UNIVERSITEIT GENT

FACULTEIT POLITIEKE EN SOCIALE WETENSCHAPPEN

Wetenschappelijke verhandeling

KELLY TIMPERMAN

MASTERPROEF MANAMA CONFLICT AND DEVELOPMENT

PROMOTOR: PROF. MAZIJN

COMMISSARIS: PROF. VERTOMMEN

ACADEMIEJAAR 2015 – 2016

CIRCULAR ECONOMY AND ITS SOLIDARITY WITH DEVELOPING

COUNTRIES: A CASE STUDY ABOUT THE PRODUCTION OF

STAINLESS STEEL AND THE REPUBLIC OF SOUTH AFRICA.

aantal woorden: 26 064

UNIVERSITEIT GENT

FACULTEIT POLITIEKE EN SOCIALE WETENSCHAPPEN

Wetenschappelijke verhandeling

KELLY TIMPERMAN

MASTERPROEF MANAMA CONFLICT AND DEVELOPMENT

PROMOTOR: PROF. MAZIJN

COMMISSARIS: PROF. VERTOMMEN

ACADEMIEJAAR 2015 – 2016

CIRCULAR ECONOMY AND ITS SOLIDARITY WITH DEVELOPING

COUNTRIES: A CASE STUDY ABOUT THE PRODUCTION OF

STAINLESS STEEL AND THE REPUBLIC OF SOUTH AFRICA.

aantal woorden: 26 064

Abstract

De laatste jaren is er een sterk maatschappelijk draagvlak merkbaar voor een transitie naar een

“duurzame samenleving”. Velen beweren dat de kringloop economie deze transitie tot stand kan

brengen. Het is echter belangrijk te begrijpen dat deze vorm van economie op verschillende manieren

ingevuld kan worden. De invulling die in dit onderzoek aanneemt is de volgende: een regionale

economie die zowel binnen de regio, als tussen de regio’s, solidair is. Een globaal perspectief is dan

ook de gepaste schaal om het fenomeen van deze kringloop economie te bestuderen.

De bestaande literatuur besteedt echter geringe aandacht aan het aspect “solidariteit” binnen de

kringloop economie. Zo wordt er weinig duidelijkheid geschept over de repercussies die een Europese

kringloop economie kan hebben op ontwikkelingslanden. Als we ervan uitgaan dat een Europese

kringloop economie materialen zo veel mogelijk reduceert, hergebruikt en recycleert, valt er te

verwachten dat dit beleid een impact zal hebben op de exportsector van ontwikkelingslanden. Om

meer licht te werpen op deze relatie, focust dit onderzoek op de casus van roestvrijstaal in de

Republiek van Zuid Afrika in relatie met de Europese kringloop economie.

Het onderzoek wijst uit dat een Europese kringloop economie een continu proces is, dat nooit volledig

zelfvoorzienend zal zijn. Europa zal voor sommige producten altijd afhankelijk zijn van de Republiek

van Zuid Afrika. Het is voor Europa dus van aanzienlijk belang om politiek en economisch dialoog met

dit land te behouden. Europa heeft in die zin dus een plicht om solidariteit aan te houden met de

Republiek van Zuid Afrika, en om dit land verder te helpen in zijn ontwikkeling.

Table of contents

1. Introduction ..................................................................................................................................... 1

1.1 Economic, social and ecological crisis. .......................................................................................... 1

1.2 The need of a transition towards sustainable development. ....................................................... 3

1.3 Introduction to the concept and principles of a circular economy. .............................................. 5

1.3.1 The scale of implementation of a circular economy .............................................................. 7

1.3.2 Advantages ............................................................................................................................. 9

1.3.3 Uncertainties ........................................................................................................................ 10

1.3.4 Obstacles .............................................................................................................................. 12

1.3.5 SWOT-analysis ...................................................................................................................... 12

2. Research Question ........................................................................................................................ 15

3. Methodology ................................................................................................................................. 17

3.1. Regionalization: European context ............................................................................................ 17

3.2 Limiting the research field: Stainless steel .................................................................................. 17

3.3 How to proceed? ......................................................................................................................... 19

4. Research ........................................................................................................................................ 20

4.1 Stainless steel .............................................................................................................................. 20

4.1.1 Iron (Fe) ................................................................................................................................ 20

4.1.2 Nickel (Ni) ............................................................................................................................. 20

4.1.3 Carbon (C) ............................................................................................................................. 21

4.1.4 Chromium (Cr) ...................................................................................................................... 21

4.1.5 Summary............................................................................................................................... 23

4.2 Trends in the metal sector .......................................................................................................... 26

4.2.1 Drivers for price fluctuations of the primary mineral market .............................................. 26

4.2.2 Recycling of mineral resources ............................................................................................. 30

4.2.3 Geopolitics and mineral resources ....................................................................................... 35

4.3 The trade of mineral resources in the Republic of South-Africa ................................................. 39

4.3.1 The mineral resources sector in the Republic of South-Africa ............................................. 39

4.3.2 The chromium sector in the RSA. ......................................................................................... 41

4.3.3 The RSA international trade in mineral resources ............................................................... 43

5. Research Results ............................................................................................................................ 49

5.1 Economic impact for the RSA ...................................................................................................... 50

5.2 Political impact for the two parties ............................................................................................. 52

5.3 Environmental and societal impact for the RSA .......................................................................... 53

6. Conclusion ..................................................................................................................................... 55

7. Bibliography ................................................................................................................................... 57

7.1 References ................................................................................................................................... 57

7.2 Personal communication ............................................................................................................. 62

8. Annex ............................................................................................................................................. 63

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1. Introduction

1.1 Economic, social and ecological crisis.

After the second world war, the creation of a global economy together with the industrial development

made the economies of the developed countries boom. This period is often referred to by the

developed countries as their glorious thirty years. Since then, the population of many European

countries, the United Stated and Japan could enjoy a better welfare system and higher living standards.

At the same time, they were able to afford and consume more.

However, from the seventies onwards, a global systemic crisis has started to occur. This crisis has been

multi-dimensional and continuously: economic, social, financial, energetic, democratic,

environmental, … and one thing is certain: it has been a global crisis which continues till the current

day. Until today we are experiencing the effects of this crisis, and the financial crisis of 2008 certainly

did not help overthrowing it. Economist Maissin (2015) argues that some intellectuals even speak

about the ‘pitiful forty years’ in the aftermath of the glorious thirty years.

The seventies were thus characterized by a simultaneous decline in profits and accumulation. The

latter measures the investments. This is illustrated by the following picture which visualizes the profit

and accumulation in the US, Europe and Japan between 1960 and 2013:

Figure 1: The profit (black line) and accumulation (grey line) in the US, Europe and Japan between 1960 and 2013 (Maissin, 2015)

The beginning of the neoliberal era in the eighties seems to re-establish a certain economic dynamic:

the profits of the entrepreneurship recover simultaneously the accumulation rate. This neoliberal

economy is characterized by the freedom of market, privatization and an on paper always continuing

growth. Let us first explain these characteristics.

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The idea behind neoliberalism is that individual freedom should be guaranteed by a free market. As

such, the laws of the states must facilitate free trade within and between countries. In name of free

trade, multinational enterprises and businesses ask the state to not interfere into the market. As a

result, many domains such as social healthcare, public infrastructure, education, environment … are

increasingly being privatized (Lleshi, 2014, pg 89). Klein (2014, pg 8) explains in her book ‘This changes

everything’ that corporate interests over the past four decades have succeeded in systematically

installing policies that enrich a small elite. Examples of such policies are: lifting regulations, cutting

social spending, and forcing privatizations of the public sphere. This ensures more inequality in our

societies. Take the example of the privatization of the education in the United States. Nowadays, there

exist two forms of education: public affordable education of lower quality versus private education

which is of better quality, but very expensive. This results in an unequal access to good quality-

education, since the majority of the population can’t afford high education fees. That way the society

is being divided in two completely separated social groups: families who can afford to pay expensive

education for their children, and the ones who can’t. This, while it is generally known that investing in

education is essential, because it shapes the younger generation and therefore indirectly the future

society (Corijn, 2013). Furthermore, liberalization of the market makes it difficult for governments to

commit to sustainability: since there is pressure to relax environmental policies and border controls,

and intensifies the flows of materials, etc (Bermejo, 2014; Lleshi, 2014; Houben, 2015).

The neoliberal economic system is also characterized by a continuing growth. This means that money

and credits are in transaction, people can buy and afford more, businesses can ask for a loan and

current loans can be paid back. As mentioned above, this creates higher living standards in developed

countries and in other countries that are moving towards such an economy. The problem is that a

continuing growth in the current economy can’t be sustainable since it’s exploiting a lot of non-

renewable natural resources and using a lot of fossil fuel energy for a continuing consumption. This

high exploitation of natural resources creates big challenges for the next century: such as water

scarcity, deforestation, climate change, energy limitations, resource scarcity, population growth,

wealth, urbanization, food security and ecosystem decline. These are the ten so called ‘megaforces’

which according to KPMG will greatly impact the future of every enterprise and that’s why they must

be taken into account (KPMG, 2012). To give a concrete example on how much we depend on natural

resources: In 2003, the EU has spent approximately 42 000 million euro for the import of raw

materials. In 2013 the money spent for importing raw materials reached 76 000 million euro (Eurostat

Statistics Explained, 2014). Finally, an important issue is that the environmental and societal

consequences of the exploitation are not taken into account when determining the price of products.

These are so called ‘externalities’ that are not included in the price. This matter will be discussed more

detailed later in this research.

The neoliberal economy can also be characterized as a fast economy. It is an economy that needs to

be fast in order to achieve a continuing growth. It is based on the principle of capital accumulation and

the fact that people need to continue buying products in order for the economy to survive.

However, at the same time that neoliberalism became popular, environmental and societal alertness

also began to rise. For example in 1987, the ‘World Commission on Environment and Development’

wrote in the Brundtland report that the economic activity had a profound impact on the biosphere and

warned that the gap between the rich and the poor was widening. That’s why they “came to see that

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a new development path was required, one that sustained human progress not just in a few pieces for

a few years, but for the entire planet into the distant future. Thus 'sustainable development' becomes

a goal not just for the 'developing' nations, but for industrial ones as well.” (Brundtland Commission,

1987, pg 13). The United Nations Division for Sustainable Development did also warn in the Agenda 21

in 1992 that the economy was unsustainable for people and environment.

In the nineties Europe particularly experienced a new recession period and from 2000 until now,

neoliberalism hasn’t been able to relaunch a new global dynamic - even if the level of profit is back

again at its initial level of the sixties. More than a quarter of a century has passed since the introduction

of the neoliberal economy, and still no new dynamic accumulation has occurred (Maissin, 2015). This

trend is clear on the above picture.

This is why we must be aware that we are on unfamiliar terrain with hard limits on readily available

energy, raw materials and social equality. Like Wallerstein (2010) mentioned in his article ‘Structural

crises’:

“The system is very far from equilibrium, and the fluctuations are enormous. From now on, we

will be living amidst a bifurcation of the systemic process. The question is no longer, ‘how will

the capitalist system mend itself, and renew its forward thrust?’, but rather, ‘what will replace

this system? What order will emerge from this chaos?” (Wallerstein, 2010, pg 140).

This situation therefore requires that we combine all the creativity that we as human possess. There is

a need for a different approach: a transition to a more sustainable economy and politicians who use

long-term visions and policies. This statement will be further explained in the next chapter.

1.2 The need of a transition towards sustainable development.

Let us first explain the basic principles of sustainable development, before turning to the question of

which possible sustainable approach we could handle in the future.

The most common definition of sustainable development can be found in the already mentioned

Brundtland-report, called ‘Our common future’: “a development that meets the needs of the present

without compromising the ability of future generations to meet their own needs.” (Brundtland

Commission, 1987, pg 16). This report is seen as a milestone within literature on this subject.

Sustainable development is therefore a continuous process of change in which the use of natural

resources, the direction of investments, the focus on technological development and institutional

change has to accommodate both future and current needs (Brundtland Commission, 1987, pg 17).

When we think about these ‘needs’, it is important not to forget the concept of ‘solidarity’. It is a

concept that has to be used in time AND space. Time means the future and current needs, space

means the needs that need to be met all over the world – in developed and developing countries.

