Colombia - Cartagena Industrial Export Processing Zone Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE CO P Y Report No. 1 973b -CO COLOMBIA CARTAGENA INDUSTRIAL EXPORT PROCESSING ZONE PROJECT May 24, 1978 Latin America and Caribbean Regional Office This document 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 autborization.  COLOMBIA - CARTAGENA INDUSTRIAL EXPORT PROCESSING ZONE PROJECT Currency Equivalents (December 31, 1977) Currency Unit Colombian Peso (Col$) US$1 = Col$38.112 Col$1 = US$0.0262 Col$1,000,000 = US$26,238 GLOSSARY OF ABBREVIATIONS AELC European Free Trade Association.(EFTA) ALALC Latin America Free Trade Association (LAFTA) BR Banco de la Republica CAT Certificado de Abono Tributario CDI Consorcio de Ingenierias y Investigaciones CORELCA Corporacion Electrica de la Costa Atlantica DANE National Statistics Department DFC Development Finance Company ELECTRIBOL Electrificadora de Bolivar EPMC Empresas Publicas Municipales de Cartagena EPZ Export Processing Zone INCOMEX Instituto Colombiano. de Comercio Exterior INSFOPAL Instituto de Fomento Municipal MOP Ministry of Public Works NBDC North Bolivar Development Corporation PROEXPO Export Promotion Fund SENA Servicio Nacional de Aprendizaje UNDP United Nations Development Program ZFIC Cartagena Industrial and Commercial Free Zone Fiscal Year January 1 to December 31  FOR OFFICIAL USE ONLY COLOMBIA CARTAGENA INDUSTRIAL EXPORT PROCESSING ZONE PROJECT TABLE OF CONTENTS Page No. I. INTRODUCTION ..................................................... II. THE REGIONAL SETTING .............. .......... 1 A. The Regional Economy ........................... 2 B. Migration, Employment and Income Levels 2 C. Related Activities in the Area .... ............. 4 III. THE INDUSTRIAL SECTOR ........ ..................... . . . . ... *. . 5 A. Structure and Growth ..... .... ............... . 5 B. Industrial Incentives ...... . . . . . . . . . . . . . . . . . . . 7 C. Industrial Free Zones ........................ so. 11 IV. ZONA FRANCA INDUSTRIAL Y COMERCIAL DE CARTAGENA (ZFIC) ........................................................ 13 A. Establishment of ZFIC of Cartagena ............ 13 B. Comparative Advantages of the Cartagena Export Processing Zone ........ . . . . .............................. . 14 C. Objectives of the Export Processing Zone ..s.... 15 D. Promotion ....... .................................. 17 E. Institutional Aspects of ZFIC ................. 18 V. THE PROJECT ............................. ...... .... 20 A. General Description ........................... 20 B. Detailed Features . ................. ... ... .s.o.. . 21 C. Project Management ........ . . . . . . . . . . . . . . . . . . . . 28 D. Project Execution Schedule ..... ............... 29 VI. PROJECT COSTS AND FINANCING PLAN ........... . ...... 30 A. Project Costs . ........... ........ .. .......... 30 B. Financing Plan ....... ........... . ....... . . . . . . . . . 32 C. Allocation of Bank Funds ...................... 34 D. Procurement and Disbursement ........... . ...... 35 VII. FINANCIAL ANALYSIS ............................. ..... 37 A. Revenue ..................................... 37 B. Income and Cash Flow Forecasts .. * ........:: 40 C. Financial Position and Audit .................. 41 D. Financial Rate of Return and Sensitivity Analysis 43 This document has a restricted distribution and may be used by recipients only in the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Continued) Page No. VIII. ECONOMIC JUSTIFICATION AND PROJECT RISKS ........... 43 A. Economic Rate of Return ........................ 43 B. Other Economic Benefits .................. o..o 46 C. Cost per Job ................................... 47 D. Project Risks ...... ....... ........ ..... . ... ......... *. .. . 47 IX. AGREEMENTS REACHED AND LOAN CONDITIONS ..o ........... 48 4 LIST OF ANNEXES Annex 1 - The Economic Rate of Return - Calculation of Induced Benefits Annex 2 - Estimated Quarterly Disbursement Schedule for the Bank Loan Annex 3 - Supporting Tables and Charts Annex 4 - Related Documents Available in the Project File This report is based on the findings of appraisal missions which visited Colombia at various times during the latter half of 1977 and in January 1978. The missions comprised Messrs. Bobb, Bentley, Simon, Santiago (LCPID), Goderez (IDFD), Pinilla (LCPHW), Gouveia (URB), Rodriguez (LCPWS), and Hemmingway (Cons.).  