefor the previous three years in 2010-2012.Source: Economic Expert Group (http://www.eeg.ru/pages/148).

2012 (Jan-Dec) 2013 (Jan-Dec)Russia

2011-2013

Share (%)

Russia’s fiscal revenue has increased in tandem with a rise in the price of crude oil (WTI),

indicating that Russia’s fiscal position is prone to be affected by crude oil price movements (Column Figure 11-7).

363

Figure Column 11-7 Crude oil price (WTI) and Russia’s fiscal balance

-120

-80

-40

0

40

80

120

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Government expenditure

Government revenue

Crude oil price (WTI) (right axis)

(Billion rubles) (Dollars/barrel)

(Year)Source: Ministry of Finance of the Russian Federation, CEIC Database.

In Russia, where resources account for around 60% of overall exports, the rise in the crude oil

price has acted as a driving force of the economic growth by expanding the trade and current account surpluses and domestic demand. Although the crude oil price surpassed 100 dollars per barrel in 2008, it plunged in 2009 following the collapse of Lehman Brothers, resulting in the shrinkage of Russia’s trade surplus. Subsequently, the crude oil price recovered to the level reached immediately before the collapse of Lehman Brothers (Column Figure 11-8).

364

Figure Column 11-8 Crude oil price (WTI) and Russia’s trade balance

0

20

40

60

80

100

120

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Trade balance


(Million dollars)

Source: IMF, CEIC Database.

(Dollars/barrel)

(Year)

Crude oil price movements have had significant effects on stock price indexes as well. When the crude oil price fell steeply after the collapse of Lehman Brothers, Russian stock prices dropped in tandem. Once the crude oil price moved upwards, Russian stock prices also recovered (Column Figure 11-9).

Figure Column 11-9 Trends in crude oil price (WTI) and Russia’s stock price index

Stock price index(RTS)1442.730

Crude oil price (WTI)97.90

0

20

40

60

80

100

120

140

160

0

500

1,000

1,500

2,000

2,500

3,000

1 6 11 4 9 2 7 12 5 10 3 8 1 6 11 4 9 2 7 12 5 10 3 8 1 6 11 4 9 2 7 12 5 10 3 8 1 6 11 4 9 2 7 12

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(Month, year)

(Dollars/barrel)(RTS Index, January 1995 =

100)

Stock price index (RTS)


Source: CEIC Database, IMF Primary Commodity Prices Database.

As for foreign direct investments in Russian industries, around half of such investments are made in manufacturing and mining industries. Although investments in manufacturing industries temporarily declined in 2009, they have been on an uptrend since then (Column Figure 11-10).

365

Figure Column 11-10 Trends in inward investment in Russia’s manufacturing industry (flow and stock)

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Other

Mining

Manufacturing

Overall

Source: Federal State Statistics Service.

(Million dollars)

(Year)

(B) Government initiatives The government of Russia has set the goal of increasing the ratio of total investments to GDP to

25% or higher in 2015 and to 27% or higher in 2018 by promoting investments from both within and outside of the country. It has also set the goal of raising labor productivity by 50% by 2018 compared with 2011 and creating 25 million jobs by 2020223. The government is presumably aiming to create an economic system that does not depend on resource price movements.

(2) Australia (A) Dependence on resources

A breakdown of Australia’s real GDP growth by demand component shows that in 2013, fixed capital formation, which had until then made significant positive contributions to real GDP growth, made negative contributions, while increases in personal consumption and exports contributed to the real GDP growth (Column Figure 11-11).

223 These goals were set forth by President Vladimir Putin in a presidential directive dated May 7, 2012 concerning a long-term economic plan.

366

Figure Column 11-11 Australia’s real GDP growth rate (broken down by degree of contribution)

-6

-4

-2

0

2

4

6

8

10

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009 2010 2011 2012 2013

Margin of error Inventory ImportsExports Gross fixed capital formation Consumer spendingGovernment expenditures GDP growth rate

(Comparison with the same period of the previous year, %, percentage points)

Source: Australian Bureau of Statistics, CEIC Database.

(Quarter, year)

If we look at a time-sequential trend of Australian exports by item, we see that exports of resources

such as iron ore and coal have been growing since 2008. In 2008, coal (20.4%) and iron ore (13.6%) together accounted for around 30% of Australia’s overall exports, and in 2013, the share of resources, including iron ore (26.5%) and coal (15.2%) has expanded, reflecting the country’s increasing dependence of resources for export (Column Figures 11-12, 11-13 and 11-14). Figure Column 11-12 Trends in the composition of Australia’s exports by item

(Million dollars)

(Year)Source: Global Trade Atlas.

