Prioritising an inclusive circular economy for developing countries

Radical transformation in the way we use natural resources is central to meeting the needs of future generations.

Current trends in global resource extraction are incompatible with internationally agreed targets to limit the rise in global average temperature to below 1.5°C above pre-industrial levels. Diverting to a sustainable growth pathway will require both substantial improvements in the efficient use of primary resources and a significant degree of displacement of primary resources with secondary materials – those recovered from waste streams and repurposed or remanufactured.

The ‘circular economy’ (CE) concept is fast becoming a new model for resilient growth.

A circular economy is one in which products and materials are recycled, repaired and reused rather than thrown away, and in which waste from one industrial process becomes a valued input into another. Creating and optimizing resource ‘loops’ along value chains could help meet the material needs of growing populations through drastically lower rates of per capita primary resource use. The CE is now a core component both of the EU’s 2050 Long-Term Strategy to achieve a climate-neutral Europe and of China’s five-year plans. Japan tabled the CE as a priority for the 2019 G20 summit.

Insufficient attention has been paid to CE pathways in developing countries, despite considerable innovation and policy progress. Structural and political conditions, and the rapid pace of growth and industrial development, will require different solutions to those adopted in developed countries; for example, the agricultural sector has been afforded minimal attention in global CE discussions
to date, but will need to take a central place in developing-country CE pathways. Innovation is already under way in developing countries, in the agricultural sector and beyond, and developing-country governments are beginning to adopt ambitious strategies for more resource-efficient and circular patterns of industrial growth.

The CE offers a promising alternative strategy for industrial development and job creation to the traditional manufacturing-led growth pathway. The CE continues to be understood primarily as a waste management and recycling strategy, but the economic opportunities are far broader and more diverse. With the right enabling conditions, the CE could provide new opportunities for economic diversification, value creation and skills development. Developing countries are in a strong position
to take advantage of the new economic opportunities. Their large informal sectors already practice ‘circular’ activities – in areas such as electronic waste (e-waste) and phone repairs, for example – and could engage in higher-value CE supply chains. Moreover, with enough investment, developing countries can ‘leapfrog’ developed countries in digital and materials innovation to embed sustainable production and consumption at the heart of their economies.

A transition to a CE brings certain trade-offs that require careful management. In the absence of a coordinated and strategic approach to the CE at national or international level, there is the risk that companies will adopt tokenistic – or, at worst, harmful – activities under the umbrella of the CE which preclude more sustainable or higher-value material use. Waste-to-energy initiatives using sub-standard incineration practices, for example, may bring environmental and human health risks and may also be drawing on waste streams better suited to second-life products. Trade-offs may also arise where circular solutions imply significant shifts in industrial policy: in resource-intensive economies, for example, circular approaches can support value addition but may also risk job losses among those employed in resource extraction and primary processing.

The success of the CE in developing countries will be critical to global efforts to ensure sustainable growth. Developing countries are already global centres of production and are set to become the global drivers of consumption. Success now in embedding circular principles in industrial growth and infrastructural development strategies can help to meet the needs of growing and urbanizing populations while mitigating against a continued rise in primary resource use, associated emissions and environmental pollution. For example, in adopting modular, adaptive and resilient design principles, the CE can help to deliver quality housing and infrastructure at low economic
and environmental cost.

Greater focus is needed on circularity in international value chains, and on the governance and investment frameworks required to enable a global CE. In 2015, East African countries proposed
a ban on imports of secondary textiles to protect their domestic industries, concerned about large volumes of cheap second-hand clothes from China entering the market. After the US threatened retaliation, the ban was replaced with an import tax, but the episode highlighted how the trade in secondary materials, if not carefully managed, can lead to tensions with traditional sectors and between countries. And in 2018, China’s imposition of a de facto ban on solid waste threw light on the importance of developing integrated, transparent supply chains in waste and secondary materials if harmful waste-dumping practices are to be avoided and CE value chains are to emerge at scale. Greater cooperation is needed at the global level to agree on common rules and standards for international circular value chains, particularly where they risk displacing traditional workers or are associated with environmental
or health risks, as is the case with e-waste.

There is an urgent need to widen the global CE conversation to include developing countries and to invest political and financial capital in promoting the development of an inclusive, global CE. Developed-country governments have an important role to play in facilitating a meaningful dialogue on how the international dynamics of CE policies may best be managed. Support from international agencies such as the UN Industrial Development Organization (UNIDO) and the UN Environment Programme (UNEP) will be critical to facilitating the piloting of CE solutions among small and medium-sized enterprises (SMEs) in developing countries and along international value chains to demonstrate the viability of cross-border circular value chains at scale. And proactive engagement by multinational companies with suppliers in developing countries – including SMEs and those operating in the informal sector – will be necessary for circular activities to be scaled up in a manner that is inclusive and avoids the displacement of vulnerable workers.

The next two years present a moment of opportunity to develop a global vision for the CE aligned with climate action and the broader sustainable development agenda. There is much scope for aligning CE strategies with climate action and sustainable development commitments
at the national and international level. Key international milestones in global climate change talks,
in the delivery of the UN’s Sustainable Development Goals (SDGs) and in the agreement of a global treaty on biodiversity protection in 2019 and 2020 present a unique opportunity to integrate the
CE into existing global political and environmental agendas and catalyse increased public and private investment in the roll-out and scale-up of CE solutions in developing countries.

Action is required on three fronts:

1. Aligning the CE with existing policy priorities in developing countries.
To integrate the CE within high-level industrial strategies and investment planning, decision-makers need confidence that CE approaches are consistent with sustainable development objectives, including driving resilient economic growth and providing opportunities for the most vulnerable people. National governments in developing countries should identify synergies between the CE and existing national plans, and undertake an assessment of the scale of opportunity in transitioning to a CE across key sectors

of the economy. Donor governments should support the CE as an industrial development strategy in developing countries, mobilizing funds to support the pioneering and scaling up of CE activities.
2. Investing in the fundamentals to support the transition to the CE in developing countries.
Robust governance frameworks, inclusive policies and partnerships at national, regional and international level will be needed to create an enabling environment for the testing and rolling out of CE activities, and to mitigate potential environmental and health risks from poor waste management. National governments in developing countries should identify priority reforms to domestic policy in support of CE activities; investors should develop cooperative and blended finance mechanisms to support and de-risk early investment in CE value chains; and intergovernmental organizations such
as UNIDO and UNEP, with the support of G20 governments, should launch a global ‘circular economy accelerator network’ to pilot innovative policy interventions and build capacity among developing-country private-sector suppliers.
3. Supporting an inclusive global CE agenda that promotes partnership and collaboration.
Trade and cooperation are key ingredients for accelerating the CE in developing economies, and harnessing opportunities for innovation will depend on leveraging foreign investment. As important as financial and material flows will be the exchange of knowledge and lesson-learning between those implementing the CE and those looking for evidence of effective strategies and interventions. Developed-country governments should identify early opportunities for ‘triple-win’ collaboration with developing countries to deliver on trade, the CE and broader sustainability goals; while multilateral development banks should align investments in climate resilience, biodiversity protection and sustainable development with the CE.

The EU and China, as global CE front-runners, should commit to deeper dialogues with developing countries. Regional forums, such as the Regional 3R Forum in Asia and the Pacific and the African Circular Economy Alliance, should engage proactively in knowledge- and lesson-sharing at an international level. G20 governments should demonstrate leadership in cooperative action in support of the CE. Global trade bodies should spearhead the development of common standards for internationally traded waste and secondary materials.

Chatham House Research Paper 2019: An Inclusive Circular Economy