Report No. 4093-CO F C(olombia tManufacturing Sector Developments and C(hanges in Foreign Trade and Financial Policies (In Two Volumes) Volume II: Detailed Analysis and Appendices January 21, 1983 Projects Department Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This docurnent has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS 1/ Currency Unit = Colombian Peso (Col$) US$1.0 - Col$70.11 Col$1.0 = US$.0143 Col$1.0 million = US$14,164 GLOSSARY OF ABBREVIATIONS ANDI Asociacion Nacional de Industriales (National Association of Manufacturers) ASOBANCARIA Asociacion Bancaria (Banking Association of Colombia) BR Banco de la Republica (The Central Bank) CAF Corporacion Andina de Fomento (Industrial Financing Agency of Andean Common Market) CAT Certificado de Abono Tributario (Tax Rebate Certificate for Non-traditional Reports) DANE Departamento Administrativo Nacional de Estadistica (National Statistical Office) DNP Departamento Nacional de Planeamiento (National Planning Office) CDTs Certificados de Deposito al Termino (Certificates of Deposit) CEPAL Comision Economica para America Latina (United Nations, Economic Commission for Latin America) CFs Corporaciones Financieras (Investment Banks) ECOPETROL Empresa Colombiana de Petroleo (National Petroleum Company) FEDESARROLLO Fundacion para la Educacion Superior y del Desarrollo (Economic Research Institute in Bogota) FFI Fondo Financiero Industrial (Industrial Financing Fund) FIP Fondo de Inversiones Privadas (Private Investment Fund) IFI Instituto de Fomento Industrial (Official Industrial Development Bank) IFS International Financial Statistics, Published by the Inter- national Monetary Fund (IMF) INCOMEX Instituto Colombiano de Comercio Exterior (Colombian Foreign Trade Institute) PROEXPO Fondo de Promocion de Exportaciones (Export Promotion Fund) PV Plan Vallejo (Import Drawback Device for Exporters of Non-traditional Products) UPACs Unidades de Poder Adquisitivo Constante (Indexed Investments Issued by-Savings and Loan Associations) ll December 31, 1982 FOR OFFICIAL USE ONLY VOLUME II DETAILED ANALYSIS AND APPENDICES Page No. I. EXPORT INCENTIVES AND IMPORT PROTECTION FOR INDUSTRY A. The Export Incentive System ................... ........ 2 B. Imporl: Controls and Effective Protection . .... 13 Annex 1: Formulas for Effective Export Incentives ............ 23 ]II. TRENDS AND DETERMINANTS OF MANUFACTURED EXPORTS AND IMPORTS C. Exports of Manufactured Goods in Recent Years . . 25 D. Exports of Major Subsectors .. . 34 E. Does the Exchange Rate Matter? .......................... 40 F. Recent Growth and Change of Imports . . 42 G. Major Determinants of Colombian Imports . . 46 H. Prospects for Increased Manufacturing Exports and ImporLs ........................................................... 47 Annex 2: A Note on Colombian Export Statistics ............. . 56 III. THE OPENING-UP PROCESS AND ITS IMPACT ON I1DUSTRIAL GROWTH AND DEVELOPMENT I. Imports, Exports and Growth .......... .............. 60 J. Investment, Employment and Productivit:y and their Relation to Foreign Trade Policies,.,. I................... 69 K. Involuntary Import Liberalization: The Case of Textiles. 75 L. Barriers to Efficient Import Substitution and Exports: The Case of Capital Goods ............................... 80 Annex 3: The Textile Industry ............................... 89 Annex 4: The Metal Mechanical Industries ................... 139 IV. LIBERALIZING THE FINANCIAL SECTOR: ITS IMPACT ON INDUSTRIAL FINANCE AND INVESTMENT M. Finarncial Repression and Liberalization Attempts ...... 159 N. Sources of Aggregate Investment Finance, Inflation and Interest Rates ............... 163 0. Structural Changes of Industrial Finance .............. - 168 P. Other Issues in Financial Liberalization .............. - 176 V. STATISTICAL APPENDIX This document has a restricted distribution and may be used by recipients only in the performance of their official dluties. Its contents may not otherwise be disclosed without World Bank authorization. I. EXPORT INCENTIVES AND IMPORT PROTECTION FOR INDUSTRY 1.01 Since the Second World War, industrialization in Colombia has generally been tied to import substitution policies. Although the various incentives provided to industry did not always respond to a coherent indus- trial strategy, they generally operated withir. a development framework which placed priority on the growth of manufacturing activities through import substituion. High effective protection barriers were the principal policy instrument used to promote industrial growth, supplemented by an overvalued exchange rate and ample availability of subsidized credit. While these policies led to significant inefficiency in dcomestic manufacturing activi- ties, they also encouraged domestic and foreign investments. As a result industrial value added expanded rapidly at an average annual rate of 6.2% p.a. during 1950-66, with the fastest growth taking place during the early 1950s, and a substantial slowdown in the early 1960s. 1.02 The early sixties witnessed a series of balance of payments crises and successive devaluations, which led the aut:horities to reconsider the thrust of economic policy. There was increasLng awareness of the strategy's adverse implications for the balance of payments, since import substitution efforts in more complex industries turned out to be import intensive. The recurrent foreign exchange problems eventually led the authorities to seek a more export-oriented policy. Although isolated attempts at stimulating exports had been undertaken before, it was nol: until 1967 that a coherent set of measures was implemented to promote nontraditional exports.1! 1.03 The most important element of the new policies was the introduction of a crawling peg exchange rate system. A package of export incentives was also introduced, including: (a) fiscal incentives (CATS--Certif'icados de Abono Tributario); (b) concessionary credits for export-related activities from the Export Promotion Fund (PROEXPO); and (c) an expanded and more effective import/export regime (Plan Vallejo). The new policies represented an attempt to compensate for the relative price distortions genierated by the import substi'tution effort. Together with a favorable developrient of world trade, this shift in policy emphasis led to impressive results. Between 1968 and 1974 manufactured exports in current prices increased from US$58 million to over US$390 million, and their share in total exports rose fcrom 8% to 28%. Industrial value added increased by 7% p.a. in real terms, and the growth in manufacturing employment of 8.5% p.a. reached unprecedented levels, to a large part as a result of the relatively more labor-intensive characteristics of the leading export subsectors--textiles, apparel, footwear, an(d leather products. This growth of manufactured and other minor exports also succeeded in easing the foreign exchange problems which had plagued the economy in prior years. Net official internationaL reserves rose by more than US$500 million during the 1967-74 period, from a negative position of US$95 million in 1966. 1/ These included all exports other than ccffee and petroleun. The first export promotion measure implemented in 1960 was the import duty drawback system known as Plan Vallejo. - 2 - A. The Export Incentive System 1.04 Among the most important factors stimulating the growth of Colombia's manufactured exports during 1967-74 were the acceleration of world trade and the increased competitiveness of Colombian industry in inter- national markets. The sharp expansion of world trade of manufactured gocds has been estimated to have accounted for about one-third of Colombia's export growth, 2/ leaving the largest part to improvements of Colombia's competi- tiveness, which in turn was crucially linked to profitability in exporting. The key determinant of that profitability is the real effective exchange rate: the number of pesos that an exporter receives per unit of foreign exchange earned, adjusted for the difference between domestic and inter- national inflation rates. In Colombia, these earnings depend not only on the rate of devaluation of the peso but also on the effective value of the tax export subsidy (CAT), the effective value of subsidized PROEXPO credit, and the conditions of the import duty drawback scheme (Plan Vallejo); these are discussed in some detail below. Certificado de Abono Tributario (CAT) 1.05 The CAT is a tax certificate issued to exporters, valued at a given percentage of the value of exports (FOB). The CAT is freely negotiable and is traded on the stock exchanges, where exporters may sell it at a market- determined discount rate. At maturity, the owner may use the CAT to pay domestic taxes and duties. The cash value of the incentive is thus deter-- mined by (i) the percentage of export value granted as CAT; (ii) the market discount, which depends on the market interest rate and the maturity period( of the CAT; and (iii) the marginal tax rate of the owner (the CAT represents tax-free income). The total volume of CATs in terms of budgetary cost approached the value of about US$90 million in 1974 (nearly 9% of current revenues of the national government). Reforms of export incentives in subse- quent years reduced the value to an average of about US$40 million for the period 1975-77 (2.8% of current revenues). The 1978 value of the CATs was further reduced to US$32 million, or about 1.5% of current revenues. 1.06 The growing fiscal cost of the CATs until 1974 was the main reason for a sharp reduction of their 15% rate which had prevailed for all non- traditional exports during 1968-74.3/ The reduced percentages of CAT effec- tive for 1975 and 1976 were divided into three categories: (i) most agricul- tural and mining products obtained a CAT of 1% of export values; (ii) a large 2/ See J. P. Wogart, Industrialization in Colombia (Tubingen:Mohr, 1978), pp. 121-124. 3/ See J. D. Teigeiro and R.A. Elson, "The Export Promotion System and the Growth of Minor Exports in Colombia" IMF Staff Papers (July 1973), pp. 419-470. portion of industrial products received 5%; and (iii) the CAT for other non- traditional products was fixed at 7%. FEDESARROLLO has estimated that the weighted average CAT for all nontraditional exports was reduced through these measures from 15% of export value until 1974 to 3.6% in 1975 and 1976.4/ Changes in 1977 provided for an increase of 82% for most industrial products; major exceptions were textile yarn and fabrics, and wood products, which obtained 5%. The CATs for other exports were somewhat reduced on average, and the weighted average CAT declined to 2.5%. In 1978, the CATs were raised in an attempt to compensate for the lagging exchange rate devaluation, and four different rates were established: (i) 12%' for most industrial products; (ii) 9% for a number of agricultural products and several industrial products, the most important being textile yarn and fabrics! (iii) 5% for agricultural products such as meat, fish, vegetables and tobacco; and (iv) 1% for all other nontraditional products. The average weighted CAT thereby rose to 3.8% in 1978. Effective in 1979, a further increase of CAT percentages was implemented, which raised the subsidies to many of the export products previously receiving 5% to 9%, and reduced the number of products at the minimum 1% level. The weighted average CAT for 1979 was at 6%. In 1980, the 1% rate was abolished, leaving CAT rates at 5%, 9% and 12%. Most industrial products continue to receive a CAT of 12%. 1.07 Eligibility for the above CAT perceatages is based on. a number of different factors. Exports which benefit from the duty drawback system (Plan Vallejo) have to have at least 40% of domestic value added in order to obtain the stipulated CAT on the full FOB value. If the domestic value added is below 40%, the percentage of CAT is applied only to the amount of value added. About. half of the approximately US$1 billion of nontracitional exports in 1978 benefited from Plan Vallejo, but no information is readily available on the share of exports which actually obtained CATs, only on the amount of domestic value added. A second group of important exceptions to the above CAT rates is due to the special trade agreements with the U.S. on flowers (since 1974), leather handbags (effective 1978), and textiles and clothing (effective 1979). In order to avoid implementation oi- counter- vailing duties by the U.S., Colombia reduced the CAT for leather handbags from 12% to 6.5%. In addition to the establishment of export quotas, the CAT for garments was reduced from 12% to 9.6%, ar.d that for textile yarn and fabrics was Lowered from an average of 8.4% to 7.6%. These reductions apply only to exports of these product categories to the U.S. A total annual 4/ FEDESARROLLO, Coyuntura Economica (December 1978), Table VIII-6, page 81. The weights are according to the export structure of 1976. It should be noted that this average CAT, as well as the percentages and values calculated in the following text, are not adjusted for marginal tax rates and maturity periods and are t:hus not strictly comparable to the amounts of foregone fiscal revenues mentioned in the previous paragraph. - 4 - export volume of about US$40 million is affected by the latter twoagree- ments.5/ In addition to domestic fiscal considerations, the threat of countervailing duties has thus become another factor in moderating these incentives. 1.08 A number of reasons for the implementation of the above changes in the level and structure of CATs have been given by the authorities. These have changed over time, and have not always been consistent with each other or with the actual CAT system. The most important reason for the introduc- tion of CATs was the objective of providing exports with an overall compensa- tion for an overvalued exchange rate; consequently, an across-the-board CAT was established for all nontraditional exports. The drastic reduction in CAT rates in 1974, on the other hand, was clearly based on the objective of reducing the budget deficit.6/ After 1974, the strong differentiation of CAT percentages and their frequent changes reflect the desire to use the CATs as a more finely tuned instrument of export promotion. Among others, the following arguments have been mentioned in favor of differentiated CATs:7/ (i) exports with high domestic value added deserve a higher CAT than other products; (ii) exports with insufficient or variable domestic supply (such as agricultural products) should have a low CAT; (iii) exports with good poteln- tial in foreign markets only require a low CAT. More recently, the criteria mentioned for the differentiated increase of CATs in 1978 include the concept of products "critical" for the domestic market and the desire to support industrial products facing strong international competition. Moreover, it would appear that the 1979 rate increase for a substantial number of exports which were previously at the 1% and 5% levels was due partly to the Govern-- ment's announced intentions to use the CAT as an instrument of industrial decentralization and for the selective promotion of labor-intensive export products.8/ 5/ The quotas and the CAT reductions are applied only to exports which enter the U.S. under the Generalized System of Preferences (GSP). About US$20-30 million of garments exports entered the U.S. in 1978 under the assembly provision of U.S. tariff item 807, where quota and subsidy restrictions are not applied. 6/ However, at the time of this policy revision, the authorities did indicate their concern with the impact of these changes on the competitive position of exports, and for a period of time the rate of devaluation was speeded up. 7/ These criteria are listed by INCOMEX in Comercio Exterior, Vol. 10, No. 3. 8/ See the text of President Turbay's speech at the annual meeting of ANDI in 1978. -5- PROEXPO Credit 1.09 'When the CAT incentive system was cuictailed in 1974, the supply of subsidized export credit from PROEXPO was expanded, and new credit lines were added. In 1974, about US$150 million of short-term credits helped to finance US$680 million of nontraditional exports (22% coverage). The 1978 volume extended by PROEXPO credit was about US$600 miLlion, financing exports of about US$1 billion (60% coverage). Credits to industrial exports during the same period rose even more rapidly from US$101 million (26% coverage) to US$416 million (78% coverage). The expansion of PROEXPO credit was made possible by increased funding. PROEXPO's principal source of funds--an import surcharge on the CIF value of imports--was raised during this period from 1.5% to 5%. This surcharge represents about 20% of total tariff revenues. Export credits are granted through three major lines: (i) a short-term credit line, established in 1972, for the financing of working capital requirements. This credit line is in national currency, with a volume equivalent to about US$500 million in 1977 and US$524 million in 1978; (ii) a medium--term credit line, established in 1974, which finances working capital requirements for export production as well as fixed capiLtal expenditures. Credit is granted for up to five years (three years on average); credlit approvals were US$18 million in 1977 and US$33 million in 1978; (iii) a short-term post-shipment credit line in US dollars established in 1975. Credit approvals in 1977 were US$39 million and about US$50 million in 1978. 1.10 In addition to these three major credit lines, PROEXPO has also established a number of smaller credit lines: (i) a line in US dollars jointly with the Corporacion Andina de Fomentc. (CAF) to finance exports to the Andean Pact; (ii) credit support for the development of frontier areas; (iii) assistance to the Corporacion Financiera Popular for export financing of medium and small-scale enterprises; and (iv) financial assistance to the Instituto de Fomento Industrial (IFI). The total volume of these credit lines was US$20-25 million in 1980. 1.11 The increasing coverage of PROEXPO credit has provided liberal provision of export credit financing. While t:he authorities' monetary policy has aimed at restricting the expansion of domestic credit, since inflation accelerated in 1967-77, the increasing availability of credit from PROEXPO contributed to relieve the tight credit situation faced by the industrial sector. During the five-year period 1974-78, PROEXPO's credit approvals increased at an annual average rate of about 42% in current terms, compared with a growth rate of 31% in credit from commercial banks and financieras. PROEXPO thus constitutes an increasingly important source of credit to the manufacturing sector, with nearly 90% of its credit outstanding being of a short-term nature.9/ 9/ For further discussion of PROEXPO credits and their importance for overall industrial credit policy, see the discussion in Chapter IV. -6- 1.12 PROEXPO credit provides an interest rate subsidy, which has become more important in recent years as a result of the wider differential between PROEXPO interest rates and the interest rates charged by commercial banks. The value of this incentive increased almost fivefold between 1974 and 1980, as the authorities consciously attempted to compensate for the lagging exchange rate movement with more favorable lending terms. The level of the PROEXPO credit subsidy reached 7.5 cents for every dollar of exports in 1980. Since the subsectoral distribution of PROEXPO credit was quite similar to the actual percentage composition of exports by product categories, the interest rate subsidy operated as an across-the-board incentive. Plan Vallejo (PV) 1.13 The import duty drawback system, known as Plan Vallejo, constitutes the oldest instrument of export promotion for manufactured exports. Under this scheme, export manufacturers establish contracts with the Government for the import of inputs and machinery free of import duties and other import charges. The exporter has three advantages when using Plan Vallejo: (i) aL reduction in production costs, which is especially valuable for export products with a high share of imported inputs; (ii) increased flexibility in the choice of production inputs; and (iii) a reduction of the "red tape" connected with usual import procedures. In addition, import applications under Plan Vallejo face a smaller risk of rejection by INCOMEX, which allows for better production planning. Nearly half of all nontraditional exports in 1977-78 benefited from duty-free imports under Plan Vallejo, compared to a little over one-third in 1974-75. The increased importance of Plan Vallejo in 1977-78 compared to 1974-75 reflects the significant increases in domestic costs relative to international prices between the two periods. Virtually all textile exports benefited from Plan Vallejo. Paper and printing (69%), chemicals (51%), and metal products (53%) also had above-average utilization of the duty drawback scheme. The apparent low utilization for garments (29%) was partly due to the registration of a portion of the exports with their domestic value added only. Also, as in the case of machinery, a large number of garment exports are directed to the Andean Pact countries, and thus do not benefit from Plan Vallejo. On average, during 1977-78, the value of annua:L Plan Vallejo imports was equivalent to 30% of the value of exports benefiting from the program. 1.14 By providing access to inputs at international prices, Plan Vallejo reduces the costs of exporting enterprises that might otherwise be forced to use domestically produced inputs at higher prices. It has been estimated that the cost reduction achieved by Plan Vallejo users during the period 1972-76 averaged about 6.5 cents per dollar of exports.10/ Given the recen,t differences in external and domestic price trends, it is likely that the cost 10/ See M. H. Cardona, "El Crecimiento de las Exportaciones Menores y el Sistema de Fomento de las Exportaciones en Colombia", Revista de Planeacion y Desarrollo (Bogota, 1977). -7- reductions in later years was somewhat higher. Plan Vallejo has thus provided a substantial benefit to nontraditional exports by reducing the disincentives inherent in the import protection system. Moreover, the benefits provided under Plan Vallejo have been quite stable over time. However, the complicated administrative procedures involved have tended to favor large enterprises, and the delays inhereni: in the scheme have signifi- cantly reduced its value to exporters. Real Exchange Rate 1.15 With domestic and international inflation rates differing signifi- cantly, Colombian policy makers have adjusted the nominal exchange rate on a continuous basis since 1967. As a consequence, it becomes important to examine movements in the real exchange rate which measures the extent to which the rate of devaluation of the peso has offset the difference in the rate of increase of prices in Colombia on the one hand, and in its trading partners on the other. Two different real exchange rates are usually calculated in Colombia: peso-US dollar, and peso-weighted average-basket-of- currencies ("peso/weighted average"). Table 1 presents the development of the nominal and real exchange rates between 1967 and 1980. It reflects the most consistent: of four separate sets of estimates for the peso-dollar real exchange rate. The analysis in all cases yielded essentially the same results, although exchange rates and U.S. and Colombian price indices used were not identical in the different sets of estimates.1!/ The real peso-dollar exchange rate rose consistently from 1967 through 1971, II/ These four estimates were undertaken by Banco de la Republica (BR), Asociacion Bancaria (A), FEDESARROLLO (F), and Morawetz (M). See Statistic.al Appendix Tables 1 and 2. One further set of estimates, by ANDI for 1970-80, gives results very similar to these. (Revista ANDI No. 54, 1981, p. 71). -8- Table 1: NOMINAL, REAL & REAL EFFECTIVE EXCHANGE RATE, 1967-80 Real Exchange Rate Real Effective Exchange Rate Nominal Exchange Peso/iultiple Peso/'fultiple Year Rate Peso/US$ Currencies a! Peso/US$ Currencies 1967 14.88 83.8 80.4 82.3 79.0 1968 16.48 88.3 85.6 87.8 85.1 1969 17.53 89.4 86.5 89.0 86.1 1970 18.68 94.9 89.5 94.8 89.4 1971 20.26 100.0 100.0 100.0 100.0 1972 22.14 99.3 100.4 99.5 100.6 1973 23.98 95.2 99.5 95.8 100.1 1974 26.66 97.9 107.2 100.7 110.3 1975 31.58 100.4 109.5 93.0 101.5 1976 35.21 97.2 107.0 90.7 99.8 1977 37.20 81.3 93.2 79.6 91.3 1978 39.10 79.9 95.0 81.7 9R7.2 1979 42.55 76.5 90.3 78.7 932.8 1980. 47.28 79.9 94.0 83.2 97.7 1981 b/ 56.26 76.5 87.2 79.6 90.7 Source: IMF, International Financial Statistics, Asociacion Bancaria Colombiana,-and Tables 1 - 4 in Statistical Appendix. a/ Includes 15 of Colombia's most important trading partners (See FN 1, p. 19). b/ January to June 1981. -9- fluctuated around the 1971 level during 1972-75, and then fell by 20-25% during 1976-81, with the largest single decline (15-16%) occurriRg in 1977.12/ 1.16 Table 1 also presents an estimate for real peso-weighted average exchange rate, based on research at Banco de la Republica (BR), ASOBANCARIA (A), and FEDESARROLLO (F).13/ These series indicate that the real peso- weighted average exchange rate rose consistently during 1967-72, reached a new peak in 1975-76, but then declined continously until June 1981, when it was 13% below what it had been in 1971, and 20% below what it had been in 1975. 12/ Different computations of the real exchange rate have used dlifferent base years; often 1967=100 has been used as the base, but sometimes it has been 1970, 1971, or 1975. In the present report, all series have been converted to 1971=100. Partly, this is for convenience of presentation. But partly, too, there is significance of a sort to the choice of year. If 1967 was set equal to 100, the real peso-dollar exchange rate for June 1981 would have read 91. It might thus seem that the real exchange rate for 1981 is "only 9% below what it w<1s in 1967". But 1967 wvas a year of extreme foreign exchange shortage, i.e., the real exchange rate in mid-1981 was 9% lower than it had been during the worst foreign exchange crisis of the last 20 years. By contrast, setting 1971=100 allows one to see at a glance that by mid 1981, the real exchange wgas at least 25% lower than what it had been a decade earlier, in 1971, when exporting was still profitable in Colombia. 13/ The first two of these sets of estimates yield similar results and are probably more reliable, for reasons of more consistent coverage of countries and sources. During 1967-77, the F series covers 99 countries, but thereafter there are only L1, including U.S., Canada, Japan, W. Germany, France, U.K., Italy, Belgium, Netherlands, Sweden and Switzerland, but excluding one of the most: important markets for Colombia's non-coffee exports, Venezuela. By contrast, the A series consistently includes 15 countries (F's e:Leven plus Colombia's four Andean Group co-members), and the BR series consistently includes 12 countries (F's eleven minus Canada and Sweden plus Spain, Venezuela and Ecuador). The A series uses IMF, International Financial Statistics (IFS) throughout, and corrects the figure, when provisional data are later changed, as often occurs. The BR series also uses IMF, IFS throughout. The F series, by contrast, uses this source during 1967-77, but then switches to The Economist, whose data are available with less delay. - 10 - Effective Export Incentives 1.17 The computation of the effective value of the export incentives (CAT + PROEXPO credit) is presented in Table 2. The formulas used to calculate these effective values are presented in Annex 1.14/ As indicated earlier, the average value of the CAT as a percent of the value of exports rose very gradually from 14% in 1967 to 18% in 1974, fell abruptly to 6,%' in 1975 (when the nominal CAT was cut from 15% to around 5%), and then increased to 13-14% during 1978-80. The CAT rate used in these calculations is thes one applying to the majority of industrial products. By contrast, a series published by the Banco de la Republica (BR) takes as the basis for the calculation of the effective CAT the average CAT actually paid out to miLnor exports (i.e., total CAT payments as a percentage of the total value of minor exports). This series (Statistical Appendix, Table 4) presumably is heavily influenced by the fact that the CAT for agricultural products (a large proportion of minor exports) has generally been below that for industrial exports. It is thus, arguably, less relevant for the present report than the Morawetz series.15/ 1.18 The effective value of PROEXPO credit as a percentage of the value of exports has shown a marked, fairly steady increase from 1-2% of the value of exports during 1973-76 to 8% of the value of exports in 1980. The reason for this increase is that the rates of interest on PROEXPO credit have been kept at 13-19%, while market interest rates have risen from 20-23% in 19,73-75 to 45% in 1980. Thus, for the industrial products eligible for a CAT of 5%, PROEXPO credit is a more significant incentive than the CAT; for those goods eligible for 9%, the credit incentive is almost as great as that from the CAT; and even for goods eligible for 12%, the credit incentive is worth two-thirds as much as the CAT. Furthermore, as noted earlier, credit has been severely rationed in Colombia during the last couple of years; this adds still more to the real incentive provided by the simple availability of PROEXPO credit. In 1981, several industrialists claimed that they were exporting mainly because they could get PROEXPO credit. The combined effective value of the two export incentives (CAT + PROEXPO credit) is presented in the final row of Table 2. The value of the two incentives rose 141 These are the same as those used by D. Morawetz, Why the Emperor's New Clothes Are Not Made in Colombia, (New York: Oxford University Pres3, 1981), Appendix B. 15/ The BR series shows the nominal CAT falling from 12-15% during 1970-74 to 3-6% during 1975-80; and the effective CAT falling from 14-15% during 1970-74 to 4-6% during 1975-80. - 11 - TELble 2: NOMINAL ANID EFFECTIVE INCENTIVES TO INDUSTRIAL EXPORTS 1967--80 1967/68 1970/71 1975/76 1979/80 Nominal value of CAT as % of value of exports 15 15 5 12 Discount if CAT is sold in stock market when received, as % of xvalue of CAT. 15.5 7.0 2.8 11.9 Average tax rate on corporate profits (%) 12.5 12.5 20.0 20.0 Percent of value of exports that may be financed by PROEXPO credit - - 80.0 80.0 Rate of interest on PROEXPO credit (: p.a.) - - 18.0 18.0 Mtarket rate of inierest(% p.a.) 18.0 15.0 24.0 41.0 Effective value of CAT, as % of value of exports 14.8 16.2 6.1 13.6 Effective subs:idy implicit in :PROEXPO credit, as % of value of Pexp)orts - - 2.0 6.6 Total effective subsidy to industrial exports (CAT + PROEXPO credit), as percent of value of exports. 14.8 16.2 8.1 20.2 Source: Statistical Appendix Table 5. - 12 - gradually from 14% to 20% during 1967-74, fell sharply to 8% after the reduction of the nominal CAT in 1975, and rose again to reach 21% in 1980.16/ Real Effective Exchange Rate 1.19 The real effective exchange rate sums up in a single series all of the factors underlying the real exchange rate (rate of devaluation, rates of increase of prices in domestic and partner countries), on the one hand, and the effective value of export incentives (effective CAT, effective PROEXPO credit), on the other. As with the real exchange rate, separate estimates are available for the peso-dollar and peso-weighted average cases, based on different sets of estimates.17/ 1.20 Allowing for the fact that the Banco de la Republica series does not include the effective value of PROEXPO credit, which certainly ought to be factored in, the four series show essentially the same picture. The real effective peso-dollar exchange rate rose consistently during 1967-71, fluctuated around the 1970-71 level during 1972-74, then declined significantly (especially during 1975 with the reduction in the CAT and in 1977 with the slow rate of devaluation), until by mid-1981, it was 20-25% below what it had been a decade earlier. 1.21 Of the three sets of estimates of the real exchange rate of the peso against a weighted average basket of currencies, using the 16/ The Banco de la Republica (BR) document cited above does not include estimates of the effective value of PROEXPO credit. If the BR series for the effective CAT is added to the Morawetz series for the effective value of PROEXPO credit, the effective value of the two incentives are shown to have been relatively constant at 15-16% during 1970-74; they fell sharply to 7% with the reduction of the nominal CAT in 1975, and then, because of the influence of PROEXPO credit, rose gradually during 1967-80, reaching 13% in the later year (see Statistical Appendix, Table 3). 17/ Since ASOBANCARIA and FEDESARROLLO do not themselves present calculations of real effective exchange rates or of the effective value of export incentives, the series for these two institutions have been computed by combining their own real exchange rate series with the Morawetz effective subsidy series. The Morawetz series is the same as the one shown in the original source, except that it has been updated. The Banco de la Republica (BR) series also is presented as it appears in the original BR document. - 13 - ASOBANCARIA data as the basis is probably the best for the present purposes.18/ That series shows that this real exchange rate rose throughout 1967-1974; but then declined especially in 1975 (with the fall in the nominal CAT) and 1977 (with the fall in the rate of devaluation). By mid 1981 it was about 10% below what it had been in 1971. It is important to nol-e here that, while the tendency toward overvaluation of the Colombian peso can be observed in all series, the difference in the level of cverevaluation is significant. Whereas the peso-dollar relationship has shown a 20% "overvaluation" since 1977, the comprehensive real peso exchange rate, against the baskcet of currencies of Colombia's trading partners, never suffered a revaLuation of more than 10%, but showed rather strong fluctuation between 1977 and 1979.19/ This would lead to the conclusion that it may have beeni less the actual amount of the lag in the exchange rate adjustment than the uncertainty created by the shift from fiscal to monetary irncentives and the renewed price stabilization attempts in 1977, that influenced, the behaviour of exporters. B. Import Controls and Effective Protection 1.22 A stated objective of current industrial sector policy is to reduce levels and dispersion of effective protection rates in order to increase the competitiveness of the sector. Historically, industry has enjoyed signifi- cantly higher rates of effective protection than primary sector activities, but within industrial categories there exists a broad range of effective protection levels.20/ While periods of foreign exchange accumulation could have been propitious for the reduction of import tariffs and the relaxation of controls, the movement toward long-term objectives usually has been hampered by short-run considerations. In partiLcular, the favorable balance-of-payments position enjoyed in recent years has been conducive to some progress in lowering import barriers only with a considerable lag. 18/ As explained earlier, the FEDESARROLLO series contains several inconsistencies, while the Banco de la Republica (BR) series uses a less relevant measure of the effective CAT and omits the effective value of PROEXPO credit. 19/ This is a. reflection of the increasingly stronger fluctuations of exchange rates among the major industrialized countries, with the US dollar depreciating against major other currencies in the late 1970s and appreciating during the early 1980s. 20/ See Thomas Hutcheson, Incentives for Industrialization in (Colombia, Ph.D. dissertation, University of Michigan (1973), and Luis J. Garay, "Analisis de las Estructura Arancelaria de Colombia Vigente en Diciembre de 1974", (Bogota: DNP, 1975). - 14 - 1.23 Currently, imports are still restricted through a combination of prior deposits, several exchange controls, selective prior licensing, and highly dispersed tariffs. Prior deposits were eliminated in January 1976, reimposed in mid-1976, increased in 1977 and 1979, and then lowered in February 1982. Their implicit cost has been less than 4% of the total value of imports, though they fall more heavily on imports of inputs and consumer goods, which have most of the prior deposit requirements.2 / All requests for imports (registros) are first classified as reimbursable or nonreimbursable and prior license or free (see Statistical Appendix, Table 6 for a breakdown). Nonreimbursable import requests typically originate from direct foreign investors, often petroleum companies importing capital goods; from government and quasi-government importers, especially in cases where foreign loans are used; and from Colombians who are returning from long stays abroad. In the case of reimbursable imports, foreign exchange can be obtained from the Banco de la Republica once the licensing and/or registration requirements at INCOMEX are fulfilled. Overinvoicing of imports to escape exchange controls is regulated by the prior licensing agency, INCOMEX, rather than the Banco de la Republica. 1.24 The main operative restriction on requests for imports relates to the prior licensing system of INCOMEX. All official imports are imported under license. In some cases the licensing requirement also has the dual function of enforcing a government monopoly, e.g., wheat, powdered milk, and petroleum.22/ In other cases the Government simply uses the licensing requirement to regulate imports by direct foreign investors, e.g., petroleum companies. In such cases a simplified procedure--global licenses--can be used to reduce day-to-day bureaucratic problems. In many cases the licensing requirement is still a vestige of the import substituting industrialization philosophy which has not been removed because of political power of various industrial groups, e.g., textiles. There also is pressure by producers to retain the licensing system on goods in which Colombia seems to have a comparative advantage, to prevent dumping or to regulate imports in times of crop failure, e.g., meat and fruits. Finally it should be noted that even nonlicensed imports can be held up when registered by INCOMEX if the price 21/ See S. Clavijo, "Los Depositos Previos de Importacion", Revista del Banco de la Republica, (June 1981). The opportunity cost of these deposits varied between 5% and 10% of the value of imports in the period 1953 to 1978. See J. Garcia, The Effects of Exchange Rates and Commercial Policy on Agricultural Incentives in Colombia 1953-78, (Washington: International Food Policy Research Institute, 1981). 22/ See Statistical Appendix Table 7 for a list of major imports under prior license in 1976-1979. - 15 - appears unreasonably low,23/ and imports with foreign financing have been held up as part of the Government's drive to cut down on capital inflows. 1.25 Since 1976, over 90% of requests for nonreimbursable imports were under prior license. The percentage of requests for reimbursable imports which required prior license is much lower, only about 50% in 1980. Until 1975 there had been a steady decline in the percentage of registros which required such licensing; thereafter the percentage has remained roughly constant. The percentage of tariff code classifications which are subject to prior licensing has declined steadily, from over 95% in 1971, to 66% in 1975, about 33% in 1979 and 31% in 1980. (See Statistical Appendix, Table 8). Of course such declines are not a priori evidence of lower protection, since they may simply reflect switches in the status of noncompetitive imports. The fact remains that relatively few tariff code classifications were subject to prior licensing in 1980-81. It should also be noted that the request procedure has been streamlined; a decision on imports required only one week in 1981, except for certain special cases cited below. 1.26 Of the 1502 tariff code classifications under prior licensing requirements in 1980, no import requests were made in 606 classifications in 1977, 623 in 1978, and 603 in 1979, an average of about 40%.24/ The lack of requests has been interpreted as an indication of excessive protection which could be liberalized. In fact in some cases :in which Colombia seems to have a comparative advantage and thus is unlikely to receive requests for imports, the prior license requirement represents a desire to control imports if crops should fail or to prevent dumping, e.g., meats (10 classifications) and fruits (12 classifications). In other cases t:he lack of requests probably represents the importers' knowledge that the request will be denied because of desires to protect the industry, e.g., textiles (113 classifications) and wood products (21 classifications). 1.27 Information from INCOMEX indicates l:hat about 89% of requests for reimbursable imports were accepted during 1980 (see Statistical Appendix, Table 9). However, this calculation excludes various special categories of imports discussed below which amounted to about 43% of Registros. Seven percent of the rejections were for various reasons having to do with faulty preparation of the request. Included in these rejections were some requests which quoted prices that in the opinion of the INCOMEX licensing board were overly high or overly low (overinvoicing and underinvoicing). Another 5% of the requests were rejected for substantive reasons; in about 4C% of these cases one of the cited reasons for rejection was the existence of local supplies. Excessive requests relative to historic levels were cited as another reason to deny or delay a request. These rejection rates seem 23/ G. Giraldo, "La Estimacion de la ProteccLon en Colombia, "Revista de Planeacion y Desarrollo" (May-August 1979). 24/ W. Marin, et al., Analisis General de las Importaciones del Regimen de Licencia Previa (Bogota, INCOMEX, 1980). - 16 - somewhat higher than those cited by Diaz Alejandro for 1971, although the comparability of the coverage is not clear. It also seems probable that the current attitude of INCOMEX has elicited more requests for import licenses than in the mid-seventies. 1.28 A policy authorizing general licenses (licencias globales) for importers of capital goods was established at the end of the 1950s to favor the importation of systems of machinery. Initially, the main advantage of the global license was that the whole project had authorized access to foreign exchange. Decreto Ley 444 of 1967 and subsequent resolutions based on it (#15 of 1967, #20 of 1971, #27 of 1978, and #066 of 1980) required that applications for global licenses contain a study of economic feasibility including documentation supporting the project's contribution to objectives of the national plans and other criteria. As foreign exchange scarcity diminished so did the attractiveness of guaranteed access to foreign exchange. In addition, other concessions were granted, including: (a) longer payment periods permitting importers to use lower cost foreign credit for longer periods; (b) extension from prior deposits after 1974; (c) favorable consideration for the 5% uniform tariff on capital goods imports (since May 1976). However, the granting of this low uniform tariff depends to some degree on lack of competitive domestic production. To these advantages must be added the simplicity of a single import licensing negotiation for the whole project. Given the favorable treatment they receive, requests for imports under global licenses have grown substantially. (See Table 3, the jump between 1979 and 1980 probably reflects a depressed level of applications in 1979 owing in part to the reimposition of prior deposits). In 1980, there was a large increase in demands for imported machinery by civil construction firms involved in the PIN program. Also, demands for imports were stimulated by the lifting of prior deposit requirements and the extension of the permissible period of payment. 1.29 Import requests under Plan Vallejo have also grown steadily, reaching a 1975 peak of 4.1% of total imports. Realized imports under Plan Vallejo peaked in 1976 and amounted to 4.1% of total realized imports (see Table 3 & Statistical Appendix, Table 11). From this peak, import requests under Plan Vallejo declined to only 2.7% of total import requests in 1979, though they rose to 3.6% in 1980. Realized imports under Plan Vallejo also fell, to 2.6% of realized imports in 1980. This decline probably reflects the fall in profitability and thus the quantity of nontraditional exports using imported inputs, rather than any change in the terms of Plan Vallejo. However, it is worth noting that requests for imports under Plan Vallejo took longer to process than those for regular imports under previous license, up to a month as compared to a week. Thus, some liberalization was recently achieved by speeding up the Plan Vallejo process. 1.30 Until 1980 imports of automobiles with a factory price of less than US$2000 were prohibited to avoid competition with the local Renault factory's production. Worldwide inflation of automobile prices substantially eroded the protection provided by that prohibition, and in late 1980, after a sharp rise in auto imports, the floor price was raised to US$5000. A substantial number of requests for auto imports were paralyzed while the decision on the - 17 - Table 3: IMPORT SPECIFIC AND GLOBAL LICENSES AND IMPORTS UNDEPR PLAN VALLEJO 1970-1980 1970 1975 1978 1979 1980 Prior Licenses l.Total Number 3496 a/ 3128 2218 1592 1502 2.% of Total T.ariff 80 66 46 33 11 Positions II. Global Licenses l.No. of Projects 137 35 124 173 218 2.Value of Imports authorized(:in mill US$) 8.9 163.0 309.8 220.1 382.3 3.% of total imports 9.1 10.8 9.2 4.8 7.0 IL-. Plan Vallejo 1,Registered (in mill. US$) 2L..8 61.7 87.9 124.3 197.1 2-in % of total registered imports 2.7 4.1 2.6 2.7 3.6 3.Actual Imports (in mill. US$) 9.7 47.1 54.7 65.6 92.6 4 in % of total actual imports '.7 3.6 2.6 2.6 2.6 Source- Statistical Appendix Tables 8, 10, 11. a/ 8/71. - 18 - new minimum price level was reached. Many of these requests were then granted in 1981 once the issue was settled.25/ 1.31 According to the most recent major study on external tariffs.26/ Colombian tariff protection averaged (unweighted) about 26% following the revision of protection in mid-1979. This compares with an (unweighted) average rate of about 28% in the first semester of 1979, 36% in 1975 and 70% in 1970.27/ The aim of the 1979 revision was to reduce protection in order to slow inflation and obtain greater efficiency and competitiveness in the Colombian economy in the long run. This average level is close to the Andean Pact's common minimum tariff, although substantial divergences exist in specific product areas. Thus, the Pact has not presented a barrier to cuts in tariff protection in most areas. As Table 4 shows, the dispersion of tariffs has remained high, with a standard deviation of 18% and skewed to the right, with some items having tariffs of as much as 150% and others having zero tariff protection. In addition to tariffs, imports are subject to a 5% tax which is used to finance PROEXPO loans to exporters (raised from 1.5% in 1975) and a 1.5% tax which is used to finance the Fondo Nacional de Cafe. The 1% consular fee on the requested value of imports was eliminated in 1980. 1.32 No current study is available on effective protection, which uses the ratio of local to world prices of imports.28/ The existing, more recent studies examine effective protection on value added by using an input-output matrix to compare the nominal tariff on the final product with that of the corresponding imported inputs. Thus, these studies neglect non-tariff barriers, the implicit cost of prior deposits, the taxes mentioned in the previous paragraph, and tariff redundancy. They also do not include the reduction in protection associated with Plan Vallejo and global licensing. Finally, the estimates are not adjusted for the changes in the exchange rate which would be necessary to maintain the balance of payments, given a set of macroeconomic policies. Thus the usefulness of these estimates lies in their contribution to understanding the potential, rather than the actual structure and level of protection. 25/ This administrative procedure would have produced an unfounded increase in the number of denied import requests in 1980 and therefore requests for auto imports are omitted from Table 9 of the Statistical Appendix. 26/ Giraldo, op. cit. 27/ Giraldo, op. cit. 28/ The only existing study based on price comparison was undertaken by T. Hutcheson op. cit., comparing world and local prices for 385 products. Table 4: NOMINAL AND EFFECTIVE PROTECTION AND PERCENTAGE OF ITEMS UNDER PRIOR LICENSE Broad Produict Classes 1975 and 1979 1975 1979 I 1979 It Nominal Items Nominal Effective Items Nominal Effective Items** Protection Previous Protection Protection Previous Protection Protection Previous License License License Av.a/ s.D.b/ x Av. S.D. Av. S.D. Z AV. S.D, Av. S.D. X Primary Products 19 21 - 16 8 26 22 53 15 7 24 20 28 Consumer Goods 47 24 - 43 22 87 50 48 39 22 81 49 32 + Intermediate Products 24 16 - 22 11 32 21 43 20 10 29 18 28 Machinery 28 15*C/ 66**d/ 30 18 42 33 47 27 16 39 30 42 Transpnort Eqiipnment 40 44 89 37 40 82 102 73 34 34 75 91 70 All Imports 36 - 66 28 19 48 43 46 26 18 44 40 33 a. Average b. Standard deviation. c. Estimate d. Esti-,ate ased on. rou-hl1, comparable sections of ta-riff node. SOURCE: Statistical Appendix Table 12. - 20 - 1.33 According to the most recent investigation by members of the DNP, effective protection averaged (unweighted) about 44% in the second semester of 1979. The standard deviation was 40% and the distribution of effective protection was skewed, with maximum rates of 400% and minimum rates of -46%. No major tariff changes ocurred in 1980 and 1981. Table 4 presents estimated average nominal and effective protection and the number of items on the prior license list in 1975 and 1979, both for imports competitive with production in some major industrial groups. It indicates that by far the highest average nominal rates of protection apply to consumer goods and to transport equipment; the latter reflecting automobile protection, with the other trans- port equipment sectors receiving not more than average rates of protection. Since all these industries use relatively large components of intermediate inputs, often with low protection, their calculated average effective rate of protection is more than double the nominal rate. This compares with calclu- lated average effective rates in the other industrial sectors that are only 30% to 50% higher than nominal rates. 1.34 According to these estimates the machinery sector has the next highest average rate of nominal and effective protection, about equal to the overall average. However, the estimate neglects the Global License facility which allows the import of machinery with only a 5% nominal tariff, if the machinery is not produced locally. Depending on the interpretation of compe- titive local production, this facility substantially erodes the protection given to the Colombian machinery industry, and the rapid growth in global licenses seems to indicate that the interpretation has been fairly libera:L over the past few years. Further, Government imports of capital goods are not subject to duties. Finally, for capital goods imports' financing terms are an important determinant of purchases. High local real interest rates thus are an important form of negative protection, particularly in view of the subsidized foreign interest rates on capital goods sales, but this also is not reflected in the effective tariff rates. In particular, in 1980 Government-sponsored imports of capital goods under the PIN have grown rapidly as domestic producers were limited to 15% of contracts for a variety of reasons including the easy terms of foreign financing. Thus, machinery production probably faces much more international competition than Table 4 would seem to indicate. Specific examination of some products in connection with the investigation of the metal mechanic industry indicated that several domestic capital goods were exposed to negative effective protection of over 20%. 1.35 Primary products have the lowest rates of nominal and effective protection. However, this average is somewhat illusionary, since several products have high individual rates, the maximum being 70%. Many competitive primary imports are also subject to prior license. A comparison of world and local price of some specific products showed that corn, milk, wheat and vegetable oil received nominal protection of between 25% and 50%. 29/ The rates of protection on these commodities seem to have risen after 1974. TIhe 29/ J. Garcia, op. cit., p. 27. - 21 - aggregate patterns of tariff protection are also reflected in the nominal and effective rates at the three digit industry level. Textiles, garments, and automobiles have the highest protection, followed by leather products. Intermediate products, such as chemicals, paper and metals, have the lowest rates. 1.36 To summarize the discussion on protection, the prior license was the most important non-tariff protection befor-e the reform of 1979. Although average nominal tariff rates have declined by about 5 percentage points between 1975 and 1979, and the consular fee of 1% was eliminated in 1980, much of these declines have been offset by the rise (3-1/2 percentage points) in the PROEXEPO fee and the rise in the implicit cost of prior deposits. The principal reduction in protection in the reform of 1979 thus seems to have been the elimination of licensing requirements from many products. While several key products were still subject to prior license, the reform was certainly in the right direction. Thus the sharp rise in imports in 1980 should probably be attributed to declines in effective protection in a few lines, especilally machinery, petroleum and autos, and to the easing of prior licensing requirements, rather than to a broad based reduction in protection. 1.37 The effect of the exchange rate on imports between 19474 and 1980 is not clear. The depreciation was some 20% less than the differience between the inflationa rates in Colombia and the U.S., as measured by the consumer price indices. This would seem to have encouraged imports. T'he comparison is less favorable to imports, if the Colombian import price index in dollars (which includes petroleum) is used instead of' the U.S. consumer price index. Between 1974 and 1980 the estimated inflation in dollar import prices was 97.8%, and the devaluation of peso/dollar exchange rate amounted to 81.4%, implying a rise in local import prices of 258.8%. In contrast, both the overall wholesale price index and the consumer price index for workers rose by 264%; the wholesale price index for local industry, 254%. Thus by this measure the real exchange rate fell very little over the period, although the rise in petroleum prices distorts the comparison. However, it must also be borne in mind that much of the rise in the nominal value of imports is due to increaed petroleum imports, as discussed in Section 2.45 and 2.46.30/ Finally the wholesale price index for all goods produced and consumed in the country rose 292% between 1974 and 1980, versus 266% for the local wholesale price index of importables; the wholesale price index of manuf'actures produced and consumed in the country rose 213%, versus 258% for local prices of imported manufactures. Comparisons of these figures are limited by the differences in the goods included in the different price indices. However, they seem to indicate that: (a) tariff and nontariff barriers, rather than 30/ Between 1974 and 1979 the wholesale price index rose about 8.5% faster than the product of the exchange rate and the estimated import price index in dollars. The black market exchange rate rose a'bout 10% faster than the legal rate since 1974, owing to the effect of t'he certificado de cambio. - 22 - exchange rate movements, were the most important means of altering protection of import competing industries in the latter half of the seventies; and (b) local prices of nonmanufactured goods rose much faster than world prices, corrected for the exchange rate depreciation, while local prices of manufactures actually rose less rapidly than those of imported manufactures. - 23 - ANNEX 1 Page 1 of 2 FORMULAS FOR EFFECTIVE EXPORT INCENTIVES The f'ormulas used to calculate the efEective rates of subsidy that are implicit iTn the CAT and in subsidized PROEX'PO credit (and in the Vallejo Plan drawback scheme) are derived below. In each case, the effective subsidy is expressed as a percent of the value of exports. To simplify the analysis, it is assumed that the firm's costs of production are zero. The results are unchanged if this assumption is relaxed. 1. CAT Question: What is the pretax taxable income (X*) that produces the same net income after taxes as that received by a firm exporting goods valued at 100 pesos which receives an export subs,id,y (CAT) and sells it at a discount (d) in the market? Define: X - income from exports (assumed to be 101) pesos) CAT export subsidy (assumed to be 10%t) d - market discount on sale of CAT (assumed to be 20't) t - rate of company tax (assumed to be 40'%) Before the 1974 tax reform Pesos Income from exports X 100.00 plus Net income from CAT + CAT(1-d) 8.00 = Total pretax income X+CAT(1-d) 108.00 less Exemption of CAT from taixable income - CAT -10.00 = TaLxable income = X-dCAT 98.00 Taxes payable t(X-dCAT) 39.20 Net income after taxes (=108.00 - 39.20) X+CAT(1-d)-t(X-dCAT) 68.80 X 1I-t)+CAT(l-d+td) Now derive the desired pretax taxable income (X*) and the implicit effective CAT (CAT*): X*(L-t) = X(l-t) + CAT(l-d+td) 68.80 X* = X+ CAT(1-d+td) 114.67 (1-t) CAT* = CAT(l-d+td) 14.67 (1-t) After the 1974 tax reform Pesos Income from exports X 100.00 plus Net income from CAT + CA" (1-d) 8.00 = Total pretax income = X -e CAT(1-d) 108.00 less Taxes payable -t[R--CAT(I-d)] -43.20 plus Tax discount of t times nominal CAT + tCAT 4.00 = Net income after taxes = X(L-t) +CAT(l-d+td) 68.80 - 24 - ANNEX 1 Page 2 of 2 Thus, the real subsidy implicit in the CAT is the same as before the 1974 tax reform despite the change after 1974 in the way that the CAT is treated for tax purposes. Timing The above derivations ignore the fact that the CAT is not valid for paying taxes immediately after it is received. The period before it becomes valid for such use varied from 3 to 12 months during 1967-81. The derivations also ignored the fact that the CAT is sometimes sold in the market only after a delay of several rmonths, and not, as is assumed above, immediately after it is received. Defining n as the average number of years delay before the CAT is sold (0.08 n 1.00), and defining r as the market rate of interest, the above formula would need to be altered as follows if such delays are to be taken into account: CAT1 -d + td 7 CAT* = L(1+r)n (1+r)ni 1-t (1+r)n The net effect of taking these delays into account would be to diminish the value of CAT* to some extent. The delays are not taken into account in the present study because the necessary data are not available. 2. PROEXPO CREDIT Question: What is the effective value (P*) of the subsidy that is implicit in the low interest credit that is provided by PROEXPO to exporters for six months? Define: C/X - the percentage of the value of exports for which PROEXPO credit can be received (80% from 1973 onwards, or 40% for users of the Vallejo Plan. For the latter, it is assumed that imported inputs account for 50% of the value of output). r - the market rate of interest (varied between 14% and 45% during 1967-81). rp - the rate of interest on PROEXPO credit (18% from 1973 to mid-1977, 13%, then 17%, then 19%, thereafter). The effective subsidy implicit in PROEXPO credit (P*) is equal to the present value of what is received less the present value of what has to be repaid six months later. That is: (1 + rp)4L1 P* = C L - X (1 + r)2 - 25 - II. TRENDS AND DETERMINANTS OF MANUFACTURED EXPORTS AND :[MPORTS C. Exports of Manufactured Goods in Recent Years 2.01 Colombia's exports of manufactured goods in current US dollars increased almost fourfold during 1970-75, but less than doubled (luring 1975-80, despite the fact that world inflation was much higher duiring the second period (Table 5). World trade in manufactures grew faster during the former period, as witnessed by exports of manufactures from other developing countries such as Korea, Taiwan, Hong Kong. Hcwever, these countries still realized a reaL annual growth rates of 15% during 1975-80 after they had grown by 35% between 1970-75. In contrast to that, Colombia's export rose by real annual rates of 17% between 1970 and 1975 and decelerated to only 4% during the latter part of the decade. What were the major reasons for this decline in export growth? How did the structure of Colombian manufactured exports change during the last five years? Which countries became Colombia's most important customers of manufactured goods? Before discussing these and similar issues, a brief note on the problems of Colombian export statistics is in order. Export Statistics 2.02 The analysis in this report is based mainly on officiaL export statistics. There are several problems involved with these data (see Annex 2 for more details). First, the three sets of export statistics that are available--DANE figures on exports that have allegedly passed the customs barrier (manifiestos), INCOMEX figures on export registrations (registros), and Banco de la Republica's figures on export dLollars converted to pesos (reintegros)--do not always agree. Second, illegal exports, mostly to neighboring countries, do not enter the official statistics. These exports respond to differences in prices in the domesti'c market and neighboring countries, and have been substantial over the ]ast decade or so for a number of industrial goods---sugar, textiles, clothing, cement and tires--as well as for coffee and cattle. Third, overinvoicing and fictitious exporting inflate the official figures. A FEDESARROLLO study has estimated overinvoicing to be at about 6% of official exports. Fictititous exporting seems to have been particularly common in 1974 and 1979. In both years, holders of black market dollars found it feasible and profitable to convert these into pesos at the official exchange rate plus the export subsidy. After each year, the laws and procedures were tightened up to discourage such maneuvers--but some fictitious exporting continued anyway. 