What would a Circular Economic Rebound mean for Viet Nam?

BLOG #2 by Viet Nam Deep Demonstrations team

Caitlin Wiesen, Ida Uusikyla, Morgane Rivoal, Le Thi Thu Hien, Bui Hoa Binh, Nguyen Tuan Luong, Phan Hoang Lan, Alex Oprunenco

This blog is the second in a series unpacking what a transition to a Circular Economy would mean for Viet Nam. It provides practical case studies, voices from the ground, introduces policy briefs and highlights the work UNDP Viet Nam is doing to support the Government and partners in paving the way for a low-carbon and circular economic recovery.

Can the transition to a Circular Economy in Viet Nam in the COVID-19 context be created by tinkering around the edges of the existing system for example by introducing more stringent environmental protection laws which are important in encouraging positive behavior but don’t necessarily alter the patterns of production and consumption? Or is something more fundamental required in shifting the current socio-technical systems to enable a transformation to an economy that is truly circular? How can different sectors and industries organize to work together and leverage existing assets in ways that have a transformative effect in delivering an economic rebound that is inclusive and sustainable?

In 2020, UNDP Viet Nam became a part of a group of 9 Country Offices to take part in so-called Deep Demonstrations. These offices were eager to build capabilities in designing dynamic interventions that are better aligned with the complex and interconnected development challenges we are witnessing today.

The ‘Deep Demonstrations’ — rooted in the notion that addressing issues such as climate change, widening income inequalities, pandemics, with short-term linear interventions, falls short of addressing the existential challenges facing humanity today. This has provided us the critical space for exploring new ways of thinking and designing for these questions, one that applies a systems lens and is based on long-term implications.

The Deep Demos work in Viet Nam has been focusing on the question of how Vietnamese micro, small and medium enterprises (MSMEs) can pivot and become part of a post-COVID-19 economic recovery that is green, circular and inclusive. However, as we explored the challenge we realized that the term ‘recovery’ is often thought of as a shorter-term transition associated with holding on to something one has lost, whereas the issue at hand is how to generate a longer-term economic rebound which encompasses springing forward and building resilience — not just to COVID-19 — but to other future shocks Viet Nam will encounter whilst pivoting towards a new green, economic trajectory.

We believe that key to this rebound are the MSMEs, the economic powerhouse of Viet Nam, accounting for 98 percent of all enterprises and 40 percent of GDP. Extremely heterogeneous, MSMEs may not only benefit from adopting circular economy principles but could also help propel the economy on to a new growth trajectory. This is critical in Viet Nam, as the high economic growth of recent years based on the linear take-make-waste model has put an increasing and irremediable pressure on ecosystems and depleted natural capital. As such, this growth model is at the loggerheads with the long-term goal of green and just transition for the country post-COVID-19. Indeed, Viet Nam envisions to base its growth model on increased productivity, innovation and competitiveness that is in harmony with sustainable development.

How do we start building the architecture of systemic redesign?

Our exploration follows the sense-reframe-position-transform model. In sensing, our intention is to ‘see’ the system and understand various drivers and their connections. It helps us understand what is keeping the current linear economy stuck where it is at the moment. We did a few deep dives with Snowcone and many external partners with multiple backgrounds that brought together different perspectives to the issue, from climate change scientists and architects, to economists and journalists (see the Primer). The session took a team-based and design-led approach to navigating complexity creating the conditions for a structured conversation where everyone is on equal footing, bringing different views and disciplines to the table and building the initial conditions for nurturing the ecosystem of partners who have a better chance of shifting the system (as opposed to a single entity). The goal was to initiate a design pathway and coalition for change that will guide Viet Nam and the MSMEs in the transition towards a circular economic rebound through linking together different kinds of knowledge.

As part of understanding the leverage points underpinning the CE transition in the COVID-19 rebound context in Viet Nam, UNDP is partnering with the Embassy of Finland in Viet Nam and Climate KIC, looking into the role of capital in accelerating such systems transformation. This is critical as financial capital plays a key role in changing behaviors in a system, and thus plays a role in Viet Nam’s circular economic rebound. The below diagram illustrates the ‘layering effects’ that leveraging existing capital and resources can have across different programs and how they could be deployed more efficiently to catalyze transformation to a circular economic rebound.

What have we learned so far?

The Deep Demos process and the Studio sessions looked at the intersection of multiple dynamics at play, when understanding the systems implications of a transition to a circular economy, across different scales and domains. By virtue of its exploratory approach, the session also helped to identify areas of engagement that are critical to start shifting some of the current trajectories. The ‘sensing’ stage helped to reframe the way we see the issue, highlight blinds pots and shift the vantage point from which to conceptualize how to intervene.