COLOMBIA CARTAGENA INDUSTRIAL EXPORT PROCESSING ZONE PROJECT I. INTRODUCTION 1.01 Six free zones 1/ were legally created in Colombia by Law 105 of 1958, all of which have now been established. The free zones are "Esta- blecimientos Publicos" (Public Establishments) attached to the Ministry of Economic Development, and as such are given substantial autonomy to manage r their own affairs, conduct business, and incur local and foreign debt. One of these, the Cartagena Industrial and Commercial Free Zone (ZFIC), has been preparing a major investment project to establish an industrial export pro- cessing zone (EPZ) near Cartagena for the past five years. In mid-1977 the Bank was asked by the government to study the possibility of making a loan to cover the foreign exchange component of this project. 1.02 This project would be the first Bank-supported EPZ project in Latin America and would complement past lending in the industrial sector in Colombia. Since 1966 the Bank has made six loans totalling US$242.5 million to Banco de la Republica (BR), Colombia's Central Bank, for on-lending to industries through private Colombian development finance companies (financieras). Addi- tionally, the Bank has made two loans to BR totalling US$20.5 million for on-lending to small-scale industry through Corporacion Financiera Popular, a public development bank. The financiera loans have supported manufactured exports, and DFC loans since 1975 have supported specifically regional decen- tralization of industry, both primary objectives of the proposed project. 1.03 The principal objectives of the proposed project are to: (i) support the government's industrial decentralization policy by creating a fully serviced export processing zone near Cartagena; (ii) expand non-traditional manufactured exports; (iii) improve income and living standards among the unemployed and underemployed by providing some 5-6,000 mainly low-skill jobs; and (iv) provide an economic base for a proposed urban poverty program in the Cartagena area. This report appraises a proposed Bank loan of US$15 million to ZFIC, with the guarantee of the government to support the EPZ project. II. THE REGIONAL SETTING 2.01 The Department of Bolivar is a large elongated state in the north of Colombia with its capital and port at Cartagena. The city itself, which has a population of about 400,000, is relatively well developed, due mainly to the impacts of tourism, while the rest of the department is relatively 1/ Although features vary from country to country, a free zone is basically a designated geographical area within which tariffs or other import restrictions of the host country would not apply.  -2- backward. The location of Cartagena has also made it the port city for Medellin, one of Colombia's principal industrial cities, and an important commercial center. As with many Latin American countries that border on the Caribbean, the coastal population reflects many characteristics of the Caribbean, including a wide racial and ethnic mix, while the population of the interior is principally of Spanish and native Indian origins. A. The Regional Economy 2.02 The Department of Bolivar has a primarily agricultural economy (Annex 3, Table 1). Almost one third of value added in the department in 1975 was generated in agricultural activities, primarily livestock-rearing which alone accounts for about one third of sectoral value aLdded. The main crops are cassava, bananas, rice, tobacco, maize, sugar cane, coffee, cocoa and cotton. Commercial deep-sea fishing has grown rapidly in the Atlantic coastal area since the mid-1960s, and contributed significantly to the increase in the share of fisheries from about 2% of agriculture value added in the department in 1965 to about 8% in 1975. 2.03 The manufacturing sector, which is dominated by the petrochemicals industry, is the second largest sector in the departmental economy. Over the period 1960-74 sectoral value added in real terms grew at an annual average rate of 9.6%, compared to a national average of about 7%. The main focus of industrial growth in the department was the highly capital-intensive chemicals industry, which developed around the Exxon refinery and whose share in sectoral value added rose from 9% to 51% during this period of rapid growth. The manufacture of chemicals and oil refining are located mainly in the Mamonal district, the only part of the coast near Cartagena zoned for industrial use and adjacent to the site of the proposed EPZ project. 