Inequalities between countries are not accepted within the concept of sustainable development. This

demonstrates that sustainable development does not only apply to the environmental level (f.e. ‘how

can we live without causing irreversible damage to the environment?’) but also to the social level (f.e.

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‘how can we decrease world poverty?’). They are both standing next to the third dimension: the

economy.

It is clear this definition is quite broad and can thus be interpreted in different ways. Overall four types

of views can be distinguished that are used throughout the world when thinking of sustainability. These

four types look at the same reality in a total different way. They all have different indicators and

explanations to interpret that same reality and to offer solutions. Be careful: such a view should not

be understood strictly. People are not always consistent and anyone can argue from a different view

for different sustainability issues (Milieu- en Natuur Planbureau, 2006). Someone could for example

look at the economy from a ‘caring region’-point of view. This means he believes that the economy

has to be regionalized and that there should be more solidarity within that region, in order to have a

better and healthier environment and society. Whereas that same person could look at the climate

change policy from a ‘global solidarity’-point of view.

This is further explained by the following picture:

Figure 2 : Four types of views concerning sustainability issues (Milieu- en Natuur Planbureau, 2006)

This picture demonstrates that a sustainability issue can develop on a global or regional level, and the

focus can lie more on solidarity or on efficiency. As explained in chapter 1.1 ‘Economic, social and

ecological crisis’ sustainable development is mainly taking place at the background of a ‘global market’.

Our economic neoliberal system is based on the idea of globalizing products and services (free trade),

and on rendering production processes more efficient. This worldview gives priority to the economical

dimension while putting the social and environmental dimension on the background. Actually the

question of global versus region and efficiency versus solidarity depends on what people focus on

more: the economic social or ecological factor?

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It is thus clear that there are different types of sustainable development. As Wallerstein (2010)

formulates quite well:

“We may think of this period of systemic crisis as an arena of struggle for the successor system.

The outcome may be inherently unpredictable, but the nature of the struggle is clear. We are

faced with alternative choices, which cannot be spelled out in institutional detail, but may be

suggested in broad outline. We can choose collectively a new system that essentially

resembles the present one: hierarchical, exploitative and polarizing. There are many forms this

could take, and some could be harsher than the capitalist world-system in which we have been

living. Alternatively, we can choose a radically different system, one that has never previously

existed—a system that is relatively democratic and relatively egalitarian (2010, pg 8-9)”.

The vision which is brought forward in this research is one of a ‘solidarity-society’ in a regionalized

world guided by a global perspective. Here the idea is that the economy should be regionalized as

much as possible in order to move towards an environmental, caring and “slower” economy, that will

allow us to leave the fast and globalized economy of today behind. Therefore, solidarity should exist

within and between regions, and regions would have to communicate among each other about issues

that can only be achieved on a global level, such as policies on environment and climate-change goals

(= global perspective). This vision could thus be situated at the “global solidarity”-scale of figure 2.

Circular economy could be an interesting step towards such a vision and therefore towards sustainable

development. Still, as we will see in the following chapter 1.3., circular economy can be implemented

on different levels: on a regional or global level. The efficiency-solidarity scale could also be

implemented on the circular economy theory. Within this framework, circular economy should be

implemented on a regionalized basis, with solidarity within and between regions and with an overall

global perspective. Before going deeper into this statement, the concept of circular economy will be

discussed.

It is clear that, in order to achieve a ‘global solidarity’ development, a transition will be needed. A

transition is a complete change of paradigm that needs to be steered from its early stage until its full

completion. This needs to be implemented simultaneously on the micro level, as well as on the meso

level and the macro level. This way it can develop from a niche to a complete landscape in the society.

The government has a crucial role to play in bringing about this transition. The government should

adopt a long-term perspective for a short-term policy. Sadly, the current policy is often the exact

opposite: with politicians having specific targets each election that are not supported by a long-term

vision (Loorbach, 2007; Dutch Research Institute for Transition, 2014).

1.3 Introduction to the concept and principles of a circular economy.

A lot of research on circular economy has already been done. Walter Stahel is often considered the

forerunner of the concept of circular economy, since he first came up with the idea of an economy

that works in cycles. He has been doing research on this topic for more than 30 years (Stahel, 1981)

and just recently published another critical analysis (Stahel, 2016). But there are also other authors

who did research on circular economy. The Ellen MacArthur Foundation (EMF) for example has

published interesting literature on the topic since the foundation was launched in 2009. Abundant

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information can be found on their website (Ellen MacArthur Foundation, 2015) and in their published

volumes on circular economy (Ellen MacArthur Foundation, 2013a & 2013b).

Interestingly, circular economy has been proposed by the central government of China to become the

sustainable development strategy of the country (Mathews, Tang & Tan, 2011). This strategy was

accepted in 2002 and is since then being implemented in a various of projects all over the country.

That’s why there is a lot of literature on circular economy, written by Chinese scholars. But also the

European Commission seems to be interested in the topic. In 2011, they published an important report

‘A Roadmap to a Resource Efficient Europe’ (European Commission, 2011). In this report, they work

out a design for implementing future actions. This report also draws attention to the structural and

technological changes that will be needed by 2050, including milestones that has to be reached by

2020. This roadmap is not strictly focusing on the application of circular economy in Europe. However,

in 2015 the European Commission published another report “Closing the loop - An EU action plan for

the Circular Economy”, in which they specifically outline a European plan towards circular economy.

The key concept of circular economy is trying to move away from a linear system into a more circular

path of producing and consuming. The aim is to keep products, components, and materials as long as

possible in the economic chain. This is done by turning materials into nutrients by enabling their

perpetual flow within one of the two cycles: the biological cycle and the technical cycle (Braungart,

McDonough & Bollinger, 2006). But circular economy is even more than that. The EMF says the circular

economy is based on few basic principles that each address the systemic and resources problems that

the linear economy is facing (Ellen MacArthur Foundation, 2015):

1) The first principle is to protect and enhance natural capital. This can be achieved by limiting

the use of non-renewable resources and promoting renewable resources instead. For

example: a product should be designed in such a way that renewable resources could be re-

used and waste is ‘out designed’.

2) A second principle, already mentioned by Braungart et al. (2006), is to optimize resource

yields: by circulating products, and materials in the most effective way in both technical and

biological cycles. These cycles are very important to understand the functioning of the circular

economy. They split the consumable from the durable component of products. Within the

bio-cycle the consumable parts of a product are being composted and safely returned into the

biosphere – with or without human intervention. Within the technical cycle, durable

components, which are the technical nutrients of a product such as mobile phones or plastic

bottles, are unsuitable for the biosphere and need therefore to be recovered by human

intervention.

3) Thirdly: go for an effective system by intervening in all phases of the circle chain, not just in

the “end-of-life”- phase by recycling. For example: one should already intervene in the very

first step of the chain by designing the product in such a way that negative externalities are

excluded, or in a later phase, by repairing a product instead of throwing it away.

4) Fourthly, in circular economy should differentiate between the consumption and the use of a

product. In other words: circular economy promotes to sell the use of a product that has

technical nutrients. This has a direct impact on the production of retailers and manufacturers.

They from then on have to install an efficient take-back system and have to make sure their

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product is of good quality and will last long. On the other hand, the consumption of biological

nutrients is still necessary since these are products such as food, water, etc.

5) At last: rely on energy of renewable sources (Ellen MacArthur Foundation, 2013a).

A very clear system-diagram of the EMF shows the continuous flows of technological and biological

nutrients through the circle (Ellen MacArthur Foundation, 2013a):

1.3.1 The scale of implementation of a circular economy

A substantial amount of industries is already implementing circular economy. Take for example the

Japanese company “Ricoh”. This company is mainly producing cameras and office equipment such as

printers, projectors and copy machines, that they sell all over the world. In most cases, they lease these

products instead of selling them. As such, they are also responsible for the maintenance of the product.

If a product is no longer functioning well, Ricoh tries to repair it. If this is impossible, then recycling is

Figure SEQ Figure \* ARABIC 3 : The circular economy consists of the biocycle, the technocycle and cascades (Ellen Macarthur Foundation, 2013, pg 24)

Figure 3 : The continuous flows of technological and biological nutrients through the circle (Ellen MacArthur Foundation, 2013a, pg 24)

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the following step. The company tries to re-use as many parts as possible. Parts are not recycled if they

aren’t sustainable anymore. Ricoh has been worldwide known for its circular economy approach and

they are presenting it at several events such as the ECOPRO event which we attended on November

2015 organized by GEF (Green European Foundation) in cooperation with the Flemish think tank Oikos

(Goetvinck, November 20, 2015). Another company that is becoming popular is “Mud Jeans”, a Dutch

denim brand. The principle is clear: you send your old jeans back and they recycle all materials while

you can switch to a new pair. Returned jeans are recycled and used to make vintage pairs. If they

cannot be repaired, the jeans will be recycled into new garments. “Mud Jeans” won several awards,

such as the Circle Challenge and the NCD Change in Business Awards (Mud Jeans, 2015). “PermaFungi”

is another, more local, Brussels initiative: they let mushrooms grow on a substrate composed of

organic coffee, that they receive from bars and restaurants in Brussels., Afterwards, these mushrooms

are delivered to the same bars and restaurants, making PermaFungi an example of urban circular

economy (Brussels Waste Network, 2014).

Going back to figure 2, these examples clearly show that circular economy can be carried out on different scales. Some companies, such as Ricoh, work more on an international scale. Although it is difficult to attribute one of the four worldviews (figure 2) to a specific case, it is safe to say that Ricoh is rather situated in the ‘global market’-point of view. When examining their site, it becomes immediately clear that Ricoh is acting globally and is rather focusing on the efficiency-factor, instead of the solidarity-aspect of their business. Therefore, in this case, circular economy seems to be used as a tool within a neoliberal economic business-strategy. In other words, circular economy in this case is rather seen as a “subgoal” to be even more competitive, than as an objective or goal in itself. It should be said that although these kind of organizations are part of the fast economy with short-term gains, they also have without a doubt a long term vision and a true concern for environmental issues. In short, the environmental and societal impact of Ricoh’s printing machines are smaller than a business-as-usual printing machine, but the business itself is still part of a fast global economy. This means the incentive of capital accumulation is still present.

Whereas some examples such as Mud Jeans or PermaFungi stay quiet regional. PermaFungi is a perfect example of the ‘caring region’-point of view (figure 2). This organization has a direct impact on the social environment in Brussels. It truly implements circular economy on a regional basis and therefore has very little impact on the environment and on top of that, they create new sustainable jobs. Mud Jeans could be placed on ‘global solidarity’-scale. Prioritizing regional circuits, not only offers important environmental and societal benefits, but also creates many opportunities for the (re)industrialization of that region. This kind of circular economy could therefore be labeled as, what Dan O’Neill (2016) has called “ethical circular economy”. In the same vein, Mazijn uses the concept of “a circular economy within a context of sustainable development” when speaking about regional economic development (Minaraad, 2015). Within this thinking, even global value chains, that cannot be regionalized, should close their circles as much as possible. To achieve this (and also not to obstruct the establishment of regional circuits), it important that the international trade system is screened and matched in order to make a transition towards a fully circular economy (Minaraad, 2015).

Some authors, such as Stahel, are from the point of view that it is unthinkable to build a circular economy in a globalized world. The more parties are involved in the creation and distribution of a product and/or service, and the further they are located from each other and the consumer, the harder it is to close the materials and energy cycles effectively. According to Stahel, an ‘environmentally sustainable’ circular economy will therefore choose less transport of raw materials and waste, and

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therefore (where possible) give preference to regional, closed circles (Minaraad, 2015, pg 23). The waste systems and standards within EU-countries are for example extremely different. If the EU wants to foster a circular economy across its borders, it means it will have to create a collective waste-legislation. It is very likely that this would pit member states against each other (Bermejo, 2014). Eurometaux (2016, pg 2), the European non-ferrous metals association, refers to this problem in its paper on circular economy: “Shipments of waste for recovery and recycling remains burdensome, due to the non-harmonized status of waste and by-products across Member States, and the use of national waste codes by some Member States”. Now imagine the implications for a waste legislation if a more globalized circular economy would be adopted. These examples are one of the reasons why Bermejo says we need to fight to strengthen decentralized circular economies.

