Priorities for Developing Countries
Research paper
Published 22 May 2019
Updated 11 December 2020
ISBN: 978 1 78413 338 2
Developing economies will struggle to grow sustainably without significant investment in recycling, reusing and repairing used raw materials and products. This paper looks at opportunities to coordinate regional trade policies and investment programmes to rapidly scale up the circular economy in the developing world.
In 2015, with the signing of the Paris Agreement on climate change and the establishment of the Sustainable Development Goals (SDGs), the international community recognized that a transformation in the way we use natural resources is a precondition for achieving prosperous, secure and resilient societies. Resource-intensive growth has come at huge environmental cost. Delivering the infrastructure and services needed to support growing economies and populations – above all in developing countries – while addressing climate change and maintaining ecosystem stability will require a revolution in models of resource use.
Excitement is growing around the potential for more ‘circular’ – and sustainable – models of development to deliver this revolution and to unlock economic, social and environmental benefits. Visions for what is known as the ‘circular economy’ (CE) rest on a systemic approach to resource efficiency in which ‘end-of-life’ products and materials – that is, those at the end of their original service lifespan – are not discarded but are instead recycled, repaired or reused through circular value chains. The CE also implies changes to business models, with an emphasis on shared use and rental in preference to independent or single use; as well as changes to consumer preferences, with buyers valuing ‘second-life’ products (i.e. those recycled or adapted for new uses) and asset sharing over individual ownership.
More often than not, even in rich countries, discussion of sustainability has tended to emphasize reform of specific supply chains rather than full-economy transformation. Over the past decade, advocacy of the CE has come primarily from high-profile transnational corporations in consumer industries, such as Philips and Unilever, and from waste management groups such as Veolia. In part due to the CE’s focus on new business models for supply chain management, as well as on industrial regeneration and jobs, the focus of attention around the CE has been on developed countries (above all in the European Union) and China, where CE strategies are most advanced. Less well explored is the role that developing countries other than China can play in a global CE, and the importance of fostering international collaboration and the development of global governance frameworks to support circular value chains at scale.
Against this backdrop, international organizations including the United Nations (UN), the Organisation for Economic Co-operation and Development (OECD) and the World Economic Forum (WEF) have increasingly called for a new development paradigm: one that prioritizes pathways for poverty reduction and improved standards of living, while promoting resource efficiency and easing pressure on natural resources and the environment. Two milestone agreements in 2015 – the creation of the SDGs and the signing of the Paris Agreement – heralded a radical shift in thinking on growth and development. They placed sustainable production and consumption at the forefront of global efforts to achieve equitable economic growth and tackle climate change.
Investments in emerging and developing economies in the next few years will be critical to delivering on these two global agreements and to shaping natural resource demand, pollution control and waste management pathways for the coming decades. To meet the SDGs, a scaling up of critical infrastructure will be required in low- and middle-income countries to provide economic opportunity and access to modern services. Yet industries essential to this process – cement, steel, energy, for example – demand significant quantities of water, land and minerals. To meet the provisions of the Paris Agreement, infrastructure expansion will need to be founded on low-carbon technology and circular systems that are climate-friendly and climate-resilient.
In recognition of the limits to current resource-intensive models of development, policymakers are paying increasing attention to the CE concept as an alternative development paradigm that can deliver on the SDGs and Paris Agreement.1 In principle, the shift to a CE would allow countries to reap the benefits of industrialization, increase well-being and reduce vulnerability to resource price and environmental shocks, without depleting stocks of finite natural resources and contributing to environmental degradation (see Box 1).
Much of the interest in the CE centres on its potential to deliver simultaneously on four major political priorities: job creation, balance-of-payments support, supply chain resilience, and climate change mitigation and adaptation. Estimates of the scale of opportunity largely address developed-country settings but have significant bearing for developing countries:
The idea of having some ‘circularity’ of resource use in an economy is hardly a new one. Activities such as recycling, remanufacturing and reusing products are already part of most industrialized waste management systems. The novelty of the ‘circular economy’ (CE) as a unifying concept is that it is comprehensive. It brings different elements together into a single framework to enable a more systemic and cohesive approach – in theory, allowing policymakers and businesses to better manage trade-offs associated with resource efficiency practices. Where the CE is successfully deployed, it not only reduces waste and resource needs but also unlocks additional value from natural resources. As such, the CE is about more than conserving resources: it implies the development of an ecosystem in which innovations in sustainability support whole new areas of economic activity.