2.04 Tourism contributes relatively little to value added at the depart- mental level, but deserves special mention because it is a major source of jobs in Cartagena itself. Key factors in the development of tourism in Cartagena are good weather, beaches and the appeal of Cartagena's Spanish colonial architecture and charm. In 1969-76 there was substantial invest- ment in tourist facilities in Cartagena with the result that the number of hotels and hotel rooms increased from 11 and 651 to 34 and 1560, respectively. It is estimated that tourism has generated directly and indirectly about 12,000 jobs in the Cartagena area since the mid-1960s. B. Migration, Employment and Income Levels 2.05 In common with Colombia's other major cities, Cartagena has ex- perienced a higher than country average population growth--about 5.6% p.a.--for several decades. Cartagena is the main focus of mLgration within the department and exerts a particularly strong influence on migration from the adjacent "municipios" (Arjona, Mahates, Santa Catalina, Santa Rosa, Turbaco, Turbana, and Villanueva) in the northern part of the department. These towns comprise the Cartagena primary zone of influence!, bounded roughly by the Caribbean Sea on the west, the Canal del Dique on the south and southwest, and the Department of Atlantico on the east. In turn, they are a  -3- first stage reception area for migrants from the rest of the department. The table below shows the distribution and growth of the departmental population among Cartagena, its adjacent towns, and the rest of the department between the census years 1964 and 1973. The population of Cartagena has been growing more than six times faster than the rest of the department, and the population in its adjacent towns about four times faster than the interior. As a result, by 1973 about one third of the Cartagena area's population were recent migrants living principally in small settlements close to the city and the proposed project site, e.g., Pasacaballos, and in a slum area known as the Southeast Zone situated in the city itself. Table 2.1: Bolivar-Distribution and Growth of Population by Sub-Region, 1964-73 1964-73 1964 1973 Annual No. % No. % Growth Rate Cartagena 218,000 33 356,000 42 5.6 Adjacent Municipios 82,000 12 98,000 12 1.9 Other Department 370,000 55 387,000 46 0.5 TOTAL 670,000 100 841,000 100 2.5 Source: CDI. Estudio de migracion y fuerza de trabajo en el Departamento de Bolivar, v. 2, Tables 1, la, and 1964 and 1973 DANE Census. 2.06 The Department of Bolivar has much higher unemployment than the average for Colombia, in spite of the fairly rapid growth of the departmental economy. According to the 1973 census the rate of unemployment in Bolivar, excluding Cartagena, was 24% compared to a national average of 14%. In Cartagena itself an estimated 19% of the economically active population was unemployed at the time of the census and roughly one fifth of the employed worked for six months or less in the year. Although tourism has created an estimated 12,000 jobs since the mid-1960s and direct employment in manufact- uring industry rose 5.6% annually from 5,960 in 1969 to 8,320 in 1975--about 400 new jobs per year--job creation in the Cartagena area has not been adequate to absorb new entrants to the labor force. Also, surveys indicate that the majority of these formal sector jobs have gone to workers from other major cities due to their generally greater job skills and work experience, and that the native Bolivar population has not received substantial direct benefits from this growth. The proposed EPZ project would contribute to mitigating the unemployment problem by creating an estimated 5-6,000 new jobs directly, increasing manufacturing employment by more than 50% in the area, and up to 10,000 indirectly through linkages by 1983. 2.07 The expectation of greater employment opportunities in the Cartagena area is the major cause of migration towards Cartagena. Although close to half of the departmental population outside Cartagena lives in "cabeceras"  - 4 - (district headquarters), only one cabecera had more than 25,000 inhabitants and virtually all others had fewer than 10,000 in 1973. These are essentially rural settlements dependent on agriculture, which does not generate sufficient new jobs, partly because of the great importance of livestock-raising, an activity which uses relatively little labor. 