Meanwhile other authors suggest that a circular economy should not be implemented on a too little scale either. Mazijn & Devriendt (2013) argue that it should be implemented on a Pan-European scale, because a Flanders/Belgium level would not be self-sufficient enough. Pan-European scale means the region between Gibraltar and the Ural Mountains. One of the arguments they bring forward is the comparative advantages between countries. This allows for energy-intensive products to be made in countries where renewable energy is in abundance. In the EU for example it would be much more evident to make such a product in Norway, where hydropower is in affluence, then in Belgium (2013, pg 116).

Other research and organizations such as the EMF and the World Economic Forum (WEF) are advocating to adopt (some elements of) circular economy on an international level. WEF for example promotes a recycling of raw materials on an international scale. In one of their documents they state:

“Observations from current practice suggest that raw materials can be recycled at global levels, or at least sold on increasingly liquid markets. In contrast, component harvesting for reuse and remanufacturing as well as product refurbishment are best executed at a local or regional level, as this cuts down logistics costs and allows players to tap local engineering skills. Ricoh, Renault and Canon all have their remanufacturing facilities in Europe, for example, which helps them manage supply and demand and creates local jobs. In the US, the remanufacturing industry is estimated to provide around 500,000 jobs for products ranging from automotive, electrical and electronic equipment to furniture and construction equipment. In terms of value, CLEPA (the European Association of Automotive Suppliers) puts the remanufacturing market in Europe at US$ 10 to 12 billion” (2014, pg 40).

1.3.2 Advantages

Now, one can ask why circular economy is such a “hot” topic? The answer is simple: because it has a

lot of advantages. These advantages can be divided into the 3 pillars of sustainable development:

economy (and finance), social and environment.

The first advantage is a financial one: It goes without saying that an efficient design process that allows

the reusing, recycling and composting of materials reduces the material-expenses of a product

significantly. A state can for example save money by collecting organic food-waste and making sure it

does not end up in the ordinary landfills. The advantage of this household food waste is that its’

fermentation generates biogas and it returns nutrients into agricultural soils. This way organic food

waste becomes a source of revenue for the state. Another fact is that the economy will be less resource

dependent. The EMF points out the risks of being highly dependent on natural resources:

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“Many companies have also begun to notice that this linear (production) system increases their

exposure to risks, most notably higher resource prices and supply disruptions (of raw

material)” (EMF, 2013a, pg 6). And that:

“If no action is taken, high prices and volatility will likely be here to stay if growth is robust,

populations grow and urbanize, and resource extraction costs continue to rise. With three

billion new middle-class consumers expected to enter the market by 2030, price signals may

not be strong or extensive enough to turn the situation around fast enough to meet this growth

requirement.” (EMF, 2013a, pg 6).

But also on the social level circular economy has advantages. In their paper ‘International Trade in

Natural Resources: practice and policy’, Ruta and Venables (2012, pg 8) explain how circular economy

can have positive effects for the job market:

“New sustainable jobs will be created thanks to the innovative and repair character of the

circular economy. That way, research and development will be encouraged and a new working

sector dedicated to reverse cycle activities for reuse, refurbishing, remanufacturing, and

recycling will be created.” (EMF, 2013a; Hagelüken, 2015).

Likewise, we can say people can enjoy a healthier environment that offers more sustainable jobs.

Specifically, low-skilled workers, who are often not accepted on the labor market, would benefit since

many of the newly created jobs would be jobs such as: disassembling products into components,

collecting and sorting out waste or repairing devices. (Plan C, 2014).

But also on a more personal level, circular economy will have impact. Within a circular economy

approach ‘consumers’ become ’users’: these users will be closer to the producer than ever before since

they will turn to the latter when their products need to be repaired or when the products have met

the end stage of the usage cycle. The producer in turn, by offering these services, will interact with his

costumers on a daily basis and create a relationship of trust and loyalty (EMF, 2013a; EMF, 2013b).

At last, the advantages of a circular economy approach for the environment are clear. In circular

economy, waste is being reduced, reused, recycled and recovered. The use of natural resources is

reduced by eco-designing and by finding substitutes. Therefore, the environment will be automatically

better off in a circular economy system than in the system that is running now (Hagelüken, 2015). It

decreases the dependence on natural resources and energy, and promotes the dematerialization by

offering a service instead of a product.

1.3.3 Uncertainties

The majority of research on circular economy has highlighted its advantages. However, up until now,

less attention has been paid to the disadvantages or uncertainties that might occur when

implementing circular economy. Only a few authors discuss this topic briefly. Ghisellini, Cialani &

Ulgiati (2015, pg 6) argue it’s still a new concept that needs to be further refined and more research

needs to be done concerning the way it will affect the populations’ carrying capacity, the employment,

the international trade, the role of institutions, etc. Some of these concerns are listed here (Bermejo,

2014; Mazijn & Devriendt, 2013; Minaraad, 2015 & Plan C, 2014):

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The operationalization of circular economy in practice is still not very clear;

What about the solidarity with developing countries? For centuries developing countries have

exported important primary resources and products to Europe. Europe on the other hand has

been exporting important amounts of waste to developing countries. So far, solidarity with

developing countries has not been a major concern of European countries: in these deals the

so called ‘externalities’ mentioned in chapter 1.1. (the ecological and social impacts) have not

been taken into account. Meanwhile, the demand for such resources is still rising in Europe

(Mazijn & Devriendt, 2013).

In a circular economy, Europe would have to reduce, reuse and recycle its end-of-life products

in order to use them as secondary resources. As a result, the import of primary resources from

developing countries would be reduced. This would probably happen gradually over the years

since the implementation of a circular economy in Europe would surely take some time. The

speed at which circular economy could be implemented depends on different factors such as

the level of access to specific technology for recycling and the creation of a proper European

legislation for circular economy, etc. This phenomenon is sketched in the following figure:

Figure 4 : The impacts of a circular economy in Europe on developing countries in the South (Adapted in English from: Mazijn & Devriendt, 2013).

It is very likely that the implantation of circular economy will have impact on developing

countries, though the exact effects on their economy, society and environment are difficult to

predict.

The business-as-usual needs to change – but is this possible for every business?

12

Will the technological progress be fast enough to follow the dematerialization and recycling

process?

What about the effects of a ‘rebound’ or ‘trade off’ that could occur after implementing

circular economy?

Should the education system be reviewed? To offer new kinds of trainings and courses which

are related to circular economy Will circular economy be accessible for everyone?

1.3.4 Obstacles

From the above, it becomes clear that implementing circular economy in practice is not that simple.

There are a lot of obstacles for which we don’t have solutions yet. One example of such a current

obstacle are the governments. At the moment governments support linear economy. If circular

economy is to be implemented the product chains are likely to become more complex. As a result, the

governments will face legal difficulties concerning responsibility, liability and ownership-issues. Also,

current policies concerning the recycling of products are still ineffective and would have to be revised,

in order to obtain good quality products (Plan C, 2014).

Another obstacle are the costs. Switching to a circular economy will require investing in new

management, new planning schemes and a new type of enterprises. In other words, a mentality

change will be needed since current businesses still don’t take the environmental and societal costs

into account (Plan C, 2014).

Shareholders are also a very important key in putting circular economy in place. Shareholders too often

have a short-term agenda dominating the corporate governance. Resistance from powerful

shareholders with large interests in the status quo also needs to be expected. Further, confidentiality

and trust issues hamper exchange of information between the company and other members enrolling

trade. Also the exchange of materials between for example two organizations is limited by capacity of

reverse logistics (IMSI Amsterdam, 2013, pg 5).

In short: such a transition will take many years because there is not a handbook on the ‘10 steps to

achieve a circular economy’. Still it is clear that the support of governments is essential. Many

investments will have to be made, without knowing what the exact outcomes will be. But also the

cooperation of companies is indispensable. Successful business examples and long-term company

visions could play and important role in further promoting circular economy. Experiences and detailed

information should be put on a shared platform so that other companies and governments could learn

from success-stories.

1.3.5 SWOT-analysis

The SWOT-analysis is a model which examines the Strengths, Weaknesses, Opportunities, Threats

(SWOT) of organizations. It has two levels of analysis: the internal analysis which is conducted at the

meso and micro level (f.e. city), while the external analysis is conducted at the macro level (f.e.

country). The results of the SWOT-analysis can help an organization to work out a strategy.

Nevertheless, it is also used for other practices and in other contexts.

In this research, the SWOT-analysis will be used to analyze the circular economy from a ‘global

solidarity’ point of view, since this is the leading vision of the research. Within this framework, the

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above advantages could be seen as strengths or opportunities, whereas the uncertainties and the

obstacles could be seen as the weaknesses and/or threats. In the same vein, the internal analysis could

be conducted on the regional basis (European region), while the external analysis can be done on the

worldwide level, since this is the environment in which the European circular economy will operate.

This analysis, in a form of a thinking exercise, can be found in the underneath table.

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Table 1 : SWOT-analysis of a circular economy within a global solidarity region

Internal analysis (= European region) of circular economy

Strengths:

● It offers a circularity within the economy.

● Sustainable jobs will be created which enhance societal inclusion.

● Less dependency of the importing countries.

● Less exposement to price fluctuations.

● Long-term vision of the European politicians.

● Better environmental conditions thanks to the reduction, reuse and recycling of materials.

● Better quality of products and services as well as a closer relationship between the

consumers and the producers.

Weaknesses:

● Difficult to put into practice in current circumstances. The support of the country’s and

local government is crucial.

● Needs a profound mentality-change of all actors in the economic chain.

● A mentality-change who valuated the solidarity within and between regions.

● Other new ‘tools’ need to be created: regional waste legislations, technical machinery for

recycling, etc.

● Resistance from powerful shareholders with large interests in the status quo is to be

expected.

External analysis (= World level) of circular economy

Opportunities:

● Offers an alternative to the current linear and efficient economy as well as a solution to

the current economic, social and environmental crisis.

● Diminishes the use of natural resources thereby extending the life of those resources on

earth.

● Creates market transparency.

Threats:

● Risk of a ‘rebound’ or ‘trade off’ after the implementing circular economy.

● Risk of unequal access to circular economy.

● Possible need for a total review of the educational system (with new ways of teaching

economy and offering recycling trainings, …). Should the education system be reviewed?

To offer new kinds of trainings and courses which are related to circular economy (f.e. For

recycling trainings or teach new types of economical systems).

● Impact of circular economy on the solidarity with developing countries is still difficult to

predict.

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2. Research Question

When analyzing the existing literature on circular economy, there seem to be two ‘gaps’ when dealing

with this topic:

A) Firstly: there is no consensus among these researchers concerning the level on which circular

economy should be implemented. As such, many scholars and businessmen have a different

idea about where to place circular economy on the regional-global & efficiency-solidarity scale.

Some believe it needs to be implemented on a global scale, others on a regional scale. Their

stance on the efficiency-solidarity debate seems to be even more unclear. Questions such as

‘how will the implementation of circular economy impact developing countries’ and ‘what

happens with the efficiency of the production process if all the businesses are regionalized’

remain largely unanswered.

B) Another obvious gap is the exclusive focus on the advantages of circular economy. There is a

clear lack of literature that investigates the possible downsides of circular economy. Up until

now, uncertainties are only briefly discussed and disappear in the general positive atmosphere

that is created around the subject. While we are certainly a proponent of a circular economy

approach, it is equally important to shed light on the negative or uncertain factors that the

implementation of circular economy might bring along. This way future problems or negative

side-effects can pro-actively be avoided.

When looking at these two gaps, it becomes clear that the concept of ‘solidarity’ has been limited

analyzed in the context of circular economy. More specifically, the effect of a regional circular economy

on our relations with the developing countries has received little or no attention. It is interesting to

ask ourselves what kind of effects (positive or negative) the implementation of circular economy in

Europe might have on their economy, society and environment. As such, the question of this research

will be:

From a solidarity perspective: what kind of impact could the implementation of a European circular

economy have on developing countries?

