Is there sufficient investment in SA’s waste sector to unlock its potential?

According to GreenCape’s 2020 Market Intelligence Report for the Waste Sector, opportunities in waste organics, electronic waste, waste plastics and builder’s rubble have the potential to add considerable value to the economy.

By Dr Linda Godfrey*

The short answer to the headline is no.

In a 2013 thematic investment review ‘No time to waste’, the Bank of America Merrill Lynch identified South Africa as one of five emerging markets with “exciting opportunities” in the waste sector1 .

The other countries presenting significant opportunities included Brazil, China, India and Russia. In particular, the bank noted that the fastest growth was coming from emerging markets, and new opportunities around secondary raw material and energy recovery from waste. In the case of South Africa, the bank noted that declining landfill space would make recycling a “cost-effective necessity”.

However, the review also acknowledged that the biggest challenge facing the South African waste sector in its move away from landfilling was the low cost of landfilling, which “renders alternative technologies and practices financially unsustainable”.

A recommendation to address this price failing was to build capacity in full cost accounting of waste management within municipalities. In 2014, Engineering News featured an article, ‘South Africa begins waking up to the economic potential of waste recycling’, noting that the costs that can be avoided by diverting waste from landfill, and the benefits associated with recovering the resources currently lost to landfill, are significant.

Nearly a decade on, I would argue that this potential has not yet been realised in South Africa. While recycling rates have increased between 2011 and 2017, the disposal of waste to landfill, often to uncontrolled or controlled dumpsites, remains the dominant technology solution for the end-of-life management of waste in the country. This is despite extensive policy that supports the implementation of the waste hierarchy and, more recently, the circular economy.

According to GreenCape’s 2020 Market Intelligence Report for the Waste Sector2 , opportunities in waste organics, electronic waste, waste plastics and builder’s rubble have the potential to add considerable value to the economy. The report notes that private sector investments have grown, both in number and scale, which is likely to accelerate in the next three to five years. It also notes that key drivers to unlocking these opportunities include legislation, extended producer responsibility (EPR), government initiatives, the increasing cost of disposal, and dwindling landfill airspace.

The R109.6 billion of investment announcements made at the 2020 South Africa Investment Conference saw little promise of investment in the waste sector, amounting to only 0.2% of the total announcements. While significant opportunity exists in the South African waste sector, this opportunity has not yet been realised, and public and private sector investment has been slow to materialise. Why is this the case, when the potential clearly exists?

According to the Africa Waste Management Outlook3, waste management project finance and implementation face a number of constraints in Africa, and are often considered high risk; owing to:

• insufficient future cash flow

• improper evaluation of project life-cycle costs

• low probability of success during appraisal

• lack of ability to pay back loans

• lack of cost control, operational expertise and risk management

• lack of/inadequate cost recovery options

• lack of effective governance frameworks

• administrative and operational flaws, suggesting that even with suitable finance from the central government or funding bodies, with no repayment requirements, a project will fail owing to unsuitable institutional, policy and service conditions.

The reality is that most municipalities in South Africa are struggling and not in a position to direct public sector funding into major waste management investments. With the economy stalling, even pre-Covid-19, and with significant government funding redirected during

2021 to the national pandemic response, national government is also struggling to make a case for significant investments in waste infrastructure.

The reality, given the state of the South African economy, is that government does not have the financial resources, on its own, to unlock the opportunities of this sector.

It is going to need significant private sector investment, both across value chains and opportunity waste streams. As noted by the OECD4, investments by businesses will be a key factor in unlocking a circular economy. This means that if we are to unlock the opportunities of the waste and secondary resources sector, we have to look to the private sector.

However, government has a crucial role to play in unlocking this private sector investment. As noted by the OECD, “Governments have used several financing mechanisms, including grants, loans and tax exemptions that support investments made by business”.

Yet, out of the suite of economic instruments available, the South African government has tended to lean towards punitive instruments such as taxes and EPR fees, further enforced through legislation, as opposed to incentives. The OECD notes that several countries have used funds originating from environmental charges and taxes to finance waste management investments. In South Africa, there are currently a number of environmental taxes being implemented by National Treasury, some of which have direct relevance to the waste sector.

These include taxes on plastic bags (fossilbased and bio-based), tyres and incandescent light bulbs, and related taxes such as the carbon tax and sugar tax. Estimated revenue from the first three of these taxes for the 2020/21 financial year totalled R1.08 billion5 .

Imagine if all of that revenue were reinvested back into unlocking private sector investment opportunities in implementing the waste hierarchy...

Contemplating why private sector investments have been slow to materialise in the South African waste and secondary resources sector,

I’m left with more questions than answers:

• Do we have the right policies in place?

• Have we created an enabling environment for the private sector to thrive?

• Have we done all that we can in terms of economic incentives?

• Are we sending clear policy signals regarding future opportunities?

• Have we harnessed the opportunity of green public procurement?

• Are we reducing investment risks through demonstration?

• Have we created fertile ground at local government level?

The recently published third National Waste Management Strategy6 reconfirms the potential of the sector. The question is: what do we need to do differently this time to fully unlock this opportunity?

*Dr Linda Godfrey is a principal researcher at the CSIR, with expertise in integrated waste management.

References:

1. BofA Merrill Lynch Global Research (2013). No Time to Waste–Global Waste Primer.

2. GreenCape (2020). Market intelligence report – Waste, https://www.greencape.co.za/ assets/Uploads/WASTE_MIR_20200331.pdf

3. UNEP (2018). Africa Waste Management Outlook, https://wedocs.unep.org/ handle/20.500.11822/25514

4. OECD (2019). Waste management and the circular economy in selected OECD countries, https://doi. org/10.1787/9789264309395-en

5. National Treasury (2021). Budget Review 2021, http://www.treasury.gov.za/documents/ national%20budget/2021/review/FullBR.pdf

6. DEFF (2021). National Waste Management Strategy 2020, http://sawic.environment.gov. za/documents/12777.pdf