As waste generation continues to accelerate, governments and private sector stakeholders across the globe race to find efficient, affordable, environmentally-friendly solutions. As with all problems, whoever can find solutions stands to create value – the bigger the problem solved, the more value created. With its rapid economic growth and often lagging infrastructure, Asia faces a particularly immense challenge. Circulate Capital, one of the leading investors focused on waste, estimates Asia needs an investment of at least $20bn in the short term to get its waste management sector up to speed.[i]
A polluted canal in Cambodia’s capital Phnom Penh. (Source: Sovann Nou; Cambodia Daily 2019)
According to a recent report by Clean Green Cambodia (see graphic below)[ii], Phnom Penh generates 1 million tons of municipal waste per year, which is over a quarter of the country’s total waste. While most of this waste is organic (52%), plastic waste (21%) is on the rise. Robust data on recycling in the country is hard to come by, but most estimates predict less than 10% of all waste in Cambodia is recycled. The recycling system is based on an informal supply chain that goes from Edjai (informal waste collectors) to small collection centers to larger recycling depots that consolidate and compress materials into bulk quantities that are ultimately exported to neighboring countries where the actual chemical and mechanical processes take place. However, the capacity to export is expected to decrease significantly as neighboring countries respond to their own increasing waste issues by limiting and/or banning imports. Following China’s decision to ban most imported solid waste in 2017, Vietnam stopped issuing licenses to import plastic waste in 2018 and announced it will ban all imports by 2025; Thailand is expected to ban plastic waste imports in 2021.
A handful of small-scale recycling initiatives focused on local issues have sprouted up outside of the informal system in recent years. Unfortunately, the scale of these operations is much too small to tackle Cambodia's rapidly increasing waste production. Phnom Penh's waste production is expected to more than double by 2030, straining the capacity of existing landfills. In efforts to lure larger foreign investment into Cambodia’s recycling vacuum, the Ministry of Environment is offering tax reductions and electricity subsidies for recyclers.[iii] Gomi Recycle 110 of Japan was reportedly the first company to receive such benefits
Companies within the recycling space in Cambodia:
Gomi Recycle 110, a private Japanese company is building a plastic recycling factory in collaboration with JICA (Japan International Cooperation Agency) in Svay Rieng province near the border with Vietnam. The factory is expected to start operations soon, although it has been previously delayed.[iv]
A small recycling facility located on the outskirts of Battambang began operating in March 2017 with an initial investment of roughly $10,000; it operates as as non-profit doing low value-add work on plastic bags.[v]
Cambodian startup SmartBIN was recently awarded $10k by the Toyota Impact Challenge for their smart bin technology that automatically measures recyclable waste and allows corporates to issue rewards to the general public for recycling.[vi]
There has been healthy investment in recycling in other Southeast Asia countries – especially in Polyethylene Terephthalate (PET) recycling, – suggesting that Cambodia has the potential to follow in its neighbors’ footsteps. For the purposes of this note, we looked at the low-hanging fruit (PET bottle recycling) but we still see opportunities in other areas such as waste-to-energy as well as aluminum, paper and e-waste recycling.
In October 2020, Daiwa and Delta Capital announced a $12m investment in the plastic recycler CPC Myanmar; CPC will become the first food-grade, bottle-to-bottle recycler in Myanmar capable of meeting US Food and Drugs Administration and EU Food Safety Authority standards for recycled PET.[vii] CPC will supply both domestic and overseas bottle manufacturers and expects to collect and recycle over 20% of the PET bottles in Myanmar while saving over 15,000 metric tons of carbon dioxide emission per year.
Vietnam and Thailand both recently announced massive initiatives aimed at solving their plastic waste challenges. In June 2019, the Packaging Recycling Organization Vietnam was launched with a mission to help create a “clean, green and beautiful country by driving the circular economy and making recycling of packaging more accessible and sustainable”.[viii] Founding members includes major brands with significant financial and technical resources: Coca-Cola, FrieslandCampina, La Vie, Nestlé, NutiFood, Suntory PepsiCo, Tetra Pak, TH Group, and URC. More recently, Thailand’s Indorama Ventures pledged $1.5 billion to triple its plastics recycling operations with much of the investment expected in Southeast Asia. The company aims to have recycled materials account for 20% of the 4 million tons of PET products they produce annually.[ix]
This investment activity runs counter to the fact that cost of virgin plastic has plummeted (due to crashing oil prices caused by the COVID-19 pandemic along with a supply glut caused by US fracking technology and a Saudi-Russia price war), making it theoretically less attractive to purchase recycled PET. The price of recycled PET flakes (used products are shredded into flakes before being transformed into pellets, which are then manufactured into new products) has indeed fallen in line with virgin PET. However, the price of recycled pellets has held up impressively over last few years, maintaining a roughly 50% premium over virgin material for food grade pellets.[x] This price divergence suggests buyers differentiate between virgin and recycled materials, but recyclers must be “closer” to the end user in order to realize such premiums.
This trend aligns with growing commitments from global consumer brands to increase their use of recycled materials in response to rising awareness of plastic pollution and the environmental damage it causes…to name a few:
Coca-Cola will collect and recycle 100% of its bottles by 2030
PepsiCo will recycle 75% of packaging waste by 2030
Adidas will use 100% recycled plastics by 2024
Evian will make all its plastic bottles from 100% recycled plastic by 2025
The significant investment activity in recycling in Southeast Asia shows there is an appetite to build the region’s capacity. Some potential reasons Cambodia has lagged behind its regional peers includes its small market size (recycling benefits hugely from economies of scale) and relatively high electricity prices. Concerns around market size should be alleviated by the facts that (A) there are very few domestic competitors, (B) foreign competition will continue to be blocked by waste import restrictions, and (C) waste generation will continue to grow significantly (driven by population growth and rapid urbanization and income growth). Electricity costs can be addressed by the above-mentioned government subsidies as well as increasingly effective and affordable solar power. Additionally – and beyond the scope of this short note – recyclers can benefit from carbon offset credits that are increasingly liquid and lucrative for high-profile projects in developing countries. As with all investments in frontier markets, execution will depend on seasoned operators with diligent focus on financial management, good governance, and technical skills.
With a confluence of global trends (increased demand for recycled materials from consumer brands), regional regulations (limiting or banning of waste imports), and local conditions (growing plastic waste, financial support from the Cambodian government), we believe Cambodia’s recycling sector is ripe for investment.
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[i] https://aclima.eus/en/investors-see-untapped-potential-in-asias-plastics-problem/
[ii] https://www.cleangreencambodia.org/recycling-in-cambodia/
[iii] https://southeastasiaglobe.com/the-waste-land/
[iv] https://www.phnompenhpost.com/national/ministry-seeks-japans-funding-plastic-waste-management
[v] https://www.khmertimeskh.com/556069/aiding-the-country-by-following-his-passion/
[vi] https://southeastasiaglobe.com/cambodian-startup-lands-10k-for-smart-recycling-solution/
[vii] https://www.dealstreetasia.com/stories/delta-capital-daiwa-cpc-210712/
[viii] https://vietnamnews.vn/environment/521685/9-companies-launch-packaging-recycling-organisation-vietnam.html
[ix] https://asia.nikkei.com/Spotlight/Environment/Thailand-s-Indorama-makes-1.5bn-green-bet-on-plastics-recycling
[x] https://www.prnewswire.com/news-releases/sp-global-platts-to-assess-prices-for-food-grade-recycled-pet-packaging-pellets-301173672.html