Vietnam seeks to bolster mechanical industry

Monday, 2019-10-07 16:28:17
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Manufacturing mechanical equipment at LILAMA 18
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NDO - Speaking at a recent conference, Deputy Prime Minister Trinh Dinh Dung has underlined the role of the mechanical industry as a critical industry, a foundation and driver of national industrial development, helping to shift the economic structure and enhance labour productivity.

But Vietnam’s mechanical engineering industry is facing various problems, which requires bolder efforts from mechanical firms and industry bodies as well as the government, ministries and local authorities in formulating policies to create a conducive environment and mobilise resources for the industry’s development in the coming time.

Unprotected local market

Minister of Industry and Trade Tran Tuan Anh acknowledged that Vietnam’s mechanical industry is growing slowly with many limitations, without major enterprises taking a guiding role.

The majority of domestic mechanical firms are small-sized enterprises which possess low technological capability, lack advanced machinery and equipment, and have yet to master core mechanical technologies. Thereby local production currently meets only 32% of the demand and very few domestic producers can compete with foreign rivals.

Many important subsectors have failed to meet the set strategy and are falling behind by two to three generations, resulting in low added value in domestically manufactured products.

Besides the weakness in the enterprises themselves, such a situation was the result of inefficient state management. A strategy to promote Vietnam’s mechanical industry until 2010 with a vision towards 2020 was issued in 2002 and approved by the Politburo a year later but many policies were not carried out until 2011 and even 2014.

The implementation of such policies was also inconsistent. For example, a preferential credit policy was approved in 2002 but few enterprises benefited from this policy. More importantly there have not been effective policies to protect and create a market for local mechanical producers to grow, especially in government procurement projects. In many instances, the bidding mechanism even gives an advantage to foreign firms.

According to Chairman of the Vietnam Association of Mechanical Industry Dao Phan Long, the domestic market is an important breeding ground for the development of manufacturing industries. Vietnam’s annual import of machinery, equipment and materials worth dozens of billions of US dollars shows that there is plenty of room for local mechanical firms to grow. For years, Vietnam has invested significant resources on energy, building materials, mining, road and port construction, and irrigation projects, which is an important market for the mechanical industry. But most of the pie has gone to foreign firms due to ineffective measures to protect and tap into this market.

Better policy needed

The mechanical industry is characterised by intensive capital use and low profit margins. Therefore appropriate policies are needed, especially since the majority of domestic mechanical enterprises are small and medium-sized with limited technical capability.

According to VAMI Vice Chairman Nguyen Chi Sang, for large investment projects such as hydropower plants, thermal power plants, high-speed rail, anti-salinity, transport mechanics, roads and bridges, it is necessary to build a roadmap on domestic content. For the projects that use public investment capital, it is necessary to set aside the component that domestic firms can undertake for domestic bidding and such a process must be done right at the start of project preparation.

For the packages that domestic companies are yet unable to fully undertake, domestic bidding can be allowed on the condition that domestic companies can forge a partnership with competent foreign contractors.

Furthermore, the ministries and sectors concerned need to continue implementing the state policies on the mechanical industry’s development seriously.

Sharing the same view, LILAMA General Director Le Van Tuan, setting aside the work for domestic enterprises is very important to develop the mechanical industry. He added that it is also necessary to tighten foreign labour management in order to keep jobs for local workers.

According to many experts, the government needs to introduce specialised policies to develop the mechanical industry. VAMI Chairman Dao Phan Long suggests establishing a unit to regularly advise the government in its policy for the mechanical industry.

Furthermore, it is necessary to continue issuing various incentive policies such as eliminating tariffs on the imports of materials and equipment used to manufacture machines replacing imported machines; adjusting corporate income tax for a number of priority sectors such as agricultural machines and food processing machines; and creating tariff barriers to mechanical products whose equivalents have already been locally manufactured.

After listening to the opinions of experts and enterprise representatives, Prime Minister Nguyen Xuan Phuc instructed the Minister of Industry and Trade to take note of the opinions and work with the parties concerned to formulate a new resolution on developing the mechanical industry by the end of the year.

He also called on investors, domestic and foreign enterprises to make further investment in science-technology and administration in order to increase competitiveness. The PM affirmed that the government will always accompany and support enterprises to create new breakthroughs in Vietnam’s mechanical industry, helping to realise the goal of national industrialisation and modernisation.