Foreign Investors Will Take Heart in Vietnam’s Anti-Graft Crackdown

Foreign investors in Vietnam will welcome a fairer, more predictable set of business practices as the government pursues the heads of local firms over corruption, analysts believe.

Some foreign companies might review their own books to ensure clean accounting, as prosecutors investigate executives in Vietnamese firms over suspected graft. Most will laud the crackdown as steps toward transparency, fairness in business and better-run local partner companies, economists predict.

“The corruption cleanup, I think so far, seems to be well received,” said Song Seng Wun, an economist with the private banking unit of CIMB in Singapore. “There is at least on the surface an effort to clean up and be more transparent in the way of doing business as a way to ensure firmer ground.”

Increased confidence among foreign factory investors, who already like Vietnam for its cheap land and labor, would help buoy the Southeast Asian country’s overall economy.

Foreign investment anchors Vietnam’s $202 billion GDP, which the Asian Development Banks expects will expand by 6.5 percent this year.

​Corruption crackdown widens

High-level graft trials swept Vietnam in much of 2017 as citizens complained vociferously about a range of violations, from bribery during traffic stops to illegal land-use deals.

In September, a court in Hanoi handed a death sentence to the former chairman of state-owned gas and oil firm PetroVietnam and sentenced an official from Vietnam-based OceanBank to life imprisonment for “roles in a multimillion-dollar graft case that has riveted the nation,” according to the local media outlet VnExpress International.

Nguyen Xuan Son, who had served as chairman of the board, received the death penalty for misappropriating $13.6 million from the bank, the news outlet said.

This month, former ruling Communist Party Politburo member Dinh La Thang went on trial along with 21 other officials from PetroVietnam and its affiliates. He is accused of causing losses of about $35 million.

Trinh Xuan Thanh, former head of PetroVietnam Construction, faces charges in this case over violating economic management regulations and misappropriating property. He generated international attention in August when the German government accused agents from Hanoi of abducting him in Berlin as he was seeking asylum.

Observers say this trial is part of Communist Party General Secretary Nguyen Phu Trong’s broader campaign against corruption.

The nonprofit advocacy group Transparency International ranked Vietnam 113 of 176 countries and regions evaluated in 2016 for perceptions of corruption. New York-based business compliance consultancy Gan Integrity cites bribery, political interference and “facilitation payments” across industries in Vietnam.

The same year the government told its legislature that numerous officials had been “neglecting their duties and failing to uphold moral standards and political virtues,” VnExpress reported.

​Local-foreign schism

Foreign-owned firms may review in-house accounting or money-handling procedures now to make sure they’re following rules in case a disgruntled employee contacts authorities, business experts say.

Western firms generally follow strict British anti-corruption laws when in Vietnam, though investors from elsewhere in Asia may use different standards, said Ralf Matthaes, managing director of Infocus Mekong Research, a market research company in Ho Chi Minh City.

Ford Motor Co. and Intel are among the best-known foreign investors. But most capital comes from South Korea, Singapore, Japan and Taiwan. Foreign-operated factories usually make goods, from garments to smartphones, for export.

“There are variances between different countries,” said Dustin Daugherty, senior associate in business intelligence with the consultancy Dezan Shira & Associates in Ho Chi Minh City.

Overall, he said, “they are much more compliance-oriented by far. They’re much more concerned about following the rules. There are fewer corners cut.”

In 2017, registered foreign direct investment in Vietnam reached $29.68 billion as of Dec. 20, an increase of 44 percent from the same period of 2016, according to Ministry of Planning and Investment data.

Foreign and local companies often benefit from each other now rather than competing. Local suppliers provide raw material to foreign-owned factories, for example, or offer back-end support. The state gas firm and OceanBank faced no direct competition from foreign investors.

But a clean company could lose out on land deals, subsidies or government procurement if competing with a corrupt one willing to make payoffs.

Eventually state firms may take on foreign ones overseas, said Carl Thayer, emeritus professor with the University of New South Wales in Australia. That shift would raise the urgency for fair play in business.

Vietnamese officials, he said, are “trying to once again a renewed effort to improve the performance of state-owned enterprise, equitize and privatize them, make them more efficient so they can deal with foreign competition and go abroad and perform.”

Corruption “doesn’t seem to affect the flow of foreign investment but it hurts Vietnam,” said Thayer, who specializes in Southeast Asian affairs.
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