The intensive Studio sessions helped us to surface some early key learnings:

● Transitioning to a Circular Economy is not (only) a matter of preserving the environment, nor does it belong only to the mandate of a single ministry but rather should be rooted in governance innovation and cross-ministerial collaboration. It is an economic transition shifting the economic modes of production as well as societal approaches to consumption and should be reframed as such. It implies a fundamental redesign of our current socio-economic logics and won’t happen merely by applying new environmental regulations to current linear, extractive and pollutive economic growth models, the way industries are being shaped and incentivized today. Instead it should be seen as a fundamental shift in the economy: changing the patterns of production and consumption, creating new growth drivers that ensure the environment will be restored and protected and waste reduced.

● The logic of the current linear economy or one based on ‘take, make and dispose’ principles is an existential threat to the future of Viet Nam and its people and should be treated as an emergency, similar to the COVID-19 pandemic. Urgent actions are needed now to leverage the economic recovery of Viet Nam to be more circular and sustainable, whilst ensuring a just transition leaving no one behind in a way that brings together different Ministries and stakeholders from the society. Viet Nam has been heralded as one of the success stories globally in organizing itself and containing COVID-19 pandemic. But can it leverage this success and set a mission for a longer-term just and green recovery? Would this mean expanding emergency principles into the domain of longer-term policies and mobilizing various society actors based on that?

● As such, the transition to a circular economy is about future-proofing Viet Nam while managing and hedging risks. It is about anticipating future trends, testing and adapting methods to build resilience to future shocks and stresses. Current economic practices, in sectors such as energy, hold future financial risks for Viet Nam in the context of stringent climate regulations, underpinned by the Paris Agreement, of which Viet Nam is a signatory. These infrastructures hold high risks of becoming ‘stranded assets’, defined as assets that will stop bringing financial returns before the end of their economic life.

Leveraging distinct features of Vietnamese culture and building on the traditional understanding of a circular economy is critical. CE has been practiced especially in the agriculture or waste sectors for decades and utilizing these existing practices as levers for the systems transformation is important. Linking to this, shifting behaviors and values is critical to enable the transition. Along with the growth of GDP per capita and the growing middle class, some historical circular practices are replaced with rapid and higher consumption. Currently, there is a clear gap in public awareness about what the transition would mean and what changes are needed in both consumption and production practices.

Shaping a new narrative and areas of transformative change

In light of the vivid discussions among studio participants who are now guiding our work as an Advisory Group, it is also clear that there is still a divide among practitioners in which ‘economic growth’ is still opposed to ‘green and circular growth’, in which Viet Nam would lead in ASEAN. A key take away from this discussion for the Deep Demos team was the need to help framing a new development logic and narrative, in which Circular Economy helps stimulate growth that is inclusive and helps the country build resilience to future shocks. In parallel negative environmental externalities (e.g.: air and soil pollution, loss of biodiversity) must be properly accounted for in the current linear and extractive models of production, to accurately reflect the economic consequences of the business as usual economic orientations.

Coming out of the Studios, we have started to iteratively define 5 areas of transformative change, along which we will help shape and advance UNDP’s efforts to support Viet Nam’s economic rebound to be greener and more circular:

Mission driven institutional redesign — A transition to a circular economy will require a high degree of institutional innovation, cutting across domains of knowledge and influence, while leveraging bottom up innovations in a dynamic, coherent and mission driven policy making environment.

Shifting mindsets — A circular economy will require an evolved knowledge basis, the generation and application of new know-how across society, and the evolution of our learning systems to help prepare people for 22nd Century work. This includes new ways of thinking and working which can drive changes from the way we consume, produce, commute etc.

Coalitions and champions for change — A circular economy will require fundamentally new systems of sharing and generating information, linking interests and collaborating between businesses, sectors, government, and citizens.

Just transition — Any economic transition will tend to impact the most vulnerable disproportionately. A systemic set of interventions will be needed to ensure that the most vulnerable benefit equally from the transition. This includes current and future generations and implies equipping workers with the skills and tools necessary to enable them to benefit from the 21st century economic transition.

Economic impulse and investment — Capital plays a key role in accelerating the transition to a circular economic rebound by e.g. de-risking investment in CE value chains and reducing the cost of capital. This critical now as Viet Nam’s transition through the development continuum is significantly shifting the financing framework for SDGs: fast-declining direct grant ODA, a declining tax-to-GDP ratio, and lack of public financing and misaligned priorities. To support this, enabling incentives are also critical for economic impulse stimulating the CE rebound.

What’s next?

In moving forward, the Deep Demos team continues to deepen the analysis and explore the implications of a Circular economic rebound in Viet Nam whilst leveraging and learning from existing interventions on the ground. The team will continue identifying strategic leverage points and design interventions that help to unlock future opportunities, while constantly iterating and building know-how in the process. From the reframing, we will continue to explore with our partners how to develop and deploy an impactful portfolio of connected interventions to address the underlying drivers of a resilient circular economic rebound in Viet Nam.

Stay tuned!

We are pioneering new ways of doing development that build countries’ capacity to deliver change at scale.