The world is changing fast and to keep up you need local knowledge with global context.
2019 will be remembered in history as the pivotal year for the global public discourse on climate change. It was a year that a young Swedish girl, Greta Thunberg became Time’s Person of the Year after she decided to take a stand and tell the world that her generation, Generation Z will no longer tolerate the destruction of the planet. Whether you agree with the tactics or the decision to allow her to front the Green charge; there is no denying that a new movement to change the world towards sustainability has been ignited and the business world will need to adapt to that. Being sustainable is no longer a ‘nice to have’ element of businesses and industries, it has become a ‘must have’. Miyelani Mkhabela from the Antswisa Transaction Advisory Services says a circular economy will not only help the country meet the challenges of a more sustainable future; it would also provide much needed growth in the South African economy. Mkhabela also highlights the sectors which he believes are ripe for disruptive innovations in the country. – Linda van Tilburg
Circular Economy sector will assist in expanding the South African economy
By Miyelani Mkhabela*
South Africa has hosted a symposium on Circular Economy November 2019, South Africa and European union partnership on Circular Economy symposium held at the National Research Foundation dissected on a number of themes such as Re-use of materials and products, reduction of the use of (finite) resources and the recycling of materials are key in contributing to a circular economy. Instead of maximising growth and profit and making products obsolete by design, the goal is to capture all the value we create for as long as possible. South Africa has an opportunity to adopt the new born sector, circular economy to develop Small Medium Enterprises that will be resilient in the markets and create jobs for the 60% youth unemployment. The circular economy will provide decent jobs to people, we will need to come with great foresight for policy making and innovative enterprises that can deliver sound quality services to other sectors.
The way we design, produce, use, distribute and discard products has a strong impact on our economy, society and environment. There is at least a perception amongst many stakeholders and consumers that products in use today are not optimised to be repaired, upgraded or remanufactured, resulting in premature obsolescence. Over the whole life cycle of the product, the use of resources is often sub-optimal. At the end of their service life, most products are discarded and their materials not sufficiently recycled, causing valuable resources to be wasted, including critical raw materials. This problem is driven in particular by the fact that prices of products do not always reflect their environmental and societal costs, which reduces the incentives to produce and consume sustainably.
The tyres recycling project or REDISA has shaped the tyres recycling value chain and we can use that case study to strategise and implement several prototypes and small wins results in formulating a complete bigger economy to benefit society and create more jobs. Cooperation from producers of textiles, food, chemicals, construction sector, mining sector, metals production will be required highly to build a sustainable sector for all.
South Africa is working on the prioritisation of the transition to a carbon neutral, circular economy. Taking a circular approach towards products holds large potential in terms of sustainability in the broadest sense, benefiting people, planet and prosperity. In a circular economy, products maintain their potential to create value for as long as possible. Products have a long lifetime, due to a durable design. In case a product breaks, it is repaired. When a consumer no longer needs a product, it is passed on and reused by another consumer, or products are shared from the outset.
South African plastics, mining, food, textiles and chemicals needs to adopt projects in a circular economy and also adapt to the future of manufacturing technologies and tools to reduce waste and have networks for reutilisation of products for example, returning clothes to mega retailers for discounts for the next desired items and renting of Jean’s for a period of 18 month instead of buying them and other traditional models of giving relatives and social organisations clothes for reuse.
Products that are discarded after their first technical or economical lifecycle are updated or refurbished and begin another life cycle, or if this is not possible their materials are recycled with a minimum of remaining resources ending up in energy recovery. During production and use, products consume the minimum amount of resources such as energy or water that is needed to fulfil their functions. Consumable products such as food, drinks, cosmetics and detergents are also produced with the minimum impact on resources and consumed so as to leave as little waste as possible.
Investing in businesses that are taking firm action to promote the circular economy can be a choice that pays off in the long term. Circularity has also opened up new business opportunities, given rise to new business models and developed new markets, domestically, we need to take the United Nations Principles For Responsible Investment seriously for the impact development financing by our institutional investors. Impact investment will add value to society and investors will also have an attractive Interest Rate of Return for all their commitments or allocations.
South African metros and municipalities are facing huge problems in recycling of municipal waste as there is no waste space available, mainly in cities and urban edge cities to provide for waste during the development of new real estate development and this is the new complexity for developers. We need new solutions to manage waste in municipalities and this will build SMEs for the future.
