New emphasis points
The development strategy for Vietnam mechanical engineering industry was approved by the Prime Minister through the decision No. 186/2002/QÐ-TTg dated 26 December, 2002. Under this strategy, the sector has gained encouraging remarkable achievements towards international integration.
The product that Vietnam had to totally import in the past, have gradually been replaced by products of the domestic engineering industry, including hydro mechanical equipment for hydropower plants; synchronous equipment’s for industrial plants.
In recent years, Vietnamese mechanic enterprises have made progress in synchronizing equipment to supply for key industries including electricity generation, cement, sugarcane and sugar, paper and paper pulp, and fertilizer instead of only turning out manufacturing mechanical items.
However, in general, the achieved results are still lower than expectation: (i) By 2014, the industry met only 32% of domestic demand, compared with the target of 45% - 50% set in the strategy; investment into industry are still dispersed, in addition to the limited capacities in R&D and advanced technology applications.
After 15 years of realizing the strategy, we finally find out core reasons for these above limitations as follows:
- The scale of application is so large; covering all 8 groups of commodity covering almost the whole manufacturing industry is too large while the resources of the State and enterprises are limited. The target of production of some products like turbines of generators is ambitious because only G7 countries are able to produce these high-tech products.
- Some others target are ambitious in comparison to the industrial fundamentals of Vietnam, since the weakness of basic material production, automation, electronics as well as the limited quality of human resource.
- Although many policies to support the industry have been issued, the implementation is still not consistent and ineffective, partly due to the lack of necessary resources.
For these reasons, the seminar on “Development Strategy for Vietnam mechanical engineering industry" organized by the Ministry of Industry and Trade on 12, November, 2015, set the most important task of determining the orientation for the Vietnam mechanical engineering industry to 2025, vision to 2030, towards exploiting existing advantages and international opportunities in the integration process.
Compared with the strategy, the priorities are reduced from 8 products groups to 4 product groups, which satisfy both conditions of market perspective and production capacity. The new point is that "Industrial engineering sector support" role as part of the industrial infrastructure that strategy did not previously have. Finally, if the views developed in the Strategy focuses on "continued innovation, acquisitions, development and consolidation of state enterprises in mechanical strong enough to hold a pivotal role, as the main force of Sector ", the new direction will be" based on effective mobilization of resources from all economic sectors, including primarily non-state sector ". This is regarded as the highlight of the way forward.
Fund or market support?
With 15 years implementing the strategy, we have now enough success and failures to summarize precious experiences.
Regarding success, we have created opportunities in term of market for domestic companies to master the technology in manufacturing hydraulic equipment for hydropower plants and the localization of equipment for thermal power plants.
Before 2003, hydraulic equipment was imported with very high prices, above $2.9 per ton. But in reality, foreign suppliers were subleased domestic companies as Lilama, Coma, Narime to manufacture valve, valve flat, valve slit with very lower prices. Understanding the capacity and rising aspirations of domestic firms, on 17, June, 2003, the Prime Minister issued the Official Letter No. 797/CP-CN allowing designating domestic companies as contractors for A Vuong hydropower project, in Kuop, Pleikrong.
Success of these above projects have consolidated the confidence of the Government and led to the Decision of the Government to designate contractors for 11 following hydropower projects including Sesan 4, Ð?ng Nai 3, B?n Cht, Hu?i Qu?ng, B?n Uơn..., with conditions as specified in the Official Letter No. 797/CP-CN.
Up to now, with 25 hydroelectric projects, local firms have designed, manufactured equipment hydraulic mechanical, with the total contract value of more than 80,000 billion, down from $2.9 device prices/ton to 1.8 USD/ton.
In respect of the thermal power project, on 29/12/2012, the Prime Minister issued Decision No.1791/QD-TTg approving the pilot mechanism of designating and manufacturing domestic equipment power plant in the phase of 2012-2015. After nearly three years of implementation, the participation of the domestic engineering companies, including FDI has increased. Specifically, domestic companies account for 36% of total EPC contract value of the Vinh Tan 4 thermal power plant approximately 36%. This ratio is approximately 37.5% in the case of Thai Binh project, and about 40% in the case of Song Hau 1 project. If we include the value of performed outside EPC packages, the contribution of domestic companies on the total investment of the project are even higher.
However, some policy targets have been not reached. For example the decision No.10/2009/QD-TTg to support the development of production of key mechanical products in the period of 2009- 2015.
Accordingly, the investment projects production of key mechanical engineering products which can get credit from the Vietnam Development Bank up to 85% of the total investment amount of the project (excluding mobile capital). Due to funding difficulties, until now, the Prime Minister approved 11 projects with nearly 10,000 billion dongs of capital, but banks could arrange credit only for three projects with 374 billion dongs, accounting for 3.7%; and realized amount reached only 16% of the signed credit contract (60.73 billion of 374 billion).
Lessons from success and fail of the strategy are clear; therefore, in the seminar on "Development Strategy for Vietnam mechanical engineering industry", most of companies recommended the Government to support them in respect of market access and development instead of capital support. Once they can get business opportunity, they can access also social resources, technology and human resources.
“Invisible” and “visible” hand?
Mechanical engineering is a basic industry, having strategic significance for the rapid, and sustainable development of the economy, as well as the active and effective penetration of Vietnamese products in worldwide distribution networks. Therefore, the introduction of a development strategy for the sector in the coming period, in addition to creating a competitive market, is also in needed for development orientation of the industry. With a strategic industry like the mechanical engineering, it is necessary to combine the “invisible” hand of the market and the “visible” hand of the State.
Many delegates in the seminar agreed that it should be make difference between commodity groups decided by the market’ rules (including common goods such as mechanical pumps, transformers, bearings ...) and group oriented by the Government, such as equipment for hydropower plants, thermal power, cement, chemical, ...
In fact, the "visible" hand of the State has accurately assessed the real capacity of domestic enterprises in providing some equipment and machines for important projects, and has led to appropriate policies to enhance the capacity and competitiveness of this sector. Typically, when the Official letter No. 797/CP-CN of Government was issued, allowing the contractor appointment for hydropower projects, the Ministry of Industry (now is the Ministry of Industry and Trade) recognized weaknesses of domestic companies and required Narime to seek foreign partners to transfer technology hydraulic equipment design, then Vietnam has localized 90% of devices and equipment for followed projects.
Decision No.1791/QD-TTg approving mechanism on piloting domestic design and manufacture of equipment for thermal power plants in the period 2012-2025 defined split packages to suit ability of domestic enterprises. Therefore, in the project in the Thai Binh 2 thermal power plant, EVN decided to call for domestic tenders for the package of "Machine bunker" and the Dong Anh JSC won the bid.
In the "visible" hand, there are also the hard one and the soft one. "Hard" hand consists in directing and supporting national technology projects or big enterprises to execute a certain orientation of the State. "Soft" hand policies are to ensure the competitiveness of the sector and the economy.
The demarcation between “visible hand” and the “invisible hand” and between "hard" and the “soft” ones in the case of visible hand of the State would be a strong motivation for the development of the mechanical engineering industry of Vietnam.
