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Telecommunications

Telephone line density is among the lowest in Latin America. Plus, the economic expansion and rapid rise in the demand for communications services have further widened the gap between demand and supply (The Economist Intelligence Unit, 1998b).

Privatisation is seen as the solution to the problem with the installation of new digital technology systems. The cost of national long-distance calls is to be reduced by some 25% by the end of 2004, while international tariffs are to fall by 66% over the same period. The privatised companies will also have to install a total of 16 million new telephone lines by 2002, representing a doubling in size of the existing network. Competition in the telecommunications sector will intensify still further after 2002, when any operator wishing to provide services will be allowed free entry to the Brazilian market.

While the telecommunications system will undoubtedly cause challenges to AG Barr in the short term, this should not impact negatively on a long-term investment decision given the planned improvements.

Transportation

Generally transport in Brazil is expensive, difficult and slow.

About 59% of freight is transported by road. The deterioration of the federal road network has been an increasing problem in recent years. The government has awarded concessions for the management of five federal highways and the winners are already starting to repair the roads. Concessions are to be offered to the private sector to expand the whole system.

Brazil's rail network is generally obsolete and inefficient, accounting for only 21% of all freight transport. The system has been almost entirely privatised and the new owners have already started a programme of modernisation and expansion. Over the next 30 years $3.4bn is expected to be invested in Brazil's railways.

Brazil has great potential for river and maritime shipping that has yet to be fully exploited, as its ports remain inefficient, costly and under mechanised.

Air transport is a high-cost alternative serving more than 150 centres of population. There are three major airlines, as well as a large number of small interstate feeder airlines operating regionally (Economist Intelligence Unit, 1998b).

As with telecommunications Brazil's poor transportation system should not impact negatively on a long-term investment decision given the planned improvements.

Power

AG Barr should be aware in considering market entry in Brazil, that the electricity industry has been plagued by stagnation and chronic under-investment, leading to a constant threat of blackouts which could impact on production and distribution. The industry, like others is gradually being privatised (The Economist Intelligence Unit, 1998a).