2.08 Migrant workers are an important segment of the inemployed and under- employed workers in the Cartagena area. The Southeast Zone residents and recent migrants from the interior of Bolivar, who will be among the primary beneficiaries of the proposed project, constitute a large part of the urban poor of the Cartagena area. They have only a few years of primary education at best, and are more often self-employed or hired on a daily basis than other workers in Cartagena. A relatively high proportion work in agriculture and services, including petty trading and domestic services, which are low productivity sectors and occupations, so that migrants have low incomes com- pared to the average for Cartagena. ZFIC would promote the hiring of natives of Bolivar in the EPZ, particularly those who have not yet benefitted sub- stantially from the modern sector development of the area. Creating this growth pole outside the city of Cartagena would tend to slow migration into the city and avoid exacerbation of the slum problems in the Southeast Zone. C. Related Activities in the Area 2.09 Through a number of public agencies, the following social services are currently being provided in the Cartagena area: (i) pre-school and primary school programs; (ii) health and nutrition programs; (iii) adult education in cultural, recreational, health, literacy, and community participation programs; (iv) childcare programs for working women; (v) minimum public services (water, power, and sewerage); (vi) assistance and credit for home improvement; and (vii) credit and technical assistance for small enterprises. In April 1978 the Bank appraised an urban development projec:t primarily for the Southeast Zone of Cartagena. This project would include mainly the physical upgrading of the Southeast Zone and the provision of some of the above services under the overall coordination of the Instituto de Credito Territorial's (Colombia's national housing agency) Cartagena branch. Social programs in the small towns around the EPZ are now being defined, and the appraisal mission of the Cartagena Southeast Zone project has proposed Bank financing of some road and water supply facilities in Pasacaballos, the small town nearest the EPZ. The government has appropriated Col$8 million for 1978 for ZFIC to continue its work of coordinating social programs in the  small towns near the EPZ. The income generated by the EPZ would enable the residents to pay for the social services and public utilities. 2.10 Loan 1072-CO is financing the current expansion of the water supply systems in the Cartagena area to meet demand through 1982. The Bank plans to appraise in 1979 the Instituto de Fomento Municipal (INSFOPAL) III project that would further expand water supply systems in the Cartagena area to meet demand through 1988. The executing agency in the Cartagena area for these projects is Empresas Publicas Municipales de Cartagena (EPMC). The revenues generated from the provision of water for the EPZ would assist in financing this further expansion of the water systems (para. 7.01). The Servicio Nacional de Aprendizaje (SENA) has tentative plans to construct an industrial training center across the road from the proposed site for the EPZ industries. A Bank education mission is expected to visit Colombia for preliminary discussions with SENA of a project that might include this center. Since that project is in a very preliminary stage, the proposed project includes funds for a small vocational training center (para. 5.21) for the EPZ that would be adequate for the needs of the project and that could become one division of the larger center SENA might build. Finally, Corporacion Eletrica de la Costa Atlantica (CORELCA), the regional power company, plans to complete a 50 MW substation next to the proposed EPZ site that would be more than sufficient to ensure adequate power to the EPZ through the foreseeable future. This substation will be supplier financed. 2.11 In light of these substantial development plans for the Cartagena area, the departmental government has formed the North Bolivar Department Corporation (NBDC) to undertake planning and coordination of the proposed projects. The manager of ZFIC is chairman of NBDC and is anxious to ensure that the development of the EPZ forms an integral part of the regional development effort. Close coordination of the proposed project and the broader regional developmental program will be mutually beneficial, since the investment of substantial public and private resources in the EPZ, and its job-generating effects, will create both a need for expanded social services and an economic base to help cover their costs. III. THE INDUSTRIAL SECTOR A. Structure and Growth 3.01 Manufacturing industry has grown at about 8% p.a. over the past decade, and is the second largest economic sector in Colombia, surpassed only by agriculture. In 1976 manufacturing contributed