As already mentioned in part 1.2 ‘The need of a transition towards sustainable development’, the

stance this research will adopt within the region-global & solidarity–efficiency scale is that of a

regionalized world, with solidarity within and between the regions, that is guided by a global

perspective. In short: a ‘global solidarity’ from figure 2. Returning to the research question which takes

Europe as starting point for analysis the central idea of the research, becomes that of a European

circular economy that should be implemented, with solidarity within and between other regions

guided by a global perspective. As already mentioned, a circular economy cannot be self-sufficient if

the region is too small. For example, if Belgium would install circular economy within its borders, it

would become the victim of the comparative advantages between countries. Since it makes more

sense to leave the making of energy-intensive products to those countries where renewable energy is

in abundance such as Norway (Mazijn & Devriendt, 2013). On the other hand, at the start, the scale

should not be too big either. Imagine only the trouble of making a global waste legislation. Finally, this

research will focus on the European region since a lot of research has been made on the

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implementation of circular economy and the resource scarcity of the EU. This regionalization will be

explained even more clearly in the following chapter.

While research has already been done on the ‘regionalized’-concept of circular economy, none has

been done on the solidarity-concept of it. This concept will be further investigated by using European-

South-African trade relations on stainless steel as a case study. Taking stainless steel and the Republic

of South Africa as a case study, the central question of this research becomes then:

From a solidarity perspective: What kind of impact could the production of stainless steel in the

context of a European circular economy have on (the economy, society and the environment of)

the Republic of South Africa?

The way and reasons the research chose this specific case will be further motivated in the following

chapters 3 ‘Methodology’ and 4 ‘Research’.

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3. Methodology

3.1. Regionalization: European context

First and foremost, it is important to emphasize that the regionalization of the circular economy means

we have chosen to work from a forward looking approach. This means we identify an ideal-typical

situation wherein the circular economy is already fully realized in the European context. The same

approach has been used from OVAM (Openbare Vlaamse Afvalstoffenmaatschappij) in their report on

the job potentials in a circular economy (2016). Some researchers could argue using such an approach

is quite ignorant, since it accepts some assumptions about the implementation of this kind of economy.

These assumptions are not always completely confirmed or approved today. One of the assumptions

we are taking for granted in this research, is the fact that the EU would have a continental waste and

reuse-repair-recycle legislation regarding circular economy, which is of course not the case nowadays.

Pay attention that we also are assuming other continents haven’t implementing circular economy yet,

except from China, since they already put circular economy into action since 2002. Beside the

implementation of the circular economy, remark that China is also engaging the strategy of

“stockpiling”. We will analyze this concept more deeply later on.

Still, such kind of approach offers a large research field where deep reflexions can be made. This gives

the opportunity to grasp better understandings of the possible advantages and/or disadvantages of a

circular economy. Such kind of exercise can also give path to further investigation in future research.

3.2 Limiting the research field: Stainless steel

Since the implementation of a circular economy in a European context is quite broad, a delimitation

had to be done to narrow the research field. One of the solutions was to focus on a particular product.

The criteria used for picking a product was:

1. A daily used product: This means the demand for this commodity is high, which gives more

importance to it.

2. Metal sector.

No one could live in a world without metals. They are everywhere: in machinery, energy,

transportation, electronics, building and construction, information technology, etc. but what

about the long-time perspective? A lot of countries have already taking measures on economic

and trade implementations. Let take for example China: The Chinese government has a few

years ago implemented a number of policies to tighten the control on production and export

of rare earth metals. While the country was on the other hand still importing metals from

resource-rich countries. Some researchers call this trend “strategic stockpiling”. And since they

are responsible for around 97% of the world supply, a lot of concern has been raised from

developed countries (Morrison & Tang, 2012)

It is known that Europe has a lack of mineral resources and is depending of other countries for

provisioning himself. Therefore, Europe is extremely concerned about the increasing number

of barriers that distort global markets for raw materials, which lead to a suboptimal allocation

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of resources and significant economic costs (OECD Steel Committee, 2012). This is the reason

why metals have been chosen as criteria to focus the research field.

3. A product consisting out of a small amount of pieces. A smartphone for example is made out

of more than 45 metals, which broaden the research field too much.

4. Who preferably has a great importance in stimulating renewable (energy) resources now and

in the future - which is in line for stimulating sustainable development. This means demands

will grow in the future.

After analyzing an important amount of documents, scientific articles, etc such as documents from the

United Nation Environmental Programme (UNEP) (f.e. the report on ‘Environmental Risks and

Challenges of Anthropogenic Metals Flows and Cycles’), the European Commission on the list of critical

metals in the EU (2014), Mazijn and Devriendt (2013) which are analyzing the road to a sustainable

development for the metal sector in Belgium (Flanders), the Organization for Economic Cooperation

and Development (OECD) document on steelmaking raw materials, and Kleijn’ doctorate about

materials and energy: a story of linkages (2012), all gave the idea for choosing a specific product:

stainless steel.

Stainless steel is prominently used in our societies: in kitchen cutlery, water pipes, in wind turbines,

etc. The production of stainless steel will in the future grow even more substantially if politicians chose

to invest more in renewable energy. Kleijn comment that “the amount of steel that would be needed

in the future for both wind turbines and hydrogen pipelines is very high. For wind turbines, this would

be 6 times the current annual production of iron and for hydrogen pipelines 40%. However, if current

technology stainless steel is used for the pipelines about 45 times the annual production of nickel

would be needed and 5500 times the annual production of chromium” (2012, pg 56-57). The following

figure summarizes quite well the importance of mineral resources for the energy industry in the future:

Furthermore, the main elements for making stainless steel are: iron (Fe), carbon (C), nickel (Ni) and

chromium (Cr) (and these are likewise all present in the above figure). This means just four elements

are needed. Carbon and chromium are written in the list of EU critical raw mineral. This can be found

Figure SEQ Figure \* ARABIC 4 : The use of minerals resources in old and current technology (Zepf et al., 2014)

Figure 5 : The use of minerals resources in old and current technology (Zepf et al., 2014)

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in the attached annex (Annex 1) in this research. In this respect we can claim the four above criteria

are fulfilled.

3.3 How to proceed?

The research will first analyze the properties of stainless steel (4.1 Stainless steel). The four metals

used in this steel will have to be quantified and explained. The quantification data to examine the

import of these metals to Europe will be obtained by Eurostat from the European Commission. The

country of origin of the metals will also be researched. It is important to concentrate on metals which

are mined in developing countries. Depending on the origin, a metal will be chosen. It could be possible

that for example three out of four metals are mined and produced in developed countries so that just

one metal remains. Other criteria such as for example the list of critical raw material for the EU could

also have an important impact in the decision making. Such kind of lists have a significant role to play

in warning decision makers in government and industry about current issues of concern and possible

impacts on security of supply.

The global metal sector will have to be examined to have a clear vision of the overall fluctuations and

habits of its trade (4.2 Trends in the metal sector). Literature on abnormalities in trade will have to be

read and deeply analyzed. It is for example relevant to know what happens if metal prices crash down

or when an emergent country is increasing its metal trade.

The simple analysis of economics can provide powerful insights into the nature and behavior of the

mineral market, but therefore the researcher also need to have a clear understanding of the important

technological and institutional relationships governing the market of the analyzed country. This is the

reason why a specific metal with its land of origin is chosen, it will then be crucial to examine the mining

and metal sector within this country (4.3 The trade of mineral resources in the Republic of South

Africa). The institutional relationship between that country and the EU through its free trade barriers

and specific legislation will have to be examined to have a clear understanding of the status quo. It will

be based on empirical and quantitative analysis of the information, available data, and literature

collected from various sources. The sources involve scientific articles from subject experts, official

governmental documents, (interaction with stakeholders) and so on.

Furthermore, researchers specialized in mineral economics and international trade will be contacted

and meetings will be planned. This in order to ask additional questions about their scientific articles

and obtain more information applied on the concept of circular economy and the studied case. The

conversation will be prepared with semi-structured questions such as: “What would happen if the EU

reduced/stopped importing chromium from South-Africa?”, “Would this have an impact on the global

chromium market?”, etc.

Subsequently an analysis of the status of that country with reduced EU-trade has to be made. The

following hypothesis can then be investigated: “What will happen to the economy, society and

environment of country X if metal Z isn’t exported to Europe anymore?”. This could lead to several

paths of investigations (5. Research Results).

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4. Research

First of all, a detailed analysis of the four metal components of stainless steel needs to be done. This

will allow us to make a metal selection to narrow our research field (4.1 Stainless steel). Secondly, the

worldwide metal trade will be observed so that the trends and habits of that trade becomes clear (4.2

Trends in the metal sector). Additionally, the metal trade and the mining sector from the country of

origin of the selected metal (from stainless steel) will be analyzed (4.3 The trade of mineral resources

in the Republic of South Africa). With this information we hope to determine the (positive and/or

negative) impact of a European circular economy on the country of origin (5. Research results).

4.1 Stainless steel

The analysis of stainless steel will be done on the basis of intergovernmental documents such as the

OECD and the United Nations Conference on Trade and Development (UNCTAD). The annual volumes

(called Mineral Commodity Summaries) from the U.S. Geological Survey (USGS) are also a reliant

source of information. The summaries include detailed two-page reports on 89 minerals. Within each

report you can find different sections such as: the world mine production, reserve and reserve base,

the substitutions, etc. explained. For European importation of mineral resources, detailed data could

be provided from Eurostat. The country of origin is also defined.

Stainless steel can be used in many different ways. The metal components of it are therefore varying

to meet special industry requirements for corrosion and heat resistance. Sometimes components such

as molybdenum, manganese, silicon, zinc, tin, etc. can be added (OECD Steel Committee, 2014). Overall

it can be said that stainless steel consistently contains the following four elements:

4.1.1 Iron (Fe)

Iron is obtained from iron ore by heating in the presence of a reductant. It is an essential product for

the making of steel: today around 98% of the global iron ore is used in the steel industry (OECD Steel

Committee, 2014). Two countries are responsible for the main export of iron ore: Australia and Brazil.

U.S. Geological Survey (USGS, 2016) argues they both have about one-third of the global export. The

last decade China has been a substantial consumer of iron ore, which consequently translates to be

the largest steel producing country (UNCTAD, 2004).

In the report made for the European Steel Platform (ESTEP) WG4 mentions that with a production of

crude steel of 1.527 Gt in 2011, reserves and resources represent respectively 52 and 150 years of

production at this level. With this respect it can be said that iron ore isn’t scarce. This justifies regularly

made statements (2012). The Steel Committee of the OECD summarized at their workshop on

steelmaking raw materials in 2011 that in spite of temporary scarcity of raw materials, there are

sufficient worldwide reserves of iron ore to satisfy future demand.

4.1.2 Nickel (Ni)

This chemical element does not combine with oxygen or water at room temperature, and that is just

what makes his specificity for the use in stainless steel. Usually the amount of nickel in stainless steel

can variate from 8 to 10%, depending on the requirements for corrosion and heat resistance. According

21

to the International Nickel Study Group (INSG, 2016) and USGS (2016) around 60% of the global nickel

production is used for making that kind of steel.

From 2001 to 2011 world nickel demand has increased from around 1.104 million tonnes to 1.572

million tonnes. This is an annual average growth rate of 4.2%. With this information, the INSG affirms

nickel isn’t in danger of being exhausted. It is the 5th most common element found on earth. Only iron,

oxygen, silicon and magnesium are more abundant. They affirm nickel resources encompass the sub-

economic reserves. A lot of research has already been done on the availability of nickel resources on

the sea-bed and a lot of investments for new mining projects are still going on (INSG, 2016; USGS,

2016)). Whereas a report for the ESTEP (2012) explains there might be some worries about the

availabilities of nickel, even though the issue is open. It believes the risk in terms of long term scarcity

are present. On the other hand, the European Commission have not insert nickel into his list of critical

raw material (2014). This gives the impression the debate is still ongoing.

4.1.3 Carbon (C)

Usually carbon is used for 1% in stainless steel because it affected the hardness and strength of that

steel. Carbon steel for example is much more pliable and thus only contains 0,05 to 0,25% of it. The

problem with carbon in stainless steel is that it needs to come out of very pure sources of coke: cokes

coal. Cokes coal is an essential element that provides heat and the required carbon to remove oxygen

from iron ore (OECD Steel Committee, 2014). This one has been classified in the list of critical raw

material for the EU (European Commission, 2014).

4.1.4 Chromium (Cr)

Chromium is consumed in the form of ferrochromium to produce stainless steel (figure 6). The average

content of ferrochromium in stainless steel is about 18% (OECD Steel Committee, 2014). South Africa

is the leading chromite ore upon which world stainless steel producers depend directly or indirectly

for chromium supply (figure 7).

