The ongoing capital crunch has had a significant impact on the construction industry, reducing further the competitiveness of local contractors in the domestic market.

With most infrastructure projects using foreign capital sources implemented by foreign contractors, their domestic counterparts have been sidelined.

Around 150 infrastructure projects are constructed in Vietnam each year, and most of them are carried out by contractors from Japan, South Korea and China, said Deputy Construction Minister Bui Pham Khanh.

He said limited financial capacity, outdated equipment and low labor productivity have forced local contractors to cede ground.

Vu Gia Quynh, general secretary of the Vietnam Association of Construction Contractors, said Engineering, Procurement and Construction (EPC) projects, especially the building of thermal, oil or gas power plants, required huge amounts of capital.

Because local contractors do not have enough capital to implement such projects, they have to depend on credit sources from international organizations like the Asian Development Bank, World Bank, or Japan Bank for International Cooperation. These loans often come with certain conditions that are hard to meet, so only foreign contractors are found eligible to win international bids.

Vu Quy Ha, deputy general director of construction firm Vinaconex, said contractors need big capital sources for their projects, and local commercial banks seldom met all of their credit needs.

In addition, high interest rates hinder construction firms from borrowing from banks. Contractors often take a long time to recoup capital from EPC projects, he said. Commercial banks are now offering loans with interest rates of 22-25 percent.

Only a few Vietnamese contractors like Vinaconex, Song Da and Licogi have the capacity to compete with foreign rivals for EPC contracts in the domestic market, Ha said.

The general director of a construction firm said most of the private firms have limited capital or limited access to capital, while some state-owned corporations with access to large capital sources are not able to make investment decisions in time because they need approval from relevant state agencies. He said these pressures on capital “have hindered local contractors from participating in bids for big projects.”

Another problem facing local contractors is that many investors are delaying payment, causing more difficulties, he added.

Quynh from the Vietnam Association of Construction Contractors said foreign contractors could use foreign currencies for their projects’ payments, while local ones have to use the dong. In the context of a weakened dong, this is also an obstacle to local contractors.

Some local experts say the government should support local contractors to access preferential loans, and get payments from investors in time.

As a developing country with many construction infrastructure projects, Vietnam should develop a modern construction industry to control the domestic market, and then tap into foreign ones, Quynh said. “We should have long-term investment in the field so that we have enough qualified contractors not only for projects in the country, but also to enter foreign markets.”