Global population growth and the need to provide people with at least an acceptable minimum standard of living entails a significant increase in resource consumption in the linear economy.
In a circular economy, alternative business models prefer performance over ownership of products. Leasing, renting, sharing, performance contracts and “pay-as-you-go” for the use of investment and long-lived consumer goods are substantial elements and facilitators of a circular economy. Ownership remains with a company. The motivation to use well-designed products with a long lifespan becomes inherent. At the end of their useful life, products are returned to the company which can re-use or recycle components and materials. Maintenance is provided as part of the service and cost are thus included in the fees for the service.
Using goods without having to buy them means higher productivity faster. Credit-worthiness of consumers is preserved, higher living standards and a more efficient use of resources is achieved. Producers, i.e. of agricultural products, thus have access to technical equipment they previously could not afford. Especially in developing economies, living standards and quality of life are increased faster, jobs are created, rural exodus and migration pressure are reduced. It is in the interest of companies that goods are more durable in order to improve profitability. Spare parts management and service structures are created whilst components and goods remain the property of the company.
In industrialized countries, these business models are already recording high growth rates, while the potential effects on social development in Africa have not yet been fully recognized.
One reason is that the technical means have not been available until some years ago.
But today it is possible to do what was impossible 10 years ago:
With state-of-the-art information communication technologies (ICT) it is possible to
- localize capital and consumer goods with inexpensive sensors and mobile phone systems;
- identify users via retina scan, fingerprint and images;
- monitoring the condition of equipment, the frequency of usage and even to perform remote management;
- significantly lower transaction costs with mobile phone-based payment systems like M-Pesa
- use generated data for research and development and business improvements.
With the help of suitable financing concepts, market entry for companies is facilitated: Manufacturers can bring a critical number of goods quickly into a new market, facilitating the establishment of management, maintenance and spare parts supply systems and make them economically viable. Development banks (like the German KfW-DEG), in close cooperation with technical assistance institutions (like the famous German GIZ) are called upon to mobilize and deploy the necessary expertise. “Circular Economy Funds” can be implemented by impact investors with corresponding, country-specific objectives. The small Equity for Africa Fund is good first example which, however, should be equipped with much more technical expertise and first-mover financing.
Necessary laws and regulations and the establishment of institutions to enforce law and investment security are tasks in which the Governance departments of donor agencies (like GIZ) could provide effective support and political backing (i.e. from the German BMZ). The applicability of new economic concepts extends to all sectors of international development cooperation. The establishment and expansion of corresponding think tanks should therefore be supported by the donor and local governments in developing and emerging countries.