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Industries ignore local content   2010-09-01 - Viet Nam News

Key national projects in several sectors are being implemented with little or no input from the domestic sector in the supply of equipment or materials, and this could have long-term consequences for local industries, experts have warned.

A worker operates equipment for the Tan Mai Paper Group. Most of the equipment in the paper industry is imported because it’s cheaper than the locally-made alternatives. (Photo: VNS)
A worker operates equipment for the Tan Mai Paper Group. Most of the equipment in the paper industry is imported because it’s cheaper than the locally-made alternatives. (Photo: VNS)
Local enterprises are unable to win equipment and material supply contracts for projects despite having the capacity because they are hampered by high taxation, poor marketing and inadequate legal support from the Government.

When the Government launched a campaign last year to promote the consumption of Vietnamese goods and services, hopes were raised that it would boost the prestige of Vietnamese brands and open up fresh opportunities for production and trade in the domestic market.

While the campaign has been successful in boosting the image and consumption of consumer goods, other sectors like mechanical engineering, construction and materials supplies have not benefited, especially in terms of participating in major national projects.

Nguyen Van Thu, chairman of the Viet Nam Association of Mechanical Engineering (VAMI), said Vietnamese enterprises had enough experience to implement big projects, however most of them lost their bids.

For instance, he noted, 10 thermal power plants each with a capacity of 300MW were being built by Chinese contractors, because Vietnamese firms were denied a level playing field.

Pham Thi Loan, member of the National Assembly’s Finance and Budget Committee, noted that 30 Chinese companies were participating in 42 key projects at present.

The Chinese contractors did not use Vietnamese materials, equipment or labour, Loan said.

Many enterprises in the petroleum and gas industry were capable of building drilling platforms. They have won contracts to build such platforms in Malaysia and other countries, but could not win contracts to do the same at home, said Pham Thi Thu Ha, deputy general director of the Viet Nam National Oil and Gas Group (PetroVietnam).

She blamed improper taxation policies for preventing domestic companies from supplying materials and equipment for big projects.

At present, Vietnamese companies have to pay a corporate income tax of 10 per cent as opposed to 5 per cent for foreign contractors.

Therefore, local equipment and machinery were more expensive than those imported from abroad, Ha said.

Recently, PetroVietnam paid US$182 million to purchase an old oil rig from Singapore. This was cheaper than the money needed to build a new rig in Viet Nam because tax payments alone amounted to $40 million, Ha said.

Nguyen Viet Duc, deputy general director of the Viet Nam Paper Corporation, said domestic enterprises did not pay attention to marketing activities so their products were not known widely.

"When the paper industry planned to develop major projects, many foreign companies came to us and introduced their products while we did not receive any Vietnamese companies," Duc said.

Agreeing with Duc, Ha said domestic enterprises’ marketing activities were so weak that both project investors and equipment suppliers did not know each other well. This result was that the country had many kinds of materials that were manufactured domestically with high quality and cheap prices but project owners were not aware of them.

The chairman of the Sai Gon Beer Company, Nguyen Van Thi, attributed domestic enterprises’ failure in equipment and materials supply bids to poor after-sales services.

His company each year spent about VND3 trillion ($153.8 million) on renewing equipment and machinery. The company’s bids were mostly won by foreign companies because of good after-sales services, Thi said.

Foreign enterprises also won material supply contracts because their bids for major projects were prepared by experienced and skilled foreign consulting companies, said Bui Kien Thanh, a senior financial expert. The bids were thus more professional, clear and confidence-inspiring for project owners than amateurish efforts by Vietnamese firms.

Consequently, Vietnamese enterprises could only become sub-contractors, Thanh said.

He also said that very high kickbacks was another reason that made it difficult for domestic enterprises to win equipment supply contracts for big projects.

While the Government has issued many regulations and policies to encourage the use of home-made materials and equipment for domestic projects, the lack of detailed guidelines have rendered them ineffective, experts said.

They said the Government has to take urgent action to address all the inhibiting factors, failing which, domestic equipment and materials industries will continue to be a non-player in their own backyard.

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