VietNamNet Bridge – No considerable progress has been made so far in the
mechanical engineering over the last 10 years when Vietnam implemented the
10-year industry development strategy.
Goals unattainable
Under the mechanical engineering industry development strategy, Vietnam strived
to churn out the products meeting 40-50 percent of the domestic demand and
export 30 percent of the total output. However, most of the goals set in the
strategy remain unreachable.
The mechanical engineering development program is believed to gain the biggest
successes in the motorbike industry which now has the locally made content ratio
of up to 90 percent, satisfies 80-90 percent of the domestic market and exports
200,000 products every year.
However, only a few Vietnamese enterprises join the motorbike production chain.
Prior to 2005, Vietnam once had 57 wholly domestic invested enterprises which
assembled 1 million motorbikes a year. However, only 10 of them still have been
existing which can churn out 30,000-50,000 products a year. This means that 90
percent of the market share is being held by foreign invested enterprises.
About 50 percent of the mechanical engineering enterprises providing motorbike
parts and accessories to motorbike manufacturers are Japanese, while the other
30 percent from South Korea or Thailand. Only 20 percent of parts and
accessories come from Vietnamese suppliers.
Vietnam now is capable to build big ships, but the profit from the shipbuilding
industry is not big, because it has to pay big money for import materials and
machines, including welding rods. A contract reportedly has the value of $360
million, but the import materials alone cost $330 million.
Three goals have been set up for the automobile industry: localizing 40-60
percent of the car parts, satisfying 60-80 percent of the domestic demand and
exporting car parts. Of the three, only the third one has been done, while the
other two failed completely. Vietnam still cannot make engines and gear boxes
which require high intelligence.
What Vietnam’s mechanical engineering industry could do over the last 10 years
is modest, which does not require high technologies and have low values, able to
satisfy less than 25 percent of the domestic demand.
Investment incentives useless
According to the Vietnam Association of Mechanical Industry VAMI, 50 percent of
the member companies lack capital which makes it impossible to renovate the
technologies and equipment, and improve the production capacity.
The Prime Minister in 2009 set up a mechanism on supporting the development of
the mechanical engineering, giving big investment incentives to investors.
However, the mechanism seems to have not much significance with the preferences
given to only 6 projects in the field over the last 10 years.
In 2011-2012, the commercial lending interest rates skyrocketed to 17-20 percent
per annum, while the preferential interest rate offered by the Vietnam
Development Bank was 11.4 percent. No mechanical engineering company could
afford such sky high interest rates, because their maximum expected profits were
just 3-5 percent.
According to Ngo Van Tru, Deputy Head of the Heavy Industry Department under the
Ministry of Industry and Trade, the 10-year loans with the zero percent interest
rate would still be unattractive to mechanical engineering firms, let alone the
sky high interest rate of 11 percent.
An investor complained that his automobile project got the Prime Minister’s nod
for the VND250 billion loan with the preferential interest rates in 2009, but he
still had not got the disbursement by 2012.
Tran Thuy