Colombia - Industrial Restructuring and Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Repot No. 8633-CO STAFF APPRAISAL REPORT COLOMIA INDUSTRIAL RESTRUCTURING AND DEVELOPMENT PROJECT MARCH 20, 1991 Trade, Finance and Industry Division Departuetit III Latin America and the Caribbean Region lhi doefe hats a rdesed _ _tNd and maly be use by we ely1he _ o tbe ogfddd bcu,f a -taui be Wid  CURRENCY EQUIVALENTS (as at September 15, 1990) Currency Unit Colombian Peso (Col$) US$ 1 592.85 Cols Col$ 1 - .00189 FISCAL YEAR OF TM GOVERNMENT OF COLOMBIA January 1 - December 31 GLOSSARY OF ABBREVIATIONS ANDI National Association of Industries APDR Acerias Paz del Rio Steel Company BCH Central Mortgage Bank BR Central Bank CF Development bank COLPUERTOS Colombian Ports Authority CKD Completely knocked down parts for assembly DNP National Planning Department DTF Average rate for 90-day time deposits FDI Foreign direct investment FFIC Industry and Commerce Financial Fund FCE Enterprise Capitalization Fund FIP Private Industry Fund lAS Industrial Adjustment Service ICBF Colombian Family Welfare Institute IFC International Finance Corporation IFI Industrial Development Institute INCOMEX External Trade Institute ISIC International Standard Industrial Classification LIBOR London Inter-Bank Offering Rate NIC Newly industrialized country NPA Non-Performing Assets NWB Non-wage benefit OECD organization of Economic Cooperation and Development PROEXPO Export Promotion Agency PFI Participating Financial Intermediary QR Quantitative Restriction SENA National Vocational Training Service SME Small and medium scale enterprise SOE Statement of expenditures This Report was prepared by James Hanna (Task Manager), with the contributions and teamwork of Mmes./Messrs. Kristin Hallberg, E.C. Hwa (LA3C1), Jennifer Keller, Julie Phillips (LA3TF), Luis Prado (LATEN); Izak Atiyas (IENIN), Har Bhattacharya (EMTIE), Edmund Mangan (ASTIF), Len Jordan, Ira Lieberman, Guillermo Lopez Guerra, and Maurice Meunier (Consultants), and includes the results of industrial subsector studies. Financial support for this work was provided in large part by the Japanese Grant Facility.  FOR OFFICIL USE ONLY an" TR3L OF CONOM gm NO. LOAN A POJC .......... 1. THU HBED FOR INDUSTRIAL -ESTUC!URNInS AMW DNUOT NT. - 9m9*9999 ....... 3 1. 1 Volatile Output Grow......................... *. ........ 3 1.2 Stagnant Production Structure... 4 1.3 Domestic Market orientation.. . ..... ... 9999999 5 1.4 Weak Competitive Position ................................... * 9 5 2. PUBLIC POLICY AND INSTITUTIONAL SUPPORT FOM Fi...U Nn .. 0 0....O..... 20 2.1 Organization of Sector-wide RestructurLng.. 20 2.2 Macroeconomic Framuwork 999999999999...... . * 24 2.3 External Trade Regime ........... ................* . * 25 2.4 Doesstic competition Policies.l. 32 2.5 Financial Sector ... 36 2.6 Labor Regime .........................45 2.7 Technology Policy 999999999999999999.999999.....99 99 S4 2.8 Environmental Prot ction S...... 57 3. TIE PROJ.CT....... ...... .....9..... 60 3.1 Origin and Relation to the Country Lending Stratewy......... 60 3.2 Lessons from Past Bank Assistance to Colombian Industry.... 61 3.3 Objectives, Strategy and Beneficiaries..................... 62 3.4 Description .............. *.,P. 99999999*..***9 63 industrial restructuring policy framework..r...... 63 private sector credit program............................. 65 public sector support for restructuring.................... 66 .3.5 Cost and Financing.......g 67 3.6 Relending Terms and Conditions............................. 67 3.7 Project Implementation ......................................68 (a) administration and ove ts i g h t 68 (b) procurement and disbursement ...... 69 (c) accounts, auditing and reporting.**.****... *.......... 70 3.8 Project Benefits and Risks ................................ 71 4. A@BUUNTS RBACEED .......9 71 This document has a stricted distbution and may be used by recipients only in h perfonnuam I of their ofcil utudes. Its contents may not othenwie be disclosed without World Bank authorization.  1. Rey Restructuring measures Reuired to Achieve international Ccmpetitiveness for Selected Subsector ............................ 6 2. Cost Competltiveness of Colombian TeSxtilep and Costs of Capital Stock ln Colombia .............. a.,. . 8 3. Labor Coat and Productivity comparisons in the Textile Industry . 9 e 4. Cost Competitiveness of Colombian Clothing.. 10 S. Cost Competitiveness of Colombian Shoe. ..................... ........ 12 6. Increasing Productivity in the Clothing Industry ...... o....... a........ 13 7. Reasons for Lack of Competitiveness in the Fruit and Vegetables Sector ......................................... 14 8. Cost Competitiveness of Colambian em. . . 16 9. Cost Competitiveness of Colombian Vehicle Assembly (Autos and Light Vehicles) ............ 16 10. Cost Competitiveness of Colombian Auto Parts ........................ 18 11. Cost Competitiveness of Colombian vehicle Assembly (Heavy Trucks and 12. Cumulative Cost and Cascade Mffats of Duties Surcharge and Taxes on Imported Capital c ** ..... .......... ... ... .. .. ....... . . 