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Investors in Vietnam learn to live with anti-corruption crackdown

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Former head of PetroVietnam, Dinh La Thang stands trial for corruption in Hanoi on March 19. AFP

HANOI, (Reuters) – A crackdown on corruption in Vietnam unnerved some foreign investors when it intensified last year, but they are now getting much more sanguine about it and some say the business climate is improving as a result.

While the campaign by the government of Communist party General Secretary Nguyen Phu Trong has slowed some dealmaking in a country already plagued by Soviet-era red tape and bureaucracy, it has not deterred foreign investors from putting their money in Vietnam.

Vietnam’s economy grew 6.8 percent last year, the strongest pace since 2010, while foreign direct inflows hit record highs for two years in a row, reaching $17.5 billion in 2017.

To some foreign investors the crackdown was long overdue. Nearly two-thirds of Vietnam’s people have had to pay a bribe to get access to public services, Transparency International (TI) said in a 2017 report. Out of 16 Asian countries surveyed, only India fared worse.

The anti-corruption drive is a “good signal” to many foreign investors, said Somhatai Panichewa, chief executive of Amata VN Pcl, a unit of Thailand’s top industrial estate operator Amata which in January announced major investments in Vietnam.

“We think the government is serious about showing the public that investing in Vietnam is no longer ‘know-who’ but about ‘know-how,’“ she said.

Some business risk analysts take a similar view.

“Once the political thrust behind the arrests … and their pattern could be more clearly identified, confidence was restored in the government’s commitment to courting foreign investment,” said Brendan Brady of consulting firm Eurasia.

That doesn’t mean the business conditions are easy for foreign investors.

Executives on the ground have to navigate “a minefield” of new challenges, said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi.

“Whether a result of corruption, protectionism, tax collection, or the government trying to pick winners and losers, our member companies often see areas where inconsistencies, inefficiencies, and unfair practices persist – and in some cases new unfair practices are being enacted,” Mr Sitkoff said.

The government did not respond to requests for comment on the fallout from the crackdown or the circumstances in which it was launched.

Over 100 people – mostly from state-owned enterprises (SOEs) in the banking or energy sectors – have been prosecuted, jailed and, in some cases, given death sentences in the anti-corruption campaign.

Government critics say the crackdown is politically motivated and has targeted those close to former prime minister Nguyen Tan Dung, who lost a power struggle in 2016 to Communist Party General Secretary Nguyen Phu Trong.

But it has also shed light on deep-seated graft, mismanagement and nepotism within state-owned enterprises (SOEs) firms in the country at a time when a long-delayed privatisation drive is accelerating.

Trinh Xuan Thanh, a former chairman of a unit of the PetroVietnam state energy group, is now serving two life sentences for corruption after he fled the country and turned up in Hanoi in bizarre circumstances. Germany accused Hanoi of kidnapping him in a Cold-War style abduction in a Berlin park last year.

Mr Thanh’s senior, ex-politburo member Dinh La Thang, was also sacked and became Vietnam’s highest-ranking official to have been jailed for decades. He was given 13 years in prison and is again on trial facing another potential jail term.

“Officials have been more cautious after the corruption crackdown,” said an executive of a small government enterprise, who declined to be named due to the sensitivity of the subject.

“There have been quite a lot of requirements to cut down costs recently … some are required, some are forced, some are achieved via technology enhancements that cut down on electricity costs, material costs etc,” the executive said.

Earlier this month, one of Vietnam’s most sought after SOEs earmarked for privatisation, telecoms firm MobiFone, was accused by a government investigating team of several violations in a bid to buy a 95 percent stake in a private pay-TV service called Audio Visual Global.

The government inspectors described the deal as “negatively affecting” MobiFone’s proposed privatisation and proposed handing over the case to police.

The two sides called off the deal just before the results of the investigations were announced.

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