The circular economy in Latin America and the Caribbean

This report from UK think tank Chatham House looks at the opportunities for building resilience in the circular economies.

The circular economy has gained prominence in Latin America and the Caribbean (LAC) in recent years as an approach to sustainable development. Countries in the region have either implemented or are planning new circular economy policies, public initiatives and roadmaps. The COVID-19 pandemic has revealed significant shortcomings in the linear economy – the vulnerability of global value chains, the depletion of natural resources and the exacerbation of social inequalities. The circular economy offers an alternative framework for a more resilient and inclusive economic model in LAC countries. A successful transition towards the circular economy in LAC will depend on the widespread adoption of Industry 4.0 technologies.

Industry 4.0 is a key enabler of the circular economy, allowing new business models to be profitable while reducing environmental impacts. LAC governments need to support a circular economy transition through a technology lens, to guarantee both added value and sustainability. LAC countries must invest more in research and development in order to take full advantage of Industry 4.0 technologies and apply them to a circular economy transition. Investment in science and technology is still comparatively low, equating on average to just 0.66 per cent of GDP across the region, with enterprises (public and private) financing only about 36 per cent of that share. Social and environmental justice considerations are of equal importance in the circular economy model. A ‘just transition’ approach is important to ensure that the circular economy does not perpetuate existing inequalities of the linear economic model, or damage livelihoods through new technologies and the automation of jobs. A social innovation-based approach to the circular economy in the LAC region can reduce poverty while promoting human development and sustainable consumption patterns for a more resilient and inclusive society. Good governance and the establishment of transparent, rules-based institutions at the national level are crucial for a successful and inclusive circular economy transition in the region. Providing a stable investment environment and functioning markets for business, as well as addressing inequality, are all crucial for success.

At the regional level, strategies can be designed to ensure that countries coordinate to support national and subnational regions in the transition. The current financing situation for the circular economy in the LAC region is limited mainly to the provision of international development finance for waste management and recycling, which are at the lower end of the valorization hierarchy within the circular economy. Over the next decade there could be substantial changes across the region in waste management, which will need to be financed. It is important to attract both domestic and foreign investments beyond the waste management sector to make the transition to a circular economy possible. The three major industrial areas that are a priority for the circular economy in LAC are the mining and extractives sector, waste management and recycling, and the bioeconomy. Circular economy practices in the mining sector are essential for reducing environmental impacts and social risks. They will also improve the sector’s competitiveness as demand for primary metals and minerals falls due to urban mining and advances in product reuse, material recovery and recycling technologies. In the waste management and recycling sector, circular economy practices could reduce the amount of waste that is either landfilled or burned. Meanwhile, the bioeconomy offers major opportunities for sustainable food systems and agriculture in the region, which can help avoid trade-offs between economic, social and environmental objectives.

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