Opportunities for Building Resilience
Research paper
Published 17 September 2020
Updated 30 March 2021
ISBN: 978 1 78413 415 0
The circular economy model has gained high-level political attention and support in Latin America and the Caribbean (LAC) in recent years. This paper provides analysis of the current state of circular economy policies in LAC and identifies priority issues for governments, businesses, civil society and the research community.
With heightened urgency around international commitments on the environment and development, the circular economic model offers Latin America and the Caribbean (LAC) an alternative way of upholding the region’s global responsibilities.
The circular economy model has gained high-level political attention and support in Latin America and the Caribbean (LAC) in recent years. The region has already launched more than 80 public initiatives relating to the circular economy.1 These policies are important enablers that are necessary to accelerate and scale up circular practices in the economy, such as changes in product design, in supply chains and industrial production processes, and in how products are being used and disposed of at the end of their lifetime.2
In 2019, the circular economy concept gained significant traction at the regional level in LAC. In November of that year, the Intersessional Meeting of the Forum of Ministers of Environment of Latin America and the Caribbean announced proposals for a Regional Coalition on Circular Economy (Coalición Regional de Economía Circular), ‘with the main objectives [of developing] a common regional vision and strategy on circular economy in order to have a bigger impact, to build cooperation and exchange best practices’, tasking the UN Environment Programme (UNEP) with building the coalition in close cooperation with the United Nations Industrial Development Organization (UNIDO) and other international and regional partners.3 In the context of the post-COVID-19 recovery in the region, the circular economy is gaining additional attention as a solution to increase resilience and mitigate future disruptions.4
This research paper provides analysis of the current state of circular economy policies in LAC and identifies priority issues for national governments, businesses, civil society and the research community. It has five aims:
The analysis and findings of this paper are based on a literature review and on insights gathered from a Chatham House research workshop – ‘Just Circular Economy Transitions in Latin America’, held in Montevideo, Uruguay, in December 2019, with 33 participants from eight LAC countries – as well as on the responses to a follow-up survey after the event. The survey was designed to gain insights into how the circular economy is understood in LAC among leading stakeholders including governments, international organizations, academia, civil society and the business community. The survey was completed by 28 stakeholders representing 11 LAC countries (see Annex for details of participants and the full survey methodology) and participants were asked to indicate and elaborate on the sectors they felt would most benefit from a transition to the circular economy and those that would face the greatest challenges, the key policies required to support an inclusive transition, as well as their thoughts on existing financing opportunities and requirements, technological needs and the role of trade. The results from the literature review, workshop and survey ultimately led to this paper focusing on the bioeconomy, waste and extractive sectors as the most likely to be affected by the introduction of the circular economy in LAC. The selection of countries included in the analysis was based on the geographical representation at the workshop and in the survey, as well as on the literature review.
The circular economy entails moving away from the current linear economic model of ‘take–make–throw away’, in which resources are extracted, turned into products, consumed and finally discarded. In a circular world, by contrast, products and materials are kept in circulation for as long as possible by designing them to be more durable, reusable, repairable and recyclable. The circular economy concept applies life cycle thinking and ‘cradle to cradle’ approaches, considering residues as the ‘food’ for new products and processes, and is underpinned by the shift to using renewable energy sources.5
Transitioning to a circular economy is critical for achieving the targets of the Paris Agreement and the 2030 Agenda for Sustainable Development. Emissions from the production of materials accounted for 15 per cent of global greenhouse gases in 1995, this figure increased to 23 per cent in 2015.6 Implementing circular economy strategies in five major sectors – steel, cement, plastic, food and aluminium – could reduce global emissions from the production of key materials by 40 per cent, or 3.7 billion tonnes, in 2050.7
Transitioning to a circular economy is critical for achieving the targets of the Paris Agreement and the 2030 Agenda for Sustainable Development.
