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