The so-called ‘linear’ economic model, which follows a ‘take-make-dispose’ pattern, is not viable in the long term as a counter to an ever-increasing global population, a raft of non-renewable energies (metals, minerals, fossil fuels, etc.) unable to keep up with demand, and a limited ability to regenerate renewable energies (land, forest, water, and so on). So the entire economic sector must move towards a new model of production and consumption related to what we call the circular economy; the circular economy consists in extending the life of products, reducing waste, reusing waste as a new resource and developing the principles of leasing and sharing.
Stakeholder engagement is vital for the transition. The systemic approach of the action plan has given public authorities, economic actors and civil society a framework to replicate in order to foster partnerships across sectors and along value chains. Stakeholder mindfulness and reflected leadership is a solution to future conflicts, we need to plan our projects with the humility of inclusiveness to societal principles of UBUNTU and Bathu pele.
Consumer decisions have an enormous impact on the transition to a circular economy, and consumers need to be empowered with consumer rights and access to reliable information to be able to play their role in the circular economy to the full extent.
South African government must adopt a Circular Economy and develop a circular economy Action Plan to give a new boost to economic expansion, jobs, growth and investment and to develop a carbon neutral, resource-efficient and competitive economy. The actions under the action plan must have a completed or are expected to being smartly implemented, even if work on some will continue beyond 2030 or 2040.
All these activities will contribute to a global effort in pursuit of the Sustainable Development Goals, in particular SDG12 on sustainable production and consumption. The South African mining industry needs to adopt the circular economy precisely for the harm they caused and also a remorse of caring to society and communities they have been doing business for more than 100 years. Citizenship has a huge responsibility of caring and building a sustainable environment for the future.
South Africa must create policies that contribute to the transition to a circular economy by influencing how products should be designed, produced, used or treated at their end-of-life. Given the diversity in products, which include technologies and services, these policies are necessarily also diverse as they address different product groups, environmental impacts and phases of the product life cycle, and have diverse objectives and methods to achieve them.
Innovation is essential to facilitate the transition to a circular economy. Innovations aimed at more sustainable practices, processes and products are referred to as eco-innovations. The South African government and Department of Science and Innovation has a huge responsibility to supports many such innovations through research programs from 2020 in partnership with the European union having showed interest in working with Africa and move ahead smartly with speed.
Research confirms that there is about $120trn under management by institutional investors globally and more funding will be required to finance unlisted investments that’s impact compliant, attractive project preparation and commercially viable.
The South African product policy framework must encompass the Africa Trade Agreements and trading partners such as leading emerging markets and developed economies as part of our trading partners from different markets. The broad Market will help in inter trade relations for the greatest achievements of the South African circular economy project.
The basic concept of GPP relies on having clear, verifiable, justifiable and ambitious environmental criteria for products and services, based on a life-cycle approach and scientific evidence base, for inclusion in the public procurement process. The South African government in partnership with the number of European countries can develop a guidance in this area, in the form of national GPP criteria. The criteria used by Member States should be similar to avoid a distortion of the single market and a reduction of South African wide competition with its global trading partners.
The Extended Producer Responsibility (EPR) is an important component mainly to keep producers responsible for the future damage they can cause to the environment and the approach to ensure that producers contribute financially to the costs of waste management; it is thus also an economic instrument to stimulate better design to reduce such costs. The ERP puts an obligation on producers to take operational or financial responsibility for the end-of-life phase of their products. For electrical and electronic equipment, end-of-life vehicles or batteries, EPR schemes must be required by the relevant South African agency ensuring sustainable standards with that industry.
South Africa must also revise environmental and Waste Framework Directive to sets new general minimum requirements for EPR schemes to improve their effectiveness and performance across the value chain and our markets. These requirements specify, inter alia, the costs that should be covered by producers, including costs of separate waste collection, its transport and treatment, as well as costs of providing information to the waste holders and the costs of monitoring and reporting. In addition, the requirements set an obligation for collective schemes to modulate the financial contributions paid by producers for their individual products or groups of similar products, taking into account their durability, reparability, re-usability and recyclability and the presence of hazardous substances, thereby taking a life-cycle approach.