The circular economy is also critical for addressing the global waste crisis, which threatens environments, public health and economic development worldwide. About 40 per cent of plastic waste is not accounted for in managed landfills or recycling facilities, and it is estimated that between 4.8–12.7 million tonnes of such waste enter the oceans each year as marine litter and microplastic particles.8 Moreover, the transition to a circular economy has the potential to be a driver of job creation, value addition and economic growth, when supported by appropriate policies, legislation and incentives.9
Yet the shift away from the linear economic model may generate losers as well as winners – as detailed in the Chatham House research paper Promoting a Just Transition to an Inclusive Circular Economy.10 Until recently, academic discussions, policy frameworks and business initiatives promoting the circular economy have focused mainly on the European and Chinese contexts.11 However, this situation is changing rapidly as new research is beginning to analyse how the transitions to circular economies, and their narratives, are taking shape in the Global South.12 Particularly in the context of these regions, there are important sociopolitical issues to consider. Identifying these, and tailoring policies and international programmes to support those countries and communities that are at risk of being left behind, is critical for ensuring a just transition. Given the high levels of inequality and poverty in the LAC region, this paper argues that the transition to a circular economy needs to be compatible with, and even a promoter of, these social objectives and human development priorities. The emergence of more resilient societies is contingent on addressing the ‘triple bottom line’ of economic, social and environmental needs.13
The term and concept ‘just transition’ brings together concerns about social and environmental justice in the transition to a sustainable economy and society.14 The concept originates from environmental and climate justice movements that have consistently criticized the linear economic model. Social movements have a long history in the LAC region and are important stakeholders in debates about development and sustainability. Recently, in the context of COP 25, held in Madrid in December 2019, Latin American social movements stated their opposition to the neoliberal extractivist model, and proposed a justice-oriented approach to solving the climate crisis.15
The EU introduced a Just Transition Mechanism16 in early 2020, within the context of the green energy transition and climate change. The Just Transition Mechanism aims to ensure solidarity and fairness, so that climate mitigation actions do not disproportionally affect the vulnerable. In this context, the just transition refers to political processes that support regions, industries, workers and communities adversely impacted by environmental mitigation measures; it recognizes rights to resources; and resolves competing development interests through participatory processes.
In Promoting a Just Transition to an Inclusive Circular Economy,17 it was argued that justice considerations are equally important for the circular economy transition. While the transition to a circular economy can address several of the most pressing challenges of our time, it will also entail a systemic change to the way our economies work. Although it is likely that there will be a net positive outcome in terms of employment opportunities, many workers, industries and communities could be adversely impacted. Therefore, it is important that circular economy policies and programmes identify and adequately respond to social risks.
In the context of the COVID-19 pandemic, the just transition approach has become even more relevant. If, as estimated by the UN Economic Commission for Latin America and the Caribbean (ECLAC), the pandemic results in an increase of 10 per cent in unemployment in the region, it is anticipated that the number of people classified as poor in the region will increase from 185 million to 220 million.18 The current lack of adequate social protection and unemployment benefits in the region as a whole must be addressed in order to avoid a social care disaster.
As is the case for most regions around the world, the countries of LAC will need to renew efforts to meet the targets of the UN Sustainable Development Goals (SDGs). The circular economy concept already fits within the existing SDGs, particularly SDG 12 (sustainable consumption and production).19 By pushing SDG 12 forward via the implementation of circular economy solutions, progress on other environmental, social and economic SDGs can also be achieved. Examples are SDG 6 (ensure access to water and sanitation for all), SDG 11 (making cities inclusive, safe, resilient and sustainable – for example, by improving housing conditions in informal settlements), as well as SDGs 8 and 9 on sustainable growth and industrialization (promote inclusive and sustainable economic growth, employment and decent work for all; build resilient infrastructure, promote sustainable industrialization and foster innovation).20
In 2019, the Argentine Business Council for Sustainable Development (CEADS) surveyed a number of businesses to identify how circular practices could help to achieve Argentina’s climate targets and SDGs. The study found that 56 per cent of the businesses surveyed directly contributed to greenhouse gas reductions through using circular practices, and 70 per cent contributed indirectly. However, without an agreed set of metrics on resource intensity of production, reliable measurements and comparisons over time are not possible. The study pointed to the need for standard indicators for the circular economy to record its impact and make progress towards the SDGs more transparent.21
LAC’s national economies have been heavily dependent on natural resource exports for the last two decades, with exports increasing significantly during the 2003–13 commodity price surge in particular. Yet, many of the countries have been unable to capitalize on this specialization in natural resource exports. In fact, some LAC countries face negative ‘Dutch disease’ effects due to dependence on resource commodity exports and macroeconomic vulnerabilities generated by commodity cycles,22 where countries have not been able to develop appropriate countercyclical macroeconomic policies.23 In this context, the circular economy offers an opportunity for intrasectoral diversification to generate added value domestically, contributing to SDG 8 (sustainable economic growth and decent work), SDG 9 (sustainable industrialization) and SDG 12 (sustainable consumption and production).
The circular economy offers an opportunity for intrasectoral diversification to generate added value domestically, contributing to SDG 8, SDG 9 and SDG 12.
