Leasing and Sharing – Using Instead of Owning

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” of investment and long-lived consumer goods are substantial elements and facilitators of a circular economy. Ownership remains with a company, so 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, preservation of creditworthiness  of consumers, higher living standards and a more efficient use of resources. Consumers and producers thus have access to technical equipment that 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 the companies that goods are more durable in order to improve profitability. Spare parts management and service are created and components and goods remain the property of the company owning the equiment.

In industrialised countries, these business models are already recording high growth rates, while in Africa the effects on social progress have not yet been fully recognised. One reason is that the techncial 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 retinascan, 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.

With the help of suitable financing concepts, it will be easier for companies to enter new markets. Manufacturers will have the opportunity to quickly bring a critical number of goods into a market, facilitating the establishment of management, maintenance and spare parts supply systems and make then economically viable. Development banks, in close cooperation with development cooperation advisory institutions, are called upon to mobilise and deploy the necessary expertise. “Circular Economy Funds” can be implemented by the private sector 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 could provide effective support. 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.