Finding ways to develop mechanical industry

Improper investment, capital, and technology policies have prevented the mechanical industry from reaching its set targets over the past ten years.

Mechanical industry development would be a step towards improving the socio-economic infrastructure that serves national industrialisation and modernisation. Ten years after implementing the Prime Minister’s resolution No 186 on the mechanical industry development strategy (throughout 2010 with a vision for 2020), support mechanisms for key mechanical products has failed to meet the set targets.

 Maximum strategy, minimal results

Over the past ten years, the mechanical industry has only made some modest achievements. The shipbuilding industry manufactured 6,500–53,000 tonne ships of international standard, car-carrying ships with a capacity of 4,900 vehicles, and floating crude oil 150,000 tonnage container depots.

Some mechanical businesses have become engineering, procurement, and construction (EPC) contractors in 300–750 MW thermal electric power projects.

The domestic car industry has produced and assembled 80-seat buses, trucks of all types, and other specialized vehicles, while the oil and gas industry has manufactured and successfully launched a 90m-deep self-lifting oil rig.

In terms of mechanical engineering, Vietnam has manufactured 500 KV transformers and mechanical products bearing Vietnamese trademarks are equal to those from other developing countries.

But looking back over the mechanical industry development strategy until 2010, only 34 percent of the country’s mechanical product demands were met, undershooting the 40–50 percent set target. Complete equipment production satisfied approximately 10 percent of demand. Export value growth totalled just 23.4 percent, below the set target of 30 percent.

The average mechanical product localisation rate reached 30 percent while three out of 9 key mechanical engineering projects with PM approval received State development and investment capital. The six remaining projects have not yet been carried out so far.

Difficulties in technology and capital

The Ministry of Industry and Trade’s (MoIT) Heavy Industry Department Head Nguyen Manh Quan, attributes difficulties facing mechanical businesses to limited investment in advanced technology and higher quality human resources.

The MoIT’s Industry Policy and Strategy Research Institute Deputy Head Pham Van Liem identifies the difficulties restricting the automobile industry as a small car market, poor competitive capacity, and limited foreign technology transfer.

Vietnam Steel Association Chairman Pham Chi Cuong says the steel sector needs more input material investment as construction steel supplies are sufficient but dire shortages exist in steel for shipbuilding, automobile, and motorbike manufacturing.

According to experts, developing 8 key groups of mechanical products is infeasible in the context of limited capital resources. Only some projects were thereby approved after ten years of strategy implementation.

Strong measures are needed

Vietnam Association of Mechanical Industry (VAMI) Chairman Nguyen Van Thu says the mechanical industry has failed to meet 50–60 percent of domestic demand and 30 percent of export demand.

MoIT Heavy Industry Department Head Nguyen Manh Quan, mechanical industry development requires a focus on meeting domestic demand and reducing imports. Export opportunities should be seized in automobile, agricultural, electric, and mechanical manufacturing, as well as in the complete manufacturing of thermal-electric and hydro-industrial equipment for both kinds of power plants.

It is imperative to focus on three major aspects of mechanical industry development—State policies and mechanisms, technological renovation, and domestic consumer support.

Addressing the issues businesses face in regards to capital is another priority considering the current economic situation.

 MoIT Mechanical Research Institute Head Nguyen Chi Sang says if mechanical businesses strengthen their links and are more active in negotiations for EPC contractors, localisation rates will be higher, leading to a reduction in import surplus.

If the mechanical industry implements 3–5 projects, its future localisation rates are estimated at 40-50 percent, Sang notes.

Experts also underline the need for clear regulations on investment in mechanical projects sourced from the State budget. Consumers must be encouraged to use domestic mechanical products.