There is no standardized definition of the CE. Some definitions include a set of new business models that can extract more value from resources while reducing their overall use. For instance, there is the ‘sharing economy’, which involves physical assets such as cars and homes being shared between multiple people. This can increase the ‘utilization rate’ of products but may also decrease the total number of products needed. Alternatively, ‘product-as-a-service’ models involve companies leasing products to consumers. Such approaches may provide a greater incentive for manufacturers to make products more durable and easier to repair.
The definition used in this paper falls at the broader end of the spectrum. A circular economy is one in which products are recycled, repaired or reused rather than thrown away, and in which waste from one process becomes an input into other processes.
In practical terms, the CE can be broken down into three types of activities (also see Figure 1):
1. Creating loops – when a product reaches the end of its designed operational life, it is reused, repaired or recycled rather than thrown away.
2. Slowing flows – shifting to new ways of designing and making products ensures that they remain in use for as long as possible, thereby decreasing demand for new products.
3. Narrowing flows – this involves shifting to more efficient ways of using products, e.g. sharing products or adopting product-as-a-service models.
Source: Authors’ own analysis adapted from a diagram by InnovateUK.
For all of the excitement around the CE as a new development paradigm, progress in its implementation has been slow. Although many countries have shown improvements in energy efficiency and resource productivity, these gains have not translated into a reduction in absolute resource use at the global level. Indeed, recent trends indicate a possible ‘recoupling’ of GDP growth to resource use.16 An analysis of materials use in the global economy suggests that of the 19.4 billion tonnes of waste produced in 2015, only 9.1 per cent was recycled.17
Even in countries generally perceived to have advanced waste management systems, a CE is taking time to take shape. In Sweden, where the share of materials collected for recycling is relatively high, only a small percentage of such materials are converted into secondary materials, and an even smaller percentage of their original value is captured.18 In the UK, there has been growing criticism of waste management companies and councils collecting vast quantities of materials for which there is no market.19 These issues have been thrown into sharp relief by China’s de facto ban on the import of secondary plastic and paper: the sudden disappearance of a destination for the majority of globally traded waste has drawn attention to inadequate waste management systems in the US and Europe, which are failing to cope with the increased volumes of materials requiring domestic processing.
The sudden disappearance of a destination for the majority of globally traded waste has drawn attention to inadequate waste management systems in the US and Europe, which are failing to cope with the increased volumes of materials requiring domestic processing.
The CE is rising up the international policy agenda (see Box 2), but there is currently no global agreement to steer implementation, align the CE with existing frameworks, and facilitate cooperation and rapid lesson-sharing. A collaborative agenda at the global level that aligns the CE with existing policy priorities around sustainable development and trade cooperation is needed to accelerate the development of circular value chains both in developed and developing countries. Amid rising tensions over international trade and rules-based governance, the CE will understandably be seen by some governments as an appealing alternative: a way to generate economic value and jobs while reducing dependence on imports of raw materials and products. But an inclusive approach to the CE requires examination not only of national strategies but also of the cross-border effects of alternative development strategies. It also requires scrutiny of the role of regional and international circular value chain development in delivering the transition to a CE at scale.
The CE policy landscape has expanded noticeably over the last two decades. Although CE-type thinking has been around since the 1970s, policies that explicitly refer to the ‘circular economy’ started to be introduced only in the 2000s. The EU and China have been the global front-runners in this process. China introduced its Circular Economy Promotion Law in 2009 and has since developed a series of supporting policies, including the State Council’s Circular Economy Development Strategy and Near-Term Action Plan, issued in 2013; and the Promotion Plan of Extended Producer Responsibility, introduced in 2016.20 In Europe, high-level discussions on the CE began in 2011 in the context of concerns around high commodity prices. The EU announced its highly ambitious Action Plan for the Circular Economy in 2015. This has been followed by a slew of policy announcements, dedicated CE strategies and action plans from ambitious member states and European cities.
There has also been a dramatic increase in business engagement, as companies increasingly see their profitability and long-term success as dependent on more sustainable development.21 A growing range of companies – including major players such as Google, Unilever and Renault – have been exploring circular approaches, spurred on by the potential for cost savings from adopting more resource-efficient supply chains. For instance, Ricoh – a multinational electronics company – collects, disassembles and reuses the component parts of printers, scanners and other office equipment. Philips, a multinational technology company, has launched a ‘lighting as a service’ business. Some firms are finding new value in waste streams that previously went untapped: for example Newlight Technologies, a California-based company, has developed a technique for turning captured methane and carbon dioxide into plastic.
