Circular economy may add up to $45b to Indonesia’s GDP by 2030

Adopting a circular economy in Indonesia’s key sectors might add between Rp 593 trillion (US$42.2 billion) and Rp 638 trillion to the country’s gross domestic product (GDP) by 2030, a report finds, stating that doing so will also support the government’s efforts to recover the economy after the Covid-19 crisis.

The report, launched on Monday (Jan 26), specifically highlights the potential to tap circular economy practices in five key Indonesian industries, namely textiles, retail, electronic manufacturing, construction and food and beverage, which collectively contributed 33 per cent of Indonesia’s GDP and employed 43 million workers in 2019.

The report was jointly made by Indonesia’s National Development Planning Agency (Bappenas), the Danish Government and the United Nations Development Program (UNDP). Circular economy practices, which include reducing food waste and recycling more materials, are expected to free up liquidity to invest in other industries such as health, education and recreation, according to the report.

The report stated that under a business-as-usual approach, waste generated by the five key sectors, spanning from uneaten buffet food to out-of-date smartphones, is expected to grow 62 per cent over the next decade to 155.3 million tons in 2030 driven by urbanisation and a growing consumer class.

Meanwhile, circular economy practices are estimated to help Indonesia cut its waste output by between 18 and 52 per cent relative to a business-as-usual scenario by 2030, it stated.

The shift to a circular economy is also projected to generate a net 4.4 million new jobs between 2021 and 2030, of which 75 per cent could be for women.

“By creating new job opportunities, making supply chains more resilient, and providing business opportunities (particularly for micro, small and medium enterprises), a circular economy can be a key component of Indonesia’s economic recovery, ” the report reads.

The report essentially aims to convince Indonesia of the long-term economic merits of a circular economy, a European-pioneered concept originally meant to conserve resources to raise the sustainability – not magnitude – of a country’s economic growth.

Developing a circular economy is, otherwise, a costly endeavour.

Indonesia entered its first recession in two decades last year, impacted by the Covid-19 outbreak, with the economy estimated to have shrunk between 1.7 and 2.2 percent last year, according to Finance Minister Sri Mulyani Indrawati last December.

“This report is an early milestone to assemble a National Action Plan on circular economy, ” said Bappenas chairman Suharso Monoarfa at the virtual launch of the report on Monday.

Globally, circularity only reached 8.6 per cent last year, meaning that only 8.6 per cent of all minerals, fossil fuels, metals and biomass were cycled back into the economy.

The percentage is lower than the 9.1 per cent in 2018, according to the 2020 Circularity Gap Report.

“A circular economy aims to extend the life cycle of a particular product, material and resource such that it can be used for as long as possible, ” said Bappenas maritime and natural resources deputy Arifin Rudiyanto.

“A circular economy allows us to do more while using less.”

Arifin emphasised that, depending on where consumers reinvest, such efficiencies might result in lower growth for the industries as lower demand translates to lower production rates.

He said “there will be stakeholders that win and those that lose in this transition.”

The efficiencies would also scrap 126 million tonnes of carbon dioxide equivalent (CO2e) from Indonesia, relative to a business-as-usual scenario by 2030.

The scrapped emissions equal 15 per cent of Indonesia’s lower-level CO2e-reduction commitment to the Paris Agreement.

“It is more important than ever to ease the burden on our common environment. In this perspective, the transition to a circular economy has become more crucial than ever before, ” said Danish Environment Minister Lea Wermelin.

Circular economy practices for the five key industries would include recycling more electronic waste, building more energy efficient buildings, reducing food spillage during transportation and reducing plastic usage in retail, among other things, the report stated.

However, developing such capacities would cost an estimated Rp 307.7 trillion in annual investments across the five sectors between 2020 and 2030, half of which goes to construction, such as developing more energy-efficient buildings.

In comparison, Indonesia captured Rp 826.3 trillion in investments in 2020, a 2.1 per cent increase year-on-year (yoy).

“Everybody knows that this is a good opportunity but, unfortunately, in Indonesia, both demand and supply-side [stakeholders] do not really appreciate consuming products from a circular economy, ” said Indonesia Business Council for Sustainable Development president Shinta Kamdani, who is also the deputy chairwoman of the Indonesian Chamber of Commerce and Industry (Kadin).

She cited a previous Indonesia Circular Economy Forum (ICEF) study that identified the top 10 hurdles for Indonesian businesses to adopt such economic practices. The top three are the difficulty of changing mindsets, limited infrastructure and poor legal enforcement. – The Jakarta Post/Asia News Network

Source: The Jakarta Post, 26 January 2021

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