Removing difficulties for engineering sector

Capital difficulties

According to the Vietnam Association of Mechanical Industry (VAMI), the engineering output value has seen a significant growth in recent years. Particularly, it reached VND700 trillion last year, accounting for about 20 percent of the country’s total industrial output value. The sectoral export value reached more than US$13 billion last year, a nearly six-fold increase over the year 2006. However, this figure failed to reflect the existing potential of the sector. Last year, engineering output only met about 34.5 percent of domestic demand.

VAMI Chairman Nguyen Van Thu admitted that the implementation of preferential policies was very poor. For example, Decision 10/2009/QD-TTg aims to provide financial support for 11 out of 24 key mechanical projects, with a total investment of nearly VND9.98 trillion; however, only three among these 11 projects have so far received funding from the Vietnam Development Bank.

According to General Director of the PetroVietnam Marine Shipyard JSC Phan Tu Giang, the company’s projects for mobile offshore drilling units and marine facilities are among the country’s key engineering projects but have yet to receive financial incentives.

“We are also facing difficulties in obtaining preferential loans for the manufacture of its 220KV transformer national key mechanical product, according to Tran Van Quang, the General Director of the Dong Anh Electrical Equipment Corporation-Joint Stock Company.

Focus on increased local contents

Vietnam should learn the Republic of South Korea’s experience in the improvement of the local content of engineering products. Vietnam should provide financial incentives such as cheap interest rates for investors who use key engineering products in their projects, along with additional incentives related to customs and tax, said Doosan Vina General Director Ryu Hang Ha.

To facilitate the development of domestic engineering enterprises, there must be obligatory provisions which clearly state the local content rates of raw materials and construction items for investors in thermal power, petrochemical and chemical treatment projects. Enterprises with high local content rates in their projects will be facilitated on bidding.

According to regulations, national key engineering products must be fabricated by capable domestic manufacturers; otherwise, they must be distributed by capable local providers.

To increase the local content of engineering products in the future, the government needs to adjust related tax policies to encourage both domestic manufacturers and customers. In particular, taxes applied to subcontractors on products and related services that domestic enterprises cannot provide should be scheduled to review.

In addition, engineering firms themselves must strive for technological innovation, improve product quality, positively participate in the global value chain, promote inter-sectoral development links and strengthen international cooperation to acquire new advanced technologies and learn more experience, according to Nguyen Van Thu.

Deputy Director of the Heavy Industry Department under the Ministry of Industry and Trade Pham Anh Tuan said, “Engineering businesses should focus on manufacturing equipment for thermal power plants in the 2012-2015 period in accordance with the local content promotion program proposed by the VAMI and approved by Prime Minister Nguyen Tan Dung via Decision 1791/QD-TTg. In addition, the Ministry of Industry and Trade will coordinate with other ministries and agencies to draft the mechanical development strategy until 2025, with a vision towards 2035, in the shortest time and submit it to the government for approval.”

Vietnamese engineering firms needs to increase the local content of their products as part of the implementation of the engineering development strategy until 2025, with a vision towards 2035.

Source: VEN