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1990-95 (compared with 4.3% in Argentina) and services are highly inadequate (The Economist Intelligence Unit Limited, 1998). However, a study reported in the British Journal of Nutrition indicates that aspartame, a key ingredient in soft drinks may act against dental decay as it inhibits plaque micro-organisms ("Perspectives": A Publication of the Canadian Soft Drink Association Winter 1995/96 http://www.softdrink.ca/prw96en.htm). In a country where little money is spent on health, this could be a good selling point for AG Barr.

Education and Skill Levels

Following many years of neglect, especially in basic education (primary and secondary), Brazil's education indicators compare unfavourably with those of other Latin American countries. In 1995 Brazil had an adult illiteracy rate of 16.7% in 1995 and only 1,079 tertiary level students per 100,000 inhabitants, compared to 1,477 in Mexico and 3,323 in Argentina. The result of the inadequate education system is a relatively small group of well-educated professionals and well-trained skilled workers and a large number of non-skilled workers (The Economist Intelligence Unit Limited, 1998b). This is not likely to be a significant issue for AG Barr, as although two-thirds of employees of foreign companies must be Brazilian citizens, exceptions may be made in the event that Brazilian labour is not available for particular positions (KPMG, 1998).

Since 1994 attempts have been made to improve the critical educational situation shifting priority to lower and more basic levels of education. This appears to have had some impact. The number of children attending school increased while there has also been a reduction in illiteracy and drop-out rates, and the repeating of grades. At the end of 1996 Congress passed legislation requiring that 15% of state and municipal revenue be spent on primary education. This should guarantee a minimum of $276 per student per year in any municipality and in 1997 the Government launched an extensive programme to combat adult illiteracy (The Economist Intelligence Unit, 1998b). It is therefore likely that over time literacy and skill levels should improve which will benefit AG Barr, should it decide to enter the Brazilian market.

Unemployment

Unemployment has risen 5.7% in 1997 to 8.5% in 1998 (Financial Times, 1998). While a rise of this level is relatively insignificant, if this is part of an upwards trend AG Barr should be aware that while they may benefit from a resulting downward pressure on wages, this needs to be offset against a decline in spending power.

Workforce Issues

External competition has led to sharp rise in labour productivity. According to a former finance minister labour productivity has risen 7.5% a year since 1990 (Financial Times, 1998). While productivity is increasing and basic wages are low, AG Barr needs to be aware of a complex set of compulsory taxes and social benefits which add 50-80% to basic wages. Costs are also likely to be incurred given the increasing need for private industry to take up where Brazil's educational system has left off, by investing more in training (The Economist Intelligence Unit Limited, 1998a).

Infrastructure and Technology

Years of government neglect have resulted in a large gap between supply and demand in the transport and communications sectors with high cost, poor quality services damaging Brazil's international competitiveness. These problems are set to improve over the medium term as a result of the government's ambitious privatisation programme, although change is obstructed by ongoing political opposition to reform, budgetary constraints and a public-sector workforce ill-prepared to operate in a more competitive environment (The Economist Intelligence Unit Limited, 1998b).