In a circular economy, products and their materials pass through different loops that aim to maintain the potential of products and materials to create value. Many products owned by consumers are not used to full potential during their economic lifespan. Examples include cars, which on average are parked for 78% of their lifetime an used for transport on average just 1.5 persons; tools, which are only used occasionally by the average owner; and buildings, most of which serve either residential or commercial/industrial purposes and are therefore in actual use for a small part of the time. Collaborative practices and business models aim to harness the unused potential. Digitisation is providing for the necessary platforms for such models.
Business models based on collaborative consumption are typically quickly developing or well established around high-value products such as vehicles and buildings. Leasing models for cars are well established and ride-sharing applications are widely available. In the tourist sector, sharing platforms have made a serious impact, representing around more than 15% of all stays. In other sectors the numbers are much lower. However, some experts estimate that the collaborative economy could add billion to the South African economy. Therefore, there is a high potential for new businesses to seek to capture these fast growing markets, as well as a strong consumer interest. Collaborative practices are also developing in the informal sector, for example in community networks. They are not always captured by economic statistics but can nevertheless contribute significantly to the circular economy. Funding for these Greenfield projects will be required and donors from European markets will be required to ignite this initiatives.
Circular economy products for disruptive innovations in South Africa are as follows:
Packaging, while itself not a product, is obviously strongly associated with products. The high impacts of packaging on the environment, particularly when littered, are widely acknowledged. South Africa must start and expedite preparatory work on Plastics Strategy’s action to work towards new harmonised rules to ensure that by 2030 all packaging placed on the market can be reused or recycled in a cost-effective manner, inline with other leading nations, we mustn’t be behind in the future as information is available for all government to implement what’s common in the global markets now.
The food sector is one of the South African biggest sector in terms of employment and contribution to GDP, with over a thousands of businesses involved in producing, processing, transporting and selling food. The ‘food system’ uses many natural resources, such as land, water, nutrients and energy for food production. Subsequent processing, packaging, transportation and refrigeration use further energy, cause emissions and use materials. Food and drink production is linked to many environmental effects, including biodiversity loss, water and air pollution, and greenhouse gas emissions.
The Regulation on Food Information to Consumers has the objective to pursue a high level of protection of consumers’ health and interests by providing food information to final consumers to enable them make informed choices and to make safe use of food, with particular regard to health, economic, environmental, social and ethical considerations.
Electrical and electronic equipment (EEE) and batteries
In today’s world, semiconductors have become essential components of many aspects of our daily lives, so much so that the business of producing semiconductors is of key strategic importance to all industrialised countries. This market has capacity to build a viable pool of small and large corporates in the circular economy in partnership with industry large corporates and enterprise development can be set aside to build this new economy.
Transport and mobility
The role of mobility in a circular economy is important and complex. Developments such as alternative fuels mobility, cooperative, connected and automated mobility, car sharing, drone delivery and many others are emerging and changing our approach to transport. Several policies are in place at different levels.
The stricter CO2 emission standards for new passenger cars and light commercial vehicles resulting from the revision will ensure that from 2030 onwards new cars will emit on average 37.5% less CO2 and new vans will emit on average 31% less CO2 compared to 2021 levels. Between 2025 and 2029, both cars and vans will be required to emit 15% less CO2. Following the Electric Motor agreement and players participating on it, I have learnt that so many things happen while South Africa is not involved and when market disruptions emerge we are not even ready to manage complexity emanating from such innovations. We must strive to be ahead at all times, Germany, Sweden and Denmark can share experiences in areas we lack
More than a quarter of the world’s furniture is produced in the EU, representing a market of around €84bn. Furniture producers in the EU are mainly SMEs. The EU is a net exporter of furniture, but production outside the EU is increasing faster than within and with it the amount of imported furniture. Furniture produced in the EU often consists of certified wood and generally enjoys long product lifetimes, but there are indication these are decreasing and reuse options with them. In some cases, shorter product lifetime may be caused by an increase in the use of plastic, chipboard and medium-density fibreboard (MDF) to replace more durable but more expensive solid wood and metal.
This is a big industry Mpumalanga and KZN can take advantage of mainly with their wood advantage. I was at Empangeni the past month where I witnessed attractive markets that have potential to set additional factories that can adopt the future of manufacturing technologies and develop renewal centres for waste furniture.
