An anti-corruption campaign in Vietnam has crippled many routine transactions in the country, creating shortages of essential goods and dampening investor confidence in one of Asia’s fastest growing economies.
The Chinese-style anti-bribery campaign has been underway since 2016, but a string of recent scandals has sparked new comprehensive investigations, unnerving government officials, who now fear being accused of corruption and reluctant to give the green light to tenders and investments.
That chill has disrupted drug and gasoline imports and investment in critical energy and manufacturing projects, politicians, diplomats and executives said, in an economy that has become an increasingly important part of the global supply chain.
In the healthcare sector, about 65% of major hospitals have experienced shortages of medicines and medical products in recent months, mainly due to officials’ reluctance to approve procurement contracts, the government said.
Marko Walde, head of the German Chamber of Commerce in Vietnam, warned that the situation could worsen if the permits for thousands of drugs expiring at the end of the year are not quickly renewed by regulators.
“If you don’t do anything, you can’t make a mistake,” Walde said of the current licensing paralysis caused by bureaucratic fear.
According to 2020 data, Germany is the second largest exporter of drugs to Vietnam after France.
A European Commission document released in October about the bloc’s free trade deals cited Vietnam’s “cumbersome” rules for renewing pharmaceutical licenses and their implementation as the country’s top unresolved issues.
The drug shortages include antibiotics for critically ill patients, cardiovascular drugs and drugs to treat the worst symptoms of dengue fever, amid a surge in cases.
Queues are not uncommon at pharmacies in the country and a doctor, who declined to be named, said private clinics have also been affected.
Similar kinks in supply affect other parts of the economy.
An industrial developer executive, who declined to be named, said projects involving medium-sized investors were repeatedly delayed due to missing signatures from officials.
Businesses say this could slow down crucial foreign investment in a country that relies on external financing to sustain its export-oriented economy and is expected to be among the biggest beneficiaries of multinational companies’ plans to reduce their exposure to China. Reduce.
Global supply chains increasingly dependent on Vietnam, including for electronics and footwear, could be affected, exacerbating the negative impact of a global order slowdown that has already led to workforce cuts in Vietnam.
Partly as a result, the growth of new foreign manufacturing projects is expected to come to a halt this year compared to last year, well below pre-pandemic levels, according to BW Industrial, a factory and warehouse rental company to manufacturers.
An October survey by the European Chamber of Commerce in Vietnam found that executive sentiment in the country deteriorated in the third quarter as corruption investigations intensified and despite very high economic growth.
PARALYSIS
Vietnam ranks 87th in the most recent corruption perception list of 180 countries compiled by Transparency International, a watchdog, roughly on par with Ethiopia and Colombia.
While fighting bribery is generally seen as a positive thing in the long run, short-term disruptions can cripple business, especially if enforcement is seen as opaque and politically driven.
As the number of investigations increases, officials fear they could be caught if they accidentally break rules, which are often poorly written and difficult to interpret.
The current procurement and licensing issues in the pharmaceutical sector follow the arrests of senior officials last year for purchasing COVID-19 treatments at high prices and organizing repatriation flights for Vietnamese citizens stranded abroad during the pandemic.
The government did not respond to a request for comment on the anti-corruption campaign, but top officials, including Prime Minister Pham Minh Chinh, have repeatedly urged administrators not to hamper economic activity by delaying purchasing decisions.
It is unclear whether the ruling Communist Party will ease the pressure, said a Hanoi-based diplomat, as some leaders view corruption in some sectors as an existential threat.
Officials, however, publicly acknowledge the bottlenecks.
“State cadres and officials, including leaders, do not dare to work because if they do, they are afraid of making mistakes,” lawmaker Nguyen Huu Thong warned before the National Assembly in late October.
DELIVERY SHOCKS
The negative economic fallout from the crackdown comes on top of other challenges facing Vietnam and other countries in Asia, namely a weakening local currency, global supply constraints and declining global demand.
Vietnam’s benchmark stock index is among the worst performers in the world this year amid a credit freeze following a string of arrests of real estate developers for alleged misconduct.
“The campaign of corruption is driving grassroots uncertainty and fear in day-to-day business dealings and approvals in Vietnam,” said John Rockhold, president of environmental advisory and investment firm Pacific Rim Investment and Management.
He said delays in the approval of highly anticipated power projects contributed to power shortages, with some manufacturers having to postpone production to weekends and nights to ease strain on the grid.
Ha Hoang Hop, a visiting senior fellow at the Singapore-based ISEAS-Yusof Ishak Institute, also attributed a shortage of gasoline to the panic caused by corruption investigations.
“The crackdown will not eradicate widespread corruption if it is carried out without full transparency and rule of law,” Hop said.
(Reporting by Francesco Guarascio @fraguarascio; Additional reporting by Khanh Vu; Editing by Sam Holmes)
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