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1. Corruption in Germany and Vietnam
In recent years, the issue of corruption has attracted a great deal of attention by society, far exceeding that of all other economic development indicators. This increased scope on the issue of corruption is comprehensible, given its hindrance on the development, growth and stability of a nations’ legal, political and financial structure. Corruption, as simply put by Transparency International, can be defined as the “misuse of public power for private benefit” and is most effectively measured on an indicator such as the corruption perceptions index (CPI).
The corruption perceptions index compiles the research of expert assessments and opinion surveys throughout the world, ranking countries on a scale of 0 to 100 (with 0 being the most corrupt) to reflect the perceived level of corruption in a country. On this index, Vietnam falls at 116th of 177 countries with a score of 31 whilst Germany, is relatively clean sitting at 12th of 177 countries with a score of 78, being indicative of the large disparity in their perceived corruption levels.
This noticeable gap has been largely driven by forces such as law enforcement practices and the maturity of their judicial frameworks. Of the corruption measurement tools, the key indicator is the human development index which serves as a frame of reference for the standard of living in countries, with Germany ranking at 9th contrastive to that of Vietnam at 128th of 177 countries.
Corruption, poverty and unemployment levels go hand in hand with the poorer people forced to bribe just to meet their daily requirements of essentials such as food, clothing, healthcare and shelter. The more affluent individuals in society however will similarly try to extort o...
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...e Chinese businesses have already suspended their production in Vietnam.
In order to hedge against such political risks, the firm could choose to utilize derivatives such as futures and swaps however given the illiquidity of the Vietnamese market this would not be the most viable option. For impending foreign investors in the Vietnamese market, purchasing insurance against such geopolitical risks that could impact cash inflows such as that currently arising in the South China sea. This process however could be very costly with potential difficulties in pressurizing those parties responsible due to heightened risks respective of expropriation and property rights. The level of enforcement and maturity of the legal and financial structure, thus play a considerable role in the effectiveness of the hedging strategies with inherent political risk still being imminent.