The focus of this paper is on replicating a successful Bottle-to-Bottle recycling plant that currently exists in South Africa. We believe the best solution is to build the same plant in a central location in East Africa (i.e. Kenya) to serve as a regional solution to the processing of plastics collected across multiple East African countries including those collected in Uganda.
Business Concept
We have become aware that the current pain point is NOT lack of collection, but more the actual process of recycling and buyer market for either plastic flake or fiber. In addition, the demand for bottle-to-bottle recycling is strong and is projected to increase as opposed to the market for other uses of recycled plastic. The global recycle market for the plastic bottle industry is poised to grow by USD 3.10 billion during 2020-2024, progressing at a CAGR of about 7% during the forecast period (Business Wire, 2020).
Plastic waste in Africa is a problem that is not being sufficiently addressed by bottling companies and governments leading to increased landfills and unsanitary conditions. We will examine the feasibility of a new venture modeled on an existing initiative by a collaboration between Coca-Cola and the South African government. In 2015, Africa’s first bottle-to-bottle PET recycling plant was opened in Wadeville, Johannesburg, South Africa. The operation is largely driven by PETCO, a company created to represent the joint effort to self-regulate post-consumer polyethylene terephthalate (PET) recycling. South Africa recycled nearly two-thirds of its plastic waste in 2018 and is the only African nation with a successful recycling model. We believe the PETCO model, with an East-African regional focus, could solve the plastic waste problem plaguing countries along the east coast. The recycling plant we are proposing could be located in Kenya or Rwanda which are both poised for new business investments.
The Problem
Africa in general does not have adequate waste management facilities. Waste is disposed of in dumps or open uncontrolled landfills that are not contained, and the waste is openly distributed into the environment. Wealthy countries have adequate waste disposal infrastructure and even though most plastic waste is not recycled it is contained from leakage into the environment. In Africa 80-90% of plastic waste is inadequately disposed of and at risk of causing environmental damage (Ritchie, 2018).
Plastic is difficult to recycle and comes in several thousand different chemical variations. All collected plastics must be sorted by the type of chemical composition and then most can be recycled but the lack of infrastructure and logistical requirements in Africa prevents it. The costs associated with recycling plastics such as hauling, sorting, cleaning, and breakdown into flakes know as fiber is costly. All plastic recycling requires equipment that has high electrical energy cost/needs and requires adequate/reliable power sources (Guardian, 2019).
Recycled plastics (rPET) tend to follow two different supply chain paths. The fiber path includes processed plastic flakes which are shipped off of the continent to India, China and Malaysia and then used to create polyester used in clothing, linens and other fabric-type products. The bottle-to-bottle path can be a self-contained in-country option where plastic flake can be processed further and then used to create new bottles for bottling companies.
The only sub-Saharan country that has a recycling plant is South Africa and it is capable of producing recycled plastic flake for export AND for further processing into new bottles. South Africa has the capacity to collect and process large amounts of plastic due to the size of its population and cities. Countries like Rwanda, Uganda, Nirobi and Kenya would have to band together to collect enough plastic to process in a large plant. So, a regional model with a coalition of countries working together is the vision that will solve the expensive and inefficient pain points of the current plastic recycling supply chain.
The Market - Supply & Demand
The global plastic recycling market is valued at $41.73 billion in 2018. Demand is forecasted to grow at a 6.6% compounded annual growth rate (CAGR) with respect to revenue and 8.8% increase to volume until 2027. With increasing environmental awareness by developing countries and growing environmental concerns worldwide the plastic recycling market is expected to have steady growth. The Asia-Pacific has the largest market with respect to volume of plastic produced and plastic waste. Europe is expected to be the leader in technological advances and recycling in the coming years. Increasing demand from the packaging industry and clothing industry specifically denim products along with improved plastic recycling technology has driven market growth. There are thousands of recycling companies worldwide from regional start-ups to global companies with the following being the largest contributors; KW Plastics, Kuusakoski Oy, Envision Plastics, and Plasgran, Ltd. (GlobeNewswire, 2020).
In 2020 the world is projected to produce 73.4 million metric tons of PET. This number is increasing and expected to continue increasing with the low costs of vPET production. The price of creating plastic “from scratch” or “virgin plastic” (vPET) is directly related to the price of oil. In 2019 the price of virgin plastic became cheaper to buy than recycled plastics (Plastic Expert, 2020). Of PET production approximately 30% is used to make bottles. This makes the global projected market for bottle to bottle recycling approximately 22 million metrics tons of new material this year without factoring in recycling waste. (Statista, 2016).
Data is available for 33 of the 54 African countries, estimates are made using the GDP of the country for plastic consumption. From 1990-2017 Africa imported approximately 172 million metric tons of plastics. With added components of imported products an estimated 230 million metric tons of plastic were added during the same time. Plastic production in eight African countries added 15 million metric tons from 2009-2015 (Transparency, 2020). Using the assumptions that PET bottles are approximately 30% of the above numbers and 40% waste during the recycling process would provide an estimated 1.85 million metric tons per year.
With the COVID outbreak and resulting economic impacts across the world, along with the lower cost of oil, has decreased the demand for plastic fiber. The supply chain between Africa and India, China, or Malaysia has come to a standstill, however, the bottle-to-bottle recycling demand remains constant and is projected to increase over time. An in-country recycling plant that can handle both types of plastic recycling (fiber and bottle-to-bottle) would eliminate enough costly inefficiencies related to transportation and shipping that a strong return on investment could be realized. The supply of plastics that need to be collected and recycled is plentiful and as the market demand for bottles and fiber shifts around, this plant could adjust operations accordingly. Most notably, this new plant brings a circular value chain to a region lacking self-sustainable opportunities.
Financial Feasibility & Required Investment
Financial support will require a public and private partnership in order to be successful in development, implementation, and operation of a recycling plant. The land would need to be donated or subsidized by the local government. There is some optimism that the governments of some countries will support this project as it brings jobs, environmental stewardship, and opportunities for support services to be built around the location of the plant for the workforce to access.
The build out of the plant is projected to be $20million USD. This is based on prior PET plant buildouts in South Africa and Mexico. Funding for the new plant development will come from a combination of private and public partnerships and is projected to take two years to complete. Once completed the B2B plant will require a minimum 20,000 tons of white or blue plastic every year. The global PET consumption by end users is 23.5 million tons however it is estimated that Rwanda, for example, has less then 10,000 tons of recycle plastic available. This requires the plant to service multiple countries to be successful which brings additional complexity to the operations. The countries that would need to participate to meet the required scale are Rwanda, Uganda, Kenya, Northern Tanzania and Nairobi.
Scale is critical for success and justification of the initial upfront expense.
The multi country partnership will succeed in production of an estimated revenue for plastic recycling of $26 million dollars annually. The proforma Income Statement projects a 16% net profit with a successful operation. This project would bring the full recycling lifecycle into the region and is a critical part of long-term success. The financials are sustainable however the political risk and need for collaboration between countries will require a concerted effort in order to succeed.