Only an inclusive circular economy can also support achieving the social SDGs, including SDG 1 (eliminating poverty) and SDG 10 (reducing inequalities). While most countries in the region are classified as upper-middle-income countries,24 the degree of inequality is generally high, with significant pockets of poverty. In Haiti, which is the only low-income country of the region, approximately 59 per cent of the population is estimated to live below the national poverty line, and the GINI index (the most widely used international measure of inequality) is 41.1. In Guatemala and Mexico, both ranked as upper-middle-income countries, 62 per cent and 42 per cent of the populations, respectively, live in poverty and their GINI indexes are also high, indicating greater inequality than in Haiti, at 48.3 and 45.4, respectively. Although net poverty in Chile has fallen over the last decade, the country has one of the worst rates of inequality in Latin America and the highest GINI index in the OECD (44.4). Chile is now a frontrunner in the development of an institutional framework to support the circular economy. However, the social unrest of 2019 highlighted the fact that, in order for the circular economy to prove successful as a new paradigm for sustainable development, it is necessary to ensure that the model works towards human development objectives, by reducing inequality as well as poverty.
There are several examples of how the circular economy can support the implementation and achievement of the SDG goals in LAC. Across the region an estimated 113 million people – about one in five – live in slums.25 Substandard housing in which there is little or no access to running water or health facilities is a common characteristic of the urban landscape and sprawl. Improving living conditions in slum areas and informal settlements is a priority for achieving sustainable cities and inclusive communities (SDG 11). A new technology that could make an impact is 3D printing of low-cost houses, which uses a mix of concrete, water and other materials. A hybrid of concrete mortar that hardens as it is printed produces layers of structures that can be used to build a house for as little as $4,000.26 Pilot projects using this approach to construct affordable housing are being implemented to help low-income families in El Salvador,27 who live in tents and temporary shelters, having lost their homes due to earthquakes and other natural disasters. In Mexico, an entirely new neighbourhood is being printed in 3D and made available to 50 families on low incomes, some of whom earn as little as $3 per day.28
Circular economy solutions can also help to achieve SDG 6 (secure access to clean water and sanitation). By 2025, all LAC countries – except Costa Rica, Panama, Ecuador, Suriname and Uruguay – are projected to become water scarce, as insufficient infrastructure will mean renewable water sources cannot be accessed to satisfy demand.29 Recovery of wastewater resources is already under way in several countries (albeit in an ad hoc manner) and needs to be scaled up. One example is the Atotonilco wastewater treatment plant, which contributes to sustainable water use in the Valley of Mexico metropolitan area. A variety of treatment processes are used to obtain value from all by-products: wastewater from the plant is used to irrigate up to 90,000 hectares of agricultural land in the Mezquital Valley, while electricity and thermal energy are produced from sludge, and biosolids are produced for soil enhancement in forests and in agriculture.30
The transition towards the circular economy is closely linked to the concept of the ‘fourth industrial revolution’.31 The technology solutions discussed in the circular economy context include digital technologies such as blockchain applications, 3D printing and automation, cloud computing and big data analytics all of which are often summarized under the umbrella term ‘Industry 4.0’.32 These are considered to be key enablers for circular business models,33 allowing the use of information flows and analytics to reduce waste and to close material loops through reusing and recycling materials, as well as employing more efficient manufacturing processes and reverse logistics. Below are examples of how Industry 4.0 can act as a catalyst to promote circularity practices:
In the context of the COVID-19 crisis, which will result in a major economic slowdown for the region in 2020 and 2021, and the environmental challenges ahead, Industry 4.0 and the circular economy are at the heart of the productive transformation debate in Latin America. Countries in the region have historically shifted from the primary to the manufacturing sector as their economies have developed, given the risks of commodity price fluctuations and the difficulty of increasing productivity and value addition in the extractive and agriculture sectors. While this shift continues to be important, three current trends need to be taken into account: the commoditization of manufacturing, which has led to prices of manufactured goods reaching historic lows; the growing demand for certain specific minerals and primary goods; and the productivity gap and environmental pressures faced by most Latin American countries.
In the context of the COVID-19 crisis, which will result in a major economic slowdown for the region in 2020 and 2021, and the environmental challenges ahead, Industry 4.0 and the circular economy are at the heart of the productive transformation debate in Latin America.
