Both the international community and national public and private actors have made clear commitments to realise a circular economy. Initiatives such as the EU Switch 2 Green Facility support programming, policy dialogue, and knowledge development to translate these commitments into action. Other regional initiatives like the African Circular Economy Network promote sustainable production and consumption and support the restoration of African economies in a way that generates inclusive prosperity. National policies such as the Eastern Economic Corridor (EEC) in Thailand push the circular economy model to ensure economic progress does not produce needless waste. 

Policies and commitments at the international, regional and national levels are crucial as roadmaps to chart the path towards circularity. At the same time, local economic actors play a central role in translating these commitments into action and ensuring inclusivity in a circular economy. With micro, small and medium enterprises (MSMEs) as significant contributors to local economies[1], it is essential that policy makers understand how these actors interact, the challenges they face, and opportunities they create, to maximise the impact of their circular economy commitments.

At SEED, we believe that maximising impact of MSMEs in driving social and environmental goals depends on collaborative partnerships. At the 2020 SEED Practitioner Labs for Policy Prototyping (PLPP) in Ghana and Thailand, multi-stakeholder groups designed support mechanisms to leverage the participation of socially inclusive and environmentally sustainable MSMEs in the circular economy. Below, we provide recommendations based on the solutions developed to guide future circular economy policy implementation.

Recommendation 1: Involve MSMEs as a key stakeholder of effective circular economy cooperation

A significant aspect of circular economy involves designing out waste and pollution with an ultimate goal of zero waste. In Thailand, this is reflected in the Action Plan on Plastic Waste Management 2018-2022, which serves as a framework to address Thailand’s plastic waste. For circular economy to work, effective cooperation between four key stakeholders types: i) local government, ii) community organisations, iii) large corporations, and iv) the local MSME community - is crucial to creating a new default to prevent Single Use Plastics, as well as create policy frameworks for plastic reuse.

This theory of change on effective cooperation is being tested in a pilot project in Phuket by the PLPP challenge group led by the GIZ on phasing out single-use plastics (SUP). It highlights how the private sector - big and small businesses alike - plays an important role in achieving national goals of phasing out SUP and achieving sustainable consumption and production. In their role as producers and suppliers of plastic alternatives, MSMEs are crucial in pushing for a plastic-free default. UseMee, a SEED Starter team from Thailand, for example, targets the food delivery network through an online platform to coordinate the lending of reusable food containers. However, the business community, especially MSMEs in the green sectors, still faces barriers that limit their potential to fully participate. 

Recommendation 2: Use a circular economy lens to address common barriers faced by MSMEs

While MSMEs across sectors face common challenges - ranging from accessing finance, navigating a complex regulatory environment, and receiving high quality business development support - enterprises in green sectors and the circular economy experience these challenges differently, as they look to design out waste through partnerships and process optimisation and innovation. Understanding these challenges through the lens of an MSME in the circular economy sets the foundation for innovative solutions to these issues, and for the promotion of MSME integration in the circular economy.

Access to markets, for example, is a common challenge across MSMEs. Identifying customers, attracting attention of the customers, and distributing products and services in a cost-efficient way is key to MSME success and often features in business development support programmes as a core topic. When looking at a circular economy perspective, integration of MSMEs in markets becomes even more central, especially as it relates to waste markets, input markets, and ensuring that value is maintained in the system.

In Ghana, a PLPP challenge group led by the Private Enterprise Federation and the Ghana National Cleaner Production Centre tackled this challenge through a circular economy perspective by looking at how MSMEs can tap into waste streams for industry as inputs to their products. They addressed issues of information sharing between corporates and enterprises, communication on policy regulations that guide the sector, and how to measure enterprise contribution to industrial symbiosis and circular economy objectives. By availing information on existing MSME platforms, the challenge group looked to reduce challenges of knowing where waste streams are available, how to aggregate and transport waste, and how to navigate enclave regulations.

Recommendation 3: Identify levers that respond to barriers to MSME participation in the circular economy 

The Stockholm Environment Institute (SEI) conducted a study to better understand barriers and challenges that hinder the private sector from transitioning to sustainable production and adoption of circular economy business models. They found that challenges include i) slow changes in consumer perception towards products and services produced under circularity models; ii) high up-front costs for technology and talent training to transition to circular models; iii) insufficient skilled labour in the market; iv) risks involved such as delays in decision making and loss of income due to reprioritization; and v) insufficient institutional support from policy where small players are left out. 

Through the SEED PLPP process, the challenge group led by the SEI research team convened with stakeholders from the public and private sector, financial institutions, MSMEs and their intermediaries to develop recommendations for supporting MSMEs in their transition to a circular economy. These recommendations include: 

 i) Adopting a two-way approach to close gaps in awareness and knowledge through information and education that aims to change consumer behaviour, and training and education for actors in the production and supply chain.  

ii) Implementing policy standards and enforcement by responsible departments; in Thailand, a sector like the Department of Industrial Work can set industry standards for waste management and support MSMEs in taking up sustainable production practices.  

iii) Introducing financial incentives such as tax-breaks and subsidies to reduce barriers faced by MSMEs, namely to invest in developing new models of distribution, inventory management, production, and substantial time and human resource investments. In addition, businesses that generate excess waste in their production process should be penalised.

iv) Improving access to technology and infrastructure for MSMEs to migrate towards circularity, and creating spaces that encourage exchanges and transfer of circularity technology and innovation to design closed-loop or alternatives to ‘take, make, dispose’ products.

To fully transition to a circular economy, it is clear that we cannot risk neglecting MSMEs as a key stakeholder that contribute significantly to local economies and livelihoods. Similarly, when addressing common barriers faced by MSMEs, addressing them from a circular economy perspective can unlock opportunities to further the green transition. If you would like to learn more about the circular economy solutions developed through the SEED PLPP or reach out to solution groups for collaboration, please reach out to us at labs-policy-prototypingseed [dot] uno (labs-policy-prototyping[at]seed[dot]uno), or read more below:

Promoting Industrial Symbiosis in Green MSMEs (Ghana)

Phasing Out Single-Use Plastic (SUP) Creating a New Default (Thailand)

Recommendations for Supporting SMEs in the Transition to Circular Economy (Thailand)

SEED is committed to supporting social and green MSMEs in their contribution to local transition to inclusive circular economies. Together with our partners, we cultivate collaboration, policy innovation and financing to support eco-inclusive entrepreneurship. 

SEED Practitioner Labs Policy Prototyping works with policymakers and intermediaries over a multi-step collaborative process. Through this process, participants design policy instruments that increase access to and improve the quality of support mechanisms for socially inclusive and environmentally sustainable enterprises looking to scale their environmental, social and economic impacts. If you would like to join the PLPP process in India or Indonesia this year, please email us at labs-policy-prototypingseed [dot] uno (labs-policy-prototyping[at]seed[dot]uno)

[1] In Ghana, MSMEs make up 90% of businesses, 80% of employment and 70% of GDP. In Thailand, MSMEs make up 99.8% of businesses, 85% of employment and 43% of GDP. Sources: International Trade Centre 2016: SME Competitiveness in Ghana: Alliances for Action. ITC, Geneva;  OSMEP 2019: Executive Summary White Paper on SME;  ADBI 2020: Trade, Global Value Chains, and Small and Medium-Sized Enterprises in Thailand: A Firm Panel Analysis.