What Does Vietnam’s Anti-Corruption Drive Mean for Investors and Businesses?

Vietnam cemented itself as Asia’s “shining star” during the COVID-19 pandemic. While many countries struggled to balance managing a healthcare crisis and preserving the economy, Vietnam bucked the trend. Its economy hit 8% growth in 2022, exceeding average rates of 7.1% between 2016 and 2019. In 2023, forecasts expect Vietnam’s GDP growth to slow to a “moderate” 6.3%, which is still remarkable considering the current global macroeconomic outlook.

From a foreign investment perspective, Vietnam saw approximately USD 27.72 billion in investments across sectors in 2022, with around USD 12.45 billion being invested in 2,036 new projects. Investment numbers fell in Q1 2023 with USD 4.3 billion being invested in the country – a 2.2% drop from the same period last year. Some attribute this drop in investment to “lower global demand,” but there have also been whispers about “uncertainty” regarding Vietnam’s domestic situation.

In this article, we will explore Vietnam’s ongoing anti-corruption crackdown and the impact on PE funds, foreign investors and corporates that have an eye on Vietnam’s growing investment opportunities.

Vietnam’s Anti-Corruption Crackdown

Uncertainty about Vietnam’s domestic situation has been largely attributed to the country’s “blazing furnace” corruption purge led by Vietnam’s Communist Party (“CPV”) Secretary-General, Nguyễn Phú Trọng. (This ongoing anti-corruption drive was also featured in our update following the release of Transparency International’s Corruption Perception Index 2022 (“CPI 2022”).)

The crackdown has led to the resignations or removals of senior government leaders, including former President Nguyễn Xuân Phúc, and two out of four deputy prime ministers. These senior government leaders were embroiled in COVID-19 related graft cases, including a highly publicized scandal involving COVID-19 test kits. In recent years, multiple senior-ranking members of the government, CPV, and security apparatus have been arrested, investigated, and prosecuted on a variety of charges, including bribery, abuse of power, and fraud.

The private sector has not been spared in this anti-corruption drive either, with scrutiny in the real estate, banking, and healthcare sectors. More recently, there have been indicators that the Vietnamese authorities are broadening their graft campaign to target other senior business leaders across industries, although there is no public information suggesting that foreign companies are in the crosshairs. These developments have chilled several anticipated projects and procurement plans and disrupted certain supply chains, as those in the public and private sector alike fear they may be targeted next.

What’s Driving This Crackdown and What’s Next?

Should PE funds, foreign investors and multinationals with an eye on Vietnam be concerned about the country’s domestic political and regulatory situation?

While the anti-corruption purge was initially seen as being solely politically driven, increasingly, some are warming to the possibility that the anti-corruption drive is part of Vietnam’s efforts to bolster its position as an attractive destination for investment and business expansion. Those in this camp have also drawn parallels between recent developments in Vietnam and China’s state-led campaign against private and public sector corruption beginning in 2012. That said, given recent high-profile arrests, it seems unlikely that Vietnam’s own campaign will ease anytime soon, and it would be hard to discount the role of politics completely.

Even as we debate the driver for Vietnam’s anti-corruption crackdown, which has gone on several years now but picked up pace more recently, the results of the anti-corruption drive speak for itself. Based on Transparency International’s CPI 2022 results (which ranks perceptions of public-sector corruption), Vietnam improved by nine points from its score of 33 in 2018 to a score of 42 in 2022, ranking 77^th out of 180 countries surveyed.

While Vietnam’s anti-corruption campaign, together with other recent efforts to reduce red-tape and complex regulations (which were historically difficult to interpret and often afford wide discretion to government officials) may be seen as a response to recent investor anxiety about doing business in Vietnam, we see these developments as net-positives for the market and its long-term prospects. The latest Economist Intelligence Unit’s business environment rankings, which measures the attractiveness of doing business in 82 countries across 91 crucial indicators, showed Vietnam jumped 12 places in a single year, the biggest improver worldwide. Correlation may not suggest causation – but it is hard to imagine that Vietnam’s anti-corruption drive will do more harm than good for investors in the long run.

In the near horizon, we still observe healthy growth and opportunities for PE funds and foreign investors in Vietnam across sectors, including consumer retail, manufacturing, and logistics, even as those in other sectors, most notably real estate, take a “wait and see” approach.

Opportunities are plentiful in Vietnam, but not without risk. Recent enforcement developments also illustrate the need for PE funds, investors and multinational corporates to tighten their approach towards due diligence on business partners and other third parties (e.g., downstream suppliers, agents, brokers, etc.). Asking the right questions and understanding the political and reputational exposure for your existing or potential investment or business has become critical as companies and investors ride out the remainder of Vietnam’s concerted anti-corruption drive.

For more information about investing or doing business in Vietnam, or assessing and addressing compliance-related risks there or in other parts of Southeast Asia, please contact us.