With the above trends in mind, Industry 4.0 and the circular economy may downplay intersectoral transformations while putting a stronger focus on how to strengthen intrasectoral dynamics. For instance, the future competitiveness of Chile’s mining sector relies on the application of advanced technologies for value addition while reducing the environmental impact of mining activity. The country plans to apply Industry 4.0 and circular economy technologies to become a global supplier of lithium batteries for electric cars, making better use of its mineral resources.36 In agriculture, traditionally considered a low productivity sector, the application of digital technologies has the potential to increase productivity and yields while reducing inputs of chemical fertilizers, enabling the sector to experience its own revolution, the so-called ‘Agriculture 4.0’. The adoption of precision agriculture using, for example, drone technology, climate and crop monitoring and precision farming software has certainly raised the profile of agriculture in some parts of the region. Brazil, for example, has gone from being an importer of agricultural technologies to becoming one of the leaders in research and innovation, developing Agriculture 4.0 technologies and processes.37
While research on the circular economy is gathering pace in LAC, investment in science and technology is still comparatively low, on average equating to just 0.66 per cent of GDP in the region.38 Moreover, only 36 per cent of that share is financed by enterprises (public and private), which demonstrates the limited capacity of individual firms to absorb Industry 4.0 technologies. Most countries aiming to have technologically advanced circular economy models linked to Industry 4.0 have research and development (R&D) investment rates exceeding 2 per cent of GDP and a higher level of participation of enterprises in the financing and execution of R&D. Both governments and the private sector in the LAC region must, therefore, invest more in R&D in order to ensure the region is able to take full advantage of Industry 4.0 technologies and apply them to a circular economy transition.
Making use of digital innovation will be key to realizing circular economy opportunities. It has been estimated that by 2022, the number of internet-enabled devices in LAC will reach 100 million, growing at an annual rate of over 20 per cent.39 Chile, Costa Rica, and Brazil are considered the three countries most ready to participate in the Industry 4.0 market and benefit from its opportunities.40 According to Digital Evolution Index 2017, ‘Mexico, Colombia, Brazil and Bolivia are considered “break out” countries that are rapidly evolving to widespread digitally-driven innovation’.41 However, it is important to note that without appropriate policy, fiscal support and skills development initiatives, Industry 4.0 technologies are likely to be taken up disproportionately by larger companies, leaving small businesses at a disadvantage. Making Industry 4.0 technologies accessible to small businesses, and up skilling workers, is key to ensuring a just transition.
While the digital infrastructure coverage gap in LAC is relatively small, with just 10 per cent of the population living outside the reach of 4G or even 3G networks, the usage gap is much larger, with 57 per cent of the population not using mobile broadband, despite network availability. The biggest barriers to uptake of mobile broadband usage are the lack of relevant local content (including content in Spanish), followed by digital literacy and affordability. Only a small percentage of teachers in the region are trained to teach digital literacy, while the cost of mobile services (measured as a percentage of the income of the poorest 40 per cent of the population in each country) varies between 5 per cent (Uruguay) and 42 per cent (Guatemala).42
Successfully navigating the digital transformation is as much about technology and infrastructure policy as it is about social welfare and education policy – ensuring that opportunities are accessible to communities at all socio-economic levels and that they contribute to development objectives. It is crucial that Industry 4.0 technologies be affordable and made available at scale, both by design and through financial policy support; that digital literacy be prioritized in the region; and that national information and communications technology (ICT) development plans include the prioritization of locally relevant content, to enable the skills training and accessibility to technology needed for the circular economy transition.
Differing levels of participation by gender in the use of personal technology, and in employment in the technology sector, are also likely to present an issue in LAC. In terms of mobile internet usage the overall gap is small, with just a 2 per cent difference between men and women at regional level, though this varies widely by country; in Guatemala, for example, there is a 15 per cent difference.43 The difference is more pronounced overall when we look at employment. Since 2017, the proportion of women in employment has stagnated across the region, with only half of women participating in the labour force compared to 74.4 per cent of men.44 In 2018, according to ECLAC figures, 77.6 per cent of women were employed in low productivity sectors (agriculture, commerce and services) against 55.4 per cent of men. Sectors with average productivity (manufacturing, construction, transport) account for only 13.8 per cent of employed women but for 35 per cent of employed men.45 One of the factors contributing to women’s study and employment choices across the region is the persistence of gender stereotypes concerning the role of women in families. The adoption of Industry 4.0 technologies could deepen the existing gender gap in the region, as the overall proportion of the population employed in low productivity sectors continues to shrink.
