How GCC countries can win in the future plastics economy
By Dr. Yahya Anouti, Partner, Devesh Katiyar, Principal, and Jayanth Kumar Mantri, Manager, Strategy& Middle East, part of the PwC network
If the world is to meet its sustainability ambitions, the plastics economy must become more circular, digital, and decarbonized. Today, GCC countries hold a feedstock advantage in the one area, the production of virgin plastics, but they lag behind other countries in the area of plastic recycling, primarily because they lack enough plastic waste feedstock and recycling infrastructure. Although the recycled plastics segment is smaller than the virgin segment, it is growing significantly faster. To maintain global leadership in the plastics economy, GCC producers should create a dual feedstock advantage that entails maintaining their cost advantage for virgin plastics and building up recycled plastics capabilities. We estimate that each million ton of recycled plastics can generate approximately 1,500 jobs and USD 650 million of direct GDP impact for GCC countries.
Market demand for recycled plastics is leaping. Consumers are willing to pay a premium for sustainable products—as much as 10%, according to a Strategy& survey in the Middle East. Over 500 organizations representing 20% of the global plastic packaging market have committed to reducing virgin plastic use. Government regulations and standards are also promoting recycled plastics, such as through taxes (the U.K.’s plastic packaging tax), stricter product standards (the E.U.’s restrictions on single-use plastics), a globally legally binding treaty on plastic pollution (under development as part of the United Nations Environment Program), and placing more responsibility on producers.
Yet the global supply of recycled plastics cannot yet meet this demand. Recycling value chain constraints mean that waste plastics are not sufficiently available. Recycling rates remain low (between 10-20% in many markets), and major consumer brands have delayed pledges to use recycled plastics. By 2030, we project a global shortage of up to 25 million tons of recycled plastic—a mismatch that creates a significant market opportunity for suppliers.
GCC countries are well-placed to seize this opportunity because they have abundant, competitive renewable energy, the know-how, and the logistics backbone. Currently, mechanical recycling processes dominate. However, the future belongs to chemical (or molecular) recycling technology, which can create valuable end-products from mixed and contaminated waste and hard-to-recycle products. Chemical (or molecular) recycling is advancing rapidly, but is energy-intensive. Utilities account for roughly 60% of total chemical (or molecular) recycling production costs, costs which GCC countries can meet more cheaply than others.
The challenge for GCC countries is to secure access to quality plastic waste to produce recycled plastic. In 2021, the whole of the Middle East and North Africa accounted for roughly 9% of global plastic waste production and just over 5% of global plastic recycling capacity—well behind China and OECD countries (see the exhibit). The Middle East, and GCC share of the pie could shrink as other countries take action. Already the E.U., which accounts for 20% of global plastic waste production, is elaborating sustainability policies and standards while accelerating investment in recycling infrastructure, innovation funding, and market discovery.
To compete in recycled plastics, GCC countries must follow six imperatives.
Create global closed-loop supply chains and material marketplaces. GCC petrochemical players need a reliable supply of waste plastic, by collaborating with global partners —including countries and companies. Some companies are forging closed-loop relationships with individual companies, such as SABIC’s partnership with Mars and Landbell in a closed-loop recycling project for flexible food packaging. In addition, the UAE recently launched a material marketplace to link buyers and sellers. More and bigger steps are needed.
Source: Plastics Recyclers Europe, Plastics Recycling Industry in Europe: Mapping of Installed Plastics Recycling Capacities 2020, May 2022 (https://www.plasticsrecyclers.eu/wp-content/uploads/2022/10/plastics-recycling-industry-in-europe.pdf); OECD (2022), Global Plastics Outlook: Policy Scenarios to 2060, OECD Publishing, Paris (https://doi.org/10.1787/aa1edf33-en); UNEA Resolution 5/14 entitled “End plastic pollution: Towards an international legally binding instrument,” March 2, 2022 (https://wedocs.unep.org/bitstream/handle/20.500.11822/39812/OEWG_PP_1_INF_1_UNEA%20resolution.pdf); Recycling Today, “India bans plastic scrap imports,” March 6, 2019 (https://www.recyclingtoday.com/news/india-bans-plastic-scrap-imports/); Dr. Michael Dent, “China’s National Sword Policy Could Spur on Global Recycling” IDTechEx, September 3, 2020 (https://www.idtechex.com/en/research-article/chinas-national-sword-policy-could-spur-on-global-recycling/21609); Strategy & analysis
Invest in recycling infrastructure. Chemical companies, in partnership with governments, need to invest USD 30-40 billion over the next two decades to build world-class recycling infrastructure at scale, while building synergies with existing infrastructure. In addition, investments are needed along the supply chain, in areas such as sorting equipment and transportation.
Acquire recycling assets in other geographic regions. Chemical companies need a presence in other countries—especially those with large consumer markets—to gain access to quality plastic waste. That will allow them to source the necessary material, forge partnerships, and develop new technology that can be transferred back to GCC facilities.
Develop insights into customer needs. Unlike virgin plastic, where cost advantages rule, recycled plastics require deeper insights into consumer demands for recycled packaging (along the price premium those products will fetch) and the specific industry needs. Companies should develop a customer-centric lens regarding sustainability, and an ability to revamp their production profile on an ongoing basis to meet changing needs.
Develop talent innovation capabilities. GCC companies, in partnership with governments, should build their talent and innovation capabilities to develop circular technology. That includes digital capabilities, mission-oriented R&D, artificial intelligence, and industrial biotech.
Shape standards and regulations. GCC countries can shape global and regional standards and policies that incentivize plastics recycling and reuse. Typically, European markets have led those discussions, but GCC companies can participate in, and even lead, conversations in the future. GCC countries need to include and emphasize plastic circularity-related measures (including standards and regulations) in their national plastic management plans.
The GCC has long dominated the virgin plastics industry, and it has a clear opportunity to exploit its advantages to win the recycled plastics segment. In doing so, the region can achieve sustainability ambitions and generate significant economic benefits.