Leadership Turmoil in One-Party Vietnam
The Implications of President Nguyen Xuan Phuc’s Resignation for Vietnam
On 17 January 2023, Nguyen Xuan Phuc resigned as president of Vietnam and his positions at the ruling Communist Party of Vietnam (CPV). For the past few weeks, political commentators speculated whether Phuc would take the unprecedented decision to resign following a corruption investigation into his cabinet while he was prime minister from 2016 to 2021.
Phuc’s (seemingly forced) resignation may have consequences for Vietnam’s appeal to foreign investors and corporates.
Background
Phuc was appointed president in 2021 after a successful term as prime minister. During his tenure, he introduced pro-investment policies and improved the country’s diplomatic relations with the US and the EU. Notably, he also steered Vietnam relatively unscathed through the COVID-19 pandemic, at least compared to its immediate neighbours in Southeast Asia.
However, Phuc’s tenure as prime minister was also blighted by corruption allegations, which implicated senior ministers and government officials overseeing Vietnam’s COVID-19 response. Earlier in January 2023, two deputy prime ministers were forced to step down, while two former ministers and dozens of other officials faced criminal charges for accepting bribes in the procurement of COVID-19 test kits and repatriation flights. Unsubstantiated rumours on social media platforms also hinted at the potential involvement of Phuc’s wife’s family in corrupt test kit procurement.
Shifting Power Dynamics
Vietnam is a single-party state led by the CPV, which is organised under what it calls a ‘four pillars’ leadership model. Under this framework, four top leaders sit at the apex of the political system and determine the direction of public policy. These are the general secretary of the CPV; the president; the prime minister; and the chairman of the National Assembly, Vietnam’s legislative body. As the leader of the CPV, the general secretary – Nguyen Phu Trong – is considered the most powerful of the four.
Taking this power hierarchy into consideration, two observations become apparent from Phuc’s resignation.
CPV general secretary Trong’s anti-corruption campaign will continue across all levels of the party, including its highest echelons. Since taking leadership of the party in 2011, Trong has authorised the investigation and prosecution of corrupt officials, eliminating some of his political rivals at the same time. This anti-corruption drive, which bears similarities to the campaign led by Xi Jinping in the PRC, is widely seen as instrumental to Vietnam’s efforts to attract foreign investors, ensure continued economic growth, and ultimately to bolster the CPV’s legitimacy as Vietnam’s ruling party.
Phuc’s ousting benefits his conservative rivals, some of whom have been waiting to ascend to the four top leadership roles. The CPV leadership transition has long been a source of tension between two rival factions with ideological differences and vested interests: the conservative group, which adheres more closely to Marxist ideals, and a more moderate and pro-market reformist faction. Since 2016, the conservatives have gained power after Trong ousted his main rival, former prime minister Nguyen Tan Dung. Now in his third term as general secretary, the 78-year-old Trong needs to position a successor to continue his legacy. With Phuc out of the picture, the conservative faction can position one of its own as president.
Implications for Investors
Although Phuc’s removal has caused some near-term uncertainty over Vietnam’s political trajectory, it is unlikely it will have spillover effects on the local business environment.
There are few indicators that Vietnam will experience instability in the long term that would deter foreign investors and businesses, or disrupt existing in-country operations. Since Vietnam’s doi moi economic reforms in the 1980s, the country has positioned itself to attract investment and integrate into the global economy. Although the conservative Trong is generally seen as being distrustful of CPV cadres who are closer to the business community (such as Phuc), his own political future is heavily dependent on attracting foreign investments and continued economic growth. As a result, he is unlikely to significantly deviate from the current economic trajectory.
Rather, Phuc’s removal may have trickle-down deterrent effects on corruption, which remains pervasive despite the CPV’s efforts. Currently, informal patronage networks based on familial, political and personal ties remain central to operating a business and navigating Vietnam’s opaque bureaucracy, the latter being a common source of frustration for investors.
Often, these issues can be addressed by partnering with local business groups with the know-how and political capital to iron out bottlenecks in the system. However, such partnerships will create underlying integrity and political risks. With shifting power dynamics in the CPV’s leadership, local businesses that are dependent on privileged market access may fall out of favour, or even find themselves in the crosshairs of a corruption investigation.