Brazil has never been so popular among investors as it is now. Interest has risen steadily over the past 15 years as the country has managed to overcome one political, macroeconomic and business challenge after another. Privatisation, liberalisation, a new stable currency, the smooth handover of political power, to name but a few achievements, coupled with a boom in global demand for Brazil’s copious supplies of commodities, have boosted foreign currency earnings and fired up consumer spending. Brazil has been transformed from “country of tomorrow” to “once-in-a-lifetime opportunity”.

The transition is, of course, far from over: education, bureaucracy, corruption, infrastructure and fractious politics, to list just a few deep-seated problems, will take years to address. But its new-found economic and political stability – which helped the economy withstand recent global financial shocks – allows policymakers to make a serious start on addressing these issues. Moreover, the country’s natural riches in agriculture and mining – and potentially offshore oil too – will, if used wisely, provide the cash needed for vital investments for years to come.

Some of the key conclusions of this report and the main challenges facing Brazil include the following:

Poor infrastructure takes a heavy toll on business. Although something of a truism, the parlous state of the infrastructure tops the list of obstacles faced by investors in Brazil. In our survey, nearly one half of respondents (49%) point to “low standard or costly infrastructure” as the main operating obstacle. In spite of some improvement in logistics, freight depends on costly road haulage; there are few railroads; the potential for waterways remains largely unexplored; and ports and airports are congested. These conditions can add one quarter or more to the cost of getting goods to market, say investors. Logistics experts call for better co-ordination between different layers of government and the private sector.

Weaknesses in the education system impair the supply of relevant workplace skills. While many of the graduates of Brazil’s universities are viewed as top class, there are too few of them. Poor teaching and resourcing in secondary education means that school leavers are among the world’s least educated. Companies find they must fill the skills gaps themselves with their own training. At least one third of investors surveyed say skills shortages represent one of the biggest operating problems, with almost one half (47%) of US-based companies reporting this as their greatest challenge. Educationalists call for a more relevant curriculum, better teacher training, and a shift in state funding from tertiary to secondary education.

Investors praise the abilities of their Brazilian managers. Education standards may be higher in most parts of Asia, but, say investors, the quality of management is “probably worse in China and India”. Indeed, Brazilian managers are deemed to be on a par with their peers in developed markets, and superior to those from other emerging markets, according to 42% of survey respondents. In particular, investors laud the flexibility and maturity of their Brazilian staff, a facet that may derive from learning to cope with economic upheaval. However, this flexibility does not translate adequately into innovation.

Brazil lags in innovation; investors could help more. Brazil scores poorly on most innovation rankings, and deeper analysis suggests that even the meagre investments into innovation could produce better results. Some 57% of surveyed executives do not have a dedicated R&D facility, or even plan to have one in the short term in Brazil. Over one half of respondents (51%) say that, at present, less than 10% of products and services sold by their companies have actually been developed there, and at least one quarter of respondents expect no progress on that score over the next three years. Yet almost half (49%) of survey respondents describe the capacity of Brazilian-based businesses to integrate the latest international technology into their operations as either “very good” or “excellent”, and only 6% say it is “poor”. This indicates that better education, improved infrastructure, greater investment in R&D and closer relations between companies and universities would have a disproportionately positive impact on innovation. That said, business has broken new ground in environmental and agricultural technologies, which are being exported worldwide.

Co-operation with universities works well. One way to promote innovation is through business co-operation with academic institutions. Experience seems relatively limited, but positive. Of survey respondents whose Brazil-based operations already work with local universities, 60% say the relationship has been “positive” and 12% “very positive”, compared with less than one quarter (23%) who say that such co-operation “failed to live up to expectations” or was “very unsuccessful” (5%). Brazilian-based companies would appear to get the rough end of such deals (or perhaps are too optimistic about their potential), as almost one third (32%) report that such co-operation “failed to live up to expectations”.

Brazil focuses on “South-South” trade relations, especially with China. As part of a general policy of trade diversification, one of the biggest changes in Brazilian trade policy under President Lula has been the expansion of trade and investment with China. China has become Brazil’s largest export and import partner, and provides investment and finance to secure supplies of key minerals. Brazil has also expanded its share of trade with the rest of Latin America, other Asian countries, the Middle East and Africa, especially in agriculture.

Brazilian firms still suffer from poor brand recognition abroad. Beyond the charmed circle of a few high-profile companies, Brazilian brands still lack the global draw of their Western counterparts. This is reflected in our survey, in which 84% of respondents say that Brazilian brand names are not well recognised or not highly regarded abroad. Only 3% of US-based respondents believe that Brazilian brands are both recognised and highly regarded. However, the perception of Brazilian brands changes somewhat among China-based executives, with almost one quarter of those respondents (24%) giving a warm reception to Brazilian products.