Specifically encouraging female entrepreneurship in technology-driven high-productivity sectors is one way to bridge the employment and salary gap. This pattern is reflected in the type of entrepreneurship generated by women in LAC, with a focus on ‘triple bottom line’ (social, environmental and financial) impacts. One example from Argentina is Daravi,46 a female-led enterprise founded in 2016 that creates sustainable products, reusing waste materials and prioritizing the design of products with an extended lifespan, generating job opportunities for the community with a focus on women.
The shift to a circular economy must aim to redefine growth, leaving no one behind. Addressing gender stereotypes, promoting technical training for women and female entrepreneurship will be critical to mitigate unequal impacts of the digital transformation on women and, ultimately, to help achieve the SDGs.47
The COVID-19 health crisis has shaken the foundations of the linear economic model. The dramatic slowdown of global production, which started in China, the site of the first major outbreak of coronavirus in 2020, brings into question the supposed benefits of an economic model governed by global value chains (GVCs). ECLAC estimates that the region’s exports to China in 2020 could fall by as much as 10.7 per cent in value terms, exposing the reliance of countries such as Chile, Peru and Brazil on the Chinese market.48 In addition, the disruption of trade flows, in combination with countries’ lack of productive capacities, has caused major havoc in supply chains and in the provision of essential healthcare items such as protective masks and respirators, not only in developing but also in developed countries. GVCs are primarily organized around economic drivers such as specialization, costs, market access and economies of scale that rarely take into account environmental considerations such as carbon footprint and resource usage. In summary, GVCs have failed to take account of the interdependencies binding the environmental, social and economic systems.49
ECLAC estimates that the region’s exports to China in 2020 could fall by as much as 10.7 per cent in value terms, exposing the reliance of countries such as Chile, Peru and Brazil on the Chinese market.
A special report from ECLAC states that efforts to create a new economic model are more important than ever.50 The COVID-19 outbreak unfolding in the LAC region is likely to precipitate the largest economic and social crisis in decades.51 On average, GDP is expected to contract by 5.3 per cent in 2020 across Latin America, which will have devasting consequences in terms of job losses and increased poverty and inequality. Issues that existed before the crisis, such as low levels of investment in public services and weak social safety nets, coupled with the vast and particularly vulnerable informal sector, make it even more difficult for LAC governments to find ways of combating the economic effects of the pandemic.52
In the context of the COVID-19 pandemic, and the widespread questioning of the existing economic model that the crisis has prompted, the circular economy offers a framework for Latin America to rethink its future. Economic recovery in the post-COVID-19 period will call for an economic model that supports well-being, increases resilience and benefits business, people and the environment by decoupling socio-economic development from resource consumption. The circular economy presents an attractive alternative to the prevailing linear model in the developed world.
Different initiatives, for example those using 3D printing technology, have arisen in LAC countries as a response to the COVID-19 pandemic, seeking to provide a solution to a widespread lack of personal protective equipment (PPE). Furthermore, in combination with other emerging manufacturing technologies, systems and new materials, 3D printing is already changing the industrial landscape in radical ways – such as in efforts to reduce waste, through prototyping for easy disassembly and reuse of materials. 3D printing is changing the way that manufacturing activities are organized and the nature of the stakeholders involved. The characteristics of 3D printing align well with circularity principles.53
For example, the Technological University of Uruguay (UTEC) has created COINNOVATION, an open innovation platform that aims to support the manufacture of biomedical supplies using 3D printing technology.54 In the first stage of the COVID-19 crisis it focused on preventing the spread of the disease, designing and producing supplies such as face masks and full-face protective screens. The university sought out and incorporated donations of unused printers, CD players, PC towers and Arduino/Raspberry Pi boards in its design and production process. In the spirit of the circular economy, COINNOVATION intends to develop replaceable components for medical equipment used in the treatment of symptomatic COVID-19 patients.
Similar initiatives emerged in Argentina. For example, the Unidos por Argentina initiative brought together more than 100 young volunteers who used their own 3D printing equipment to produce more than 500 full-face protective medical masks per day, which were donated to health personnel. The initiative made use of donations of printing materials and X-ray plates, which go through a discoloration process and become transparent, to be reused as protective acetate. Imprimiendo Escudos is a similar project, also engaged in the 3D printing and assembly of protective masks, but using polylactide (PLA), a thermoplastic material made from renewable agricultural products such as corn starch or sugar cane. The approximate cost of each mask is $2, and by early April 2020 more than 1,500 masks had been donated to hospitals in Argentina.