2.03 In the clothing industry, Morawetz'/ found that fictitious exports made up about half of all exports that were declared as having passed customs (DANE data) in, 1974, and that five outstandingLy large non-existent firms seemed to account for most of the total (one of these alone "exported" $12 million of clothing in 1974). An analysis of the INCOMEX data con registered clothing exports for 1979 (in which year the registered dollar value of such exports almost, doubled) indicates that this time there were no suspicious 1/ D. Morawetz, Why the Emperor's New Clothes Are Not Made in Colombia (New York: Oxford University Press, 1981). - 26 - Table 5: EXPORTS OF NANNUFACTURED GOODS, CURRENT AND CONSTANT PRICES 1970 - 1980 (US$ millions) Constant Dollars of 1970 Current Value Index Percentage Dollars Change (M) 1970 117.9 117.9 100 n.a. 1971 152.3 147.0 125 25 1972 188.2 175.6 149 19 1973 236.9 207.4 176 18 1974 a/ 400.8 286.7 243 38 a! 1975 404.7 259.6 220 -9 1976 395.5 238.5 202 -a 1977 416.6 234.8 199 -1 1978 473.3 248.6 211 6 1979 a/ 744.1 346.9 294 39 ! 1930 b/ 772.0 317.0 269 -9 a/ Includes Fictitious exports. b/ Mission estimates. SOURCE: Francisco Piedrahita, "Desarrollo Industrial en la Decada de los Setenta", Revista ANDI, No. 51 (1980).Table 17, based on data from DANE and Banco de la Republica. LCPI2 October 1981 - 27 - large entries but rather literally hundreds of smaller entries, most of them US$200,000 or 'Less, each in the name of an individual rather than an enter- prise. It is possible that there sprang up overnight hundreds of new clothing exporters; but it could also be that some of these exporting enter- prises were fictitious. In the metal manufacturing sector, exports of several millionls of dollars were registered in 1979 in items like metal statues and metal picture frames. The fact that these goods were exported in these voLumes neither before nor since has caused some to believe that these, too, may have been fictitious exports.2/ 2.04 Fictitious exports during 1979 seem to have been "sent" especially to Venezuela. Colombia's industrial exports to Venezuela doubled in nominal dollar terms from 1978 to 1979, and Colombia's exports of all goods to Venezuela jumped from 9.5% to 12.8% of its exports to all destinations--this despite the fact that Venezuela's per capital GDP fell by 2.7% in 1979. In 1980, as fictitious exports were reduced, industrial exports to ilenezuela fell by almost a quarter in nominal dollar terms, and total exports to Venezuela fell back from 12.8% to 7.8% of total exports to all destinations. As a first lower bound estimate at the extent of fictitious exporting in 1979, it would be useful to compare Colombian data on its exports to Venezuela in 1979 with Venezuela's data on imports from Colombia (i.e. data on the same transactions) for the same year. Cn the basis of those compari- sons, but without publishing its methodology or a detailed sector or product level breakdown, INCOMEX has estimated that fictititous exports were 8.9% of exports other than coffee and petroleum in 1979.3/ 2.05 A fourth statistical problem, relating mostly to clothing, is that exports to the United States under the U.S. 807 (offshore assembLy scheme) are registered in Colombia at the value added cnly. Last but nol: least, different institutions and different authors define "industrial exports" differently, piarticularly with respect to products of the petroleum refining sector, preciolas and semi-precious stones, and some processed foods like sugar and bleached rice. Subsectors are also not always consistiently defined: textiles sometimes includes clothing, metal manufactures sometimes includes transport equipment, and so on. 2.06 Previous estimates of total (official. plus unregistered) industrial exports from 1970-77 show total industrial exports exceeding official (DANE) estimates by the following percentages in each of the years 1970--77: 12, 20, 17, 12, 31, 40, 38. The jump after 1974 is explained by the fall in the CAT, which makes illegal exporting relatively more profitable. Since the value of the CAT and PROEXPO export incentives has been raised considerably since 1977, the proportion of total exports that is illegal may have fallen and the proportion of official exports that is overinvoiced or fictitious may have risen since then. 2/ Note, though, that the apparently legitim1ate exports of Colombia's dairy products were believed to be "fictitious" when they first occurred. 3/ (Comercio Exterior, Sept.-Oct. 1980, p.3 n.1). - 28 - Aggregate Trends of Manufactured Exports 2.07 Exports of manufactured goods in constant dollars increased at an average of 17% p.a. between 1970 and 1975, but decelerated to 4% p.a. between 1975 and 1980, experiencing declines in three of the last five years.4/ During 1971-73, manufactured exports grew in real terms by 25%, 19% and 18% respectively; by contrast, during 1976-78 they grew by -8%, -1% and 6% respectively. The rapid rise and subsequent relative stagnation of Colombia's industrial exports can be seen clearly in the figures on indus- trial exports as a percentage of industrial production and industrial exports as a percentage of GDP (Statistical Appendix, Table 13). Industrial exports rose from around 3% of industrial output in 1970/71 to about 10% in 1974/75, but then gradually declined to about 7% in 1980. As a percentage of GDP, industrial exports rose from about 1.4% during 1970/71 to about 5% in 1974/75, but then declined gradually to about 3.6% in 1980. Similarly, Colombia's share of total LDC manufactured exports rose from 0.69% in 1971 to 0.88% in 1973, but then fell back slightly to 0.85% in 1975-77 and 0.75% in 1978-79. Exports by Sectors and Products 2.08 The distribution of manufactured exports by sectors was relatively stable during 1974-79 (Stastical Appendix, Tables 14 & 15). Food products accounted for 18-21% of the total during most of the period, refined petro- leum products made up 13-17%, and textiles contributed 12-14%. There were some changes, however. The share of metal manufactures rose abruptly from 9% in 1974-76 to 13-14% in 1977-79; the share of chemical, rubber and plastic products fell from 12-13% in 1974-76 to 8-9% in 1977-79; while the share of clothing, in which fictitious and smuggled exports are a particular problem, fluctuated between 4% and 11%. The share of all other manufactured products rose from 11-16% in 1974-76 (products of leather, wood, and non-metallic minerals predominated), to 19-22% in 1977-79 (products of the paper and printing industries were important in the increase, more than offsetting a decline in wood products and furniture). 2.09 The sectors exporting the highest percentages of their output during 1977-80 (Stastical Appendix, Table 16) were non-metallic minerals (16-37%),leather products (18-30%), and oil products (19-28%). These were followed by a group of sectors in which roughly 10% of output was exported on average during 1977-80, including wood products-and-furniture, textiles- clothing-footwear, machinery (the percentage for mechanical was higher, for electrical lower), and paper-and-printing products. Finally, in a further group of sectors, the proportion of total output exported was consistently 5% or less during 1977-80 these were: basic-metals-metal-products (except 1979), transport equipment, chemicals, and, lowest of all, food products (2%). Almost without exception, all sectors showed significant increases in the 4/ Note that since the data for 1974 and 1979 include some fictitious exports, it is difficult to make precise statements about those years. It is also rather misleading to give growth rates of manufactured exports using 1974 or 1979 as the beginning or end year. - 29 - percentage of output exported between 1967-70 and 1973-75. By ccntrast, only two sectors (oil. products and non-metallic minerals) showed significant increases in the percentage of output exported between 1973-75 arLd 1977-80. This indicates that both, the boom in manufactured exports during 1967-75 was a widespread phLenomenon that touched all sectors and that the subsequent relative stagnation during 1975-80 was almost equally widespread. 2.10 Durin.g the first four months of 1981, there was a 21% increase in manufactured exports in nominal terms compared with the corresponding period of 1980 (Statistical Appendix, Table 17). However, more than a third of the increase was in. tariff cotton and cotton textiles; information obtained from the major textile firms indicates that there was a typical bunching of exports during the first four months of 1981, not to be continued. during the rest of the yea.r. The only other tariff positions in which there was an increase of as much as US$1 million compared with January-April 1980 were plastic product's (US$1.9 million increase), other chemical products (US$1.3 million), other metal products (US$1.3 million) and printing (US$1.2 million). Partial information for January-May 1981 indicates that in the clothing sector, exports fell by 5% in current dollar terms compared to January-May 19E80.5/ 2.11 Between 1970 and 1980, almost all sectors increased their exports in current dollar terms tenfold or better (Statistical Appendix, Table 18). The exceptions are non-metallic minerals (which increased their exports 7 times), leather products (7 times) and wood products and furniture (3 times). At the high end of the spectrum were oil products (560 times), rubber products (20 times) and the metal manufacturing sectors (13-19 times). Food products, oil products, textiles, clothing and metal manufactures had each reached an annual export value of US$100 million or more by 1980, while chemical-plastic-rubber products, non-metallic mineral products, and paper and printing products, had each reached US$50 million or more. By way of comparison, total manufactured exports from all sectors did not reach US$100 million until 1971. According to INCOMEX data, manufactured exports amounted to over a billion dollars in 1980 (US$1,177 mil]ion), and despite the fact that coffee prices remained high in 1980, accounted for 31% of total exports in that year. This may be compared with 1967-70, a year of much lower coffee prices, when manufactured exports made up only 12-16% of total exports, with just three sectors (food products, chemicals and textiles) providing between half and two-thirds of the manufactured export total. 2.12 The manufactured goods (or to be more precise, tariff positions), which registered exports of US$10 million or more in 1980 are shown in Table 6 ("others" ref.ers to all tariff positions with less than US$10 million). The entries are placed in order of value of 1980 exports (See Statistical Appendix, Table 19). It is clear that, although there has been a great increase in the number of goods exported, 15 broadly defined iteris still account for about half of total manufactured exports. These 15 items included processed foods (sugar, beef, sweets, cheeses, shrimps and rice), exterior clothing for both sexes, textile fabrics and yarns (most:ly of cotton), cement:, books and periodicals, leather goods, bedclothe-s and epsilon-caprolactama. 5/ El Tiempo, 8-20-1981, p. 2A. - 30 - 2.13 The volume of exports of five of these 15 items fell by the follow- ing amounts during 1976-80: textile yarns of cotton (25%), beef (29%), frozen shrimps (17%), bleached rice (81%), and leather travel goods (32%). Exports of a further two items grew in volume terms by less than 5% a year durirLg 1976-80: textile fabrics and leather shoe components. Cement exports grew at 8% a year or better and so did the following products: raw sugar (357%), exterior clothing (15%), books, periodicals, etc. (21%), "melazas" (30%), and cheeses (16%). 2.14 Two categories of comparative advantage have emerged in Colombian industry. One group of export-oriented industries--garments, wood products, furniture, and leather products--is based on domestic raw materials and/or cheap labor, and has a comparatively low degree of technological sophistica- tion. A second group of export products includes printing products, certain ranges of metal products and machinery and the like, which employ relatively more sophisticated but well-established technologies. (Printing also has subsectors which are labor intensive and employ low technology: the produc- tion of "pop-up" children's books for example, where a Colombian manufact:urer has a strong world market position, employs basically unskilled labor and virtualy no machinery.) Colombia's comparative advantage in these sectors is based on such factors as relatively well-trained workers, an established force of mechanics and engineers, and a number of well-managed enterprises with international market ties. These advantages are particularly strong in the printing industry, and recent export growth has been high. Another important reason for Colombian competitiveness in the metal products and printing industries is the possibility of economical small-scale production. Large manufacturers in industrial countries are not able to produce econo- mically short production runs of such items as books, foundry products, and valves. Destination of Exports 2.15 During the late 1970s Venezuela emerged as the single most important market for Colombia's manufactured products. This country, with a comparatively limited but high income market, now takes about 40-50% of Colombia's total industrial exports (legal and illegal). Total official industrial exports to Venezuela increased from US$4 million in 1970 to US$281 million in 1980 (Statistical Appendix, Table 20). Four sectors--textiles and clothing, metal manufactures, transport equipment and cement--have consis- tently made up about half of these exports, with the other half spread quite widely across the industrial spectrum.6/ The main reasons for the rapid growth of manufactured exports to Venezuela seem to be the rapid rise of Venezuelan incomes since the oil price increases of 1973-74 and the emergence of the Margarita Islands, as an important Venezuelan free port since 1975. Andean Group tariff preferences, by contrast, seem to have played a smalL role. Clothing and textiles have consistently made up a quarter to a third of Colombia's industrial exports to Venezuela, with clothing being over two-thirds of this total. Yet clothing is on Venezuela's "list of 6/ Official exports of meat amounted to US$20-40 million p.a. during 1972-79; exports of cheese were US$20 million in 1980. - 31 - _Table 6: MANUFACTURED EXPORTS 1980 LEVEL AND GROWTH IN VOLUME SINCE ]Q7h Value of Volume of exports exports 1980 1980 ($ millions) £ 976-100) Food products 345 159 Raw sagar 175 329 Beef 33 71 "Melazas"' 26 341 Cheeses (semihard cover 7, hard cover 14) 21 188 Frozen shrimps 17 83 Others 73 112 Graphic arts 207 Books, periodicals, etc. 42 213 Others 12 195 Wood and its manufactures 16 21 Leather and its manufactures 46 108 Leather travel goods 15 68 Leather shoe components 11 110 Others 20 115 Clothing 120 123 Meoos exterior clothing (cotton 40, synthetic 20) 60 199 Womer's exterior clothing (cotton 12, synthetic 14) 26 174 Others 34 64 Textiles 123 108 Cotton yarns 38 75 Cotton fabrics 41 75 Impregnated fabrics 10 143 Others 49 286 Metal manufactures 159 81 Chemi.cals, petrochemicals, pEtrmaceuticals, plastics 103 67 Epsilon-caprolactama 10 384 Othe rs 93 64 Construction materials 84 134 Portland cement 41 101 Hydraulic cement (clinker) 12 277 a/ Others 31 102 Other manufactured products 97 47 Prec-ous and semiprecious stones 63 100 Othe rs 34 47 TOTAL 1,164 131 Note: a. 1978=100 SOURCE: INCOMEX, unpublished data and mission calculations. Note that the definition 6f "products" according to tariff positions in the above table discriminates against sectors like metal manufacturing and chemicals, which have hundreds of closely dEfined tariff positions. - 32 - exceptions" which, under Andean Group rules, means that Colombia has no preference at all in the Venezuelan market. In fact, almost all of Colombia's substantial clothing exports to Venezuela are made either legally through the Margarita Islands free port or illegally through Cucuta and Maicao. Metal manufactures is the second most important sector for Colombia exports of industrial goods to Venezuela, yet exports from Colombia to Venezuela of products included in the Andean industrial programming scheme totalled less than US$2 million in both 1979 and 1980 (Statistical Appendix, Tables 22-24).7/ Indeed, several industrialists maintain that reservation of a product by the Andean Group for country assignation under the industrial programming scheme mainly means inter-country squabbles and multi-year delays rather than dynamic export growth. Furthermore, Venezuela has lagged by one to three years in fulfilling its contractual Andean obligation to lower tariffs on imports from Colombia. Exports of most other industrial products, too, seem not to have benefited from Andean Group preferences.8/ 2.16 After Venezuela, the second most important market for Colombia's manufactured exports is the United States, which took 21% of official manu- factured exports in 1977. U.S. import data indicate (Statistical Appendix, Table 25) that non-metallic mineral products have been the single most impor- tant item (US$50 million in 1979), followed by clothing (US$35 million), yarns and fabrics (US$21 million) and leather goods, suitcases, bags, etc. (US$11 million). Colombia's manufactured exports to the U.S. are highly concentrated: these few items accounted for 60-65% of total Colombian manufactured exports to the U.S. in 1970 and 1974, and for three-quarters of such exports during 1978-79. The value of Colombia's exports of clothing to the U.S. increased by only 19% in nominal terms between 1974 and 1979 (that is, these exports fell significantly in real terms). This suggests that the findings of the Morawetz study on why Colombia has been unable to export significant quantities of clothing to the United States may still apply. Contrary to the Venezuelan case, the remaining third (1970-74) or quarter (1978-79) of manufactured exports to the U.S. is not spread widely across the industrial sector. In exports to the U.S., apart from the products mentionled above, chemical products add another 7% or so, while, with the exception of paper products, the remainder consists mainly of a handful of items valued at US$2 million or less. Metal manufactured exports to the U.S. do not appear to have exceeded US$10 million in any single year through 1979. 2.17 Exports to the Andean Group, Central America, the Caribbean, and the E.E.C. are of equal importance as markets for Colombia's manufactured exports after Venezuela and the U.S. These tend to take 10-15% each of such exports. The rest of Latin America takes most of the remaining 5%. To the first two, as to Venezuela, exports are spread across a fairly broad indus- trial spectrum. Again as with Venezuela, exports to the Andean Group (mainly 7/ The only items under this scheme that reached even US$300,000 in either year were "valvulas de compuertas" (US$500,000 in 1979 and US$357,000 in 1980) and parts for sewing machines (US$305,000 in 1980). 8/ See for example Luis Jorge Garay, El Pacto Andino: Creacion de Un Mercado Para Colombia? FEDESARROLLO, Bogota, 1981. - 33 - in fact to Ecuador) mostly seem to result from proximity, similarity of market structure, etc., rather than from Andean Group preferences.9/ Indeed, Bolivia and Ecuador have yet to begin granting Colombian goods preferences on many products. Exports to the E.E.C., by contrast, have more in common withb exports to the U.S. in that they are concentrated in a similar group of relatively few products, especially crude textiles, clothing, and leather and paper products. 2.18 Colombia's exports of manufactured goods to the rest cf Latin America have been small. Despite Brazil's giant market, for instance, Colombia's exports to that country, manufactured and otherwise, did not exceed US$9 million in any year during 1976-80 (Statistical Appendix, Table 26-27). The only industrial items in which exports to Brazil exceeded US$200,000 during at least three of these five years were portland cement (accumulated total exports amounted to US$6 million. in the five years), single-phase motors (US$4 million), and sodium hydrosulphite (U',$3 million). Exports of "vidrios estirados", which began in 1979, totalled US$3 million during 1979-80. These four items together accounted for almost half of Colombia's total exports of all goods to Brazil in 1976-80. Exports of manufactured goods to Chile seem to have increased somewhat in recent years. This is another indication of the way in which the Andean Group has failed to promote trade among its members. Colombia almost certainly exports more to Chile now thal it has left the Group, in free competition with t:he rest of the world, than it did when Chile, as a Group member, granted Colombia tariff preferences but at the same time made full use of its allowed trade restrictions (list of exceptions etc.). 2.19 As might be expected from a relative factor endowments theory of trade, Colombia tends to export relatively labor intensive goods to the U.S. and the E.E.C., while its exports to neighboring markets (Venezuela, other Andean countries, Central America and the Caribbean, etc.) tend to be more capital and skill intensive. The classic exanLple of this pattern is metal products, where only 15% of exports currently go to the U.S. and the E.E.C. The trend is also visible on an intra-industry basis - clothing exports to the U.S. and the E.E.C. tend to be to buyers' specifications and sometimes (U.S. 807 exports) provide labor only; whereas exports of clothing to neighboring markets are mostly to Colombian manufacturers' designs and specifications and include all phases of the operation. 2.20 Within exports to the developed markets, there exists an interesting difference of product categories traded with the U.S., on the one hand, and the E.E.C. and other industrial countries, on the other. Industrial exports to the U.S. seem to be more labor intensive and have a higher degree of processing than exports to the other industrial countries. In the textiles and clothing sector, yarn is the most important export product to the E.E.C. countries, while garment:s have a much smaller share. By contrast, garments are important exports to the U.S., while yarn exports are small. In the leather sector, the situat:ion is similar: exports to the E.E.C. and other industrial countries are predlominantly in the form of leather, while those to the U.S. are in the form of leather manufactures. In 9/ Garay, op. cit. - 34 - the paper sector, the U.S. market purchases products with a high degree of processing, in particular printing products, whereas paper exports to E.E.C. and other industrial countries include particularly the value of cardboard boxes in which bananas are shipped to those countries. One reason for the higher degree of "finishing" of exports to the U.S. seems to be the closeness of the market, which increases the marketing flexibility for products which are usually fashion oriented (especially garments and leather handbags). However, it also appears that the U.S. market imports mainly medium quality items, while the quality requirements in European markets are higher and often are not easily satisfied by Colombian manufacturers.-0/ 2.21 Printing products seem to be Colombia's most sophisticated and capital-intensive export with a demonstrated competitiveness in industrial countries. The capability to produce economically small batches--especially of books--seems to be an advantage in developing countries as well as in industrial markets in this product category. Yarns and fabrics are other relatively capital-intensive exports which are competitive in industrial countries. Manufacturing of yarn and fabrics is performed in Colombiain modern, large-scale plants which compare well with textile mills in industrialized countries. Colombia's export diversification has thus gone beyond the stage of specialization in natural resource-rich and labor intensive products via-a-vis the other above-mentioned markets.11/ D. Exports of Major Subsectors 2.22. Textiles have consistently been one of the strongest industrial exporting sectors, accounting for 10-20% of all manufactured exports during 1967-80, and for 12-14% during 1974-80. As with most other industrial sectors, the proportion of total textile output exported shows a pattern of rise-decline-stagnation, with the peak of 10% reached in 1974-76. In current dollars, textiles exports increased from less than US$20 million a year in 1967-70 to about US$120 million in 1980 (Statistical Appendix, Table 28). These exports have been quite heavily concentrated in cotton yarns and crl1de cotton fabrics, accounting for 50-75% of all textile exports during most of 1970-76, and about 55-60% during 1977-80. Other cotton textiles (includilng velvet, felt, etc., from 1975 onwards), added a further 10-20% during 197:)-80 (15-20% during 1977-80). The one significant non-cotton item was "other fabrics impregnated with artificial materials": these exports began in 1'973, and added a further 5-8% to the total (8% during 1977-80). During 1976-80, these few items (cotton yarns, mostly crude cotton fabrics, and other fabrics impregnated with artificial materials) accounted for about 80-85% of the total value of textile exports. 10/ Two garments and leather goods exporters, for example. informed an earlier Bank mission that European importers discontinued purchases immediately after receiving Colombian products below agreed quality standards. Since then, both firms export only to the U.S. 11/ See Wogart, op. cit. for additional evidence of this development. - 35 - 2.23 The volume of exports of the above-mentioned major items rose from about 5,000-8,000 tons in 1967-70 to a peak of 24,000 tons in 1976, and then fluctuated between 18,000 and 24,000 tons during 1977-80 (Statistical Appen- dix, Tahle 30). Estimates for 1981 exports are at the lower end of the same range. Disaggregating by product type, in the export of cotton yarns, there has been, a clear rise-and-fall pattern: exports rose gradually from around 2,000 tcns in 1967-70 to 12,000 tons in 1976, and then declined gradually to 8,000 tons in 1980 (and to probably even less :In 1981). In the four main fabrics categories, exports rose from 3,000-5,000 tons in 1967-70 to 13,000 tons in 1973, fluctuating between 9,000 and 13,000 tons thereafter. Destination of Textile Exports 2.24 There has been quite a marked change over time in the relative importarLce of different destinations for textile exports (Statistical Appendix, Table 31). In 1970, the United States and Canada took over half of such exports between them, while the E.E.C. accounted for only 13%. By 1977, these relative positions had been reversed, with the E.E.C. taking almost half of all textile exports and the U.S. and Canada importing 22%. The regions and countries that have accounted for most of the remaining share of total sales include Central America and the Caribbean (9-17%), t:he Andean Group (3-10%), other European countries (Scandinavia, Eastern Europe), and other Latin American nations (in 1978-81 especially Chile). 2.25 The distribution of textile exports by destinations is likely to be quite different during 1981. This is indicated by preliminary figures for the first seven months of Coltejer's overseas sales (Statistical Appendix, Table 32), by figures for the first six months of quota utilizat:ion in the E.E.C. (Statistical Appendix, Table 33), and by discussions with the other major textiles exporters. The dramatic revaluation of the dollar, and hence of the peso, with respect to the major European currencies through June 1981 has made it difficult for Colombian companies to sell textiles :in Europe in 1981. Thus, whereas Coltejer consistently sent 38-45% of its total sales to the E.E.C. during 1978-80, this percentage fell to 20% during tlle first seven months of 1981. (The percentage for the first seven months of [980 was 44%; the current dollar value of Coltejer's total export sales was 10% lower in January-July 1981 than it had been during the same months of 1930). The countries tha, most increased their share of Coltejer's sales during January-June 1981 to partly offset the big fal.l in exports to Europe were Argentina, Uruguay and Panama. 2.26 The predominance of the E.E.C. as a market for Colombian textiles has been particularly strong in yarns; from one-half to two-thirds of total yarn exports went to the E.E.C. throughout most of the 1970-1980 period (Statistical Appendix, Table 31). By contrast, the percentage of Colombia's total fabrics exports sent to the E.E.C. has fluctuated between about 15% and 40%since 1976. Colombia's exports to both the E.E.C. and the U.S. are limited by "voluntary" quota arrangements. Nevertheless, except in a few specific instances, these quotas have never been fully utilized. The closest Colombia has come to consistently utilizing il:s quotas is in sales of yarn to the E.E.C. During 1978-80, these exports usedl up 79%, 87%, and 90% of the quota respectively; with the exception of Ireland, each E.E.C. importing country's individual quota was at least 80% filled in at least two of the three years. In the first six months of 1981, however, because of the abrupt - 36 - revaluation of the peso with respect to the E.E.C. currencies, all this changed dramatically; quota utilization was running at only a 38% annual rate, with the reductions occurring in sales to all European countries and particularly those with the largest yarn-quota allocations (Germany, Italy, Benelux, U.K.). 2.27 In sales of fabrics to the E.E.C., Colombia's quota utilization was never greater than two-thirlis during 1978-80, being 32%, 55% and 66% in the three years respectively (Statistical Appendix, Table 33). The inability to fill fabric quotas was spread fairly evenly across all E.E.C. countries; in no country was the fabric quota more than two-thirds filled during more than one of the three years, while in all countries the quota was less than half filled in at least one of the three areas. The 1981 development of fabrics exports was particularly bleak; during the first half of the year, the qttota was being filled at an annual rate of only 16%, with shortfalls of 80% or more occurring at an annual rate in all E.E.C. countries. 2.28 Whereas E.E.C. textile quotas are set simply for "yarns" and for "fabrics" for each member country, U.S. quotas are specified more finely. This makes filling the U.S. quota as a whole more difficult, since quotas are often larger in items in which Colombia is at a comparative disadvantage (e.g. textiles of synthetic fibers), and vice versa. Nevertheless, even in the items in which Colombia specializes, quotas have rarely been even close of being fully utilized. Colombia has exported no significant quantities of woolen or synthetic yarns to the U.S., while the quota utilization of cotton yarns fluctuated during 1975-76 and 1978-79 between 15% and 57%. During 1979-80 and 1980-81, exports of cotton yarn to the United States disappeared almost totally, utilizing zero and 1% of the quota respectively (Statistical Appendix, Table 34). Overall, for all types of fibers, utilization of the U.S. yarn quotas varied from 11% to 45% between 1975-76 and 1978-79; it stood at zero and 1% during 1979-80 and 1980-81. 2.29 In fabrics, utilization of the U.S. wool quota has never reached 25% and was zero in 1979-80; similarly, utilization of the synthetic fiber quota has never reached 5% and was zero in 1979-80; utilization of the cotton quota ranged from 39% to 69% between 1975-76 and 1980-81, standing at 47% in the most recent year. For all types of fibers utilization of the U.S. fabric quotas ranged from 33% to 56% between 1975 and 1980. U.S. quota categories are specified by type of fabric as well as by type of fiber. During 1978-81, only in one category (Scottish combed cotton fabric) was the quota at least 55% filled during at least two of the three years (Statistical Appendix, Table 35). In all other categories 44% or more of the quota was left unfilled in at least two of the three most recent years; in many categories (including even that of fabrics or felt, velvet, etc. in which Colombia's exports have increased in recent years) quotas were not even 5% filled (Statistical Appendix, Table 36). 2.30 The vast majority of textile exports are accounted for by a handful of firms. In exports of fabric, Coltejer accounted for 32-38% of Colombia"s exports during 1979-80, Fabricato added 23-26%, Tejicondor sold 12-15%, andl all others added 23-30% (Statistical Appendix, Table 37). In yarns, Tejicon- dor exports very little, with Coltejer and Fabricato being correspondingly - 37 - even more predominant (Statistical Appendix, Table 38).12/ In exports to the E.E.C., Coltejer and Fabricato account for 43% and 32% of yarn exports respectively, with five smaller firms accounting for the remaining 25%. In exports of fabric to the E.E.C. during 1.978 and 1979, Fabricato edged out Coltejer to become the leading exporter (46% to 39%), with Tejicondor supply- ing the remainder. In exports of fabric to the U.S., according to prelimi- nary data, Tejicondor was the leading supplier during 1980-81 (47%), followed by Fabricato, Unica and Coltejer with 19%, 172 and 16% respectively. Comparisons W:ith Other LDC Textile Exporters 2.31 After 1967 expansion of Colombia's textile exports be,-ame respect- able by world standards. Thus, Colombia's textile exports grew in current dollar values at an average rate of 39% a year during 1970-75, which was slower than Thailand (57%), Brazil (53%) and Korea (50%), but faster than Morocco (36%), Turkey (34%), Taiwan (27%), Singapore (19%), Pak:istan (19%), Yugoslavia (17%), Hong Kong (16%), Iran (15%), Egypt (11%), Ind:ia (5%) and Bangladesh (-2%). Similarly, if 1972-75 is taken as the period in which growth is measured, and setting 1972=100, Colcombia's value-of-export index for 1975, though well below that of Korea, compares favorably with those of Hong Kong and Taiwan (Statistical Appendix, Table 39). In contrast, as exporting became less and less profitable relative to selling domestically, Colombia's export growth fell behind that of i.ts competitors. Thus, setting 1975=100, Colombia's value of exports index reached 122 in 1977 and 133 in 1978 which puts Colombia together with Pakistan behind all of the above- mentioned countries for which data are available in the rate of growth of textile exports 1975-1978. Colombia's index value of exports for 1980, was below the indexes for 1978 of Turkey, Korea, Singapore and Taiwan, below the 1977 index of Thailand, and is approximately equal to the 1978 index of Hong Kong. 2.32 Another way of seeing the same phenomenon is to examine the volume in square yard equivalents (SYEs) of world imports of textiles from all developing countries during 1975-79 (Statistical Appendix, Table 40). Imports from Colombia fluctuated between 22 and 42 million SYEs during 1975-76 and 1979-80, decreasing by 2% between "textile" years 1975-76 and 1978-79, and decreasing by 48% between 1975-715 and 1979-80. By contrast, imports from Korea, Taiwan and Hong Kong increased by 12% or 21%, depending on the end points chosen; imports from Latin America as a whole increased by 35% or 41%; and imports from Africa and the rest of Asia increa.sed by 39% or 88%.13/ In short, the evidence clearly indicates that Colombia.'s textile 12/ In production of woven goods, according to an INCOMEX report, Coltejer accounted for 40% of the value of output in 1980, followed by Fabricato (32%), Tejicondor (12%), and 20 other firms (15%). 13/ The use! of 1975 as the pivotal or base year in these calculations was determined by the ease of availability of multi-country data. Nevertheless, a glance at Colombia's textile exports for 1970-1980 choice of 1974 or 1976 would have yielded basically the same (indeed, if the 1974 figure is believed, even stronger) findings. - 38 - exports grew even faster than those of most of the other important textile-exporting developing countries during 1970-75, but that since 1975 Colombia's textile exports, both in general and to the U.S., have grown significantly more slowly than those of its competitors. At least for textiles, it seems, then, that the argument that the slowdown in the growth of Colombia's manufactured exports has been primarily due to a slowdown in the growth of external demand cannot be sustained. What has happened, rather, is that Colombia has been gradually losing its share of the world market to other developing country exporters. 2.33 Looking at some data on textile exports per capita and on the percentage of textile output exported in different countries, Colombia comtes out with low figures that are more appropriate for very large countries like India and Brazil than for medium-sized countries. Korea and Taiwan for instance, with similar populations to Colombia's, export 10-18 times more textiles per capita than Colombia, and exports make up 55-59% of total textile output, compared to Colombia's 10%. It is not being suggested here that Colombia must necessarily increase textile exports to Korean or Taiwanese orders of magnitude. What is clear is that Colombia's current export levels could be increased significantly without either per capita exports or exports as a percentage of output becoming too high in comparison with competitor countries. Metal Manufactures 2.34 Exports of metal manufactures grew faster than exports of other industrial goods during 1970-82 (Statistical Appendix, Table 18). If basic metals and transport equipment are included in the sector, they increased from US$6 million in 1967 and US$10 million in 1970 to US$152 million in 1980, at the same time rising from 11% of all manufactured exports in 1970 to 13% in 1980. The percentage of subsectoral output exported increased duriLng the same period from 1-2% to 5-10%, with rates of 20% having been recorded in the mechanical machinery subsector (Statistical Appendix, Table 16). The pattern over time was similar to that of other industrial sectors: a rise in the percentage of industrial output exported through about 1973-75 followed by stagnation or decline during 1975-80 (remembering that 1979 figures have to be treated with caution because they include fictitious exports). At t;he subsectoral level, metal products and non-electrical machinery have been the largest and fastest growing exporters of metal manufactures (Statistical Appendix, Table 14). These two have been followed by transport equipment and electrical machinery in that order, while exports of basic metals have been minimal. 2.35 At the individual product level, exports of metal manufactures are spread widely across hundreds of different tariff positions. Thus, for example, in 1978 and 1980 (omitting the fictitious exports years 1979), a series of items of less than US$1 million accounted for two-thirds of total metal manufactured exports and no single item reached as much as US$10 million (Statistical Appendix, Table 41). Items which registered US$1 million or more in 1980 included: brake parts (US$8.8 million), water pipes (US$7.4 million), cast iron stoves (US$5.7 million), coffee mills (US$5.1 million), other forged products (US$4.8 million), cables and ropes of iron and steel (US$2.3 million), metal statues (US$1.7 million), threshers for cereals (US$1.1 million), electrical connections, fuses, outlets etc. (US$1.1 million), refrigerators and ice boxes (US$1 million, and US$3.2 million in - 39 - 1978). A detailed item-by-item analysis of metal manufactures exports indicates that both the product composition and the markets of destination vary considerably from year to year. This suggests that, as with many other Colombian manufactured exports, exporting in this sector is seen as a marginal activity - a way of disposing of temporary production surpluses or of using temporarily idle capacity by filling small orders in neighboring markets--rather than as a central, bread-and-butter-providing business. 2.36 Exports of metal manufactures to the Andean Group appear to reflect inherent Colombian competitiveness rather than Andean tariff preferences. Exports of goods assigned to Colombia under the industrial programming scheme are relatively small; most exports of metal manufactures to the Andean countries compete on equal terms with exporters outside the group. Venezuela has developed into the most important market for Colombia's exports of metal manufactures, taking about half of such exports during 1978-80 (Statistical Appendix, Table 41). The fall in metal manufactures exports during 1980 reflects in part the effect of the continuing Venezuelan recession. The next largest markets for metal manufactured exports have been the other Andean Group countries, Central America and the Caribbean, with political instabi- lity in Central America during 1979-80 also afijecting exports negatively. Exports of metal manufactures to the United States seem never to have exceeded US$1C million a year, while those to Europe appear to be even less important. Finally, about 5% of metal manufacl:ured exports go to other Latin American countries. To Brazil, the only metal manufactured item that reached US$1 million in any year during 1976-80 were single phase motors (US$1.5 mil- lion in 1980). Processed Foods 2.37 Colombia's most important sector of nontraditional exports includes various branches of processed food products. Exports of processed food products rose from less than US$20 million a year during 1970-73 to average over US$100 million a year during 1974-80. Aczording to the DANE data, that branch was the most important "industrial" expDrt sector during 1974-79, usually providing about 18-21% of total manufactured exports. 4/ This may be compared with the percentages provided by textiles (12-14%), metal manufactures (9-14%) and clothing (4-11%). Exports of processed foods are dominated by a small number of high value items. During 1976-80, for example, the following six items accounted for 60-83% of the total value of processed food, exports (Statistical Appendix, Table 42): raw sugar (176 million in 1980), beef (US$33 million), "melazas" (US$26 million), cheeses (US$21 millioi), frozen shrimps (US$17 million), and bleached rice (US$15 million). All of the cheese exports and most of the beef went l:o Venezuela during 1976-80, while frozen shrimps went mostly to the United ',tates. The destinations of the other main processed food exports are not readily available. 14/ Statistical Appendix, Table 14 and 18 - the INCOMEX and DANE figures differ greatly, but the above statement is true for both. - 40 - E. Does the Exchange Rate Matter? 2.38 Several studies undertaken in the mid-1970s have maintained that the package of export promotion policies pursued by the authorities between 1967 and 1974 were crucial for the rapid expansion of nontraditional exports from Colombia. 15/ More recently, it has been argued by many in Colombia that what really determines the level of the country's manufactured exports is the state of world demand, and hence, by implication, that the rate at which the peso is devalued really does not matter much. This claim assunes that Colombia's share of the world market for manufactured goods is, for some reason, constant. But constant market share analysis shows that the expanding world markets were responsible for not more than a third of Colombia's manufacturing exports between 1967 and 1973. 16/ Raising the real effective incentive to exporters as happened during most of 1967-74--would create an incentive to Colombians to increase their share of the world market. Lowering this real effective incentive--as happened during 1975-81-- causes Colombians to pull out of exporting and reduce their world market share. Though econometric studies always have trouble quantifyingr precisely the importance of prices, simple theoretical reasoning and several pieces of empirical evidence suggest that the exchange rate does indeed matter. 2.39 At the theoretical level, the demand for Colombia's exports is 'Like the demand for any other goods: it depends both on the price of the goods relative to competing items and on the income of the purchaser. True, the income of the purchaser sets an upper limit to the quantity bought. But as long as the Colombian goods present a small proportion of world imports (as is true for all manufactured goods), Colombians can always sell more, at the expense of their competitors, by lowering prices. Raising the real effective exchange rate allows dollar prices quoted to be lower for a given real return in pesos; lowering it (as has happened recently) forces firms to raise quoted dollar prices. 2.40 Empirical evidence on growth of Colombian manufacturing exports compared with either expansion of these same exports from other LDCs or with growth of output and industrial value added in Colombia shows clearly the relative decline of the export effort. While industrial exports from LDCs continued to expand at an annual real rate of about 8%, Colombia just managed to grow by only 4%. As is pointed out in the previous section, manufactured exports as a percentage of industrial output show the same trend over time as the real effective exchange rate for manufactured exports: a rise during 1967-74/75 and a decline thereafter. Precisely the same pattern may be seen if one takes manufactured exports as a percentage of GDP. 15/ See Jose D. Teigeiro and R. Anthony Elson, "The Export Promotion System and the Growth of Minor Exports in Colombia", IMF Staff Papers (1973); also see Martha Helena Cardona, "El Crecimiento de las Exportaciones Menores y el Sistema de Fomento de las Exportaciones en Colombia", Revista de Planeacion y Desarrollo, (Bogota: DNP, 1977). 16/ See Wogart, op. cit. p. 121-124. -41 - 2.41 The importance of relative prices anc. profitability for exporting after 1974 was also established in a firm survey undertaken in 1975-76. 17/ It shows that Colombian industrial firms received higher prices from sales abroad than domestic sales in 1970-71. This situation was reversed later. But whereas exports to Europe and the U.S. became less profitabl, than domestic sales in 1974, the other Latin American markets continued to offer a favorable outlet until 1977. The results would indeed explain the weak export performance of the mostly traditional manufacturing exports after 1975 versus the continuous growth of the exports to the more recently established markets of the Andean Group, other LAFTA members and the Caribbean region. 2.42 The recent development of textile exports demonstrates the rela- tionship between exporting and profitability. During 1970-75, when exporting was still profitable in Colombia, the growth rate of Colombia's exports of textiles was respectable indeed by world standards: it was slower than that of Thailand, Brazil and Korea, but faster than that of Morocco, Turkey, Taiwan, Singapore, Pakistan, Yugoslavia, Hong Kong, Iran Egypt, India and Bangladesh. From 1975 onwards, the rate of growth of Colombia's textile exports was lower than all of the other above-mentioned countries for which data are available, except for Pakistan. 18/ Bly 1980, the physical volume of Colombia's textile exports, measured in tons, was below what it had been in 1975. Similarly, U.S. import data indicate that, between 1975-76 and 1979/80, the physical volume of U.S. imports oif textiles from Colombia either did not increase at all or decreased by 48%, depending on the initial and terminal years chosen. By contrast, during the same time period, U.S. imports of textiles from Korea, Taiwan and Hong Kong increased in volume by 12-21% depending on the years chosen; more surprisingly those from Latin America as a whole increased by 35-41%; and those from Africa and the rest of Asia increased by 39-88%. 2.43 The first half of 1981 saw an unusua'Lly abrupt realignment of currencies, with the dollar (and with it the peBso) rising sharply against most European currencies. In just six months, the peso rose by 30% against a weighted average of the E.E.C. currencies. The effect of this rise on Colombia's exports of textiles to the E.E.C. was immediate. In fabrics, whereas 55% and 65% of quota had been utilized during 1979 and 1980 respec- tively, only 16% was utilized during the first half of 1981 (Statistical Appendix, Table 43). 19/ In yarns, whereas 87% and 90% of quota. had been utilized in the previous two years, only 38% was utilized during the first half of 1981. What is more, the textile exporters expected that., if currency exchange rates; remained unchanged, the second half of 1981 was likely to be even worse than the first following the trend of the April-June quarter which was worse than January-March period. In sum, while the peso revalued 30% 17/ See Wogart, op. cit., p. 140-1. 18/ Data are not immediately available for Bangladesh, Iran arid Yugoslavia. 19/ Orn an arnual basis. - 42 - with respect to E.E.C. currencies, exports of fabric to the E.E.C. fell 75%, i.e., from 65% of quota in 1980 to 16% in 1981 and exports of yarn to the E.E.C. decreased by nearly 60% from 90% of quota to 38%. 2.44 It seems clear from the above arguments and evidence that the real effective exchange rate does matter for Colombia's industrial exports. During 1967-74, when the real effective exchange was raised, Colombia's exports of manufactures did well by any standards. During 1975-81, when the real exchange rate fell significantly, Colombia's exports of manufactures did poorly, both in comparison with their previous performance and compared to exports of competing countries. F. Recent Growth and Change of Imports 2.45 Colombian imports have increased sixfold during the past decade from US$900 million in 1970 to US$5.4 billion in 1980. The acceleration was especially pronounced during the second part of the seventies, which experienced a 120% growth. If however, these imports are related to the growth of the domestic economy, a very different picture emerges. Between 1975 and 1979 Colombian imports, in nominal terms, averaged 10.9% of GDP. This represents a slightly smaller fraction of GDP than the 11.2% average for the period 1970-1974. °/ These changes coincided with a rise in the ratio of total exports to GDP (from 11.1% to 11.9%), a US$4.3 billion accumulation of international reserves which was a major factor in the rise of the money stock, and a substantial rise in Colombian inflation. Thus, the process of de facto liberalization of imports initiated in the late sixties and early seventies apparently was halted in the 1975-1979 period. Table 7: CUSTOMS IMPORTS 1967-1979 (in million US$) Average Annue.L Growth Category 1967 1970 1974 1979 1967-74 1974--79 in % Total 496.7 843.0 1597.2 3233.2 18.1 15.1 Consumer Goods 39.4 92.8 190.4 451.1 25.0 18.8 Raw Materials and Intermediate Goods 228.4 369.4 936.4 1705.3 22.0 12.7 Capital Goods 219.4 371.5 464.8 1076.8 11.3 18.3 Others 9.5 9.3 5.6 - 7.5 - SOURCE: Stat. Appendix, Table 48. 20/ The decline is worse if imports are measured in real terms or if national accounts definition is used (Statistical Appendix, Table 44). If petroleum imports are excluded the comparison is also worse, since Colombia shifted from a net exporter to a net importer of petroleum in 1976, partly as a result of its subsidization of local petroleum prices. - 43 - 2.46 In 1980, imports rose substantially as percentage of GDP to their highest level of the decade. Imports (narrowly defined) were 13.8% of GDP; on a national accounts basis they reached 16.2,' of GDP, versus 11.2% and 13% respectively in 1979. About a quarter of the ::ise in the ratio of imports to GDP represented an increase in petroleum imporl:s, which were up 71% or US$233 million compared to 1979. An increased ratio of capital goods imports (excluding transport equipment) to GDP accounted for about another third of the rise; these capital goods imports increase(d nearly US$400 million or 55%. Many of the capital goods imports were related to the surge in public investment under the PIN program and to private investments under global licenses. Finally, increased imports of transport equipment (mainly autos) accounted for almost 10% of the rise; overall these imports rose by almost US$150 million or 32%. The remaining third of the rise in the ratio of imports to GDP can be attributed to more general liberalization, coupled with speculation by importers that the rate of deva:.uation might increase. Thus it is possible that some liberalization of imports, particularly in capital goods, did take place in 1980, but much of the growth in imports was caused by special factors. 2.47 The sharp rise in imports and the slowdown in export growth shifted the Colombian current account from a surplus during previous years into a deficit in 1980. However, large increases in capital inflows, both official borrowings (up US$260 million net or 52%) and direct investment (up US$110 million or 89%), permitted international reserves to grow by about US$1.3 billion in 1980. M/ In the first five months of 1981 the dollar value of imports was up 8% compared to the same period of 1980, an increase of about 4% in real terms. However, the attempted liberalization process of 1980 was not sustained in 1981-82 given an overall balance of payments deficit and increasing attempts of dumping in world markets. 2.48 In making statements about imports, a careful distinction must be drawn between actual import figures, cited above, and registered requests for imports (see Statistical Appendix, Table 45). Actual imports passing through customs recorded by DANE (The Direccion Nacional Administrativa de Estadistica) differ substantially from registered imports (registros) recorded by INCOMEX. This difference is the result of both timing--imports must first be registered--and the fact that importers may request more than they intend to import, or may cancel imports when market conditions seem unfavorable. For the period 1951-71 Diaz Alejandro estimated a regression explaining DANE customs figures as a function of current and to a lesser 21/ It is worth noting that the increase in capital inflows as a fraction of GDP, amounting to about 17.5 billion pesos at the average exchange rate for the year, cannot account for the rise in imports. The increase in capital inflows was equivalenit to less than one-half of the rise in the percentage of GDP that was spent on imports. - 44 - degree, past registros. 22/ Since 1975, however, actual imports have steadily become a smaller percentage of current registros. A regression of the same form as used by Diaz Alejandro, but applied to the period 1961 to 1980, indicates a much smaller impact of current registros and a much larger impact of past ones. 23/ This switch in relative importance of current registros confirms the decline shown in Table 3, but the ratio between customs imports and the sum of current plus past registered imports has not changed much. It would seem that the absence of foreign exchange problems has reduced both the variations in INCOMEX policy and the urgency to complete an import transaction before foreign exchange problems appear. The differ- ence between actual imports and contemporaneous registros may tend to widen even further in the future owing to the 1980 elimination of the 1% customs fee on registros. This fee provided an incentive for importers to estimate and request what they actually intended to import; currently they can request imports without the intent to import at an specific date. Thus in evaluating future as well as past liberalizations it is important to limit discussion to actual imports. Registro figures may be useful for forecasting, and the large 1980 figure implies a continued rapid rise of imports in 1981. Cutting off imports would require cancellation of many existing permits. 2.49 In 1977-79, intermediate products represented about 50% to 52% of actual imports, capital goods about 22%, automobiles and transport equipment about 12%, and consumer goods about 14% to 17%. The pattern of registered imports is similar, except that request for capital goods were slightly higher and intermediate products slightly lower. (Statistical Appendix, Table 47). This pattern of imports characterized most of the seventies, except that intermediate products made up a somewhat smaller and capital goods a somewhat larger fraction of total imports than before 1973. The change reflects Colombia's switch from a small net exporter to a small net importer of petroleum, and the rise in the relative price of petroleum. Consumer goods imports varied substantially in the late sixties and early seventies, reflecting both variations in protection and in harvests. The principal imports were machinery and electrical equipment, transport equipment including automobiles, petroleum and non-metallic minerals, chemicals and products, as well as metals and products (Statistical Appendix, Table 48). Imports of manufactured goods amounted to about 85% of total imports and reached about 20% of the gross value of manufacturing production in 1979. 22/ CUSTOMSt = 94.18 +.55 REGISTROSt + .31 REGISTROS t-1 (2.19) (5.3) (2.7) R2 = .88, DW = 2.92, with "t" statistics in parentheses. C. Diaz Alejandro, Foreign Trade Regimes and Economic Development: Colombia, (New York: NBER, 1976), p. 126. 23/ CUSTOMSt= 110.41 + .30 REGISTROSt + .57 REGISTROS t-1 (3.4) (3.3) (4.9) R2 = .99 DW = 3.2, The coefficients of this regression are significantly different from those obtained by Diaz Alejandro. - 45 - 2.50 In 1980, imports rose much faster than GDP. Based on the DANE figures, at current prices the rise amounted tco about 2.6% of GDP or about 30 million pesos. Almost 70% of this increase carn be attributed to the rise, relative to GDP, of three types of imports: (a) capital goods imports, which were up by about 0.8% of GDP, equivalent to 13 billion pesos, (b) oil and other non-metallic mineral imports, which were up from 1.25% of GDP to 1.83% of GDP, a rise equivalent to about 9 billion pesos, and (c) transport equipment which was up 0.2% of GDP, equivalent to 3.3 billion pesos. In real terms 24/ non-electrical machinery (Colombian tariff category #84) rose 27%, electrical mac'hinery (Colombian tariff category #85 including such diverse goods as turbines and TVs) rose 80%, and the two categories together rose 40% versus a 4.0% real rise in GDP. This increase reflected the start-up of the PIN program and imports of machinery by petroleum companies. Thie tonnage of petroleum and other non-mineral products rose cnly 2.1%; thus, most of the rapid rise in the ratio of petroleum imports to GDP was caused by the rise in petroleum prices paid by Colombia. 25t This cost is likely to fall, as worldwide prices decline; moreover the volume cf petroleum impori:s should drop, relative to GDP, as local petroleum prices rise to world levels. Finally, the dollar value of auto imports rose 32%, the real value rose 20%. This may largely be explained by the speculaticn before the change in licensing restrictions (para. 1.31) coupled with a more liberal interpretation of the rules by INCOMEX. 2.51 Theres is a substantial amount of contraband on the import as well as the export side, not included in the official statistics. Smuggled imports of textiles have been estimated to as much as 20% to 25% of the value of local production. 26/ Locally produced and legally imported TVs make up only a small fraction of the existing stock. The IMF has estimated that import smuggling averaged 10% of Colombian imports with fluctuations depending on the ease of importing. Even this figure seems low relative to the estimate of illegal textiles imports. 27/ 24/ Using the index of U.S. capital equipment prices at the producer level to deflate the dollar import figures. 25/ It should be noted that DANE figures on petroleum imports and exports differ substantially from ECOPETROL figures. The difference is due to timing and to the different treatment of sales of jet fuel to foreign planes. 26/ For a more detailed discussion on textile industry and textile imports, see Chapter III. 27/ Overinvoicing of imports to avoid currency restrictions may offset contraband imports to some extent, but with a black market rate less than the official rate over much of this period and the decline of CAT, incentives to overinvoice were declining. - 46 - G. Major Determinants of Colombian Imports 2.52 Various estimates exist for the Colombian import demand function in the fifties and sixties. These estimates usually relate changes in import demand to changes in GDP and relative prices. In addition, several authors have included variables which specify varying degrees of quantitative protection, and these variables are generally significant. 28/ Table 50 of the Statistical Appendix presents estimates for the 1954-80 period. According to this estimate real imports have an income elasticity of about 0.8, while their elasticity with respect to relative prices is about _.45.29/ As was the case in other studies, changes in nontariff protection also were found to be important determinants of imports in 1965, 1966 and 1967, as measured by the significance of a dummy variable for these years. This variable was included because the import price index used in the regression up to 1970--the product of the dollar unit values, the ratio of collected duties to value of imports, the implicit costs of prior deposits, and the exchange rate--does not reflect changes in quotas and thus does rnot fully measure changes in the local costs of imports in those years. Further, the form of the dummy variable assumes that imports in 1966 reflect a spillover of postponed import in 1965 and a speculation on the reimposition of controls in 1967 and this assumption seems to be borne out; the fit of the equation is improved substantially by treating 1966 in this way. 30/ 2.53 An examination of the residuals from this equation (also shown in Statistical Appendix, Table 50), indicates that real imports were less than would have been expected based on price and income alone between 1962 and 1967, and again between 1972 and 1977. The years from 1.968 to 1971 have positive residuals and so do the last three years (1978 to 1980). It is tempting to interpret this pattern as indicating variations in nontariff protection, which seems quite reasonable before 1970. However, after 1970 the import price variable is the import component of local wholesale prizes, which should reflect the effects of tariff and nontariff protection. Unfortu- nately the items included in this index were based on the 1970 import bundle, a year which still suffered from fairly strict controls, and thus may not 28/ Table 49 of the Statistical Appendix shows some of these estimates, together with definitions of the variables used. 29/ The income elasticity is significantly different from one as well as from zero. The relative price elasticicy is almost significant at the 95% level. The estimate of the relative price elasticity is downward biased because of simultaneity. The figure reported in the text is lower than the regression estimate reported in Table 52 because it is corrected for the inclusion of local prices of imports in the wholesale price index. 