Iron ore

Coal

Liquefied gas

GoldPetroleum & bituminous oilWheat

Chemical products

Copper ore

Frozen beef

Aluminum ingots

367

Figure Column 11-13 Composition of Australia’s exports by item 2008

Iron ore13.6%

Coal20.4%

Liquefied gas4.6%

Gold6.5%

Petroleum & bituminous oil4.8%

Wheat1.7%

Chemical products2.9%

Copper ore1.8%

Frozen beef1.3%

Other 39.5%

Australia’s exports$186.5 billion


Figure Column 11-14 Composition of Australia’s exports by item 2013

Iron ore26.5%

Coal15.2%

Liquefied gas6%Gold

5.3%Petroleum & bituminous oil

3.4%

Wheat2.4%

Chemical products2.1%

Copper ore2%

Frozen beef1.4%

Other 33.5%

Australia’s exports$252.7 billion


Regarding import items, crude oil, passenger cars, petroleum and bituminous oil have continued to together account for about 20% of overall imports, with no significant change observed in these individual items’ shares (Column Figures 11-15, 11-16 and 11-17).

Figure Column 11-15 Trends in the composition of Australia’s imports by item

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Crude oil

Passenger cars

Petroleum & bituminous oil (excluding crude oil)

Pharmaceuticals

Telephones

Automatic data processing machines

Trucks

Gold

Liquefied gas

Rubber pneumatic tires


(Million dollars)

(Year)

368

Figure Column 11-16 Composition of Australia’s imports by item 2008

Crude oil8.1%

Passenger cars6.7% Petroleum & bituminous oil

(excluding crude oil)6.7%

Pharmaceuticals3%

Telephones2.1%


2.6%

Trucks2.8%

Gold4.3%

Liquefied gas0.8%

Other 62.1%

Australia’s imports$190.9 billion

Source: Global Trade Atlas. Figure Column 11-17 Composition of Australia’s imports by item 2013

Crude oil8.4%

Passenger cars7.6%

Petroleum & bituminous oil (excluding crude oil)

7.6%Pharmaceuticals

3.2%

Telephones3.0%


2.9%Trucks2.6%Gold

1.9%

Liquefied gas1.2%

Other 59.8%

Australia’s imports$232.7 billion


What is notable about the trend in Australia’s trade is that resources’ growing share of the

country’s exports is attributable to an increase in exports to China in particular. In 2013, China (share of 36%) was the top export destination country for Australia, followed by Japan (18%) and ROK (7.3%), meaning that Northeast Asia had a share of about 60% of Australia’s overall exports. China also had a large share as an import source country for Australia (Column Figures 11-18 and 11-19).

Figure Column 11-18 Australia’s export partners

0

50,000

100,000

150,000

200,000

250,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

China Japan

ROK India

the U.S. New Zealand

Taiwan Singapore

Malaysia Thailand


(Million dollars)

(Year)

China 36%

Japan 18%ROK 7.3%India 3.7%

the U.S. 3.5%

New Zealand 2.8%

Taiwan 2.8%

Singapore 2.1%

Malaysia 2%

Thailand 1.9%

Other 20.0%

Exports(2013)

$252.7 billion


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Figure Column 11-19 Australia’s import partners

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

China

the U.S.

Japan

Singapore

Germany

Thailand

ROK

Malaysia

New Zealand

UK

(Million dollars)


China 19.5%

the U.S. 10.2%

Japan 7.9%

Singapore5.4%

Germany4.7%

Thailand4.7%

ROK4.2%

Malaysia 3.9%

New Zealand 3.1%

UK 2.6%

Other 33.8%

Imports(2013)

$232.7 billion

Source: Global Trade Atlas. Looking at the relationship between China’s nominal GDP and changes in the value of Australia’s

resource exports (iron ore and coal), the resource export value rose almost in tandem with China’s nominal GDP growth throughout the 2000s. Although the trend changed in 2012, it indicates that throughout the 2000s, China’s GDP growth led to an increase in China’s imports, which in turn resulted in an increase in Australia’s resource exports. As China’s growth rate is slowing down, Australia’s exports are unlikely to grow significantly in the future (Column Figure 11-20).

Figure Column 11-20 Comparison of China’s nominal GDP and the value of Australia’s resource (iron ore, coal) exports

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

China’s nominal GDP

Australian resources (iron ore + coal) (right axis)

Source: Global Trade Atlas, OECD.

(Million dollars)(Million dollars)

(Year)2013

370

(B) Government initiative The government of Australia has indicated a policy of promoting economic partnerships with

East Asian countries224. As this initiative contributes to the promotion of exports of Australian products, including not only resources but also agricultural products, it is expected to lead to a decline in the effects of changes in resources demand on the Australian economy.

224 Australian Government (2012), “Australia in the Asian Century” White paper 2012 October

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