Figure 6 : Use of chrome ore and concentrates (Heinz H. Pariser, 2013).

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Figure 7 : World chromite ore reserve base (Heinz H. Pariser, 2013).

It has also been the leading ferrochromium producer for many years but China took it over since 2012.

Much of the Chinese ferrochromium is derived from South African chromite ore. However, it seems

like the Republic of South Africa rebounded in 2015 after opening a new smelter in 2014 and after

restarting other ferrochromium production capacities (USGS, 2016). Chromium is used in stainless

steel because of its good characteristics: it enhances hardenability or resistance to corrosion and

oxidation (Zepf et al., 2014).

On the other hand, chromium compounds are acutely toxic, chronically toxic, and/or carcinogenic

(Papp, 2002). A lot of research has already been done on this topic such as the high water toxicity in

surrounding villages because of the released chromium sediments from mines into the rivers (Gunkel-

Grillon, Laporte-Magoni, Lemestre & Bazire, 2014), or the high level of chromium in soils nearby mines

which exceeds the corresponding maximum allowable concentrations (Solgi & Parmah, 2015) and so

on. Utembe, Faustman, Matatiele & Gulumian (2016) is another research on the identified hazards of

chromium and the need for health risk assessment in the South African mining industry.

Bermejo mentions that chromium can be characterized as a critical metal, since it has very few to no

substitutes (2014, pg 287). The European Commission has indeed listed chromium in its list of critical

raw materials (2014).

Figure SEQ Figure \* ARABIC 6 : Use of chrome ore and concentrates (Heinz H.

Pariser, 2013).

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4.1.5 Summary

After getting through the information of these metals one could notice they all have their specific

characteristics and usefulness for the making of stainless steel. But if we take the theory of circular

economy into consideration and the fact that stainless steel will still have a crucial role in the future,

one cannot deny the urgency of reducing, reusing and recycling these four mineral resources and

stainless steel in general. The urgency is even bigger for metals which are today already perceived as

critical for the EU.

When analyzing the report of the European Commission on the critical mineral resources (2014) we

can see the EU revealed cokes coal and chromium as critical. It is important to note that the list is

based on a combination of two assessment components: economic importance and the supply risk.

This means cokes coal and chromium are both from great importance for the industrial economy at

the EU level and in this manner from great importance for the EU GDP. With supply risk the European

Commission means it could be interrupted because of f.e. political unrest, which of course today

cannot be forecasted. These risks can be reduced thanks to recycling and substitution. When you look

at the results for chromium, you can see the subsidiarity is at 0,96% - which means there is (almost)

no subsidiarity - and the recycling rate is at 13%. Cokes coal has a subsidiarity of 0,68% - which means

some subsidiarity exists - and the recycling rate is at 0% since cokes coal is being burned (European

Commission, 2014). This information can be seen in Annex 1 of this research. Another very interesting

graphic demonstrates the forecasted average annual demand growth of these critical raw materials to

2020 (in % per year):

Figure 8 : The forecasted average annual demand growth of critical raw materials to 2020 (European Commission, 2014).

Since the research is focusing on the solidarity concept, the country of origin of these minerals is

important too. After analyzing the import data of the EU that we obtained from Eurostat, we could see

that the EU has been importing its chromium from the Republic of South-Africa, while cokes coal is

coming from the United States. If we want to focus on developing countries, chromium will be a better

case study. We have been making graphics out of the Eurostat data to illustrate from where and in

which percentages chromium was bought:

24

Figure 9 : Import of chromium ores and concentrates for different countries. With the percentages and country of origin (Kelly Timperman, adapted from Eurostat data, 2016).

Figure SEQ Figure \* ARABIC 8 : Import of chromium ores and concentrates for different countries. With the percentages and country of origin (Adapted from

Eurostat data, 2016).

25

Another criterion is the fact that chromium really has no subsidiarity. As the European Commission

mentioned in his report on the critical raw materials: “The recycling rate is low and there are limited

options for substitution, particularly in its main application, i.e. in stainless steel” (2014, pg 16).

Another criterion is the fact that this country is part of the BRICS (Brazil, Russia, India, China and the

Republic of South Africa) since 2010. It is the last country who entered the BRICS-countries. In this

respect this makes it a very interesting case to study. One can imagine for example that an impact on

the Republic of South Africa could have directly effects (or not!) on its related countries. These are the

reasons why we have chosen to focus the research on chromium bought from the Republic of South

Africa (RSA) in order to produce stainless steel products in a European circular economy.

In this respect – as already mentioned in chapter 2 – the research question becomes:

From a solidarity perspective: What kind of impact could the production of stainless steel in the

context of a European circular economy have on (the economy, society and the environment of)

the Republic of South Africa?

The figure below illustrates in a simplified manner the chromium cycle in the RSA (highlighted in blue)

and the relation it has with the stainless steel cycle in Europe (marked in yellow):

Figure 10 : Simplified scheme of the chromium and stainless steel cycle (Kelly Timperman, 2016).

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4.2 Trends in the metal sector

In order to analyze the repercussions the production of stainless steel in a European circular economy

could have on the RSA, it is first important to have a clear vision of the trends, habits and fluctuations

of the global raw material market (4.2.1). Because of the particularity of recycling in the whole story

of circular economy, its impact on the market has to be explained (4.2.2) Finally, since trade always

involve political relations, geopolitics between countries also needs to be analyzed (4.2.3).

4.2.1 Drivers for price fluctuations of the primary mineral market

The empirical literature on primary mineral market is large and conclusions are variating from one

scientific author to another. The overall impression was that the primary mineral market has, over

time, always experienced substantial fluctuations caused by several drivers at the same time. Chen

(2010) who investigated the price volatility of 21 metals on a long-time scale for example explains that

between 1948 and 2006 prices of many commodities were found to fluctuate from below 50% to above

100% per year relative to their average prices.

Because of the different drivers it isn’t always easy to explain how fluctuations can occur. When

analyzing the literature, one could discern two differential groups of drivers: some literature is more

focusing on the (a) macroeconomic drivers, meanwhile other literature focuses on (b) commodity

specific risks. These drivers will now be discussed:

Just as Roberts mention in his research on the duration and characteristics of metal price cycles (2009)

that it is true a great amount of studies has focused on (a) macroeconomic drivers such as GDP,

industrial production in developed countries, population growth, changes in the growth rate of real

exchange rate of the U.S. dollar and so on. Radetzki (2006) analyses for example that demands shocks

for different resources such as metals, energy and agricultural raw materials engenders an increase in

commodity price on the market. These demand shocks were often preceded by a strong growth in

global GDP (for example just after the world war II or in the beginning of the 21th century) and a

substantial rise in industrial production (2006, pg 62). The same is argued by Swaray (2008): because

of the separation of production (in developing countries) from consumption (in industrialized

countries) the primary commodity prices, and subsequently the export earnings of the developing

countries are heavily dependent. In that case they are even more vulnerable for fluctuations in the

business cycles of industrialized countries. As Gaugler (2015) likewise mentions in his research, the

demand is not likely to decrease in time since the population growth is increasing. The demand for

specific minerals is also growing, just think of all the new technological applications we have today.

The changes in growth rate of real exchange rate of the U.S. dollar also has an influence on primary

metal commodities. Swaray’s (2008) results show that there is a negative sign of the coefficient

between the real exchange rate of the U.S. dollar and the price of primary metal commodities. This

means that an appreciation of the U.S. dollar lead to a decrease in the price of primary commodities.

The results even show that a 10% change in the real exchange rate could result in an immediate short-

term impact of around 5% on primary commodity prices. The inverse occurs when the U.S. dollar

depreciates. Furthermore, Swaray adds that an appreciation leads to an increase in the debt burden

of developing countries since foreign demand for primary commodities drops and consequently less

primary commodities are sold (2008).

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Another driver Swaray discusses in his research is the growth rate of real international interest rate.

The changes in the growth rate has a positive coefficient with the price of metal commodities.

Consequently, the increase of the former would in the short-term lead to an increase in the latter

(2008). Macroeconomic news is another driver that can have a tremendous impact on the price path

of commodities (Roache & Rossi, 2010).

The volatility of commodity prices can be taken apart into within-groups and between-groups

components. Shocks impacting a certain commodity market will have an effect on commodities which

belong to the same kind of group (the within-group), whereas little effect on the between-groups

(Chen, 2010). This becomes clear with the figure of the OECD Steel Committee in their report

‘Steelmaking raw material: market and policy developments’ (2012). The OECD explains the cokes coal

prices are following the same trend as the iron market. Cokes coal and iron belong to the same group:

the minerals to make stainless steel.

Figure 11 : The cokes coal and iron prices (OECD Steel Committee, 2012).

As Chen (2010) explains in her results: “The between-group component accounts for only one-fifth of

total price volatility, whereas the within-group component takes up the remaining four-fifths,

indicating that shocks impacting the commodity market have larger effects on commodities that

belong to the same group, while the spill-over effects to other commodity groups are kept to the

minimum.” (pg 137).

In this respect Chen (2010) also distinguishes the macroeconomic drivers from the commodity specific

drivers. Out of her research, she concludes that around 15% of price volatility can be attributed to

global macroeconomic factors in the period pre-1973. Since 1973, 31% can be attributed. This means

around 69 percent of overall price fluctuations are caused by commodity-specific drivers.

The interpretation of (b) commodity-specific drivers is done on the basis of Gaugler’ study (2015)

‘What drives resource prices? A qualitative review with recommendations for further development of

the Hotelling model’, which evaluates these in a very clear manner out of economic theories and

results gathered from empirical literature. Gaugler examined different hypothesis which could have

an impact on the price path of mineral resources. Some of the hypothesis could be confirmed on the

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basis of empirical literature, while some results were contradictory. The hypothesis will be listed up,

each time with a small summary of the results.

● Hypothesis 1: The later a raw material is extracted, the higher its price. Because of the finite

nature of metals raw material, it is assumed that the price will rise.

This could not be confirmed. A lot of empirical studies show the inverse. Gaugler (2015, pg 40) for

example quote the study of Tilton (1999) which identified a continuing downward trend of metal

prices. This means the empirical evidence shows a mixed picture. We therefore cannot confirm the

price of finite resources rise in time.

● Hypothesis 2: Extraction costs influence the price development of a finite resource.

Extraction costs are determined by the degradation of resources (in other words: depletion or

reduction of ore quality) and by the technical progress. Gaugler (2015, pg 40), quoted from Slade’s

results (1982), explains that extraction costs are negatively dependent on technology-driven

improvements (f.e. a new mining method) and positively dependent on degradation. This means

technological progress leads to a decrease in resource prices (Hartard, 2015). Degradation on the other

hand leads to an increase in prices. Gaugler also mentions the study by Lasserre and Ouellette (1988),

that technical progress, with a figure of 76 %, has a stronger price-lowering effect than the price

increases caused by degradation. This leads to an overall net price lowering of 13 %.

Out of the empirical findings Gaugler (2015) gathered, we can now say hypothesis 2 is confirmed

because technological progress has a negative influence and degradation has a positive influence on

the price of finite resources.

● Hypothesis 3: Supplier-side market power influences the price development of a finite

resource.

To test this hypothesis, Gaugler analyzed empirical literature who gathered information on the

structure of the finite resources supply-markets. These market structures can be polypolistic,

oligopolistic (f.e. cartels) or even monopolistic. Since a monopoly supplier is the only producer on the

market, he can choose at which price he sells his product and control the supply in order to make

higher profits. Literature shows the price is often significantly higher than in an oligopolistic or polypoly

market. Oligopolistic market structures are often observed (f.e. the OPEC for oil). Gaugler assumes the

correct price path of an oligarchy lies in the range between the extremes of polypoly and monopoly. A

polypoly situation enhances competition and free trade. More suppliers are active on the market so

prices are lower. Competition pulls suppliers to lower their prices (Gaugler, 2015, pg 43; Hartard,

2015). The hypothesis can be confirmed.

● Hypothesis 4: The higher the level of raw material risk, the steeper the price path will be.

Different risk drivers can be considered to determine the specific risk related to a finite resource. The

risks according to a certain metal are different from case to case: are there political risks? What is the

importance of the mineral? Is it a critical metal? etc. (Gaugler, 2015, pg 43; Hartard, 2015).