27 13. Turnaround Time for 0807" Clothing Ixports ...................... o ..... 29 14. Incomex Duty-Drawback system............................--....--....- 30 15. Maritim Freight Charges' ........... .......................... ... 31 16. status of Firma nt*ring the Fecevership Process over 1982-May 1989. 34 17. Productivity of Labor In Colombia by Product Line*, .................. 47 18. Investment Costs Required of a Synthotic Fibers Company to Comply with 1984 3nvironm.ntal Regulations ............................. 58 19. Project Organization and Flow Chart .....................i............ 64 20. Organization of the Ministry-of onmic Dvlopment 73 21. Matrix of Key Project Policy and Institutional Mjustments...... ..... 74 1.1 Labor Productivity of Colombian Textile Industry 1.2 Capital Productivity of Colombian Textile Industry 1.3 Price Trends for Colombian Cotton in Relation to Internatiotial. Levels 1.4 Age of Spinning Squipmsnt in the Colombian Textile IndAustry 1.5 Investment in Open Xnded Technology Over Past Five Years 1.6 International Comparison of Age of Textile Uquipment 1-7 Productivity of Textile Production According to Plant Integration Level 1.8 Product Delivery Time in the Textile Industry According to Integration 2.1 Colombian Industrial Sector-Overall Capital Structure, 1970-85 and Overall Not Worth Struoture, 1970-85 2.2 Foreign Direct Investment-Level an& C0Msptton in Manufacturi0g, 1968-89; and total Foreign Direct Investment-Sector Composition, 1968-89  1.1 Manufacturing Output by Subsector, 1967-87 1.2 Manufacturing Output Growth, 1967-87 1.3 Share of GDP by Subsector, 1967-87 1.4 Manufacturing 8hare of GDPs International Comparisons, 1967-87 1.5 Share of Maufacturing Output by 8ubsector, 1967-87 1.6 Share of Manufacturing Value Added by Subseotor-International Comparison 1.7 Distribution of Plants by Size, 1977-85 1.8 Distribiation of Plants by Major Metropolitan Area, 1977-85 1.9 Distributior of Plants by Age, 1977-85 1.10 Concentration of Production, 1968 and 1984 1.11 Colombian Exports (FOB), 1980-88 1.12 Colombian Exporto (t of total), 1980-88 1.13 Manufacturing Exports, 1974-87 1.14 8hare of Total Manufactured Exports, 1974-87 -.1S Export Orientation of Manufacturing, 1975-86 1.16 Technology Level in the Textile Industry, by Enterprise size 1.17 GBowth of Caribbean Countries' Expoits in the 1980. 1.8 ,Comparativs Price Indices for Automotive Commodities *.1 Key Macroeconomic Indicators, 1986-95 2.2 Balance of Payments, 1986-97 2.3 Ptoduction Coverage of QRs by 2-Digit Subsector, 1990 2.4 Import Penetration-International Comparisnsx, 1986-88 2.5 Frequency Distribution of Tariff Rates, 1990 2.6 Import Weighted Average Tariffs, 1990, by Total Economy, Manufacturing SObsector, and Manufacturing 2-Digit Subsector 2.7 Reform in the Import Licensing Regime 2.8 Licening Requirements by Sector and Stage of Processing, 1990 2.9 Plan Vallejo Export Registrations, 1980-86 2,10 rinancial Sector Institutions 2411 Solvency of Commercial Banks, 1980-89 2* 12 .6lvacy of Development Banks, 1980-89- 2.13 Solvency of Commercial Banks and Development Banks, 1980-89 2.14 Profitability of Commercial Banks, 1980-89 2.15 Profitabil3ty of Development Banks, 1980-89 2.16 Risk Management of Commercial Banks, 1980-89 2.17 Risk management of Development Banks, 1980-89 2.18 Operational Efficiency of Commercial Banks and Development Banks, 1980-89 2.19 Directed Credit to Industry, 1983-88 * 2.20 Interest Rates on Directed and Non-Directed Credit, 1981-87 2.21 Development Credit Interest Rates-Annual Effective Terms 2.22 Develop mt Credit Interest Rates-Annual Effective Terms, in relation to Commercial Lending Rates (%) 2.23 Value of the Implicit Interest Rate Subsidies on Directed Credit 2.24 Securities Markets indicators, 1984-88 2.25 Aggregate Financial Structure of 164 Colombian Eaterprises, 1987-89 2.26 Real Remuneration infManqfwcturing, 1970-86 2.27 Comparative Average Total Remuneration Rates per Unit Time-Selected Industrial Subsectors 2.28 Statutory Non-Wage benefits  2429 Wage and Mon-Wag. Payments to Labor, 1970-96 2.30 Non-Wage Costs-International Comparisons, 1965-65 2 31 Average Productivity-Adjusted Total Remuneration Rates in the Clothing Industry, 1989 2.32 Estimated Labor Force Changes After Restructuring 2.33 Technical Service Contract Payments, By Economic Activity, 1976-88 2.34 Royalty Payments by Economic Activity, 1976-88 3 N RUtimated Reotructuring Investments for Selected Subseetors SUPPORTING IU?OmNmUoN AND ANELYgSE 1. subsector competitiveness analyses and restructuring issues (a) agroindustry (b) textiles and clothing (c) leather and shoes (d) iron and steel (e) vehicles and parts 2. status of Bank operations 3. Experience under past Bank lending to Colombian industry 49 Detailed credit line design for proposod Bank loan and for directed credic lines (PIP and PCs) S. Participating financial intermediaries 6. Public sector support fQr restructuring (a) environmental pollution control (b) project management unit -7. schedule of estimated Bank loan disbursements 8. Key indicators for Project implementation 9. Documents available in the Project file MAP 1*0370R  ,R,R"mmRU