Mechanical engineering enterprises call for help

Vietnam will need an estimated $250 billion worth of equipment for industrial projects from now to 2025, providing an attractive market for mechanical engineering enterprises. Yet Vietnamese enterprises are not among them.

According to Nguyen Van Thu, Chair of the Association of Mechanical Industries (VAMI), every year Vietnam must import $10-18 million worth of mechanical products. These are equipment and production lines for domestic-invested enterprises. Meanwhile, the mechanical industry development strategy approved in 2002 predicted that by 2010, Vietnam would meet 45-50 percent of domestic demand for mechanical products.

Dr. Nguyen Chi Sang, Head of the National Research Institute of Mechanical Engineering (NARIME) maintained that, among the 21 cement plants that have been built, only a few projects have relatively high proportions of domestically-made equipment (Song Thao Cement Plant has a localization ratio of 40 percent, or 1.4 million tons per annum; Thai Nguyen Cement has a locally-made content ratio of 65.7 percent). Other projects have low localization ratios at just zero to five percent.

These statistics show that the goal of making 45-50 percent of total equipment needed in Vietnam is still far away and cannot be reached by 2010.

Domestically-made equipment accounts for small proportions in industrial projects, including those where domestic enterprises are EPC (engineering, purchasing, construction) contracts. As for Ca Mau 1&2 and Nhon Trach 1 power plants, the value of equipment made domestically accounted for only 20 percent of the total value. Foreign companies supplied the remaining equipment.

Mechanical products made by domestic enterprises are mostly those with low value made by old manufacturing plants with modest investment.

“Vietnam still does not have mechanical engineering plants with modern technologies, while it lacks a research and development workforce, especially consultants, technicians and manufacturing designers,” Thu of VAMI noted.

According to VAMI, most mechanical engineering enterprises only invest in sectors that do not need big investment capital, but bring low added value. A lot of enterprises spend only 0.2-0.3 percent of their revenue on research and development. In contrast, the proportion is five percent in India and 10 percent in South Korea. Thus, EPC contractors from Europe and Japan take only work with high economic value, leaving less important tasks for domestic sub-contractors.

Mechanical engineering companies think that they are still weak because they have no support from the State.

“Enterprises always have to face complicated procedures when they carry out investment projects,” Thu observed. “Interest rates on loans for investment and development have been increasing. That explains why only three out of 24 projects in the mechanical industry development program approved by the Government in October 2003 have been implemented with preferential loans.”

Meanwhile, Nguyen Van Vu, General Director of Vikyno (an engine and agriculture machine producer), remarked that many foreign-made engines and machines with low quality have been imported, creating losses for both the State and farmers. Vu has called for technical barriers to prevent such low quality products from entering Vietnam.

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Tags: Vietnam industry, Vietnam Mechanical Industry