● Hypothesis 5: If a backstop technology exists, the price of an affected finite resource does not

exceed the price of the backstop technology.

A backstop technology can be defined as an “ultimate technology resting on a very abundant resource

base” (Nordhaus et al., 1973, pg 532). A backstop technology could also be seen as a subsidiarity. The

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hypothesis is that such kind of technology allows a decrease in mineral resources prices. An increase

in the price of the natural resource comes to an end when the use of a backstop technology is

technically feasible and economically viable. This leads to an adjustment of the price path (Gaugler,

2015, pg 44). Other authors such as Hartard (2015) says backstop technologies substitutions do have

an influence on the market price development.

Overall it can be said that the hypothesis cannot be confirmed nor rejected. Gaugler says the results

of the empirical literature are mixed. Some results prove backstop technology has an impact on the

price, meanwhile some said there is no evidence.

● Hypothesis 6: The higher the recycling rate of a finite resource, the flatter its price path is.

On the basis of economic theory, on the short- and long-term there are two different paths to follow.

There is not really an effect on the price path if a small amount of the resource requirement can be

met by recycling. The recycling can then just be seen as a “new mining project” and this has little to no

impact on the price. Meanwhile if the entire demand can be met by recycling, it will have impacts on

the price. This can of course only be achieved if the recycling price is lower than the normal market

price for the resource. In this respect we can say that the influence of the recycling-driver is identical

to a backstop technology in its long-term effect.

On the other hand, when Gaugler looks at the empirical literature from Berglund and Söderholm

(2003), WirtschaftsVereinigung Metalle (WVM, 2010) and Alonso (2010) they all come to a different

answer. Berglund and Söderholm (2003) and WirtschaftsVereinigung Metalle (WVM,2010) say that

there is no impact found of recycling rates on the price path, whereas Alfonso (2010) comes to an

opposite answer. In this respect we have to say the hypothesis cannot be confirmed (Gaugler, 2015,

pg 45).

Figure 12 : Example of the effect of a recycling or backstop technology (Gaugler, 2015).

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Other drivers that haven’t been taken into account by Gaugler (2015) have been analyzed by other

authors. Some of these drivers are commodity-specific, while other are more related to the specificity

of the country:

● Government interventions such as taxes, subsidies, mining regulations and trade restrictions,

and their impact on the price of finite resources (Fliess & Mård, 2012).

● Geopolitics of mineral resources (Anderson & Anderson, 1996; Humphreys, 2013).

● Environmental policies. In the least-development countries this may be passed, but the

potential economic disruption is likely to limit its implementation (Anderson & Anderson,

1996; Hartard, 2015).

● Political unrest such as the breakdown of the government, civil war, etc. Disruptions can be so

extreme that minerals production services are cut off and skilled labor from for example

multinational corporations departs (Anderson & Anderson, 1996; Hartard, 2015).

● Water and energy supply problems: the provision is for example extremely vulnerable in

Australia, Russia, South-Africa and China (Anderson & Anderson, 1996; USGS, 2016).

● Fiscal and administrative requirements of a country (Graedel, Gunn & Tercero Espinoza, 2014).

● Social and cultural constraints inherent to the country (Graedel, Gunn & Tercero Espinoza,

2014).

● A sudden price commodity boom may cause that the supply is not prepared. Investing in new

capacity mining can take to 5 years to be completed (Radetzki et al., 2008).

Due to the importance of recycling within the whole story of circular economy, this particular topic will

be put into light in the following chapter (4.2.2). The previously mentioned concern about geopolitics

of mineral resources and the governmental restrictions took to induce geopolitics will be debated in

chapter 4.2.3.

4.2.2 Recycling of mineral resources

When speaking about the recycling of mineral resources, one has to distinct secondary metals from

primary metals. Primary metals are produced through a sequence of actions following the discovery

of the ores. When the ore is mined, its metals are separated from the waste material, smelted, and

afterwards refined in order to purify the smelted material (Graedel, Gunn & Tercero Espinoza, 2014).

This process is highlighted in blue on the following figure. One could say a primary metal is thus in fact

the virgin stock. The scrap got from the production process and the end-of-life products are collected,

dismantled, pre-processed and smelted to come to a new source of metal, in other words: secondary

materials (Graedel, Gunn & Tercero Espinoza, 2014). For example: chromium is a primary metal. When

end-of-life pipelines are collected and dismantled, stainless steel can be recycled from these pipelines.

This stainless steel is thus a secondary material. Another source for secondary material can come from

historic waste in for example landfills.

As mentioned above, recycling could have an effect on the price path of mineral resources by

diminishing the metal price fluctuations on the market. Of course the recycling of scrap and products

at their end-of-life stage offers other benefits. Recycling can reduce the environmental burden that

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would otherwise occur by preventing emissions from discarded products and landfills into soil, water

and air, and by reducing the use of land and water. It would also without a doubt mitigate the

environmental impact of mining. This because the amount of mining (and thus energy) required would

be reduced, which would have direct repercussions on the carbon dioxide and other emissions

released in the air and water. Furthermore, it also extends the product’s lifetime and preserves primary

geological resources. This contributes to greater mineral self-sufficiency and as a consequence to a

reduction of the geopolitical dependency some developing countries have for their critical metal

resources. The following chapter will elaborate more on that topic.

Recycling also indirectly ensures that no mineral resources originate from regions where conflicts or

wars are present. It also ensures that no end-of-life products are exported and dumped in developing

countries. Eurometaux (2016) speculates that around 4,3 billion of base metal-scrap leaves Europe

annually (2016), which is an enormous amount. Finally, as a part of the circular economy strategy,

recycling has great potential of creating employment, including high-technology jobs and

infrastructure (Hagelüken, 2014).

Alongside the benefits, recycling mineral resources entails challenges too. The product’s life cycle is

not perfect and improvements still need to be done. Metals for example, are lost at each stage of the

production process in the form of residues (highlighted in red in the figure) (Graedel, Gunn & Tercero

Espinoza, 2014). Residues may include slags and tailings from primary production, production scrap

from manufacturing products discarded during their useful lifetime, non-recycled streams, and slags

effluents and final waste at the end of life (Hagelüken, 2014, pg 45). Of course, while using a product,

some metal parts dissipate or get lost, so these losses need to be minimized as much as possible.

Platinum for example is used in very thin layers in hard-disc drives and therefore are lost during use or

cannot be recycled anymore. Other metals are lost because of corrosion during the use. Whenever this

can be avoided, highly efficient recycling is necessary.

Another source for recycling which indubitably cannot be forgotten is historic waste, such as those

that can be found in landfills. The encouragement of reusing has benefits too. It isn’t an alternative to

recycling, since it merely delays the time until recycling should take place. All these sources can be

found in the following scheme of a product life cycle:

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Figure 13 : Sustainable use of stainless steel along its product life cycle. Efficient recycling of residues generated at all stages

can minimize use of primary raw materials (Kelly Timperman, 2016).

In principle it could be possible for raw materials to be used over and over again. Of course other

aspects besides recycling are important to achieve this goal. Products could be designed by judicious

choice of chemical combination and assembly. The physical characteristics such as shape, size and the

type of connection between two materials, are crucial too. Promoting reusing and the optimization of

the collection mechanism at the end of life are other aspects that can influence. However, this holistic

vision can only be achieved if it goes hand in hand with a rise in social commitment and policy

initiatives. Otherwise raw materials are condemned to be reused only once or twice (Hagelüken, 2014).

As mentioned before, chromium is primary used to make stainless steel (figure 6). Therefore, it would

be useless to separate and recycle stainless steel into its original mineral resources (chromium, nickel

and iron). In addition, the viability both technically and commercially of separating chromium from

stainless steel is small. Therefore, as Eggert mentioned in our conversation: “Today the focus would

be on the recycling of stainless steel instead of chromium” (Personal communication, June 1, 2016).

But even if all these challenges and requirements would be fulfilled, there would still be the problem

of sufficient volume and content. Although metal concentrations in a product are high, the absolute

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precious metal content in a single product is often very low. That’s why products with a same device

need to be collected and brought together, which is the core problem. Most products are widely

distributed around the planet and thus often difficult to trace. But in order to economically exploit

these urban mines, it is first necessary to gather sufficient volume of these dispersed devices. Thus

recycling is also a matter of scale. This idea also supports the argument for the need of rethinking

circular economy on a continental scale such as that of Europe. Hagelüken and Meskers (2008)

illustrate this quite well with an example of mobile phones. In 2010, 1,6 billion mobile phones were

sold. Each mobile phone corresponds to a precious-metal content of around: 250mg silver, 24mg gold,

9mg palladium and 9g copper. According to them, the net metal value of that single mobile phone

does not exceed one euro and consequently does not present us with a real economic incentive to

recycle. If instead 1 tonne of mobile phones (that’s only about 13,000 units of these 1,6 billions of

units) could be collected and brought together, this would represent an average precious-metal

content of around: 3,5kg silver, 340g gold, 130g of palladium and around 130kg of copper. The value

of these metals could exceed 10,000€ per tonne (Hagelüken & Meskers, 2008).

That is why Graedel, Gunn & Tercero Espinoza (2014) in that measure affirm that secondary metals

will never be sufficient to fulfill world of increasing resource use. They maintain that losses of metal

are inevitable, even in a world of constant resource use, within a holistic approach of 100% collection

and recycling. It is also not sure whether the secondary material market could follow when confronted

with a sudden demand since immediate recycling is not always possible. They declare this would

inevitably result in a shortfall of supply. The shortfall would then have to be secured through

production from primary resources (Humphreys, 2014).

As a conclusion, it is right to say recycling has a lot of (financial, economic, social and environmental)

advantages and that measures need to be taken to improve the recycling process. However, recycling

will never be enough to fulfill the increasing demand in mineral resources. That is why we have to see

mining and recycling as complementary systems. Hagelüken (2014) and Graedel, Gunn & Tercero

Espinoza (2014) say we need to use and combine the two in an optimal way by: “including mining,

recycling, substitution and resource savings (both through higher efficiencies in material use and more

sufficiency in life styles)” (pg 66). They argue that “it is not helpful to play one of these aspects off

against the others, rather the ‘low hanging fruits’ in each part of the life cycle should be identified and

appropriate measures prioritized accordingly” (Hagelüken, 2014, pg 66). Humphreys and Eggert have

both expressed the same point of view during the conversations we had regarding this topic (personal

communication, June 1 & 3, 2016). As we move on to the theory of circular economy, we could

therefore say that mining and recycling has to be complementary systems too. Recycling will never be

enough in order to be self-sufficient.

Finally, the following figure summarizes quite well the above explanation in an illustration:

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Figure 14 : Mining and recycling are complementary systems to cover the market growth and the inevitable losses (Hagelüken, 2014).

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4.2.3 Geopolitics and mineral resources

During the last decade great attention has been paid to geopolitics and China’s role in it. Since the

beginning of the 21th century China has been hitting the headlines with its import and export policies

regarding mineral resources. The country imports a lot of primary mineral resources in order to satisfy

its growing economy and to secure its own domestic resources, but at the meantime places restrictions

on primary mineral resources export. Already in 2009 China developed an export plan with restrictions

on rare earth metals (Bradsher, 2009a; 2009b). Rare earth metals are very important metals for, for

example, hybrid cars, cell phones, wind turbines, military usage, computers, and so on. Other

researchers as Kleijn (2012) call this phenomenon the ‘strategic stockpiling’ within geopolitics.

Governmental institutions are important stakeholders in this discussion and are already taking

measures to bear with the situation. It is one of the driving factors that incentivized the European

Union into action to bring the theory of circular economy to the discussion table. OECD for example

also published a report on steelmaking raw materials: the market and policy developments (2012).

Likewise, it may not surprise that the United Nations launched the International Resources Panel in

2007 “to build and share the knowledge needed to improve global and local resource management”.

However, geopolitics is not a new subject of discussion and China has not always played a dominant

part in this debate. Before the 1970s one could argue that the discussions about geopolitics were

different. There are two reasons for that: the economic power at that time was spread over a small

number of players (the ‘developed countries’). Therefore, they had a great influence on the supply of

mineral resources. The second reason is that mineral resources were mostly produced and consumed

by the same countries. At that time developed countries still had a sufficient amount of domestic

mineral resources (the U.S. f.e.) or they had easy access thanks to their colonies. In the colonial world,

both the production and use of metals tended to fall under control of the same set of countries

(Humphreys, 2013).