30/ Nontariff protection was assumed to be abnormally high in 1965 and 1967, abnormally low in 1966 because of both liberalization and speculation. This was represented by a dummy with the values 1, -1, 1 in 1965, 1966 and 1967 respectively. - 47 - accurately represent the changes in relative prices of imports. Some confirmation for this view is found if the import demand function is rerun, using the adjusted exchange rate multiplied by the dollar price :index of importables both before and after 1970; the results and the sign pattern of residuals are virtually unchanged. Taking this result into account it seems reasonable to say that the regression residuals indicate that some liberalization, not reflected in prices, took place in 1978-80. Another interpretation is that speculation on a more rapid devaluation and on renewed import restrictions increased imports abnormally in 1979-80, as occurred in 1966, and as reflected in the rise in automobile imports in 1980. H. Prospects for Increased Manufactured Exports and Imports 2.54 The future prospects for Colombia's exports of manufactured goods depend mainly on two factors: (a) the state of world demand, and (b) Colombia's export incentive policies, including businessmen's perception of Government efforts to stimulate nontraditional exports. At the current real effective exchange rate, much of exporting is a marginal activity in Colombia. That this is so may be seen from the fact that there are only a minuscule number of firms that are specializing in production for export or that are planning large investments to enlarge their future exports. Thus, if the 10-15% drop in the real effective exchange rate that has occurred since 1974 is not restored, the prospects for aE large increase in manufactured exports are not bright. 2.55 Before discussing the issues which have to be resolved if the policy framework for nontraditional exports is to be improved, one is tempted to ask which exports would grow fastest, and how fast they would grow, if exporting were to be made profitable again. This is a most difficult task as the National Planning Department found out when. it projected specific manufactured exports ten years ago. If anyone had predicted then any one of the following phenomena, he would not have beer. taken seriously by either the planners or the business community: - Industrial exports would reach a billion dollars by 1980. (They were less than US$100 million in 1970.) - Colombia's exports of textiles would grow faster than those of Taiwan, Hong Kong and Singapore during 1970-75. - Exports of cut flowers would be worth US$100 million in 1980, putting flowers fourth behind only coffee, sugar and bananas in order of importance as legal earners of foreign exchange. Employment in the production of cut flowers for export would reach 40,000 by 1980, which was greater than employment in any single industrial sector, except: possibly textiles, in 1970. (Exports of cut flowers hardly existed at all in 1970.) - Exports of clothing would be worth US$100 million in 1980. (They were valued at US$1 million in 1970.) - 48 - Colombia would become the world's leading exporter of children's pop-up books, exporting these in tens of languages to tens of countries. (Total exports of printed goods of all kinds were US$58 million in 1978 compared to US$2 million in 1970.) Colombia would export US$1 million worth of false teeth by 1980. There would be a more than tenfold increase in oil prices, making Venezuela very rich and one of the two most important markets (together with the U.S.) for Colombia's non-coffee exports. (In 1970, exports to Venezuela were minimal.) Colombia would export US$21 million of cheese in 1980 (zero in 1970). Colombia would export several millions of dollars worth of refrigerators and stoves in 1980. (In 1970, the electrodomestic appliance industry was one of the sickest in the country, with a large number of small firms each assembling a small quantity of appliances inefficiently, working only one shift.) In 1980, Colombia would export US$5 million worth of gloves for the protection of workers. - In 1980, Colombia would export US$17 million worth of frozen shrimps. - Exports of bananas would do so well that, by 1980, the cardboard cartons in which they were packed would be worth US$40 million in foreign exchange to Colombia. - In 1980, Colombia would barely be exporting US$10 million of footwear products, and most of that would be in parts and components rather than finished shoes. (With the well-developed leather industry and domestic knowhow in both leather and footwear in 1970, the shoe industry looked like a natural one to increase its exports rapidly.) 2.56 There are a number of other products which one could have expected to become important export items, but which did not get off the ground. Anyone projecting Colombian exports ten years ago would probably have pointed to products such as fruit juices and other agroindustrial products, wood products and furniture, as well as metal products. In Brazil for example, substantial exports did develop along these lines. Among the ten most important Brazilian export products in 1978 were solvent coffee and frozen orange juice, as well as shoes, wood products, and metal products. But the Colombian reality followed quite different lines. Metal mechanical industries in particular, which in Brazil made the most spectacular advances, have not been able yet to find markets beyond the Andean Group members. - 49 - 2.57 Why is it that these developments were so hard to predict only ten years earlier'? In many cases, once exporting was made profitab] e, Colombia's low cost unskilled and skilled labor made possible exports of goods that bureaucrats, academics, and other outsiders would never have dreamed of. In other cases, a single brilliant entrepreneur who is superb at managing production andl at marketing the resulting output was able to succeed in an industry in which others would have done less well such as occurred with pop-up books, with some exporters of clothing, and with the production of refrigerators and stoves. Somebody got the idea of producing gloves for the protection of workers; but it might just as easily have been leather jackets or, indeed, leather footwear. Finally, the unforseeable change in a single world price, that of oil, raised the per capita wealth of Colombia's neigh- bors and therefore improved exports prospects to those country grreatly. In short, the oddls are stacked heavily against any attempt to prediict particular goods which will do well in export markets in the future. Rather, it is necessary to concentrate on creating a climate favoring exporting in general, and let businessmen sort out the particular products to be exported. 2.58 Hav:ing mentioned this, can anything be said about the future pros- pects for particular exports? If exporting is made profitable,, at an aggre- tate level, manufactured exports are indeed likely to grow faster than they have in the recent past. While prediction at the product level is difficult in general, Colombia is likely to have a comparative advantage in, and thus to be able to export goods, which are neither of the simplest type (here Colombia cannot compete with India, Pakistan and other low-wage producers), nor of the most complex type (Colombia often does not have the very latest technology available). Rather, Colombia is likely to be able to export goods in which some skills are needed, while at the same time labor costs as a proportion of total costs are relatively high. The following section trans- lates these general statements into specifics for the textile sector. 2.59 In textiles, Colombia is likely to have difficulty in competing in the simple gray cloth because, especially in the biggest firms, Colombian textile wages are much higher than those in South Asia. At the other end of the spectrum, Colombia will have difficulty in exporting many varieties of finished cloth; fashions change so frequently and so abruptly in the developed countries that the producers in these countries have a great advantage in proximity to the end market, and therefore in timing. The goods in which Colombia could do well are those finished goods which require considerable skill and relatively high quality, but in which fashions change less frequent:Ly. Examples include skirting material in solid classic colors (white, blue, brown, gray) or in squares, stripes, etc.; sheeting material in the same types of classic colors; finished bedclothes, towels, handkerchiefs, etc.; drills, denims and corduroys. Because shirting and sheeting tend to be made of combined fabrics, especialy polyester-cotton, the abilil:y of Colombian textile firms to compete in these fabrics will depend heavily on their ability to import polyester and other synthetic fibers cheaply and rapidly (i.e. on improvements in Plan Vallejo). 2.60 In general, one hope for the future of the large textiLle firms, both to increase exports and to survive against contraband imports in the domestic market is to obtain much longer production runs by specializing in fewer products than at present, thus lowering average costs substantially and - 50 - allowing more competitive prices to be quoted. Apart from exporting textiles directly, textile firms may also attempt to obtain the benefits of longer productions runs by entering into joint exporting ventures (exportaciones conjuntas) with garment-making firms. A handful of such ventures have already been initiatied or are under serious study. Each involves a large textile producer and one of the top five or six garment makers. To date, textile producers have tended to sell their fabrics to garment-makers at 50-100% above world prices, making exporting of garments to the competitive developed country markets difficult. The new feature of the joint exports scheme is that the textile firm would sell fabric to the garment-maker at world prices, provided that the garments made from this fabric are exported. The advantage to the clothing manufacturer is clear. The advantage to the fabric maker is that, because export orders tend to be large, it gets long production runs and lower costs; and it may get other export incentive benefits besides. 2.61 If all preconditions for successful sales abroad were met, Colombian textile exports may eventually run into the problem of quota allo- cations in the U.S. and the E.E.C. But except in a few isolated cases, quota has not been a problem; exports could increase by well over US$100 million before the quota was filled. Once the quota is filled, Colombia could begin the same process that has occurred with exports from East Asia, i.e., it could begin to upgrade the quality of its exports so that, even while the volume of exports is constant, their real value continues to rise. 2.62 The same general principles apply for exports of metal manufac- tures, the goods which have best prospects are likely to be neither the sim- plest nor the most complex technologically, and they are likely to use quite a deal of skilled and unskilled labor. By contrast with textiles, however, in some metal manufactured goods Colombia may well have an advantage in the production of small lots or batches, i.e., lots that are too small for the large developed country producers to be able to handle economically. In Some goods, especially auto parts, the prospects are good for joint ventures With U.S. producers. Prospects for exports of metal manufactured goods in general are likely to improve once Venezuela comes out of its current policy-induced recession. 2.63 Export prospects in processed foods depend on the particular condi- tions of each subsector. In rice, yields have been increasing rapidly over the past decade as a result of the introduction of improved varieties, ancl export volumes could double by 1985 from their 1980 level of 90,000 tons. If the irrigated area were to be significantly increased, an additional 50,000 hectares could be brought into cultivation to produce high yielding flooded rice. 2.64 In sugar, export volumes are projected to increase by about 3% per annum, so that, by 1985, volumes could reach 340,000 tons. Volume increases beyond this level would require bringing new lands into cultivation. Colombia's resources of shrimps and shellfish in the Atlantic Ocean have been fairly extensively depleted; hence, despite favorable world demand and prices, increases in the volume of such exports may be difficult to obtain. On the other hand, Colombia has not yet tapped the larger fish potential of the Pacific, which has given substantial benefits to Ecuador and Peru. Among processed vegetables, market demand conditions look good for canned hearts of - 51 - palm and canned asparagus. Among processed fruits, Colombia's large and varied supply of tropical fruit should provide the basis for growing exports of canned fru:Lt juices and fruit-juice concentrates. Frozen fruit, berries and vegetables could also be exported to markets in neighboring countries. 2.65 Colombia's advantages in many of these products relate to climatic and topograph:ic conditions and low labor costs. Challenges that: need to be met include the need to ensure a steadily increasing supply of the key raw materials (in some cases, this may be done by fostering integration between the agricultural production and the industrial processing stages); the need to identify and prepare more agroindustrial projects that have export potential; the need to strengthen the existing mechanisms that provide credit to the subsector; and the need to lower the costs of tin cans and other packaging materials. Policy Options for Increasing Exports and Imports 2.66 Two of the key economic problems facing Colombia at present are the continuing high rate of unemployment and strong inflationary pressures. The domestic market being limited in size, it is only through rapid:Ly increasing exports that any significant dent is likely to be made in the unemployment problem. In the short run a policy of either devaluation, a faster crawling peg, or greater export promotion could help to reinflate the economy, taking advantage of existing excess capacity. While a devaluation wouLd tend to produce a decline in national output due to higher costs of imported inputs, this could be offset by additional liberalization of imports. Lf this is not done, increased export receipts would simply add to inflationary pressure. Unless there is a rise in imports relative to GDP--as was prevented in 1974-79--then factors of production will have to remain in home goods and import-competing production to satisfy consumer demands. Once underemployed resources are exhausted, rising factor costs wrill limit export expansion. Another way of seeing the same point is by using the monetary model of the balance of payments: export promotion alone initially improves the trade balance; with international reserves increasing, money, prices, and costs rise, cutting the initial export drive. To maintain the export stimulus and reap the long-run benefits of specialization, a policy is required which reduces demand for some other element of domestic production. 2.67 A policy of increased import liberalization combined with greater stimulus to exports would allow Colombia to reap the fruits of greater specialization. Factors of production could l:hen shift into lines of comparative advantage, allowing imports to replace some lines of domestic production. Lower capital output ratios in exports would imply faster growth with the same saving. It is difficult to say in exactly what directions imports could be expanded. However, some obvious candidates are textiles, cotton, fats and oils, and consumer goods in general. The effects on these industries would be limited by the devaluation; at the aggregate level they would be mitigated by shifts of resources. Moreover, in some areas contraband already has liberalized the industry and some modernization has already taken place, thus lower protectioIn would allow specialization and shift contraband to legal trade. - 52 - 2.68 A corollary to this program of export promotion cum import liberalization is that sudden inflows of foreign exchange, e.g., rises in coffee revenues or jumps in capital inflows, must be allowed to raise imports, rather than feeding into greater international reserves, higher local prices and costs, and more protection, which will lower the profit- ability of nontraditional exports. Similarly, if the public investment program (PIN) is financed by inflows of foreign capital, or if it seems necessary to borrow for consumption to bridge the period until the energy sector investments come on line, then imports must be allowed to increase. Otherwise, inflation will remain high and crowding out will occur through the inflation tax. If open market operations are pursued to mop up the imported increases in the monetary base, then the inflation rate may be lowered but crowding-out of private investment will occur through high real interest rates. Thus, without additional imports, the full benefit will not be obtained from foreign borrowing. 2.69 The policy of exporting-cum-import liberalization does not condemn Colombia to be a primary exporter; it seems likely that some manufactures would benefit from the more attractive exchange rate. For example, the metal products sector (excluding automobiles) is already competing internationally in some lines and has an average effective tariff protection which is only two-thirds of the national average, with a number of important capital goods actually suffering from negative effective protection. In textiles, substan- tial modernization has already occurred and the producers could conentrate on a few lines and take advantage of longer runs as mentioned above. 2.70 Any trade policy should entail a commitment to maintaining a trade regime which makes exporting profitable. This would encourage investment and production with a view toward foreign markets, rather than the current approach of exporting surpluses. The real gains in nontraditional export production in the seventies were made only when the effective real exchange rate of exporters was raised and maintained for a number of years. Moreover, with such a base, macro-economic policy making would be easier and fluc- tuations in coffee would become less important. 2.71 While the restoration of the real effective exchange rate to its level of about a decade ago would seem to be a major objective, the instru- ments available for doing so can be varied and used in different combina- tions. In favor of using an increase in the CAT to raise the real effective exchange rate are that: (a) it affects exports but not imports, therefore having less impact than a change in the exchange rate on inflation in general and on the cost of imported inputs in particular; (b) it is partially self- financing, as a rise in the CAT raises tax revenues by increasing incomes and, once imports are allowed to rise, tariff revenues. Against raising the CAT are that: (a) it would stimulate still further the incentive to declares fictitious exports; (b) it may lead to further countervailing-duty pressure from the U.S. (such pressure has already been applied for exports of such goods as clothing and leather goods); (c) since the extra revenues (income tax and tariff revenues) derived from the CAT are not clearly marked as such, there is a perceived problem of financing it. 2.72 In favor of increasing the subsidy element in PROEXPO credit to raise the real effective exchange rate is that it is less easily - 53 - countervailed than the CAT. On the other hand,, excessive use of this incentive can cause a capital-intensive as well. as a large-firm bias in industry, since credit is generally more easily available to large firms. Furthermore, it would require a significant differential between PROEXPO interest rates and market interest rates to raise the real effective exchange rate by as much as 15%. For example, with market interest rates at 45% (as during 1980), PROEXPO credit would have to be granted at 4-5% (instead of at 19% interest), and repayment would have to be clue after twelve months (instead of six).31/ Such a differential would also encourage firms receiving the preferential credits to engage in increased financial intermediary activities with the danger of furt:her concentration in production. 2.73 The arguments in favor of using an increase in the nominal exchange rate by a faster rate of mini-devalual:ion can be summarized as follows: (a) it affects all non-coffee exports equally; with the CAT, there is always the temptation to guess which product:s are likely to be most successful and vary the CAT accordingly--guess-Lng wrongly may well have negative affects; (b) there is no increased incentive to fictitious exports; (c) there is no countervailing-duty problem; (d) there is no financing problem; (e) there are none of the distortions towards capital intensity, large firms concentration inherent in using PROEXPO credit to raise the real effective exchange rate; and (f) as an extra bonus, help is granted to domestic producers against smuggled imports, which are currently rife in textiles and a; number of other sectors precise:Ly because the exchange rate is overvalued.32/ Against using an increase in the nominal exchange rate as the way of rai.sing the incentive to export are not only the possible increased inflationary pressure (if imports are not liberalized), but that it increases the peso value of the foreign debt held by firms and by the government, 2.74 There is no "objective" way of adding up all these pros and cons; but it seems that raising the nominal exchange rate is the most desirable way of raising the real effective exchange rate fazing exporters. Should this be the decision of the new Government, questions that would remain to be decided include: Shoul.d there be a sudden devaluation or an increase in the rate of mini-devaluations? If the later, should this be announced in advance or not? Whatever method is used to raise the reaL effective excharLge rate, if exports of manufactures are to rise during a sustained period, it will be ncessary for the real effective exchange rate to be maintained fairly constant at its restored higher (1971) level fDr at least five t:o ten years. Partly, this is so because it takes time for firms to reorient t:hemselves 31/ The grant element in PROEXPO credit would then be 25% compared with 8% in 1980. Note, however, that in practice, PROEXPO credits are rolled over. For the formula on which the calculation is based, see Annex I. 32/ Several i.ndustrialist mentioned this benefit to Mission members as a key argument in favor of raising the nominal exchange rate. - 54 - towards exporting and away from the home market--new investments are required, export marketing departments have to be set up, contacts with buyers and suppliers established, new workers hired, and so forth. In addition, however, both exporters and foreign buyers have been burned once before. Colombia was to become "the Japan of Latin America"; yet from 1975 onwards, the declining real effective exchange rate represented, in fact, an increasing tax on manufactured exports. It will take time until the once bitten are no longer shy. 2.75 In addition to raising the real effective exchange rate, several other policy options are available to help increase manufactured exports. It would be useful if the Plan Vallejo scheme could be overhauled to make it simpler than it is at present (currently, only large firms can spare the personnel to use it). In addition, there might be an attempt to speed up approval of PV imports. It now takes only six days on average for licensed imports that are destined for the domestic market to be approved by INCOMEX; it seems odd that imports destined for fabrication and re-export should take longer to approve, especially since about 98% of all requests concerning such imports are indeed eventually approved. It is encouraging to see that INCOMEX has begun an internal review of this matter, and that it may be possible to do something about at least two administrative sources of lengthy delays--the delay until the PV committee meets, and the delay until the Director of INCOMEX signs the approval. 2.76 Under the Korean equivalent of the Plan Vallejo scheme: (a) there is automatic approval for import licenses for imported inputs that are to be used to produce exports; (b) import licenses are granted for such goods either on the basis of actual export orders or, for firms that have exported in the past, on the basis of expected future orders; (c) the importer of intermediate inputs must complete the corresponding exports within 18 months, or pay strictly enforced, quite severe penalties.39/ It may be worth examining the possibility of implementing these provisions, or something like them, in Colombia. 2.77 If exporting were to become profitable once again, the Free Ports (Zonas Francas), which have never lived up to their potential, might begin to increase in importance. The problem to date has been that a firm wanting to locate in a Free Port is supposed to specialize in exporting; but exporting has not been profitable enough for firms to specialize in. Thus, raising the profitability of exports could greatly increase the number of firms willirng to locate plants in the Free Zones, and hence could increase significantly the exports and employment generated by their existance. 2.78 In addition, an indirect export subsidy might be introduced, domestic textile firms for example that sell fabric to garment makers who, in 33/ Yung Whee Rhee, "Administrative Arrangements for Korean Export Promotion", (mimeo., IBRD, DED, June 14, 1981). The very complex Korean use of technical input-output coefficients to determine import entitlements may be too cumbersome for use in Colombia. - 55 - turn, use this cloth in their exports, would then be entitled to receive the CAT for such sales, and maybe PROEXPO credit as well. Indirect export subsidies of this kind have been operated successfully in Taiwan and in Israel. 2.79 The ports and customs authorities might be overhauled to ensure that imported inputs, to be used in the producl:ion of exports, are cleared in a day or two instead of in weeks, and without bribery and theft. The Chilean Government reportedly implemented such a reforma successfuly during the late 1970s. 2.80 Finally, as a detailed study of Colombia's clothing exports found, quality control and unpunctuality of delivery have also at times caused problems for Colombia's manufactured exports. 34/ It seems likely that the best way to tackle these problems is by raising the real effective exchange rate; once there is real money to be made in exporting to the difficult markets, manuf'acturers will find ways to overcome these problems. One alternative approach, through Government estabLishment of bureaus of quality control or similar organizations, is likely to add more red tape to the exporting process. A second alternative (or preferably complementary) approach may well be worth trying however. Since management ability seems to be crucial to export success in both price (labor productivity) and non-price (quality control, punctuality) areas, the Government might try various strategies to improve the country's management. Large numbers of top and (especially) mLiddle-level managers and graduatea students in business might be sent abroad for study and work experience, and for exposure to U.S. and European standards of quality control and puntiiality of delivery. Selected foreign buyers might also be invited to Colombia to give short courses for managers and would-be managers which would empthasize the important, but often-negleted, non-price aspects of exporting. 34/ The large numbers of Colombians who were sent abroad to study economics during the late 1960s and early 1970s have had an enormous impact both directly and indirectly (through others whom returnees have trained) on Colombian economic management at top and especially at middlle levels during the late 1970s. - 56 - ANNEX 2 Page 1 of 4 A NOTE ON COLOMBIAN EXPORT STATISTICS 1. Export statistics in Colombia are difficult to analyze for a number of reasons: (i) Three different sets of export statistics are collected: by DANE on the the basis of customs documents ("manifiestos"), by INCOMEX on the basis of export registrations ("registros"), and by the Banco de la Republica (BR) on the basis of foreign exchange surrendered ("reintegros"). DANE statistics seem to reflect actual exports most accurately and therefore they are used whenever possible in the report. (ii) Garment exports under U.S. tariff item 807 are registered in Colombian export statistics (including DANE statistics) with their domestic value added only. (iii) Overinvoicing of exports for a number of reasons (receipt of higher export incentives, use of black market foreign currency) has been substantial in recent years. FEDESARROLLO estimates overinvoicing at 6% of nontraditional exports; indications are that overinvoicing was considerably higher in 1974 and 1979. (iv) Contraband exports of a number of major product categories (coffee, cattle, sugar, textiles, clothing, cement, tires) have been substantial, mainly due to differences between prices in the domestic market and the neighboring countries. Illegal coffee exports have been profitable due to existirng export quotas and export taxation. (v) Nonregistered exports of marijuana and cocaine have reached large volumes in recent years. FEDESARROLLO estimates the 1977 FOB exports at US$500 millions. These exports may have declined during 1980-81 because of U.S. import substitution (marijuana growing in California), Bolivian and Peruvian forward integration (processing their own cocaine), and Colombian quality control problems (mixing of ordinary grass with marijuana). 2. INCOMEX and DANE export figures are generally higher than those of BR, as illustrated by exports for 1976 (in millions): INCOMEX (Registros): US$1,773.7 DANE (Manifiestos): US$1,745.2 BR (Regintegros): US$1,652.3 No firm relationship exists between INCOMEX and DANE export statistics. INCOMEX data are often used to analyze behavior of Colombian exports because they are prepared more rapidly and are more readily available than DANE statistics. However, export registrations have reflected exports declared to have passed customs to a changing extent, as indicated by the time series below: - 57 - Exports 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 (UMS, Million) (1) INCOMEX 508.0 556.7 664.4 635.0 820.2 1,133.7 1,415.6 1,442.6 1,773.7 2,312.5 (2) DANE 558.3 607.5 735.7 690.0 866.0 1,177.3 1,416.9 1,465.2 1,745.2 2,443.2 (1) - (2) 91.0 91.6 90.0 92.0 94.7 100.5 99.9 98.5 101.6 94.6 The above INCO1X data are already adjusted for wLthdrawals of export registrations wlhich affect nontraditional exports in a way shown be!low for 1976 and 1977: INCOMEX 1976 1977 Approved total 1,865.7 2,455.0 Adjusted total 1,773.7 2,312.5 Approved inontraditional 869.7 942.4 Adjusted nontraditional 777.7 7'39.9 DANE Total 1,745.2 2,443.2 Non-traditional 778.0 926.2 The adjustment of INCOMEX nontraditional exports is not peformed orn disaggregated data (regional or sectoral),where differences with DANE data are especially significant (US$ million). For example: Exports to Exports of Machinery Andean Pact 1976 1977 and Transport Equipment 1976 1977 INCOMEX 269.2 337.1 INCOMEX 54.3 69.1. DANE 184.4 294.2 DANE 43.3 64.3 In summary, DANE and INCOMEX export statistics show significant difi-erences which increase at the disaggregated level. Differences of conclusions drawn from a number of analyses--e.g., on the issue of the effect of incentives on exports--may to some extent result from the use of different statist:ical bases. 3. While DANE statistics represent the best available export data, they neither reflect fully the value of legal exports, nor include l:he large volume of illegal exports. Legal exports would have to be adjusted for over-invoicing of nontraditional exports--estimated by FEDESARROLLO at 6%--and for the gross value of garment exports under US tariff item 807. 1970 1971 1972 1973 1974 1975 1976 1977 Tot:al Exports (DANE) 735.7 690.0 866.0 1,177.3 1,416.9 1,465.2 1,745.2 2,443.2 Over-invoicing (17.9) (24.4) (28.4) (40.3) (46.7) (46.7) (44.0) (47.7) Adjustments for 807 - - - 2.0 4.0 7.0 8.0 15.0 Totial Adjusted 717.8 665.6 837.6 1,139.0 1,374.2 1,425.5 1,709.2 2,410.5 E7xports ANNEX 2 - 58 - Page 3 of 4 4. Based on estimates by Junguito and Caballero 1/ and Banco de la Republica, illegal exports are detailed in the following table (in US$ million): 1970 1971 1972 1973 1974 1975 1976 1.977 Cement - - - - 1.3 2.5 12.0 3.6 Textiles and other Ind. 11.1 24.2 35.1 52.1 65.4 101.8 158.0 183.0 Products Total Industrials 11.1 24.2 35.1 52.1 66.7 104.3 170.0 186.6 Coffee 6.2 11.0 20.1 30.4 39.4 54.6 145.7 131.6 Cattle 32.5 34.0 29.4 43.5 53.4 58.0 61.0 20.0 Sugar 7.0 7.0 7.0 7.0 24.0 16.5 11.0 - Total Non- Industrials 45.7 52.0 56.5 80.9 116.8 129.1 217.7 151.6 Total Illegal Exports 56.8 76.2 91.6 33.0 183.5 233.4 387.7 338.2 5. Total exports are listed below, including legal and illegal ex orts, and adjustments for overinvoicing and exports under tariff item 807. 1970 1971 1972 1973 1974 1975 1976 1977 Industrial Exports 69.7 111.2 161.6 274.4 441.0 394.8 544.0 630.2 Non-Industrial Exports 705.0 630.6 767.6 997.6 1,116.7 1,321.3 1,552.9 2,118.5 Marijuana and Cocaine 1.0 20.0 30.0 50.0 100.0 200.0 300.0 50(.0 Total Exports 775.7 761.8 959.2 1,322.0 1,657.7 1,916.1 2,396.9 3,2z8.7 1/ "La Otra Economia" in Coyuntura Economica (December 1978). 59 ANNEX 2 Page 4 of 4 T'he differences as compared to official DANE export data are substantial: industrial export:s were higher by 12% in 1970 and 38% in 1977; noni.ndustrial exports (including marijuana and cocaine) were higher by 5% in 1970 and 7% in 1977; total exports were higher by 5% in 1970 and 33% in 1977. 6. The shares of total exports which are registered by DANE (or INCOMEX), or exported illegaly may depend on a number of factors, including the export incentive policies. The sharp increases of illegal industrial exports between 1974 and 1975, connected with the corresponding drop in registered export:s, may to a large extent be due to the sharp reduc.tion in CATs which raised' the relative profitability of iLlegal exports. I'he decline of total (legal and illegal) industrial exports between 1974 and 1975 was much less than the decline of DANE registered exports. Thus, when analyzing export performance and incentives, there may be a built-in over-estimation of the effects of incentives when only legal exports are considered. Since illegal industrial exports appear to have grown more rapidly than legal industrial exports, currently being close to one-i:hird of total industrial exports, there exists an appreciable margin of er:ror in determining the actual volume of Colombia's industrial exports. - 60 - III. THE OPENING UP PROCESS AND ITS IMPACT ON INDUSTRIAL GROWTH AND EMPLOYMENT I. Imports, Exports and Growth 3.01 Since import substitution and export promotion policies became the major tools in promoting the manufacturing sectors in developing countries, researchers have attempted to measure the contribution of each strategy to economic growth and employment. While some of the measures are simplistic and should be understood in the context of the restrictive assumptions, they give some idea of the contributions domestic demand growth, export growth and import substitution have played in fostering industrial output.!/ Table 8 presents the results of applying the formula to the growth in Colombian GDP and in the Colombian manufacturing sector (gross output) for the 1953-80 period, together with the corresponding growth rates of real value added for the same period.2/ Between 1953 and 1967 Colombia clearly pursued an import substituting growth strategy (ISI), especially in the manufacturing sector where the ratio of imports to gross output fell by more than five percentage points. As is usually the case, most of the measured growth occurred in the early years, when increased local production in such traditional ISI type investments as steel and chemicals came on stream at protection inflated prices.3/ Over the latter portion of the period (1963-67), import substitution slowed substantially in the manufacturing sector, although the foreign exchange crises of 1965 and 1967 with their accompanying quantitative restrictions produced a further decline in the ratio of total imports to GDP. The easy stage of import substitution had passed, with capital and import intensive sectors dominating an industrial development suffering from foreign exchange scarcity. The fall in coffee exports also depressed the 1/ See P. Desai, "Alternative Measures of Import Substitution," Oxford. Economic Papers, (1969) and J.P. Wogart, Industrialization in Colombia, (1978) for a discussion of this and other more complicated measures of import substitution, as well as the problems with the approach. 2/ The contribution of various trade strategies to economic and industrial growth can be calculated by dividing the change in aggregate demand into three major components as follows: EAGO = (GO/S1). ADD + (GOl/Sl). AEx + (Ml/Sl - M2/S2)S2, with the subscripts indicating the first and second period. Dividing through by GO yields the percentages of growth in domestic supply (GO) which can be attributed to domestic demand growth (DD), export growth (Ex) and import substitution (M) respectively. For the original analysis and application, see H.B. Chenery, "Patterns of Industrial Growth" American Economic Review 50.4 (September 1960) pp. 624-654. 3/ It is worth noting that the measured GDP growth overstates the growth in consumer satisfaction generated by these investments, since the addition to value added was recorded at protected, rather than worLd market prices. - 61 - domestic demand, which together with lack of inputs generated excess capacity in industry. This later stage of the import substitution strategy coincided with the lowest average rate of aggregate growth between 1953 and 1980. 3.02 In contrast to the early sixties imports grew somewhat faster than domestic output during the 1967-74 period. Thus import substitution became negative for the economy and the manufacturing sector. As early as 1968 imports had bounced back sharply, when the foreign exchange crisis of early 1967 eased with the adoption of a crawling peg exchange rate and the liberalization of import restrictions. However, the most striking characteristic of the 1967-74 period was the rapid growth of exports. As a result of the crawling peg, the CAT fiscal incentive system, and rising world trade, export growth accounted for a substantial fraction of growth in domestic output. In addition, non-coffee agricultural products and then coffee itself benefited from rising world prices of agricultural goods. Finally, illegal drug exports grew from zero to an estimated US$100 million in 1974.4/ Thus the level of legal plus illegal exports was estimated to be about 17% higher than DANE recorded exports in 1974, versus about a 5% difference in 1970. Although these illegal exports were also excluded from GDP, the calculations in the Table 8 clearly understate the percentage of growth attributable to export growth. 3.03 During the 1967-74 period manufacturing exports grew faster than any other type of exports, reaching 47% of total exports in 1974 versus 14% in 1967. As a consequence, over 10% of the growth in manufacturing output during this period can be attributed to the growth of manufactured exports. While some of the growth reflects increased overinvoicing to take advantage of fiscal incentives, especially in 1974, that overinvoicing was more than offset by the growth in illegal exports of manufactures.5/ The rapid growth in exports and the negative import substitutionl coincided with the highest average aggregate growth in the period and the second highest average growth in manufacturing. Aggregate growth averaged about 1.2 percentage points more than during any other period. Growth in manufacturing was much higher than in any other period and the ratio of growth in manufacturing to total growth actually was relatively high (about 1.15:1). 3.04 Between 1974 and 1979 the data in Table 8 indicate that Colombia continued to benefit from high overall export growth, but some import substitution occurred at the same time. At the aggregate level the ratio of exports to GDP increased significantly over 1974, owing to the coffee boom. In addition, illegal drug exports rose sharply until 1979. On the other hand, the average ratio of (DANE) imports to GD)P in 1975-79 was actually less than in 1967-74, although illegal imports did compensate somewhat for this drop. The policy of simultaneously promoting export and import substitution coincided with a fallback to the historical ral:e of aggregate growth, which was about 1.5 percentage points below the high levels 4/ See R. Junguito and C. Caballero, "La Otra Economia," Coyuntura Economica, (1978). 5/ See D. Morawetz, op. cit, pp. 11-14. - 62 - Table 8: ROLE OF EXPORTING AND IMPORT SUBSTITUTION IN GROWTH 1953-1980 (million pesos current prices) 1953 1963 1967 1974 1979 1980 All Sectors Imports (IM) 1.366 4.544 6.986 40.711 134.184 214.355 GDP (GO) 10.734 43.525 83.525 329.155 1193.624 1547.869 Total Supply (S) 12.100 48.069 90.511 369.886 1327.808 1762.224 Exports (EX) 1.514 3.511 6.849 36.949 140.484 185.511 Domestic Demand (DD)10.586 44.558 83.662 332.917 1187.324 1576.673 IM/S (%) 11.28 9.45 7.71 11.01 10.11 12.16 GO/S (%) 88.72 90.55 92.28 88.99 89.89 87.84 EX/DD (%) 14.30 7.88 8.19 11.10 11.83 1177 Division of Growth 1953-63 1963-67 1967-74 1974-79 1974-80 % of Growth due to EX 5.4 7.5 11.3 10.6 10.9 % of Growth due to DD 91.9 88.5 93.7 88.0 90.8 % of Growth due to Imp. Subst. 2.7 4.0 -5.0 1.4 -1.7 Real Growth of GDP per annum 4.5 5.3 6.6 5.4 5.2 Manufacturing Imports (TM) 1.21 4.26 6.64 36.6 119.0 187.6 Gross Output (GO) 4.34 19.96 37.40 169.2 600.5 775.2 Total Supply (S) 5.55 24.22 44.04 205.8 719.5 962.8 Exports (EX) .02 .34 0.94 17.3 40.5 42 Domestic Demand (DD) 5.53 23.88 43.10 188.5 679.0 921 IM/S (%) 21.8 17.6 15.1 17.8 16.5 19.5 O/S (%) 78.2 82.4 84.9 82.2 83.5 80.5 EX/DD (%) .4 1.4 2.2 9.2 6.0 4.6 Division of Growth 1953-63 1963-67 1967-74 1974-79 1974-80 % of Growth due to EX 1.6 2.8 10.5 4.4 3.4 % of Growth due to DD 91.9 90.9 93.7 93.5 99.3 % of Growth due to Imp.Subst. 6,5 6.3 -4.2 2.1 -2.7 Real Growth of Value Added in Manufacturing per annum 8.2 3.6 7.6 6.4 5.5 Sources: Exports (f.o.b.) and Imports (c.i.f.) DANE Anuario de Comercio, corresponding year. Pre 1974 exports and imports of manufacturing estimated by sub Seccion I,Seccion, II, Tariff Codes 25,26, 36, 53 (ex 47), 54 (ex 49), 55 (ex 48) and crude petroleum from total imports. Where necessary dollar figures were converted using average exchange rate for year for the appropriate category. In 1974 and later DANE's classification according to (CIIU, Rev, 2) was used, CDP: !ational Income figures Gross Output, Value Added Mfg., DANE, Industria Manufacturera except 1953 which was estimated using ratio of '1958 to 1953 value added in the national accounts to deflate 19;8 DANE figure. The price index for manufactured articles in general commerce was used for deflation before 1970. - 63 - of the 1967-74 period. In the manufacturing sector import substitution was even more evident, while export growth suffered from a decline irL the real effective exchange rate. Growth rates in manufacturing dropped, but not as rapidly as aggregate growth. 3.05 In 1980, aggregate imports were allowed to rise as a fraction of GDP, even as compared to 1974, and manufactured imports also rose as a fraction of gross value of manufactured output. However, as discussed previously, almost 70% of the rise in imports (as a fraction of (:DP) represented increases in petroleum, capital goods, and automobile imports. While aggregate (DANE) exports kept up, the 1974-79 slowdown, in nLanufacturing exports continuied. In addition, illegal exports declined. Overall growth slowed, and the real growth rate in the manufacturing sector was negligible between 1979 and 1980. 3.06 Table 9 applies the import substitution formula to specifc industries for the 1974-79 period. The experience of these industries was quite diverse, especially in the metal-mechanic branches. In the transport equipment industry, a fairly large proportion of the growth was due to import substitution, reflecting the establishment of automobile firms early in the decade. In contrast to that development, imports of machinery grew much faster than domestic output, resulting in negative import substitution. In the remaining imetals industries and in the garnient industry growl:h involved negligible import substitution, with both the electricial machinery and textile industry facing substantial competition from contraband imports. 3.07 Textiles are a special case because cf the apparently 'Large amounts of contraband. While the figures for legal imports show that there was only a small increase in the ratio of imports to gross supply between 1974 and 1979--slight negative import substitution--the growth in consumpl:ion of textiles implied by these figures falls short of what one would expect based on population growth and income elasticities. If the growth in domestic demand shown in Table 9 is deflated by the inflation in wholesale textile prices, no increase in real textile consumption was achieved. Thus any growth in textile consumption could be considered to have been satisfied by contraband. Over the same period real GDP grewr 30%, GDP per capita about 13% assuming population growth rate of 2.8% per annum. Even assuming a very low income elasticity of .5 would imply that contraband was about 22' of domestic production in 1979, over and above its level in 1974.6/ 6/ These results are somewhat sensitive to t:he choice of the inflation indices. Deflating local production by the price index of textiles production, the legal imports and exports by the general price index for textiles implies that the growth in clomestic demand during 1974-79 was 28%, compared to a 30% growth in real. GDP. However, applying the same method to the intervening years implies that measured domestic supply grew only 1.5% between 1977 and 19'79, while GDP per capita rose 8.3%, implying that between 1977 and 1979 contraband increased by about 10% of the domestic production in 1977. - 64 - trable 9: ROLE OF EXPORTING AND IMPORT SUBSTITUTION IN GROWTH OF SPECIFIC INDUSTRIES 1974-1979 billion pesos current prices Imports Gross Total Domestic Output Supply Exports Demand Textiles 1974 .559 23.773 24.332 2.455 21,877 1979 2.019 66.600 68.619 5.002 63.617 % of Total Supply 1974 2.30 97.70 100.00 10.09 89.91 % of Growth Explained 5 by: -1.031 5.81 95.22 Garments 1974 .175 4.756 4.931 1.308 3.623 1979 .321 19.377 19.698 4,581 15,117 % of Total Supply 1974 3,55 96.45 100.00 26.52 73.47 % of Growth Explained 22 by: 2.51/ 21.60 75.79 Machinery 1974 6.070 3.565 9.635 .527 9.108 1979 22.772 12.049 34.821 1.816 33.005 % of Total Supply 1974 63.00 37.00 100.00 5.47 94.53 % of Growth Explained by: -9.85- 5.62 104.23 Electric Machinery 1974 2,184 4.409 6.593 .164 6.429 1979 8,387 16.297 24.684 .746 23.938 % of Total Supply 1974 33.12 66.88 100.00 2.49 97,51 % of Growth Explained l/ by: 3,29 98,50 Transport Equipment 1974 4.684 7.999 12,683 .161 12,522 1979 18.235 37.225 55.460 .765 54.695 % of Total Supply 1974 36,93 63.07 100.00 1.27 98.73 % of Growth Explained 7.681/ by: 76 1.31 91.01 Metal Products 1974 .681 6.950 7.631 .450 7.181 1979 2.341 24.555 26.896 2.347 24.549 % of Total Supply 1974 8.93 91.07 100.00 5.90 94.10 % of Growth Explained 0.341/ 9.82 89.84 by- % 34spo 1/ % of growth explained by import substitution. 2/ Imports are c.i.f. figures in pesos. - 65 - 3.08 In 1.979 and 1980, imports which were competing with the domestic metals industries rose rapidly. In peso terms the estimated imports of elec- trical machinery increased by 121%, non-electrical machinery rose by 57%, transport equipment by 47% and metal products by 34%.7/ The growth rates of local production of import substitutes were for electrical machinery 25.4% (-4.2%), machi'nery 32.8% (11.0%), transport equipment 5.2% (-16.9%) and metal products 24.0%' (_4.7%).8/ Thus imports grew much faster than local produc- tion, which in most cases fell in real terms.9/ As a result imports rose from 34% to 47.6% of total supply of electrical machinery, from 65.4% to 85.6% of the supply of non-electrical machinery, from 32.9% to 40.6% of the supply of transport equipment, and from 8.7% to 9.3% of supply of metal products. WhiLle the lack of export figures prevents an attribution of growth for the 1979-80 period, it is obvious that impDrts have cut into the 1980 domestic market substantially in these industries--i.e., import substitution was even more negative than for the 1974-79 period. Imports and the 1980 Recession 3.09 The above-mentioned statistics may indicate a close relation between import: liberalization and declines of domestic output, but it should be remembered that the recent growth of imports has been concent:rated in a few specific areas, many non-competitive with local production. The most rapidly growing imports were electrical machinery, many related to investments under the PIN program, while the local electrical machinery industry produces mainly consumer products. Nost of the non-electrical machinery, the second most rapidly growing category of imports because of the PIN and petroLeum exploration programs, is also non-competitive with local industry, altlhough to a lesser degree than in the case of electrical machinery. The rapid growth in petroleum imports reflects the rise in their price, and a decreased petroleum producing capacity, which is the result of a history of subsidized prices and restrictions on exploration. The sharp rise in these non-competitive imports did not affect the demand for :Local production significantly. 3.10 In other cases, imports are more competitive with local produc- tion. For example, automobile imports grew sharply, especially in 1980, while local production suffered. Illegal impcrts of textiles and of color TVs satisfied much of the growing demand for these products. lHowever, 7/ Estimates for 1980 were made by inflatirng 1979 dollar imports (c.i.f.) by the ratio of f.o.b. dollar imports ir. 1979 and 1980 for the closest category in the Colombian tariff code. The 1980 estimates in dollars were then converted using the annual average exchange rate to 1980. Figures for textile and garment imports in 1980 were not available. 8/ Figures in brackets are real growth rates. 9/ See Table 10 which shows real growth anc. price increases in 1980, based on the DANE sample survey of industry. - 66 - it must be recalled that local production does not substitute costlessly for imports. Output may be reduced in other sectors and/or oligopolistic pricing will be less restrained. 10/ Further, if the import is both, competitive with the final product of one industry and input for another industry, as is likely to be the case given the import structure in Colombia, aggregate output can decline with an import substituting policy. In the short run, given all the structural constraints, more aggregate output can be obtained only if on balance aggregate demand increases or the average costs of inputs fall. Critical questions in assessing the net effect of competitive imports are: (a) the industry-level relationships between import substitution, prices, and output performance and (b) the aggregate relationships betwee-n output, aggregate demand, and input prices. 3.11 Table 10 sheds some light on the industry level relationships. It contains figures for 1974-79 and 1979-80 on real growth, inflation and import substitution for some major industries. The growth and inflation figures should be interpreted with some caution, since they include the real effects of income elasticities of demand, protection and technical progress and reflect the general wholesale price index for the industry, as opposed to one for value added or even for local production. 11/ Nonetheless, the figures show that across the industries, there are inverse relationships between import substitution and growth and between inflation and growth and, correspondingly a positive relationship between import substitution and inflation. The only real exception is the textile industry. However, the legal import figures significantly understate the degree of import substitution, and the general price index apparently understates the inflation in the price of locally produced goods and correspondingly overstates output growth. Table 10 also seems to indicate that rapid growth in an industry in 1974-79 or 1979-80 was due to demand growth and/or technical progress (the residual), assuming all industries faced similar rises in costs. 12/ In summary, imports did not prevent rapid growth from occurring in an industry but did hold down increase in sectoral prices in the 1974 to 1980 period. The results suggest that the relative performance of industries in the 1974-1979 period depended on the relative demand for them and that imports were associated with large increases in output except for 10/ D. Morawetz, op. cit, provides evidence of oligopolistic, discriminatory pricing in the protected local textile market. II/ There may be fairly large divergences between local price of imports and locally produced goods in the same industry. For example, between 1970 and 1977 yarns and textiles produced in the country rose in price 30% faster than imports. For machinery of all types, import prices rose 30% faster than the price index of locally produced machinery. 12/ The more highly organized, non-family businesses may have faced higher legislated costs for fringe benefits. Thus highly concentrated industries may have encountered faster increases in costs. Table 10: GROWTH IMPORT SUBSTITUTION AND INFLATION IN MAJOR SUBSECTORS 1974-1978 Average Average % Growth Due Average Growth in Inflation Compounded Compounded To Import Compound Real Gross 1979-80 Growth Real Growth Real Substitution Inflation Output Gross Output Value Added 1974-79 1979-80 1974-79 1974-79 Food 7.5 8.6 -1.11 21.8 3.9 27.8 Textiles 3.9 8.6 -1.03 18.2 6.4 12.0 Garments 10.5 7.8 2.51 19.8 5.8 21.7 Metal Products 5.8 7.8 0.34 21.7 -4.7 30.2 Non Elec. Mach. 10.3 11.9 -9.85 15.7 11.0 19.6 Elec. Machinery 11.7 15.6 -1.79 16.2 -4.2 30.9 Transp. Equip. 9.8 6.9 7.68 23.8 -16.9 26.6 All Manufacturing 5.0 6.4 2.10 22.7 1.3 27.3 1/ Includes Petroleum refining Wi th-nut petroleum average inflation was 21.3%. Notes: Real values computed using the general wholesale price index for the relevant industry. Detailed breakdowns for local production and for value added were not available. All output figures from DANE Industria Manufacturera except 1979-80 - from the sample survey. - 68 - textiles and in 1980, for auto production, industries which had performed poorly in the 1974-79 period.13/ Thus the sectoral evidence suggests that cutting imports would have raised inflation in the protected sectors while raising output only slightly. 3.12 To shed some light on the aggregate relationships between inflation, output, aggregate demand, and the cost of imports simple regressions have been estimated, specifying inflation and output as functions of monetary growth and changes in the costs of imports (Statistical Appendix Table 51). Monetary growth is taken as a simple proxy for nominal aggregate demand. The effect of import prices is represented by the change in the exchange rate multiplied by the changes in the cost of imports in dollars, the average tariff revenue and the cost of prior deposits. This understates (overstates) the change in local import prices when quantitative restrictions increase (decrease). The liberalization of the current account in 1967-74 which is assumed to have not affected the import price index, is proxied by a dummy variable during this period.14/ Finally, a time trend and lagged output are included to reflect the tendency of the economy to return to trend growth.15/ 3.13 The results confirm the strong positive impact of both aggregate demand and the cost of imports on the inflation rate. The inflation rate is a weighted average of the growth in the average money stock (70%) and the inflation in import prices (30%). This effect was offset somewhat by the liberalization during 1967-74, as shown by the negative effect of the dummy variable. Thus the regression indicates that increases in protectionism raise local import prices and with it the inflation rate. 3.14 According to the estimated output equation, a rise in import prices, holding total demand constant (monetary growth), tends to reduce output. Thus, the negative effect of protecting imports on output via input prices, is stronger than any positive effect on demand for substituting domestic goods. However, the liberalization of 1967-79 produced a growth rate which was much higher than predicted by the actual combination of 13/ The textile industry, a relatively poor performer in 1974-79, may have modernized during this period of retrenchment, since it seemed to be raising prices relatively less than other industries and experiencing a relatively smaller slowdown. 14/ In the output equation this dummy takes the form of a unit annual increase up to 1974, a constant thereafter. In the inflation equation it is equal to one in 1967-74, zero otherwise. 15/ For some justification of the forms of these equations and the underlying assumptions see R. Lucas "Some International Evidence on Output Inflation Tradeoffs,' American Economic Review, June 1973, anld J. Hanson "Contractionary Devaluation: A Supply Side Approach with an Empirical Application to the Case of Argentina," mimeo. - 69 - aggregate demand and measured rises in the price of imports, as shown by the positive effect of the dummy variable. 3.15 The overall slowdown in 1980-81 seems to be the result of a generalized slowdown in aggregate demand.16/ Simple macro level analysis also supports this view; the predictive error In the output equation for 1980 is relatively small but positive, reflecting the apparent liberalization mentioned previously. Thus any attempt to have decreased imports in 1980/81 would have only raised their prices and lowered output relative to what was actually achieved. Any attempt to raise aggregate demand by increasing money faster and maintaining import restrictions wouLd have resulted in large increases in prices and relatively small increases in output, given the very small (non-significant) coefficient of monetary growth in the output equa- tional and the large coefficient in the inflation equation. J. Investment, Employment and Productivity and their Relation to Foreign Trade Policies 3.16 Capital formation in the Colombian ezonomy has remained fairly constant in terms of gross domestic output. Since the mid-1950s roughly a fifth of GDP has been invested annually in construction, machinery and equip- ment. There was a small but continuous decline in the investment-output ratio from 21.2% in the 1950s to 19.5% in the 1960s and early 1S970s and to 18.5% in the second half of the 1970s.17/ On the other hand, economic growth has fluctuated substantially leading to different incremental capital-output: ratios during the post-war period. This ratio fell from over 4 in the 1950s to less than 3 in the early 1970s, before it increased again to 3.5 by the end of the last decade. In aggregate terms this mieans that the efficiency of investment has fallen recently, compared with that: achieved during the 1967-74 "liberalization" period. 3.17 An analysis of the composition of real gross fixed investment over the last 13 years indicates some significant differences between the 16/ One may question how there can be a shortage of aggregate demand with a 25% infLation. The answer is that nominal aggregate demand increased less rapidly than prices rose. The rise in prices may in turn be attributed to costs or to market power, together with overly optimistic expectations regarding inflation. 17/ The slight fall in the investment ratio may represent a response to the rise in the investment goods deflator relative to the GDP deflator. Although machinery and equipment prices rose slightly less than the wholesale price index (22.4% per annum vs. 24%) in the period 1974-80, the price of construction rose much faster (37% per annum since 1976) than the wholesale price index. Thus, the (current weighted) deflator for investment goods rose faster than the GDP deflator. The relative rise in the price of construction goods between 1958 and 1970 also implies that comparable estimates of pre-1970 real investment can only be obtained by using the 1970 figure as a base and deflating by the growth in investment in 1958 prices. - 70 - 1967-73 period and the 1974-79 period (Statistical Appendix, Table 52). First, real public construction was almost 30% of real fixed investment in the first period versus 25% in the second.18/ The proportion of public construction shows a steady downward trend after 1975, reflecting the Govern- ment's stabilization program. Second, housing was off sharply, from 17% of gross fixed investment in the first period to 13.5% in the second, reflecting restrictions on housing finance. The large ratios in the 1967-70 and 1973-74 period coincided with financial innovations (BCH cedulas and UPAC's), which substantially raised the real rates of return on financial assets earmarked to finance housing. In recent years inflation has had its usual effects on reducing long-term finance in the absence of indexed debt instruments. Third, the ratio of investment in machinery and equipment to fixed gross investment rose from 24.5% in the early seventies to 29.5% in the latter years of the decade. In 1979 and 1980, the proportion of machinery inve;st- ment rose even more rapidly to 35% and 42% of gross fixed investment. Tais rise reflects imports of construction, electrical, and petroleum exploration machinery. Finally, real investment in transport equipment rose by nearLy 4 percentage points. The estimate of this type of investment is crucially dependent on the percentage of automobiles which are assumed to be purchased by firms (for investment purposes) as opposed to consumers. Thus much of the rise in this ratio, may simply reflect a rise in consumer purchases of automobiles because of liberalized import restrictions.19! This interpreta- tion seems borne out by the year by year inverse correlation between housing investments and transport equipment investment. 3.18 Is there any relationship between this shift in the compositioni of investment and the drop in its productivity? Judging solely from the growth rates and the shifts in output composition, it would seem that construct-.on is more productive than machinery investment. This seems unlikely, but TnLy be true if lack of investment in roads and ports creates bottlenecks and a lack of investment in hydropower and electrical plants results in power shortages, which create slowdowns and force individual producers to buy generators which show up as purchases of electrical equipment. Such bottLe- necks are now tackled by the PIN program. It is more difficult to make the productivity argument regarding housing. Alternatively, one might point out that investment is itself part of production, and construction has a greater domestic component than machinery and transport equipment. Viewed solely in terms of demand determined output this argument would imply that a higher proportion of construction in investment would generate more production. While such an argument might hold in the short run, it is hard to make in the longer run, especially given that inflation, and thus growth in nominal demand, was much higher in the second period than the first. Over a longer period supply considerations dominate. 