Textiles (apparel and fabrics)
Textiles such as garments, textile parts of footwear and home interior textiles including carpets are sold worldwide, and are used in industrial applications including in construction, automotive and other mobility sectors. South Africa is no longer competitive producer of textiles but has a huge potential to rebuild this market. Development finance institutions must have this sector developed and reduce import of textiles to our economy.
Sustainability aspects of textiles are wide. The production of bio-based materials such as cotton or wool requires much water and other agricultural inputs, while synthetic fibres and yarns used for the production of textiles are mainly fossil based and also have plastics related issues such as a microfibre or micro-plastic discharge. Concerns about environmental effects as well as the working conditions under which clothes that are sold sit south Africa are often produced outside of South Africa has led to several initiatives and approaches to improve this challenges.
Recycling of textiles takes place to a limited extent and when it takes place, it is often a matter of down-cycling where the recycled material is of lower quality and functionality than the original material. There is limited knowledge of the feasibility of recycling of a number of fibres in mixtures, from an economic and environmental point of view. Challenges include the complex combinations of materials in garments and the presence of hazardous ‘legacy’ substances, such as flame-retardants in carpets that were authorised at the time of production but are (soon to be) subject of restrictions at the time of recycling.
Buildings and construction products
The construction sector has large potential for circular economy given the scale of material use, value contained in buildings, labour intensiveness and long-term effect of measures. The overall objective for circular buildings is to reduce life cycle impact at the same time as providing healthy and comfortable spaces. This means amongst others reduced whole life carbon. The overall objective for circular buildings is to reduce life cycle impact at the same time as providing healthy and comfortable spaces. This means amongst others reduced whole life carbon consumption, increased reused and recycled content and sustainable handling of construction and demolition waste. Circularity and sustainability need to be assessed over the whole life cycle of the building to optimise reduction of carbon emissions and material flows.
Town and Regional planners and Architectures in cities and municipalities must identify new ways of development of the smart cities, Mega-projects and other developmental projects to adapt to circular economy standards in developing resilient cities that can assist in reducing emissions and comply with sustainability standards.
National legislation on building codes is sometimes silent on materials, or not up to date with the development of building products which could increase the energy efficiency and performance of buildings from a sustainability perspective as well as replace energy intensive materials e.g. also in tall buildings. An example is the permitting use under these codes of wood-based products, in particular so-called engineered wood products (EWP) such as cross-laminated timber (CLT), laminated veneer lumber (LVL) and glued-laminated timber (glu-lam), which can efficiently retain a long-term carbon pool – especially in wooden buildings. It is therefore vital to raise awareness on these aspects.
South Africa is a big economy and we need to quickly adapt to global standards on the building and construction sectors, some of the South African REIT stocks has managed to adapt to that while many building are behind in sustainability standards. The Johannesburg Stock Exchange ESG summit slightly highlights this element, mainly from their sustainability reporting and environmental conscious for their listed REIT stocks.
In developed economies and emerging markets, about 85% of goods are directly linked to chemicals or chemical processes, including products mentioned above.
The deployment of different policy tools will allow for tailoring them to the specificities of the products they cover and the way they do this. However, to optimise their efficiency and contribution to circular economy, it requires regular consideration of overall consistency of the policy intervention. South Africa has a unique challenge mainly to implement good policies. Transformation will only happen when we change this elements of failure to implement policies and prioritises smooth execution. This begins with considering which products to cover, and how. When multiple policy tools apply to the same products, there should be consideration of possible synergies and avoidance of overlap or inconsistencies. The circular economy is a mega economy and it will need joint Department committees not only Department of Environmental affairs and Water affairs must champion this multi set of Mega-projects but also require mainly Department of Economic Development and Department of Science and Innovation to lead in building this new economy. The funds collected in different sectors must be ring fenced to assist in the development of those specific sectors and that will add value in developing the South African Circular Economy industries. circular economy encompasses environmental but also it’s not recycling, recycling is a unit within the circular economy.
- Miyelani Mkhabela is an Economist and Director of Antswisa Transaction Advisory Services and Antswisa Private Equity. You can contact him [email protected].
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