Throwing More Coals into the “Blazing Furnace”: Anticorruption and FDI in Vietnam

By. Benjamin Wolff

DOI. 10.57912/31386898

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In April of 2024, a Vietnamese court sentenced real estate tycoon Truong My Lan to death for her part in a $12.5 billion embezzlement scandal, totaling over 2% of the country’s GDP.  Despite the gravity of the offense, the National Assembly of Vietnam in June 2025 abolished the death penalty for embezzlement, sparing Mrs. Lan from the death penalty and commuting her sentence to life imprisonment. This high-profile case added to renewed attention on Vietnam’s efforts to tackle its persistent corruption problem as a means of increasing foreign direct investment (FDI) in the country. This push to eradicate high-level corruption is a directive of the Communist Party of Vietnam (VCP), the sole legal political party in Vietnam. Although these crackdowns, such as the aforementioned imprisonment of My Lan, targeting high-profile corruption as part of the VCP’s “blazing furnace” reforms, are a strong start for a deeply inefficient and corrupt government system, it may not be enough. Vietnam should continue fighting corruption by implementing reforms at the base level to target lower-level corruption within the civil service, thereby spurring further foreign direct investment. 

Throughout the past decade, Vietnam has seen explosive economic growth, even by the standards of other South Asian nations, averaging about  6.1% annual GDP growth, according to the World Bank. Economists have mainly attributed this growth to Vietnam’s low labor costs, high labor force participation rate, and a large, relatively young population. Additionally, Vietnam has fully leveraged free trade agreements with other nations to attract FDI, leading to the country's rapid economic growth. In particular, Vietnam’s largest trading partner has been the United States, which accounts for nearly 30% of Vietnam’s total export market. Vietnam has also signed free trade agreements with the European Union and the UK, further expanding FDI opportunities.  

Although increased economic activity through FDI will likely spur greater economic growth, it may also increase opportunities for corruption at all levels of the bureaucratic process. While Vietnam’s top-down anticorruption approach, which places greater scrutiny on the more powerful decision-makers within the party, is not without merit, bribery is unfortunately an entrenched part of ordinary business life in Vietnam. A Transparency International survey found that 15% of Vietnamese had paid a bribe in the past 12 months. Bribery is most common at the lowest levels of government, where businesses rely on bribes to navigate Vietnam’s complicated and inefficient bureaucracy. This creates a culture of reciprocity and insular dealings, in which firms and government officials develop mutually beneficial relationships. Foreign businesses looking to invest in Vietnam are therefore at a disadvantage, as they do not understand the expected and established cultural norms surrounding bribery and often lack established relationships; this creates market inefficiency and discourages further FDI. 

Another issue is the strong incentive for bribery that exists within Vietnam due to the subpar compensation offered for public sector jobs. A 2020 study found that Vietnamese public sector employees are remunerated between 17 and 28 percent lower than their private sector counterparts. This further legitimizes corruption as a means of survival for lower-paid civil service employees trying to make ends meet. The most obvious effect of corruption on FDI is the additional financial cost required to do business. Corruption functions as a tax on any investment, diminishing returns, and creating a barrier to entry for any foreign company unwilling to pay.

It is important to remember that, no matter how entrenched a culture of bribery is within a society, corruption is, by nature, illegal. Therefore, there are consequences not only in the country where the corruption is taking place, but it can also expose firms to legal consequences in their country of origin. For example, in the United States, under the Foreign Corrupt Practices Act, it is unlawful for any U.S. company or private individual to pay a foreign official to obtain or retain business. While the existence of this law is an objectively good thing, as it prevents U.S. companies from skirting anticorruption legislation via operating in a third, less regulated country, it also has the unintended consequence of potentially making U.S. firms less competitive in countries such as Vietnam compared to peer firms based in other nations, such as China, that operate under far less scrutiny. Corruption allows some foreign firms to exploit regulatory arbitrage while hamstringing the operational capacity of others.

In addition to creating an uneven playing field for FDI, corruption in Vietnam also influences the types of industries that FDI flows to. Corruption negatively affects productivity in heavily regulated industries , while having little effect on lower-skilled industries such as manufacturing. Thus, companies can be incentivized to enter lower-skill fields such as manufacturing due to their comparatively low regulatory barriers and greater relative productivity. Higher-skill industries such as finance, software development, and telecommunications tend to involve greater regulation and red tape than simple export manufacturing and are thus more negatively affected by corruption. 

Vietnam could look to Singapore to reform its system of anti-corruption. Singapore is consistently ranked among the least corrupt nations in the world, with Transparency International ranking Singapore as the third-least corrupt country in the world in 2024, compared to Vietnam’s rank of 88th. Both countries have similar systems of government, as they are both stable, centralized governments with market-based economies. Part of the reason this is an issue is the paltry salaries civil service employees take home compared to those in Vietnam. In comparison, civil service employees in Singapore are compensated at a competitive rate, sharply disincentivizing the need to accept bribes to supplement incomes. In this view, Singapore serves as a valuable model for reform.  

Vietnam should eradicate the culture of bribery by offering competitive civil service salaries and further strengthening intellectual property rights to spur high-tech FDI. The next decade will be crucial for such a rapidly growing nation, and Vietnam must avoid the same roadblocks and challenges that afflict its peer Southeast Asian nations if it wants to achieve its stated goal of becoming a high-income nation by 2045. However, with stable government institutions focused on fighting corruption, combined with a preceding reputation for business-friendly practices, Vietnam has the potential to set itself apart and become a major global economic power. If Vietnam truly wants to unlock its fullest potential regarding FDI, it must continue to reform from both the top-down and bottom-up. Vietnam must increase civil servant pay, punish corporations that engage in kickbacks and bribery, and continue market-oriented transparency reforms such as strengthening international property rights. Vietnam’s “blazing furnace” needs to do more than scorch a few high-level officials—the whole system of corruption needs to be cleansed by fire.