18/ This comparison depends on the use of 1970 prices. The proportion of public investment to total fixed investment is 4 to 5 percentage points lower before 1970 when measured in 1958 prices, because of the aforementioned rise in relative prices of construction. 19/ Strictly speaking this would imply a lower ratio of fixed investment to GDP, but since the correction could not exceed 4% of fixed investment, and then only since 1976, the effect would be slight. - 71 - Table 11: INVESTMENT RATIOS AND MARGINAL CAPITAL-OUTPUT RATIOS FOR COLOMBIAN ECONOMY AND MANUFACTURING SECTOR' 1953-1979 PERIOD AVERAGES, 1970 PRICES Gross Fixed Investment ACapital-/ Gross Fixed Investment YI&. ACapital M-./ GDP AGDPI' Value Added Mfg. A Value Added 1953 - 66 .212 4,1 2 na na 1958 - 66 .195. 3.4 .153 2.3 1967 - 73 .191 2.9 .144 2.0 L974 - 79 .185 3.5 .133 2.1 1/ Changes in GDP and Value Added refer to the 1958-67, 1967-74, 1974-80, i.e. a one year gestation period is assumed. 2/ In 1958 prices. Source: 1953-1974 G. Giraldo"Evolucion de la Inversion en la Industria Manufacturera 1958-75" Revista de Planeacio6i and Banco de la Reipuiblica Cuentas Nacionales. 1975-1980 Calculations based on Banco de la Republica, Cuentas Nacionales 1970-80 DANE, Industria Manufacturera and wholesale prices for industry in general and for capital goods and machinery in general. - 72 - 3.19 The composition of the demand for capital goods would affect the growth rate of output only if it was more productive and if it was biased toward the use of factors of production in elastic supply.20/ As construction is a labor intensive activity in Colombia, the growth of construction during the 1967-73 period took advantage of the relative abundance of labor to achieve rapid growth, albeit at a rising relative price.21/ The switch out of construction after 1975 as well as the decline in nontraditional exports meant that the pattern of demands would encounter supply constraints and yield slower growth. Moreover, the relative abundance of labor and growth opportunities may now be less than in 1967-73, given the existence of alternative productive employment in rural areas and the high ratio of economically active population to total population. 3.20 The trends in investment in manufacturing are similar to aggregate investment (Table 11). The average ratio of real gross investment to value added in manufacturing fell from 15.3% in the period 1958-66 to 14.4% in the period 1967-73 to 13.3% in the 1974-79 period. At the same time growth of real value added in manufactures did not follow growth of GDP exactly. Between 1958 and 1967 value added (in 1970 prices) grew at an average compound rate of 7.7% annually. In the 1967-74 period growth in manufacturing continued fairly rapidly, with value added increasing at an average compound rate of 7.5% annually. Between 1974 and 1979 growth in manufacturing value added slowed down to 6.2%. Finally, the 1980 recession dropped real growth to only 1.2% and lowered the average 1974 to 1980 growth to only 5.5% per annum. 3.21 The declines in the ratio of gross investment to value added was steeper than the growth rate of value added. Thus, the realized marginal capital-output ratio in manufacturing rose slightly between 1967 and 1980. Two units of capital were necessary to produce an additional unit of value added in 1967-74, increasing to 2.1. in the following years. This compares with 2.25 units of capital to produce a unit of output in 1958-67. Thus the average efficiency of investment seems to have increased somewhat in manufacturing after 1967, remained roughly constant until the mid-70s and then started to decline in the more recent years. This is similar to but less pronounced than the rise in the marginal capital output ratio in the economy as a whole. It is also interesting to note that the ratio of gross investment to value added in manufacturing is smaller than the ratio in the economy as a whole. 3.22 While capital's productivity has changed only slightly over the years, employment growth and labor productivity fluctuated substantially. 20/ This assumes that there is demand for the services of the construction. While this problem does not arise in privately financed and purchased housing, it could arise in public construction. 21/ Part of the rising relative price was due to lack of capacity expansion in the building materials industry, which in fact proved to be a wise response by investors given the sharp slowdown in construction in , 1975/76. - 73 - The importance of manufacturing as a major employer started in the late 1960s. As Table 12 shows, industrial employment increased by less than 40,000 between 1960 and 1967, but experienced an increased of over 165,000 in the following seven years. After 1974 the increases became again much smaller, averaging less than 8,000 per year. These fluctuations seemed to be strongly influenced by the macro-economic policies pursued during the different time periods. While the small advances in employment went hand in hand with the most capital intensive process of Colombia's import: substitution process, the strong expansion in output and employment during 1967-74 seemed to have been directly linked to the export and contstruction led growth of the Colombian economy in the early 1970s.22/ With i.ncreased emphasis on pr:ice stabilization and reduced incentives to export, after 1974, industrial firms slowed down expansion projects and hired less workers. While the boom of domestic demand should have affected consumer goods production most: strongly, employment gains were particularly modest in those industries dur:ing the second half of the 70s. This, together wit:h the slow labor absorption in the intermediate goods industry, suggests the possibility of increased capital intensity in those subsectors and/or a shift: from more labor and export intensive branches to more capital intensive and domestic consumption or:Lented ones. TABLE 12: INCREASES IN MANUFACTURING EMPLOYMENT 1960-L980 (in thousands) Employment Changes in Employment 1960 1980 a/ 1960-67 1967-74 1974--80 1960-80 Consumer goods 146.7 260.5 8.7 86.3 18.9 113.9 Intermediate goods 70.2 151.8 19.7 50.5 11.5 81.7 Capital goods 21.2 61.6 7.2 16.9 16.3 40.4 Other 6.1 28.0 3.2 1.6 7._ 21.9 TOTAL 244.2 502.0 38.8 165.2 53.8 257.8 a/ Estimated SOURCE: DANE 22/ For a careful analysis of the export induced employment gains see Francisco Thoumi, "International Trade Strategies, Employment and Income Distribution in Colombia", in A. Kruger et al., eds, Trade and Employmenat in Developing Countries: Individual Studies (N.Y.: NBER, 1981). For a critical view on labor abscrption in the exporting garment industry, see David Morawetz, "Why an Initial Increase in Exports of Manufactured Goods May Not Cre!ate Much Additionial Employment", Boston University CLADS Discussion Paper No. :37, (June 1980). - 74 - 3.23 As a consequence of the large employment gains which took place at a time of rather modest capital formation, labor productivity (industrial value added per worker) fell between 1970 and 1974; it recovered slowly after 1975, surpassing the 1971/72 level only in 1979-80. The gains were strongest in the capital goods sector and for intermediate industrial goods. Similar to the changes in productivity, the development of industrial wages, saLaries and benefits, fell in real terms between 1970 and 1976 and recovered slowly in the late 1970s, except for a notable increase in 1979. However, reaL wages and benefits consistently lagged behind productivity gains between 1970 and 1980, as shown by the two indices of Table 13. TABLE 13: LABOR PRODUCTIVITY AND WAGES 1970-30 (1970 = 100) 1971-72 1973-74 1975-76 1977-78 1979-80 LABOR PRODUCTIVITY a/ Consumer Goods 108 93 88 98 I11 Intermediate goods 109 114 111 106 107 Capital goods 99 96 103 144 155 TOTAL 108 99 96 107 116 Real Remuneration per person b/ 101 93 95 100 108 a/ Uses wholesale price index as the deflator. b/ Uses relevant consumer price index as the deflator. SOURCE: DANE, El Salario Real en la Industria Colombiana, (1970-1980). 3.24 Changes in labor productivity have been influenced by several factors, the most important of which seem to have been: (a) imports of capital goods; (b) foreign investment and imported licenses; and (c) innovation of national industry. During the first part of the last decade capital goods imports, which embody a large part of new technology, were stagnant and reached a low in 1975. Since 1976, however, increasing amounts of capital goods have entered the country, growing by 20% per year, with the largest increase taking place in 1980. Most of these imports have come in connection with global licences, and it can be asserted that at least the installation of the new machinery and equipment led to production processes which entailed substantial labor productivity increases. 3.25 Analyzing the sources of growth for Colombia's manufacturing sector during the last 20 to 25 years with the help of an aggregate production function not only shows the contributions of capital and labor to output growth, it also highlights the importance of the "residual" over time - 75 - (see Table 14). The increase in the residual fiom 1.1% to 1.8% per year tends to verify the presumption that increases in the rate of technological change have occurred in Colombia during the last ten years. Table 14 also indicates the relationship between changes in employment, industrial wages and industrial output. Employment growth in 1967-74 resulted from the combined effects of the elasticity of substitution, the bias in technical progress and the shift in industrial composition which, on balance, left demand for labor per unit of output almost const:ant at a constant share of labor and a constant real labor cost. In fact, since labor probably became more skilled and better educated over the period, real labor costs for comparable qualifications may have declined somewhat over the period, favoring increased employment. 3.26 The slow growth of industrial employment in recent years was accompanied by a larger "residual" than in the earlier period and a faster growth in real unit labor costs. The rise in measured real unit labor costs reflects both, legislated effects (sharp rise of minimum wage and fringe benefits) and an improvement of alternative opportunities in agriculture owing to the rise in coffee prices and employment in the drug trade. It should also be pointed out that the real purchasing power of the average wage in manufacturing, as deflated by the CPI, rose about 12% between 1974 and 1979. In addition, fringe benefits reported to DANE continued to rise faster than wages over the 1974-79 period. Finally, changes in the labor code permitted employees to borrow interest free against their employer's cesantia obligations, while the employer was required to index that obligation at the growth of wages. Previously the employer's obligations, which were only accounting transactions, could have been used by the employers to finance working capital. That change thus raised the effective costs of fringe benefits substantially faster than even the rapid growth shown in the DANE survey. In sum, the combination of higher labor costs, fairly flexible substitution possibilities, changes in technica]. progress induced by imported capital goods and shifts in the composition of industry biased industrial growth against labor absorption in the 1974-79 period. K. Involuntary Import Liberalization: The Case of Textiles 3.27 The case of the textile industry in Colombia offers a number of interesting insights into the relationship between foreign trade policies and manufacturing development. Dominated by a few large enterprises, that industry was able to compete vigorously in world markets, but relatively high tariffs and import quotas kept domestic prices well above international levels and allowed costs to increase rapidly. The need to modernize and rationalize production was not felt to be urgent: and, as a consequence, labor productivity of Colombian textiles did not advance as rapidly as it did in many newly industrializing countries. That need seemed to have only become apparent when an increasing amount of illegal imports captured a significant share of the market, allowing for little or no increase in demand for domestic products during the second part of 1970s. As a consequence, the industry has begun to specialize, with new medium-scale firms finding it profitable to compete vigorously at home and abroad. Investment in the large firms has also accelerated, and future plans indicate an even more forceful attempt to catch up with the rest of the world. If that will be possible and to what extent the restructuring process will require different Government policies and initiatives in the foreign trade field is discussed below. - 76 - Table 14: SOURCES OF GROWTH IN MANUFACTURING COMPOUND GROWTH RATES 1958- 1980 1958-67 1967-74 1974-79 1974-80 Growth in Value Added 7.7 7.6 6.4 5,5 Growth in Capital Stock 7.9 6.3 5.2 n.a, 1970 prices Growth in Paid Employment 2.5 6.6 2.9 2.2 Residual 1.3 1.1 1.8 n.a. Growth in Real Unit Labor Cost 4.2 0.6 3.3 n.a, Growth in Real Wage 2,0 1.0 2,3 2.0 Notes: 1958/79:Value Added, Gross Investment, Total Employment, Labor Cost (including Fringe Benefits) from DANE Industria Manufacturera. Deflators as in Table 1. Capital Stock calculated using a perpetual inventory method assuming 4% de- preciation and base year capital stock equal to 1.5 times value added. This yields a real capital stock equal to 1.4 times real real value added in 1970. Labor's share was almost constant and rounded to .3. Total Employ- ment (paid + unpaid) grew at the same rate as paid employment. Residual = Growth in Value Added -.7 (Growth in Capital Stock) -.3 (Growth in Employ- ment). All growth rates calculated in logarithims and then converted to compound annual percentage rates. 1979/80:Source: DANE Muestra Manufacturera used to inflate nominal values. Real wage calculated by deflating wage by CPI. Nominal wage calculated using 1979 weights for empleados and obreros. - 77 - 3.28 Manufacturing of textiles is one of the oldest industries in Colombia. The first production on an industrial scale began in Medellin in 1906, when 106 mechanical looms were installed by Compania Antioquena. By 1940, the textile industry was already the most important manufacturing subsector (food processing excluded), operating about 50,000 spindles and 4,000 looms. Output of the weaving sector reached about 70 million meters of fabric, based mostly on imported yarn. By 195C, most of the imported yarn was replaced by domestic production, and in 1959 production of local cotton exceeded imports. It appears that the growth rate of the textile industry was vigorous until the early 70s, when it reached its peak. In 1972-73, investments in the sector amounted to 14.4% of all industrial investments and employment accounted for 13.7% of the total employment in manufacturing. 3.29 The growth of the textile industry in the last few yea:cs has not been impressive. In 1979 the input of raw materials (cotton and synthetic fibers) was about 142 TMT (thousand metric tons) as compared with 133 TMT in 1973, indicatiing a negligible (about 1% p.a.) growth. The value of textiles production in real terms increased by 23.5% and apparent consumpl:ion rose by 20.5% between 1970 and 1979, indicating annual growth rates of 2.5% and 2.1%, respectively. As in the same period the GNP per capita had been increasing at the rate of 3.8% and the population at the rate of 2.8%, the slow growth in textile supply and demand implied a negative elasticity of demand for textiles. For a country with a GNP/capita of about US$1,000 thal: elasticity should be about 0.5, and the expected annual growth of textiles consumption should have been 4.7%.23/ The difference between the expected and the actual growth of textile consumption over the 1970-79 period would amount to about 21.5% of the value of the 1979 consumption and can be readily ascribed to illegal imports of textiles. Data for the consumption of garments in the 1970-79 period seems to confirm that a considerable proportion of textiles have been imported illegally, as the production and consumption of garments have been growing at annual rates of 7.2% and 4.4% respectively, the latter figures lbeing very close to the expected value of 4.7%.24/ 3.30 The ready market for the contraband is explained by the fact that the international prices of textiles are well below the domestic level, the quality, design and styling of imported goods is usually superior, and goods 23/ See Annex 3 for income elasticities of textiles in several other industrializing nations. 24/ According to a study commissioned by the large textile companies, the domestic consumption of textile fabrics in 1980 was about 700 million square meters (MSM), out of which 185 MSM were imported, 2'i MSM legally and 160 14SM as contraband. The figures indicate that compared with 1979, the 1980 volume of production and sales of domestic woven fabrics decreased by 9% and the share of contraband fabrics increased from 18% to 23% of total consumption. Thus, the results of the study confirm the above findings based on elasticity estimates. - 78 - are offered at convenient credit terms, which the domestic producers cannot afford to extend because of credit restrictions and the high cost of working capital. How is it possible for the Colombian textile industry to export significant parts of their production and yet not be able to compete effectively with foreign producers in their own market? Several facts explain that seemingly contradictory behavior. First, Colombia is exporting mainly yarn and grey goods, whereas domestic firms sell a great variety of textile goods, which are produced in short runs and are therefore more costly. Secondly, high tariff and non-tariff protection has made it possible for Colombia's textiles industry to use discriminatory pricing policy. Currently, imports of textile products are subject to duties averaging about 26% for synthetic fibers to 40% for spun yarn and about 70% for textile fabrics. In addition, the Government has attempted to regulate the flow of imports by limiting the number of import licenses. As a consequence, official imports have remained insignificant, accounting for less than 5% of domestic consumption during most of the recent years. That type of protection allowed companies to charge between 40% and 100% more in domestic than international markets, providing a powerful incentive for illegal imports. 3.31 There are a host of problems which contribute to relatively high costs of textile production in Colombia, ranging from the current high costs of working capital to problems of raw material pricing and complications and time lost in the process of importing machinery and other inputs. But one of the crucial problems has been the loss of Colombia's relatively high labor productivity at the same time as labor costs have gone up in the face of increasing international competition. Studies undertaken by the Economic Commission for Latin America have shown that, in 1960-62, the cost of producing 100 yards of cotton cloth in Colombia was only 6% above the same cloth produced in the U.S. and 25% above production costs in Japan.25/ During that time labor productivity in the Colombian textile industry was the highest of all textile industries in Latin America and most other developing countries. On the other hand, in 1979 overall productivity of the Colombian textile industry was less than one third of that in the U.S., whereas the cost of wages, salaries and benefits amounted to US$1.45, which was higher than in most other developing countries. While labor costs per unit of output were still only marginally higher in Colombia than in the U.S., they were considerably higher than in the leading textile exporting (developing) countries such as Taiwan, Hong Kong and South Korea. Only the E.E.C. had higher labor costs per unit of output than Colombia, since the hourly cos;t of labor in the E.E.C. was about 20% higher than in the U.S. while productivity was marginally lower.26/ 25/ Naciones Unidas, Comision Economica para America Latina, La Industria Textil en America Latina. Vol. III Colombia, N.Y.: U.N. 1964 p. 102/103. 26/ Consequently, half of Colombian textile exports were absorbed by the E.E.C. market until 1981, when with the rise of the dollar vis-a-vis the European currencies and the exchange rate made exports unprofitable. - 79 - 3.32 BehiLnd this relative decline in labor productivity and increase in production costs are two aspects: insufficient investment and inflexible labor costs. The combination of generous export incentives and a rapidly expanding domestic market led to a rather complacent investment policy in a world environEment that went through dramatic technological changes in the production of textile fabrics. While the Colombian firms are ncw engaged in large investment projects, labor and other costs have remained htigh, not so much as a consequence of high wage payments, but more because of the inability to rapidly adjust the size of the labor force to the rnew technological requirements of the production process. Most of t.he interviewed managers claim that they can operate successfully with about 20% less labor, but as normal attrition is about 2' per annum, it wculd take at least ten years to adjust the labor force in r2lation to the machinery already in place. 3.33 In 1.981, the Colombian textile industry seemed to be fully engaged in modernizing its production process. It is estimated that currently about 25% of all equLipment in the textile industry is less than five years old, and 50% is less than ten years old. As the volume of production increased only moderately (11%) since 1973, it appears that most of the machinery and parts have been imported for replacement and modernization of the existing equip- ment. While historically imports of textile machinery have been running at about 2.5% in relation to the value of production, the rate has increased recently, especially after 1978 when imports o:- used machinery were banned by the Government:, and new machinery was allowed a faster (six years) deprecia- tion. The largest firm's investments increased from 6.3% of sales in 1978 to 11.2% in 1979 and 18.6% in 1980, for a total oi- Col$3.7 billion. The same firm is planning to invest about Col$9.1 billion in the 1978-82 period, or more than twice the current (1980) equity. Investments in machinery and equipment of the second largest firm during 1978-80 amounted to Col$0.7 bil- lion, and further expenditures of Col$0.45 bil:Lion for raising equity. The rate of capital investment for some of .the sma:Ller companies is of the same order. In terms of textile machinery purchases in relation to the volume of fiber consumed at the mill level, Colombia now compares favorably with the U.S. 3.34 WithJ sales revenues declining or at best being stagnant and outlays for both capital and labor increasing, it is no surprise to see a sharp decline in the profitability of the larger firms in the textile industry during the last few years. Smaller companies seem to have fared better, although their "official" financial performance does not seem to have been significantly superior to the large competitors. In general, smaller companies benefited from lower labor costs (non-unionized labor), lower over- heads, lower inventories and a greater flexibi:Lity to counteract illegal imports. The smaller companies also seemed to be in a better position to cope with the recent credit restrictions, as owqners' capital was supplemented with directors' loans. 3.35 While most estimates on the amount oi- illegal imports give a fairly good idea about the importance of foreign competition in that industry, explanations of how these goods are brought in and sold differ widely. Conventional wisdom holds that profits from il:Legal drug exports to the U.S. are repatriated in the form of consumer goods, textiles being the favorite item because the origin of textile fabrics is nearly impossible to identify. - 80 - On the other hand, many people in the textile industry believe that most of the illegal fabrics come in on reused licenses granted by INCOMEX. As a consequence, the industry has been successful in pressing the Government to put most textile items on the "prohibited" list. While these demands seem to be understandable in the light of the fact that a good part of the illegal imports are residuals of large runs produced by the American textile industry and sold at "dumping" prices, the prohibition would not stop smuggling but probably increase the market power of domestic companies in those lines which are most in need of foreign competition. Since the Colombian textile industry is well established and has proven recently that it is able to modernize and streamline its operations, it would be inefficient and wrong to stop a liberalization move which is long overdue and is being absorbed by most companies. L. Barriers to Efficient Import Substitution and Exports: The Case of Capital Goods 3.36 Colombia's metal-mechanical industries have been the subject of repeated studies.27/ These subsectors have attracted less attention because of their past performance than because of their potential, which for some time have raised hopes that metal-mechanical industries would become a major source of growth and exports. At the same time the sector promises to make particularly good use of the country's comparative advantages. Growth expectations for metal industries are also based on the observation that as an economy develops, metal-mechanical industries increase their share in manufacturing value added. This disproportionately fast growth of metal-mechanic industries can be clearly observed in countries which in size and level of development are comparable to Colombia. At a per capita income of US$300 (in constant 1979 dollars) their metal-mechanical industries contributed on overage 15% to manufacturing value added. The proportion rises to 25% at US$400 per capita income and to around 29% as per capita income (still expressed in 1970 dollars) reaches US$500 which is roughly the income level Colombia has attained today. In industrialized countries the share of metal-mechanical industries rises to between 40% and 50% of manufacturing value added. Reasoning that the laws which have led to this pattern of growth are also at work in Colombia, it has then been argued that the country's metal-mechanical sector should expect accelerated growth. 3.37 There have been periods when Colombia seemed to fulfill the expec- tations placed in its metal-mechanical irdustries. Between 1967 and 1975 for instance, a period of rapid economic growth, those branches were able to increase their share of manufacturing value added from 13.3% to 18.4%. Since then, however, they have fallen short of their potential. By 1979, the share of metal-mechanical industries had fallen back to 17.6% of manufacturing value added and it is estimated that the share has contracted further to 16.4% in 1980. This compares with a 29% share for a sample of metal mechanical industries other medium-sized countries at the same level of development. No other country in the sample had a less developed metal-mechanical industry than Colombia. What have been the major obstacles of a more forceful development of Colombia's capital goods? It seems that some specific Government policies have been a hindrance to that sector's 27/ For a more detailed analysis of the metal-mechanical sector, see Annex 4. - 81 - development. In addition, a number of factors which have also impeded the production and trade of other manufacturing goods can be enumerated, the imperfect transportation system being one of them. Negative Effective Protection and Government Purchasing Policies 3.38 Whi.Le Colombia's external tariffs are designed to protect national industries, they often discriminate against producers of capital. goods. One reason is that protection was imperfectly adopted to the gradual. emergence of capital goods industries in Colombia. There is a long tradition of indus- trialization based on import substitution, but most of this took place in consumer goods industries. The Government has tended to regard imports of capital goods as the most beneficial kinds of imports. When, in the wake of the coffee boom, imports were liberalized to combat inflation, the tariff on most capital goods was lowered. Duties on capital goods imports by the mining and petroleum industries were abolished altogether. Even where nominal tariffs remain high, the effective tariff on capital gocds is often lowered through the system of "global licenses", under which a general usually low tariff (5%) is applied to all components of an investment project. The benefits of that system are greaL for the modernization of the country's capital stock, but it hardly constitutes an incentive for the local capital goods industry. 3.39 In practice, the situation has often resulted in negative protec- tion for capital goods industries. Producers have to import components on which duties w7ere levied, whereas they have to compete with imported final products on which little or no duties were paid. Agricultural machinery, an important product of the metal-mechanical industry, has a negative effective protection of 20%. The effective protection for equipment imports by the mining industry (which includes cement) is -21% and for the pettoleum industry -23%., Many types of metal-working machinery also have negative effective protection. Purchases by the Government and public agencies are exempt from import duties which result in negative effective protection for a substantial part of the market for capital goods. For electrical equipment such as controls and transformers bought by government agencies, the effective protection is -26% and -31% respectively. For telephone equipment, another area where the Government constitutes the bulk of the market, effective protection on government purchases fLuctuates between -12% (for telephones) and -26% (for switchboards). 3.40 Purchases by the Government and its agencies are estimated to equal about 15% of the value of Colombian industrial production. For some products, such as electrical and telecommunicai:ions equipment, road mainte- nance and railroad equipment, the Government holds a virtual monoposony. For others, such aLs office equipment or steel structures it constitutes a signif- icant part of the market. The Government, through its purchases, could therefore become an important factor in stimulating the development of a capital goods industry. This potential is not being used. On the contrary, many enterprises complain about a bias against local suppliers on the part of the Government. This bias manifests itself in various ways. For one, Colombian firmts are usually not large enough to handle major projects by themselves, even though they could well do so If a large project was broken down into components. For reasons of administrative simplicity, however, - 82 - government agencies prefer to deal with one supplier or contractor, which excludes Colombian firms from competition for such large contracts. 3.41 Transmission lines are a good illustration of this policy. Th,ere are a number of Colombian firms with relevant experience, but none of them is big enough to handle a major contract. Theoretically, it should not be difficult to involve local suppliers in the construction of a transmission line, be it by dividing the contract or by encouraging association between foreign and local firms. In practice, involvement of Colombian firms in. the major transmission lines which are now being built has been minimal. Apart from their size, the firms cited other disadvantages vis-a-vis their foreign competitors: first, they cannot offer financing; secondly, their designs are heavier and therefore more expensive, since they must use locally produced angles which are only available in a limited number of gauges; and, finally the local price of angles is more than two times as high as the international price. 3.42 Another obstacle for local supliers is the uneven flow of public purchases. Producers of steel structures, for instance, can adjust their capacity relatively easily, and assert that they could attend even very large orders if they were given enough advance notice to allow them to gear up their plants and if they were assured of a more or less constant flow of work. As it is, government agencies tend to allow too little time for delivery and they place their orders in a stop-and-go fashion. Large orders are placed one year, followed by few orders during the next year, and again very large orders in the third. Local producers are reluctant to gear up for the first order since they would be left idle in the second year. As a result most of the requirements are imported even though local firms would be technically capable of supplying them. Currently, it is estimated that Dnly 15% of purchases under the PIN are from domestic sources. 3.43 An interesting example is the impact of stop-go purchasing policies on the four largest producers of metal structures in Bogota, who sell over 50% of their production to the Government and its agencies. The raw material they use is mainly provided by the Paz del Rio steelworkse28/ All four producers rely on labor intensive production methods which, combined with the higher cost of raw materials, don't allow them to compete with imports. More modern automated machinery would cut costs by up to 30%, making the local producers competitive, but the firms shy away from the necessary investment, since they would then also be more vulnerable to cutbacks in public investment projects. They are thus caught in a vicious circle: they can't compete against imports because their costs are too high; on the other hand, they are reluctant to make the investments which would lower costs because they are not assured an even flow of orders from the Government. Since the Government does not pay duties on its purchases, the four companies operate 28/ In case domestic steel does not meet the quality requirements of projects like the Cerro Matoso Nickel refinery or of oil refineries, which need quality according to norm A36 as compared to "commerciaL" quality supplied by Paz del Rio, they can import steel. - 83 - in an unprotected market and their effective protection is negat:ive. They nonetheless stated unanimously that they would prefer a more predictable and even flow of orders to increased protection by the Government. 3.44 For the purchaser of capital goods the financing which can be offered by a supplier is often a decisive factcr in the buying decision. Foreign products sold in Colombia are particularly favored in this regard, since they are frequently supported by subsidi2ed export credits. Colombian manufactures, by contrast, far from being able to offer generous financing terms to their clients, were suffering from a credit squeeze. As a result, sales were lost to imports, even in cases where. the price of the domestic product would have been lower. Colombian firms who successfully sell their products in foreign markets--where they are supported by PROEXPO credits-- had difficulties in competing in the domestic market because they were unable to finance their sales. In one case, a major producer of capital goods has set up a subsidiary in Venezuela from which he supplies the Colombian market with the help of Venezuelan export credits. TLe firm's Colombian production facilities concentrate on exports, mainly to Venezuela. The survey of a sample of metal-mechanical industries established clearly that lack of sales financing was regarded as the single most important obstacle to more rapid development. 3.45 In the past, there have been attempts to provide sales financing to Colombian producers of capital goods. Producers, who were aware of these attempts coincided, that the amounts were insignificant compared to the needs and that the procedures involved were inordinately complicated. On September 30, 1981, the Central Bank issued a resolution which sets a fixed interest rate of 26% on credit granted for the purchase of domestically produced capital goods. These credits have a three year term and up to 80% can be rediscounted. Compared to the current rate of inflation and other nominal interest rates, 26% p.a. constitutes a subsidy which could put capital goods in the domestic market on an equal footing with the export market. Export Related Problems 3.46 In general, metal-mechanical enterprises in Colombia employ tech- nologies which do not offer significant economies of scale. They prefer labor intensive production methods which allow them to expand or contract with the market. The industry was therefore not pushed into exports because of the need to achieve more efficient scales of production. In most firms, exports were made when opportunities opened up and were abandoned either because the peso revaluation since 1975 made them uncompetitive or because recessions in Venezuela and Peru cut off the market. The firms in question appeared to weather these fluctuations in exports without undue problems. Agricultural machinery is a typical product in this category. 3.47 More recently, a different type of metal-mechanical enterprise has begun to appear, which employs more complicated technology and which there- fore depends more on economies of scale. An outstanding example is a producer of axles for automobiles. That firm :is capital intensive and closely integrated with both suppliers of inpul:s and buyers of its products in other Latin American countries. Development: of the metal-mechanical industry will necessarily lead to higher technification and more capital intensive production methods. As this happens., the limited size of the - 84 - domestic market will become more of an obstacle than it has been and companies will increasingly look for export opportunities. A number of obstacles are placed in the way of such companies, of which fluctuations in the exchange rate policy was only one important variable. It was less the absolute level of the peso vis-a-vis the U.S. dollar than the constant change from under to overvaluation and the resulting uncertainty for exporters which became crucial impediments. Entrepreneurs are reluctant to invest heavily in export oriented projects if they must fear that exchange rate fluctuations will price them out of the market. 3.48 Inadequate transport facilities still present serious difficulties in Colombia. Roads and railways are critically deficient and the countryts industries which are concentrated in the interior, face high transport costs for imported components and for exports. More important than the lack of transport infrastructure seems to be the barriers erected by inefficiencies in customs, ports, and sea transport. Recent reforms are said to have elimi- nated some of the worst features of the customs system, nonetheless goods are still delayed for weeks and companies report serious problems with ineffi- ciency and corruption. The inefficiency of Puertos de Colombia, the public company administering the ports, is legendary and, in the opinion of many of those interviewed, is becoming worse. Shipments are lost or damaged as a matter of course and pilferage as well as corruption is endemic in Colombia's ports. 3.49 Finally, the Flota Mercante Grancolombiana (FMG), the country's shipping line, has a monopoly in carrying goods to Colombia. For importers, this means long delays because of infrequent sailings and high costs because of lack of competition. Exporters, who are not subject to the same restric- tion, nonetheless report similar problems. FMG's monopoly on imports means that it is uneconomic for most foreign ships to call on Colombian ports, which gives the Colombian shipping line a de-facto monopoly on exports as well. A manufacturer of tractor-trailers, for instance, exports his trailers by land to Peru, a 15-day trip for which three separate tractors are required (one each in Colombia, Ecuador and Peru). Nonetheless, the cost is half that of exporting the trailers by ship. In another instance, an exporter alleged that his freight costs for exports to Chile are higher than those of his European competitors. The three factors, customs, ports, and shipping interact, and it is hard to quantify the impact of each one of them. But there is little doubt that together they constitute a heavy burden on Colombian enterprises which are engaged in international trade. The Govern- ment is attempting, at great expense, to improve the transport network. It seems that the other three factors constitute at least as large, if not a larger obstacle to Colombian exports, than does deficient land transport. Since this obstacle is mostly administrative rather than physical, it could be removed at a comparatively low cost. Employment Importance and Policy Reforms 3.50 Metal-mechanical industries are an important source of employment. In 1970, the sector occupied 68,500 people. Nine years later that figure had risen to 112,900. The increase of 44,400 represents one quarter of all new jobs created in manufacturing industry during that time. The sector is relatively labor intensive, accounting for 22% of manufacturing employment in 1979, compared to its 17.4% share in manufacturing value added. Within the - 85 - sector, fabricated metals and non-electric machinery are especia:Lly labor intensive, whereas basic iron and transport equipment are more capital intensive industries. The sector's labor interLsity is further illustrated by the low investment cost per job. Each of the 17,500 jobs created in metal-mechanical industries between 1975 and 1979 required an investment of Col$236,300 (in 1970 pesos). The corresponding investment required for the 42,400 jobs created in the rest of the manufacturing sector was Col$447,000 (again, 1970 pesos). The combination of fast growth potential in the sector with high labor intensity--and low investment per new job--means that metal-mechanical industries will have to play a. major role in finding productive employment for the rapidly growing labor force. 3.51 Stimulating metal-mechanical industry does not mean to artificially push a sector which, on its own, could not develop. Colombian metal-mechanical industries have grown far belcw their potential and a good part of this shortfall could be made up if some of the factors, which have held the industry back, are removed. Because there is potential for growth, it is probably easier and less expensive to achieve this growth than it would be in most other parts of the economy where conditions are less favorable. The capacity of metal-mechanical industries to create employment adds particular weight to the arguments to stop disc.riminating againsit metal-mechanical industries. Since manufacturing activities wil:L have to bear the brunt of the burden of creating employment for the rapidly expanding labor force, within industry the metal-mechanical sector offers the best prospects in this regard. 3.52 Not all parts of metal-mechanical industries are equal:Ly well suited for Colombia. The sector's particular advantage is that the relatively low cost of skilled labor combined with labor-intensive production methods make it internationally competitive for many products. IWhile there are also some capital-intensive products, whicb. may be economic to produce in Colombia, they would be less important. These would be mainly bulky, low-value items, such as reinforcing bars, where transport costs provide high natural protection. On the other hand, there are metal products in which Colombia cannot compete. These typically require capital-intens.ive production met'hods which, in turn, call for large scales of production. 3.53 Paradoxically, the most rapidly growing branch of the sector during the last decade, the automobile industry, is ar. outstanding example of how not to stimulate production. Protection made rapid growth possible, but because of small scale production--between Marc.h 1980 and 1981, 38,700 units of all sizes were produced--costs have remained prohibitively hilgh. In the foreseeable future Colombia cannot become a conLpetitive manufacturer of automobiles, which now constitute the backbone of the transport equipment industry. Exports to non-Andean countries are therefore out of the question and the Andean market on its own will not allow vigorous growth of the industry. The automobile industry's secondary effects on supplilars are often cited as justification for the industry despite. its hopeless economics. These effects are indeed visible in many metal-mechanical enterprises and their positive impact is undoubted. But they could be achieved in the same way through the manufacture of trucks or jeeps, where the outlooki is more promising. In summary, the automobile industry will not be, and indeed ought not to be, a significant source of growth for t:he metal-mechanical sector. - 86 - 3.54 Colombia's steel industry has been even less in a position than the automobile industry to provide a solid base for increased competitive domestic supply to imports. Colombia is consuming little steel. Total steel consumption is about 800,000 tons per year which, on a per capita basis, is comparable to Bolivia. Steel demand is divided fairly evenly between flats (sheets) and non-flats (bars, angles). Flats are not made in Colombia. Nevertheless, the Industry's Indicative Plan has as its major goal to reach self-sufficiency in steel. It is less concerned with the cost at which this goal can be reached. The common arguments in favor of expanding Colombia's steel industry are that the country cannot rely on the vagaries of inter- national supply for a basic product like steel; that present low prices in international markets may not last; and that the metal-mechanical industry can only develop if it has an assured supply of raw materials at its door- step. Critics of this approach would question whether it makes sense for Colombia to attempt self-sufficiency in an industry which is enormously expensive to build, and, once it runs, would not be able to survive without massive protection. They further point out that Venezuela, which unlike Colombia has large iron ore deposits, has difficulty finding markets for its steel industry. These critics would argue that, having a domestic source of steel, far from helping the industry, has actually retarded its development, since metal-mechanical industries were tied to expensive raw materials of uncertain quality. 3.55 In any event, the discussion for or against a Colombian steel industry is academic. Only the Government would be able to afford the investments which are required for new steel plants. The Government, however, has been fully occupied with investment in energy and mining, and it is neither able nor willing to take on the added burden of building up a steel industry. In the absence of a concerted, Government-financed development program, the steel industry will grow slowly, along its histcric patterns. This means that basic steel will not be one of the dynamic parts of the metal-mechanical industry. 3.56 The factors which make automobile manufacture unattractive for Colombia in many cases do not apply to automobile components. The most promising products should, in the short term, be replacement parts or comapo- nents for models which are only built in small series. The advantage in those cases is that the numbers required are not large and they are uneconomic to manufacture for producers in developed countries who need large production runs to utilize their equipment efficiently. Such components, which typically would involve casting and some machining, would thus make best use of Colombia's competitive advantages. Casting technology is we]Ll developed in Colombia and hundreds of foundries are in operation, mostly as part of a larger metal-mechanical enterprise. Modular casting has been introduced by a few of the most advanced firms. Casting, unless done on a large scale, is labor intensive giving Colombia a cost advantage. To a lesser degree the same is true for machining. 3.57 One advantage of auto parts manufactures is that different models, even different makes, often use identical components. This to a certain extent compensates for the small size of the Colombian automobile industry. Nonetheless, the domestic market is not large enough to support a fully competitive auto parts industry. Manufacturers must turn to exports if they are to realize their full potential. Producers of brake drums and similar - 87 - parts report that they have had contacts with U.S. distributors of replacement parts. Although the Colombian products were said to have been cheaper, no sales were made because the U.S. buyer doubted that Colombia could come up with a reliable supply of acceptable quality. 3.58 Similar to their colleagues in some other metal-mechanical branches Colombian producers of auto parts are locked inl:o a vicious circle. Their present size does not allow them to attend even what, by the foreign buyers standards, are small orders. On the other hand, they feel the risk of not being able to penetrate foreign markets is far too big to justify investing in new capacity. Additional investment would make them competitive, but they are too uncertain of the market to risk that investment. 3.59 A solution to these problems would be subcontracting.29! In its simplest form, a foreign buyer places a contraci: with a Colombian supplier which is sufficiently large to make it worthwhile to tool up for it. The contract is usually accompanied by technical know-how. More sophisticated versions can take the form of a joint venture between the buyer and a Colombian partner, in which the buyer provides lot only the market and technical know-how but also capital and management skills. The attraction of this form of subcontracting is that it removes 'both halves of the vicious circle. It assures a market and it helps finance the necessary investments. 3.60 Auto parts are only one metal product where there are good growth prospects. In general, Colombia should be competitive in products with the following charaLcteristics: (a) A high content of castings, such as pumps, valves, electric motors, etc. (b) Products which require machining or olher labor intensive forms of transforming metal. (c) Products for which Colombia has acquired extensive know-how and where local industries are, technologically speaking, mature. As far as the first two characteristics are concerned, Colombia's advantage boils down to low labor costs. It is estimated that Colombian skilled labor costs one about 25% less than in Hong Kong and iapproximately the same as in Taiwan. A FEDE:METAL 30/ study concluded that in 1980 skilled workers received daily salaries between US$11.70 and US$13.85. For an eight-hour day these salaries translate into an hourly cost to the enterprise of between US$1.20 and US$1.75 equivalent. The low salaries also confirm the contention of many of the interviewed enterprises that skiLled workers are in abundant 29/ PROEXPO hLas started a campaign to promote subcontracting between foreign buyers and Colombian producers, but at the time of the mission's; visit no results had been achieved. 30/ FEDEMETAI, - Seccional Central del Pais, Encuesta de Salarios 1980. - 88 - supply. The situation changes, however, for highly specialized types of work. A welder employed in construction of oil refineries, where special welding methods are required, can earn three to four times more than his counterpart doing normal work. 3.61 The third characteristic is based on local know-how. Typically, such know-how exists for products for which there is a substantial local market. An example is agricultural equipment which originally was built in Colombia under license. Colombian producers have absorbed the technology and now local designs compete successfully in neighboring countries. Another example is ship repair, which is being carried out by small shipyards in Barranquilla and Cartagena. These shipyards have proved to be highly competitive internationally, and they have developed a major business in repairing foreign ships. A somewhat special case is the emergence of Colombia as a producer of boilers. This is the result of the success of one manufacturer (Distral) who has been able to compete internationally by combining know-how (acquired under license from Westinghouse) with Colombian engineering skill and cheap labor. 3.62 Successful Colombian metal-mechanical industries usually combine the three factors--labor intensive components, labor intensive methods of production and local know-how--but in varying proportions. In products like pumps and valves, the prevalence of castings makes Colombian producers competitive. In agricultural machinery, truck bodies, airplane assembly etc., it is a combination of labor-intensive production methods and local know-how. In a few products know-how alone is the source of comparative advantage. The most notable example are so-called "despulpadoras de cafe" which are exported from Colombia and where Colombian producers seem to have a near-monopoly on know-how. - 89 - ANNEX 3 Page 1 of 10 The Textile Industry A. Status ancL Structure 1. In the Colombian manufacturing sector, textiles 1/ is number one in employment, salaries and value added. The textile industry is estimated to operate about one million spindles, 17,000 looms and about 2,000 knitting machines; in 1979 it produced about 620 million square meters (MSM) of fabrics. In the same year the value of textiles produced reached Col$66.6 billion (second only to the food industry), about 12% of the total output of manufactured products. The textile industry was also the leading employer (75,600 or about 15% of the total) and accounted for about 15% of value added. The importance of the textile industry is underlined by its economic linkages--as a consumer of domestically produced1 cotton and synthetic fibers--and supplier of yarn and fabrics for the garment industry. 2/ In 1979, the textile industry consumed 84 TMT 3/ or 67% of the domestic cotton production and practically all synthetic fibers (46 TMT) manufactured in Colombia; in addition, 2 TMT of wool, 2 TMT of artificial fibers and about 8 TMT of synthetic fibers were imported, leading 1:o an apparent mill consumption of 142 TMT. It is estimated that irmports of fabrics and garments accounted for about 20% and exports for about 10% of the domestic production, so the consumption was about 6 kg per capita (Table 3.1). In 1979, the value of textile exports accounted for about 16% of total manufactured exports (US$91.6 as compared with US$564.7 in total); including garments, the export of the textile products as a percentage of total manufactured goods reached almost 40%. 4/ 2. The Colombian textile industry is highly concentrated. While there are about 500 companies (all private) producing yarns and fabrics, about 13% of the enterprises employ 75% of the labor, and 20% of the enterprises account for about 80% of the total value of the production. The concentra- tion is particularly evident in spinning and weaving0 The three largest companies (Coltejer, Fabricato and Tejicondor) control about 60% of the spindles and looms and produce close to 70% of all spun yarns and woven fabrics, and account for 90% of textile exports, while employing only 30% of the total working force in the textile subsector. In contrast to synthetic fiber, the Colombian textile industry is well rationalized, as the large companies are well above the size at which full economies of scalea 5/ can be achieved. They have been able to achieve machine efficiency comparable to 1/ Includes yarns, fabrics and textile household items (towels, bedsheets, etc.), but not garments. 2/ Including synthetic fibers and garments, the textile industry provided employment for 123,000 people, produced goods worth Col$93.1 million with value added of Col$44.1 billion. 3/ Thousand metric tons. 4/ About 25% of fabrics used for manufacturirLg garments for export are imported under the Vallejo Plan. 5/ About 10,000 spindles and 500 looms. - 90 - ANNEX 3 Page 2 of 10 the U.S. and productivity higher than most 6/ of the developing countries. The high degree of rationalization has allowed Colombia, until recently, to compete successfully in the export markets, especially in the E.E.C. countries. 3. Production of knitted textiles is less concentrated. In 1978, 174 enterprises employed 17,500 people, i.e., less than Coltejer and FabricaLto (about 20,000) and the largest knitting company accounted for about 5% of the labor and 10% of the value of the total production of the knitted fabrics. B. Growth and Performance 4. The growth of the textile industry in the last decade has not been overly impressive. in 1973, the input of raw materials (cotton and synthetic fibers) was about 133 TMT (Table 3.1) as com ared with 142 TMT in 1979, indi- cating a negligible (about 1% p.a.) growth. 7/ A detailed work done by DNP on woven and knitted fabrics has indicated an 18.6% growth in production and a 7% growth in domestic consumption in 1970-76 (Table 3.2). According to the figures compiled by the mission (Table 3.3), in the value of production of textiles in real terms increased by 23.5% and the apparent consumption by 20.5% in 1970-79, indicating annual growth rates of 2.5% and 2.1% respec- tively; this implied a negative elasticity of demand, as in the same period the Gross National Income per capita had been increasing at the rate of 3.8%, and the population at the rate of 2.8%. Since the elasticity of demand for textiles for a country with a GNP/capita of about US$1,000 should be abcut 0.5% (Table 3.4), the expected growth of the consumption of textiles can be estimated to be 4.7%. 5. The difference between the expected and the actual growth of textile consumption over the 1970-79 period would amount to about 21.5% of the 1979 consumption and can be readily ascribed to illegal imports of textiles. Data for the consumption of garments in the 1970-79 period seem to confirm that a considerable proportion of textiles have been imported illegally, since the production and consumption of garments have been growing at rates of 7.2% and 4.4% respectively, the latter figure being very close to the expected value of 4.7% (Table 3.3, page 2). C. Costs, Selling Prices and Productivity 6. Plant visits by the mission confirmed a steady decrease in capacity utilization and employment; current capacity utilization of the industry is about 75%, and employment is 10% below the 1979 level. While the erosion of domestic sales are directly linked to illegal imports, the reasons for the accelerated growth of the textile contraband are a matter of conjecture. It is quite clear, however, that prices for textiles made in Colombia, which are 6/ With the exception of Taiwan, Hong Kong and South Korea. 7/ 10 TMT was imported in 1979, but no data for 1973 imports is available. - 91 - ANNEX 3 Page 3 of 10 40% to 100% higher compared to international prices, 8/ provide a powerful incentive for illegal imports. The level of prices appear, however, to be a result of higher costs rather than excessive profits. While the average return on sales and equity for the larger companies have been on:Ly marginally higher than in the U.S. for the last five years (6.1% vs. 3.3% and 15.7% vs. 9.3%), the return on equity for the Colombian textile companies have been consistently below the rate of inflation. The return on equity would have been even lower, if the fixed assets were revalued in line with current value. 9/ Furthermore, in the period of 1974-79, the average return on sales for the industry has deteriorated from 5.7% to 2.7%, and tlle average return on capital fell from 4.8% to 1.6%. 10/ A review of the financial statements of the Colombian companies visited indicated that 1980 profits were even lower than those for 1979. 7. It is interesting to note that there is little, if any, difference in the financial performance between the large and smaller companies. The smaller companies have no unions and hourly cost of labor is lower than in the uniornized, large companies. Since the machine efficiency and labor productivity are, however, lower for the smaller companies, the cost of labor per unit of output is comparable or higher than in the larger coripanies. On the other hand, the smaller companies have, as a rule, lower overheads, lower inventories and are more flexible in competing with illegal imports. The smaller companies are also in a better position to cope with the recent credit restricl:ions, as the working capital is supplemented by directors' (owners') loans, and interest earned on the overdue accounts becomes an important source of revenue. 8. The competition from illegal imports and overvaluation of the currency appear to be the main reasons for the deterioration of the financial performance of the industry. The fact that the exchange rate of the peso has been overvalued in relation to the U.S. dollar has been a contributing factor in the growth of contraband. On the other hand, the exchange rat:e has little effect on production costs, as only about 8% 11/ of the inputs of the textile industry is imported, and in most cases, the cost of c.i.f. as well as import: duties and sales tax tend to reduce or nullify the effect of the exchange rate on the cost of the imported inputs. 9. There are additional factors which are responsible for the fact that the production cost of textiles in Colombia is higher than i.n the industrialized as well as in many developing countries. One is t:he cost of capital; the interest rate for the working capital is about 40% p.a. and about 30% for export-oriented investments. Another problem is linked to labor regulations; the high cost of labor is due to the Government 8/ "Revista de Planeacion y Desarrollo DNP XI, 1979", p. 114. 9/ Because of the minimum percentage tax, the Colombian companies, as a rule, defer reevaluation of the fixed assets. 