about 19% of GDP compared to 16% in the early 1960s, and about 17% of the employed population was working in the manufacturing sector. The sector is well diversified, with food, beverages, textiles, chemicals, petroleum products, non-metallic minerals, and transport equipment accounting for over two thirds of sector value added and about 54% of employment in manufacturing. The relative shares of consumer, intermediate and capital goods in production and employment have remained roughly constant since the late 1960s, although there have been shifts within  -6- the groups (Annex 3, Table 2). Among consumer goods the largely traditional branches of food, beverages and tobacco declined while textiles and clothing increased significantly. Paper, non-metallic minerals (primarily cement) and chemicals have increased their shares of the intermediate goods sector, and mechanical machinery increased relative to other capital goods. 3.02 Exports. Until the mid-1960s coffee had been the mainstay of Colombian exports. The only other exports of any importance were a few agri- cultural products--bananas, raw cotton, tobacco, timber, and a small amount of crude oil; manufactured goods constituted less than 5% of total export earnings. Thus Colombia's balance of payments was highly sensitive to world coffee prices. Following the export promotion measures introduced in 1967 (paras. 3.07-3.11), this strong dependence on a single commodity was sharply reduced as non-traditional or so-called "new" exports began to be exported in large quantities. By 1974 the value of new exports reached US$792 million, of which nearly 50% were manufactured products. In the same year new exports accounting for 56% of the total export earnings of US$1.4 billion surpassed the share of coffee (Annex 3, Table 3). 3.03 As shown in Table 3.1 below, the rapid increase in the share of new exports and a corresponding decline in the importance of coffee exports characterized the new export structure. However, there has been a temporary change in this trend due to depressed world trade in the lasit several years and recent high coffee prices. In 1976 non-traditional exports, including industrial exports, recovered some of the ground lost in 19715, reaching again the level of 1974 in nominal terms. Then, in early 1977, in an attempt to offset some of the inflationary effects of the exceptionally large foreign exchange inflows resulting from high international coffee priLces, the govern- ment froze the exchange rate for several months. Moreover, potential exportables were diverted to the domestic market to absorb some of the excess aggregate demand created by the coffee bonanza. Although only partial data are available, apparently non-coffee exports expanded very little during 1977.  -7- Table 3.1: STRUCTURE OF EXPORT REGISTRATIONS (% of total exports) 1967 1974 1976 Coffee 72.4 44.0 56.2 Other Agriculture 13.6 21.5 16.6 Manufactures 5.9 27.4 22.1 Minerals - 0.6 1.2 Other 8.1 6.5 3.9 Total New Exports 27.6 56.0 43.8 A number of important shifts in the composition of exports accompanied this structural change. In the manufacturing sector 38% of total exports were non-agricultural based products requiring a higher degree of elaboration, such as chemicals, metallic products, mechanical and machinery equipment, and paper products. These new products demonstrated the capacity of Colombian industries to compete internationally and penetrate new markets. This is reinforced by the proliferation in the number of exporting firms and export items from 800 enterprises producing 858 items in 1967 to 2,599 firms with 1,688 items in 1976. However, the sudden jump in the number and variety of exportable items has not altered basically the heavy commodity concentration of manufactured exports as shown in Annex 3, Table 4, with the main manufactured exports being food products, textiles, chemicals, clothing, and cement. 3.04 Data on exports (Annex 3, Table 5) to various regions indicate that the largest market growth occurred within the Andean region, with Andean Pact members (Colombia, Venezuela, Ecuador, Peru, Bolivia, and Chile (until 1977)) increasing their share of Colombia's non-traditional exports from 14% in 1968 to 33% in 1976. Developing countries together purchased 53% of these exports in 1976, substantially more than their 32% share in 1968. The European Common Market has also grown substantially as a market for Colombian exports (21% in 1976) and surpassed North America (20%) as the second most important market. B. Industrial Incentives 3.05 In the post-war period, Colombia, along with most other Latin American countries, adopted industrialization as an important objective of its general economic development strategy. For about two decades indus- trialization efforts were oriented towards import substitution, and the Colombian Government adopted a set of policies aimed at protecting the national market for such industries. However, by the mid-1960s the govern- ment began to recognize that further import substitution did not offer sufficient scope for continued rapid growth of manufacturing industry.  - 8 - In addition, balance of payments constraints caused in part by weak coffee prices, suggested that Colombia should diversify its export base, and manu- facturing industry seemed to have good potential for developing exports. Therefore, in 1967 the government began developing and promoting a set of export promotion policies as a means of reducing the bias against exports embedded in the system of protection geared to fostering import substitution. 3.06 The system of protection. The three key elements in the system of protection have been (i) an ad valorem tariff, (ii) prior deposits for imports, and (iii) import licensing. Tariffs average only about 13% of total imports, but rates vary widely between categories of goods and among different goods within the same category. Basically, duties are low on industrial raw materials and capital goods and high on consumer durables and non-durables produced in Colombia. Total or partial duty exemptions are provided to imports from the Andean Common Market and other LAFTA 1/ countries for some basic industries (e.g. sulphur, iron and steel, and fishing), purchases by some public sector entities, and purchases by export manufacturers. The structure of the tariff is such as to afford significant protection for goods produced in Colombia. The need to make prior deposits for imports has fostered the growth of commercial free zones in Colombia, because the deposit need be made only after the imported goods leave the free zone instead of on the date of granting of the import lLcense. Import licensing, formerly the most significant trade barrier used by Colombia, has decreased in importance recently due to Colombia's favorable balance of payments situation. The majority of imports are now classifiLed on the free list and licenses are easy to obtain on the remainder. Also, Colombia now grants special licenses reducing tariffs to 5% of c.i.f. price for virtually all machinery imports. 3.07 Export promotion. The government has stressed export diversification over the last ten years. The "crawling peg" exchange rate policy introduced in 1967 tends to take account of the effect of domestic inflation on the external value of the peso. Also, a set of incentive measures enacted in Decree 444 of March 1967 gave exporters (a) a fiscal incentive on exports, (b) a drawback system on import duties, and (c) concessionary credit for export- related activities. Various changes of detail have occurred subsequently as described below, but the set of export promotion measures remains essentially the same today. 3.08 The fiscal incentive is a system whereby exporters of non-traditional products are granted tax credit certificates ("certificado de abono tributario" or CAT) equivalent to a fixed percentage of the value of exports. CATs, which are non-taxable, may be used for paying any tax liabilities on maturity, gene- rally six months after issue, and are freely traded on the stock exchanges. CATs were originally granted at 15% of the f.o.b. value of eligible exports, but the fiscal cost of the incentive increased rapidly and by 1974 had reached a peak of Col$2.3 billion or about 8% of national government current revenues. The rates were reduced in 1975 to 5% of f.o.b. value for most products and 1/ Latin American Free Trade Area.  - 9 - virtually eliminated for others because of the high fiscal burden, increasing abuse by means of fictitious exports, and frictions with Colombia's trade partners. Most manufactured exports are classified in the 8% category. By 1976 the value of CATs issued in the year was down to Col$1 billion and CATs actually used in payment of taxes were valued at Col$691 million or 1.4% of national government current revenues. On January 1, 1978 the highest rate was raised from 8% to 12%, partly to offset the disincentive to exporters arising from the fact that recent depreciation of the Colombian peso has not fully compensated for the difference between domestic and inter- national inflation. 