Solutions to Sustainable Economic Development

Delivering concluding remarks at the high-level plenary session of the Vietnam Economic Forum on December 17, 2022, Vietnamese Prime Minister Pham Minh Chinh requested that in the coming time, stock, bond and real estate markets be made healthy and sustainable on the basis of harmonizing benefits and sharing all risks. Entrepreneur, teacher and lawyer Nguyen Thi Son granted an exclusive interview to Vietnam Business Forum on sustainable economic development.

From the perspective of an expert, can you know which type of capital mobilization is suitable for each type and stage of business development?

If a company wants to develop quickly, successfully and sustainably, it must, first of all, have its own capital. For joint stock companies, their own capital is contributed by shareholders and their profits are distributed to shareholders after paying corporate income tax and setting aside funds. Dividends for shareholders depend on business performance. When they grow and need to increase their fund, they can borrow loans from banks or issue bonds. Interests on bank loans and bonds are reflected in product cost before profit accounting and corporate income tax payment. Interests on bank loans and bonds are guaranteed to be stable for the term of the loan. Although banks or bondholders do not have much influence on business performance, companies are also under heavy pressure from debts and interest if the market crashes.

For publicly traded companies, when they are strong enough, well-branded, prestigious and have development opportunities, they can register to join the stock market to sell shares to the public and become publicly traded companies. Their stocks are valued by the market. Prices may go up because of good news but may also go down because of unfavorable information surrounding their operations.

Stock buyers are entitled to share profits after companies pay corporate income tax and set aside reserve funds. Therefore, investors must accept both profit and risk. The chairman or executive of a publicly traded company is under pressure to pay dividends to shareholders when the share price rises. It should be added that, in the stock market, there are "foxes" who lead public opinion to increase the price of a chosen stock to sell it and then spread information for that stock to fall in price to buy it. This greatly affects stock liquidity and causes the stock market to become distorted and untransparent. And, this undermines market confidence.

To make Vietnam's economy develop quickly and sustainably, it is necessary to make the stock, corporate bond and real estate markets healthy. Do you have any recommendations for this matter?

Global market fluctuations (caused by monetary tightening, high inflation and the strongest appreciation of the U.S. dollar in the past 20 years among other factors) also posed challenges to the Vietnamese financial market owing to exchange rates, inflation control and liquidity. It is essential to coordinate and harmonize fiscal and monetary policies, strengthen public investment management and provide targeted financial support. At the same time, it is important to focus on market reform, especially stock, corporate bond and real estate markets, because the sustainable development of these markets will support and create a driving force for medium and long-term economic development, firmly consolidating the stable macro foundation that has been established in recent years.

To make sure that the markets work in a healthy, transparent, safe, efficient and sustainable manner, the Government needs to speed up financial and banking system restructuring, especially weak financial institutions, to ensure efficient resource allocation and mobilization. In the near term, what needs to be prioritized in 2023 is ensuring liquidity and system safety and handling the demand for mature bonds very well. The Government also needs to actively strengthen State administration of corporate bond issuance, especially against bad deeds, policy profiteering and other unfair activities.

As for the real estate market, it is quite clear that recent market difficulties have mainly revolved around capital, laws, mechanisms and policies. Without prompt and effective handling, it can lead to recession, negatively affecting macroeconomic stability and social security. To help businesses overcome difficulties and support the market to recover and grow in a healthy, safe and sustainable manner, top priorities are to urgently amend regulations on land and investment procedures and support enterprises to access capital for project development; and diversify capital sources for the market. At the same time, authorities need to review laws to solve market problems both in the short and long terms toward building a healthy, appropriate, effective policy tool and ensure interconnectivity, safety and reliability between the capital market and the real estate market.

The circular economy will be the solution for the sustainable development of Vietnamese companies in particular and the national economy in general. Could you tell us more about the advantages of the circular economy?

With the traditional economy, raw materials are extracted from the natural environment as input for the economic system and discarded into the natural environment at the end of the economic cycle, leading to an increase in waste, depletion of natural resources and environmental pollution and degradation. In order to limit pollution risks as well as minimize the impacts of climate change, the world’s current approach is to switch to the circular economy where natural resources are brought into the economic system as raw materials, manufactured and consumed, and their wastes are recovered and reused as inputs to the economic system. Or to put it simply, the circular economy turns the output waste of an industry into an input resource of another industry or circulating within an enterprise itself.

With the above principle, the circular economy integrates many outstanding advantages and benefits. For a country, developing the circular economy is to show responsibility in solving global challenges caused by environmental pollution and climate change while minimizing the extraction of natural resources, making the most of the value of resources, thereby improving the capacity and competitiveness of the economy. Especially as the supply of raw materials and fuels is being disrupted due to social distancing, the circular economy is also considered one of the solutions for post-COVID-19 economic recovery.

For society, the circular economy helps reduce administrative costs, protect the environment and respond to climate change; creates new markets and new job opportunities; and improves people's health. As for business, the circular economy promotes innovative business models and disruptive technologies to cut production costs and add value; and create motivations for technological investment and innovations and increase supply chains.

To build a circular economy, what key solutions should the Vietnamese government focus on?

Given an extensive economic integration, the transition from a linear economy to a circular economy is essential for all countries in the world and Vietnam is no exception. In order to gradually form and develop a circular economy, the Government has offered tax incentives and capital and land support for the construction of waste recycling facilities over the past time. Priority is given to the circular economy in industry, agriculture and other sectors.

In particular, the Party and the State determined that developing the circular economy is one of the important orientations in 2021 - 2030. Accordingly, Vietnam will deploy the circular economy on three pillars: Designing and prolonging the material life cycle; reducing waste and emissions; and restoring the ecosystem. In order to develop the circular economy, the Politburo also issued Resolution 55-NQ/TW on strategic orientations for Vietnam's national energy development to 2030, with a vision to 2045 where priority must be given to developing renewable energy and waste-to-power plants to protect the environment and develop the circular economy. The Prime Minister also issued Decision 687/QD-TTg approving the Master Plan for Economic Development in Vietnam.

However, Vietnam is also facing an increasing amount of waste generated while the source of raw materials and fossil materials is increasingly exhausted amid difficulties in technology. To overcome these inadequacies, and create momentum for the development of the circular economy, the Government needs to engage the community; build an appropriate legal system to manage the development of the circular economy; and formulate and develop a policy and legal framework for managing the circular economy according to the market's needs. Relevant governmental agencies need to have guidelines and practical actions to promote the circular economy in all sectors; and introduce tax priorities and support policies for enterprises to deploy the circular economy in production and research activities.

As such, the core of a circular economy is to control, treat and recycle waste. So, priority should be given to investment in waste management and treatment technology and transformation of waste into renewable resources. There is a need to control, manage and optimize input materials, strengthen international cooperation, and promote the role of the non-state business community in piloting the circular economy.

Thank you very much!

By Van Luong, Vietnam Business Forum