10/ ANDI. 11/ DANE 1979. - 92 - ANNEX 3 Page 4 of 10 regulations regarding severance pay and unemployment benefits ("cesantia e indemnisacion") which, for all practical purposes, make the labor costs a fixed expense. Furthermore, the costs of raw materials are relatively high; in case of cotton (MID 1-1/32 inch) the cost for the Colombian manufacturers is currently Col$102,000, or US$1,844 per ton, as compared with U.S. spot price of US$1,548 per ton and c.i.f. North European price of US$1,758 per ton. Also, while the interest costs are subsidized (effective interest rate is 28%), the inventory of cotton has to be carried for six months. In addition, the local manufacturers have no choice in buying cotton suitable for the type of yarn to be spun and consequently 1-1/32 inch has to be used for spinning of course counts for which, in the U.S., the cheaper 15/16 inch variety would be used. Domestic prices of synthetic fibers are also about 40% above the international level, in line with duties and sales taxes on imported fibers. Inventories of dyestuffs and chemicals are costly; due to Colombia's geographical location and the red tape involved in obtaining import licences and customs clearing of imported items, the textile manufacturers are forced to maintain inventories of imported dyestuffs and chemicals equal to six months consumption. High cost of machinery; due to high freight costs import duties, sales tax and other fees, c.i.f. costs in Colombia are about 35-40% higher than in the industrialized countries ("Cable 3.7). 10. Finally, labor productivity is low as compared with industriaLized countries and labor costs are high as compared with other developing countries. In 1979, overall labor productivity of the Colombian textile industry (Table 3.8 pg. 1) was less than one-third of that in the U.S., and the cost of wages, salaries and benefits was equivalent to US$1.45, i.e., higher than in most developing countries (Table 3.9). Also, labor costs per unit of output (kg of fiber consumed by the mills) were marginally higher in Colombia than in the U.S., and considerably higher than in the leading textile exporting (developing) countries such as Taiwan, Hong Kong and South Korea. Until 1980, Colombia had lower labor costs per unit of output than the E.E.C countries as the hourly cost of labor in the E.E.C. was about 20% higher than in the U.S., while productivity was marginally lower and, consequently, almost half of Colombian textile exports were absorbed by the E.E.C. markets. More recently, appreciation of the peso with respect to most European currencies has, however, drastically curtailed these exports. D. Imports 11. In 1981, the textile spinning and weaving industry was operating at about 75% and the synthetic fiber industry at 70% of capacity. The low capacity utilization and the decrease in employment appear to be directLy related to increased consumption of imported textile articles. The official imports have accounted for only a small share of domestic consumption (Table 3.10). Imports of textile products are subject to duties averaging about 50% ad valorem, and ranging from about 26% for synthetic fibers, 40% for spun yarn and about 70% for textile fabrics. In addition, the Government attempted to regulate the flow of imports by limiting the number of import licences. It appeared that most of the imports already entered the country illegally when imports were prohibited in early 1982. No official data is - 93 - ANNEX 3 Page 5 of 10 available regarding the actual scope and source of the contraband, and there are very few ideas suggesting a practical solut;ion of the problem. Conventional wisdom holds that the profits from illegal exports of drugs to the U.S. are repatriated in the form of consumer goods, textiles (particularly fabrics) being the favorite item due to the fact t'aat the origin of textile fabrics is almost impossible to identify. The ready market for the contraband is explained by the fact that the international prices of textiles are well below the domestic level, the quality, design and styling of imported goods is usually superior, and goods are offered at convenient credit terms which the domestic producers cannct afford to extend because of credit restrictions and the high cost of workirg capital. 12. According to a study 12/ commissioned by the large textile companies, domestic consumption of textile fabrics in 1980 was about 700 mil- lion square meters (MSM), out of which 185 MSM were imported, 25 MSM legally and 160 MSM as contraband. The figures indicate that as compared with 1979, in 1980 the volume of production and sales of domestic woven fabrics decreased by 9% and the share of contraband fabrics in consumption increased from 18% to 23% of the total (Table 3.11). The results of the study confirm the earlier findings (para. 5), based on the comparison of the real growth rates of production and consumption of textile fabrics and garments. E. Exports 13. Exports of Colombia textiles have increased from US$16.6 million in 1968 to US$122.8 million in 1980 (Table 3.12, p. 1) indicating an average growth oiE over 18% per annum. In the last four years (1976-80) t:he growth of exports has slowed down to 7% per annum, most likely due to increased cost of sales which averaged 27.2% 13/ per annum, while the peso has been devalued less during the same period. The traditional pattern of Colombian exports of textiles has been about 50% to Western Europe, 30% to South and Central America, 10% to Canada and 5-6% to the U.S. Exports to the Andean Group have not been significant; in 1970-1980, their share decreased from 9.5% to 4.3%. The relatively high level of exports to Europe (especially the E.E.C) appears to be due to lower labor costs per unit of output and the weakness of the U.S. dollar in respect to E.E.C. currencies, at least, until 1980. But with the rise of the U.S. dollar and the consequent 30% revaluation of the peso with respect to E.E.C. currencies in the first half of 1981, the prices that Colombian textile companies would have had to quote to compete int Europe became too unprofitable, and fabric exports to E.E.C. markets fell by 75% on an annual basis (Table 3.13). Also, a revaluation of the real rate of exchange of the peso with respect to the U.S. dDllar (Table 3.14) has resulted in a decrease of textile and garment exports (Table 3.15, p. 5) to the U.S. 14. In terms of products, Colombian exports comprised about 45% of cotton yarn, 40% of grey and 15% of finished fabrics, which is a typical 12/ ANDI and Fabricato, 1981. 13/ Coltejer Annual Report, 1980. - 94 - ANNEX 3 Page 6 of 10 pattern of textile exports from developing countries (Table 3.16). Exports of Colombian textiles and garments are promoted by the Government through the Plan Vallejo. Under this plan, the manufacturer can import the input materials (yarn for manufacturing of fabrics and fabric for manufacturing of garments) duty free, 14/ imported items will be reexported as higher value-added articles. The exports are further assisted by an export subsidy, Certificado de Abono Tributario (CAT), which amounted to about 10% for garments, fabrics and cotton yarn, and 5% for synthetic yarns in 1982. ]-5/ Also, import of textile machinery for the purpose of manufacturing goods for export is a subject of subsidized credits from PROEXPO which may reduce the cost of interest by as much as 50%. A detailed summary of current export incentives is shown in Table 3.17. Colombia has also developed a sizeabLe export of garments which reached about US$135 million in 1980. Assuming the value of garment exports to be about US$15 per kg, the weight 200 gms/square meter, the fabric content of Colombian garment exports was about 45 MSM in 1980. As the import of fabrics under the Plan Vallejo is estimated to rlun at the rate of 5-10 MSM per annum and the illegal import of fabrics at the rate of 160 MSM, it can be assumed that most fabrics used in export of garmenlts are low-cost contraband which would account for the rapid growth of these exports and consequently, the export of garments has not increased the Sales of the textile industry. F. Technology and Capital Investment 15. The Colombian textile industry is quite modern. It is estimated that currently about 25% of all equipment in the textile industry is less than five years old, and 50% is less than ten years old. As the volume of production increased only moderately (11%) since 1973, it appears that most of the machinery and parts have been imported for replacament and moderniza- tion of the existing equipment. The imports of textile machinery have een running at about 2.5% (Table 3.18) in relation to the value of production, but the rate increased recently, especially after 1978 when imports of used machinery were banned by the Government, while new machinery was allowed a faster (six years) depreciation. The largest firm's investments have increased from 6.3% of sales in 1978 to 11.2% in 1979 and 18.6% in 1980, for a total of Col$3.7 billion. Altogether, that firm was planning to invest about Col$9.1 billion in 1978-82, or more than twice the current (1980) equity. Investments in machinery and equipment of the second largest firm amounted to Col$0.7 billion in 1978-80 and further expenditure of Col$0.45 billion was planned for 1981-82 or about 60% of the 1980 equity. The rate of capital investment for some of the smaller companies is of the same order (Table 3.19). In terms of textile machinery purchases in relation to the volume of fiber consumed at the mill level, Colombia compares favorably with the U.S. (Table 3.20). It appears, therefore, that the labor productivity problem is related more to overmanning of the factories due to the Government regulations than to the state of technology. Most of the managers interviewed claim that they can operate successfully with about 20% less 14/ A bond for a fraction of duty payable has to be posted. 15/ CAT is somewhat lower for exports using the Plan Vallejo. - 95 - ANNEX 3 Page 7 of 10 labor, but as normal attrition is about 2% per annum, it would take at least ten years to adjust the labor force in relation to the machinery already in place. It appears, however, that while the large publicly owned companies intend to improve productivity by replacement of existing machinery to be followed by reduction of the labor force, even at the price of social payments (cesantia e indemnisacion), the smaller, privately owned companies prefer to increase productivity by expansion of production capacity to avoid lay-offs. This difference can be readily explained by the fact l:hat large companies are publicly owned, pay much higher wages and benefits and have unionized labor, while smaller companies are owner-managed, pay lower wages and benefits, ind consider labor unions as a potential threat to their success and survival. G. Synthetic Fiber Industry 16. In 1979, the production of synthetic fibers in Colombia reached 43 TMT, valued at Col$8.1 billion. Polyester staple was produced irL three, polyester yarn in four, and nylon yarn in four production units (Table 3.21). In addition, there was production of about three TMT of artificial fibers (acetate), and about ten TMT of synthetic fibers (mostly acrylics) were imported. The volume of production in 1970-79 had been growring at the average rate of about 15% per annum (Table 3.22) i.e., much faster than the Gross National Income (6.6%), indicating a high elasticity of demand. In the same period, the share of synthetics had increased from about 12% to 33% of the consumptiotn of the fabrics produced domestically. 16/ While per capital consumption of cotton decreased from 76% to 64% and artificial fibers from 12% to less than 3%, production of synthetic fibers in 1979 (1.8 kg) was considerably lower than in the U.S. (15.8 kg), or Wester Europe (7.2 kg), but was in line wit:h the GNP per capita in other developing countries such as Brazil, Argentina and Turkey (Table 3.23). 17. Recently, the growth of production of synthetic fibers has slowed down considerably (5% p.a. in the 1977-79 period). In 1980, prod.uction decreased by about 10%, and in the first half of 1981 the capacity utiliza- tion was estimated at about 70%. There seem to be several reasons for the current problems of the industry. The most important has been a continuous growth of contraband textile fabrics and garments eroding the domestic textile industry market, which is the main consumer for the synthetic fibers industry. 17/ While prices of domestically proLuced synthetic fibers have been falling steadily, the current prices are still about 40% above the international level, i.e., taking full advantage of 35% duty and 6-1/2% sales tax on imported fibers. Again, the level of prices appears to be a result of high costs rather than excessive profits. In 1980, the largest synthetic fiber manufacturer accounted for 50% of national production and made a profit after taxes of 23.6% on equity. The return on equity would have been sub- stantially lower, if the fixed assets were fully revalued in line with 16/ Fiber content of the fabrics and garments imported illegally is obviously not available. 17/ Other end uses of synthetic fibers (tire and cigarette industries) are not included in this survey. - 96 - ANNEX 3 Page 8 of 10 inflation. 18/ The pressure of rising costs is demonstrated by the fact that while in 1980 the volume of sales increased by 5.5% and value of sales by 20.7%, net profits as a percentage of sales decreased by 20.4%. With high costs and less than economic scale of operation, synthetic fiber manufactur- ing in Colombia can only make a profit, if it maintains a high rate of capa- city utilization. In 1980, the largest company was operating close to full capacity and made a 8.2% profit on sales, while the second largest manufac- turer was operating at 65% capacity and made a Col$122 million (4.2%) loss on sales; it lost another Col$250 million in the first four months of 1981, which resulted in the company being in receivership in late 1981. 18. The situation of the second firm is a good example of the problems facing the synthetic fiber companies in Colombia. The scale of operation is too small, with the largest company having a capacity of 23 TMT, split over four products (polyester staple, polyester filament, nylon filament and nylon industrial yarn). It is well established 19/ that polymerisation and extru- sion of synthetic fibers are subject to economy of scale and the largest Colombian units (about 5 TMT p.a.) are 7% more expensive to operate than 20 TMT p.a., 20/ and 18% more expensive to operate than 40 TMT p.a., units which are prevalent in the industrialized countries. The second problem facing the domestic producers is the high cost of capital (44% p.a.) which amounted to 12% of the costs of sales in 1980. Other problems are the Government regulations regarding severance pay and unemployment benefits for laid-off workers, which tend to make the labor costs a fixed expense. The cost of raw materials for the Colombian producers is also considerably h:Lgher than for their competitors in the industrialized countries. The cost of locally produced caprolactam is Col$128 per kilo (US$2,370 per ton) or about 35% higher than the international price. Finally, imported polyester chips 21/ are subject to 35% import duty, resulting in landed costs of about 40% above the international prices. These extra costs are even more significant when it is realized that the raw materials constitute 30% in production of polyester, 50% in the case of nylon. As far as productivity is concerned, a detailed comparison with plants in the industrialized countries is complicated by the differences in the scale of operations and the product mix. In 1980, the annual production per employee was 13.3 tons in the largest firms. It is estimated that in typical U.S. and Western European plants that figure is over 20 tons. As the cost of labor, including fringe benefits, in the Colombian synthetic fiber industry is much lower than in Western Europe (US$4.65 vs. US$8.00), it appears that while productivity in Colombian is lower, the costs of labor per unit output are roughly 18/ Because of minimum percentage tax on the fixed assets, the Colombian companies, as a rule, differ reevaluation. 19/ "Revista de Planeacion y Desarrollo DNP XI, 1979" p. 100. 20/ TMT p.a. - thousand metric tons per annum. 21/ About half of the polyester in Colombia is extruded from chips. - 97 - ANNEX 3 Page 9 of 10 comparable. Finally, import duties, sales tax, transportation alnd insurance cost make machinery in Colombia about 35% higher than in the industrialized countries (Table 3.7). 19. While the production costs of the synthetic fiber manuEacturer in Colombia are higher than in the industrialized countries, it appesars that the cost differential is due to neither the state of technology nor the cost of labor per unit of output. Apart from economy of scale, the techlology of Colombian synthetic fiber producers is quite modern. Nylon, monomer, (caprolactam) is polymerized and extruded by the process generally used in the industrialized countries. The production of polyester is based on polymerization of ethylene glycol (EG), and diniethyl terephtalate (DMT) in the larger firms and extrusion of imported polyester chips in the case of smaller producers. A process using pure terephtalic acid (PTA) as a starting point for manufacturing of polyester has been recently introduced in the U.S., Japan and Western Europe, but so far it is estimated that not more than 30% of the polyester plants all over the world use the PTA process; in any case, conversion of the polymerization units to PTA process would have reduced the production costs only marginally. In the past, the investments in the synthetic fiber industry have kept pace with the demands of the market, as indicated by a steady growth (para. 16) of the capacity and production. More recently, with rising costs and erosion of the market due to contraband, most, if not all, capital investments (including conversion to PTA) have been postponed. H. Summary of Findings (a) Most cost elements of producing textile yarn and fabrics in Colombia are higher than in the industrialized countries. (b) The higher costs include the costs of raw materials (cotton and synthetic fibers), machinery, capital and labor per unit of output; in addition, the Government regulations regarding severance pay make the labor costs a fixed expense, and administrative delays in the import procedures force the manufacturers to tie up capital in excessive (six month) inventories of dyestuffs and chemicals. (c) The higher costs are reflected Ln the level of ex-factory prices of yarn and fabrics which, for the domestic market, are 40-100% higher as compared with international prices. (d) The high level of prices has provided an incentive for illegal imports of textiles (mostly fabr-ics), which are estimated to have reached about 20% share of the market in 1980-81. (e) In the last five years, a gradual reevaluation of the peso in respect of the US dollar has adversely affected the volume of Colombian exports of textile ar:icles to the U.S., and the recent appreciation of the US dollar with respect to the EEC currencies has drastically curtailed Colombian textile exports to the West European markets. - 98 - ANNEX 3 Page 10 of 10 (f) Erosion of the domestic market due to contraband and a drop in exports has resulted in the current reduction in capacity utilization of the textile industry to 75%, and a drop in, employment by 10% as compared with the end of 1979. (g) The synthetic fiber industry in Colombia shares all the problems of the textile industry; in addition, it carries extra costs due to its uneconomic scale of operations. 99 ANNEX 3 T-3. 1 Consumption of Raw Materials - 1979 (Thousand Metric Tons) Fibers TMT Remarks Cotton 84 D l/ Wool 2 I2 Acetate Rayon 3 D Viscose Rayon 2 I Nylon 14 D 3/ Polyester 32 D Acrylics 5 I Total 142 Consumption of Raw Materials - 1973 Fibers TMT Natural 98.2 Artificia:L 7.4 Wool 3.6 Synthetic 23.6 Total 132.8 1/ Domestic 2/ Imported 3/ About 3 TNT of the types not produced in Colombia are imported. SOURCE: Textile Organon and International Cotton Advisory Commit:tee - 100- ANNEX 3 T-3. 2 Apparent Value of Consumption of Textile Fabrics - 1970-76 (Billion Pesos) Value of Direct Indirect Import/Export Apparent % Year Production Imports Exports Exports Balance Consumption Change A B A A A A B B 1970 4.876 4.876 0.005 0.149 0.006 (0.150) (0.150) 4.727 - 1976 17.643 5.790 0.172 1.461 0.640 (1.929) (0.734) 5.056 7.0 A = Gross value B = Real value in 1970 pesos SOURCE: National Planning Department (DNP) - 101 - T-3. 3 Page I Production, Import, Export and Apparent Consumption of Textiles Year 1970 1974 1975 197'S 1977 1978 1979 1980 Gross Value of Production a! 8.5 23.8 23.6 34.2 43.6 52.7 66.7 79.4 Imports 0.1 0.5 0.5 0.7 1.1 1.4 2.0 n.a. Total Supply 8.6 24.3 24.3 34.9 44.7 54.1 68.7 n.a. Exports 0.2 2.4 2.3 3.3 3.1 3.9 5.1 n.a. Apparent Consumption 8.4 21.9 22.1 31.6 41.6 50.2 63.6 n.a. Price Index 100 271.8 295.4 392.6 415.0 468.9 627.9 n.a. Real Apparent Consumption b/ 8.40 8.05 7.49 8.04 10.02 10.71 10.13 c n.a. Real Value of Production b/ 8.50 8.76 8.06 8.71 10.51 11.24 10.61 d/ n.a. a/ Col$ billion b/ In 1970 prices c/ 1970-1979 avetrage annual growth of 2.1% dI 1970-1979 average annual growth of 2.5% SOURCE: DANE, INCOMEX, DNP and Mission Estimates. - 102 - ANNEX 3 T-3. 3 Page 2 Production, Import, Export and Apparent Consumption of Garments (Billion Pesos) Year 1970 1974 1975 1976 1977 1978 1979 Gross Value - of Production a/ 2.0 4.7 5.9 8.9 10.9 14.2 19.4 Imports - 0.2 0.2 0.1 0.9 1.4 0.3 Total Supply 2.0 4.9 6.0 9.0 11.8 15.6 19.7 Exports 0.02 1.3 0.8 1.3 1.7 2.4 4.6^ Apparent Consumption 1.98 3.6 5.2 7.7 10.1 13.2 15.1 Price Index 100.0 210.3 242.7 286.9 351.3 421.5 519.1 Real Apparent I Consumption b/ 1.98 1.72 2.16 2.70 2.87 3.13 2.91 c/ Real Value of Production b/ 2.00 2.23 2.43 3.10 3.10 3.37 3.73 d/ a/ Col$ billion b/ In 1970 prices c/ 1970-1979 average annual growth of 4.4% d/ 1970-1979 average annual gorwth of 7.2% SOURCE: DANE, INCOMEX, DNP and Mission Estimates - 103 - hNNEX 3 T-3.4 'Consumption of Fibers, Income Per Capita and Elasticity of Demand for Textiles Country Kg 1/ US$ 2/ E 3/ Colombia 5.4 1,000 -0.2 Egypt 5.0 400 0.5 Turkey 7.7 1,250 0.6 Tunisia 6.5 990 0.5 _T Per Capita 2/ Gross Natiornal Income per capita 31 Elasticity of demand for textiles SOURCE: Mission Estimates and IBRD Sector Studies in Egypt, Turkey and Tunisia. - 104 - AkNNEX *3 T-3.5 Page I COLOMBIA - REVIEW OF THE SYNTHETIC FIBER AND TEXTILE INDUSTRIES Financial Performance (Large Companies) (Billion Pesos) Firm A 'Profit as % of Year Sales Net Profit Equity Saies Equity 1971 1.8 0.243 2.4 13.5 10.1 1972 2.1 0.228 2.2 8.6 10.4 1973 2.8 0.325 2.4 16.1 13.5 1974 3.6 0.286 2.2 7.9 13.0 1975 3.7 0.143 1.8 3.9 7.9 1976 6.1 0.456 2.1 .7.5 21.7 1977 7.1 0.552 3.0 7.8 18.4 1978 8.4 0.711 3.6 8.5 19.7 1979 10.4 0.722 3.8 6.9 19.0 1980 10.8 0.278 3.5 2.6 7.9 Firm B Profit as % of Year Sales Net Profit Equity Sales Equity 1971 1.4 0.099 0.8 7.1 12.4 1972 1.7 0.104 0.8 6.1 17.5 1973 2.2 0.170 0.9 6.4 15.6 1974 2.6 d.124 0.9 4.8 13.8 1975 2.7 0.062 0.8 2.3 7.8 1976 4.0 0.227 1.0 5.7 22.7 1977 4.6 0.248 1.5 5.4 16.5 1978 5.9 0.354 2.0 6.0 17.7 1979 7.0 0.452 2.8 6.5 16.1 1980 8.7 0.385 2.6 4.4 14.8 SOURCE: Annual Reports and Balance Sheets of Firms interviewed by Mission. - 105 - ANNEX 3 T-3.5 Page 2 Financial Performance (Small Companies) (Million Pesos) Prcfit as % of Year Sales Net Profit Equity Sales Equity Firm C 1975 176.6 n.a. n.a. n.a. n.a. 1976 277.3 10.7 n.a. 3.9 n.a. 1977 352.2 18.6 n.a. 5.3 n.a. 1978 383.7 (3.3) n.a. Loss Loss 1979 5,21.0 18.7 255.5 3.6 7.3 1980 799.8 51.5 303.7 .6.4 17.0 Firm D 1978 340.9 14.4 148.0 4.2 9.7 1979 403.6 45.1 206.7 13.4 21.8 1980 469.4 24.7 233.5 5.3 10.6 Firm E 1979 118,8 0.9 57.7 0.8 1.6 1980 183.4 3.0 60.8 1.6 4.9 Firm F 1979 554.5 20.1 179.8 3.6 11.2 1980 400.0 28.7 225.8 7.2 12.7 Firm G 1980 987.4 5.4 97.5 0.6 5.5 Firm H 1979 129.2 3.7 53,7 2.9 6.7 1980 160.5 4.5 74.4 2.8 6.0 SOURCE: Annual Reports and Balance Sheets of Firms interviewed by Mission. COLOMBIA - REVIEW OF THE SYNTHETIC FIBER AND TEXTILE INDUSTRIES Comparative Financial Data 1/ Average 1971 1972 197 3 197 4 197 5 1976 1977 1978 1979 1980 10 Yre. S5 Yrs. COMPANY (1971-1980) (1976-1980) COMPANY Posi- Posi- Post- Posi- Posi- Post- Posi- Posi- Posi- Posi- Posi- Posi- 7. tion 7 tion 7. tion % tion % tion 7 tlion % tion % tion % tion % tion % tion % tion AVONDALE 9.37 5 8.13 8 11.58 4 8.49 12 5.35 11 6.78 13 7.41 12 9, 38 10 2, 90 18 7. 62 12 7.58 12 6.82 15 AVONDALE BELDING HEMINWAY 10.37 3 8.06 9 8.59 11 9. 25 11 9.67 6 8,90 11 6.69 15 9.74 9 10.05 12 5.38 15 8.60 10 8.13 13 BELDING HEMINWAY BIBB (16.19) 20 8.66 6 .85 20 4.38 18 11,82 2 (2.19) 20 4.61 18 4.87 19 - 7. 39 16 2.53 20 3.12 18 3.58 19 BIBB BURLINGTON 5.35 L1 6.44 12 9.99 7 11.23 6 4.44 13 10.79 8 8.95 10 6.81 17 7.13 17 7.33 13 7,88 11 8.15 12 BURLINGTON CANNON 7, 22 7 6.63 11 4.24 18 6. 01 14 7.00 9 6.05 15 6.62 16 8. 54 12 13,00 7 6. 32 14 7.29 13 8.21 11 CANNON COLLINS & AIKMAN 15.03 1 16.58 1 13.16 1 11. 13 7 2.04 18 14, 14 5 12.66 5 13.67 4 13,09 5 8.58 11, 11.82 6 12,27 7 COLLINS & AIKMAN CONE 4.63 12 5.90 13 6.67 16 9.81 9 13. 74 1 16. 21 3 18. 37 2 14.22 3 15. 31 4 15.77 2 13.17 2 15.89 2 CONE DAN RIVER ( 1.95) 19 3.79 18 7.26 13 4.80 17 ( 2.06) 19 6. 30 14 7.00 13 8. 07 14 12. 07 8 9.95 10 5.97 15 8.85 10 DAN RIVER DOMINION TEXTILE 6.10 10 8.21 7 9.45 9 17.42 2 6.46 10 8. 33 12 10,78 8 13.06 5 13.03 6' 18.08 1 11.88 4 13. 24 6 DOMINION TEXTILE FIELDCREST 9.40 4 8 .67 5 10.29 5 1.59 20 10.41 4 12, 11 6 15.16 3 17.56 2 16.80 2 12, 16 7 12.08 3 14.79 3 FIELDCREST 0 GRANITEVILLE 6,77 8 8,74 4 10.00 6 18.43 1 11.47 3 14,22 4 12. 14 6 .13 20 8.77 15 10.60 8 10. 12 8 9. 19 9 GRANITEVILLE LOWENSTEIN 6.33 9 4. 17 16 6.79 15 4,98 15 (12. 91) 20 5.78 16 ( 4.50) 20 8.32 13 ( 2.37) 20 3.29 18 2.16 20 2.22 20 LOWENSTEIN MOUNT VERNON .92 16 4.07 17 6.33 17 7.29 13 2.79 16 1. 30 19 .69 19 9.08 11 10.63 10 10. 37 9 5, 61 16 6.76 16 MOUNT VERNON REEVES BROS. 8.76 6 8.95 3 11. 69 3 12.46 3 4, 24 14 12.07 7 11.57 7 12.05 7 17.66 1 13.91 4 11.86 5 13. 65 4 REEVES BROS. RIEGEL TEXTILE 4.50 13 7.03 10 11.87 2 11.46 5 9.92 5 16.78 2 13.69 4 12.09 6 11.47 9 13.85 5 11,78 7 13.46 5 RIEGEL TEXTILE SPRINGS 3.7 3 14 5.18 15 7, 13 14 4.89 16 2,38 17 53 31 18 5.38 17 6.86 16 10.44 11 3. 15 19 5. 53 17 6. 27 17 SPRINGS STEVENS ( .17) 17 1,60 19 8.18 12 9.76 10 4.82 12 9.31 10 7.59 11 7.49 15 9.19 14 3.87 17 6. 33 14 7.42 14 STEVENS THOMASTON ( .50) 18 1.24 20 2.31 19 3,42 19 2.91 15 5.46 17 6.69 14 2.66 19 .18 19 4.33 16 2,92 19 3.86 18 THOMASTON TI-CARO, INC, 12.83 2 13.70 2 9.63 8 11.62 4 8.74 7 19.39 1 19.00 1 20.22 1 16.14 3 15.70 3 15. 50 1 17.83 1 TI-CARO, INC. WEST POINT- 3. 27 15 5.19 14 8.66 10 11.06 8 8.43 8 10.68 9 10.05 9 11.23 8 9,42 13 13.14 6 9.50 9 10.98 8 WEST POINT- PEPPERELL PEPPERE.LL AV'GE 20 MILLS 4,407, 6.077. 8.46% 9.277. 4.97% 9. 7 67. 9.037. 9,147, 9.997. 8.75% 8.18% 9.32% AV'GE 20 MILLS TOTAL EQUITY $2,871.9 $2,979.6 $3,149.0 $3,347.6 $3,410.6 $3,648,9 $3,838.7 $4,073.3 $4,378.2 $4,591.0 $3,628.9 $4,106.1 TOTAL EQUITY (MILLIONS) (MILLIONS) Source: Company Annual Report ( ): Denotes loss I/ 'Net profit (after taxes) as a percent of common stock equity for 20 largest US textile companies. id -3 . IB' Ii p IQ COLOMRTA - RRVTFW OF TH. qYMTPPTTr FTRIR AMT) TI7YTTT TNTnTSTDTErO Comparative Financial Data 1/ 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 | 10 Yrs. 5 Yrs. COMPANY (1971-1980) (1976-1980) COMPANY Posi- Posi- Posi- posi- Posi- Posi- Posi- Posl- Posi- Posi- Post- Posi- % tion 7. tion % tion % tion % tion 7. tion % tion % tion % tion 7. tion 7. tion 7. tion AVONDALE 3.97 4 3.41 5 4.66 2 3.08 13 2.29 11 2.17 15 2.40 13 3.34 10 .94 18 2.26 14 2,69 14 2, 20 16 AVONDALE BELDING HEMINWAY 3.51 5 2.51 12 2.55 16 2.83 14 3.05 9 2.95 11 2.24 16 3.30 11 3. 32 12 1.80 15 2.79 12 2. 71 15 BELDING HEMINWAY BIBB (6.64) 20 3,79 4 . 32 20 1.51 19 4.94 2 ( .77) 20 1.49 18 1.50 18 2.31 17 .67 20 1.07 19 1. 10 19 BIBB BURLINGTON 2.32 11 2.73 11 3.92 3 4.27 4 2.03 13 4.59 5 3.77 8 2.90 14 2.85 14 2.80 12 3.25 11 3. 34 10 BURLINCTON CANNON 5.20 1 4.63 3 2.98 13 3.92 8 4.74 3 3, 52 10 3. 62 9 4.47 4 6. 77 1 3.13 11 4.32 3 4. 35 4 CANNON COLLINS & AIIIMAN 5,19 2 5.89 1 4.78 1 3.98 7 .74 18 4.96 4 4. 17 4 4.26 6 4.17 8 2. 74 13' !3.98 5 3. 97 7 COLLINS & AIKMAN CONE 1.95 13 2.49 14 2, 61 15 3.54 9 5.24 1 5.68 2 6. 34 2 5.83 2 6.42 3 7. 02 1 5.20 2 6. 29 2 CONE DAN RIVER ( .82 ) 19 1.40 17 2.45 17 1.60 17 ( .73) 19 1,90 17 2. 21 17 2.52 15 3.82 9 3. 23 10 1.99 17 2.79 13 DAN RIVER DO 0INION TEXTILE 2.71 10 3.15 8 3.41 10 5.58 2 2,60 10 2,02 16 2.67 12 3.25 12 3.81 10 4.62 4 3.50 8 3.43 8 DOMINION TEXTILE 9 FIELOCREST 3.48 6 3.07 9 3.22 12 .47 20 3.27 8 3.61 9 4. 15 5 4. 90 3 4.79 5 3. 69 7 3. 65 7 4. 26 6 FIELDCREST GRANITEVILLE 2,75 9 3. 16 7 3.57 9 6.04 1 4.35 4 4.34 6 3.89 6 .05 20 2.91 13 3.25 9 3.42 9 2. 96 11 GRANITEVILLE LOWENSTEIN 2.01 12 1.28 18 1.84 18 1.53 18 (3,78) 20 1.56 18 ( 1. 11) 20 2.03 17 ( .53) 20 .79 19 .58 20 .54 20 LOWENSTEIN MOINT VERNON .63 16 2.28 15 3.37 11 3.44 10 2.05 12 .61 19. .31 19 4.10 7 4.55 6 3.96 6 2.75 13 2.91 12 M'OUNT VERNON REYFVF RROC 2 8Q 7 3.00 10 077 5 0 1,6 1A Or9 7 3 5 ,7 . 1 4.v744 _.4 _REEVES ERuS. RIEGEL TEXTILE 1. 65 15 2. 27 16 3.7 8 4 3.41 11 3.46 7 5.21 3 4. 17 3 4,40 5 3. 78 11 4. 16 5 3.81 6 4. 31 5 RIEGEL TEXTILE SPRINGS 2.86 8 3. 32 6 3, 58 8 2, 26 15 1.21 17 2.45 14 2. 39 14 3, 11 13 4. 24 7 1.33 17 2.67 15 2. 73 14 SPRINGS STEVENS ( .07) 17 .61 20 2. 77 14 3.12 12 1.77 15 2.89 12 2.29 15 2.21 16 2.60 16 1.06 18 2.02 16 2. 16 17 STEVENS THOMASTON ( .49) 18 1.01 19 1.72 19 2.08 16 1.94 14 2.71 13 3.31 10 1.26 19 .09 19 1.72 16 1,64 18 1.78 18 THOMASTON TI-CARO, INC. 4.15 3 4.78 2 3.65 7 4.13 6 3.65 6 6.72 1 6.85 1 7.78 1 6.51 2 6.24 2 5.84 1 6.80 1 TI-CARO, INC. WEST POINT- 1.75 14 2.50 13 3.70 6 4.26 5 3.76 5 3.77 8 3.29 11 3.66 9 2.70 15 3.41 8 3.34 10 3. 34 9 WEST POINT- PEPPERELL PEPPERELL AV 'GE 20 MILLS 2. 007. 2.587. 3.307. 3.46% 2.097. 3. 56% 3.20% 3.28% 3.45% 2.894% 3.067. 3.27% AV'GE 20 MILLS TOTAL SALES $6,331.5 $7,006.1 $8,083.8 $8,979.8 $8,094.9 $10,013.9 $10,830.4 $11,360.0 $12,662.9 $13,661.6 $9,702.5 $11,705.8 TOTAL SALES (MILLIONS) (MILLIONS) _~~ ~ ~ __ _ _ ___ ,,__ __ _ ._ _ __ _ _ _ ...... _ _ _ __ __ _ __ _ _ __ _ _ _ _ L _ _ _ _ _ _ _ _ _ Source: Company Annual Reports ): Denotes loss 1/ Net profit (after taxes) as percent of sales for 20 largest US textile companies. n IZ 1J1ls0 - 103 - AkNNEX 3 T-3. 6 Severance Payments Cesantia In case the worker resigns or is fired--one month's salary for each year of service on the basis of the monthly earnings at time of separation. Indemnizacion In case the operations or a part of the operations is closed 1/ permanently--in addition and equal to cesantia plus pension (jubilaciones) payable at the age of 55, according to earnings and length of service. Ratios Year Cesantia Cesantia Cesantia (as % of Sales) (as % of Equity) (as % of Assets) 1974 1.2 3.7 1.0 1979 9.0 56.7 5.4 1/ When a lay-off is temporary, the worker has to be paid in full. SOURCE: ANDI, 1980 - 109 - ANNEX 3 T-3.7 Cost of Importation of Textile Machinery Spinning Weaving Value FOB 100.0 100.0 Maritime Freight and Insurance 12.0 10.0 Tariff 5.6 5.5 Export Fund (proexpo) 5.6 5.5 Coffee Fund 1.7 1.7 Commission 0.6 0.5 Consular Fee 1.0 1.0 Local Transport 2.0 1.0 Sales Tax 7.1 6.9 Cost of Letter of Credit 1.7 1.7 Gastos de Nacionalizacion 2.2 2.0 Total 139.5 135.8 SOURCE: Fabricato, September 1981 - 110 - ANNEX 3 T-3.8 Page 1 Productivity in the Textile Industry Per Man-Year 1/ Country Mill Consumption 2/ No. of Employees Productivity 3/ USA 5,820 870,000 6.68 Colombia 142 75,600 1.88 Colombia 4/ 128 72,600 1.78 Productivity in the Textile Industry per Man-Hour Country Hours Worked/Year MT/Year Kg/Hour Wages 5/ Cost/X USA 1,990 6.68 3.36 5.72 1.70 Colombia 2,392 1.88 0.79 1.45 1.84 1/ 1979 2/ TMT 3/ TMT per employee, per year 4/ 1973 5/ In US$, including fringe benefits SOURCE: Mission estimates and US Department of Commerce - 111 - ANNEX 3 T-3.8 Page 2 Labor Productivity in Selected Companies. Weaving __n Company KM/Hour 1/ Kg/Hour 2/ Ne 3/ Adjusted 4/ Firm A 58.2 8.0 26.0 .13.0 rirm B 58.9 . 15.2 24.5 20.5 Firm D 21.0 - - _ Firm F n.a. 3.0 26.0 4.9 USA 183.0 23.6 20.0 23.6 E4C 5/ 120.0 16.5 20.0 16.5 1/ Km of weft inserted per operator/hour 2/ Kg of yarn produced per operator/hour 3/ Actual yarn count spun 4/ Adjusted to 20 Ne yarn count 5/ Estimated SOURCE: Annual Report of Colombian Firms, US Department of Commerce, EEC - 112 - Cost of Labor in the Colombian Textile Industry Wages, Salaries and Benefits 11.2-/ Number of Employees 75.0-/ 3/ Annual cost per employee 149.3- 4/ Cost per hour Col$ 62.42- Cost per hour US$ 1.45 / Source: DANE Cost of Labor in Selected Colombian Companies-/ Firm A 2.75 Firm B 2.62 Firm C 1.90 Firm D 2.32 Firm F 1.50 Firm G 1.32 Firm H 1.76 Firm I 4.65 Average Hourly Cost in Textile Industries 7/ Country Total Wage Cost- Pakistan 0.32 India 0.58 Thailand 0.57 Singapore 1.20 Philippines 0.62 Taiwan 1.08 S. Korea 0.82 Hong Kong 1.76 Brazil 0.97 Greece 4.85 EEC 7.00 USA 5.72 Colombia 1.45 1/ 1979 in Col$ billion 2/ Thousand 3/ 2392 hours per year - Col$ thousand 4/ Col$ 5/ At 42.93 $ per US$ 6/ US$ 1980 except for ENKA (1981) 7/ US$ 1979 Source: GHERZI TEXTIL - 113 - Production and Import of Textiles (Billion Peso) Domestic Production QDfficial ImEorts 1970 10.5 .116 1.1 1974 28.5 .734 2.6 1975 29.6 .707 2.4 1976 43.1 .872 2.0 1977 54.4 .995 1.8 1978 66.9 2.812 4.2 1979 86.0 2.340 2.7 1980 NA 2.313 NA SOURCE: DANE - li4 - ~~~~ANNEX 3 - 114 - T-3.1I Production, Export and Import of-Textile Fabrics (in million mZ) Sales Sales Total . of Woven of Knitted Sales Export Import of Fabrics Apparent Year Fabrics Fabrics of Fabrics of Fabrics Legal Illegal Consumption 1979 408.0 188.3 596.3 81.0 13.0 116.0 644.3 1980 395.3 185.8 581.1 70.4 25.0 159.3 695.0 Production and Sales of Woven Fabrics (in million mi) 1979 1980 Company Production Sales Production Sales Fabricato 105.0 102.0 101.9 101.0 Coltejer 157.0 141.0 117.9 117.7 Tejicondor 38.0 35.0 40.7 40.5 Others 140.0 130.0 137.4 136.7 Total 440.0 408.0 397.9 395.9 .1/ By domestic producers SOURCE: ANDI and Fabricato, 1981 Exports of Textiles, 1968 - 1980 (US$ Millions) 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Yarnls Cotton 2.2 3.0 6.0 11.2 14.6 29.8 7.5 33.0 30.8 31.1 38.2 40.4 a/ Fabrics Cotton 5.8 8.5 11.3 14.4 21.7 41.4 31.4 42.0 22.1 28.1 35,6 34.2 Cotton ,-velvet, felt, etc.- - - - 0.1 2.4 7.8 10.4 15.4 15.3 Coated Fabric _ ' - - 1.0 2.0 3.8 5.1 6.4 7.4 8.1 9.5 All Other Textile Exports b/ 9.0 7.7 6.1 8.1 15.1 26.8 28.4 12.6 15.2 11.7 16.6 23.4 H TOTAL YARNS AND FABRICS 17.0 19.2 23.4 33.7 52.4 100.0 c/ 71.2 95.1 82.3 88.7 113.9 cl 122.8 d/ Garments n.a. 1.3 2.3 11.0 49.7 84.1 32.5 38.3 57.7 78.5 136.8 135.5 (Yarns, Fabrics and Garments) n.a. 20.5 25.7 44.7 102.1 184.1 103.7 133.4 140.0 167.2 250.5 258.3 a/ Miss5ion estima tea i/ Calculated as a residual C/ May include soine fictLtious exports d/ PROEXPO estimate SOURCE: INCOMEX, registered exports (mission calculations) VQ Exports of Textiles and Cotton (Main Items) (US$ Millions) 1976 1977 1978 a/ 1979 1980 1981 Yarns (for retail sale) Cotton 31.6 27.6 30.2 32.7 29.5 (9.4) Fabrics Cotton 23.4 16.0 23.2 34.4 23.4 (12.0) Cotton velvet, felt, etc% 2.0 6.7 8.9 6.6 14.0 (5.7) Coated Fabric 4.6 5.5 8.0 8.0 8.0 (2.8) TOTAL (six main items) 61.6 55.8 70.3 81.7 74.9 (29.9) a/ May include some fictitious exports b/ Registered exports. Exports of textiles appear to have fallen significantly after April SOURCE: DANE, Anvarios de Comercio Exterior- (1976-78) DANE, Boletin Mensual de Estadistica (1979-80) INCOMEX, Comercio Exterior de Colombia (1981) (A, Fed Volume of Exports of Principal Textile Items, 1967 - 1981 (Thousands of Tons) Jan. - April 1/ 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1970 1981 Tariff _____ __ _ __ _ _____ _____ Posit iOri 55.05.01.00 Crude cotton yarn 1.6 1.7 1.6 2.5 3.9 6.7 6.8 6.8 11.1 12.2 8.9 10.6 9.4 7.6 (2-3) 55.09.01.00 Crude cotton fabrics, other 2.9 2.8 5.0 4.6 5.0 7.9 9.2 9.6 8.9 7.7 4.0 6.1 6.1 5.0 (1.7) 55.09.89.99 Cotton fabrics, other 0.3 0.8 0.5 0.7 2.4 2.2 2.5 2.8 0.6 0.9 0.6 0.9 0.7 0.6 (1.0) 58.04.03.00 Cotton velvet, felt, etc. - - - - - - - - - 0.5 1.5 1.9 3.0 1.7 (1.1) 59.08.00.99 Coated Fabrics - - 0.1 0.1 0.1 0.3 1.0 1.0 1.9 2.9 3.3 4.7 4.4 4.0 (1.4) Total Five Items 4.8 5.3 7.2 7.9 11.4 17.1 19.5 20.2 22.5 24.2 18.3 24.2 23.6 19.9 (7.5) Five Items as % of total value of textile exports -n.a. 40 44 60 66 64 60 63 58 85 79 84 83 75 n.a. 1/ Parentheses indicate less than full year SOURCE: 1967-77 - ANDI, unpublished tabulations; 1978-80 - DAME Boletin Mensuel de Estadistica; 1981 - INCOMEX Comercio Exterior de Colombia; Final row - INCOMEX (mission calculations and estimates. go, W 3 (D * Utilization of E.E.C. Quotas by Product nd Country, 1978- 1981 Volume of Volume of Exports (tons) Utilization of Quota (%) Assigned Jan.-June Jan.-June Product & Country Quota 1980 1978 1979 1980 1981 a! 1978 1979 1980 1981 a/ Yarns 7,281 5,689 6,286 6,524 (1,381) 79 87 90 (19) Germany, Fed. Rep. Germany, Fed. Rep. 3,545 2,790 3,089 3,290 ( 549) 80 88 93 (16) Italy 955 687 934 811 (199) 73 98 85 (21) Benelux 934 736 771 1,014 (145) 73 83 109 (15) United Kingdom 641 622 542 398 ( 90) 98 85 62 (14) France 624 528 628 660 (284) 85 99 106 (44) Ireland 303 55 48 134 ( 40) 19 16 44 (13) 1 Denmark 278 271 274 217 ( 74) 99 99 78 (26) Fabrics 5,611 1,747 3,067 3,729 (478) 32 55 .66 ( 8) 00 Italy 2,430 178 1,404 2,006 (200) 7 58 83 (10) Germany, Fed. Repu. 1,384 907 _ 842 584 (122) 66 61 42 ( 9) United Kingdom 1,017 557 350 558 (136) 55 35 55 ( 7) France 388 67 130 285 ( 18) 18 35 73 ( 4) Benelux 304 29 303 282 ( 2) 10 - 93 ( 1) Denmark 49 9 38 14 ( -) 18 79 29 (-) Ireland 38 ( -) ( -) a/ Parentheses indicate half-year data. SOURCES: INCOMEX and ANDI, unpublished data lb u24 LO The effect of the Rise of the Dollar and the Peso with Respect to EEC Currencies on Colombia's Exports of Textiles to the EEC, 1979 - 1981 Annual Change in Real Exchange Rate Percent Received (Pesos per Mark, Franc, etc. of Colombia's in constant prices) Utilization of EEC-Quota (Fabrics) Non-coffee Exports (percent) (1980) Jan. - June Jan. - June 1979 1980 1981 1979 1980 1981 a! Germany, Fed. Rep. -6 -15 -32 61 42 (9) 4.5 United Kingdom 7 17 -19 35 55 (7) 2.6 France -1 -8 -21 34 73 (4) 2.4 Italy 0 -25 0 58 83 (10) 2.2 Netherlands -7 -13 -23 0 93 (1) . 0.9 1_ Belgium -8 -13 -23 - - - 0.7 SIX EEC COUNTRIES b/ -2 -9 -30 55 66 (8) 13.3 a/ Parentheses indicate half-year data. b/ Weighted averages,except for simple total in last column. In cols. 4-6, the weighted average is for the entire EEC. SOURCES: ASOBANCARIA (cols.1,2,3 & 7); INCOMEX (cols. 4-6) X LO t43 rl LO Real Exchange Rates, 1967 - 1980 a/ Peso/Dollar - Peso/Weighted Average Basket of Currencies Year Asobancaria Fedesarrollo Morawetz Asobancaria Fedesarrollo Morawetz Asobancaria Fedesarrollo Asobancaria Fedesarrollo (Index 1971 = 100) (Annual change Z) (Index 1971 = 100) (Annual change %) 1967 1967 83.8 78.6 82.2 n.a. n.a. n.a. 80.4 82.0 n.a. n.a. 1968 88.3 88.1 89.1 5 12 9 85.6 86.2 6 5 1969 89.4 90.5 91.3 1 3 2 86.5 87.6 1 2 1970 94.9 95.6 96.5 6 6 6 89.5 93.6 4 7 1971 100.0 100.0 100.0 5 5 4 100.0 100.0 12 7 1972 99.3 99.1 99.7 -1 -1 -0 100.4 103.9 0 4 1973 95.2 92.7 95.4 -4 -6 -4 99.5 106.7 -1 3 1974 97.9 94.3 94.8 3 2 -1 107.2 103.9 8 -3 1975 100.4 94.2 99.9 3 -0 5 109.5 117.5 2 13 1976 97.2 92.8 98.1 -3 -1 -2 107.0 120.0 -2 2 1 1977 81.3 78.9 83.3 -16 -15 -15 93.2 112.9 -13 -6 1978 79.9 76.1 80.7 -2 -4 -3 95.0 114.6 2 2 1979 76.5 72.3 78.3 -4 -5 -3 90.3 110.2 -5 -4 ° 1980 79.9 75.4 c/ 77.6 4 4 c/ -1 94.0 111.4 c/ 4 1 c/ 1981 (Jan.-June) 76.5 n.a. 74.5 -4 n.a. -4 87.2 n.a. -7 n.a. a/ The real exchange rate is the nominal exchange rate adjusted for inflation in Colombia and the U.S. (peso/dollar) or Colombia and all major partner countries (peso/weighted average basket of currencies). The original series have been converted to 1971 = 100. b/ Weighted average real exchange rate calculations use partner countries' shares of non-coffee exports as weights. c/ Preliminary estimate. SOURCES: ASOBANCARIA, Unpublished data; FEDESARROLLO, Coyuntura Economica, Oct. 1980, Table V.9 MORAWETZ, David, Why The Emperoror's New Clothes Are Not Made in Colombia, New York, Oxford University Press, 1981 (data for 1978-80 updated by the author). X~ , Oq 'I Z -4'. ( m Real Effective Exchange Rates, 1967-1980 a/ Peso/Weighted Average Basket Peso/Dollar of Currencies Year Asobancaria Fedesarrollo Morawetz Asobancaria Fedesarrollo Morawetz Asobancaria Fedesarrollo Asobancaria Fedesarrollo (Index 1971 = 100) (Annual change Z) (Index 1971 = 100) ((Annual change %) 1967 82.3 77.2 80.7 11.a. II.a. II.a. 79.0 80.6 n.a.. n.a. 1968 87.7 87.5 88.9 7 13 10 85.1 85.7 8 6 1969 89.0 90.1 90.7 1 3 2 86.1 87.2 1 2 1970 94.8 95.5 96.2 7 6 6 89.4 93.5 4 7 1971 100.0 100.0 100.0 5 5 4 100.0 100.0 12 7 1972 99.5 99.3 99.8 -1 -1 -0 100.6 104.1 1 4 1973 95.8 93.3 96.0 -4 -6 -4 100.1 107.4 -0 3 1974 100.7 97.1 97.5 5 4 2 110.3 106.9 10 -0 1975 93.0 87.2 92.5 -8 -10 -5 101.5 108.8 -8 2 1976 90.7 86.5 91.4 -2 -1 -1 99.8 112.1 -2 3 1977 79.6 77.2 81.4 -12 -11 -11 91.3 110.5 -9 -1 1978 81.7 77.8 82.4 3 1 1 97.2 117.2 6 6 1979 78.7 74.4 80.4 -4 -4 -2 92.8 113.3 .-5 -3 1980 83.2 78.4 80.6 6 5 0 97.7 115.8 5 2 1981 b/ (Jan.-June) 79 . 6 n.a. 77.4 -4 n.a. -4 90.7 n.a. -7 n.a. a/ These series were derived by applying the total effective subsidy to exports (CAT plus PROEXPO credit) to the real exchange rate indexes presented in the previous table. b/ Assumes effective incentive to exports is the same in 1981 (Jan.-June) as in 1980. *F- SOURCES: Real exchange rates - see previous table. Effective subsidy to exports - see table titled "Nominal and Effective Subsidies to Exports" (Morawetz data updated). e. P LI) - 122- ANNEX 3 T-3,15 Page 1 US Imports from Colomnbia in Equipment Square Yards (Million) 1976 1977 19781/ 1979 19802-/ 1980-1981j/ Cotton Articles-4 46.5 29.0 55.0 28.6 21.9 19.9 Wool Articles 1.4 1.2 0.9 0.8 0.9 NA Man Made Articles 7.2 6.5 7.9 7.9 4.9 NA Total 55.1 36.7 63.8 37.3 27.7 NA 1/ Some of the exports may be fictitious 2/ USITC Publication 1146 May 1981 _/ ANDI, unpublished data 4/ '"Articles" include yarns, fabrics and garments SOURCE: US Department of Commerce - 123 - ANNIEX 3 T-3. 15 Page 2 Utilization of U.S. textile quotas, by type of product: and fiber, 1975/76 - 1979/80 (percent). Type of product and fiber 1975-76 1976-77 1977-78 1978-79 1979-80 Yarns 27 11 24 45 0 Cotton .36 15 31 57 0 Wool Synthetic fibers - 0 - - - Fabrics 45 33 38 56 43 Cotton 55- 39 46 69 53 Wool 19 22 7 3 0 Synthetic filbers 1 3 2 1 0 Clothing 22 15 15 17 14 Cotton 7 7 9 5 5 Wool 39 24 20 29 27 Synthetic fibers 29 17 18 . 24 19 SOURCE: Incomex, unpublished tabulations ANNEX 3 - 124 - T-3.15 Page 3 Utilization of U.S. textile quotas, by type of fiber and product, 1975/76 - 1980/81 (percent) Type of fiber and product 1975/76 1976177 1977/78 1978/79 1979/80 1980/81 Cotton 55 26 35 49 27 NA Yarns 36 15 31 57 0 1 Fabrics 55 39 46 69 53 47 Clothing 7 7 9 5 5 NA Wool 31 22 15 23 22 NA Yarns - - - - - NA Fabrics 19 22 7 3 - NA Clothing 39 24 21 29 27 NA Synthetic fibers 20 12 13 16 13 NA Yarns 0 0 - - - NA Fabrics 1 3 2 1 0 NA Clothing 29 17 18 24 19 NA SOURCE: Incomex, unpublished tabulations ANNEX 3 - 125 - T-3.15 Page 4 Utilization of U.S. Textile Quotas by Category, 1978/79 - 1980/81 (percent) Quota_teg)ry Description 1978/79 1979/8C, 1980/81 Cotton 300-301 Yarns 57 0 1 310 Scottish, combed 75 81 93 312 Corduroy 97 41 42 313 Sheeting 70 45 56 314 Poplin Shirting NA NA 12 317 Drills, Serge, Satins 83 54 49 320 Other fabrics 56 78 25 369 Sewing thread NA NA 21 Wool 410 Fabrics 5 0 NA 464 Fantisies and misc. 0 - NA 469 Other woolen manufactues 4 15 NA Synthetic fibers 612 Other fabrics 0 0 NA - 627 Special fabrics - 1 NA SOURCE: Incomex, unpublished tabulation - 126 - _ ANNEX 3 T-3.15 Page 5 Exports of cotton textiles to the United States, by firms, 1980-81 Firm Million Square Yards Percent Tejicondor 9.3 47 Fabricato 3.8 19 - Unica 3.4 17 Coltejer 3.1 16 Satexco 0.2 1 Others - - Total 19.8 100 SOURCE: ANDI, unpublished data ANNEX 3 - 127 - T-3.16 Page 1 Exports of Textiles by Coltejer, by Destination, Product and Fiber Jan. - July Destination 1978 1979 1980 1980 1981 (percent) E.E.C. 37.8 45.2 41.1 43.6 19.5 Germany, Fed. Rep. 16.1 15.9 14.9 15.0 7.1 United Kingdom 10.5 5.3 5.0 4.3 -- 4.0 Italy 5.4 14.2 1.1.4 13.9 3.5 Belgium 1.6, 0.3 0.1 0.1 - Ireland 1.5 2.2 2.2 2.2 0.9 Denmark 1.3 1.2 0.6 0.7 0.9 Netherlands 1.0 4.4 4.7 5.0 2.8 France 0.4 1.7 2.2 2.4 0.3 Other Europe 13.0 11.2 8.3 9.5 8.0 Finland 6.4 4.6 4.4 5.5 1.4 Sweden 5.0 4.4 0.8 1.3 0.7 Poland 0.2 - 0.4 - 5.0 Other (Switz., Austria, 1.4 2.2 2.7 2.7 0.9 Norway, N. Ireland, E. Europe, etc.) North America 30.9 16.5 L4.9 16.2 24.1 U.S.A. 21.5 6.3 4.8 5.5 6.0 Canada 9.4 10.2 10.1 10.7 18.1 Andean Group- 5.8 2.6 4.3 3.5 2.3 Venezuela 4.3 0.5 0.7 0.5 1.1 Ecuador 1.4 1.2 2.8 1.7 1.0 Peru - 0.9 0.8 1.3 0.2 Bolivia 0.1 - - - - 128 -ANNEX 3 Page 2 Jan. - July Destination 1978 1979 1980 1980 1981. (percent) Other Latin America 12.3 22.6 30.0 26.6 44.2 Chile 7.4 7.4 11.9 14.9 15.2 Puerto Rico 1.5 0.6 1.1 1.5 2.4 Panama 1.0 5.1 9.2 3.7 9.7 Haiti 1.0 0.2 0.4 0.7 0.9 Argentina 0.0 7.2 3.5 2.6 9.7 Uruguay 0.1 0.3 0.3 4.4 Other (Brazil, Hon- duras, Dom. Rep. etc) 1.4 2.0 3.6 2.9 1.9 Other (Israel) 0.2 1.0 1.1 0.7 1.8 TOTAL 100.0 100.0 100.0 100.0 100.0 Value of exports (US$millions) Yarns (cotton only) 13.9 16.2 15.0 7.7 5.9 Fabrics 19.8 30.3 31.0 16.5 16.0 Cotton 17.2 23.2 22.6 12.2 11.1 Synthetics 2.6 7.1 8.4 4.3 4.9 TOTAL exports of 33.7 46.5 46.1 . 24.3 21.9 COLTEJER SOURCE: Coltejer - 129 - Export of Colombian Textiles by Destination (percent) 1970 1976 E.E.C. 13 42 U.S.A 29 13 Canada 23 7 Central America and Caribbean 17 9 Socialist Countries 2 .5 Andean Group 10 4 Other 6 15 TOTAL 100 100 SOURCE: DNP, "La Industria Textil" Revista de Planeacion Desarrollo, May-Aug. 1979, p. 120 ANNEX 3 - 130 - T-3.16 Page ' Volume of Exports of Fabrics by Firms Millions of Square Meters Distribution (Z) Annual Change 1979 1980 1979 1980 Firm A 31.0 22.5 -27 38 32 Firm B 21.0 16.5 -21 26 23 Firm C 10.0 10.2 2 12 15 Others 19.0 21.2 12 23 30 Total Exports of Fabric 81.0 70.4 -13 100 100 SOURCE: Annual Reports and unpublished information of textile manufacturers. - 131 NNNEX 3 T-3. 16 Page 5- Export: of Textiles to all Destinations by Three Largest Firms By Product - 1978 - 1980 Product and Firm 1978 1979 1980 1978 1979 1980 (thousands of tons) Ifpercent) Yarns 8.3 -7.6 '6.5 100 100 100 Firm A 4.9 4.5 3.6 59 59 56 Firm B 3.2 3.1 2.7 39 41 41 Firm C 0.2 0.0 0.2 2 0 3 (millions of linear yards) (percent) Fabrics 47.9 53.5 38.6 100 100 100 Firm A 21.0 25.3 18.2 44 47 47 Firm B 18.2 17.6 13.0 38 33 34 F'irm C 8.7 10.6 7.4 18 20 19 SOURCE: INCONEX, unpublished data NominYal and Effective Incentives to Industrial Exports, 1967-1980 (Morawetz data updated) a/ 1967 19681 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Nominal value of CAT as % of value of esports bt 15 15 15 15 15 15 15 15 5 5 8 12 12 12 Discount if CAT is seld in stock market when received, as % of value of CAT. 19.9 11.0 9.5 7.1 5.8 4.4 5.1 5.6 3.0 2.5 3.8 5.7 10.7 13.0 Average Tax Rate on corporate profits (%) 12.5 12.5 12.5 12.5 12:5 12.5 12.5 20 20 20 20 20 20 20 Percent of value of exports that may be financed by PROEXPO credit - - - - - - 80 80 80 80 80 80 80 80 Rate of interest on I PROEXPO credit (% p.a.) - - - - - - 18 18 18 18 15.1 13 17 19 Market rate of interest (% p.a.) 18 18 15 14 15 17 20 23 23 25 28 27 36 45 Effective value of CAT as % of value of exports d/ 14.2 15.5 15.7 16.1 16,3 16.5 16.4 17.9 6.1 6.1 9.7 14.3 13.7 13.4 Effective subsidy implicit in PROEXPO credit, as 2 of value of exports d/ - - - - - - 0.7 1.6 1.6 2.3 4.1 4.5 5.8 7.5 F' TOTAL EFFECTIVE SUBSIDY TO INDUSTRIAL EXPORTS (CAT & PROEXPO CREDIT) as percent of value of exports 14.2 15.5 15.7 16.1 16.3 16.5 17.0 19.6 7.7 8.4 13.8 18.9 19.5 20.9 a/ The incentives are calculated for limited liability companies that do not use the Vallejo Plan. For data on public companies and firms that use the Vallejo Plan, see Morawetz, David "Why The Emperor's New Clothes Are not Made in Colombia" table 2. b/ From 1974 onward, firms using the Vallejo Plan have received the CAT on domestic value added only. CAT rates were differentiated by product in 1975. The rates have been: 1975 - 5%, 7%; 1976 - 5%, 8%; 1977-79 - 5%, 9%, 12%; 1980-81 - 5%, 9%, 12%. There was also a rate of 0.1% during 1975-1979. c/ the rate ot interest implicit in che CAT. d/ For the formulas used to calculate these effective subsidies, see Morawetz (1981, Appendix B). SOURCES: CAT: Government of Colombia, Decree Laws Nos. 444 of 1967; 2004 of 1974; 2091 of 1976; 2227, 2990 and 2291 of 1977; and 2067 of 1978. Also, DNP, unpublished data. Discount on CAT: Teigeiro and Elson (1973); Cordona (1977); and Bolsa de Bogota, unpublislhed data. Tax rate on corporate profits: Perry (1977). PROEXPO credit: PROEXPO, unptublished data. Rate of interest on PROEXPO credit: Resolutions of the Junta Monetaria No. 59 of 1972 and No. 34 of 1977; and PROEXPO, unpublished data. Market rate of interest: 1967-76 - Carrizosa (1977); 1977-78 - calculations of Fedesarrollo; 1979-80 - Bolsa de Bogota, unpublished data. wIz -133- ANNEX 3 T-3. 18 Imports of Textile Machinery - 1974 '197.5 1976 1977 1978 1979 Value of Machinery Imported 1/ 2/ 23.6 21.3 23.3 38.7 47.2 68.2 Value of Textile Production 3/ 23.8 23.3 34.2 43.6 52.7 66.6 Exchange 4/ 26.3 31.4 35.0 37.0 39.5 42.9 Value of Textile Production 5/ 904.0 758.0) 977.0 1178.0 1334.0 1552.0 Machinery Imports as % of Sales 2.6 2.8 2.4 3.3 3.5 4.3 1/ US$ million 2/ Taken as 70%, of the total machinery for textilex, garments and shoes (DANE) 3/ Col$ billion 4/ Peso/US$ 5/ US$ million SOURCE: ANDI - La Economia Colombiana, 1970-1979 ANNEX 3 - 134 - T-3, 19 Current Capital Investment (in million pesos) Current Fixed Investment Investment Company Assets Equity Sales Program as % of Equity Firm A 6321 3391 10798 5100 268 Firm B 1804 2572 8717 1350 52 Firm 6 139 304 806 200 70 Firm D 275 233 469 200 86 Firm G 79 98 1043 80 80 Firm F 34 72 162 157 218 SOURCE: Annual Report and unpublished data of textile manufacturers. - 135 - ANNEX 3~ T-3, 20 Investments in Textile Machinery 1/ Investment in New Textile Machinery 2/ USA Colombia 3/ 1977 1978 1979 1977 1.978 1979 1,019 1,218 1,275 39 47 68 Mill Consumption 4/ 5,530 5,632 5,805 140 123 142 Col$ per Ton 184 216 220 140 445 478 1/ US$ million 2/ Production plus imports, less exports 3/ Taken as 70% of the total machinery importecL for textiles, garments and shoes (DANE) 4/ TMT of fibers SOURCE: DANE & US Association of Textile Manufacturers. - 136 - AINEX 3 T-3. 21 Estimated Production Capacity and Sales of Synthetic Fibers 1/ Acetate Nylon Nylon Polyester Polyester Company TY 2/ IT 3/ TY TY S Total Sales Capacity Firm H - - - 0.8 - 0.8 1.0 Firm I - 5.5 0.9 7.2 4.9 18.5 23.0 Firm K 3.0 - 2.6 5.1 1.1 11.8 17.0 Firm L - - - 4.8 2.2 7.0 9.0 'FirmM - 5.0 - _ 5.0 5.0 Total 43.1 55.0 Synthetic fibers for textile uses only 34.6 46.5 Index 74.4 100.0 1/ 1980 in TMT 2/ Textile yarn 3/ Industrial yarn SOURCE: Annual Report of synthetic textile firms. - 137 - ANNEX 3 T-.3.22 Consump ion of Domestically Produced Textile Fibers I/ Year 1970. 1973 1979 Cotton 72.6 98.2 84.0 Wool 6.0 3.6 2.0 2/ Synthetic 12.0 23.6 43.0 Artificial 11.6 7.4 3.4 102.2 132.8 ;32.4-/ l/ TMT 2/ Partly imported 3/ In addit:ion, 2 TMT of artificial and 8 TMT of synthetic fibers were imported. SOURCE: Textile Organon and International Cotton Advisory Committee ANNEX 3 - 138 - T-3.23 Production of Synthetic Fibers- Country W. Europe U.S.A. Portugal Greece Brazil Argentina Turkey 2/ Productionr- 2381.0 3484.0 35.1 25.9 236.8 62,0 113.3. Populatio 3 330.0 218.0 9.8 9.4 119.5 26.4 43.1 kg/Capita 7.2 15.8 3.6 2.8 2.2 2.3 2.6 4' GNP/capita/- NA 9770 1940 3450 1510 2030 1250 1/ 1979 2/ TMiT 3/ Million 4/ US$ SOURCE: Textile Organon and World Bank Atlas - 139 - ANNEX 4 Page 1 of 20 The Metal-Mechanical Industries Introduction 1. Colombia's metal-mechanical industries have been the subject of repeated studies, drawing attention to that subsector's potential, which for some time has raised hopes that metal-mechanical industries would become a major source of growth. At the same time the sector promises to make particularly good use of the country's compara:ive advantages. 2. The growth expectations are based on the observation that, as an economy develops, metal-mechanical industries Lncrease their share in manu- facturing valuie added. A disproportionately fast growth of metal-mechanical industries can be observed in countries which in size and level of develop- ment are comparable to Colombia. At a per capita income of $300 (in constant 1970 dollars) the metal-mechanical industries contributed on average 15% to manufacturing value added. That proportion rises to 25% at $400 per capita income and to around 29% as per capita income (still expressed in 1970 dollars) reaches $500, which is roughly the income level Colombia has attained today. In industrialized countries the share of metal-mechanical industries rises to between 40% and 50% of manufacturing value added. Reasoning that the laws which have led to this pattern of growth are also at work in Colombia--and in the past they have been--it has then been argued that the country's metal-mechanical sector should experience accelerated growth. 3. That argument is reinforced by the further observation that many metal-mechanical industries are particularly suited for Colombia. In many cases they are not severely handicapped by the limited size of the Colombian markets, since the efficient scale of their operations is relatively small and costs are not notably higher in smaller plants than in larger one. In such industries Colombia could use its relatively abundant skilled labor to maximum advantage and become an internationally competitive supplier. 4. There have been periods when Colombia seemed to fulfill the expec- tations placed in its metal-mechanical industries. Between 1967 and 1975 for instance, a period of rapid economic growth, they were able to increase their share of manufacturing value added from 13.3% t:o 18.4%. Seen in a more long-term perspective, however, the industry has fallen short of its poten- tial. By 1979, the share of metal-mechanical :industries had fallen back to 17.6% of manufacturing value added, and it is estimated that the share has contracted further to 16.4% in 1980. This compares with a 29% share for a sample of other medium-sized countries at the same level of development. No other country in the sample had a lesser developed metal-mechanical industry than Colombia. 5. The purpose of this paper is to assess the present state of the industry and to examine what factors are holding back its development. It will then identify those parts of the industry with the best growth prospects and point to a number of measures which would help realize the industry's potential. - 140 - ANNEX 4 Page 2 of 20 What are Metal-Mechanical Industries 6. The metal-mechanical sector embraces all enterprises which transform metal. As such, it contains a mixed bag of widely disparate industries. Following the "International Standard Industrial Classification" (ISIC), the sector is broken down into seven broad categories: ISIC Number 371 Basic Iron and Steel 372 Basic Non-Ferrous Metals (insignificant in Colombia) 381 General Fabricated Metals, a catch-all for metal products which do not contain moving parts, i.e. are not classified as machinery. (The most important example are metal structures.) 382 Non-Electric Machinery 383 Electric Machinery, Appliances and Supplies 384 Transport Equipment (mainly automobile industry). 385 Professional and Scientific Equipment (insignificant in Colombia) 7. Basic iron and steel is the sector's most homogeneous part containing a few large enterprises such as the country's one integrated steelplant (Paz del Rio), its six semi-integrated steel mills and a few smaller foundries and rolling mills. Transport equipment is made principally by the three automobile assemblers (Renault, GM and Fiat), but there are also a number of medium and small firms producing truck and bus bodies and assembling small airplanes. The other three large categories--metal products, non-electrical and electrical machinery--contain thousands of enterprises of all sizes producing anything from refrigerators to steel bridges and picture frames. Development of Metal-Mechanical Industries 8. Table 4.1 shows the industry's development since 1953. Initially, metal products, such as structures, metal furniture, and simple tools were its most important components. At that time, the industry was still very small, contributing only 5.6% to manufacturing value added. Five years later, however, the metal-mechanical sector had already surpassed such others as non-metallic minerals (mainly cement and other construction minerals), chemicals, leather, wood and paper. By 1975, metal-mechanical industries had become one of the most important manufacturing subsectors, ranking only behind food (including beverages and tobacco) and catching up with textiles and garments. 9. Within the metal-mechanical sector, basic metals and non-electrical machinery were the least developed industries in 1953, and they have grovn fastest since then. Nevertheless, metal products and transport equipment industries, which were by far the most important back in 1953, continued to be the sector's largest industries during the early 1980s. 10. The outstanding development in Colombia's metal-mechanical industries during the last decade was the emergence of the automobile industry. In 1970, transport equipment was only a minor subsector, ranking Table 4.1: Structure of Colombiani Nanufacturing Industry (% distribution of gross valuzc added) Sector 1953 1958 1963 1967 1971 1975 1976 1977 1978 1979 1980 Food, Beverage, Tobacco 44.7 37.9 33.0 34.7 30.3 29.9 29.0 26.5 27.2 29.8 29.9 Metal-Mechanical 5.6 10.2 14.0 13.3 15.4 18.0 1 16.4 17.9 19.0 17.5 15.9 - basic metals 0.5 2.2 2.7 1.4 2.7 3.2 4.0 3.4 4.1 3.4 3.6 - metal products 2.0 2.8 4.5 4.7 4.4 4.5 3.6 4.6 4.1 4.2 3.6 - non-electric machinery 0.5 0.8 1.1 1.2 2.9 2.3 2.3 2.2 2.2 2.2 1.7 - electrical machinery 0.7 2.0 3.2 3.3 2.8 2.4 2.8 2.9 3.4 3.0 3.4 - transport equipment 1.9 2.4 2.5 2.7 2.6 5.6 3.8 4.6 4.7 4.6 3.6 Textile, Clothing, Footwear 24.5 22.0 18.7 17.4 21.7 16.0 18.2 18.2 18.5 17.4 15.3 Chemicals 15.9 9.0 10.0 13.2 10.7 12.7 11.8 10.9 11.9 11.9 12.1 Leather, Wood, Furniture, Paper 7.7 7.8 8.6 8.7 8.4 8.3 7.8 9.5 8.6 7.9 7.8 Oil and Coal Derivates 1.7 3.3 2.9 3.6 3.6 4.9 6.7 7.4 4.4 5.7 11.1 Non-metallic Mineral Products 6.6 5.6 6.1 3.8 5.7 5.5 5.4 4.4 5.4 5.0 4.9 Rubber Products 2.4 2.4 3.4 2.6 1.7 2.0 1.9 2.2 1.7 1.9 1.6 Other 1.1 1.9 2.3 2.7 2.5 2.7 2.4 3.0 3.3 2.9 1.4 TOTAL 100 100 100 100 100 1n0 10 10nn 100 1 00 inn-O Sources:. UN, The Growth of IJorld Industry (1953-1967) DANE, Encuesta Industrial Manufacturera 1978 (1971-78) DANE, Industria Manufacturera, 1979, 1980. - 142 - ANNEX 4 Page 4 of 20 well behind general fabricated metals, non-electrical machinery, basic metals, and somewhat behind electrical applicances. By 1979 however, transport equipment--90% of which is automobile assembly--occupied the first place among the metal-mechanical industries. It contributed 26% of the value added of metal industries and 6% of manufacturing value added as a whole. During the 1970s, the average growth rate of the transport equipment subsector was 27%. 11. Other strong performers, though not quite on the scale of the transport equipment industry, were the manufacturers of electrical equipment, whose value added increased by 20% on average during the 1970s. As a result, their share in metal industry value added rose from 13% in 1970 to 18% in 1979. The most important parts of that subsector were the producers of elec- trical machinery for industrial use (their value added increased nearly eightfold in constant terms between 1970 and 1979) and of radios, telephones and TV sets (sixfold increase of value added). Electrical appliance manufac- turers grew even faster (twelvefold increase), but their value added is still less than half the size of that of any of the other two industries. 12. The other subsectors of the metal-mechanical industries were growing at less than the industry average of 15% during the 1970s. As can be seen from Table 4.2, value added of non-electrical machinery expanded at 14% p.a. during the decade. Basic iron and steel industries and fabricated metal industries grew by 10% on average. Basic non-ferrous metal industries and the scientific equipment industry are still so small (only 2% and 1% of metal industry value added, respectively) that they have not been included in this comparison. Metal-Mechanical Industries and their Role in the Structure of Manufacturing 13. As was to be expected, metal-mechanical industries grew consider- ably faster during the last decade than the manufacturing sector as a whole (15% annual growth of value added vs. 10%). But a closer look reveals two distinct periods of development. The first, from 1970 to 1974, was a time of accelerated growth. Total manufacturing value added expanded by 13% annually while metal mechanical industries spurted ahead at 22%. After 1974, the growth of both, manufacturing in general (average rate 1975-79: 7%) and of metal industries in particular (8%) slowed down. 14. Preliminary figures for 1980 and the first semester of 1981 indi- cate that the situation has worsened. Manufacturing value added contracted in 1980 and in 1981. At the same time, metal industries are suffering an. even sharper recession than manufacturing as a whole. During the last ten years, the "law of expanding share of metal industries" has operated at times of accelerated growth. It came to a standstill when growth was moderate and, based on as yet unconfirmed recent figures, the share of metal industry value added seemed actually to contract at the time of negative growth for the sector as a whole. 15. The significance of these developments lies in the nature of metal- mechanical industries which, in most cases, manufacture intermediate or Table 4.2: Value Added At Constant 1970 Ptices (tlhousands) ISIC - Growth Rate No. Subsector 1970 1974 1975 1976 1977 1978 1979 1970-79 *371 Basic Iron and Steel 472.2 907.8 873.7 1.077.5 1.278.0 1.355.9 1.108.1 10% 372 Non-Ferrous Mletals 169.4 161.4 124.4 407.6 253.8 244.5 225.8 4% 381 General Fabricated Metals 909.5 1.444.7 1.444.3 1.332.1 1.914.5 1.866.4 2.177.3 10% 382 Non-Electric Machinery 573.3 1.051.6 1.035.6 1.236.4 1.398.9 1.581.2 1.909.2 14% 383 Electric Machinery 361.4 937.8 841.8 1.140.5 1.414.1 1.803.0 1.S04.5 20% 384 Transport Equipment 304.1 1.770.5 2.166,3 1.456.4 1.954.8 2.193.1 2.568.6 27% - 385 Scientific Equipment 32.9 80.4 176.6 198.0 147.2 244.7 135.6 17% Sub-Total NIetal-Mechanical Industries 2.822.8 6.354.2 6.662.7 6.848.5 8.361..6 9.288.8 9.929.1 15% TOTAL Manufacturing Sector 19.027.0 31.293.0 31.128.7 33.686.8 37.021.6 40.559.4 43.820.8 10% Source: DANE - "Industria Manufacturera" 1970 (for 1970 data), 1978 and 1979, deflated using Banco de la Repuiblica sectoral wliolesa]e price indices. orq (D * j U,M -S_ 0 Ch - 144 - ANNEX 4 Page 6 of 20 capital goods. As a country develops, the share of metal-mechanical industries in manufacturing rises; this however, is not so much because the market consumes proportionately more metal. Consumption of other materials such as oil-based products (plastics, paints, etc.) and paper probably grows more rapidly than that of metal products. The reason is rather that most metal industries produce goods which in turn are used by other industries. 