Brazil’s economic growth will depend increasingly on productivity, as the scope for increasing labour participation has diminished. The industrial sector, where a few key structural reforms could unleash significant unexploited potential, can play a leading role in this respect. Industrial productivity has been low and stagnating, as weak policy settings have been responsible for high costs and incentive structures that have not been conducive to productivity gains. Taxes are high and compliance costs generated by a fragmented system of indirect taxes are a key driver of costs. Infrastructure bottlenecks, due to many years of low infrastructure investment, drive up transport and logistics costs for industrial companies, in particular with respect to industrial exports. Labour costs and difficulties in contract enforcement have also been concerns for industrial firms. Partly as a result of weak competitive pressures and high trade protection, Brazil has not benefited from the productivity gains associated with global trends that have shaped industrial production elsewhere, including a growing fragmentation of the value chain, the rising integration of the economy into international trade and a fluid reallocation of resources across firms. Innovation performance has also been held back by a lack of competition. The costs and benefits of targeted policy interventions for specific sectors are hard to ascertain in the absence of systematic and regular policy evaluations, which would allow a better focus on the more effective policy measures.