From the 1970s the picture changed: developed countries were facing the fall of the colonial world

with its existing preferential relations and domestic mineral resources began to decline. Furthermore,

when mining companies wanted to continue explorations and mining in more developed countries,

because of political stability and security reasons, they were confronted with extremely long

procedures and heavy environmental restrictions. Humphreys also argues that the perception in

developed countries on the mining industry is very bad and therefore a large number of articulate

people has the urge to fight against it.

From then on the overlap between producers and consumers declined and developed countries began

to face problems with mineral resource supplies (Humphreys, 2013). An important amount of policy

studies has been conducted by industries and governments in developed countries examining the

threat to supplies of various strategic minerals. In a very interesting book “Strategic minerals: resource

geopolitics and global geo-economics” written in 1996, the authors explain the situation in the U.S. in

relation to its strategic minerals. In the first chapters Anderson & Anderson (1996) analyze the

definition of ‘strategic’ minerals and the way in which the U.S. has defined minerals as strategic. Key

strategic minerals were identified on the basis of three factors: their critical uses, U.S. import

dependence and the location of suppliers. From this analysis it was possible to identify about 16

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strategic minerals which were than divided into three separate groups: highly, moderately and

marginally strategic. Chromium has been labelled as highly strategic.

In the following chapters Anderson & Anderson go even further by explaining where the minerals are

bought and why these suppliers are of strategic importance to the US. Players such as Canada, the

European Union and Mexico were characterized as reliable for the US. The study particularly paid

attention to China and RSA and the problems and prospects that go hand in hand with these countries.

Given the reach of South-African mineral resources and its highly developed and sophisticated

minerals sector, Anderson & Anderson affirm it is inevitable that the RSA will be a major world force

in the supply of strategic minerals in the foreseeable future. Consequently, any disruptions to South-

African mineral supplies could have severe repercussions for the US (1996). Moreover, the authors

predicted in 1996 that the future disruptions in mineral supply from the RSA would most likely occur

as a result of a strike action. In that same year, there was indeed a large strike by 29 000 workers at

the Anglo-American Rustenburg platinum mines in the RSA (American Metal Market, 1996). This had

a dramatic effect on platinum-prices since the country was the worldwide leader in these metals. The

same could likely occur for the ferrochromium, which is also dominated by the RSA (1996).

Around 1996, the US was dependent on China for about 7 strategic minerals. This constitutes a source

of vulnerability according to Anderson & Anderson who believe that China cannot be considered a

reliable or secure supplier from a US perspective. The validity of this assumption depended on an

assessment of the current relations (in year 1996) between the US and China and the future course

these were likely to take. If, for example, China would have proceeded to fully embrace a functioning

market economy and would make significant strides towards democratization, then the threat

presented by US dependence would be reduced considerably. On the other hand, in case China would

emerge as a global superpower that poses a hostile challenge to the US, then excessive reliance on

China for the supply of these 7 strategic minerals would become a very real and severe threat to US

security interests (1996). The latter did indeed happen in the beginning of the 21th century.

In this respect one can clearly notice there has been a switch in geopolitical power regarding mineral

resources. The world today is divided into two new groups; metal consuming regions and metal

producing regions. The metal consuming group encompass North America, Western Europe, Japan,

China and the former Soviet Union. This group has over the past 50 years consistently accounted for

over three quarters of global metal consumption. The other group consists of metal producers who,

while they may also be consumers, have surpluses for export. These include Asia (where China and

Japan play a smaller role in this respect), Africa, Latin America and Oceania. As Humphreys explains,

some authors argue Russia fits the profile of a produce rather than a consumer, but overall it is clear

these two groups have different interests and goals (Humphreys, 2013).

In respect to the neoliberal principle of the market, one would think the mineral resources would

efficiently mediate between the two groups and provide the best economic benefits to both. In

practice this is not the case. Since producers aim for maximum revenues from their mining, they

occasionally attempt to steer the market in their favor. This can be done, for example, by restricting

output (f.e. China and rare earth metals) and supporting higher prices and by than pumping out the

maximum output possible. At the request of OECD, Fliess & Mård (2012) conducted a research on

measures restricting the export of mineral resources. This enlightening report explains quite detailed

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which export restricting measures exist for 75 mineral resources. The most popular measures in 2009

were export taxes (64% of recorded measures). Apparently ten top-5 suppliers have been using this

measure in 2009, while eleven did so in 2010. The RSA is one of these countries. The second measure

in the list was that of licensing requirements (17%). This is a requirement of obtaining prior approval,

in the form of a license, in order to export a good or commodity. Export quotas is the third measure

on the list (6%). Other less frequent measures are f.e. captive mining, export prohibitions, export

surtax, fiscal tax export, etc. (Fliess & Mård, 2012, pg 23-24).

As Fliess & Mård (2012) mention in their inventory, 14 countries appeared to be making use of more

than one of the above mentioned measures in their policies. Over the period 2009-10, India and China

have been using 5 different types of measures in their policies. In this respect they can be classified as

the two countries who used the most different types of measures. Twelve other countries applied for

two or three types of measures in their export policies.

Following the same neoliberal principle, the consumer wants to secure its supply of mineral resources.

Just like the producers, the consumers are trying to steer the market in their favor. When studying

consumers’ trade policies, their emphasis on transparency and openness of the market is quite striking.

To achieve this, developed countries strongly focus on dialogue. They try to tackle trade barriers

primarily through diplomacy. The United States for example have been seeking to remove export

duties, differential VAT rebate reductions, restrictive export licensing, minimum export prices,

restrictive import licensing, and limitations on who has the right to export, which are the source of

issues with some of its trade partners. These issues are written down in trade agreements such as free

trade agreements or unilateral trade agreements negotiated between the consumer and the country

that is exporting. When no progress is registered, consumer countries have relied on other tools

including the World Trade Organisation (WTO) dispute settlement (OECD Steel Committee, 2012).

Some governments and international institutions are taking a closer look at to the domestic and global

policies that affect the supply of critical materials. Let’s take the example of Fliess & Mård’s (2012)

research on measures restricting the export of mineral resources, upon request of the OECD.

Furthermore, consumer countries are trying to play their cards right by “supporting resource-rich

countries in their development through the trade policies”. In the African-EU partnership on raw

materials they wanted to foster development through governance, investment and geological

knowledge/skills. For example, by assisting in developing policy scenarios. The aim is for promoting

trade and the sustainable development of the mining sector in Africa. Europe also gives tools for

mapping mining development corridors and to facilitate exploring mineral resources (OECD Steel

Committee, 2012).

One could imagine that the combination of these two opposite kinds of pressures (consumers ↔

producers) potentially could set up nation- or continental-based conflicts. As Humphreys mentions in

his research, actions by producing countries to assert greater control over the development of their

resources are likely to be viewed by consumers as a threat to their security interests. On the other

hand, attempts by consuming countries to reduce their dependence on metal imports, risk being

interpreted by producing countries as intended to deny them (the producing countries) the means to

promote their economic development. Consuming countries could try to reduce their import

dependence by reusing and recycling more products at their end-life stage, which reminds us of the

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previously-mentioned circular economy theory. These pressures show that the relationship between

the consumer and the producer has a strong political dimension. Instead of letting the economy decide

on free trade between countries, political strategies are figured out to secure one’s own best interest

(Humphreys, 2013, pg 343).

Just as Gaugler (2015) correctly mentions in his discussion: all the drivers were analyzed independently. It is not clear what a simultaneous appearance of several drivers can produce. This has to be evaluated on a case to case basis, which this research aims to do by analyzing the chromium market of the RSA and the (macroeconomic, commodity-specific, geopolitical, ...) drivers that could have an effect on it. This is the reason why the following chapter examines the South-African mining and mineral sector and its relations with other countries.

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4.3 The trade of mineral resources in the Republic of South-Africa

The first step in examining the mining and mineral resources sector in the RSA is by examining the

general information that is offered by the Department of Mineral Resources of the RSA. This can

provide insights into the internal dealings between the sector and the nation and into external trading

relations.

4.3.1 The mineral resources sector in the Republic of South-Africa

The department of Minerals and Energy established through the Mineral Resources Development Act of 2002 a “Mineral and Mining Development Board”. This board is divided in three entities: the entity of mineral policy and promotion, the entity of Mineral Regulation and that of Mine Health and Safety. The elected President, Mr Jacob Zuma, announced in May 2009 the replacement of the Department of Minerals and Energy by two new ministries: The Ministry of Energy and the Ministry of Mineral Resources (Department of Mineral Resources of South Africa, 2001). Minister Mosebenzi Joseph ZWANE, has been the political head of the Department since September 2015.

The Department’s vision has been clearly established in the Mineral and Petroleum Resources Development Act. This act is pivotal to the department since it enumerates the fundamental principles of the sector. These principles talk about the exercise of sovereignty over all the mineral resources within the Republic, the promotion of equitable access to the nation’s mineral resources, expansion of opportunities for historically disadvantaged persons, promotion of economic growth, promotion of employment and advancement of the social and economic welfare, security provisions while exploring or mining and development in an orderly and ecologically sustainable manner (Department of Mineral Resources of South Africa, 2001).

Another very important act was the Mining Charter. Its introduction in the RSA was aimed at transforming the mining industry to redress historical imbalances engendered by the apartheid so that the industry could be consistent with the changes that were established during South Africa’s overall transformation of its social, political and economic landscape. Since then the Department has driven the process of ensuring black and female participation in the mining sector as operators, investors or managers (Department of Mineral Resources of South Africa, 2001).

In 2013 the country produced approximately 53 different minerals from 1712 mines and quarries. Gold was for example extracted from 53 mines, platinum-group metals (PGMs) from 43 mines, coal from 143 mines and diamonds from 388 mines. The largest export category is precious primary materials: gold, diamonds and PGM’s. The second largest category is base metals for the manufacturing of ferroalloys, iron steel and stainless steel products. Chromium and ferrochromium are part of this category. The third largest category include coal, briquettes, oil from petrol and iron ores and concentrates. According to the department of trade of the RSA these three categories account for more than half of total exports. According to UNCTAD the commodity export dependence in the RSA is even calculated at around 65% for “ores, metals, precious stones and non-monetary gold” in 2014. South Africa’s manufactured exports comprise essentially two groups of products: 1) resource processing products such as steel, aluminum and chemicals and 2) automotive exports. Industrial policy during the apartheid regime has sought to make these industries strongly export-oriented. (Department of Trade and Industry of South Africa, 2010).

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However, the export of primary commodities on the international market is still very high in comparison to the export of manufactured products, except on the African market where the RSA is doing well in terms of exporting the latter. The top 25 export categories are however dominated by mineral resource goods.

This can give us an overview and an idea of the mineral resources sector. With such a diffused production, the Department claims this sector is the biggest contributor to the country's gross domestic product and a well-established sector in its country (2001). The RSA’s exports to the EU in the past were for example primarily precious stones, metals and mineral. However, this trend has changed and today Asia also has become increasingly important for the export of metals, ores, ash, iron and steel. India, China and Malaysia form the top 3 of fastest growing trade partners by export for the RSA. Besides that, the iron and steel RSA exports to NAFTA counties (North American Free Trade Agreement, so U.S., Canada and Mexico) are still important today. Precious stones, metals and vehicles remain important as well. Since a couple of years RSA also exports resins, vegetable extracts, animal fodder, manufactured articles and technical equipment to the EU (Department of trade and Industry, 2010).

Besides the metals and ores trade, it appears that during the last two to three years the industry has experienced some severe blows. In 2014 the RSA declared an electrical power generating emergency because of the country’s constrained electrical power supply. This had a direct impact on the mining production which can be shown through the example of ferrochromium production. Since this production process is energy intensive, constraints in power supply always influence the process (Government Communication of the Republic of South-Africa, 2015 & USGS, 2016).

Most imports to the RSA consist of advanced manufactures (machinery, vehicles, scientific equipment, etc). Other important imports are agricultural products, basic processed goods and also mining products such as oil imports. The latter has increased significantly the last two decades.