16. The process of industrialization usually begins with the manufacture of consumer goods. Intermediate and capital goods are initially imported. Not too many consumer goods are made of metal, and those which are tend to be more sophisticated (cars, appliances) are imported. Hence, the low importance of metal industries in early phases of development. 17. As development progresses, a process of "structural deepening" sets in. Industry no longer concentrates on consumer goods (i.e. its structure is "flat") but dedicates itself more and more to intermediate goods (iron sheets and profiles, screws, automobile components, etc.) and capital goods (machines, structures, etc.) The more links in the chain from raw material to finished goods can be applied by a country, the "deeper" that country's industrial structure becomes. Metal industries dominate in intermediate and (particularly) in capital goods industries which explains why they grow in importance as industry's structure deepens. 18. If, as is the case in Colombia, the share of metal industries in manufacturing remains constant or even declines, that event is more significant than would be the mere lack of dynamism of a major sector. It: may indicate that the structure of that industry has stopped developing. Employment Impact 19. Metal-mechanical industries are an important source of employment (Table 4.3). In 1970, the sector occupied 68,500 people. Nine years later that figure had risen to 112,900. The increase of 44,400 represented one quarter of all new jobs created in manufacturing industry during that time. The sector is relatively labor intensive, accounting for 22% of manufacturing employment in 1979, compared to its 17.4% share in manufacturing value added. Within the sector, general fabricated metals and non-electric machinery are especially labor intensive. By comparison, basic iron and transport equipment are the capital intensive industries. 20. The sector's labor intensity is further illustrated by the low investment cost per job. Each of the 17,500 jobs created in metal-mechanical industries between 1975 and 1979 required an investment of Col$236,300 (in 1970 Pesos). The corresponding investment required for the 42,400 jobs created in the rest of the manufacturing sector was Col$447,000 (again 1970 Pesos). The combination of fast growth potential in the sector with high labor intensity--and low investment per new job--means that metal-mechanical industries will have to play a major role in finding productive employmeni: for the rapidly growing labor force. 21. In terms of employment creation, as in terms of growth of value added, the last decade was divided into two phases. During the first, from - 145 - ANNEX 4 Page 7 of 20 1970 to 1974, t:he metal-mechanical sector provided 23,700 new jobs or 5,625 jobs annually. From 1975 to 1979 the rate of new jobs created slowed down to an annual average of 4,140. Preliminary figures indicate that in 1980 and duing the first. semester of 1981 employment in the sector fell. Table 4.3: EMPLOYMENT IN METAL-MECH1ANICAL INDUSTRIES (thousands) Subsector 1970 1974 1975 1976 1977 1978 1979 371 Basic Iron. and Steel 11.4 13.0 13.7 13.8 14.1 13.9 13.4 372 Non-Ferrous Metals 1.6 2.2 2.4 2.8 2.9 2.9 2.6 381 General Fabricated Metals 23.5 29.6 28.9 28.5 29.9 33.1 34.7 382 Non-Electric Machinery 12.5 15.2 14.4 15.3 16.8 15.7 16.4 383 Electric Machinery 8.4 13.1 13.0 14.6 17.5 18.1 18.3 384 Transport Equipment 9.8 17.0 18.5 19.4 21.3 22.7 25.1 385 Scientific Equipment 1.3 2.1 2.7 2.4 2.6 2.7 2.4 Sub-Total Metal-Mechanical Industries 68.5 92.2 95..4 98.1 104.7 109.1 112.9 TOTAL Manufacturing Sector 338.8 448.1 456.,8 462.9 479.7 .500.6 516.7 Source: DANE - "Industria Manufacturera," 1978 (for 1970 data) and 1979. Causes for Slow Growth 22. A review of the sector's development shows that Colombia's metal-mechanical industries have reamined far behind their potential. In other countries of Colombia's size and per capita income, these industries contribute around 30% of manufacturing value added whereas in Colombia their contribution is less than 17%. The following section analyzes some of the causes which have retarded the sector's development. This analys:is is not primarily concerned with business cycles which affect all sectors of the economy. Rather it concentrates on those factors which appear to be specific to the metal-mechanical sector's development in Colombia. (a) Negative Protection 23. Colom'bian customs laws are designed to protect national industries, but they often discriminate against producers of capital goods. One reason is that the law was not adopted to the gradual emergence of capital goods industries in Colombia. There is a long tradition of industrialization based on import substitution, but most of this took place in consumer goods indus- tries. Moreover, the Government has tended to regard imports of capital goods as the most beneficial kinds of imports. When, in the wake of the coffee boom, imports were liberalized to combat inflation, the tariff on most capital goods was lowered to 5%. Duties on Capital goods imports by the mining and petroleum industries were abolished altogether. - 146 - ANNEX 4 Page 8 of 20 24. Even where nominal tariffs remain high, the effective tariff on capital goods is often lowered through the system of "global licenses," under which a general usually low tariff is applied to all components of an investment project. The benefits of that system are undoubted, but it hardly constitutes an incentive for the local capital goods industry to develop. This analysis does not attempt to pass judgement on the various tariff-lowering measures introduced over the last 14 years. It merely observes that they have resulted in much lower protection for capital goods than for consumer or intermediate goods. The Government simply seems to have assumed that capital goods tend to be imported. 25. Low nominal protection combined with relatively high tariffs ar, inputs often have resulted in negative effective protection for capital goods industries. Producers have to import components on which duties were levied, whereas they have to compete with imported final products on which little or no duties were paid. Agricultural machinery for instance, which is an important product of the metal-mechanical industry, has a negative effect-ve protection of 20%. The effective protection for equipment imports by the mining industry (which includes cement) is -21%, and for the petroleum industry it is -23%. Many types of metal-working machinery have negative effective protection. 26. Purchases by the Government and public agencies are exempt from import duties, which results in negative effective protection for a substan- tial part of capital goods used in public projects. For electrical equipment, such as controls and transformers bought by government agencies, the effective protection is -26% and -31% respectively. For telephone equipment, another area where the Government constitutes the bulk of the market, effective protection on Government purchases fluctuates between -L2% (for telephones) and -26% (for switchboards). (b) Lack of Financing 27. Financing offered by a supplier to a purchaser of capital goods is a most decisive factor in the buying decision. Foreign products sold in Colombia are particularly favored in this regard, since they are frequentLy supported by subsidized exports credits. Colombian manufacturers, by contrast, far from being able to offer generous financing terms to their clients, found themselves suffering under a severe credit squeeze in the :Late 1970s and early 1980s. As a result, sales were lost to imports, even in cases where the domestic product would have been cheaper. Colombian firms who sucessfully sold their products in foreign markets--where they are supported by PROEXPO credits--had difficulties in competing in the domestic market, because they were unable to finance their sales. In one case, a major producer of capital goods had set up a subsidiary in Venezuela, from which he supplied the Colombian market with the help of Venezuelan export credits, while the firm's Colombian production facilitates concentrate OII exports. The survey of a sample of metal-mechanical industries establis;hed clearly that lack of sales financing is regarded as the single most imporltant obstacle to more rapid development. - 147 - ANNEX 4 Page 9 of 20 28. While there have been attempts in thes past to provide sales financing to Colombian producers of capital goods. Producers who were aware of these attempts at all, coincided in that thes amounts were insignificant compared to the needs and that the procedures involved were inordinately complicated. This situation was ameliorated in early 1982, when the government provided a more generous line of credit at below market interest rates. (c) Government purchasing policies 29. Purchases by the Government and its agencies are estimated to equal about 15% of t:he value of Colombian industrial production. For some products, such as electrical and telecommunications equipment, road maintenance and railroad equipment, the Government holds a virtual monopoly. For others, suich as office equipment or steel structures, it constitutes a significant part of the market. The Governmen:, through its purchases, could therefore become an important factor in stimulating the development of a capital goods industry. This potential was not being used. On the contrary, many enterprises found a bias againsl local suppliers on the part of the Government. 30. This bias manifested itself in various ways. For one, Colombian firms were usually not large enough to handle major projects by themselves, even though they could well do so if a large po:oject were broken down into components. For reasons of administrative simplicity, however, government agencies prefer to deal with one supplier or contractor, which has removed Colombian firms from competition for large contracts. In 1981, it was estimated that only 15% of purchases under the PIN were from domestic sources. 31. The building of transmission lines presented a good example of this dilemma. There are a number of Colombian firms with relevant experience but none of them is big enough to handle a major contract. Theoretically, it should not be difficult to involve local suppl:iers in the construction of a transmission line, be it by dividing the contract or by encouraging association between foreign and local firms. Cn practice, involvement of Colombian firms in the major transmission lines has been minimal. Apart from their size, the firms cited other disadvantages vs. their foreign competitors: they could not offer financing; their designs were heavier and therefore more expensive since they must use locally produced angles which are only available in a limited number of gauges; and, finally, the local price of angles was more than two times as high as the international price. 32. Another obstacle for local suppliers was the uneven flow of public purchases, Producers of steel structures, for instance, who can adjust their capacity relatively easily, asserted that they could attend to even very large orders, if they were given enough advance notice to allow them to gear up their plants and particularly, if they were assured of a more or less constant flow of work. As it is, government agencies tended to allow too little time for deliverly, and they place their orders in a stop-and-go fashion. Very large orders were placed in one year, none during the 148 - ANNEX 4 Page 10 of 20 following, and again very large orders in the third. Local producers are reluctant to gear up for the first order, since they would be left idle in the second year. As a result, most of the requirements are imported even though local firms would be technically capable of supplying them. 33. An interesting example of the impact of stop-go purchasing policies is provided by the four largest producers of metal structures in Bogota, who were interviewed by the mission. These firms sell over 50% of their production to the Government and its agencies. The raw material they use is provided either by the Paz del Rio steelworks in which case it doesn't meet the quality requirements of projects like the Cerro Matoso Nickel refinery or of oil refineries (these require quality according to norm A36 as compared to "commercial" quality supplied by Paz del Rio). 34. The local producers reliance on labor intensive production methods combined,with the higher cost of raw materials, did not allow them to compete with imports. Modern automated machinery would cut costs by up to 30%, making the local producers competitive, but the firms shied away from the necessary investment, since they were then to become more vulnerable to fluctuation in sales. They were thus caught in a vicious circle: they could not compete against imports because their costs were too high; on the other hand, they were reluctant to make the investments which would lower costs because they are not assured of an even flow of orders from the Government. 35. As has been stated before, the Government did not pay duties on its purchases. The companies therefore operated in an unprotected market arLd because of duties on raw materials, their effective protection is negative. They, nonetheless, stated unanimously that if the Government wants to assist them, they would prefer a more predictable and even flow of orders than increased protection. Export related problems 36. In general, metal-mechanical enterprises in Colombia employ technologies which do not offer significant economies of scale. They prefer labor intensive production methods which allow them to expand or contract: with the market. The industry was therefore not pushed into exports by the need of achieving more efficient scales of production. In many firms exports were made when opportunities offered themselves, but were thenabandoned either because the Peso revaluation since 1975 made them uncompetitive, or because recessions in Venezuela and Peru cut off the market. The firms iin question appeared to weather these fluctuations in exports without undue problems. Agricultural machinery is a typical product in this category., 37. More recently, a different type of metal-mechanical enterprise has begun to appear, which employs more complicated technology and which therefore, depends more on economies of scale. An outstanding example is provided by a producer of axles for automobiles. That firm is capital intensive and closely integrated with both suppliers of inputs and buyers of its products in other Latin American countries. Development of the metal-mechanical industry will necessarily lead to higher technification and - 149 - ANNEX 4 Page 11 of 20 more capital intensive production methods. As this happens, the limited size of the domestic market will become more of an obstacle than it has been and companies will increasingly look for export opportunities. 38. A number of obstacles are placed in the way of such companies. Revaluation of the Peso has already been mentioned. The Peso was heavily overvalued before 1967. The exchange rate was then favorable for exporters, until it was allowed to revalue again after 1974. Lately, the pace of devaluation has again accelerated. In this the absolute level of the Peso seems--within reasonable limits--to be less important than the constant change from tinder-to overvaluation and the resulting uncertainty for exporters. Entrepreneurs will be reluctant to invest heavily in export oriented projjects if they must fear that exchange rate fluctuations will price them out of the market. 39. Insufficient transport facilities present another serious difficulty in Colombia. Roads and railways are critically deficient and the country's industries, which are concentrated in the interior, face high transport costs borth for imported components and for exports. 40. More important than transport difficulties are, in the opinion of many companies, the barriers erected by inefficiencies in customs, ports, and sea transport:. Recent reforms are said to have eliminated some of the worst features of the customs system; nonetheless, goods are still delayed for weeks and companies report serious problmes wLth inefficiency and corrup- tion. The inefficiency of Puertos de Colombia, the public company admin- istering the parts, is legendary and, in the opinion of many of those inter- viewed, it is becoming worse. Shipments are Lost or damaged as a matter of course and pilferage as well as corruption is endemic in Colombia's ports. 41. Finally, the Flota Mercante Grancolombiana (FMG), the country's shipping line, has a monopoly on carrying goodls to Colombia. For importers, this means long delays because of infrequent seilings and high costs because of lack of competition. Exporters, who are not subject to the same restric- tion, nonetheless report similar problems. Fl4G's monopoly on imports means that it is uneconomic for most foreign ships lo call on Colombian ports, which gives the Colombian shipping line a de-facto monopoly on exports as well. A manufacturer of tractor-trailers, for instance, exports his trailers by land to Peru, a 15 day trip for which three separate tractors are required (one each in Colombia, Ecuador and Peru). Nonetheless, the cost is half that of exporting the trailers by ship. In another instance an exporter alleged that his freight costs for exports to Chile are higher than those of his European competitors. 42. The three factors, customs, ports and shipping interact, and it is hard to quantify the impact of each one of them. But there is little doubt that together they constitute a heavy burden on Colombian enterprises which are engaged in international trade. The Government is attempting, at great expense, to improve the transport network. It: seems that the other three factors constitute at least as large, if not a larger obstacle to Colombian exports, than does deficient land transport. Since this obstacle is mostly administrative rather than physical, it could be removed at a cDmparatively low cost. -150 - ANNEX 4 Page 12 of 20 Policies to Stimulate Metal-Mechanical Industries 43. To stimulate metal-mechanical industry does not mean to aritificially push a sector which, could not develop and maintain itself in the long run. Colombian metal-mechanical industries have grown far below their potential. A good part of this shortfall could be made up, if some of the factors which have held the industry back are removed. Because there is pent up potential for growth, it is probably easier and less expensive to achieve this growth than it would be in most other parts of the economy where conditions are less favorable. 44. The capacity of metal-mechanical industries to create employment in its last spurt of growth between 1968 and 1974 (the sector added more than 10% to the entire industrial labor force) adds particular weight to the arguments for allowing metal-mechanical industries to develop. Industry will have to bear continuous responsibility of creating productive employment for the rapidly expanding labor force; within industry the metal-mechanical sector offers the best prospects in this regard. Types of Enterprises 45. Not all parts of metal-mechanical industries are equally well suited for Colombia. The sector's particular advantage is the moderate cost of skilled mostly unorganized labor, which, combined with labor intensive production methods, would make many products internationally competitive. There are also some capital intensive products which may be economic to produce in Colombia. These would be bulky low-value items, such as reinforcing bars where transport costs provide high natural protection. On the other hand, there are metal products in which Colombia cannot compete. These typically require capital intensive production methods which, in turn, call for large scales of production. (a) The Automobile Industry 46. Paradoxically, the most rapidly growing subsectors of the sector during the last decade, the automobile industry, is an outstanding example of a questionable development. Protection made rapid growth possible, but because of small scales of production--in 12 months, 38,700 units of all sizes were produced--costs are prohibitively high. 47. Under the Andean automotive program, Colombia has been assignecd exclusive rights to produce cars up to 1050 cc (Category "A-1" in the jargon of the Andean Market). It shares with Ecuador rights to produce automobiles of the 1050-1500 cc category ("A-2"). Both these types have been assigned by the Government to Renault. 48. The automotive program recognizes the advantages of economies cf scale, which is why it assigns rights to produce certain vehicle types for the entire market among its members. The idea is that it will be economic for Colombia to produce, say, A-1 vehicles for all five member countries., In reality this will not be the case for a long time. Total demand in the - 151 - AINNEX 4 Patge 13 of 20 Andean Market for A-1 size cars is expected to reach 25,000 unit:s by 1985. To be anywhere near economic, a factory would have to produce at: least four times as many units; with the trend towards automation in the industry, it is quite possible that in a few years the minimum economic scale will be raised again. 49. Demand for the A-2 model is projected to reach 85,000 units by the middle of this decade which would bring economic scales of production within closer reach. But the A-2 category is shared 'between Colombia aLnd Ecuador, with each courntry producing a different type. 50. Economies of scale are less crucial in the production of trucks. Colombia has been assigned trucks in the range of 9.3-17 tons (category B-3) for which dematnd is projected to reach 57,000 units by 1985. Bu.t again production is divided, in this case among three countries, Colombia, Peru and Venezuela. 51. The fourth vehicle category assigned to Colombia, that for four- wheel drive jeeps again is less sensitive to economies of scale (projected demand by 1985: 42,000) but again it is shared with another country, Venezuela. Ironically the Government has not yet selected a manufacturer for the two categories--B3 and the jeep--which would be least uneconomic to build in Colombia. 52. Colombia cannot, in the foreseeable iuture, become a competitive manufacturer of automobiles, which now constitute the backbone of the trans- port equipment industry. Exports to non-Andeant countries are therefore out of the questions, and the Andean market on its own will not allow vigorous growth of the industry. The automobile industry's secondary effects on suppliers are often cited as justification for the industry, despite its problematic economics. These effects are indeed visible in many metal- mechanical enterprises (see section on autopart.s industry) and t'heir positive impact is undoubted. But they could be achieved in the same way through the manufacture of trucks or jeeps, where the outlook is less bleak. In summary, the automobile industry will not be, and indeed, ought not to be a significant source of growth for the metal-mechanical sector. Steel 53. Colombia is a modest steel-using courtry. Total steel consumption is about 800,000 which, on a per capita basis, is comparable to Bolivia. Steel demand is divided fairly evenly between f'lats (sheets) and non-flats (bars, angles). Flats are not made in Colombia. 54. Colombia's steel industry now has the capacity to produice 535,000 of liquid stee'l which is divided between the Paz del Rio steel mLll (300,000 tons) and four semi-integrated plants (235,000 tons). Paz del Rio has the distinction of being the world's smallest integrated steel mill, and it is now being expanded to 400,000 tons. The four semis produce about 175,000 tons of finished steel--half of Colombia's total output. - 152 - ANNEX 4 Page 14 of 20 55. The Government's Indicative Plan 1/ forecasts a finished steeL demand of 1.3 million tons by 1985. To meet that demand, it calls for an expansion of capacity to 1.2 million tons finished steel. The plan's major component is an expansion of Paz del Rio to 755,000 tons finished steel. Paz del Rio would acquire a new blast furnace and 130,000 of cold rolling capacity. At the same time, the semis are to expand their capacity to 418,000 ton finished steel (equivalent to 500,000 ton liquid steel). So far, they have been using domestic scrap supplemented by small amounts (approximately 10% of their needs) of imports. But local scrap is said to be scarce and raw material shortages are being blamed for the semis' law capacity utilization. If their output were to double, large amounts of scrap would have to be imported. To avoid this, the Indicative Plan calls for construction of a 350-400,000 ton direct reduction plant by 1985. 56. The Indicative Plan's expansion program seems unrealistic in the Colombian context. From a financial viewpoint, Paz del Rio, a medium-sized private enterprise, will not be able to raise the US$1 billion required to finance the expansion, nor is the Government prepared to do so on its behalf. Economically speaking, it also is doubtful whether it makes sense to invest as large an amount in Paz del Rio. The Company's iron ore deposit is of low grade, and its high phosphorus and silica content poses quality problems. Expansion of the semi-integrated plants is a more realistic possibility, but given depressed demand and their difficult financial position, they will not reach the goal of 500,000 tons of liquid steel set by the Indicative Plan for 1985. 57. The Indicative Plan's main goal is self-sufficiency in steel. It is less concerned with the cost at which this goal can be reached. The common arguments in favor of expanding Colombia's steel industry are that the country cannot rely on the vagaries of international supply for a basic product like steel; that present low prices in international markets may not last; and that the metal-mechanical industry can only develop, if it has an assured supply of raw materials at its doorstep. 58. Critics of this suggestion would question whether it makes se-nse for Colombia to attempt self-sufficiency in an industry which is enormously expensive to build, and, once it runs, would not be able to survive without massive protection. They further point out that Venezuela, which unlike Colombia has large iron ore deposits, has difficulty finding markets for its steel industry. These critics would argue that, having a domestic source of steel, far from helping the industry, has actually retarded its development since metal-mechanical industries were tied to expensive raw materials of uncertain quality. 59. In any event, the discussion for or against a Colombian steel industry is academic. Only the Government would be able to afford the investments which are required for new steel plants. The Government, however, was fully occupied with the PIN only in 1981, and it was neither able nor willing to take on the added burden of building up a steel industry. In the absence of a concerted, Government financed development 1/ Plan Indicative de Desarrollo de la Industria Siderurgica; Ministerio de Desarrollo Economico; Bogota, 1980. - 153 - ANNEX 4 Page 15 of 20 program, the steel industry will grow slowly, and along its historic patterns. This means that basic steel will not be one of the dynamic parts of the metal-mechanical industry. Auto Parts 60. The factors which make automobile manufacture unattractive for Colombia in many cases don't apply to automobile components. The most promising products should be replacement partE or components for models which are only built in small series. The advantage in those cases is that the numbers required are not large, and they are uneconomic to manufacture for producers in developed countries who need large production runs to utilize their equipment efficiently. 61. Such components, which typically would involve casting and some machining, would thus make best use of Colombia's competitive adlvantages. Casting technology is well developed in Colombia and hundreds of foundries are in operation, mostly as part of a larger nmetal-mechanical enterprise. Modular casting has been introduced by a few of the most advanced firms. Casting, unless done on a large scale, is labour intensive and is giving Colombia a cost advantage. To a lesser degree the same is true for machining. 62. - One advantage of auto parts manufacturers is that different models, even different makes, often use identical components. This to a certain extent compensates for the small size of the Colombian automobiLe industry. Nonetheless, the domestic market is not large enough to support a fully competitive auto parts industry. Manufacturers must turn to exports if they are to realize their full potential. 63. Producers of brake drums and similar parts report thai: they have had contacts with U.S. distributors of replacement parts. Although the Colombian product was said to have been cheaper, no sales were made because the U.S. buyer doubted that Colombia could come up with a reliable supply of acceptable quality. The problem was essentially one of image, and the industry will have to overcome a considerable barrier before be:ing able to penetrate those markets. 64. A second market in which Colombia could compete are components for new cars which for some reason are not built in great numbers. These could either be parts for special vehicles or for options for which there is only a limited demand. The basic consideration here is that Colombia can produce simple castings in series of, say, 50-100,000 more economically than any U.S. manufacturer could. But the situation would be reversed if the scale reached 500,000 or more. 65. Even if comparative advantage work in Colombia's favor, other obstacles must be overcome before colombia can penetrate export markets. An important one is reliability of supply. A U.S. producer will not be willing to rely on a Colombian supplier, if an interruption of supply would paralyze his entire operation. Colombian sales would initially have to be restricted to a small percentage of the buyers' needs until the supplier's reliability has been proven. Similarly, Colombian manufacturers will have t:o establish a reputation for quality before they are fully accepted. - 154 - ANNEX 4 Page 16 of 20 66. The present size of Colombian producers does not allow them to attend to even what by the foreign buyers standards are small orders. On the other hand, they feel the risk of not being able to penetrate foreign markets is far too big to justify investing in new capacity. The problem is similar to the one experienced -by producers of metal structures: additional investment would make them competitive, but they are too uncertain of the market to risk that investment. 67. A solution to these problems would be subcontracting. In its simplest form a foreign buyer places a contract with a Colombian supplier which is sufficiently large to make it worthwhile to tool up for it. Thes contract is usually accompanied by technical know-how. More sophisticated versions can take the form of a joint venture between the buyer and a Colombian partner in which the buyer provides not only the market and technical know-how but also capital and management skills. The attraction of this form of subcontracting is that it removes both ends of the vicious circle. It assures a market and it helps finance the necessary investments. 68. PROEXPO has started a campaign to promote subcontractring between foreign buyers and Colombian producers, but at the time of the mission's visit no results had been achieved. This is not surprising, for automobile manufacturers or foreign producers of autoparts assured supply and quality are usually more important than the price of components they purchase. Before turning to Colombian suppliers they must be convinced, not only that the price is right, but also that they will get a usable product at the time when they need it. 69. When automobile manufacturers have bought components abroad, they appear usually to have done so not because the move made economic sense, but because they were compelled by agreements with foreign governments. Economics seem to have been a secondary consideration. Colombia should use its bargaining power with the three manufacturers who are represented ir the country to induce them to arrange for exports of auto parts. These forced arrangements will not, by themselves, lead to a major wave of exports but they could provide the tool with which to open up foreign markets. Once a Colombian maanufacturer can Doint to a history of supplying, for instance GM, he will find it much easier to persuade others to accept his products. 70. Development of the auto parts industry occurs in various stages. Colombia has passed the first, Establishment of a domestic automobile industry has taught local manufacturers the basics of how to make certair, parts. In the second stage, which the country faces now, the industry hals to become internationally competitive in order to widen its markets. Production methods must be improved, more attention must be paid to q-uality and the scale of production must be increased. However, the industry still concentrates on components which are relatively easy to produce and which require high labour inputs. In the third stage, which has now been reachied by Mexico and Brazil, the country then would make the transition to automated high-volume production. - 155 - ANNEX 4 Page 17 of 20 Other Metal-Mechanical Industries with Good Growth Prospects 71. Auto parts are only one metal producl where there are good growth prospects. In general, Colombia should be competitive in products with. the following characteristics: (a) A high content of castings, such as pumps, valves, electric motors, etc. (b) Products which require machining or other labor intensive forms of transforming metal. *(c) Products for which Colombia has acquired extensive know-how and where local industries are, technologically speaking, mature. 72. As far as the first two characteristics are concerned, Colombia's advantage boils down to low labor costs. It is estimated that Colombian unqualified labor costs about 25% less than in Hong Kong and apprcoximately the same as in Taiwan. A FEDEMETAL study concluded that in 1980 the following average salaries were paid by metal-mechanical enterprises for skilled workers: Cost per day including "Prestaciones" Col$ US$ equivalent Ternero 550-600 11.70 - 12.75 Soldador 550-650 11.70 - 13.85 Presador 550-650 11.70 - 13.85 Operador de Cepillo 450 9.55 For an eight-hour day these salaries work out to an hourly cost to the enterprise of between US$1.20 and US$1.75 equivalent. These low salaries also confirm the contention of many of the interviewed enterprises that skilled workers are in abundant supply. The situation changes, htowever, for highly specialized types of work. A welder employed in construction of oil refineries, where special welding methods are required, can earn 3-4 times more than his counterpart doing normal work. 73. The third characteristics is based on local know-how. Typically, such know-how exists for products for which there is a substantial local market. An example is agricultural equipment, which originally was built in Colombia under license. Gradually Colombian producers absorbed the technology and now local designs compete successfully in neighboring countries. Another example is ship repair, which is being carried out by small shipyards in Barranquilla and Cartagena. These shipyards have proven to be highly competitive internationally, and they have developed a major business in repairing foreign ships. - 156 - ANNEX 4 Page 18 of 20 74. A somewhat special case is the emergence of Colombia as a producer of boilers. This is the result of the success of one manufacturer who has been able to compete internationally by combining know-how (acquired under license from Westinghouse) with Colombian engineering skill and cheap labor. 75. Ten years ago, the boom in textiles led to the beginnings of a textile machinery industry. But that development was cut short when textile firms became less innovative and less inclined to install new equipment. Local manufacturers of textile equipment lost touch with technological. developments in the industry and domestic production has virtually ceased. In any event it is uncertain, whether local manufacturers could have followed the trend towards highly sophisticated equipment which set in during the 1970s. 76. Successful Colombian metal-mechanical industries usually combine the three factors--labor intensive components, labor intensive methods of production and local know-how--but in varying proportions. In products like pumps and valves, the prevalence of casting makes Colombian producers competitive. In agricultural machinery, truck bodies, airplane assembly etc., it is a combination of labor-intensive production methods and local know-how. In a few products know-how alone is the source of comparative advantage. The most notable example are so-called despulpadoras de cafe, which are exported from Colombia and where Colombian producers seem to have a near-monopoly on know-how. Conclusions and Recommendations 77. The assumption underlying the following recommendations is that metal-mechanical industries in Colombia have a vast potential for growth and that among all sectors of manufacturing they offer the best hope of creating large amounts of new employment. 78. Eventually, the development of the sector will have to look beyond the domestic market. Present exports, though by no means small, are sporadic. Colombian manufacturers export when contraction in local demand or the availability of export incentives persuade them to do so. Very few of them are truly export oriented. The argument for exports is threefold. First, only constant contact with world markets will provide Colombian manufacturers with the technological stimulus they need, if they are to become truly competitive. Second, even though Colombia's metal industries will continue to concentrate on relatively simple technology for some time to come, they need larger markets to reach maximum efficiency. Finally, and this is the most compelling reason of the three, if Colombian metal industries successfully use their comparative advantage to become major exporters, their capacity to absorb labor will be many times greater than it would have been, if they remained oriented towards the Colombian market. 79. The following is a list of measures which the Government could take to allow the sector to reach its full potential: - 157 - ANNEX 4 Page 19 of 20 (a) Financing for Producers of Capital Goods Lack of financing is the most important bottleneck faced by Colombian producers of capital goods. The complaints reflected those of all other sectors of the economy where the Government's tight credit policies were exacting a growing toll. It is not suggested that producers of capital goods should be exempted from those policies. But they should be modified to the extent that they hurt capital capital goods industries more than others. This is the case, if Colombian producers cease to be competitive with imports because they cannot offer comparable financing terms. The Government should recognize the crucial role of sales financing for capital goods and provide adequate credit lines for this purpose. In late 1981, the Government established a line of credit for producers of capital goods which is a step in the right direction. But the sum earmarked for this purpose (Col$500 million, equivalent to US$8.8 million) is much too small considering that the value of capital goods produced in Colombia exceeds US$1.5 billion. While this line was enlarged in 1982, funds would still seem to be insufficient to meet future demand. (b) Government Purchasing Policies. The Government, as the major buyer of capital goods can play a crucial role in stimulating domestic production. Most important would be procurement practices which dlon't discriminate against local producers. This could be done by breaking contracts down into smaller components and by scheduling orders in a way which takes into account the smaller size of Colombian firms. Longer lead times and spreading out of orders over longer delivery periods would contribute to this goal. Government agencies in particular should not buy foreign products merely to take advantage of suppliers credits. Similarly, the present duty exemption of Government imports is unreasonable. One can hardly expect local industry to develop, if it has to contend with negative effective protection. (c) Import Regime. Tariffs on capital goods are, in general-, not high, which is good if the industry is to acquire an export orientation. But, again, it is unreasonable to force industries, which do not enjoy protection themselves to pay high duties on imported raw materials. This principle has already been acknowledged in the "Plan Vallejo" which exempts exporters from paying import duties. It is no less valid for domestic sales. For example, a producer of capital goods which enjoy a 5% tariff protection should not have to pay more than 5% duty on inputs which he has to import. A different aspect of the imaport regime is the bureaucratic effort and time rebquired to get goods through customs. Morawetz has demonstrated how Colombian garment manufacturers lost their geographic advantage over Far Eastern producers, partly through the inefficiency of customs. It takes Colombian manufacturers more or less as long to process their goods through customs as it takes Korean or Taiwanese producers to ship their goods to the United States. Time is a less crucial factor for producers of capitaL goods, nonetheless, the administrative hurdles erected by customs are feLt by metal industries as well. They can become serious when a supplier is racing to meet a delivery deadline. - 158 - ANNEX 4 Page 20 of 20 (d) Ports and Shipping. Puertos de Colombia, far from being an organization which facilitates international trade, constitutes a major bottleneck. The problem seems to be more one of management and organization than lack of physical installations. Improvement, while being difficult, should not be costly. Similar complaints were levelled at the Colombian shipping line, which is accused less of inefficiency and corruption than of being expensive and of delaying shipments because of infrequent sailings. The trade-offs between creation of a national merchant fleet on the one hand and the legitimate interestes of Colombian manufacturers on the other are too complicated to be covered in this report, but the Government might want to explore whether certain priority industries which can be expected to make a major contribution to employment and exports cannot be exempted from the shipping monopoly. If these industries do develop as expected, they would probably result in increased tariffs for GMC, even if they are not tied to GMC's monopoly. - 159 - IV. LIBERALIZING THE FINANCIAL SECTOR: ITS IMPACT ON INDUSTRIAL FINANCE AND INVESTMENT 4.01 After a long period of financial repressions, Colombian policy makers begun to liberalize the financial markets during the early 1970s. The philosophical rationale for financial liberalization was best expressed by the Director of Planning at the time of the 1'75 financial reform: "The philosophy is to return to the private sector the capacity to aLlocate credit to the most profitable activities and to decentralize decision making in this area, giving greater incentives to the financial sector". 1/ The benefits of liberalization were seen in Colombia as an improvement in aggregate productivity and as an increase in the saving rate. 2/ Yet, over the last 15 years the Colombian Government has reversed itself numerous times on the issue of financial liberalization. Efforts tc liberalize have been followed by financial restrictions, usually because of the short-run pressures of stabilization efforts. How did these switches in policies affect financial markets in the 1970s? Were the liberalizing efforts successful in raising interest rates to savers and the saving rate cf the economy? Did they improve the productivity of investment? How have they changed the financing of the manufacturing sector? These are the major issues to be discussed below. A final section outlines some other important issues reLating to the financial sector. M. Financial Repression and Liberalization Attempl:s 4.02 In the mid-sixties the Colombian financial system was characterized by a variety of restrictions, which hampered its ability to mob:ilize resources and allocate them to the most productive activities. High marginal reserves requirements were imposed on checking accounts (varyinr between 40% and 100%), raising the ratio of the money base to the money stock and the base for the inflation tax. While savings accounts were subject to somewhat lower reserve requirements (25%), a large percentage of these accounts had to be invested in Government sanctioned assets. The forced investrments generally toolk the form of low interest, long-term assets that iinanced agricultural credit or housing (e.g., Banco Central Hipotecario cedulas). The comlbination of required reserves and the legislated maximum interest rate (4.1% per annujm on minimum quarterly balances) prevented the banks from paying attract:ive interest rates to savers and reduced the competition facing official banks and Government debt. Bank profits were held down by legal maximum rates on loans with the side effect of encouraging credit rationing. 1/ M. Urrut:La, "Discurso de Clausura del III Simposio Sobre Mercado de Capitales," Bogota, 1975. 2/ "The clearest way of augmenting the economy's productivity is to assure that capiital is channelled toward the most productive sectors and not the most protected"... "The government also desires to increase the contribulion of the capital market, both on the supply and demand sides." (ibid.) - 160 - The only important non-bank intermediaries, the corporaciones financieras, depended largely on lines of credit from international institutions and the Banco de la Republica for their funds, since they too were limited in what they could pay savers. However, a thriving black market existed in foreign exchange, making dollars a reasonable alternative to liabilities of the Colombian financial sector. In general, the financial repression was an attempt to channel savings toward the Government and Government favored activities, but resulted in low levels of Ml, M2, and credit relative to GDP and low rates of household saving. 3/ Public international borrowing roughly matched private capital flight. 4.03 The liberalization of the exchange market in 1967 provided the first step in liberalizing the financial system, although this result was largely unforeseen. As part of the program to stimulate nontraditional exports, a marketable certificate for cancelling tax liabilities (Certificado Abono Tributario-CAT) was given to exporters, based on the customs value of their nontraditional exports. Since the certificate could not be cashed immediately, a thriving discount market developed in CATs, accounting for 18% of all transactions in the Bogota stock exchange as early as 1968 and nearly 40% by 1971. Since the Government did not intervene in this market and there were no taxes on CATs (until 1974), a low risk asset with a free interest rate had effectively been created. The rapid growth of this market is an example of how quickly secondary markets develop, provided there are incentives to issue an asset which bears a relatively free rate. 4.04 In 1968, the Government raised the interest rates on its publicly held debt (Bonos de Desarrollo Economico, Clase B) from 8.5% to 11% (effectively from 9.2% to 12.1% annually taking into account the 5% discount which was maintained by the Banco de la Republica) and the Banco Central Hipotecario increased its cedula rates from 7% to 9.5% (effectively from 8.4% to 11.5% given the 14% discount which also was maintained by the Banco de la Republica). 4/ Both rates were tax free. The ceilings on term deposits were also raised from an effective rate of 4.10% to 7.1% in 1969. These changes produced fairly significant increases in the funds which these assets attracted. Since rates of return in the stock market were also high, savings increased, not only in stocks and bonds but overall. Although these instruments largely were limited to individuals and institutions willing to trade in financial markets, they also were attractive to financial institutions, which could use the cedulas as part of their required investments. 3/ The ratio of M2 to GDP averaged 20% in Colombia during the 1960s, between 25% and 30% in most Asian LDCs and 60% in the advanced countries. See R.I. McKinnon. "Financial Repression and the Liberalization Problem within Less-Developed Countries" in The World Economic Order: Past and Prospect, (edited by S. Grassman and E. Lundberg. Hong Kong: McMillan, 1981). 4/ Rates on many outstanding cedulas were also raised. - 161 - 4.05 A further significant change in Colombian financial markets occurred with t:he formation of the UPAC system of indexed based instruments for housing finance in late 1972. As originally conceived, the capital value of the system's assets and liabilities would increase at the inflation rate (with a one month reporting lag), with a small :interest rate paid on the indexed value, and with the liabilities negotiable on demand. The system's potential for mobilizing resources and channell:ing them into the lagging building sector was one of the "Four Strategies" of the development plan of the Pastrana government. Some members of the government also viewed them as a means of freeing interest rates and the financial markets. While the financial sector generally opposed the system a'- first, eventually it was accepted. The UPAC system attracted large sums, reaching nearly 20% of the flow of non-monetary financial assets in 1973 and 3% of the stock at year end. Although some disintermediation occurred, particularly from BCH cedulas, which largely reverted to financial intermediaries and the Banco de la Republica, holdings of financial assets outside the financial sector, total holdings of financial assets, and private saving all increased as percentages of GDP. 5/ 4.06 Rather than responding with a partial solution to the pressures of disintermediation created by the UPAC System and the increased rate of inflation, the Lopez Michelson government underi:ook a systematic reform of the whole financial system in 1974/5. The reform had six principal elements: 6/ - Ceilings on interest rates on financial intermediaries' liabilities were raised substantially---those on savings and term accounts were raised to 12% annually on minimum quarterly balances, C.D.'s to 24%. - Corporaciones financieras were allowed to issue short-term C.D.'s with free rates, in hopes of augmenting firm's working capital. - Interest rates on loans were freed (except for rediscounts), eliminating the traditional 14% limit. - Reserve requirements and the proportions of forced investments were reduced. - Policies attempting to fix amounts and types of loans were abandoned. 5/ For a detaLiled discussion and empirical ev:idence, see IBRD, "The Colombian Investment Banking System and Re:Lated Financial Sector Issues", Washington 1983. 6/ For more e!xtended summaries of the measures, see M. Urrutia, op. cit., and F. Ortega, "Politica Monetaria y Sector Financiero," in Caballero ed., El Sector Financiero en los Anos Ochenta, (ASOBANCARIA 1979). - 162 - - The development banking role of the Banco de la Republica was reduced; numerous rediscount lines were to be abandoned or consolidated. Instead, the Central Bank was to concentrate on its role as a monetary authority, to which end it would make greater use of open market operations. 4.07 The new Government was not totally devoted to liberalization, as the UPAC system was restricted through the application of reserve requirements and the imposition of a legal maximum on the indexation. Moreover, the 1974 tax reform, which basically was intended to close the fiscal gap and improve income distribution, decreased the attractiveness of savings. Taxes were imposed on many forms of income which were previously untaxed. In particular, savings accounts became subject to taxation, after the exclusion of a minimum amount of interest income. Further, income on CATs was taxed, reducing the secondary market. Realized capital gains -were subject to taxation as ordinary income, aside from an 8% correction for inflation. This provision had a negative effect on the stock market and the investment in UPACs, since their inflation adjustment was treated as income. Offsetting these negative effects on particular parts of the financial se!ctor was the imposition of taxes on new Government debt, which removed its formerly privileged position. 7/ 4.08 The combined effects of the tax and financial reforms on saving seem to have been positive. While after-tax realized real rates were still negative on easily available assets (UPACs and savings accounts), they were up some 3 percentage points from the average of the 1970-72 period, when the rise in inflation had sharply lowered rates. Real rates on the weighted average of all interest bearing financial liabilities became positive. However, these attempts at capital market liberalization were cut short by rising inflation and by the Government's attempts to stem the effects of the rise in liquidity that resulted from the combination of the rise in coffee and illegal exports, the inflow of private capital stimulated by the slowdown in devaluation, and the restrictions on imports which prevented any leakage of the excess liquidity. In order to curb inflation in 1977, 100% marginal reserve requirements were imposed on checking accounts (maintained until 1980) and foreign currency deposits (dropped in 1978 but replaced by much higher average rates), and quantitative restrictions were imposed on direct foreign borrowings. In a further move to lower liquidity, foreign exchange obtained in certain operations, e.g., coffee, could only be sold for exchange certificates with a six month maturity. Quantitative controls on credit and limitations on interest rates were reimposed. 8/ 7/ See M. Gillis and C. McClure, "The 1974 Colombian Tax Reform and Income Distribution," Journal of Development Studies, (1978), p. 233-258. 8/ See F. Ortega, op. cit., pp. 471-72. - 163 - 4.09 These policies effectively counteracted much of the financial liberalization attempts of 1974/75, especially :Ln terms of delinking the Colombian and international capital markets, a move which tended to produce higher real interest rates. While the increase in reserve requirements did create a larger base for the inflation tax, it also generated larger spreads between lending and borrowing rates in financiaL institutions. By repressing the orgarnized financial market, these measures stimulated the growth of non-regulated financial instruments and intermediaries, such as the fideicomisas portfolio sales, and the "second story" banks, and increased the importance of credit at below market rates, such as PROEXPO. Attempts continued, at further regulation, such as the reserve requirements imposed on the C.D.'s of the corporaciones financieras, withholding of taxes on interest and dividLends, and attempts to channel credit into certain investments (e.g., the Agro-Industrial Bonds). When inflation slowed in 1978, real rates of return irLcreased; but the inflationary slowdown reflected the general contraction of the economy. When aggregate demand picked up once again, real rates of return, on financial assets fell sharply7 as a result of the ceilings on deposit inte!rest rates. 4.10 Since. 1979 some tentative steps have been taken to liberalize organized financial markets once again, while reducing the extra-bank market. First, the full effect of inflation on capital gains (other than UPAC) was recognized for purposes of taxation (]ley 20 de 1979 de Alivio Tributario). Second, in January 1980 the financial institutions were allowed to issue C.D's with only a 10% reserve requirement and bearing a free interest rate, while portfolio sales were subjected to reserve requirements. At the same time, the exchange certificates were abandoned. Third, maximum interest rates were loosened on savings deposits and UPAC system liabilities in Septenmber 1980. Fourth, reserve requirements were decreased on checking accounts in January and September 1980. The effect of these measures was to improve t:he ability of the organized financial system to compete with the unorganized markets for funds. Fifth, further decreases in the reserve requirements occurred in February and May 1982; this was done by allowing these funds to be used as the bank's portion of loans rediscounted in the development furnds (FFI, FIP, FDE, FFAP). This ineasure could increase interest rates paid to depositors, but will occur only if these rates were less than the ceilings and if the financial sector would become more competitive. Further, the February and May measures increase the tendency toward credit allocation. Whether the liberalization process can be sustained in the face of the Government's potential fiscal deficit and the 1982-83 recession remains to be seen. N. Sources of Aggregate Investment Finance, Inflation and Interest Rates 4.11 In the last decade the average ratio of foreign plus domestic saving to GDP, measured in current pesos, has iacreased slightly from 20.3% in 1967-73 to 21.4% in 1974-79. 9/ Total saving reached 24.8% of GDP in 1980 with Government saving accounting for 23%, household saving 28%, business 9/ For the nominal values and breakdown between various sources of domestic and foreign saving, see Statistical Appendix, Table 54. - 164 - saving 47% and net capital inf lows 2%. In the last decade, the major source of investment funds has been business savings, which accounted for about 52% of total savings in each of the two periods. Capital consumption allowances were three to four times retained earnings, with the ratio fluctuating according to the swings of the business cycle. While the 1974 tax reform does not appear to have affected the average ratio of aggregate retained earnings to investment significantly, the effect of the rise in the average rate of inflation on the value of the estimated capital consumption allowances and on taxable profits seems to have been of some importance until the 1979 changes in taxes. For example, since depreciation was based on capital values which by law were inflated at a rate of only 8%--significantly below Colombia's inflation rate--balance sheets understated the value of the capital stock and income statements showed illusionary profits, since the future value of the capital consumption allowances would not allow replacement of the fully depreciated capital. Thus inflation increased the rate.of taxation on business income adjusted for the replacement cost of capital, as compared to a non-inflationary situation. In sum, a principal impact of rising inflation up to 1979 was to cut the real value of capital consumption allowances. This in turn showed up as a slower rate of real investment. 10/ 4.12 The only significant shift in the sources of investment financ-e that occurred was between household savings and capital inflows. Between 1967 and 1973, capital inflows financed an average of 13.5% of investment while household saving financed only 8.1% (equivalent to less than 2% of GDP).11/ Before 1973 housing construction investment averaged almost twice as much as household saving, implying that the household sector was a negative contributor to the financing of productive investment. Household 10/ These considerations are complicated by the wealth tax, which is rediaced by the legal underindexing of the capital stock. Capital gains taxation then falls on the shareholders when their shares appreciate to reflect the true value of the capital stock. 11/ The national accounts estimate of household savings should be used only for comparison with the national accounts figures in other years. As in many LDCs, Colombian estimates of personal savings are subject to large errors, being computed as a residual of a residual-real GDP. Using growth in production, nominal GDP is obtained by using price indices, and consumption is computed as a residual which is then subtracted from personal income to get savings. Alternative estimates of savings yi-eld higher and more stable personal saving rates. For example, a calcula- tion using net accumulation of assets by families (excluding net mort- gage debt) indicates that household savings in financial assets averaged about 6% of GDP between 1970 and 1973 and, including net mortgage debt, averaged over 4.0% of GDP in the period 1967 to 1972. For a more detailed discussion, see J. Hanson, "Ahorro Familiar en Colombia," (DNP, Bogota 1973). - 165 - saving averaged only 6% of investment before 1972 (equivalent to about 1% of GDP), but rose to 15% of investment in 1972 and to 19% in 1973. After 1973 household saving reached an average of almost 25% of investment (equivalent to nearly 5% of GDP). Between 1975 and 1979 households not only financed all housing construction but also contributed approximately 2% of GD)P toward the financing of machinery and non-residential construction. At the same time Colombia switched from a net capital importer to a net capital exporter, as a result of the efforts to reduce inflation by curtailing public borrowing and limiting private capital inflows between 1975-77. Capital outflows averaged 2% of investment during this period. There was also a slight decline in Government saving, which financed 26.1% of investment in 1967-73 and 24.6% in 1974-79, a decline which reflects the slowdown in Government investment between 1975 Ito 1977 as part of the stabilization effort. In sum, the net effect of the rise of household saving was offset by the slight fall in public saving and by Colombia's switch to a net capital exporter, producing a slight decline in the ratio of investment to GDP. 4.13 Why did the personal saving rate increase? One possible explana- tion is the apparent rise in the real interest rate paid to savers on easily available assets, up from an average of -5.6% (realized) 12/ in 1967-74 to -2.4 in 1974-130 (see column 3, Table 15). However, the rate of personal saving nearly doubled, while the real return to savings rose by only 3.4% (.976 - .944/.944). To explain the rise in saving solely by the rise in interest rates would require an unreasonably high interest elasticity of saving. Moreover the average, realized, after-tax interest rate actually fell slightly (from -5.7% to -6.2%, see Column 5, Table 15) because of the imposition of taxes on interest income and monetary correction, although these taxes were reduced in 1979. Any estimate of interest rate effects is of course sensitive to asumptions regarding the payment of taxes, the price index chosen and whether the ex-ante or the realized interest rate is used. However, it is hard to explain the rise in saving between 1975 and 1980 solely by a rise in interest rates, especially since much of the effect of increased interest rates was wiped out by the 1974 Tax Reform. Rather the rise in interest rate seems merely to have roughly maintained the incentive to save in the form of interest-bearing assets. 