Since 2016, Vietnam has been aggressively combating corruption to attract foreign businesses. However, the ruling Communist Party has recently intensified its sweeping anti-graft campaign to bolster one of Asia's fastest-growing economies further, as multinational companies have pivoted to Vietnam to avoid escalating Sino-U.S. tensions.
With a flurry of wide-ranging investigations forcing ousters of, and in some cases, capital punishment for, high-level executives and officials, the ones still left standing are toeing the line with heightened caution when it comes to approving procurement and foreign investment.
WHY DID VIETNAM DECIDE TO TACKLE CORRUPTION?
As the U.S.-China trade war prompted multinational companies to diversify their supply chains, Vietnam has emerged as an increasingly viable alternative to China for establishing manufacturing capabilities.
However, rampant corruption, exacerbated by a lack of bureaucratic transparency and entrenched cronyism within the business system, has remained a severe lingering concern in the country.
Dang The Duc, managing partner at Vietnamese law firm Indochine Counsel, believes the campaign serves a crucial purpose in enhancing the country’s business environment and economic performance in the long run.
“Corruption has long been recognised as a significant barrier to economic growth, hindering private enterprise development and deterring foreign investment. Targeting to root out corrupt practices, the anti-corruption campaign is expected to create a fair and transparent environment conducive to economic activities,” says Duc.
The anti-graft drive is also expected to improve Vietnam’s economic status by reducing the costs associated with corruption, according to Duc.
“Specifically, the campaign lowers the costs associated with bribery expenses and informal payments. This enhances the financial performance of Vietnamese firms and bolsters their competitiveness in domestic and international markets,” says Duc.
He added that more foreign businesses have been attracted to Vietnam since the campaign started as “investors are reassured by the improved business environment and reduced risks associated with corruption.”
WHAT ARE THE CHALLENGES FACING FOREIGN INVESTORS?
As the ruling Communist Party has tightened its grip on corruption, rank-and-file officials, gripped by bureaucratic anxiety, have exercised extra caution in approving foreign procurement and investment to avoid any perception of wrongdoing.
As a result, many routine transactions in the country have been paralysed, causing shortages of essential goods, including drugs and medical products, and further dampening investor confidence in the country, according to Reuters.
“The crackdown on corruption has made authorities more cautious and deliberate in their review of investment proposals, resulting in extended timelines for obtaining necessary approvals," says Duc.
“Foreign investors may face a myriad of challenges that significantly impact their operations and investment strategies. One prominent challenge is the slower legal approvals and delays in the deal approval process," he adds.
Certain sectors, such as real estate, natural resources, and infrastructure, also face tighter scrutiny due to their high economic significance and susceptibility to corruption.
“This heightened scrutiny may cause disruptions in supply chains and project plans for foreign investors operating in these sectors. The additional regulatory scrutiny adds complexity and uncertainty to investment decisions,” notes Duc.
Another aspect of the anti-corruption drive is the political uncertainty it instigated. In one of the latest examples, Vietnamese President Vo Van Thuong resigned from his position after just over a year, marking another significant development in the ongoing anti-corruption efforts. His departure followed that of his predecessor, Nguyen Xuan Phuc, who was also forced to step down during the anti-graft crusade amid the pandemic.
Duc believes the political uncertainty stemming from the anti-corruption campaign has been posing another significant challenge for foreign investors.
“The removal of high-ranking officials as part of the campaign has created a sense of instability within the political landscape, leading to concerns about policy paralysis and regulatory unpredictability,” says Duc.
There are also concerns that the anti-graft campaign was weaponised by the authorities to target political rivals. The political motives could render the campaign arbitrary and could cloud investment prospects.
HOW CAN FOREIGN BUSINESSES NAVIGATE THE CAMPAIGN?
Lawyers believe businesses that can successfully demonstrate transparency, compliance with local laws, and thorough due diligence will more likely get the green light from officials unnerved by the optics of corruption.
"Transparency is a top priority for authorities, especially in dealings involving foreign investment. Investors must ensure transparency in their financial sources and technical capabilities. This transparency helps demonstrate the legitimacy and credibility of the investment, mitigating concerns about potential corruption or illicit financial activities," says Duc.
In addition, Duc points out that thorough due diligence on business partners and third-party suppliers is essential to mitigate risks of corruption or bribery.
“Investors should conduct comprehensive background checks and assessments to ensure the integrity and credibility of their partners and suppliers. This helps prevent potential involvement in corrupt practices and protects the reputation and interests of the investors,” he adds.