3.09 The drawback system, known as Plan Vallejo, was first introduced on a selective basis in 1959. The scheme permits raw materials and machinery for use in the manufacture of non-traditional export products to be imported exempt from regular import license, advance deposit and payment of import duties. Essentially, this plan offers freedom from import restrictions similar in principle to those offered in a free zone. The manufacturer signs a contract with INCOMEX and has to demonstrate that the imported goods are used in producing merchandise subsequently exported. Exporters who operate under the Plan Vallejo qualify for CATs on the value added of the product, subject to a minimum national value added of 50%. Essentially, the Plan Vallejo is a means whereby export-oriented manufacturers do not tie up funds in the payment of duties and/or prior deposits and also maintain flexibility by not having to obtain regular import licences. However, owing to its administrative requirements, the system is more advantageous for established, sizeable exporters than for new exporters or smaller exporting firms. Imports under the Plan Vallejo rose from about US$17 million in 1967 to a peak of US$119 million in 1974, and were US$88 million in 1976. The corresponding value added of net exports (i.e., excluding the import content of exported products) was about US$25 million in 1967 and about US$248 million or 62% of net exports of manufactured goods in 1976. Enterprises operating under Plan Vallejo have developed further linkages with the domestic economy so that the local value added rose from around 60% of output in 1967 to about 74% in 1976. 3.10 The Export Promotion Fund (PROEXPO) provides concessionary credit and technical assistance to exporters and undertakes promotion of Colombia and its products overseas. PROEXPO's sources of funds are a 5% import surcharge, which provided about 62% of its resources at the end of 1976, and lines of credit from the Banco de la Republica. Loans are made to exporters in local and foreign currency, primarily for working capital but also for fixed asset purchases and for export credits to purchasers of Colombia's non-traditional exports. Most credits are granted in local currency for six months at a 10% annualized interest rate, while similar commercial credits cost about 32%. PROEXPO's outstanding credits in local currency rose from about Col$34 million at the end of 1967 to Col$6 billion in December 1976. Most of the increase occurred from mid-1973 as a result of access to new Central Bank credit lines, an administrative change to direct payment of the import surcharge to the Central Bank rather than through the Treasury, and raising the import surcharge in October 1975. Manufacturing enterprises received about 70% of the local currency loans outstanding at the end of 1976. PROEXPO also provides  - 10 - export credit insurance for exporters of non-traditional products. Exporters located in free zones can obtain PROEXPO credits on the local value added of their production. 3.11 PROEXPO has established a good capability for promotion of Colombian exports. It has offices in the United States and in several European and Latin American countries. It has participated in several international trade fairs and organized special displays of Colombian exports in various countries. In addition it has given assistance and advice to exporters concerning trans- portation, packaging and storage, and provides a reference service on marketing for Colombian producers. PROEXPO would play a major role in supporting this project (para. 4.10). 3.12 Location of industry. Colombia has a high degree of urbanization compared to most other Latin American countries, although there is no single primary urban center. About 70% of the population live in the country's 30 medium-sized and large cities, but industry is heavily concentrated in the four largest cities (Bogota, Medellin, Cali and Barranquilla)'. In 1975, 68% of value added in manufacturing and 72% of employment originated in the metro- politan area of these four main industrial cities. Medium-sized industrial centers which have been established in the post-war period either highly specialize, such as petrochemicals in Cartagena, oil refining in Barrancabermeja, and steel forging in Bucaramanga, or produce consumer goods such as food, leather, clothing, building materials, and furniture, depending on local agricultural production of raw materials. Table 3.2: COLOMBIA - LOCATION OF INDUSTRY, 1975 Metropolitan Area Employment Production Value Added