4.14 An ;alternative explanation of the rise in family saving as a percentage of GDP is based on the rise in inflation. Inflation forces asset holders to refrain from consuming and to accumulate additional nominal assets in order to miaintain the desired ratio of assets to nominal income. For example if the desired ratio of Ml to nominal income is about .L4 and infla- tion averages 13.5% per year as was the case in Colombia 1967-74, then money holders will save about 1.9% of the nominal GEP simply to maintain 12/ Realized rate refers to the difference between the interesl rate and the rate of inflation which actually occurred, which will on average equal the expected real rate if expectations of inflation are correct. If the lagged inflation rate is used, then the real rate in the two periods is -3.4% versus -2.7%. Table 15: ESTIMATES OF REAL AND AFTER TAX REAL INTEREST RATES ON EASILY AVAILABLE ASSETS Average Interest Average Interest % Change Rate Saving Accounts Realized Rate After Realized After Tax in CPI and UPAC Deposits / Real Rate 2/ Taxes 31 Real Rate A/ (1) (2) (3) (4) (5) 1967/68 7.4 4.1 -3.2 4.1 -3.2 1968/69 7.0 4.1 -2.7 4.1 -2.7 1969/70 7.3 4.1 -3.0 4.1 -3.0 1970/71 10.9 4.1 -6.5 4.1 -6.5 1971/72 13.2 4.1 -8.7 4.1 -8.7 1972/73 19.6 8.8 -9.9 8.8 -9.9 1973/74 23.3 17.5 -4.9 16.1 -5.8 1974/75 22.1 19.4 -2.6 16.5 -4.6 1975/76 20.5 20.8 -0.3 15.4 -4.6 1976/77 31.3 20.8 -8.0 16.1 -11.6 1977/78 19.4 21.0 1.3 16.3 -2.6 1978/79 23.8 20.5 -2.7 15.9 -7.4 1979/80 24.9 22.0 -2.3 17.3 -6.1 l/ Interest rate in base year. 2/ [(100 + Col. (2))] / (100 + Col. (1))] 100 - 100. 3/ Interest rates from Table 5. Before 1974 no tax on interest income from saving accounts. Afterwards assumed 20% tax on the interest income and .8% on the account. On UPACs assumed 30% of the interest after monetary correction and 1% of the account was taxed between 1973 and 1974. In 1975 and thereafter assumed 12 of the 20 permitted points of monetary correction were taxed at 20%. See Banco de la Republica, "Algunos Aspectos Especificos del Mercado de Capitales Colom-nblanos CEMLA Boletin Mensual Octubre 1975. 4/ [(100 + Col. (4)) / (100 + Col. (1))] 100 - 100. - 167 - their real balances (.14 x.135). This percentage is often called the inflation tax, because it transfers command over goods from money holders to the monetary authorities. 13/ Provided that the desired ratio of Ml to GDP does not fall too much when inflation rises, as a result of the increasing cost of maintaining real balances, then a rise in inflation will raise the rate of accumulation of money--that is, increase the private saving rate. This seems to have occurred in Colombia, since in the 1974-80 per-Lod inflation nearly doubled to an average of about 27% a year, while the ratio of Ml to GDP fell by only 17%, to about .12. As a result, asset lholders had to save over 3% of GDP simply to maintain the new ratio of real balances to GDP in the face of the higher inflation. This increase in the accumulation of Ml was equivalent to almost half of the observed increase in the rate of family saving during the last decade. Of course, this inflation also brought with it many undlesirable side effects, such as the demonetization of the economy and distortions in goods and financial narkets which tend to reduce the growth rate and make it an extremely costly way of raising the Government's command over resources and the more rapid accumulation of Ml. 4.15 The infl-ation tax is normally the result of Central Bank emission of money to finance government deficits. However, that was not tlle case in Colombia between 1973 and 1980. The Colombian government actually achieved fiscal surpluses between 1976 and 1978 by slowing its investment. In 1973 and 1974 the Government did increase its total debt but reduced its debt to local citizens and the Banco de la Republica by increasing foreign borrowings. The Government did run a small deficit in 1979 and a larger one in 1980, although it showed an accounting surplus because the Banco de la Republica's profits on foreign exchange sales were treated as government revenue. While continued emission because of fiscal deficits andl accounting profit will cause inflationary problems in the future and should be stopped, in general between 1973 and 1980 the Government did not require Central Bank emissions to finance its expenditure. 4.16 Why t'hen did the inflation rate increase? The best exp:Lanation seems to be the use of the inflation tax by the Banco de la Repub:Lica and the Central Government to accumulate substantial international reserves, which also explains the country's switch from capital importer to exporter. The accumulation was achieved in the following manner: Owing to the lack of import competition firms were able to fix prices based on expectations of inflation and protection from imports. The exchange depreciation and the protectiorn of import substituting industries then validated these increases by preventing the import competition that would have restrained the inflation. The rise in prices then forced households to accumulate money balances as discussed above. Since the Banco de. la Republica was not issuing additional monetary liabilities to buy new government debt, the only way for households to accumulate additional nominal quantities of money wias to 13/ Strictly speaking the inflation tax is calculated relative to the money base. In Colombia this amounted to 1.3% of GDP since the money base was roughly 70% of Ml during that period. - 168 - acquire foreign exchange and sell it to the Central Bank for pesos, thus creating the desired new money supply. In this way the private sector was forced to run a surplus on the current account, as measured on either a balance of payments or national accounts basis. Moreover, the private demand for funds was so great that beginning in 1976 and up to 1980 private capital flight declined sharply. This produced a net inflow of capital to private sources, as measured by the sum of private capital inflow and errors and omissions, even given the restricted level of capital imports. 14/ The current account surplus and the net capital inflow to the private sector plus the reduction in the central government's net borrowing allowed the Banco de la Republica to accumulate US$5 billion of reserves between 1974 and 1980. Thus, Colombia became a net purchaser of foreign assets. The Government: viewed this policy as avoiding an import boom by accumulating international reserves, which could be used when terms of trade worsened, as occurred in 1981. But rather than increasing direct or indirect taxes to cut private purchasing power, the Government chose to use the inflation tax with its well-known negative impacts on monetary use and resource allocation. 0. Structural Changes in Industrial Finance 4.17 Since World War II industrial financing has shifted dramatically from equity to debt sources, as shown in Table 16. The switch from capital to loans as a source of investment funds was particularly strong in the sixties and continued in the seventies at a rapid rate. At the same timle, there was a sharp drop in the issue of new stock as a source of finance in the late sixties; the decline continued at a slower pace in the seventies. While internal source of funds (retained earnings and depreciation) also declined in the latter decade, they remained at a relatively constant 25a' of corporate funds for investment. A similar pattern is also evident for corporations in the major industrial subsectors--such as food, beverage, textile and garments, basic metals and metal machinery industries. 14/ These balance of payments results are predicted straightforwardly by a monetary model in which the exchange rate and protection regime is used to sustain a given inflation rate while the Central Bank restrains domestic credit. See for example J. Hanson, "Transfers and the Price Level Under Fixed Free and Indexed Exchange Rates--A Monetary Approach", Inter. Fin. Disc. Paper #111, Fed. Res. Board of Governors. Another explanation for the capital inflow was of course the possibility of arbitraging dollar liabilities and peso assets, given the slow depreciation of the peso. However, the profitability of such arbitrage depended on the tax treatment and there remained the risk of a sharp devaluation. Table l: 1 UnfIT rC A,I TTCVC nF rA Dr%DAAT T'KTVCnV'kVr FT1TTS - nAA?NUFACTTTR1 rw (percentages) 1941-521/ 1952-59i/ 1960-642-/ 1964-68:2' 1971-744/ 1975-794/ Sources of Investment Funds; Internal Funds 21.8 40.8 30.1 49.8 24.7-/ 27.___/ Undist. Profits (12.1) (26.3) (9.8) (24.6) (13.8) (14.6) Reserves (9.7) (14.5) (20.3) (15.2) (10.9) (13.2) Loans 34.6 31.1 42.1 40.0 67. 8_ 67.3-/ New Equity 44.1 28.1 27.8 10.2 7.7-/ 4.95/ Uses: Real Investment 55.7 67.6 58.8 52.4 56.3Al 51.7-/ 5/~~~6/% Financial Investment 44.3 32.4 41.2 47.6 43.7-/ 48.3-' Notes: All figures based on data from the Superintendencia-de Sociedades Anonimas 1/ All national corporations, C. Pieschacon, "La Politica Econ6mica y el Mercado Bursatil," El Mercado de Capitales en Colombia 1973, Table 3.7. 2/ Manufacturing firms,R. Jungito and Y. Castro, Table 11 from Sup. Sociedades Anonimas 3/ Sample Survey of (large) 315 manufacturing firms by Superintendencia Sociedades, R. Jungito and Y. Castro, Table 11, Data for 1969 not available, and data for 1970 not complete. 4/ Corporations engaged in agriculture, commerce,and manufacturing Sup. Soc. Anonimas, Summary balances. 5/ Jungito shows 47% for both loans and internal funds in 1970-74, 59% and 37% respectively in 1975. 6/ Assumes all assets sold were financial. Assets sold amounted to 6.0% of funds in 1971-74 and 1975-79. Reduction of liabilities also assumed to be financial and were roughly same as assets. - 170 - 4.18 The view that debt has become a more important source of industrial finance is supported by numerous studies. 15/ Sample surveys of large corporations by FEDESARROLLO show that between 1974 and 1978 an average of about 38% of investment was financed by retained earnings, 2.8% by sale of additional equity and the rest by credit 16/. A sample survey of 33 non-financial firms listed on the stock exchange (including 19 manufacturing firms) showed that liabilities have risen from 28% of assets in 1960 to 37% in 1971 to 57% in 1978. 17/ One author concluded "the industrial sector, and, specifically the corporations listed on the stock exchange, suffered a process of growing indebtedness and decapitalization, principally caused by a semi-freeze (within fluctuations) of issuing new stock". 18/ 4.19 The relative increase in debt finance over the past 25 years reflects not only the growth of financial intermediation but the effect cf rising inflation within a tax system which only recently has moved toward recognizing inflation. The Colombian tax system gradually has adjusted the taxation of capital gains to reflect inflation. Thus, after recognition in Ley 54 of 1977 of the principal of indexation, Ley 20 (de Alivio Tributario) of 1979 allowed an adjustment of asset values for 100% of the inflation rate and then taxation at 50% of the rate on income, with the possibility of tax remission if investment is made in specified assets. 19/ These measures will help to maintain saving rates and, because of the improved treatment of capital gains, may actually favor equity finance. However, the Colombian corporate income tax continues to create a great incentive for the use of debt finance as inflation increases. This occurs for two reasons. First, any rise in interest rates because of expected 15/ R. Jungito and Y. Castro, "La Financiacion de la Industria Manufacturera Colombiana", FEDESARROLLO, mimeo 1979, and R. Jungito, "Financiacion de la Industria Manufacturera": Aspectos Crediticios y Tributarios", in C. Caballero, El Sector Financiero en los Anos Ochenta, (ASOBANCARIA 1979). A. Figureroa, et. al., "El Sector Financiero, sus Perspectivas, Necesidades de Crecimiento y Cambios Institucionales" in C. Caballero, El Sector Financiero en los Anos Ochenta, (ASOBANCARIA, 1979), F. Piedrahita "Desarrollo Industrial en la Decada de los Setenta, Revista ANDI, 51, (1980). 161 R. Jungito and Y. Castro, op. cit., Table 100. 17/ A. Figueroa, etc. al., cp. cit., p. 100. 18/ F. Piedrahita, op. cit., p. 143. See also R. Jungito, op. cit., p. 403. 19/ See R. Jungito, op. cit., p. 411 - 171 - inflation can be expensed against taxes. Thus the Government in effect pays part of the inflation premium while the corporation gets the full benefit of repaying a loan in depreciated money. The higher the expected inflation and the inflation premium, the greater the relative incentive for a corporation to use debt finance rather than equity, which yields no tax savings. At the same time, private lenders are willing to accept a greater debt-equity mix, since they can receive higher interest rates. Furthermore, depreciation allowances only represent a fraction of replacement costs because of the Colombian tax system's underindexing of fixed assets. Thus, corporate profits are overstated and correspondingly overtaxed as inflation increases, decreasing the! returns to equity and the attractiveness of equity finance relative to debt finance. Accelerating depreciation reduces this problem somewhat but introduces new biases in the system as the true economic life of assets diverges more and more from their accounting life for tax purposes. This aneLlysis suggests three possibilities for reducing the rise in debt-equity ratios (i) reduce inflation, (ii) eliminate the double taxation of the corporate income tax or (iii) treat the inflation premium on debt as a capital item rather than a current expense. This could be done either via the tax system or by the corporaciones financieras issuing bonds in which part of the interest cost was capitalized. The second and third approaches also would have to be coupled with measures correcting the effect of inflation on depreciation allowances. 4.20 There have been some important shifts in the type and source of debt finance in the seventies. First, there was a small but clear reduction in the maturity of credit from Colombian intermediaries between 1974-75 and 1979-80. It seems most likely that this reduction in maturity also charac- terized manufacturing credit, with the principal long-term credits indexed to housing finance which grew rapidly. The corporaciones financieras, which are a major source of manufacturing credit, based much of their expansion after 1975 on short-term certificates of deposits that correspondingly forced them to shift to shorter-term loans in order to match maturities. Second, there was a shift in the source of credit toward subsidized development credits, especially PROEXPO (see Table 17). That development also created a group of privileged borrowers, since the relevant interest rates, especially on PROEXPO credits, have consistently been below the rates of other lenders and much less than the rate of inflation. The priincipal difficulty with this split in the credit market is that firms with access to the subsidized credit can use it to buy up less favored firms, increasing concentration. Regula- tions to prevent this use are not likely to be effective. 4.21 Another shift in credit sources has been the sharp restriction of direct external credit, which dropped from an average of 38% of total credit to Colombian mianufacturing enterprises in 1970--77 to only 25% in 1978-80. This restriction was eased in 1978, in 1981 and in early 1982. Finally, since 1979 the sources of credit to manufacturing have shifted sharply from direct external credits and Colombian financial intermediaries to the unor- ganized market. As shown in Table 17, credit f'rom financial intermediaries and direct external sources averaged 77% of estimated total credit to manu- facturing in 1970-77 but fell to 68% in 1978-80. This shift in credit sources probably reflects the attempts by the Goverament to restrict credit through reserve requirements on foreign currency deposits and restrictions on direct foreign borrowing and to tax interest earnings in organized markets, attempts which diverted savigs from organized markets and stimulated financial intermediaries to develop such "creative financing" arrangements Table 17: OUTSTANDING CREDITS TO MAtNUFACTURING BY SOURCE (Year End) (million pesos) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Com. Banks (own resources) 2086 2217 2237 2908 3470 5111 6066 6044 7811 8L72 13530 (Comr. Banks all sources) (2728) (3005) (3310) (5983) (8250) (10260) (13963) (20277) (na) (na) (na) Caja Agraria 150e 172e 186 465 891 598 470 254 1863 2724 3300e Corp. Fin. (own resources) 1587 1998 2649 2615 1935 2930 6195 8357 10808 9127 17001 (Corp. Fin. all suurces) (2900) (3700) (4900) (5690) (4891) (6640) (9702) (13865) (18476) (19006) (30846) Corp. Fin. Ext. Lines 621 837 1294 1496 1681 2280 2793 3599 4746 6592 10134 Fondo Inv. Priv. 1037 1194 912 1329 1822 1611 2183 2244 2638 2796 3108 Fondo Fin. Ind. 151 267 327 537 861 1043 1142 1715 2911 3544 3859 PROEXPO 136 192 1185 2600 2980 4035 4581 6521 9125 11662 14093 Direct External 3411 4381 5879 6196 6627 7890 10778 17025 13474 16765 20226 Total Organized Market 9179 11258 14669 18146 20267 25498 34208 45759 53376 61382 86251 Total Unorganized 2115e 3128 4338 4696 7395 7722 10913 15079 21769 34698 38816 Estimated Total Credit 11294 14386 19007 22842 27662 33220 45121 60838 75145 96080e 124067 Organized/Total .77 .78 .77 .79 .73 .77 .76 ,75 .71 .64 .70 Direct External/Organized .37 .39 .40 .34 .33 .31 .31 .37 .24 .27 .29 Value Added Gross Ouitput 59316 71113 87642 116366 169243 202635 271228 348988 442027 600503 775420 Manufacttiring Credit/Gross Output .20, .202 .217 .196 .163 .164 .166 .174 .17' 16e .16e e = Estimated SOURCE; Revista del Banco de la Republica; Banca y Finanzas and mission estimates. - 173 - as "sales of portfolios" and the "second story banks" rather than using direct loans. 4.22 One oE the dangers of excessive reliance on short term debt finance is that it leaves the firms vulnerable to rises in interest rates. A rise in real interest rates, for whatever reason, will increase the debt service sharply. This will create a short-run liquidity squeeze and increase bankruptcies, since neither the price level nor profits rise proportionately as fast as interest rates and debt service in the short run. °-/ Nominal interest rates on credit to manufacturing have followed a general]y rising trend during the seventies, as shown in Table 18, increasing somewhat faster than inflation. Average realized "real" interest rates for manufacturing were higher in the second half of the seventies than in the first,, not withstanding the sporadic attempts at capital market reform. In ]977, 1980, and 1981, average real rates reached 8% and more. these sharp increases produced liquidity squeezes of the type described above. Moreover, average real rates were kept at those levels only by the growth in subsidized credit. Firms without access to subsidized credit suffered even higher real rates and were subject to takeover threats. 4.23 The trend of nominal interest rates can be largely explained by the increased rate of inflation. The rise in real rates reflects a series of additional factors, both external and internal. The most important are: (i) the rise in real interest rates in world capital markets in 1980-81; (ii) the fall in the relative price of manufactures between 1974 and 1980, world wide and in Colombia, which raises the effective real interest rate to borrowers in the manufacturing sector (the real interest rate is computed as the nominal rate deflated by the inflation in the industrial wholesale price index); (iii) the 1977 stabilization package, which increased spreads in local financial markets by imposing much larger reserve requirements and de-linked Colombian and world capital markets by limiting direct i-oreign borrowing and imposing large reserve requirements on foreign currency deposits in Colombia. These measures reduced the size of the credit pool in Colombia and raised the interest costs sharply in 1977. Moreover, they shifted an increased fraction of manufacturing credit to the extra-bank market (up from 23% in 1970-74 to 32% in 1977-79) where rates tend to be higher because of higher costs of intermediation; (iv) the shift of the Colombian government from a moderate surplus to a large fiscal deficit in 1981; and (v) possible expectations of increase in the rate of devaluation which increased the cost of credit from time to time, especially in 1981.21/ 20/ The effect of the rise in interest rates on the present value of the firms' capital also will depend upon the source of the shock to the interest rates and the tax system. Further, if the credit squeeze is expected to be of a short duration then an overshooting may occur in interest rates, reflecting an attempt by all firms to borrow and ride out the squeeze. 21/ The 'List olf possible reasons for high real interest rates should also include the problem of illiquidity of many firms which gave them either the choice to continue heavy borrowing or close down. - 174 - Table 18: INTEREST RATES ON CREDITS 1970 - 1980 1/ (annual rate - percentage) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Commercial Banks 14.0 14.0 14.0 Free unless discounted by Banco de la Repbblica Loans from Saving Accounts - - 18.0 22.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0- C.D.'s - - 29.0 28.0 27.0 27.0 27.0 27.0 27.0 27.0 38.0- Corp. Fin. External Lines 18.75 18,75 18.75 18.75 25.0 25.0 25.0 24.0- 24.0- 24-2 24 9 F.I.P. 17.5 19 17 17.5 18.5 22 22 22 22 22-l 265/ F.F.I. 15.5 15.5 15.5 15.5 17 21 21 21 21 22A/ 25- / PROEXPO - - 14 14 18 18 18 13 13 17 1j9/ External ex ante 2/ 16.6 17.8 22.8 24.8 24.7 29.8 22.4 21.3-/ 22-l/' 3l57/8/ 37! !-8 ex post 2/ 18.4 20 21.8 27.7 34.7 24.7 15.6 23.07/ 24.67'3J 34.3711 41,5LY Extra Bank 21 21 21 24 26.5 29 29 30 34 401O/ 44 10/ (CATs (3 mos.)-3 16.4 18.4 18.4 24.5 32.0 28.1 29.7 29,2 33.7 42.0 48,7) Interest rates organiz. AVERAGES market (ex post.) 17.75 19.45 21.56 24.05 26.53 24.44 21.81 23.23 24.03 27.85 33,4 Interest rates - all credit 18.52 19.78 21.44 24.04 26.50 25.5 23.5 24.9 26.9 32.2 36,6 Inflation (ex post' 11.10 13.41 23.17 38.53 22.28 23.32 22.95 15.40 29.93 27.39 26.4 Ex post real interest rate org. mkt. 6.0 5.3 -1.3 -10.5 3.5 0.9 -0.9 6.8 -4.5 0.4 5.5 Ex post real interest rate all credit 6.7 5.6 -1.4 -lQ.4 3.5 1.8 .4 8.2 2.3 3.8 8.1 Ratio organized vs. unorganized 12/ .97 .99 1.00 1.00 1.00 .96 .94 .95 .93 .91 .93 Averages .99 (1970/74) .94 (1975/80) Sources- 1/ 1970-1978, R. Jungito y Y. Castro op. cit and sources cited there, except as otherwise noted. 21 Ex post calculations differ from ex ante in using rate of devaluation or annual average inflatiorn rate over the period of loan, not over the period up to the loan. The 1981 figures uses a 15% devaluation 3/ An analysis by the Bance de la Republica shows rates about 6 percentage poi:ts lower in 1976 to 1980. 4/ M. Carrizosa, "Las Fondos Financieros eel Banco de la Republica', in C. Caballero, El Sector Fin:nciero en lo. Anos Ochenta, ASOBANCARIA. 19f0. 5/ M. Carrizos., "Analisis del Cost. de Endendamiento en Colombia en 1980", Fedesarrollo, Mimeon 6/ Estimated assuming a 10% reserve requirement, 4% commission and costs over the (Free) liability rote. 7/ Includes costs of reserve requirements imposed on foreign currency borrowing through local bankinig, syster. 8/ S. Clavijo "La Financiacidn a los importadores 1976-80, Revista Banco de la Rep6blica, agosto L981, Table 6, unweighted average of semestal figures. 9/ Estimated using a weighted average of 25% (87% in 1977/78 and 75% in 1979/80) and the dollar rate (12% with 6% devaluation 1977/78 and 10 3/4 with 10% devaluation 1979/80. 10/ Estimated based on Carrizosa (note 5). 11/ Wholesale prices, manufacturing, general commerce 12/ Using ratios of 1 + (interest rate/100). - 175 - 4.24 The real volume of credit available t:o manufacturing from financial intermediaries and direct external creditors declined, especially in the last two years. This decline reflects both a general drop of such credit in Colombia relative to GDP in the latter half of the seventies 22/ and a fall in the ratio of such credit to manufacturing value added. The sharp drop in 1979 seems to reflect mainly the difficulties of the corporaciones finacieras and the resulting disintermediation. These diificulties appear to be related to the 1978 imposition of 20% reserve requirements on all types of deposits which were raised to 25% in 1979. These reserves were to be invested in the Fondo Financiero Agropecuario and Certificados de Cambio, with the idea that they would put the corporations and banks at more equal footing. At one point in 1979, the Banco de la Republica actually intervened in some financial institutions to enforce the requirements. The requirements slowed the sales of C.D.s sharply; in early 1980 the requirement was dropped to 15%, and the interest paid on reserves was increasecd. 4.25 Data reported to the Superintendencia de Sociedades Anonimas on investment appear to indicate that the real rate of investment has declined, which would seem to reflect both the reduced real volume of credit to the reporting firms and the reduced real value of retained earnings and deprecia- tion allowances. However, firms reporting to l:he Superintendencia de Sociedades have increased their financial investments at the expense of their real investments (Table 16). 23/ While this increase does not account for the whole drop in real investment by firms reporting to the Superintendencia, it does suggest that these firms were pursuing a portfolio strategy, rather than simply decreasing investment. The reporting firms are larger and better organized and thus probably had greater access to subsidized credit sources--FFI, FIP, PROEXPO--and to external loans (direct and through the corporaciones) which have benefitted from the Lag in the rates of depreciation. In turn, these firms assumed the role of financial intermediaries and relent such funds, either directly or through other intermediaries and the unorganized market. Thus, the existence of preferential lines of credit with differential access created opportunities for concentration as other credit sources becanie more expensive. 22/ The switch to government surpluses in 1974-75 may have offset the small size of contractionary open market operatijons, leaving unchanged real volumes of credit available to the private sector. In contrast, the forced purchase of exchange certificates nay have increased private demands for credit in 1977 and 1978. 23/ An exception may be the textile and garments industry, but that conclusion depends on the treatment of asset sales which were not offset by reductions in liabilities in that industry. If these are treated as sales of real capital rather than financial, then the textile industry behaves similar to the others. - 176 - 4.26 Official data on investment by all manufacturing firms present a different picture from the data reported to the Superintendencia. While the firms covered by the Superintendencia report a decline in the rate of investment, total manufacturing investment roughly paralleled the growth of value added, according to DANE (see Chapter III). The coverage of the Superintendencia's figures relative to DANE's Industria Manufacturera, declined from an average of 60% between 1971 and 1975 (with a range of 40% to 80%) to an average of 35% between 1976 and 1979 (with a range of 31% to 40%). Thus the apparent declining rate of manufacturing investment shown in Table 16 may be the result of a fall in the proportion of manufacturing enterprises covered by the Superintendencia de Sociedades Anonimas, not a drop-off in investment by the whole sector. While investment has slowed in 1980-81, this would seem to reflect mainly the recession and the existence of excess capacity, rather than the rise in interest rates. 4.27 To summarize, corporate industrial finance seems to have shifted toward greater use of debt and less new equity, but that tendency began iin the sixties and has little to do with the financial reforms of the seventies. Rather the shift reflects (i) the character of the firms reporting to the Superintendencia de Sociedades Anonimas, i.e., having better than average access to lines of credit with below-market rates; (ii) the effect of growing inflation, which tends to decrease the cost of debt finance because of the tax system, while reducing true risk (although balance sheet leverage and thus lender risk appears large); (iii) the double taxation of dividends and the increased taxation of capital gains in the stock market in 1974-77, following the 1974 Tax Reform; that problem was reduced in 1979, as taxable capital gains on stocks were more fully indexed to eliminate the effects of inflation, leading to a rise in new stock issues in 1979 and 1980. The rise in real interest rates on debt during the decade produced some liquidity problems for heavily leveraged firms and, together with the declining real value of depreciation allowances and retained profits, apparently slowed investment by corporations reporting to the Super- intendencia de Sociedades. However, the larger corporations appear also to have used their privileged position in capital markets to act as financial intermediaries, borrowing at below-market rates and relending to or even taking over less favored firms. Investment by all manufacturing firms not those reporting to the Superintendencia (as measured by the results of the annual DANE survey) seems to have more or less kept pace with the growth in value added in manufacturing, aside from cyclical fluctuations. Another source of investment funds for new firms, aside from borrowing from the extra bank market, may have been withdrawals by workers from the cesantia obligations of existing firms. Such withdrawals, without loss of future benefits aside from repaying the interest free loan, were made legal in 1977, and have put financial as well as competitive pressure on existing firms. P. Other Issues in Financial Liberalization 4.28 Regarding high nominal interest rates, the evidence seems to suggest that not much can be done without reducing inflation. But lowering inflation requires a contraction in aggregate demand, which in the short run creates even more of a liquidity squeeze on firms. Such a squeeze has - 177 - occurred in Colombia as a result of world conditions as well as domestic policy. A good anti-inflation start has been made and interest rates have fallen somewhat. Whether the policy will be continued for a period sufficiently long to curb inflationary expectations, especially in the face of the recession and the Government's budgetary pressures, remains to be seen. But continued commitment to the anti-inflation program is necessary, if the unemployment costs which already have been incurred are not to be wasted. Attempts to bail out specific sectors or firms will hurt the anti-inflation effort and may produce greater concentration of wealth, since there is no way of guaranteeing that additional. credit remains in the desired sector, instead of buying up hard pressed firms. A particular problem here is the PROEXPO credit line, which not only bears a low interest rate but, because it is financed through taxes on imports, sets up contradictory pulls on resources and contributes to inflation. 4.29 Despite the recession, inflation remained high until mid-1981. This may be the inherent momentum in price expectations and fears of a devaluation, but growth in the money base and the money stock were also high. The money base rose 23% between August 1980 and August 1981, Ml rose 25.5% and bank credit some 40% over the same period. To some degree this monetary growth may simply reflect the shift of banks from portfolio sales into more organized credit markets. Cuts in reserve requirements and computer based innovations such as automatic transfer of savings accounts and the use of UPAC deposits as money market funds have also increased velocity. However, monetary growth slowed somewhat in early 1981, in part reflecting external circumstances which also showed up in reduced aggregate demand. Much of the 1980-81 growth in the money base has been improperly attributed to growth in international reserves, because the Banco de la Republica has been showing an accounting profit on its foreign exchange transactions. This "profit" has been transferred to the Government: as income. In fact increases in the value of foreign exchange reserves in local currency or "profits" from sales of foreign exchange are accounting transactions which do not affect the money base. 24/ The rise in the base occurs only when the Government actually spends the accounting profits. Thus, the Banco de la Republica's current method of accounting tends to understate the true government deficit and hides the true source of monetary expansion. Further, since the profits are credited to the Special Exchange Account, which is legally treated as government income, the increased monetary emission from this source actually raises government spending because of the Situado Fiscal allocating a fraction of revenue to spending on health and education. The problem will become more critical, as Colombia shifts from a balance of payments surplus to a balance of payments deficit as is now occurring. Continued government reliance on these accounting profits as revenue will only produce more inflation. 24/ To see this consider what would happen to the Central Bank's balance sheet, if the international reserves were revalued using an exchange rate of 100 pesos per dollar. -. 178 - 4.30 It is important to lower inflation and interest rates for another reason. Currently, the Government is using the seigniorage in the banking system to offer credits at below market rates to certain borrowers through the system of required investments. Thus, the system's allocation of credit becomes worse and real returns to savers decline as inflation increases. The problem cannot be solved simply by eliminating the forced investment requirements, because the banking system would suffer from a severe shock if such a large fraction of its low interest assets suddenly became traded in open markets. Nor can the Government afford to substantially raise interest rates on the required investments, for then its cash deficit would increase substantially, requiring monetary emission or an increase in taxes. Only when interest rates get down to levels approximating those now paid on a large fraction of required investments, can this aspect of financial repression be eliminated. 4.31 Real interest rates may be high or not, depending on the source of credit. Real rates in the unorganized markets and on CATs have increased dramatically (which may reflect changes in taxation and the decline in taxable business profits). A variety of explanations have been advanced for high real interest rates but these boil down to: (i) worldwide credit conditions; (ii) increased barriers to capital inflows; and (iii) tight money and/or expectations of devaluation in Colombia, combined with an increased government deficit. Only the last two points are susceptible to Colombian policy and an understanding of the interaction between the Government deficit, capital inflows, imports, and high real rates is crucial to the correct formulation of that policy. A rise in the Government deficit wi]l always tend to raise real interest rates, unless capital is available in fairly elastic supply in international markets, and unless imports are allowed to increase. The first point needs little elaboration--a less than perfect elastic supply of loans (domestic and foreign) will force interest rates to rise when demand for funds increases. The second point is more complex, but unless imports are allowed to rise when foreign borrowings increase, then the additional aggregate demand will force up local prices and crowd out some other local source of demand. To some extent this squeeze will occur through increased real interest rates, the more so if the central bank attempts contractionary open market operations to slow inflation, or to restrict non-government borrowings. Thus, the appropriate response to increased foreign borrowings of the Government or the private sector is increased imports. It is also necessary to stress that the additional borrowings should be matched by increased investment, especially in the public sector, otherwise it will be difficult to cover debt service and expectations of devaluation will develop as international reserves fall, increasing the real interest rate. 4.32 One policy, which has been suggested for reducing real interest rates to borrowers, is a reduction in reserve requirements. But lowering reserve requirements will affect borrowing rates only if borrowers are cut off from foreign capital markets and if *savers are responsive to higher real returns. As the restrictions on capital inflow decline, the marginal borrowing rate will become determined by the inflow of foreign capital. In that case lowering reserve requirements will only raise the rate paid to savers in accounts with free interest rates, and the ratio of national - 179 - saving in total investment will only go up by reducing negative effective protection on local financed liabilities. If deposit interest rates are legally fixed, then lowered reserve requirements will either increase the money stock and the price level to the extent the economy is closed, or cause a loss of international reserves to the extent the economy is open. Thus, one should not expect that lowered reserve requirements will reduce real rates significantly, unless other restrictions are also lifted. However, as capital markets become more open, lower reserve requirements will be necessary to prevent foreign lenders from capturing much of the 'Local loan business, while local savers sent their savings abroad. - 180 - V. STATISTICAL APPENDIX Table 1 Real Exchange Rates, 1967-1980 2 Real Effective Export Exchange Rates, 1967-1980 3 Nominal, Real and Real Effective Exchange Rates Peso/Dollar, 1967-1980 4 Nominal and Effective CAT (Banco de la Republica Calculations), and Other Effective Export Incentives, 1970-1980 5 Nominal and Effective Incentives to Industrial Exports, 1967-1980 6 Registered Imports Free and Licensed 7 Most Important Items-Registered Imports Under Previous License in 1980 8 Numbers and Percentages of Tariff Positions on Prohibited, Prior License and Free Lists 9 Import Requests Approved and Disapproved in 1980 10 Imports Authorized Under Global License 11 Imports Under Plan Vallejo 12 Nominal and Effective Protection (%) and Items Under Prior License 13 Exports of Manufactured Goods as Percent of GDP and as Percent of Industrial Output 1970-1980 14 Exports of Manufactured Goods by ISIC Classification, 1974-1981. 15 Exports of Manufactured Goods, by ISIC Classification, 1974-1980 16 Proportion of Industrial Exports in Gross Value of Industrial Output, 1967, 1970-1980 17 Exports of Selected Manufactured Products, by Tariff Position, 1980-1981 (Jan. - Apr.). 18 Exports and Manufactured and Other Goods, 1967-1978 19 Exports of Manufactured Goods, 15 Main Products of Product Groupings, 1976-1980 20 Colombia's Export of Manufactured Goods to Venezuela, by Sector, 1970, 1973-1980 21 Colombia's Exports of Manufactured Goods to Venezuela, by Sector, 1970, 1973-1980 22 Exports of Metal Manufactures, to All Distinations and to Venezuela, 1978-1980 23 Geographic Distribution of Manufactured Exports, 1977 24 Exports to the Andean Market 1969-1976 25 U.S. Imports of Colombian Manufactured Goods, by U.S. Import Code, 1970, 1974, 1978 and 1979 26 Colombia's Exports of All Goods to Brazil, by Product, 1976-1980 *27 Colombia's Exports of All Goods to Brazil, by Product, 1976-1980 28 Exports of Textiles and Cotton, Main Items and Total, INCOMEX data, 1968-1980 29 Exports of Textiles and Cotton, Main Items, DANE Data 1976-1981 30 Volume of Exports of Principal Textile Items, 1967-1981 31 Exports of Textiles by Product and Destination, 1970, 1973, 1976, 1977 32 Exports of Textiles by COLTEJER, by Destination, Product and Fiber, 1978-1981 33 Utilization of EEC Textile Quotas, by Product and Country, 1978-1981 34 Utilization of U.S. Textile Quotas, by Type of Product, 1975/76- 1980/81 35 Utilization of U.S. Textile Quotas by Quota Category 1975/76 - 1980/81 - 181 - Table 36 Uti:Lization of US Cotton Textile Quotas, By Quota Category, US Data 1978/79 - 1979/80 37 Volume of Exports of Fabric, by Firms, 1979-1980 38 Exports of Textiles to All Destinations, the Three Largest Firms, by Product, 1978-80 39 Exports of Textiles from Selected Development Countries, 1970, 1975 and Growth 1970-1975 40 U.S. Imports of Textiles, by Country of Region of Origrin, 1975/76 - 1979/80 41 Exports of Metal Manufactures, to All Destinationas and to Venezuela, 1978-1980 42 Exports of Processed Food Products, 1976-1980 43 Price of the US Dollars and Col$ with Respect to EEC Currencies and Colombia's Exports of Textiles to the EEC, 1979-1981 44 Imports and GDP 1960-1980 45 Registered Imports Free and Licensed 46 Imports According to Use, C.I.F. 47 Import Registrations by Economic Cat.egory, 1975-80 48 CIF Imports, By Principal Product Groups, 1960-1980 49 Estimates of Colombian Import Function 50 Import Demand Regression and ResiduE.ls 1960-1980 51 Aggregate Relationships: Output, Inf'lation, Aggregate Demand Import Prices 1954-1980 52 Types of Investment (1970 Prices) 53 Labor Productivity in Colombia's Manufacturing Sector 1970-1979 54 Investment and Its Financiag, 1960, 1965, 1967, 1970, 1975-1980 55 Effective Interest Rates - Principal Financial Assets 56 Sources and Uses of Investment Funds - Major Colombian Industries 57 Sources and Uses of Investment Funds in Colombia Agricultural, Manufacturing and Commercial Corporations 58 Total Institutional Credit Outstandiing by Source, Term and Sector 59 Credit in Organized Markets and Direct External Sources (year end) 60 Distribution of Credit to Manufacturing by Source 1970-1980 61 Distribution of Liabilities of Major Financial Intermediaries 62 Manufacturing Gross Production and Vlalue Added, 1970-1980 Table 1: REAL EXCHANGE RATES, 1967-198U a! Pe-o/D,,llar Peso/Weightcd Average Basket of Currencie, b/ BANCO DE LA ASOBANCARIA FEDESARROLLO MiORAWETZ BANCO DE LA ASOBANCARIA FEDESARROLLO MORAWETZ BANCO DE LA ASOBANCARIA FEDESARROLLO BANCO DE LA ASOBANCARIA FEDESARROLLO REPUBLICA REPUBLICA REPUBLICA REPUBLICA (Index 1971 = 100) (Annual change %) (Index 19/1 100) (Annual ohau,ge %) 1967 na. 83.8 78.6 82.2 ..a. a. n.a. na. na. 80.4 82.0 na. n.a. n.a. 1968 n.a. 88.3 88.1 89.6 n.a. 5 12 9 na. 85.6 86.2 n.a. 6 5 1969 n.a. 89.4 90.5 91.3 -na. 1 3 2 n.a. 86.5 87.6 I.a. 1 2 1970 96.0 94.9 95.6 96.5 n.a. 6 6 6 96.6 89.) 93.6 n.a. 4 7 1971 100.0 100.0 100.0 100.0 4 5 5 4 100.0 100.0 1011.0 4 12 7 1972 100.0 99.3 99.1 99.7 0 - I -1 -0 103.5 100.4 103.9 4 0 4 1973 95.3 95.2 92.7 95.4 -5 - 4 -6 --4 102.7 99.5 106.7 -1 -1 3 1974 93.7 97.9 94.3 94.8 -2 3 2 -1 101.1 107.2 103.9 -2 8 -3 1975 98.8 100.4 94.2 99.9 5 3 -0 5 109.2 109.5 117.5 8 7 13 1976 97.4 97.2 92.8 98.1 -1 - 3 -1 -2 107.4 107.0 120.2 -2 --2 2 1977 82.6 81.3 78.9 83.3 -15 -16 -15 -15 93.2 93.2 112.9 -13 -13 -6 1978 80.2 79.9 76.1 80.7 -3 - 2 -4 -3 94.4 95.0 114.6 1 2 2 1979 78.1 76.5 72.3 78.3 -3 - 4 -5 -3 92.4 90.3 110.2 -2 -5 -4 1980 77.7 79.9 75.4 c/ 77.6 -1 4 4 c/ -1 93.9 94.0 111.4 c/ 2 4 1 c/ 1981 Jax/jun. na. 76.5 na. 74.5 n. - 4 n.a -4 n.a. 87.2 n7e. na. -7 na. a/ The real e-change rate in the noxirnal exchange ratc adjnsred for inflation in Coloxhia and the U.S. (peso/dollar) or Colombia a-d .11 maje partner countriea (peso/weighLed average basket of curre.nciej). The original series have been converted to 1971 = 100. b/ Weighted average real exchange rate calculations use partner c-untries' shares of non-coffee exports as the weights. r/ Preliminary estimate. SOURCES: ASOBANCARIA, unpublished data. FEDESARROLLO. CyotunLra Economica, Oct. 1980, 'table V-9. MORAWETZ, David, Lhy he Emperors New Clothes Are Not Made in Colonbia, New York, Oxford Universitv Pre-o, 1981 (data for 1978-80 updated by the author). BANCO DE LA REPUBI.ICA, Departamento de Investigacione3 Ponoonicas, Divisien di Economia Irternacional, "C,opPrtaoiento de las Tasas de Cambio de la Fnportaci-nes Menotes en, 1980, mim.o, Bogota, April 1980, Table 1. LCPI2 November 1981 Table 2: REAL EFFECTIVE EXPORT EXCHANGE RATES, 1967-1980 a/ Peso/Dollar Peso/Weighted Average Basket of Currencies b/ BANCO DE LA ASOBANCARIA FEDESARROLLO MORAWETZ BANCO DE LA ASOBANCARIA FEDESARROLLO MORAWETZ BANCO DE LA ASOBANCARIA FEDESARROLLO BANCO DR LA ASOBANCARIA FEDESARROLLO REPUBLICA REPUBLICA REPUBLICA REPUBLICA _ (Index 1971 = 100) (Annual change 1) (Index 1971 = 100) (Annual change Y) 1967 n.a. 82.3 77.2 80.7 n.a. n.a. n.a. n.a. 79.0 £0.6 n.a. n.a. n.a. 1968 n.a. 87.7 87.5 88.9 n.a. 7 13 10 n.a. 85.1 85.7 n.a. 8 6 1969 n.a. 89.0 90.1 90.7 n.a. 1 3 2 n.a. 86.1 87.2 n.a. I 2 1970 95.9 94.8 95.5 96.2 n.a. 7 6 6 96.4 89.4 93.5 n.a. 4 7 1971 100.0 100.0 100.0 100.0 4 5 5 4 100.0 100.0 100.0 4 12 7 1972 99.7 99.5 99.3 99.8 -0 -1 -1 -0 103.4 100.6 104.1 3 1 4 1973 95.1 95.8 93.3 96.0 -5 -4 -6 -4 102.7 100.1 107.4 -1 -0 3 1974 92.5 100.7 97.1 97.5 -3 5 4 2 99.9 110.3 106.9 -3 10 -0 1975 90.1 93.0 87.2 92.5 -3 -8 -10 -5 99.5 101.5 108.8 -0 -8 2 1976 88.1 90.7 86.5 91.4 -2 -2 -1 -1 97.1 99.8 112.1 -2 -2 3 1977 74.5 79.6 77.2 81.4 -15 -12 -11 -11 84.1 91.3 110.5 -13 -9 -1 1978 73.2 81.7 77.8 82.4 -2 3 1 1 86.1 97.2 117.2 2 6 6 1979 71.7 78.7 74.4 80.4 -2 -4 -4 -2 84.8 92.8 113.3 -2 -5 -3 1960 71.3 83.2 78.4 80.6 -1 6 5 0 86.2 97.7 115.8 2 5 2 1981 b/ Jan.-Jun. n.a. 79.6 n,a. 77.4 n.a. -4 n.a. 4 n.a. 90.7 n.a. n.a. -7 n.a. a/ The series for ASOBANCARIA, FEDESARROLLO and MORAWETZ were derived by applying the total effective subsidy to exports (CAT plus PROEXPO credit) to the real exchange rate indexes presented in the preceding table. The BANCO DE LA REPUBLICA series was taken directly from the source cited in the previous table; it includes the effective value of the CAT but does not include the effective value of PROEXPO credit. b/ Assumes effective incentive to exports is the sare is 1981 (Jan-June) as in 1980. SOtlRCES: Real exchange rates - see previous table. Effective subsidy to exports - see table titled Nominal and effective subsidies to exports (Morawetz data updated). LCP12 November 1981 Table 3: NOMINAL, REAL AND REAL EFFECTIVE EXCHANGE RATES PESO/DOLLAR, 1967-1980 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Nominal exchange rate - pesos per dollar 14.88 16.48 17.53 18.68 20.26 22.14 23.98 26.66 31.58 35.21 37.20 39.10 42.55 47.28 - index 100.0 110.8 117.8 125.5 136.2 148.8 161.2 179.2 212.2 236.6 250.0 262.8 286.0 317.8 Consumer price index - Colombia (blue 100.0 105.9 116.6 124.5 135.8 153.8 185.1 229.6 281.7 338.6 448.7 523.6 653.8 831.5 collar workers) - United States 100.0 104.2 109.8 116.3 121.3 125.3 133.2 147.7 161.3 170.6 181.8 195.5 217.6 247.0 i OD Je. Real exchange rate 100.0 109.0 111.0 117.3 121.6 121.2 116.0 115.3 121.5 119.3 101.3 98.1 95.2 94.4 i Real effective exchange rate 100.0 110.2 112.4 119.2 123.9 123.7 118.9 120.8 114.6 113.2 100.9 102.1 99.6 99.9 a/ For the definitions of the different exchange rates, see Morawetz, Why The Emperor's, Chap. 2, Briefly, the real exchange rate adjusts the nominal exchange rate for inflation in Colombia and the United States; the real effective exchange rate addds to the real exchange rate the effective value of the CAT and of subsidized PROEXPO credit. During Jan-June 1981, the rate of increase in the consumer price index in Colombia was 16.6%, while that in the United States was 5.0%. The peso was devalued by 6.6% during the same period. SOURCE: Nominal exchange rate; averages of quarterly data presented in IMF, International Financial Statistics, 1967-77; annual average rate in the same publication for 1978-80. Consumer price indexes: IMF, International Financial Statistics, 1967-1981. Hc LCPI2 October 1981 Stat. App. -185 - T-4 Table 4: NOMINAL AND EFFECTIVE CAT (BANCO DE LA REPUBLICA CALCULATIONS), AND OTHER EFFECTIVE EXPORT INCENTIVES, 1970-1980 (percent of value of exports) Effective Effective CAT Nominal Effective PROEXPO plus Effective CAT a/ CAT b/ Credit PROEXPO Credit L'970 12.9 15.1 15.1 1L971 12.0 15.3 15.3 .1972 13.2 15.0 - 15.0 .1973 15.3 15.2 0.7 15.9 L974 14.0 13.9 1.6 15.5 L975 5.0 5.1 1.6 6.7 .1976 4.0 4.2 2.3 6.5 L977 3.3 4.0 4.1 8.1 1978 4.7 5.1 4.5 9.6 .1979 5.5 5.9 5.8 11.7 L980 5.4 5.8 7.5 13.3 Notes; al Calculated on a quarterly basis as: CAT payments as percent of peso value of minor exports (= dollar value of minor expoits x average nominal exchange rate). lb| Weighted average of the effective value of CATE; held and sold the exporter. Sources: First two columns: Banco de la Repiublica, Departamento de Inves- tigaciones Economicas, Division de EcoTLomla Internacional, "Compor- tamento de las Tasas de Cambia de las E:xportaciones Menores en 1980," mimeo, Bogota, April 30, 1980. Column 3: Table (R6) above. Column 4: Column 2 + column 3. LCP12 November 1981 Table 5: NOMINAL AND EFFECTIVE INCENTIVES TO INDUSTRIAL EXPORTS, 1967-1980 a/ 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Nominal value of CAT as % 15 15 15 15 15 15 15 15 5 5 8 12 12 12 of value of exports b/ Discount if CAT is sold in 19.9 11.0 9.5 7.1 5.8 4.4 5.1 5.6 3.0 2.5 3.8 5.7 10.7 13.0 stock market when received, as % of value of CAT. Average tax rate on corporate 12.5 12.5 12.5 12.5 12.5 12.5 12.5 20 20 20 20 20 20 20 profits (%) Percent of value of exports - - - - - - 80 80 80 80 8o 80 80 80 that may be financed by PROEXPO credit Rate of interest on PROEXPO - - - - - 18 18 18 18 15.1 13 17 19 credit (% p.a.) Market rate of interest c/ 18 18 15 t4 15 17 20 23 23 25 28 27 36 45 (C p.a.) Effective value of CAT, as % of value of exports d/ 14.2 15.5 15.7 16.1 16.3 16.5 16.4 17.9 6.1 6.1 9.7 14.3 13.7 13.4 Effective subsidy implicit in - - - - - - 0.7 1.6 1.6 2.3 4.1 4.5 5.8 7.5 PROEXPO credit, as % of value a, of exports d/ Total effective subsidy to 14.2 15.5 15.7 16.1 16.3 16.5 17.0 19.6 7.7 8.4 13.8 18.9 19.5 20.9 industrial exports (CAT + PROEXPO credit), as percent of value of exports. a/ The incentives are calculated for limited liability companies that do not use the Vallejo Plan. For data on public companies and firms that use the Vallejo Plan, see Morawetz, David Why the Emperor's New Clothes Are Not Made in Colombia. Tables 2.1 and 2.3. b/ From 1974 onward, firms using the Vallejo Plan have received the CAT on domestic value added only. CAT rates were differentiated by product in 1975. The rates have been: 1975-5%, 7%; 1976-5%, 8%; 1977-79-5%, 9%, 12%; 1980-81-5%, 9%, 12%. There was also a rate of 0.1% during 1975-1979. c/ The rate of interest implicit in the CAT. d/ For the formulas used to calculate these effective subsidies, see Morawetz (1981, Appendix B). SOURCES: CAT: Government of Colombia, Decree Laws Nos. 444 of 1967; 2004 of 1974; 2091 of 1976, 2227, 2990, and 2291 of 1977; and 2067 of 1978. Also DNP, unpublished data. Discount on CAT: Teigeiro and Elson (1973); Cardona (1977, Table 9); snd Belsa de Bogota, unpublished data. Tax rate on corporate profits: Perry (1977). 3 n PROEXPO credit: PROEXPO, unpublished data. Rate of interest on PROEXPO credit: Resolutions of the Junta Monetaria No. 59 of 1972 and No. 34 of 1977; and PROEXPO, unpublished data. I Market rate ot interest, 1967-75-Carrizosa (1977); 1977-78-calculations of PEDESARROLLC; 1979-80-Bolsa de Bogota, unpublished daa. LCPI2 October 1981 Stat. App. - 187 - T-6 Table 6: REGISTERED IMPORTS FREE AND LICENSED Total Imports1, DANEP Imports Using Imports with For. Exch. X 0f-/ 2 (IRegistered) - InMorts Purchased (Not reimbursable) Reimbursable Total Import Registered For.Exch. Imports Free Free Imports (Reimbursable) 1968 624.9 1.03 521.3 103.6 n.a. 124 1969 755.2 91 638.5 116.7 n.a. 18- 1970 920.6 .74 785.4 135.2 21 20 197'1 784.8 1.18 710.4 74.4 31 25 19 72 902.0 .95 785.9 116.1 31 28 19 73 1225.6 87 1036.7 188.8 35 31 19,74 1788.5 .89 1536.5 252.0 46 43 19,75 1502.6 .99 1279.4 223.0 51 45 1976 1990.7 86 1520.7 470.0 51 40 19v7 2665.8 .76 2259.9 405.9 47 41 1978 3412.8 .83 2755.3 657.5 52 43 1979 4629.7 .70 4201.0 428.8 48 44 1980 5412.7 83 4685.9 726.8 50 44 1/ Excludes special imports through Leticia and San Andres of about 10 millior. dollars per year before 1974-all reimbursable and free. 2/ Source: INCDMEYX 3/ Figures for imports and divisions into reimbursable and non-reimbursable from Banco de la Republica before 1975. 4/ Source: Wogart LCP:12 June 1982 - 188 - Stat. App. T-7 Table 7: MOST IMPORTANT ITEMS-REGISTERED IMPORTS UNDER PREVIOUS LICENSE IN 1980 (million dollars) Colombian Tariff Code Product 1976 1977 1978 1979 27090000 Crude Petroleum-l 109.0 181.7 165.9 227.4 10010194 Other Wheat 45.6 57.6 61.4 100.0 870205 Chassis Cabs (3 codes) 30.7 45.4 96.3 112.3 88020221 Airplanes (1 motor) 13.0 47.7 39.2 92.0 87020199 Other Autos (Personal) 4.5 30.4 53.1 90.4 870201 Campers (2 codes) 23.0 56.6 70.1 73.1 150701 Soybean Oil (2 codes) 27.3 21.6 33.5 68.3 48010101 Paper (Newsprint) 17.5 19.4 23.0 27.6 87010200 Tractors 4.1 8.0 13.8 26.9 39020199 Polyamide wastes 5.5 16.0 21.9 26.8 31020800 Urea 2.5 23.4 30.5 26.2 87010101 Road Tractors 3.4 3.3 15.3 19.4 Total 12 most important 1980 286.1 511.1 624.0 890.4 Total Previous License (Reimbursable & Nonreimbursable) U98.3 1567.8 1951.3 2573.4 % of Top 12 in Total in 1980 24 33 32 35 jl Understates petroleum imports substantially. LCPI2 June 1982 Table 8: NUMBERS AND PERCENTAGES OF TARIFF POSITIONS ON PROHIBITED, PRIOR LICENSE AND FREE LISTS 1971 to 1980 8/71 % of 21/75 % of 19791 % of 197911 of 1980 % of Total Total Total Total Total Prohibited-/ 704 16 _ Prior License 3496 80 3128 66 2218 46 1592 33 1502 31 Free 150 4 1621 34 2560 54 3186 67 3276 69 Total Positions 4350 4749 4778 4778 477£ H Sources: 1971 Diaz Alejandro, p. 218 1975 Armenta de la Pena, et al, p. 25, 32 1979 Giraldo, p. 47 1980 Marin, p. 8 1/ Category eliminated August 1973 except for automobiles. LCPI2 June 1982 1 Xt l , - 190 - Stat. App. T-9 Table 9: IMPORT REQUESTS APPROVED AND DISAPPROVED IN 1980 (Excludes Automobiles,l/ Plan Vallejo, Licencias Globales) 2/ Approved % Rejected % Various- % Total Number Number 65478 88.9 3528 4.7 5295 7.1 74301 Value 1229 94.0 78 6.0 -- 1307 (million dollars) .Note: Local production was cited as one of the reasons for rejection in 'about 40% of the cases. 1/ Autos below a certain minimum price are prohibited. In 1980 this price was raised from $2000 to $5000. At that time requests for imports were paralyzed. Recently roughly 1000 of those paralyzed requests were later approved. 2/ Requests not considered because of errors, underinvoicing, etc. LCPI2 June 1982 - 191 - Stat. App. T-10 Table 10: IMPORTS AUTHORIZED UNDER GLOBAL LICENSE Value of Imports Years Projects Authorized 1970 137 83.9 1971 100 46.9 1972 89 31.3 1973 90 62.7 1974 35 47.3 1975 35 163.0 1976 51 123.3 1977 136 227.6 1978 124 309.8 1979 173 220.1 1980 218 382.3 Source: INCOMEX, Comercio Exterior, March, 1981 and April-May, 1981. LCPI2 June 1982 Stat. App. - 192 - T-11 Table 11: IMPORTS UNDER PLAN VALLEJO (million dollars) % of Total Actual % of Actual Payments Registros Registros Imports For Imports 1967 17.0 3.2 5.1 1.1 1968 17.7 2.8 10.7 2.5 1969 13.7 1.8 9.3 2.0 1970 24.8 2.7 9.7 1.7 1971 26.0 3.3 13.4 2.2 1972 37.7 4.2 11.7 1.8 1973 44.5 3.6 13.8 1.9 1974 67.0 3.9 28.0 2.7 1975 61.7 4.1 47.2 3.6 1976 67.6 3.4 51.0 4.1 1977 85.0 3.2 50.6 2.9 1978 87.9 2.6 54.7 2.6 1979 124.3 2.7 65.6 2.6 1980 197.1 3.6 92.6 2.6 Sources: Column 1Banco de la RepAiblica, Registros de Exportaciones e Importaciones Column 2,Banco de la RepAiblica, Pagos por Importaciones LCPI2 June 1982 Table 12: NOMINAL AND EFFECTIVE PROTECTION (X) AND ITEMS UNDER PRIOR LICENSE Colombian Three Digit Industries 1975 and 1919 1979 II 1-9 7 5 ~~~~~~1919 I Industry or _ inal ivee / i Nominal ite (tariff code) Name Protection Prior License Protection Protection Prior License Protection Prior License Av. S.D. No. X Av. S.D. Av. S.D No. 2 Av. S.D. AV. S.D. Coefjax. No. 311 Food Products Industry 36 20 - - 32 16 92 49 29 15 82 .46 56v 121 312 Other Food Products Industry 30 13 - _ 22 9 48 32 7 20 8 45 29 651 30 313 Beverages 60 14 - - 56 16 82 14 27 68 49 16 75 13 17 6 15 314 Tobacco Industry 55 8 - _ 27 7 47 29 7 100 27 7 51 32 65 4 57 321 Textiles Industry 60 25 - - 59 22 127 54 78 36 59 23 127 55 44 75 35 (50-59) Textile Imports 49 - 203 90 49 - 107 - 120 53 48 - 106 - - 111 49 322 Garment Industry 79 21 74 100 74 23 104 24 13 27 72 24 100 22 22 7 15 (60-63) Garment Imports 86 - 48 100 83 - 134 - 15 17 83 - 133 - - is 17 323 Leather Industry 46 11 - - 31 17 43 21 23 74 9 14 41 16 38 8 26 (41-43) Lesther Imports 45 - 49 98 31 - 62 - 34 68 e _ _ 12 24 1 324 Shoe Industry 70 12 - - 52 20 85 27 4 67 52 20 88 29 33 2 33 iA (64) Shoe Imports 70 10 8 100 55 18 87 24 6 75 55 18 90 25 28 2 25 ( 341 Paper Industry 28 12 - _ 28 9 45 17 75 65 27 7 43 14 32 57 49 342 Printing Industry 39 10 - - 41 20 45 29 8 29 31 15 31 21 66 2 7 (48-49) Paper and Printed Materials Imports 30 - 90 62 31 - 45 - 85 58 28 - 41 - - 61 41 351 Indust. Chemicals Industry 20 10 - - 21 8 27 18 368 34 19 7 25 16 65 228 21 352 Other Chemicals Industry 21 17 - - 19 15 29 24 155 50 17 13 27 21 79 79 26 (28-38) Chemical Imports 20 - 474 37 19 - 26 - 467 36 18 - 24 - - 239 1i 371 Iron and Stee1 ln .-.-, 91 is _ 21 S 3J 9 76 J 20 I 32 94 0 372 Other Basic Metals Industry 23 11 - - 20 9 32 18 23 23 19 8 29 14 48 10 10 381 Metal Products Industry - - - - 40 11 67 27 128 54 36 10 59 25 41 108 A6 (73-83) Metal Products Imports 33 - 295 56 30 - 49 - 241 46 28 - 44 - - l7l 41 382 Non Elec. Machinery Industry 27 15 349 71 24 19 29 29 255 52 22 18 28 36 to1 01i 48 (84) Non Elec. Hachinery Imports 26 15 349 71 23 19 29 30 243 49 21 17 27 2d I04 224 4b 383 Elec. Machinery Industry 34 15 173 74 34 18 53 38 115 48 32 16 50 34 8t 112 47 (85) Elec. Machinery Imports 34 15 173 74 35 17 54 37 122 52 32 15 51 32 63 ttl 92 384 Transport Equip. Industry 40 44 - _ 37 40 87 102 103 67 34 34 74 91 ljNI 99 48 ,i (86-89) Transport Equip. Imports 43 _ 15 89 40 - 93 99 73 3I r U -(1 (87) (Automobile Imports) 52 52 93 97 47 47 121 116 75 82 43 40 ld 102 94 pi 74 t *.11 '=po:: 36 _ 3i28 66 26 19 48 43 2216 46 18 18 44 481 4t I99 WC) LCPI2 June 1982 Table 13: EXPORTS OF MANUFACTURED GOODS AS PERCENT OF GDP AND AS PERCENT OF INDUSTRIAL OUTPUT 1970 - 1980 Industrial Exchange Industrial GDP at Gross Value Industrial Industrial Exports Rate Exports Market of Industrial Exports Exports (US$ (Pesos (millions Prices Output as % of as % of millions) per of Pesos) (billions (billions GDP a/ Industrial Dollar) of Pesos) of Pesos) Outpuit a/ 1970 89.2 18.68 1,665 130.4 59.3 1.3 2.8 1971 104.6 20.26 2,119 152.3 71.1 1.4 3.0 1972 176.5 22.14 3,908 186.1 87.6 2.1 4.5 1973 329.4 23.98 7,899 243.2 116.4 3.3 6.8 1974 a/ 678.0 26.16 18,075 329.2 169.2 5.5 10.7 1975 612.2 31.58 19,335 412.8 202.6 4.7 9.5 1976 620.5 35.21 21,849 534.0 271.2 4.1 8.1 1977 654.4 37.20 24,345 718.5 349.0 3.4 7.0 1 1978 768.9 39.10 30,063 916.6 442.0 3.3 6.8 v 1979 b/ 1,134.0 42.55 48,250 1,193.6 600.5 4.0 8.0 4 1980 1,176.9 47.28 55,645 1,547.9 775.2 3.6 7.2 l a/ The use of DANE export data for 1974-79 gives the following percentages respectively: as % of GDP, D. D/, .4, J.O, j.3, 6.3 b/; as T. of industrial production, 10.2 b/, 9.1, 7.4, 6.8, and 16.5 b/. b/ Probably includes some fictitious exports. SOURCES: Industrial exports: INCOMEX. Exchange rate: IMF, International Financial Statistics. GDP: Banco de la Republica (PIB). LCPI2 October 1981 rt - 195 - Table 14: EXPORTS OF MANUFACTURED GOODS BY ISIC CLASSIFICATION) 1974-1981 (US$ millions) ISIC Products 1974 a/ 1975 1976 1977 1978 1979 a! 1980 1981 31 FOOD PRODUCTS, BEVERAGES, TOBACCO 139.6 183.1 139.6 119.3 135.7 182.0 138.4 252.9 311 Food products 132.7 175.6 132.7 83.1 107.6 151.5 115.0 206.5 312 Other food products 6.5 7.3 6.5 35.6 26.3 28.8 27.1 43.8 313 Beverages 0.2 0.1 0.2 0.2 0.1 0.3 0.2 1.1 314 Tobacco products 0.3 0.1 0.3 0.4 1.6 1.3 1.1 1.4 32 TEXTILES, CLOTHING, LEATHER PRODUCTS 168.4 117.5 168.4 168.4 193.9 264.0 232.2 269.7 321 Textiles b/ 94.5 70.0 94.5 86.6 98.6 117.5 85.2 111.9 322 Clothing 50.4 a/ 26.6 50.4 47.0 60.8 107.4 101.6 114.0 323 Leather and leather products 14.2 15.0 14.2 26.7 27.1 27.4 31.4 28.6 :324 Leather footwear 9.3 5.8 9.3 8.1 7.4 11.7 14.0 15.2 33 WOOD PRODUCTS, FURNITURE 30.6 8.4 30.6 16.4 14.6 22.8 14.1 18.4 .331 Wood and wood product:s 14.9 6.5 14.9 11.0 8.1 13.4 10.4 14.0 332 Wooden furniture 15.7 1.9 15.7 5.4 6.6 9.4 3.7 4.4 34 PAPER PRODUCTS, PRINTING 13.9 16.1_ 14.0 52.4 72.5 53.5 54.9 92.1 341 Paper and paper produicts 2.9 1.6 2.9 17.9 15.0 23.0 13.1 44.9 342 Printing and related industries 11.0 14.5 11.0 34.5 57.5 30.6 41.8 47.2 35 CHEMICAL, PlETROLEUM, RUBBER AND 193.8 171.5 193.8 148.4 186.6 200.0 196.9 149.0 PLASTIC PRODUCTS 351 Basic chemicals 58.3 42.9 58.3 29.1 33.7 40.1 39.8 59.7 :352 Other chemical products 13.7 13.8 13.7 18.9 19.9 23.4 22.4 32.3 353 Petroleum refining 109.1 102.0 109.1 86.5 120.5 119.4 111.7 33.6 354 Petroleum and coal products 3.8 3.2 3.8 3.6 2.9 4.1 3.8 5.9 :355 Rubber products 6.5 7.9 6.5 7.1 3.5 4.3 4.1 5.6 356 Plastic products 2.3 1.6 2.3 3.2 6.0 8.6 15.1 11.7 36 NON-METALLIC MINERAL PRODUCTS 25.8 25.7 25.8 38.4 44.9 67.1 56.2 72.0 .361 Ceramic and porcelain products 2.6 2.4 2.6 4.3 4.2 12.3 12.5 13.0 .362 Glass products 6.6 7.3 6.6 9.9 9.7 14.3 17.0 14.9 .369 Other non-metallic mineral products 16.6 16.1 16.6 24.2 30.9 40.6 26.7 44.1 37 BASIC METALS 8.0 3.4 8.0 4.6 4.2 2.5 2.0 2.5 .371 Iron and steel 6.6 2.7 6.6 2.8 2.9 1.4 1.0 1.1 :372 Non-ferrous metals 1.5 0.7 1.5 1.8 1.3 1.1 1.0 1.4 38 METAL PRODUCTS, MACHINERY, EQUIPMENT 52.6 51.2 52.6 93.4 100.2 141.6 136.3 159.9 381 Metal products 17.1 15.5 17.1 24.1 28.2 55.0 43.4 52.7 .382 Non-electrical machinery 20.0 18.7 20.0 35.3 37.4 42.6 48.0 38.3 .383 Electrical machinery 6.2 6.0 6.2 8.4 9.5 17.5 13.4 26.3 384 Transport equipment 6.1 8.0 6.1 20.2 19.8 17.9 22.7 31.8 385 Professional and scientific equipment 3.1 2.9 3.1 5.5 5.3 8.6 8.8 10.8 39 OTHER INDUSTRIES 26.1 17.8 26.1 25.2 16.5 18.5 20.0 _85.6 TOTAL 658.9 594.7 658.9 666.6 769.0 952.3 851.0 1,102.0 a/ Includes fictitious exports. h/ Does not include raw cotLon. SOURICE: 1974-1979 DANE, Anuarios de Comercio Exterior (Exportaciones segun C::IU Rev.2); 1979/80 DkNE, Boletin Mensual de Estadistica No. 359. and unpublished data. LCI'I2 October 1981 Table 15: EXPORTS OF MANUFACTURED GOODS, BY ISIC CLASSIFICATION, 1974-1980 (percent) ISIC Product 1974 a/ 1975 1976 1977 1978 1979 a/ 1980 31 Food products, beverages, tobacco 21 31 21 18 18 19 16 321 Textiles b/ 14 12 14 13 13 12 10 322 Clothing 8 a/ 4 8 7 8 11 a/ 12 323-4 Leather products, footwear 4 3 4 5 4 4 5 33 Wood products, furniture 5 1 5 2 2 2 2 341 Paper and paper products - - - 3 2 2 2 342 Printing and related industries 2 2 2 5 7 3 5 35 ex.3 Chemical, rubber and plastic products 13 12 13 9 9 8 10 353 Petroleum refining 17 17 17 13 16 13 13 36 Non-metallic mineral products 4 4 4 6 6 7 7 37 Basic metals 1 1 1 1 - - - 381 Metal products 3 3 3 4 4 6 5 ' 382 Non-electrical machinery 3 3 3 5 5 4 6 ' 383 Electrical machinery 1 1 1 1 1 2 2 384 Transport equipment 1 1 1 3 3 2 3 (37-384) (Metal Manufactures) (9) (9) (9) (14) (13) (14) (16) 385 Professional and scientific equipment 1 1 1 1 1 1 1 39 Other industries 4 3 4 4 2 2 2 TOTAL 100 100 100 100 100 100 100 a/ Includes fictitious exports. b/ Does not include raw cotton. SOURCE: 1974-1979 DANE, Anuarios de Comercio Exterior (Exportaciones segun CIIU Rev. 2); 1979/80 DANE, Boletin m Mensual de Estadistica No. 359, and unpublished data. I > LCPI2 October 1981 - 197 - Stat. App. T-16 TABLE 16: - COLOMBIA: PROPORTION OF INDUSTRIAL EXPORTS IN GROSS VALUE OF INDUSTRIAL OUTPUT, 1967, 1970-80 (in Percent) a/ at a/ a/ a/ 1967 1970 1971 1972 1973 19'74 1975 1976 1977 1978 1979 1980 o Dd. Products 0.70 1.51 1.55 1.93 0.78 6,136 14.27 7.94 Beverages - 0.01 0.01 0.03 0.03 0.03 0.02 0.02 2.00 1.50 2.00 1.80 Tobacco Products 0.05 0.04 0.05 n.a. n.a. 0.26 0.08 0.02J 7extiles 2.72. 