Across the developing world, enterprising people are sifting through garbage bins to build small businesses through recycling. It is in the informal economy, yet they have developed an economic system. This “waste economy” is providing new opportunities for people like Vusi Memela. He heads out at 2 a.m. seeking a paycheck by beating the formal economy–the garbage trucks–to the Johannesburg streets. South Africa’s largest city offers little in the way of formal recycling, so Vusi fills the gap, turning plastic bottles, electronics, paper and packaging into an income generated from the proceeds of the sale. The waste economy gives him a job and a life and the possibility to dream of a better future.
Vusi and others across the continent are worthy of capital investment, and yet we have not looked closely at what they are adding to society. Most of our time and money is directed toward agriculture, light manufacturing and industrialization. In the meantime, our inability to absorb youth into productive activity puts communities at risk of crime and terrorism. In Africa, where services account for 60% of economic output, we have an opportunity to diversify the economy by investing in these informal workers.
Entrepreneurial hope for waste
Rubbish has real economic value estimated to rise from $205 billion to $375 billion by 2025. The expected 70% global increase in urban waste will result in developing countries facing one of the greatest challenges. If they do not find a way to deal with waste, it will mean accepting that current and future generations will suffer severe health and environmental consequences. It will be a missed opportunity.
We have failed to recognize that informal entrepreneurs are essential to ensuring that fragile states can withstand economic shocks. They adapt and constantly seek new ways to make ends meet. The World Bank has said we’re no longer distinguishing between “developing” and “developed” countries as we enter the Sustainable Development Goals era. But fragile states that are vulnerable to economic shocks remain. Luckily the people living in those places are more resilient than they may appear and are pushing back against poverty every day. We can help them if we invest in these creative entrepreneurs. As such, providing aid tailored to their business could be far more effective in leveraging their initial investment. Recognizing and investing in them is not the silver bullet, but does represent a local and sustainable way to build the broader economy.
So rather than ignoring or denigrating the informal economy, why not formalize it? There is money in recycling once it is no longer confined to a few individuals searching for discarded valuables. To formalize the recycling business is to bring entrepreneurs from the city streets into a value chain. Countries, like Liberia, where local authorities in urban and rural areas are embracing decentralization should allow local taxation systems to provide for public services, including waste management. It is an untapped opportunity for banking institutions seeking to increase microfinance and financial inclusion.
The waste economy is closely connected to urbanization. By 2035, African cities will have to accommodate an additional 400 million urban dwellers. City planners in Antananarivo, Madagascar and Ouagadougou, Burkina Faso (growing at 5.1% and 7.2% a year, respectively) have a role to play in building the resources that will fund the change we yearn to see in these communities. Other parts of the world have unlocked it. We should learn and apply.
Wasteful innovations
In Makassar, Indonesia, the development of central trash banks has allowed trash harvesters to borrow cash and pay back in the form of trash, a creative solution borrowing from financial inclusion models seeking to bank the unbanked and the underbanked. “Trash banking” is spreading across Asia and Africa as a way for the poorest community members to find a way into the financial inclusion. As they bring plastic bottles, paper and packaging, the monetary value assigned to it gives them access to savings and credit. Jobs, even informal ones, generate human and financial benefits for local communities. As Indonesia’s example shows, the community takes pride in their work and their commitment to reimburse the loan. Trust binds the community in a way that allows them to dip into savings when they need to, a luxury they could not afford in a formal banking system. Indonesia boasts 2,800 trash banks crediting the accounts of 175,000 people with the support of local governments, a key determinant of the financial inclusion model.
However, in Johannesburg, dustbin scrappers are not yet connected to such a system. There is Trash for Cash where they can make between R1 500 ($96) and R2 000 ($128) per week by exchanging white paper, cardboard boxes, white plastic milk bottles, PPC and other trash for cash. In Johannesburg, most of the informal recyclers will trek for of miles, carrying loads between 200kg and 300kg to the selling point.
These trash treasure hunters are not only making money, they are improving our environment. The city government should study the value chains they have created in order to support their efforts. The example in Indonesia demonstrates communities’ ability to change fortunes through creativity: rubbish in exchange for rice, phone cards and cash. In Namibia, Rent-A-Drum, a family-run company, stepped in where the government disengages, starting a business that collects garden refuse and now serves 200,000 households a month.
Entrepreneurial investing
These are de facto entrepreneurs, every bit as creative and vital as well-funded tech startups. They need seed capital to expand on their initial investment and connect to the formal economy. Eco-friendly vehicles will allow for their business to expand. Most importantly, they have the skills to run operations. If we take the example of trash banks and start to record scrappers’ earnings digitally, we could offer them the opportunity to build a financial history. This would eventually mean that Vusi could access full banking services from a mobile device. That in turn could make Vusi and others more attractive to sophisticated financial services such as venture capitalists.
This model would work for other sectors of the informal economy, including street traders, home beauty shops and small restaurants–many of which are started by women.
Entrepreneurs, regardless of their position in society, must be given an opportunity to thrive. If we succeed, we stand a good chance for the world to recognize that no pyramid can stand without a solid foundation. The World Bank has called for an end to “fragile states.” We can start by strengthening the bottom of the pyramid so that even the garbage sifters have an opportunity to buttress the base upon which we all rest.