Investors Still Flocking to Vietnam Despite Political Upheaval

(Bloomberg) -- Over the past few years, Vietnam’s anti-graft drive has taken down a slew of top Communist Party leaders, including presidents, deputy prime ministers and Politburo members. But that hasn’t stopped foreign investors from pouring in cash.

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Between January and April, disbursed foreign direct investment rose 7.4% from a year earlier to $6.3 billion, after 2023 saw the figure reach a new record of $23.18 billion. The nation’s external account has stayed healthy, with current account — the broadest measure of trade — in surplus.

“You’ve never seen more foreign investment in Vietnam — and a great majority of that is going into the super productive manufacturing sector, which underpins Vietnam’s growth,” said Peter Ryder, Hanoi-based chairman of Indochina Capital, a real estate advisory, investment and development company. “Vietnam’s pretty solid right now.”

The resilience of foreign investment into Vietnam shows that the party has mostly been able to contain the fallout of a period of prolonged political infighting spurred by questions over who will succeed Communist Party General-Secretary Nguyen Phu Trong, the 80-year-old leader who has held the nation’s top job since 2011. Truong Thi Mai, once believed to be a rising star, became the latest Politburo member to fall after her removal from the party on Thursday.

The International Monetary Fund projects Vietnam’s economy to be among Asia’s fastest growing this year and lead the region along with India in 2025. Samsung Electronics Co., which has invested more than $22 billion in Vietnam, reiterated in March that it plans to funnel an additional $1 billion a year into the country, without specifying a time frame.

Chipmaker Nvidia Corp.’s Chief Executive Office Jensen Huang said in December he viewed the country as a potential second home for his Silicon Valley company. Apple Inc.’s Tim Cook pledged to buy more parts from Vietnam and boost quality investment during a visit to the country in April. The nation has seen about a fourfold increase in companies assembling products for the Cupertino, California-based gadget maker over the past decade.

If anything, the “blazing furnace” anti-graft drive is viewed by many domestic and foreign investors as reducing corruption, said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi. Vietnam’s ranking in Transparency International’s corruption perceptions index has risen to 83 as of last year from 113th in 2016.

The country’s expanding economy and middle class, and growing role in the global electronics supply chain, underscores its continuing allure to investors, Sitkoff said, adding: “Vietnam is still an attractive investment destination.”

One reason for Vietnam’s success is that it has successfully balanced ties between the US and China, the world’s biggest economies. US President Joe Biden and Chinese leader Xi Jinping both visited Vietnam last year within months of each other.

The jockeying for power among individuals isn’t expected to change Vietnam’s economic or foreign policies, which are set by the Politburo and Central Committee, according to Alexander Vuving, a Southeast Asia expert at the Daniel K. Inouye Asia-Pacific Center for Security Studies in Hawaii.

Still, he warned that the uncertainty at the top “will also further paralyze the government bureaucracy and delay permits and government approvals needed for business.”

Delayed business expansion tied to bureaucratic foot-dragging threatens to weigh on an economy grappling with uneven growth in exports and tepid consumer activity, which has led some companies to reduce or even cease operations. A death sentence given to a real estate tycoon in a $12 billion fraud case in April, along with the resignations of senior Communist Party leaders, have rattled some foreign companies and investors who are unsure of what to make of it.

One energy company executive said the investigations and abrupt departures of top leaders is making it harder for his and other foreign companies to proceed with business plans. That’s because government workers, wary of probes, won’t approve legal documents or process anticipated new regulations, said the executive, who asked not to be identified so as not to offend the government.

Ryder from Indochina Capital said that while some investors are pausing Vietnam bets or even backing out of projects, foreign business leaders who have operated in the Southeast Asian country for years aren’t panicking. He views the leadership reshuffling as political infighting, not government or party instability.

“If you are patient, you ultimately will succeed here,” said Ryder, who has been in Vietnam for more than three decades.

Stock investors aren’t overly fazed by the political musical chairs occurring in Hanoi, said Marco Martinelli, a partner at Turicum Investment Management in Ho Chi Minh City.

Although the resignation of President Vo Van Thuong in late March partially contributed to a sharp drop in the benchmark VN Index in April, which tumbled as much as 10% during the period, overall the index has posted a 12.3% year-to-date gain and is the best performer in Southeast Asia.

“Vietnam has a history of ruling by consensus and consultation among the leaders of government,” said Barry Weisblatt, head of research at VNDirect Securities Corp., who hasn’t seen any change in policy direction or degradation of relations with key partners. “The departure of one person should not be a large issue for much concern.”

--With assistance from Nguyen Dieu Tu Uyen.

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