Source: Authors’ analysis.
Until now, discussions on the CE have paid minimal attention to developing economies other than China. This is despite the many opportunities for circular activity that already exist in such economies, and the important role that developing countries will play in future global circular value chains. Analyses of the CE, its development and implications have focused overwhelmingly on the EU and China,22 which have the most advanced legislative frameworks in this area.
The scant focus on developing economies in part reflects the paucity of detailed data at the country and subnational level in these settings. Of the top cited papers on the CE, 42 per cent focus on China, one focuses on Europe, and the rest deal with the evolution of the concept and do not have a specific regional lens.23 Very few other developing countries are included in existing macroeconomic models of the effects of shifting to a CE (see Figure 3).
At the same time, national-level assessments have been undertaken for only a handful of high-income countries: Austria, France, Germany, Japan, South Korea, Sweden and Turkey.24 More granular data on a larger set of countries are available in input–output models.25 However, these data are often aggregated to just a few economic sectors, limiting the effectiveness of the process for CE monitoring.26
The lack of data and analysis on the CE in most developing countries belies important opportunities for accelerating a transition to circular activities and value chains. Certain developing countries are actively pursuing national CE policies. Nigeria, Rwanda and South Africa launched the African Circular Economy Alliance in 2017, while India has set out a strategy for resource efficiency which recognizes the role of the CE in achieving this.27
Waste remains a major environmental and public health challenge in many developing countries: of the top 20 countries ranked by mass of mismanaged plastic waste in 2015, 12 were low-income.28 Middle-class citizens in the developing world are already starting to consume more and reuse less.29 That said, in many middle- and lower-income countries a wealth of circular activity is already happening. Currently this activity is not being captured in analyses, but it could provide a starting point for broader CE strategies at a national, regional or global level (see Table 1).30
Developing countries are the current dominant centres of production and the future centres of consumption in the global economy. An increasing share of the global ‘consuming class’ now lives in emerging and developing countries, with a vast concentration in India and China. McKinsey estimates that by 2025 the global consuming class will have an additional 1.8 billion people, of which 1 billion will live in the emerging world.31 If there is to be a fundamental shift in consumption and production patterns, the success of CE models in these countries will be key.
Developing countries are the current dominant centres of production and the future centres of consumption in the global economy.
Following the pathways to the CE that will be established and implemented in developed countries is unlikely to be fruitful. Many of the challenges faced by proponents of the CE in these settings – access to finance to support innovative technologies, for example, and a narrow understanding of the CE among stakeholders as primarily a waste management concept – are common to developing countries. Yet other structural and economic conditions make the scaling up of the CE in developing countries particularly challenging: institutional capacity is often limited, access to technology is not equitably distributed, the private sector is often fragmented, and the dominant strategies for industrial growth and economic development are, in many cases, founded on resource extraction-led models.
The outlook for the CE in developing countries may also depend on the global appetite for international trade and regional cooperation. For many developing countries, participation in CE value chains will only be possible if there are regional remanufacturing, reprocessing and material recovery hubs that import used products and repair them ready for resale to consumer markets. However, robust regulations will be needed to avoid the exploitation of such hubs for waste dumping by exporting countries. Waste reduction measures in agricultural supply chains also present new export opportunities through the bio-economy, for example in the form of sustainable construction timber. Ultimately, harnessing the economic opportunities of the CE will not only be a function of trade and regional cooperation. It will also rely on knowledge-sharing with front-runner regions, the ability to attract foreign investment to support the roll-out of emerging innovations and supply chains, and the forging of partnerships across borders that will allow for regional and international CE value chains to evolve.
Cooperative approaches will be needed to develop common rules and standards for the governance of global CE value chains. Discussions are under way on how international governance frameworks such as the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (the ‘Basel Convention’) may be strengthened to manage the significant environmental and health impacts associated with global flows in electronic waste (e-waste).32 Parallel frameworks will be needed to mitigate the risk of trade disputes as global trade in secondary materials across other sectors increases. In 2015, several East African countries proposed a ban on the import of secondary textiles in order to protect domestic industry from the large volumes of cheap second-hand clothes flowing in from third countries, particularly China.33 While the proposed ban was diluted to an import tax when the US threatened retaliation,34 the dispute indicates the political economy challenges to be managed as cross-border flows in secondary goods and circular services increase in volume and complexity.
