State corruption poisons Vietnam's reputation as an investment haven

A spate of high-profile fraud cases involving government-owned enterprises have tarnished Vietnam's reputation.

Over a 12-month period, 28 per cent of citizens in Vietnam reported direct experience with making unofficial payments. Hoang Dinh / AFP

Five years ago, Vietnam was South East Asia's go-to place for foreign investment, rivalling China as the low-cost manufacturing centre of choice in the region.

Companies are still investing in Vietnam but the country's reputation has suffered from a spate of high-profile fraud cases and the arrest of leading businesspeople, as well as tales of wildly inefficient state-owned enterprises (SOEs) and close links between the banks and the state.

Vietnam has been on a strong upward trajectory more or less since it began to open up in 1986 but the economy expanded by just over 5 per cent last year, its slowest rate of growth since 1999.

The country is losing out to nations such as Indonesia in terms of efficiency and value for money.

Inflation is on the rise, the dong currency has weakened and untrammelled borrowing by the SOEs have put a strain on the banking system and left the banks heavily indebted.

Faced with growing public discontent and growing scepticism overseas, the government has come up with a plan to crack down on corruption and overhaul 52 state-owned enterprises by June of this year, including the sale of non-performing assets.

The prime minister Nguyen Tan Dung's administration has pledged to focus on the ties between banks and the state companies that account for so much of their lending.

The government plans to sell all non-essential SOE units by the end of 2015, and will retain just 50 per cent to 75 per cent in most of its companies.

In October, the Communist Party general secretary Nguyen Phu Trong apologised after a two-week meeting of Communist Party leaders for what he described as "big mistakes", including corruption and poor oversight of state-owned conglomerates.

"The politburo has seriously self-criticised and honestly apologise to the central committee for the shortcomings in party-building, cases of moral decay among party members and cadres," Mr Trong said.

To repair the damage to its reputation, the Communist government even seems set to play down the socialist aspect of the administration.

A proposed revision to Vietnam's constitution, which is due to be submitted to the National Assembly for approval and is currently open for public comments, removes the concept of the state sector playing the leading role in the economy, The Saigon Times reports.

Recent months have seen a catalogue of embezzlement, fraud, corruption and mismanagement that have badly unsettled international confidence in Vietnam and caused widespread public anger at home.

Dao Van Hung, the chairman of Electricity Vietnam, was fired in February last year after the power company lost 11.5 trillion dong (Dh2.02bn) over two years.

In March last year, nine top officials were jailed for their roles in the near bankruptcy of Vinashin -the Vietnam Shipbuilding Industry Group.

Shock waves rippled through Vietnamese society in August with the arrest of the banking tycoon Nguyen Duc Kien, one of the richest men in Vietnam and famed for his close connections to the ruling Communist Party. He was suspected of "economic violations".

His family were co-founders of Asia Commercial Bank, known as ACB and Vietnam's largest private lender by assets. News he had been picked up by police started a run on the bank, with depositors withdrawing hundreds of millions of dollars.

In September, officers swooped on the former chairman of Vietnam National Shipping Lines, or Vinalines as it is known, suspected of falsifying contracts.

Last month, another bombshell. Federal police arrested Pham Thanh Tan, the former head of the state-owned Agribank, the country's largest lender by assets, for "irresponsibility causing serious consequences".

The bank was saddled with a fiendishly high non-performing loan ratio of more than six per cent through the first half of last year.

This came after a flurry of headlines about embezzlements at various branches.

In November, police in Ho Chi Minh City arrested three senior executives for stealing US$960,000 (Dh3.5m) from the bank, while city prosecutors charged four others in a scam worth $5.33m.

In October last year, police in Ho Chi Minh City arrested two officials and a staff member of Agribank for alleged involvement in a scam that misappropriated 120 billion dong (Dh21.17m) from Agribank.

That same month, another executive was arrested in the city for his involvement in a 40bn dong loan scam.

In July, a bank teller in Binh Dinh Province in south-central Vietnam was given a life sentence for embezzling nearly $1m to fund his gambling addiction. He had faked documents and forged the signatures of 20 customers between 2008 and 2011 to pocket the money, the Thanh Nien News reported.

That came just 15 days after a court in the capital Hanoi sentenced one bank employee to death and two others to life in prison for embezzling more than $2.1m.

It was the first ever death sentence awarded in Hanoi for embezzlement.

SOEs account for 40 per cent of total output in Vietnam but the public perception is they are riddled with corruption.

According to data from the finance ministry, SOEs account for half of all government investment, 70 per cent of official development assistance and more than half of the banking system's bad debt.

A survey by the Vietnam chamber of commerce and industry showed half of businesspeople admitted bribing officials to win contracts.

"As Vietnam moves into the ranks of middle-income countries, the time to revisit the nature and causes of corruption, the time to bring new empirical data to bear on these issues, and the time for renewed vigour in the fight against corruption is now," the World Bank said in a report on corruption in Vietnam, published in December.

The report showed at least a third of the population identified corruption as among the most serious problems facing Vietnam.

Large proportions of the population experience corruption first-hand in the form of unofficial payments: in the 12 months before the chamber of commerce survey 44 per cent of enterprises and 28 per cent of citizens reported direct experience with paying unofficial payments and 45 per cent of public officials encountered corrupt behaviour.

"The fact that all sample groups seem keen to try just about anything to reduce corruption signals the need to reinvigorate the battle against corruption," the World Bank report said.

"Although there does seem to be some progress in reducing low level administrative corruption, there is general agreement that fewer corruption cases only means that corruption is becoming more complex, not that corruption is declining."