5.01 5.11 6.14 8.71 11.47 9.87 10.35 8.90 9.20 11.00 9.60 Clbthing, Footwear 0.38 2.21 2.24 7.68 18.51 26.11 12.79 14.00) bI $ToDC1 and Products 2.56 19.52 18.50 19.03 33.45 32.:L9 15.37 40.6 10 514.80 8.50 10.80 10.10 Purniture, Fixtures - 4.92 5.73 9.56 44.46 45.138 4.99 9.21J Paper and Products 11.46 6.90 4.99 4.62 4.77 14.73 7.91 9.09> I-8.10 7.50 8.40 8.90 Pritnting 0.12 3.28 3.68 4.15 4.98 6.45 7.91 8.50 J C/ Leat:her Products 12.39 1S.71 15.42 40.42 41.84 21.34 21.72 26.47 28.70 29.80 27.00 18.30 luSlber Products 3.77 2.23 2.14 2.02 3.14 4.'0 5.43 4.32 n.a. n.a. n.a. n.a. C:hsniicaa s 1.38 2.24 2.84 4.54 6.33 10.95 7.88 6.31 4.70 4.60 5.20 4.50 Oil Products 0.55 0.43 0.26 n.a. n.a. 2.92 2.41 0.77 19.20 24.70 18.70 27.90 Voil Metallic Minerals 5.63 6.29 4.57 6.16 7.44 13.00 12.37 18.67 16.00 21.60 36.70 17.80 liad-c Metals 0.44 0.87 1.14 5.28 2.17 2.69 N3e47 5'99 L 5.30 5.30 12.40 4.70 Ee-al Products 2.16 2.06 2.35 J 4.27 3.25 6.12J Eechanical Machinery - 1.83 7.59 8.07 11.53 16.09 25.56 21.79 18.411 - .1O.O0 8.40 10.00 9.20 E'lectrical Machinery 0.84 1.22 1.69 1.44 1.49 3.06 2.96 3.3 Transport Equipment 0.06 1.63 1.46 1.15 1.19 2.37 3.31 5.85 4.80 3.90 3.00 3.10 others 1.33 12.22 11.07 22.98 51.65 20.03 15.41 45.66 6.40 7.00 8.80 .10 loc:al 1.72 -2.79 2.97 4.43 6.75 10.168 8.84 8.00 6.80 6.90 8.10 7.00 * / Estimated cj Exports include wood (madera bruta) w.hich meay not be included Ln corresponding data for production of wood and products, thus exaggerating the of exports in total production. S, Total production - inicluding reptile leather which is almost entirely exported. Source: 8anco de la Republica and DAIvE (gross value of output est:Lmates) and INCOgE (ex;ports registrations). LC'PI2 June 1982 - 198 -~ Stat. App. T-17 Table 17: EXPORTS OF SELECTED MANUFACTURED PRODUCTS, BY TARIFF POSITION, 1980 - 1981 (JAN.-APR.) Tariff Jan.- April Percentage Position Description 1980 1981 Increase 29 Organic chemical products 2.1 1.5 -29 30 Pharmaceutical products 1.1 1.4 31 38 Other chemical products 1.7 3.0 79 39 Plastic products 1.6 3.5 116 42 Leather products 2.3 2.9 29 48 Paper products 5.0 4.2 -15 49 Printing 4.2 5.4 31 55 Cotton (inc. cotton textiles) 10.2 14.2 39 58 Carpets, etc. 1.1 1.8 58 59 Rope, felt, etc. 1.6 1.5 -4 61 Clothing 8.3 6.9 -17 62 Other textile products 1.7 1.4 -16 69 Ceramic products 1.0 1.9 90 70 Glass products 1.7 1.2 -26 73 Iron and steel products 1.2 2.0 76 82 Tools, cutlery, etc. 0.9 1.8 105 83 Other metal products 0.3 1.6 389 84 Boilers, machinery 4.5 4.5 1 87 Transport equipment 1.8 2.4 33 90 Professional and scientific equipment 0.7 1.0 55 TOTAL 53.0 64.1 21 SOURCE: INCOMEX, Comercio Exterior de Colombia, April 1981 LCPI2 October, 1981 Table 18: EXPORTS AND IdANUFACTIUED AND OTCIR GOODS, 1967-1972 1/ Average Groth Averge Groth Vaice Is oillions of US Do11ars Rate Rate 1lA0 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1967-74 1974-78 Ma..factared Produste Food 18.4 26.3 35.0 33.4 45.3 79.5 94.8 136.8 178.7 113.6 89.1 148.2 33.5 2.1 B.veag- - - 0.1 0.2 0.3 0.1 0.2 0.1 0.1 0.2 0.1 - Toh.... - - - - - 0.3 0.2 0.3 0.1 - 0.4 3.8 - Teetilee 6.5 8.5 11.6 12.2 18.3 30.4 51.3 84.5 62.1 87.3 80.1 88.1 44.5 1.1 Gareente, Clothieg 0.5 0.6 1.0 1.1 1.7 5.8 20.4 56.1 31.7 42.4 56.4 80.0 97.0 9.3 Leether A itt Preducta 2,7 4.1 4.6 6.4 7.3 15.6 26.7 25.0 22.5 27.8 38.4 46.9 37.7 17.0 Wood Prodoete & Foreituro 3,4 4.3 6.2 4.6 5.0 8.0 19.8 29.7 7.7 13.4 14.7 17.4 36.0 - 13.0 Paper & Pristimg 9.2 21.8 7.3 3.6 4.4 10.1 10.4 14.1 16.3 35.1 52.6 53.5 6.3 39.3 Chemical Prdate 8.3 14.0 13.4 '14.9 20.3 27.6 48.3 87.4 70.1 62.7 59.2 69.2 40.0 - 3.5 Nos-tallr Ntierals 6.2 7.8 8.2 8.6 8.9 11.9 15.7 26.2 26.0 40.7 39.2 66.2 22.6 26.0 M.etal-teehe.ietl 6.2 6,6 9.1 9.8 22.1 21.6 37.9 60.5 54.4 66.8 100.3 113.1 38.5 16.9 hRndcrafte 0.1 - - - - 0.1 0.1 0.2 0.2 0.5 0.4 0.5 10.4 26.0 Other Mensuface.ted Prtodoet 0.3 0.5 0.4 0.8 4.3 3.3 4.6 7.7 8.2 5.2 8.7 11.9 38.0 11.3 Sob-totl 81.8 84.5 98.8 95.6 137.8 214.5 328.3 528.7 478.1 495.6 539.7 698.7 35.8 7.2 Other Praducts Coffee 332.4 351.4 343.9 466.7 395.4 429.6 596.9 622.3 671.8 968.1 n.t. 0.0. 9.4 0.0. Other 115.7 122.4 164 . 13.4 .0 .L 2. ..2. Sob-total 448.1 473.8 508.7 640.1 552.2 651.5 849.0 888.2 987.1 1,249.6 1 903 5 2,316.7 10.3 ?9.5 TOTAL EXPORTS 509.9 550.3 607.5 735.7 690.0 866.0 1,177.3 1,416.9 1,465.2 1,745.7 2,443.2 3,213.4 15.7 22.7 1/ The basic source oi DARE, ehih ..see customs cloera-e data, escopt for 1978 for ohich export -egistratio- data fras INGCOMEX is presested. The e-ports doto in this table are e-tracted fees a publi-atico of PRO3O, ohich eade several edj-stente to the DANE dote is order to arrive at a coseletert series that akbes account of charges over the. yess is the v=y p-rti-lar ieo-s are classified. The date differ ffes those in Annex I of the 1renid.nt'e Report because of different dote coerces and caverago. Eee else A-oex 4 T-15 fer a different ctegerie5tie ef *xport date fvrnishd by DANE end the foetnete ti pare. 1.14 for referense to -Itnee.eti-e SnCil: World Bank Report No. 2885h-CO, Project. Deperetes. Lets. Aeri-n and Ceribbe Regional Office, Staff Appraisal Report: Cnonobie - 8th DC'e Pr-eJct", April 29. 1980. November 1981 Table 19: EXPORTS OF MANUFACTURED GOODS, 15 MAIN PRODUCTS OF PRODUCT GROUPINGS, 1976-80 Volume of Value of Exports (US$ millions) Exports Product or Grouping 1976 1977 1978 1979-' 1980 1980 (1976=100) Raw sugar 22 0 21 47 175 329 Exterior clothing 24 36 49 91 86 189 Textile fabrics 50 36 46 59 56 113 Cement 35 27 38 58 54 136 Books, periodicals, etc. 9 12 21 29 42 213 Textile yarns of cotton 31 29 29 36 38 75 Beef 26 34 49 31 33 71 "Melazas" 4 2 6 13 26 341 Cheeses 4 11 21 20 21 188 Frozen shrimps 16 13 13 19 17 83 Bleached rice 42 0 3 32 15 19 Bedclothes 4 7 9 13 15 197 Leather travel goods 9 17 20 20 15 68 1 Leather shoe components 3 4 4 7 11 110 s Epsilon-caprolactama 2 3 3 4 10 384 ° Total 15 items 281 231 332 479 614 15 items as % of total exports of manufactured goods b/ 50% 41% 50% 46% 56% Notes: a/ May include some fictitious exports. b/ Excludes precious and semiprecious stones and "traditional" petroleum exports. Sources: INCrOMv, unpublished data, and mission caleulations. cn LCPI2 November 1981 Table 20: COLOMBIA S EX'UK'1 Ok' MANUFACTURED GOODS TO VENEZUELA, BY SECTUR. 19/0, 97j3-80 (US$ millions) Product 1970 1973 1974a/ 1975 1976 1977 1978 1979a/ 1980 Textiles and clothing 0.1 2.6 9.3 7.1 7.9 36.3 47.6 82.9 88.9 (Textiles) 0.1 1.1 2.6 3.1 3.2 14.8 aa/ 14.2 aa/ 11.1 aa/ 26.2 aa/ (Clothing) - 1.5 6.7 4.0 4.7 21.5+ 33.4+ 7i.8i- 62.7+ Metal manufacturers (exc. transport equipment) 1.2 2.4 5.2 6.9 12.1 19.6 20.8 44.2 20.0 bI (Metal products) 0.3 0.5 1.5 2.4 2.7 n.a. n.a n.a n.a (Non-electrical machinery) 0.9 1.6 3.2 3.9 8.1 n.a. n.a. n.a. n.a. (Electrical machinery) - 0.3 0.5 0.6 1.3 n.a. n.a. n.a n.a Transport equipment 0.3 0.6 1.0 1.2 4.5 13.7 10.6 12.3 10.5 Cement -/ - 0.1 - 0.8 5.3 6.9 18.3. 37.9 20.9 H Other manufactured goods 1.9 7.0 19.9 d/ 18.4 e/ 23.8 f/ 58.5 84.4 189.7 140.6 TOTAL J. 5 12.7 a/ 34.4 53.6 135.0 181.7 366.7 280.9 Percent of manufactured exports to all regions 5:4 5.& 8i.i 2U.Z 23.6 b8.; 33. a/ Includes fictitious exports. aa/ Calculated as a residual b/ Mission estimate c/ Until 1977 "other non-metallic mineral products." d/ Includes $13.6 million of basic chemicals. e/ Includes $10.0 million of basic chemicals. f/ Includes $4.7 million of wood products excluding furniture, $4.7 of petroleum products including refined petroleum, $4.2 million of basic chemicals, and $3.6 m of glass products. SOURCES: 1970-76 - Luis Jorge Garay, El Pacto Andino: Creaci6n de Un Mercado Para Colombia; 1977-1979 - Martha Lucia Gomez de Ruiz, "La Interdependencia Entre Los Sectores Productivos Venezolanos y Las Exportaciones Colombianas, rt "Revista del Banco de la Republica, June 1980, pp 805-827; 1980-INCOMEX. c LCPI2 October 1981 Table 21: COLOMBIA'S EXPORTS OF MANUFACTURED GOODS TO VENEZUELA, BY SECTOR, 1970, 1973-1980 Products 1970 1973 1974 1975 1976 1977 1978 1979 1980 Textiles and Clothing 3 20 26 21 15 27 26 23 32 Metal manufactures (exc. transport equipment) 34 19 15 20 23 15 11 12 7 Transport equipment 9 5 3 3 8 10 6 3 4 Cement - 1 - 2 10 5 10 10 7 Other manufactured goods 54 55 56 53 44 43 46 52 50 TOTAL 100 100 100 100 100 100 100 100 100 _ __~~~~ ~~_ -- N 0 SOURCES: 197P,-76 - Luis Jorge Garay, El Pacto Andino: Creaci6n de Un Mercado Para Colombia; 1977-1979 - Martha Lucia Gomez de Ruiz, "La Interdependencia Entre Los Sectores Productivos Venezolanos y Las Exportaciones Colombianas, "Revista del Banco de la Republica, June 1980, pp 805-827; 1980-INCOMEX. LCPI2 October 1981 Ht Tahle 22: FYPnRTR OF METAL MAMTFACTURES, TO ALT DESTINATIONS ATND TO XTVXNV7TTVAT 1078-1980 (US$ thousands) Products 1978 1979 a/ 1980 To Venezuela To Venezuela To Venezuela Vene- as % Vene- as % Vene- as x Total zuela of total Total zuela of total Total zuela of total Cast iron stoves 1,487 1,285 86 6,449 6,345 98 5,631 5,461 97 Coffee mills 3,932 1,145 29 3,524 1,435 41 5,060 2,009 40 Other forged products 2,544 1,294 51 6,342 2,881 45 4,798 869 18 Cables and ropes of iron 2,729 - - 3,305 45 1 2,273 - - and steel Metal statues 295 13 4 6,541 535 8 1,798 3 - Threshers for cereals 1,656 669 40 2,446 1,397 57 1,127 561 50 Electrical connections, 692 454 66 2,686 2,443 91 1,120 902 81 fuses, outlets, etc. Refrigerators and ice boxes 3,242 3,163 98 5,058 5,018 99 1,000 913 91 Safes 932 784 84 2,567 2,417 94 633 590 93 Domestic articles of 285 268 94 3,345 3,259 97 313 173 55 stainless steel Metal lighting fixtures, other 67 14 21 2,274 2,139 94 151 19 13 0 Aluminum rivets 122 4 3 2,207 2,120 96 148 45 30 Metal picture frames 1 - - 4,360 1,129 26 - - - Other items over US$1 million 9,891 5,536 56 23,476b/15,716 67 15,436 7,744 50 Total items over US$1 million 27,875 14,629 52 74,580 46,879 63 39,488 19,289 49 Total items less than US$1 million c/55,397 n.a. n.a. 68,221 n.a. - 84,515 n.a. n.a. Total metal manufacturing 83,272 n.a. n.a. 142,801 n.a. - 124,003 n.a. n.a. Transport equipment 13,914 7,425 53 18,237 10,139 56 12,844 4,329 34 (items over US$1 million) a/ May include some fictitious exports. b/ Excludes a registered export of $41.0 million in cast metal structures (prefabricated housing) which, it is believed, never took place. c/ Calculated as a residual. SOURCES: Martha Lucia Gomez de Ruiz, "La Interdependencia entre los Sectores Productivos Venezolanos y las z X Exportaciones Colombianas Revista del Banco de la Republica June 1980, pp. 805-827; and INCOMEX. LCPI2 October 1981 Table 23: GEOGRAPHIC DISTRIBUTION OF MANUFACTURED EXPORTS, 1977 (Percentages) Andean Other Central America and Group LAFTA the Caribbean USA EEC Other Total Wood products 41.0 - 17.5 31.6 2.3 7.6 100.0 Textile products, clothing 30.9 1.7 14.4 21.9 24.4 6.7 100.0 Chemicals exc. petroleum refining 57.4 12.1 16.8] 8.1 3.2 2.4 100.0 Leather products, footwear 4.3 - 7.1 48.3 29.2 11.1 100.0 Paper products and printing 18.6 2.7 6.1 45.5 18.0 9.1 100.0 Glass and glass products 69.7 - 29.3 - - 1.0 100.0 Cement and cement products 57.0 3.8 36.3 2.5 - 0.4 100.0 Metal products, machinery, equipment 69.2 4.5 15.0 6.5 .4.6 0.2 100.0 Total -a 42.1 3.8 14.9 20.5 13.8 4.9 100.0 _ _ _ _ _ _ _ _ - --_ _- --_ _- - - - - - - - 4 S SOURCE: DANE Note: a/ Excludes food products, petroleum refining, ceramic proudcts and other ind stries. LCPI2 June 1982 1ABLE 24: EXPORTS TO T- ANDEAN MAiRKET i969-76 1969 % 1970 % 1971 % 1972 % 1973 % 1974 % 1975 % 1976 % Products with no preferences 24.0 54 33.7 52 26.3 40 26.3 49 23.5 55 32.0 67 34.8 53 27.6 53 Non-competing exports 0.03 0.1 0.03 - 0.22 ,4 0.22 .4 0.28 .6 0.13 .3 0.05 .1 0.08 .2 Products exempted belonging to common list 1.73 3.9 2.27 3.5 2.45 3.7 1.43 2.7 2.62 6.2 2.74 5.8 2.13 3.2 2.30 4.4 Products which are automatically exempted 17.5 39 27.8 43 35.2 54 25.4 47 15.6 37 12.3 26 27.7 42 21.3 41 o SOURCE: L. J. Garay S. El Pacto Andino, Creacion de un Mercado para Colombia? (Bogota, FEDESARROLLO, 1981) LCPI2 January 1982 - 206 - Stat. App. T-25 Table 25: U.S. IMPORTS OF COLOMBIAN MANUFACTURED GOODS, BY U.S. IMPORT CODE, 1970, 1974, 1978 and 1979 (US$ millions) Code (TSUSA) 1970 1974 1978 1979 66 Non-metallic mineral products 7.5 15.0 34.8 49.6 84 Clothing 1.0 29.2 30.3 34.8 65 Yarns and fabrics 4.4 14.0 24.0 21.1 89 Miscellaneous manufactured articles 0.8 5.0 8.5 12.9 83 Suitcases, bags, etc. 0.1 2.7 8.6 8.6 59 Chemical materials n.e.i. 0.7 1.9 3.8 8.4 69 Metal products 0.5 2.8 3.8 4.8 71-79 Machinery and transport equipment 0.5 1.1 1.8 4.0 61 Leather and leather products 2.9 2.2 2.6 2.5 51 Organic chemical products - 14.1 5.3 2.4 63 Cork and wood products 1.8 3.4 2.0 2.0 85 Footwear 0.3 4.9 1.2 1.5 82 Furniture 0.1 1.2 1.9 1.4 68 Non-ferrous metals 3.3 2.2 1.0 1.3 52-58 Other chemical products 0.2 0.9 1.8 0.5 Other manufactured products 0.3 2.8 1.1 1.0 TOTAL 24.4 103.4 132.5 156.8 SOURCE: U.S. Department of Commerce, Bureau of the Census, U.S. General Ilports, FT155, 1970, 1974, 1978 and 1979. LCPI2 October 1981 - 207 - Stat. App. T-26 Table 26: COLOMBIA'S EXPORTS OF ALL GOODS TO BRAZIL, BY PRODUCT, 1976-1980 (US$ thousands) Products 1976 1977 1978 1979 1980 Single phase motors 450 582 707 866 1,520 Vidrios estirados - - - 2,284 1,131 Coques y semicoques 96 - - - 885 Sodium hydrosulphite 498 203 525 970 746 Epsilon caprolactama - -- - 159 323 a/ Portland cement 679 781 2,534 1,873 296 Grapes 247 447 460 363 294 Exterior clothing for men 41 48 117 123 261 Medical equipment 28 - 296 180 238 Citric acid 209 - - 237 53 Printed materials 3 14 - 15 30 Other glass products - - - 363 11 Hullas bituminosas 720 - 931 - - Hydraulic cement - 77 105 - Cotton fabrics 117 332 108 179 - Exterior clothing for women - - 116 - - Other products 5,345 1,5)8 587 908 2,886 TOTAL EXPORTS 8,433 4,0$2 6,486 8,520 8,674 a/ An error in the published figure has been corrected. SOURCE: INCOMEX, Comercio Exterior, Vol. 13, No. 3, March 1981, p.25. LCPI2 October 1981 - 208 - Stat. App. T-27 Table 27: COLOMBIA'S EXPORTS OF ALL GOODS TO BRAZIL, BY PRODUCT, 1976 - 1980 (percent) Product 1976 1977 1978 1979 1980 Single phase motors 5.3 14.4 10.9 10.2 17.5 Vidrios estirados - - - 26.8 13.0 Coques y semicoques 1.2 - - - 10.2 Sodium Hydrosulphite 5.9 5.1 8.0 11.4 8.6 Epsilon caprolactama - - - 1.9 3.7 Portland cement 8.1 19.3 39.1 22.0 3.4 Grapes 2.9 11.0 7.0 4.3 3.4 Exterior clothing for men 0.5 1.2 1.8 1.4 3.0 Medical equipment 0.3 - 4.6 2.0 2.7 Citric acid 2.5 - - 2.8 0.6 Printed materials - 0.3 - 0.2 0.3 Other glass products - - - 4.3 0.1 Hulla bituminosas 8.5 - 14.4 - - Hydraulic cement - 1.9 1.6 - - Cotton fabrics 1.4 9.5 1.7 2.0 - Exterior clothing for women - - 1.8 - - Other products 63.4 37.3 9.1 10.7 33.3 TOTAL EXPORTS 100.0 100.0 100.0 100.0 100.0 SOURCE: INCOMEX, Comercio Exterior, Vol. 13, No. 3, March 1981, p.25. LCPI2 October 1981 Table 28: VPCPfTS OF TEXTTTEC COTTON MAIN ITMS TOTAL Th.AOV flAA 1O68=1 Q0 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Raw cotton Short fiber 24.3 29.8 27.4 21.4 37.9 24.0 56.8 69.0 68.9 89.5 59.1 36.9 64.2 Long fiber 0.1 5.8 7.0 10.5 11.7 12.0 27.1 12.1 21.6 27.0 13.4 15.3 37.6 TOTAL 24.4 35.6 34.4 31.9 49.6 36.0 83.9 81.1 90.5 116.5 72.5 52.2 101.8 Yarns (for retail sale) Cotton, crude, not conditioned 1.6 3.0 4.2 7.2 8.5 19.6 5.9 31.3 29.0 29.0 35.7 38.0 (2.4) a/ Cotton, crude, conditioned 0.6 - 1.8 4.0 6.1 10.2 1.6 1.7 1.8 2.1 2.5 2.4 a Fabrics 0 Cotton, other crude 4.3 6.3 8.0 11.1 16.3 27.6 18.9 21.4 14.2 21.7 28.5 23.7 (4.2) Cotton, other 1.5 2.2 3.3 3.3 5.4 13.8 12.5 20.6 7.9 6.4 7.1 10.5 Cotton velvet, felt, etc. - - - - - - 0.1 2.4 7.8 10.4 15.4 15.3 Other impregnated with artificial materials - - - - - 1.0 2.0 3.8 5.1 6.4 7.4 8.1 9.5 All other textile exports -/ 10.0 9.0 7.7 6.1 8.1 15.1 26.8 28.4 12.6 15.2 11.7 16.6 23.4 TOTAL TEXTILE EXPORTS c/ (excludes, raw cotton) 16.6 17.0 19.2 23.4 33.7 52.4 100.0 - 71.2 95.1 82.3 88.7 113.9 -122.8 d- Notes: a/ Mission estimates 'F/ Calculated as a residual c/ May include some fictitious exports. d/ PROEXPO estimate. .9 SOURCE: INCOMEX, registered exports (mission calculations). LCPI2 November 1981 - 210 - Stat. App. T-29 Table 29: EXPORTS OF TEXTILES AND COTTON, MAIN ITEMS, DANE DATA 1976-1981 (US$ millions) - Jan-April b/ 1976 1977 1978 1979 a/ 1980 1981 Raw Cotton Short fiber 47.9 76.1 43.1 25.3 58.4 (30.5) Long fiber 10.4 37.3 14.6 14.7 27.7 (2.5) Total 58.3 113.4 57.7 40.0 86.1 (33.0) Yarns (for retail sale) Cotton, crudenot conditioned 30.0 26.0 27.9 30.5 28.0 (9.4) Cotton, crude, conditioned 1.6 1.6 2.3 2.2 1.5 n.a. Fabrics Cotton, other, crude 20.7 13.3 19.2 23.5 20.4 (6.5) Cotton, other 2.7 2.7 4.0 10.9 3.0 (5.5) Cotton velvet, felt, etc. 2.0 6.7 8.9 6.6 14.0 (5.7) Other, impregnated with artificial materials 4.6 5.5 8.0 8.0 8.0 (2.8) Total six main items 61.6 55.8 70.3 81.7 74.9 =299} a/ May include some fictitious exports. b/ Registered exports. Exports of textiles appear to have fallen significantly after April. SOURCES: DANE, Anuarios de Comercio Exterior (1976-78) DANE, Boletin Mensual de Estadistica (1979-80) INCOMEX, Comercio Exterior de Colombia (1981) LCPI2 November 1981 Table 30: VOLtME OF EXPORTS OF PRINCIPAL TEXTILE ITEMSj 1967-1981 (thousands of tons) Tariff Jan.-Ap-ril Position 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 55.05.01.00 Crude cotton yarn 1.6 1.7 1.6 2.5 3.9 6.7 6.8 6.8 11.1 12.2 8.9 10.6 9.4 7.6 (2.3) 55.09.01.00 Crude cotton fabrics, other 2.9 2.8 5.0 4.6 5.0 7.9 9.2 9.6 8.9 7.7 4.0 6.1 6.1 5.0 (1.7) 55.09.89.99 Cotton fabrics, - other 0.3 0.8 0.5 0.7 2.4 2.2 2.5 2.8 0.6 0.9 0.6 0.9 0.7 0.6 (l10) 58.04.03.00 Cotton velvet, felt, etc. - - - - - - - - - 0.5 1.5 1.9 3.0 2.7 (1.1) 59.08.00.99 Other fabrics impregnated with artificial materials - - 0.1 0.1 0.1 0.3 1.0 1.0 1.9 2.9 3.3 4.7 4.4 4.0 (1.4) TOTAL five H items 4.8 5.3 7.2 7.9 11.4 17.1 19.5 20.2 22.5 24.2 18.3 24.2 23.6 19.9 (7.5) Five items as % of total value of textile exports n.a. 40 44 60 66 64 60 63 58 85 79 84 83 75 n.a. Sources: 1967-77-ANDI, unpublished tabulations; 1978-80-DANE, Boletin Mensual de Estadistica; 1981-INCONEX Comercio de Colombia; Final row-INCOMEX (Mission calculations and estimates). LCPI2 November 1981 - 212 - Stat. App, T-31 Table 31: EXPORTS OF TEXTILES BY PRODUCT AND DESTINATION, 1970, 1973, 1976, 1977 (percent) 1970 1973 1976 1977 Yarns 100 100 100 100 E.E.C. n.a. 53 52 63 U.S.A. n.a. 11 7 5 Canada n.a. 5 3 4 Andean Group n.a. 5 4 5 C.A.C.M. n.a. 10 3 3 Other n.a. 16 31 20 Fabrics 100 100 100 100 E.E.C. n.a. 3 42 33 U.S.A. n.a. 34 27 27 Canada n.a. 22 10 7 Andean Group n.a. 1 2 12 C.P.C.M. n.a. 0 0 0 Other n.a. 40 19 21 Total 100 100 100 100 E.E.C. 13 29 42 48 U.S.A. 29 23 18 16 Canada 23 14 7 6 Andean Group 10 3 4 8 C.A.C.M. 17 -/ ) 9 ) )31 )22 Other 8 ) 20 ) a/ Includes Caribbean. Sources: DNP, "La Industria Textil, "Revista de Planeacion y Desarrollo, May-August 1979, p. 120; and DANE, unpublished data. LCPI2 June 1983 - 213 - Stat. App. T-32 Table 32: EXPORTS OF TEXTILES BY COLTEJER, BY DESTINATION, PRODUCT AND FIBER, 1978-81 (percent) Jan. - July ])estination 1978 1979 1980 1980 1981 E.E.C. 37.8 45.2 41.1 43.6 19.5 Germany, Fed. Rep. 16.1 15.9 14.9 15.0 7.1 United Kingdom 10.5 5.3 5.0 4.3 4.0 Italy 5.4 14.2 11.4 13.9 3.5 Belgium 1.6 0.3 0.1 0.1 - Ireland 1.5 2.2 2.2 2.2 0.9 Denmark 1.3 1.2 0.6 0.7 0.9 Netherlands 1.0 4.4 4.7 5.0 2.8 France 0.4 1.7 2.2 2.4 0.3 Other Europe 13.0 11.2 8.3 9.5 8.0 Finland 6.4 4.6 4.4 5.5 1.4 Sweden 5.0 4.4 0.8 1.3 0.7 Poland 0.2 - 0.4 - 5.0 Other (Switz,Austria, Norway, N. Ireland, E. Europe, etc.) 1.4 2.2 2,7 2.7 0.9 North America 30.9 16.5 14.9 16.2 24.1 U.S.A. 21.5 6.3 4.8 5.5 6.0 Canada 9.4 10.2 10.1 10.7 18.1 Andean Group 5.8 2.6 4.3 3.5 2.3 Venezuela 4.3 0.5 0.7 0.5 1.1 Ecuador 1.4 1.2 2.8 1.7 1.0 Peru - 0.9 0.8 1.3 0.2 'Bolivia 0.1 - - - LCPI2. November 1981 Table 33: UTILIZATION OF EEC TEXTILE QUOTAS, BY PRODUCT AND COUNTRY, 1978-1981 Volume Product and Country of assigned quota, 1980 Volume of Exports (tons) Jan.-Jun2 Utilization of Quota (Z) Jan-June (tons) 1978 1979 1980 1981 - 1978 1979 1980 1981 a/ Yarns 7,281 5,689 6,286 6,524 (1,381) 79 87_ 90 (19) Germany, Fed. Republic 3,545 2,790 3,089 3,290 (549) 80 88 93 (16) Italy 955 687 934 811 (199) 73 98 85 (21) Benelux 934 736 771 1,014 (145) 73 83 109 (15) United Kingdom 641 622 542 398 (90) 98 85 62 (14) France 624 528 628 660 (284) 85 99 106 (44) Ireland 303 55 48 134 (40) 19 16 44 (13) Denmark 278 271 274 217 (74) 99 99 78 (26) M Fabrics 5,611 1,747 3,067 3,729 (478) 32 55 66 (8) Italy 2,430 178 1,404 2,006 (200) 7 58 83 (10) Germany, Fed. Rep. 1,384 907 842 584 (122) 66 61 42 (9) United Kingdom 1,017 557 350 558 (136) 55 35 55 (7) France 388 67 130 285 (18) 18 34 73 (4) Berelux 304 29 303 282 (2) 10 0 93 (1) Denmark 49 9 38 14 (-) 18 79 29 (-) Ireland 38 - - - (-) - - - (-) a/ Parentheses Ind1cate half-year data. C Source: INCOMEX and ANDI, unpublished data. LO LCPI2 November 1981 - 215 - Stat. App. Table 34: UTILIZATION OF U.S. TEXTILE QUOTAS, BY TYPE T-34 OF PRODUCT, 1975/76 - 1580/81 (percent) Iy??e of Fiber and Product 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 C;otton 55 26 35 49 27 n.a. Yarns 36 15 31 57 0 .1 F'abrics 55 39 46 69 53 47 Clothing 7 7 9 5 5 n.a. Wool 31 22 15 23 22 n.a. Yarns - - - - - Fabrics 19 22 7 3 - n.a. Clothing 39 24 21 29 27 n.a. 'ynthetic fibers 20 12 13 16 13 n.a. Yarns 0 0 - - - n.a. Fabrics 1 3 2 1 0 n.a. Clothing 29 17 18 24 19 n.a. Tctal yarns 27 11 24 45 0 1 Total fahrics 45 33 38 56 43 47 Total clothing 22 15 15 17 14 n.a. SOURCE: INCOMEX, unpublished tabulations. LCIPI2 November 1981 - 216 - Stat. App. T-35 Table 35: UTILIZATION OF U.S. TEXTILE QUOTAS BY QUOTA CATEGORY 1975/76 - 1980/81 (percent) Quota Category Description 1975/76 1976/77 1978/79 1979/80 1980/81 Cotton 300-301 Yarns 36 15 57 0 1 310 Scottish, combed 66 72 75 81 93 312 Corduroy 131 46 97 41 42 313 Sheeting 71 47 70 45 56 314 Poplin Shirting 52 44 70 49 12 317 Drills, serge, catins 115 63 83 54 49 320 Other fabrics n.a. n.a. 56 78 25 369 Sewing thread n.a. n.a. n.a. n.a. 21 Wool 410 Fabrics n.a. n.a. 5 0 n.a. 464 Fantasies and misc. n.a. n.a. 0 - n.a. 469 Other woolen manufactures n.a. n.a. 4 15 n.a. Synthetic fibers 612 Other fabrics n.a. n.a. 0 0 n.a. 627 Special fabrics n.a. n.a. - 1 n.a. Source: INCOMEX, unpublished tabulations (1978/79 - 1980/81). PROEXPO, unpublished tabulations (1975/76 - 1976/77). LCPI2 November 1981 - 217 - St:at. App. T-36 Table 36: UTILIZATION OF US COTTON TEXTILE QUOTAS, BY QUOTA CATEGORY, US DATA 1978/79 - 1979/80 (percent) Qulota Description 1978/79 1979/80 Category 30)0-301 Yarns 51 - 3]0 Scottish, combed 49 41 3i] Felts, velvets, etc. 5 5 312 Cor,luroy 91 20 3:L3 Carded fabrics, not bleached (sheeting?) 70 33 314 Poplin shirting 70 49 3:L5 Staimped fabrics 50 - 3:L6 Shirting "jacquard" - - 3:L7 Drills, serge, satins 83 39 3:L8 Other printed fabrics 23 14 3:L9 "Loans, entretela cardada" - - 320 Other fabrics 148 75 360 Pillow cases - - 36:L Sheets 362 "Cubrelechos y colchas de - - tul o encaje" 363 Towels "de esponja" 3 9 369 Other cotton manufactures 26 20 SOURCE: U.S. Embassy, Bogota, and PROEXPO. LCPI2 November 1981 - 218 - Stat. App. T-37 Table 37: VOLUME OF EXPORTS OF FABRIC, BY FIRMS, 1979-1980 Millions of Square Meters Distribution (%) Annual 1979 1980 Change 1979 1980 (%) Coltejer 31.0 22.5 - 27 38 32 Fabricato 21.0 16.5 - 21 26 23 Tejicondor 10.0 10.2 2 12 15 Others 19.0 21.2 12 23 30 Total Exports 81.0 70.4 - 13 100 100 of Fabric SOURCE: Unpublished tabulations. LCPI2 November 1981 - 219 - Stat. App. T-38 Table 38: EXPORTS OF TEXTILES TO ALL D)ESTINATIONS, THE THREE LARGEST FIRMS, BY PRODlJCT, 1978-80 Froduct and Firm 1978 1979 1980 1978 1979 1980 (thousands of tons) (percent) Yarns 8.3 7.6 6.5 100 100 100 Coltejer 4.9 4.5 3.6 59 59 56 Fabricato 3.2 3.1 2.7 39 41 41 Tejicondor 0.2 0.0 0.2 2 0 3 (millions of linear yards) (percent) Fabrics 47.9 53.5 38.6 100 100 100 Coltejer 21.0 25.3 18.2 44 47 47 Fabricato 18.2 17.6 13.0 38 33 34 Tejicondor 8.7 10.6 7.4 18 20 9 Source: INCOMEX, unpublished data. *4CPI2 November 1981 - 220 - Stat. App. T-39 Table 39: EXPORTS OF TEXTILES FROM SELECTED DEVELOPMENT COUNTRTES, 1970, 1975 AND GROWTH 1970-1975 Groth rate Index for Index for 1970 1975 1970-75 1978 1977 1978 (US$ millions) (% p.a.) (1975 = 100) (1975 = 100) Thailand 9 81 57 171 a/ 211 n.a. Brazil 32 271 53 420 n.a. 155 Korea 85 649 50 1,533 n.a. 236 Colombia 13 67 39 82a//89 122 133 Morocco 13 58 36 80 a/ 138 n.a. Turkey 25 110 34 263 n.a. 239 Taiwan 199 649 27 1,162 n.a. 179 Singapore b/ 54 130 19 267 n.a. 205 Pakistan 160 378 19 457 a/ 121 n.a. Yugoslavia 80 178 17 n.a. n.a. n.a. Hong Kong b/ 275 593 16 998 n.a. 168 Iran 61 157 15 n.a. n.a. n.a. Egypt 136 228 11 324 n.a. 142 India 461 599 5 882 a/ 147 n.a. Bangladesh 160 158 - 2 n.a. n.a. n.a. Index 1972 1973 1964 1975 1978 1975 1978 (1972=100) (1975=100) Korea 177 435 493 649 1,533 367 236 Taiwan 320 557 628 649 1,162 203 179 Hong Kong 384 667 722 592 993 154 169 Colombia 34 52 100 -/ 71 89 209 125 Note: a/ May include some fictitious exports. SOURCES: Donald Keesing & Phi Anh Plesch, "Recent Trends in Manufactured and Total Exports from Developing Countries," mimeo, IBRD, DED, 1977; for 1978: Donald Keesing and Marting Wolf, "International Trade in Textiles and Clothing," mimeo, IBRD, DED, May 1980, Table 4; for Colombia, INCOMEX. LCPI2 June 1982 - 221 - Stat. App. T-40 Table 40: U.S. IMPORTS OF TEXTILES, BY COUNTRY OR REGION OF ORIGIN, 1975/76 - 1979/80 a/ (millions of square yard equivalents) Hong Kong, Africa & Korea, and Latin other, Colombia Taiwan Amer:Lca Asia b 1975 1,599 362 432 1975/76 42 1976 2,134 463 708 1-976/77 29 1977 1,978 418 552 ]1977/78 41 1978 2,247 605 776 1978/79 41 1979 1,930 512 812 1979/80 42 Increase .rEcrease 1975/76 -2% 1975/76- 12% 35% 39% - 1978/79 1978/79 :ticrease 1975/76 -48% Increase 21% 41%' 88% - 1979/80 1975/79 Notes: a/ Does not include clothing. b/ Excludes South Africa and Israel. Sources: Colombia: INCOMEX, unpublished data. Others: Donald Kaesing and Martin Wolf, "International Trade in Textiles and Clothing," mimeoIBRD, May 1980, Table 15. bOCP12 liovember 1981 Table 41: EXPORTS OF METAL MANUFACTURES, TO ALL DESTINATIONS AND TO VENEZUELA, 1978-1980 (US$ thousands) Products 1978 1979 a/ 1980 To Venezuela To Venezuela To Venezuela Vene- as % Vene- as % Vene- as % Total zuela of total Total zuela of total Total zuela of total Cast iron stoves 1,487 1,285 86 6,449 6,345 98 5,631 5,461 97 Coffee mills 3,932 1,145 29 3,524 1,435 41 5,060 2,009 40 Other forged products 2,544 1,294 51 6,342 2,881 45 4,798 869 18 Cables and ropes of iron 2,729 - - 3,305 45 1 2,273 - - and steel Metal statues 295 13 4 6,541 535 8 1,798 3 - Threshers for cereals 1,656 669 40 2,446 1,397 57 1,127 561 50 Electrical connections, 692 454 66 2,686 2,443 91 1,120 902 81 fuses, outlets, etc. Refrigerators and ice boxes 3,242 3,163 98 5,058 5,018 99 1,000 913 91 Safes 932 784 84 2,567 2,417 94 633 590 93 Domestic articles of 285 268 94 3,345 3,259 97 313 173 55 stainless steel Metal lighting fixtures, other 67 14 21 2,274 2,139 94 151 19 13 Aluminum rivets 122 4 3 2,207 2,120 96 148 45 30 Metal picture frames 1 - - 4,360 1,129 26 - - - Other items over US$1 million 9,891 5,536 56 23,476b/15,716 67 15,436 7,744 50 Total items over US$1 million 27,875 14,629 52 74,580 46,879 63 39,488 19,289 49 Total items less than US$1 million c/55,397 n.a. n.a. 68,221 n.a. - 84,515 n.a. n.a. Total metal manufacturing 83,272 n.a. n.a. 142,801 n.a. - 124,003 n.a. n.a. Transport equipment 13,914 7,425 53 18,237 10,139 56 12,844 4,329 34 (items over US$1 million) a! May include some fictitious exports. b/ Excludes a registered export of $41.0 million in cast metal structures (prefabricated housing) which, it is believed, never took place. c/ Calculated as a residual. e SOURCES: Martha Lucia Gomez de Ruiz, "La Interdependencia entre los Sectores P-:oductivos Venezolanos y las EAuurtaciones Colombianas Revista del Banco de la Republica June 1980, pp. 805-827; and INCOMEX. LCPI2 October 1981 - 223 - Stat. A1p. Table 42: EXPORTS OF PROCESSED FOOD PRODUCTS, 1976-1980 T-42 (US$ millions) 1976 1977 1978 1979 1980 Raw Sugar 22.4 0.0 21.5 47.3 175.5 Beef 25.7 34.4 49.4 31.1 33.1 "Melaza" 3.8 1.6 5.5 12.9 26.2 Cheeses 3.7 11.4 20.9 20.5 20.6 Frozen Shrimps 15.8 13.3 13.5 19.3 16.6 Bleached Rice 42.4 0.2 3.4 31.7 15.0 Gelatines 4.2 4.7 4.8 4.8 7.1 Cocoa butter 1.2 2.1 3.2 5.2 4.3 Other shell fish 4.0 4.3 3.6 4.3 4.2 Other prepared foods 4.0 15.2 7.2 5.4 4.4 Other products a 17.1 14.3 18.0 38.8 38.1 TOTAL 144.2 101.5 150.9 221.3 345.0 First 6 items as % of total 79% 60% 76% 74% 83% Note: a/ Inclutdes beverages a-nd processed tobacco (less than $2 million). Source: INCOIMEX, unpublished tabulations. LCPI2 November 1981 Table 43: PRICE OF THE US DOLLARS AND COL. PESO WITH RESPECT TO EEC CURRENCIES AND COLOMBIA'S EXPORTS OF TEXTILES TO THE EEC, 1979-1981 Annual change in real exchange rate Utilization of EEC textile quota (fabrics) Percent received of (pesos per Mark, Franc etc, in constant prices) (percent) Colombia's non-coffee ______ _____ _____ _____ _____ _____ _____exports Jan.-June - Jan.-June Country 1979 1980 1981 1979 1980 1981 a/ 1980 Germany, Fed. Rep. - 6 - 15 - 32 61 42 (9) 4.5 United Kingdom 7 17 - 19 35 55 (7) 2.6 France - 1 - 8 - 21 34 73 (4) 2.4 Italy 0 - 25 0 58 83 (10) 2.2 Netherlands - 7 - 13 - 23 0.9 Belgium - 8 - 13 - 23 0 93 (1) 0.7 Six EEC Countries b/ - 2 - 9 -_30 55 66 18) 13.3 a/ Parentheses indicate half-year data. b/ Weighted averages, except for simple total in last column. In Cols4-6, the weighted average is for the entire EEC. SOURCES: ASOBANCARIA (Cols. 1-3, 7); INCOlfEX (cols. 4-6) LCPI2 October 1981 Table 44: IMuiORTS AND GDP 1960-1980 2M 3/ 4/ Total Imports Imports (DANE) Real-' Imports Real Imports-/ Non Petroleum- c.i.f. (DANE)-/ GDP Imports (DANE) (GDP basis) (GDP basis) Imports (DANE) (000) pesos Col. (%) Real GDP GDP Real GDP GDP M% M% (% (Z) 1960* 3420 i2.8 1- 57 1961* 3733 12.2 12.4 14.6 17.2 1962* 3684 10.7 12.1 12.9 16.9 1963* 4554 10.5 11.0 13.0 16.3 1964* 5277 9.8 12.2 13.3 19.3 1965 4450 7.3 9.2 10.4 15.2 1966* 8739 11.9 12.9 15.1 19.1 1967* 6986 8.4 9.1 11.3 14.4 1968* 10350 10.7 11.0 14.2 17.0 1969* 11780 10.6 10.8 14.3 17.0 1970* 15425 11.8 12.0 15.8 15.8 1971* 18204 11.9 12.3 16.4 16.6 1972 18485 9.9 10.1 14.2 14.2 1973 24739 10.1 9.4 13.5 12.4 1974* 40711 12.4 9.4 16.0 14.3 1 1975 44233 10.7 8.4 14.5 12.4 1976 57495 10.7 8.8 14.6 12.8 10.7 1977 72603 10.2 79. 13.7 3.I 9.6 1978 107181 11.6 11.1 14.1 14.3 11.1 1979 134184 11.2 10.5 14.2 15.1 10.3 1980* (214.355) 13.8 11.9 16.5 17.4 12.0 * Current account deficit. 1/ Petroleum imports made by ECOPETROL are significantly greater than those shown by DANE but exports also are larger by similar accounts. 2/ Dollar price index 1970-74 from Indicies de Comercio Exterior de Colombia, 1975-80 mission estimates using weighted average U.S. index capital goods prices, unit value Col. petroleum imports, and U.S. export price index. 3/ Before 1970 uses 1958 prices. 4/ Petroleum exports estimated using dollar figures and average exchange rate. Negligible imports before 1976, 4 n LCPI2 June 1982 - 226 - Stat. App. T-4 5 Table 45: REGISTERED IMPORTS FREE ANID T TCENSED (USDOLLARS taLLIONS) Total Importsl/ DANE Imports Using Imports with For. Exch. % of2/ % of2/ (Registered) - Imports Purchased (Not reimbursable) Reimbursable Total Import Registered For.Exch. Imports Free Free Imports (Reimbursable) 4/ 1968 624.9 1.03 521.3 103.6 n.a. 12- 1969 755.2 .91 638.5 116.7 n.a. 1 8 1970 920.6 .74 785.4 135.2 21 20- 1971 784.8 1.18 710.4 74.4 31 25 1972 902.0 .95 785.9 116.1 31 28 1973 1225.6 .87 1036.7 188.8 35 31 1974 1788.5 .89 1536.5 252.0 46 43 1975 1502.6 .99 1279.4 223.0 51 45 1976 1990.7 .86 1520.7 470.0 51 40 1977 2665.8 .76 2259.9 405.9 47 41 1978 3412.8 .83 2755.3 657.5 52 43 1979 4629.7 .70 4201.0 428.8 48 44 1980 5412.7 .83 4685.9 726.8 50 44 1/ Excludes special imports through Leticia and San Andres of about 10 million dollars per year before 1974-all reimbursable and free. 2/ Source: INCOME.= 3/ Figures for imports and divisions into reimbursable and non-reimbursable from Banco de la Republica before 1975. 4/ Source: Wogart LCPI2 June 1982 Table 46: IMPORTS ACCORDING TO USE, C.I.F. In Million of US Dollars Average Growth Average Growth Rate Rate 1967 1970 1975 1976 1977 1978 1979 1967-74 1974-79 Consumer Goods 39.4 92.8 167.8 200.6 287.6 503.5 451.1 25.0 18.8 Perishable 15.0 49.3 90.2 106.9 157.3 316.1 254.3 31.0 19.9 Durable 24.4 43.5 77.6 93.7 130.3 187.4 196.8 20.0 17.5 Raw Materials & Intermediate Products 228.4 369.4 788.5 886.3 1,076.4 1 434.8 1,705.3 22.0 12.7 Fuels, Lubricants & Related Products 3.7 1.2 14.5 39.9 136.2 204.5 322.2 - 3.0 154.8 For Agriculture 7.1 8.3 54.8 22.9 69.7 104.5 95.8 46.8 - 0.7 For Industry 217.6 359.9 719.2 823.5 870.5 1,125.8 1,287.3 21.0 9.1 Capital Goods 219.4 371.5 534.7 616.5 664.3 898.0 1,076.8 11.3 18.3 Building Materials 18.3 20.4 35.4 42.7 26.1 44.7 63.1 8.4 14.3 For Agriculture 8.3 13.1 29.0 30.7 44.1 54.2 39.3 16.6 lu.; For Industry 121.3 196.4 267.3 326.4 387.8 517.0 603.2 11.5 18.3 Transportation Equipment 71.5 141.o 203.0 216.7 206.3 282.1 371.2 10.9 20.2 Various 9.5 9.3 3.8 4.7 - - - - 7.) - TOTAL 496.7 843.0 1,494.8 1,708.1 2,028.3 2,836.3 3,233,2 18.1 15.1 Source: "General Features of Colombia" PROEXPO, 1979, 1967-76, 1977-79 DANE Anuarios 3 LCPI2 December 1982 Table 47: IMPORT REGISTRATIONS BY ECONOMIC CATEGORY, 1975-80 (IN THOUSANDS OF US DOLLARS) 1975 1976 1977 1978 1979 1980 Consumer Goods 151,950 204,486 322.616 297,692 - 535,830 759.357 Durables 57,908 72,062 82,563 99,278 251,479 295.539 Non-Durables 94,042 32,424 240,053 198,414 284,351 463,818 Raw Materials and Interme- 723,300 975,010 1,336,387 1,639,5I0 2,383,526 2,653,302 diate Goods Fuels 29,563 154,994 251,138 383,287 665,318 809,919 Agricultural Inputs 19,820 21,427 97,706 88,535 109,548 164,176 Industrial Inputs 673,917 798,589 989,543 1,167,688 1,608,670 1,679,207 Capital Goods 611,330 806,200 1,003,751 1,456887 1,669,406 1,964,637 Construction Equipment 27,521 39,412 34,977 34,859 103,835 67,457 Agricultural Equipment 44,907 49,368 108,908 107,349 61,934 69,232 Industrial Equipment 304,462 417,212 533,761 703,844 958,701 1,128,948 Transport Equipment 234,440 300,208 326,105 610,835 544,936 699,000 Unclassified 16,037 4,966 2,038 18,837 40,980 35,416 Total 1,502,617 1,990,662 2,664,792 3,412,926 4,629,742 5, 42 712 Source: INCOMEX Comercio Exterior LCPI2 June 1982 Table 48: CTiF T OBTS. BY PRINCIPAL PRODUCT GKU-LJSb, i960-80 ITLnOUSANDS OF US DOLLAR7S Mmehinery & Transport paper Electrical Cheica1l m letals 6 Vehicles f Food Stuffs Textiles & Materials & ltubber A Equipment Pharnceutieals Products Equlpeent mverge Manufacturem Products Minerals- Products Other Tatai 1960 146,357 74,644 68,238 77,326 31,373 23,425 26,176 17.495 13.256 36.295 318.585 1961 158,700 87,794 64,620 89,664 43,842 21,609 27,552 20.762 . 9.80 32,696 557.129 1962 169,402 87,425 62,644 61,134 31,752 20,221 26,311 21,845 123.z) 47.Iqi j4u*3si 1963 148,717 97.557 60,956 63,983 22,071 22,080 21,988 18.112 12,917 31.642 506,023 1964 172,632 99,877 78,964 84,085 35.996 24.255 21,677 14,328 11,576 42.901 586.291 1965 140,327 62.042 46,615 63.864 28,145 20,808 21,943 9.936 22.274 37,098 453.502 1966 169,116 128,819 83,765 89,443 49,691 25,775 32,280 14,128 31.807 49.268 674.092 1961 142,969 76,531 54,483 84,072 26,737 26,737 26,554 12,258 20,530 39,171 496,855 1968 187,515 100,793 64,916 117.351 38,850 14,936 35,938 10,403 25,603 46,942 643,247 1969 181,499 103,073 68,946 119,156 44,541 15,253 40,479 13,282 33.427 45.561 685.273 1970 232,511 121,221 111.889 156,095 51,372 17,453 48,382 11,093 36,526 57,912 844,021 1971 275.511 132.551 114,453 133,497 73.760 20,448 46,093 18,228 42,507 72.393 929,44. "] 1972 256,034 143,585 95,072 124.308 60,598 24,300 49,720 12,385 37.934 55,e06 656.950 1973 259,304 215,333 113,101 136,002 111,656 40.369 62,955 11,977 43,176 67,"5 1,061,518 1974 257,354 316,730 194,102 150.795 121,835 42,795 87,641 15,718 70,789 768.84 1,336."43 1975 320,667 294,625 188,027 243.312 112,420 38,625 88,688 34,958 69.778 94,494 1,494.794 1976 406,349 265,980 184,823 301,374 147,201 43,844 78.215 59.779 89,301 131,254 1,706.120 1977 475,498 340,433 193,030 276,650 110,050 48,451 85,939 158,563 106,249 2,028,276 197821 618,353 434,707 274,252 392,208 n,a. 64,012 115,350 230,891 139,232 n,a, 2,836,314 1979- 719,409 421,585 362,220 459,594 n.a. 92,939 124,757 353,234 170,556 n.a. 3,233,194 1980!! 1,116,200 571,374 436,197 607,132 n.a. n.a. 120,218 599,344 227,854 n.a. 4,515,600 n.s. - Not Available Source: DANE 1/ Includes petroleum and products. ECOPETROL figures show substantially greater exports and imports than DANE. 2/ Revised. ltt 3/ DANE pretabulations. / EPstimated 2 ising ratlosof FOB estimates o, principal chapters DANE 11oletins fo inflate 1979 CIF fig2ires, r LCPI2 June 1982 - 230 - Stat. App. Table 49: ESTIMATES OF COLOMBIAN IMPORT FUNCTION Page 1 of 2 Coefficient 2 of: Constant L income L(PIM/P) Protection Proxy R DW 0sa1em - 1950-1967 -1.39 1.13 -0.94 0.18 .74 1.5, (2.00) (6.2) (4.7) (3.6) lrillenb6urg b/ 1951-1973 -3.47 +1.23 -.31 .41 ,84 2.1- (8.10) (13.8) (2.05) (7.90) Garcia-c 1953-1978 2.56 .52 -0.64 -.24 .83 1.7: (3.18) (5.8) (4.5) (5.1) Notes: t statistics of coefficients shown in parentheses, L refers to log. a/ dependent variable = imports in millions of dollars, income - GDP in 1958 prices P,M/P - average exchange rate for import- (1 + average ad valorem tariff + average opportunity cost (%) of previous deposits)/general wholesale price index, Protection proxy - percent of total Registros which are free. Musalem also performs other regressions using a speculative money balance term but this is not significant. & Musalem, Dinero Inflaci6n y la Balanza de Pagos, Banco de la Rep?lblica, 1971. bl dependent variable = real imports, income - national spending, PIM/P = international price o: imports in pesos/wholesale prices, protection proxy - index of the ratio of liscenses approved to solicitudes. Also included is the log of an index of the level of tariffs, which was not significant. A.Brillembourg, "Speculation Bias in the Demand for Imports: The Case of the Gran Colombian Countries," IMF 1975. c/ dependent variable - real imports in 1970 prices, GDP in 1970 prices, PI /P = import exchange rate - U.S. export price index * (1 + average duty on imports + opportuni-y cost of prior deposits)/wholesale prices, Protection dummy for 1957-65, 1967. J. G.arcia The Effects of Exchange Rates and Commercial Policy on Agricultural Incentives in Colombia 1953-78, International Food Policy Research Institute, 1981. NOTES ON: Stat. Ap. Table 14 - 231 - T-49 Page 2 of 2 EXR = Annual average exchange rate; Index 1970 = 100; (Source: Banco de La Reputblica) WPI = Wholesale price index with 1970 base; inflation rates of the 1952 based index used prior to 1970. (Source: Banco de La Reputblica) GDP = Real GDP in 1970 prices, with growth rate for GDP in 1958 prices used to calculate real GDP before 1970. (Source Banco de La Republica) PIM ($) Weighted index of dollar import prices with 1970 base. (Source: See paragraph 33) After 1974, weights from U.S. producer price index: Capital goods, 34.6%; Chemicals, 15.3%; Oil, 7.2%; Metals, 9.6%; U.S. exports, 33.3%. IMPORTS = Nominal value of imports in $ '000; (Source: See Table 5) tIY = Local wholesale price of importables 1970 - 1980. (Source: Banco de La Repuiblica) and ]?M 1960 - 1970. IM EXTPD IM EXRTPD = Garcia's estimated of exchange rates adjusted for cost of average tariff rate and opportunity cost of prior deposits. (I. Garcia, op. cit., Table 21) M - Money stock, annual averages, mill:ions of pesos. (Source: Banco de La Republica) LCPI2 June 1982 Table 50: IMPORT DEMAND REGRESSION AND RESIDUALS 1960-80 UARIABLE COEFFICIENT S.E. COEF. T TPROB BETA CONSTANT -.641598 0.739104 - . 8807Q4, 0.6026 0. LGDP 0. cgsg7 V4s .GZ?47GE-0I 12.9230 1.00c0 0^.8944 L(WPI/P ) 0.514854 0.219330 2.o06195 0.9455 0.1455 DllM IM -.212994 t .572523E-01 -3.72(1"25 0.9983 -.2634 RESIDUAL SUM OF SQUARES 0.1557 S.E. OF ESTIMATE .9570E-Oi LOG LIKELIHOOD FUNCTION 21.70 COflDITION NUNBER 420.5 DURBIN-UATSON 0.947G RHO (DIAGNOSTIC) (.5148 F( 3 , 17) 64.60 F PROBABILITY 1.0000 R-SQUARED 0.9194 iDJ. R-SQUARED 0.9051 RESIDUALS LIM lsGo 0.0S'V'-1f4Q 8'9343Ti N 15G1 0. o5711 6D3 ; 8.617411373 93L2 -0.017370W334 8.64r10A524 19s3 -0.O2SCGI617 8.581513,?0 1 9 G -0. C -i 123,. 55 8 .7410'o5s s 1965 -0.OGG7619;5 8.49215547 1966 -0.0777.35E5_3 8 . 3,8g53Z239 1967 -0.012310v,617 8.57595532 19GB 9 . 0 1 2519S9 8 .2 533'4 a3 12'39 O.CC ,'15331 8.86996G33 1971 O. 179 270794 9.127212G9 1972 -0 . 0 1. 9 3 2 5E5l 9, 0 09, 1 7 4 1 9 7 0.01CL 2 .S 189,9-,I .5 0 1 3 1974 -0.035I5 4 35584 9. t303107 H 3 1975 -0.1392' 205? 8.920377'o ° 19 76 -0.12357''GS2 9,05353704 . 1 9 77? -0.101612322 9V178 5043 1973 0.093700008 9.A1503i44 1979 0.014284394. 9.43292550 1980 0.1353? 9A 9659554963 LCPI2 June 1982 - 233 -Stat. App T-51 Table 51: AGGREGATE RELATIONSHIPS: OUTPUT, INFLATION, AGGREGATE DEMAND IMPORT PRICES (1954-198C0) LYt = 1.54 + .042 DLM t - .047 DLPIM + .017 (TIME) + .63 LY + - 009 DU t~~~~~~~~~~~~ (3.19)(1.03) (3.13) (3.10) (5.21) (2.96) i= 999 SSR = .0238 DW = 1.61 (DWh = .78) I)LPt =-.071 + .70 DLM t + .33 DLPim + .13 DLY - .01 DDU t t IN~~~~~~~~~~ (1.42) (4.06) (4.82) (.70) (.43) itL = .70 SSR = .0530 DW = 1.44 Where D indicates; a first difference (in logs or log growth rate). L indicates; a logarithm Y = real GDP M = Average money stock (Ml) DU = Dummy vrariable 0 to 1967, incrementedby 1 to 1974, then. constant at 7. P i= Garcia's index of exchange rates adjusted for the average tariff on imports and the opportunity cost of prior deposits, and. then multiplied by the dollar price index of importables. CSee Table 14.) LCPI2 June 1982 - 234 - Stat. App. T-52 Table 52: TYPES OF INVESTMENT (1970 PRICES) 1967 - 73 1974 - 79 Gross Fixed Investment .191 .135 GDP Public Construction .297 .246 Gross Fixed Investment Non-Residence Construction .166 .157 Gross Fixed Investment i{ousing Construction .169 .136 Gross Fixed Investment Total Construction .632 .539 Gross Fixed Investment Machinery .245 .295 Gross Fixed Investment Transport Eauipment .123 .166 Gross Fixed Investment Total Equipment .368 .461 Gross Fixed Investment LCPI2 June 1982 Table 53? LABuK PROu-TvITY 1N 1UhU-MIA'S ruu-uFACTutnG SECIvR i970-1979 ;1970 10u) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 TOTAL 100.0 106.7 107.3 97.5 98.2 _93.0 98.0 103.9 110.7 115.8 311/2 Food Products 100.0 108.8 105.2 90.7 97.i 100.0 103.1 97.3 113.9 117.7 313 Beverages 100.0 112.1 103.1 98.3 101.6 88.9 95.2 93.1 93.9 117.4 314 Tobaco Industry 100.0 95.6 106.0 103.5 127.1 72.4 120.5 88.3 111.5 109.2 321 Textiles 100.0 112.0 111.2 99.9 76.1 70.4 81.5 100.5 115.8 114.0 322 Clothes Industry 100.0 109.6 97.8 85.4 71.5 81.9 90.4 102.3 103.1 115.8 323 Leather Products 100.0 93.8 67.5 54.2 50.5 50.3 48.2 63.1 74.7 77.0 324 Shoes Industry 100.0 157.8 119.8 103.8 90.4 102.3 109.1 130.0 148.0 153.7 331 Woods and Wood Processing 100.0 101.8 85.7 88.1 88.3 120.3 90.3 129.7 133.2 138.5 332 Wood Furniture 100.0 86.4 88.2 89.7 85.1 73.3 68.9 81.6 76.9 87.0 341 Paper and Pulps 100.0 113.3 109.8 115.6 108.1 92.9 106.0 175.8 156.7 150.5 342 Printing 100.0 107.2 93.2 92.4 91.9 76.9 83.7 86.3 80.9 80.3 351 Chemical Substances 100.0 91.8 108.2 129.8 179.5 126.5 115.1 132.9 159.5 183.8 352 Other Chemicals 100.0 102.0 112.4 103.2 91.9 93.5 101.6 109.8 122.9 132.2 353 Petroleum Refining 100.0 122.2 152.1 115.0 103.5 95.5 100.5 108.2 55.0 53.7 354 Petroleum Derivatives 100.0 122.8 182.1 339.2 27.3 28.8 392.5 446.8 268.9 130.2 355 Rubber Products 100.0 103.5 110.5 98.3 111.9 107.9 124.7 152.1 120.0 142.8 356 Plastic Products 100.0 86.6 82.9 85.0 82.1 60.6 44.8 49.6 52.5 40.0 361 Clay and Pottery Products 100.0 101.4 87.6 89.0 88.6 87.1 101.0 99.0 105.5 102.7 362 Glass and Glass Products 100.0 117.2 119.4 109.9 98.6 84.2 92.3 90.8 89.9 106.2 1 369 Non-Metalic Minerals 100.0 99.7 101.0 101.6 114.3 107.0 107.7 89.9 105.9 95.3 I 371 Iron and Steel 100.0 92.5 120.2 113.3 109.1 95.7 117.7 135.9 14.7.0 124.2 n 372 Non-Ferrous Metals 100.0 117.2 86.4 105.2 83.3 63.0 89.3 103.6 101.7 106.6 1 381 Metal Products 100.0 103.5 97.3 107.7 100.5 99.6 93.2 127.6 114.7 127.6 382 N.E. Machinery 100.0 103.9 106.4 109.5 113.8 114.0 128.2 131.8 162.7 187.8 383 Elect. Machinery and Goods 100.0 118.1 91.4 103.1 95.1 89.1 107.3 110.6 138.2 137.0 384 Transportation Equipment 100.0 109.5 106.9 84.6 148.4 164.6 105.3 128.1 136.6 144.3 385 Scientific Inst. & Equip. 100.0 124.3 120.5 153.1 95.5 172.5 218.0 151.5 249.1 152.2 390 Other Industries 100.0 89.8 92.6 92.3 105.6 122.2 124.2 186.7 198.6 207.8 SOURCE: DANE, Industria Manufacturera, various years. LCPI2 E October 1981 Do Table 54: INVESTMENT AND ITS FINANCING) 1960, 1965, 1967, 1970, 1975-80 (IN MILLIONS OF COLOMBIAN PESOS) As Percent of Gross Domestic Investment 1960 1965 1967 1970 1975 1976 1977 1978 1979 IwO 1960 1970 19 79 190 INVESTMENT Grose Domestic Investment 5.494,8 10.742.2 15,341.0 28.660.3 73.599.9 111,353.4 169.139.6 208,942,4 261.473.3 M38546 100.0 100.0 100.0 Gross Fixed Investment 4,844.9 9,504.2 14,729.1 26,440.8 77,572.1 97,081.3 134,784.0 187,721.1 247,376.3 360,"9 88.2 92.3 94.6 96.1 Change in Stocks 649.9 1,238.0 611.9 2,219.5 -3,972.2 14,272.1 34,355.6 21,221.3 14,097.0 22,567 11.8 7,7 5.4 5.9 Type of Capital Goods Construction 2,697.1 5,796.8 9,738.3 16,059.8 45,306.5 49,357.1 68,256.4 97,685.5 122,087.5 161,"1 49.1 56.0 46.7 62.1 Transportstion Equipment 691.6 840.5 1,457.3 4,240.3 11,077.3 16,596.8 27,400.9 37,168.0 48,763.2 12.6 14.8 18.6 Machinery & Equipment 1,456.2 2,686.9 3,533.5 6,140.7 21,188.1 31,127.4 39,126.7 52,867.6 76,525.6 ",518 21.4 26.6 29.3 52.0 Sector of Investment Private Sector 4,686.3 8,875.7 11,004.0 20,928.2 50,399.0 88,257.4 140,174.6 171,533.3 212,496.5 315,860 85.3 73.0 81.3 *2,3 Public Sector Coatruction 808.5 1,866.5 4,337-0 7.732.1 23,260.9 23,095.9 28,292.0 37,409.1 48,976.8 67,686 14.2 27.0 18.7 17.7 INVESTMENT FINANCING Gross Domestic Investment 5,494,8 10,742.2 15,341.0 28,660.3 73,599.9 111,353.4 169,139.6 206.942.4 269,192.0 406,846.8 100.0 100.0 100.0 100.0 Gross National Saving 5,195.8 10,463.6 14,608.5 23,430.9 69,167.3 112,440.5 186,871.3 226,072.6 292,498.5 397,478.9 94.6 118.2 108.7 97.7 General Government Savings 1,248.3 2,202.8 4,311.1 7,660.8 16,099.7 30,593.4 37,389.5 64,836.4 64,233.9 93,184.2 22.7 26.7 23.9 22.9 Private Savings 3,947,5 8,260.8 10,297.4 15,770.1 53,067.6 81,847.1 149,481.8 161.236.2 228,264.6 304,294.7 71.8 S5.0 84.8 74.8 Corporate Savings 773.9 1,675.9 1,969.0 3,419.2 10,858.3 13.062.5 20,208.5 22,354.4 41,125.4 46,856.3 14.1 11.9 15.3 11.5 Personal Savings 506.7 1,588.9 1,217.8 2,242.2 5,458.5 23,371.8 68,451.8 58,701.1 78,025.0 114,470.0 9.2 7.8 29.0 28.1 Capital Consumption 2,666.9 4,996.0 7,110.6 10,108.7 36,750.8 45,412.8 60,821.5 80,180.7 109,114.2 142,968.4 48.5 35.3 40.5 35.2 Allowances Foreign SavingS 299.0 278.6 732.5 5,229.4 4,432.6 - 1,087.1 -17,731.7 -17,130.2 -23,306.5 9,365.9 5.6 13.2 -8.7 2.3 NA - not available. Source: B.nco de la Republica. t LCPI2 I June 1982 - 237 - Stat. App. T-55 Table 55: EFPECTIVE INTEREST RATES - PRINCIPAL FINANCIAL ASSETS (ANNUAL PERCENTAGE RATES) 1970 1971 1972 1973 1974 1976 1976 1077 1975 11179 1980 1. Savings Accounts 4.1 4.1 I8 6 8 12A 17.0 19.3 19.3 19J 1D J 22.7 2, Term Accounts 1.1 U 8.7. 8.7 .12. 16.6 18J 1.8J 18 1 iJIS 22.7 3. Certificates of D)eposit a) Banks - 13.6 13.6 13.5 26.2 25.6 25.6 25.6 24.4 215.6 32.0 36.0 b) Corp. Fin. - 13.6 13.6 13.6 1S.6 26.5 26J 26.S 26.1 15.6 32.0-36.0 4. Saving & Housing Corps. a) Accounts UPAC - - - 26.2 26.2 24.6 223 22.7 21.6 241.7 27.05 b) Certificates P1?AC - - - 26.8 27.4 26.7 23.6 23.2 22.4 21i.9-27.1 28.90.50.10 c) Ordinary Deposits - - - - - - 19.0 19.0 19.0 111.0 21.0 5. Cedulas of Banco Central Hipotecario a) Solidas 11.5 11.6 11.6 16.3 1.3 16.3 15. 14.0 14.9 111.3 16.9 b) Confiables - - - - - 23.2 23. 23.2 23.2 23.2 24.6 6, Public Debt Bonds a) Desarrollo Ecoi.n6mico 12.1 12.1 12.1 16.7 16.7 16.7 16.7 16.7 16.7 111.7 27.9 Clase "B" b) Desarro:Llo Econ6mico - - - - - 26.2 26.2 26.2 - -- - Clase "F" c) Pagares semes rales de emergencia economica - - - - - - 28.8 28.6 28.6 - - -PAS-- 7. Bonds of the Corporaciones Financieras - - 18.0 10.7 10.7 19.7 19.7 19.7 19.7 111.7 19.7 8. Coffee Bonds - - - 20.7 20.7 20.7 22.0 22.0 22.0 2:.0 26.82 9. Certificates of Tax Exemption - CAT a) 3 months 16.4 18.4 J8.4 24.5 32.0 28.1 29.7 29.2 33 7 4[)O 48.7 b) 5 months 16.7 19.4 19.7 22.9 27.6 25.6 29.6 26.6 28.6 36.6 39.2 0. Coffee Saving Bonds - TAC - - - - - - - 21.6 22.2 -- - l1. Banco de la Repfiblica a) Reserve Bonds _ - - 1.6J 22.3 22.3 17.8 17.8 161 23.1 31.7 b) ParticipDation 6 mos. - - - - 221 22.1 22.7 22.7 22.7 - - 3 mos. - - - - 21.0 21.0 21.6 21.6 21.6 36.05 36.1 2 mos. _ _ _ _ _ _ _ _ _ 3401 35.4 l mo. 3 3 _ - - - - - - 3.18 34.6 15 dags - - - - - - - - - 3 1 33.6 c) For.Exchange Cert. 40.0 39.5 3.6 31.8 d) Agrarian-Indust. 6 mos. -- - 31.0 34.6 3 mos. - - - - - - - - fl3V 33.3 12. Stocks a) Industrials inc. apprec 25.3 -9.3 12.1 28.5 1.2 26. 69.6 55.3 64J 31.6 - b) Financieras inc. apprec 20.4 -0.6 9.0 31.3 6.6 23.7 38.0 57.1 67. 22.5 13. Extra Bank Market 18.0 18.0 21.0 23.5 26.1 26.0 26.0 27.0 30.0-36.0 34.0-40.0480 Institutional a/ Source: Banco de la Republica a/ Compania de Financiamiento Comercial LC1' 12 Julie - 238 - Table 56: SOURCES AND USES OF INVESTMENT FUNDS - MAJOR COLOMBLAN INDUSTRIES T-56 Mleas Mean 1971 1972 1973 1974 1975 1976 1977 1978 1979 1971-74 1975-79 Textiles and Garnents Is-tnoent Fands(thouuands of pesos) 1248 1212 1541 2024 661 1419 2776 2781 5039 Sources: Retained Earnings/Funds .1f27 -.1295 .1272 .0519 -. 3646 .1839 .0602 .2327 .0732 .0582 .0371 c Soeprnciatiuu/Fsudo .0769 .0908 .0675 .0875 .2330 .1663 .0937 .1122 .1268 .0807 .1464 Loans/Funds .5296 .7434 .7638 .7475 1.0953 .6328 .6383 .6458 .7587 .6961 .7542 Equity/Funds .2107 .2954 .0415 .1131 .0363 .0169 .2079 .0093 .0413 .1652 .0623 Uses: Real Investment/Funds .4143 .3061 .4517 .6591 .3525 .7061 .5097 .4236 .5112 .4578 .5006 Net Finarcial/Funds .5857 .6939 .5483 .3409 .6475 .2939 .4903 .5764 .4888 .5422 .4994 Notes: Tae.s/Operational Profits 6 Extra-rd. Income .3265 .2931 .2681 .1952 .3191 .3350 .2420 .2043 .1401 .2707 .2481 Div4 dends/Operational Profits & Extra-rd. Income .3805 .9625 ,4367 .6381 1,3218 .4057 4335 4145 ,425b .6045 .5642 Metal Products und Machinery Itvest-ent Funds (thousands of pesos) 1486 916 1405 1823 1853 1903 2226 2598 4545 Saoures: Rtained Profits/Funds .0599 .0985 .0804 .1196 .0367 .1265 .2075 .1697 -,0$10 .0896 .0979 Depreciation/Funds .0404 .0644 .0470 .0483 .0599 .0840 ,1015 .0797 .0414 .0500 .0769 Loans/Funds .8890 .7216 .8562 .8047 .8910 .7774 ,6536 .6913 ,9391 .8179 .7905 Equity/Funds .0108 .1157 .0178 .0351 .0124 .0121 ,0373 .0593 .0706 .0449 .0383 Utos: Real Investmn-t/Funds .5902 .2631 .3616 .6561 .4798 .4073 .2642 ,5804 .4799 .4678 .4423 Net Fioa-cisl/Funds .4098 .7369 .6384 .3439 .5202 .5927 .7358 ,4196 .5201 .5322 .557? Nores: Taxes/Operational Profits & Extra-rd. In-ooe .2169 .3333 .3242 .3817 .2869 ,4408 3544 3630 53612 .3140 .3613 Dividends/Operaticnal Frofits 6 Eutraurd. Ianca .1536 .3258 .3394 .2276 .3625 ,1785 2089 .2101 ,7756 .2616 .3471 Basic Metals Investment Funds (thousands of penos) 293 471 514 1117 866 1201 889 1934 29V47 Sources: Retained Profits/Funds .0410 .0998 .3016 .2068 .1963 .1099 -.0247 .1 375 .0699 .1623 .0978 Depreciation/Funds .3857 .2442 .2510 .1890 .2979 .2748 .3982 .1965 .1517 .2675 .2638 Lu... /Funds .5085 .5244 .4397 .3944 .4977 .6145 .6197 .6308 .7611 .5168 .6246 Equity/Funds .0648 .1316 .0078 .0098 .0080 .0008 .0079 .0352 ,0173 .0535 0138 us-: Real Ives=not t/Funds 1.7338 .6369 .7179 .6222 .9654 .7760 .8943 .5129 ,d3d9 9277 .8095 Net Finacical/Funds -.7338 .3631 .2821 .0346 .2240 .1057 .4871 .1011 ,1011 .0723 .1905 Notes: Ta-es/Oporational Profits 6 Extraord. Income .2979 .7169 .2393 .3877 .4018 .3655 ,2756 .3597 .3826 .2a50 .357G Sividends/Operational Frnfits 6 Extraord. Income .3723 .4421 .2071 .1938 .3000 .426 7683 3029 3935 .3025 .4381 B.v-rag.. Invest-nt Funds (thousands of pesos) 409 743 514 656 752 979 1177 2119 3126 Sources: Retained Prnfits/Funds .1760 .2194 .2198 .1067 .3085 .2104 .2642 .2015 5,5 .1809 . 2280 Dsepreciation/Funds .1760 .1561 .2704 .2134 .1995 .1216 ,1861 ,1477 .1500 .2040 .1660 Loans/FPnds .3985 .6057 .4903 .5381 .4880 .6680 .5497 .5592 .6593 .5082 .5848 Equity/Funds .2494 .0189 .0195 1418 .0040 -- -- .0915 .0352 .1074 .0261 Uses: Real Investment/Funds .6675 .8762 .4261 .6585 .7500 .4597 .5514 .2294 .4002 .6571 .4781 Net Financial/Funds .3325 .1238 .5739 .3415 .2500 .5403 .4486 .7706 .5998 .3429 .5219 Notes: Tames /Operational Profits e 6 Etraord. Inmo=e .3241 .4261 .3147 .3752 .3908 .3879 .3217 .3719 .3127 .3600 .3570 Dividends/Operational Profits 6 Extraurd, Income .4950 .2938 .4513 .4934 .2739 .3287 .2378 .2851 .2299 .4334 .2711 Food Investment Funds (thousands of pesos) 503 468 528 915 720 754 1750 2701 2379 Sources: RetaIned Yfofits/Funds -r0I99 .3269 .2330 .26i01 .2375 .2467 .2011 .2395 .1114 .2000 .2072 seprecatins/Fund. .1093 .1197 .1326 .0896 .1208 .1618 .0909 .0796 .1379 .1128 .1182 Loans/Funds .8489 .4893 .5795 .6022 .5306 .5716 .7017 .6685 .6936 .6230 .6332 Equity/Funds .0616 .0641 .0549 .0481 .1111 .0199 .0663 .0216 .0572 .0572 .0552 Uses: Real I .vsttent/Funds .5586 .2585 .5985 .6929 .4014 .5889 .6797 .3828 .5557 .5271 .4997 Net Flnveciel/Fuds .4414 .4415 .4015 .3071 .5986 .4111 .4303 .6172 .4443 .4729 .5003 Nates: Tames/Operational brofits 6 Entr-ord. Income .3333 .3165 .2913 .3114 .3466 .3493 ,3454 .2396 .3155 .3131 .3193 Dividends/Operational PFofits 6 Ettraprd. Income' .7130 .1994 .3393 .2768 .3447 .3427 2573 .2204 .4131 .3821 .3156 Seurce: Balance sheets of maajr industries, Sup. Sociedades Anonimas Note: Retained Earnings = Operational Profits + Extr-ordinarY Income - (Financial rusts + Tames + Dividends) Net Financial . Finasciall Iveatment + Other Fin. Invest. - (Reduction in Liab. + Sale of Assets). LCPI2 June 1982 Tahle 57- SOUTRCE.S ANDl USES OF TNVESTM.NT FUNDS IN COLOMBIA AGRICULTURAL. MANUFACTURING AND COMMERCIAL CORPORATIONS Averages Average 1971 1972 1973 1974 1975 1976 1977 1978 1979 1971-74 1975-79 Investment Funds (billion pesos) 5473 5742 6669 9168 7325 9005 12730 16420 24019 Sources Retained Profits/Funds .1363 .1048 .1602 .1517 .1078 .1768 .1379 .2172 ,0908 .1383 .1461 Depreciation/Funds .1063 .1163 .1090 .1045 .1522 .1519 .1284 .1189 .1082 .1090 .1319 Loans/Funds .6591 .6654 .6983 .6884 .7005 .6463 .6427 .6269 .7489 .6778 .6731 Equity/Funds .1065 .1134 .0315 .0554 .0395 .0250 .0910 .0369 .0521 .0767 .0489 Uses Phys.Investment/Funds .6152 .5209 .4603 .6558 .6105 .5491 ,4834 .4491 .4926 .5631 .5169 Net Financial-//Funds .3848 .4791 .5397 .3442 .3895 .4509 .5166 .5509 .5074 .4370 .4831 Note Items Taxes/Operational (profits & Extraord. income) -.3053 -.3173 -.2789 -.3229 -.3477 -.3666 .3077 -.3063 -.2812 .3061 .3220 Dividends/Operational (profits & Extraord. income) -.3763 -.4796 -.3925 ,.3607 -.4172 -.3373 -.3513 -.,2478 -,3962 .4023 .3500 Profits/Investment funds .573 .559 .494 .491 .611 .613 .535 .524 .396 .529 .536 Sales of Assets/Funds .0888 .0709 .0397 .0507 .1201 .0483 .0945 .0218 .0620 .0625 .0693 1/ Net Financial Investment - Gross Financial Investment + Other + Redo in Liabilities - Sale Asaets. Source: Superintendencia de Sociedades Anonimas. LCPI2 June 1982 . 41 Table 58: TOTAL INSTITUTIONAL CREDIT OUTSTANDING BY SOURCE, TERM AND SECTOR (YEAR-END FIGURES, COL$ BILLION) B1 Source Amount_197_1975_19761977 1978 1979 1980 j -~~~~~Aon % Amount % Amount - _Am___ ujnt -z Amsount 2 Amount Commercial Banks 29.5 41.7 38.1 42.8 48.7 43.9 70.0 45.0 85.4 42.4 95.9 40.9 148.1 42.1 Financieras 9.5 13.4 12.4 13.9 17.3 15.6 25.4 16.3 33.1 16.4 33.9 14.4 53.9 15.3 Savings & Loan Corp. 10.3 14.6 14.2 16.0 19.4 17.5 27.6 17.7 41.6 20.6 56.4 24.0 82.4 23.4 Mortgage Banks 10.7 15.1 10.8 12.1 10.3 9.3 10.5 6.8 11.2 6.2 12.4 5.2 16.4 4.7 Agricultural & Social Savings Banks 8.8 12.4 10.7 12.0 12.7 11.4 17.6 11.3 22.4 11.0 28.6 12.2 35.4 10.1 Commercial Finance Companies 2.0 2.8 2.8 3.2 2.6 2.3 4.5 2,9 6.9 3.4 7.9 3.3 15.6 4.4 TOTAL 70.8 100.0 89.0 100.0 111.0 100.0 155.6 100.0 200.6 100.0 235.1 100.0 351.8 100.0 By Term 1/ Short-term 33.8 47.8 44.7 50.2 57.3 51.7 79.2 50.9 98.2 48.7 112.0 47.7 183.3 52.1 Medium-term 11.4 16.1. 13.2 14.8 15.2 13.7 28.0 18.0 38.1 18.9 42.1 17.9 58.2 16.5 Long-term 25.5 36.1 31.1 35.0 38.4 34.6 48.5 31.1 65,3 32.4 81.0 34.4 110.3 31.4 70.8 100.0 89.0 100.0 111.0 100.0 155.6 100,0 201.6 100.0 235.1 100.0 351.8 100.0 By Sector o Agriculture & Livestock 14.5 20.3 17.4 19.7 22.1 19.9 31.6' 20.3 38,3 19.1 1 Industry ) ) ) ) 27.7_/ 25.0 39.0-/ 25,1 50.42! 25.2 )2/ ) Construction ) 28.8- ) 40.5 ) 36.8-/ ) 41.8 32.6 29.4 41.4 26.6 57,8 28.8 Mining ) ) ) ) 1.2 1.1 1.4 0,9 2.0 1.0 Not Available in Commerce 5.9 8.2 8.6 9.8 12.1 10.9 15.2 9,8 18.8 9.4 Comparable Form, Transportation 0.3 0.4 0.4 0.4 0.5 0.5 0.6 0.4 0,7 0.4 Public Service 2.4 3.4 2.9 3.3 3.3 2.9 9.0 5.8 10.8 5,4 Others 19.1 27.1 23.0 25.0 11.5 10.3 17.3 11.1 21.8 10.7 TOTAL 70.8 100.0 89.0 100.0 111.0 100.0 155.6 100.0 201.6 100.0 H m 1/ Short-term up to one year, medium-term 1-5 years, long-term over five years. 2/ InclTdes special credits. included in other after 197R Source: Revista del Banco de la Repi!blica; Banca y Finanzas, September 1979 (published by Asociacion Bancaria) and Superintendencia BancAria. LCPI2 June 1982 Table 59: CREDIT IN ORGANIZED MARKETS AND DIRECT EXTERINAL SOURCES (YEAR END) (BILLION PESOS) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 198) 1. Total credit Organized Mlarket 26.6 33.1 39.3 51.7 70.8 89.0 111.0 155.6 200.6 235,7 351.8 2. Direct External Loans 6.5 8.8 11.8 12.4 13.2 15.8 18.8 23.0 24.1 31.8 384 3. Total Lines 1 and 2 33.1 41.9 51.1 64.1 84.0 104.8 119.8 178.6 224.7 266.9 390.2 4. PIB 130.4 152.3 186.1 243.2 329.2 412.8 534.0 718.5 916.6 1193.6 1547S 9 5. Ratio Credit/PIB 25.3 27.5 27.5 26.4 25.5 25.4 22.4 24.8 24.5 22.4 252 6. Credit to Manufacturing 9.2 11.3 14.7 18.1 20.3 25.5 34.2 45.8 53.4 61.3 8f3 7. line 6/line 3 28 27 29 28 24 24 29 26 24 23 22 Source: Computed from Lanco de la Re?uLlica LCPI2 June 1982 Table 60: DISTRIBUTION OF CREDIT TO MANUFACTURING BY SOURCE 1970-1980 (IN PERCENT OF TOTAL CREDIT IN OFFICIAL MARKETS) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Commercial Banks (own resources) .2272 .1969 .1525 .1663 .1712 .2004 .1773 .1321 .1464 .1331 .1587 Caja Agraria .0164 .0153 .0126 .0266 .0439 .0235 .0137 .0056 .0349 .0444 .0387 Corporaziones Financieras .1729 .1774 .1806 .1496 .0955 .1149 .1811 .1826 .2025 .1486 .1995 (own resources) Corporaciones Financieras .0677 .0743 .0882 .0855 .0830 .0894 .0817 .0787 .0889 .1074 .1189 (Ext. Line) Fondo Inversion Privada .1130 .1061 .0621 .0760 .0899 .0631 .0638 .0490 .0494 .0455 .0365 4'3 Financiamiento Industrial .0165 .0237 .0223 .0307 .0425 .0409 .0334 .0375 .0546 .0577 .0452 1 PROEXPO .0149 .0171 .0807 .1487 .1470 .1583 .1339 .1425 .1709 .1900 .1653 External Sources .3716 .3891 .4007 .3544 .3270 .3094 .3151 .3721 .2525 .2731 .2373 Total Organized Market/Total Credit .77 .78 .78 .79 .73 .77 .76 .75 .71 .64 .70 SOURCE: Revista de]. Banco de la Republica; Banca y Finanzas and Mission Estimates. C) LCPI2 > December 1981 I. Table 61: DISTRIBUTION OF LIABILITIES OF MAJOR FINANCIAL INTERMEDIARIES (YEAR END) (PERCENTAGES UNLESS NOTED) 1970 1971 1972 1t973 1974 1975 1976 1977 1978 1979 1980 CHECKING DEPOSITS (HOUSEHOLDS) 58.1 54.4 53.7 52.1 48.2 45.0 43.9 42.0 39.7 39.7 34.3 SAVINGS ACCOUNTS (COM. BANKS) 14.4 14.6 16.5 16.3 15.5 14.6 14.7 16.2 18.0 18.3 14.1 SAVINGS ACCOUNTS (UPAC) - - - - - 0.8 1.2 2.6 1.2 0.7 B.C.H. CEDULAS' 24.6 27.4 25.5 17.3 14.8 11.4 8.3 6.2 5.0 4.7 3.6 2/ 2/ CDS (BANKING SYSTEM) - - - - 4.2 6.2 7.9 8.6 8.0 5.4 14.1 CD's (CORP. FINANC.) 0.4e l.le 1.4e 1.4e 1.3e 2.3e 3.5 5.9 8.7 5.3 5.1 BONDS (CORP. FTNANC.) 2.5 2.5 2.6 3.3 2.6 1.8 1.3 1.0 0.7 1.5 1.8 DEPOSITS (UPAC) - -- -- 4.7 8.4 9.9 10.4 10.6 10.3 14.8 15.5 TERM ACCOUNTS (UPAC) - -- 0.3 4.9 5.0 8.4 6.5 4.5 4.3 5.2 5.8 COfDp. rTMFANTCMENTO - -- -- -- 2.4e* 2.7 3.9 3.7 3.9 5.0 TOTAL ASSESTS 23.6 28.1 35.1 49.2 62.0 84.0 114.9 149.5 203.7 251.8 378.8 (billion pesos) WEIGHTED INTEREST RATE FOR: -INTFRESTED BEARING INSTRS. 9.2 9.6 11.0 16.6 16.1 20.6 22.1 22.5 22-.0 22.8 27.5 -ALL FINANCIAL ASSETS: 3.9 4.4 5.1 7.5 8.4 11.3 12.4 13.1 13.3 13.7 18.1 Notes: 1) overstates by holdings in BCH Sources: (excepted as noted) 2) Revista Banco de la Republica 3/81 1976-80 Revista del Banco de ls Republica e estimated using exigibles despues de 30 dias moneda 8/81 nacional, and 60% of such exigibles 1970-2 1972-75 Anexo estadfstico Informe al Gerente e* estimated based on assets of the Corps. de Financiamento Banco de la Rep. 1972-77 1970-71 Anexo estadistico Informe al Gerente LCPI2 Banco del la Rep. 1970-1 June 1982 HL I, Table 62: MANUFACTURING GROSS PRODUCTION AND VALUE ADDED 1970 - 1980 Industry 1970 1975 1977 1978 1979 1980 Gross Production (billion pesos). 59.3 202.6 349.0 442.0 600.5 777.9 Value Added (billion pesos) 25.2 81.8 147.6 186.6 261.9 337.1 Percentage Distribution of Value Added 100.0 100.0 100.0 100.0 100.0 100.0 ISIC 31 FOOD PRODUCTS/BEVERAGES/TOBACO 31.1 29.9 26.5 27.2 29.8 29.8 32 TEXTILES/CLOTHING, LEATHER PRODUCTS 20.1 16.7 19.2 19.4 18.2 16.2 33 WOOD PRODUCTS, FURNITURE 1.9 1.7 1.2 1.3 1.2 1.2 l 34 PAPER PRODUCTS, PRINTING 5.8 5.8 7.3 6.5 5.8 5.8 35 CHEMICAL, PETROLEUM, RUBBER AND 17.5 21.0 22.3 20.0 21.5 24.8 PLASTIC PRODUCTS 36 NON-METALLIC MINERAL PRODUCTS 5.8 5.5 4.4 5.4 4.9 4.9 37 BASIC METALS 3.5 3.3 3.4 4.2 3.4 3.6 38 METAL PRODUCTS, MACHINERY, EQUIPMENT 13.2 15.1 14.5 14.8 14.2 12.7 39 OTHER INDUSTRIES 1.1 1.0 1.2 1.2 1.0 1.0 HA u SOURCE: DANE, Industria Miai:ufacturera, 1980.D t-1 rt LCPI2 February 1983