|
Shelter |
Mobility |
Food |
Waste |
|
|---|---|---|---|---|
|
Extending the use cycle |
El Salvador – a housing NGO partnered with the government to use more durable earthquake-resistant building technologies in social housing.35 |
India’s Tata Steel set up an Advanced Materials Research Centre along with the Indian Institute of Technology to develop lightweight, high-strength materials for automotives.36 |
Vietnam’s government is working with the World Bank on the supply chain for frozen food, to reduce losses and improve food quality.37 |
In Nigeria, about 70 per cent of all imported e-waste is functional – it is now sold to consumers after testing.38 |
|
Enabling additional use cycles |
Modular construction is being used for low-cost housing solutions in New Delhi, India, enabling more efficient disassembly at product end of life.39 |
In Brazil, a number of companies are active in the market to replace car parts through the National Association of Auto Parts Remanufacturers.40 |
In Nigeria, tractor sharing among smallholder farmers is being used to improve agricultural productivity.41 |
In India, a new e-waste extended producer responsibility (EPR) system requires companies to set targets for collection and repairs.42 |
|
Minimizing impact |
In Ho Chi Minh City, Vietnam, materials made from rice husks are used in the construction of more fire-resistant, heat-insulated and sound-insulated buildings.43 |
Fiat cars for Brazil contain polyurethane seat foams with 5 per cent soy polyol. 44 |
An entrepreneur in Indonesia is experimenting with bioplastic food packaging to cut down on plastic waste in Jakarta.45 |
In India, EnviGreen has created a 100 per cent organic, biodegradable and eco-friendly plastic bag.46 |
|
Changing utilization patterns |
In India, new digital platforms such as Airbnb and OYO are allowing users to share rooms and homes.47 |
In India, the introduction of UberPOOL in Bangalore and Delhi may have cut 7 million km worth of driving.48 |
In Tanzania, the government is working with the World Bank to develop more water-efficient practices among smallholder farmers.49 |
In India, the government has passed new e-waste handling rules to divert waste from local scrap merchants.50 |
|
Looping an asset through additional use cycles |
In Haiti, debris from natural disasters has been converted into concrete building blocks for use in the construction of affordable homes in Port-au-Prince.51 |
In India, trials are under way to evaluate the potential to bury shredded plastic in roads, both reducing amounts of waste sent to landfills and increasing the durability of roads.52 |
In Brazil, Procomposto, an SME start-up, provides waste collection and composting services to generators of organic waste in cities.53 |
In Tanzania, BORDA, ISWA54 and the Dutch government have given technical and financial support to municipal governments to improve municipal waste management processes.55 |
In recognition of the critical role that developing countries will play in regional and global circular value chains, this research paper explores three principal questions:
The analysis and findings in this paper are based on a survey of development stakeholders and on a series of multi-stakeholder workshops held over the course of this 18-month project. Six workshops focusing on the CE in developing countries were held in India (Kolkata and New Delhi), Indonesia (Jakarta and Bandung), Tanzania (Dar es Salaam) and the US (New York) respectively. A seventh workshop, focusing on trade and the CE, was held in collaboration with the OECD in France (Paris).
In collaboration with the UN Industrial Development Organization (UNIDO), Chatham House surveyed 39 stakeholders from 25 emerging and developing economies56 and three advanced economies,57 representing a range of national ‘cleaner production’ centres, business associations, non-governmental organizations and businesses operating in the CE. The Chatham House–UNIDO survey posed a series of questions on the CE, its central activities and components, key challenges around transitioning to the CE, and the opportunities the CE presents to promote industrial and sectoral strategies (see Appendix 1 for the full survey).
Chapter 2 presents some of the key challenges to scaling up the CE in developing countries, taking into consideration capacity and finance constraints, economic and structural conditions, and infrastructural deficits and urbanization.
Chapter 3 discusses the extent to which the CE aligns with existing policy priorities in developing countries, including industrial development, sectoral strategies and ‘green growth’ strategies.
Chapter 4 considers the conditions required if circular activities are to thrive in developing countries. It explores factors ranging from policy architecture to innovation and investment to equitable development strategies.
Chapter 5 then explores the principal ways in which the CE can support the wider UN-led 2030 Agenda for Sustainable Development and vice versa. It discusses the role of multilateral and bilateral collaboration and trade in supporting the development of international circular value chains that link developing- and developed-country markets.
The paper concludes in Chapter 6 with a set of recommendations for national policy actors and bilateral and multilateral development actors to support the scale-up of a global, inclusive CE.
