Why Africa lags behind in global circular economy investment

From the newsletter

A new report by KPMG and Circle Economy, released on 30 June, shows that Africa was among the lowest recipients of global investment in circular businesses between 2018 and 2023. The continent ranked fourth out of five regions, securing just 2% of tracked funding, an annual average of $500 million.

• Africa’s circular economy is dominated by informal businesses that lack registration, financial records, or scaling plans, keeping them below the threshold for formal investment.

• Most funding instruments target formal, high-growth ventures, yet Africa’s circular economy needs small, flexible capital that aligns with community-led, low-tech business realities.

More details

• Supported by the International Finance Corporation (IFC), the annual Circularity Gap Finance Report provides a global overview of investments in businesses engaged in the circular economy over a given period.

• The report highlights stark regional disparities. Europe leads with an annual average of $15.5 billion, accounting for 57% of global circular economy investment and more than all other regions combined. North America follows with $5.8 billion (21%), Asia with $3.6 billion (13%) and Oceania with $0.8 billion (3%). Africa ranks fifth with $0.5 billion (2%), ahead of only South and Central America which received $0.3 billion (4%), based on adjusted figures.

• In Africa, 52% of commercial circular economy investment came from public private sources, while 48% came from development finance institutions (DFIs) and related public bodies. This contrasts sharply with North America, where only 1% of circular investment came from public sources, highlighting Africa’s dependence on public and blended finance.

• Globally, investment in circular economy businesses rose from $10 billion in 2018 to $28 billion in 2023, peaking at $42 billion in 2021. While this growth reflects a stronger business case for circularity, the report warns that the failure to exceed the 2021 peak suggests weakening momentum.

• Of all tracked funding, 35.7% supported transition related investment. By business model, recovery activities such as recycling, waste management, composting and prevention attracted the largest share at 27.5%. Use models followed closely at 23.5%, supporting businesses that extend product lifespans including second hand marketplaces, repair services and product as a service model.

• Despite their high transformative potential to eliminate waste and pollution at the source, design and production models focused on circular design, modular products and sustainable material innovation received only 4.7% of global investment.

• Africa’s position as the second lowest recipient of circular economy investment globally is not merely a reflection of market dynamics. It points to deeper structural challenges shaping the continent’s transition to circularity.

• One of the primary barriers is the mismatch between dominant global investment models and the realities of African markets. The continent’s circular economy sector is largely informal, lacking the formal registration, financial reporting and governance structures that most investors require. Globally, 27.5% of circular economy investment is directed toward recovery models such as recycling and 23.5% toward use models like second hand marketplaces and repair services. In Africa, these activities are often led by small scale or community-based enterprises operating informally, making it difficult for them to meet investor expectations.

• Regulatory uncertainty further undermines investor confidence. Few African countries have adopted enforceable circular economy strategies or legal instruments such as extended producer responsibility, green public procurement rules or tax incentives. In the absence of coherent policy frameworks, businesses face fragmented compliance environments and limited market integration. For investors, this creates difficulties in assessing policy risk or projecting long term returns, often resulting in capital being redirected elsewhere.

• These challenges create a self reinforcing cycle for circular businesses. Without the formal structures and support systems investors seek, enterprises struggle to access capital. Without funding, they remain stuck in the pilot phase, constrained by gaps in business planning, financial management and scaling strategy.

• The heavy reliance on public and blended capital, which accounts for 48% of Africa’s circular economy investment according to the report, highlights the critical role of development finance institutions. However, many DFIs remain focused on large scale infrastructure and are less equipped to support early stage or informal circular ventures. Expanding their focus to include pipeline development, risk sharing and capacity building for smaller enterprises could unlock broader participation and help generate investor ready circular businesses.

• Efforts to integrate informal workers into more formal systems, including waste picker cooperatives, digital tracking platforms and city level policy pilots, also offer pathways to improve investment readiness without erasing community led innovation. 

Our take

• The focus on formal, high-growth ventures risks marginalising the informal sector that currently drives much of Africa’s circular activity. Integrating informal workers into investable systems is not just equitable, it is essential for building scalable, inclusive circular economies.

• African governments may not have the capital to fund circular economy businesses directly, but they must meet investors halfway by creating stable, supportive environments that improve business readiness and reduce investment risk.

• They can also support circular businesses by making their own purchasing more sustainable, giving these businesses steady demand and making them safer bets for investors.