When calculating the import and export revenues of the country, results show a persistent deficit on the trade balance. In 2008 the deficit has reached 8% of the GDP and hence remains a source of macroeconomic vulnerability for the country. As such, it is clear the RSA cannot rely upon export and trade growth alone to significantly generate employment (particularly for low-skilled workers) and hence, to reduce poverty via employment creation (Department of Trade and Industry of South Africa [TDI], 2010).

The department of industry and trade explains South Africa has become a “middle-income” economy that faces intensified competitive pressure from both high-income developed countries and low-income developing countries. The underlying reason for this is that most manufactured exports in the RSA are mineral resource based. The mineral extraction in the RSA is characterized as highly capital-intensive rather than labor-intensive. The chromium sector is indeed a good example of a capital-intensive sector, whereas gold for example still is quite labor-intensive. This is the result of a liberalization period that started in 1994. This period focused on deepening comparative advantage in capital intensive production, based on the extraction of mineral resources that benefited from significant government support during the apartheid. Due to the accumulation of capital assets and technical knowledge, these capital-intensive sectors are more competitive than labor-intensive sectors which did not obtain similar advantages. This is why capital intensive industries are now continuing to dominate the economy. As a consequence, the RSA finds itself posited between high-skilled, developed countries and unskilled, labor intensive developing countries. The liberalization process in the RSA has in sum tended to reinforce a capital and high skill-intensive growth path that has exacerbated the bias against low-skilled, labor-intensive production (Department of Trade and Industry, 2010).

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When looking at the official site and documents from the Department of Mineral Resources of the RSA and the Government Communication of the RSA (2015), one could assume that the mineral resources sector is of great importance to the country. The sector has received governmental interest for a long time (f.e. liberalization period) and many efforts are being made and reported (f.e. health and safety inspections and so on).

4.3.2 The chromium sector in the RSA.

The RSA is known for its abundance of mineral resources which is of great economic importance for the country. The country houses one of the world’s largest resources of PGM’s (87,7% of the world total), manganese (80%), chromium (72,4%), gold (29,7%) and alumino-silicates. It accounts for over 40% of global production of (ferro)chromium, PGM’s and vanadium too (Port Regulation of South Africa, 2012). But in order to gain a clear understanding for further research, the chromium sector needs to be analyzed and compared to other mineral resources sectors within the country. The organization “Ports Regulation of South Africa” provides us with an interesting document that holds key data on the chrome and ferrochrome sector. The chrome value chain in the RSA is responsible for around 200.000 jobs and includes R42 billion in GDP per annum. These are numbers that cannot be underestimated from an economic point of view. On the other hand, it is very difficult to find clear export data from the RSA to importing countries. A clear illustration of the scale of exports in 2012 can be found in the following picture by Pariser (Pariser, 2013). Heinz H. Pariser Alloy Metals & Steel is a leading provider of market intelligence in the fields of stainless and alloy steels, nickel and chromium, stainless steel scrap and other steel alloying metals. It has been active for more than 30 years and therefore provides us with reliant information.

Figure 15: The scale of ore & concentrate trade flows in 2012 (Pariser, 2013).

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The RSA exported significant amounts of chrome ores and concentrates to China (4,026,000 tonnes), in comparison to Europe (340,000 tonnes) in 2012. Another important chrome-exporter for Europe is Turkey. Although Eurostat’s data showed moderate Turkish imports (figure 9), it is certainly a considerable actor in the global chromium trade.

As already mentioned in the above chapter, the RSA has over the last years experienced hard times with the emerging Chinese ferrochrome industry. Because of that, the exports of South African chrome ores to China are rising. Remember that this industry in the RSA is rather capital intensive than labor intensive. This is why it is not an advantage for the country. The outsourcing of the ferrochrome production process, creates jobs in China but therefore reduces job creation opportunities in the RSA ferrochrome industry. Remember the ferrochrome industry is a value-added industry and therefore creates jobs. Between 2001 and 2010 the ferrochrome market share of the RSA has dropped from around 50% to approximately 42%. The Chinese share has grown from approximately 5% to 25% over that same period (Port Regulation of South Africa, 2012).

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4.3.3 The RSA international trade in mineral resources

To have a clear understanding on how the RSA is making business within the global economy, we need to analyze which position it is taking towards its trading partners. Therefore, we have to investigate key subjects such as: (1) The RSA’s relation to the WTO, (2) the kind of agreements the RSA has negotiated with global partners and (3) the kind of tariff-mechanism the RSA is using. When analyzing these points, the metal and chromium sector always will be taken into consideration.

● WTO and the RSA’s international trade First of all, it is important to know that the RSA is one of the 162 countries that are part of the WTO. The WTO is the only global international organization that deals with the rules of international trade. Countries within the WTO have set a system of trade rules that are incorporated into the WTO-agreements. These agreements provide the legal ground rules for international commerce. They spell out the principles for free trade, prescribe to keep open services markets by reducing tariffs and other trade barriers and strive for policy transparency –hence pursuing the liberalization of the global market. These agreements also involve measures in many different and diverse domains (e.g. agriculture, intellectual property, standards and safety, …). The agreements have also created a platform for countries to settle trade disputes with each other (WTO, 2016).

Reducing tariffs takes place by negotiations on the ‘Most Favored Nation’ (MFN) tariffs and bound tariffs. The MFN tariffs are what countries promise to impose on imports from other members of the WTO, unless the country is part of a free or unilateral trade agreement (than no or preferential tariffs are used – figure 16). In practice this means that MFN rates are the highest (most restrictive) tariffs that WTO members charge one another. It can of course happen that some countries impose higher tariffs on countries that are not part of the WTO (World Integrated Trade Organisation, 2012).

Bound tariffs are specific commitments made by individual WTO member governments. They are the maximum MFN tariff level for a given commodity. When countries join the WTO or when WTO members negotiated during trade rounds, it is not the applied (or MFN) rate but actually the bound tariff that is negotiated. Be careful: bound tariffs are not necessarily the rate that a WTO member applies in practice to other WTO members' products. Members have the flexibility to increase or decrease their tariffs (on a non-discriminatory basis) as long as they do not raise them above their bound levels. If for example one WTO member raises applied tariffs above its bound level, this country can be taken to dispute settlement. In practice, we can say that the MFN tariff is less than or equal to the bound tariff for any particular product (World Integrated Trade Organisation, 2012).

Hence, three kinds of tariffs can be observed for the same commodity line: the bound, the MFN and preferential tariff, as the following picture clearly shows:

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Figure 16 : three types of tariff for a given product (World Integrated Trade Organisation, 2012).

Another important term is the ‘binding overhang’. This is the gap between the bound and applied MFN rates. According to the World Integrated Trade Solutions (2012) trade economists argue that a large binding overhang makes a country's trade policies less predictable. In industrial countries this gap tends to be smaller whereas in developing countries where the gap is mostly rather large. This would mean that developing country’s trade policies can’t easily be anticipated (World Integrated Trade Organisation, 2012). In the case of the RSA there has been a substantial cut in bound tariffs. In 1990 it consisted of 13609 bound tariffs as in 2006 the number of bound tariffs were reduced to 6420. This is a clear example of the RSA taking policy measures to be more transparent and to become a bigger partner within the global economy (Department of Trade and Industry of South Africa, 2016).

Moreover, the RSA department of trade and industry has developed a transparent framework on their trade policy and strategy (2010). Herein one can quickly notice that the country seeks to become a full-fledged international trader and to encourage the export of value-added products in stand of primary commodities (for example ferrochrome instead of chrome). Since 1994 the RSA and its competent authority “International Trade Administration Commission” (ITAC) has taken many measures to reduce their tariff regime. ITAC is managing the tariff regime by taking the following criteria into consideration: 1) the competitive position of the concerned product; 2) if the product or a substitute is manufactured in the Southern African Customs Union (SACU); 3) the effective rate of protection; 4) the implications for the value chain and 5) the macroeconomic and social impacts. The MFN tariff decreased 23% since these measures were taken. It now stands at around 7,7% and 56% duties are set at 0%. We can thus say the economy is a relatively open and only moderately protected by tariffs (Department of Trade and Industry of South Africa, 2010).

● Trade Agreements between the RSA and the EU. The Trade Development and Cooperation Agreement (TDCA) -a trade agreement between the RSA end the EU- has been ratified in 1999 and has entered fully into force in 2004. According to the department of trade of the RSA, the TDCA has contributed positively to bilateral economic relations. As the EU is still one of South Africa’s largest trade and investment partners, the department is indeed aiming to expanding trade and investment with this continent (Department of Trade and Industry of South Africa, 2016).

After reading and analyzing the agreement one could summarize that a free trade has been agreed between the RSA and the EU. This means no import restrictions (article 11) can be implemented on a large list of products (listed in the annex of the agreement). Furthermore, neither quantitative

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measures (article 19) nor anti-dumping practices (article 23) can be used. One important fact for us is that the EU’s import restrictions for chromium trioxide and dioxide (Annex II, list 1 in the agreement) have been completely abolished. Finally, no trade is allowed that can affect the bilateral economy (article 24). The agreement covers around 90% of current trade between South Africa and the EU. In 2012, 95% of the EU's imports from South Africa and 86% of South Africa's imports from the EU were liberalized. This means the two countries only have a limited number of products that can still be negotiated. The EU has asked the RSA to reduce the tariffs on some industrial products, including clothing and textiles, while South Africa wants better access for agricultural commodities and processed goods. The agreement also stipulates a cooperation to strengthen South Africa’s development (chapter 4). It discusses the transparency between the two countries and the need of help for developing trade in the RSA by investments, developing and strengthening small and medium-sized enterprises, cooperating in the area of information and communication technology. The TDCA also has an article on the cooperation within the mining and mineral resources sector (article 58):

“1. The aim of cooperation in this area is, inter alia: (a) to support and promote policy measures that improve health and safety standards in the mining industry as well as conditions of employment; (b) to make mineral resources and geoscience information accessible for exploration and mining investment. The cooperation should also create a mutually beneficial climate for attracting investment in the sector, including SMEs (and previously disadvantaged communities); (c) to support policies which ensure that mining activities take place with due consideration for the environment and sustainable development, taking into account the specific circumstances in the country and nature of mining; (d) to cooperate on mining and minerals technology research and development. 2. Cooperation will include South African activities undertaken within the framework of the Southern African Development Community (SADC) Mining Coordination Unit.”

In July 2014 the EU concluded an Economic Partnership Agreement (EPA) with the Southern African Development Community (SADC) comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland: the SADC EPA. The agreement aims at broadening the product scope of the TDCA and of course includes more countries. In reality, this agreement implies very similar measures for the other countries as the TDCA for South Africa. It creates full trade liberalization and safeguards can be deployed when imports are growing too fast (Department of Trade and Industry of South Africa, 2010 & 2016).

Botswana, Lesotho, Mozambique, Namibia and Swaziland can export products to the EU market without any duties or quotas. Meanwhile, the RSA can benefit from new market access with better and additional trading terms as compared to the TDCA in the following sectors: agriculture and fisheries, including wine, sugar, flowers and canned fruits. The EU on the other hand gains access to substantial, new markets in these countries (e.g. wheat, barley, cheese, meat, products and butter). In practice, the RSA’s TDCA has mostly been replaced by the regional trade agreement under the EPA with the EU.

● The Regional relationship (Department of Trade and Industry of South Africa, 2010) The RSA also sees the importance of trading with its Central and South African neighbors. As we have discussed previously, the RSA can export little manufactured goods outside of the African markets. Export is still mainly based on primary and on some agricultural products. As such, it is evident that trade with other Central and South African countries is responding to the RSA’s industrial and

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employment objectives since more high-value manufactured goods can be sold here. Since the exports to these African regions comprise around 20% of RSA’s global export to the world, the country remains committed to build mutually beneficial trade relations. In general, Africa is by far the second most important export market for most African countries after the EU (however, also Asia is catching up fast as exporting partner for African countries and is now almost as important as Africa). This is the reason why in history the RSA always has been part of several union and partnership with African countries. There are several continental and regional plans in this respect. (1) The African Union (AU) is a continental union consisting of all African countries except Morocco. It is committed to a people-centered union that defines and implements the African Agenda through country participation. As such, the AU has created the Agenda 2063, a strategic framework for the socio-economic transformation of the continent. (2) The Southern African Customs Union (SACU) is the oldest customs union in the world. It has been established in 1910 and promotes regional integration through economic development between countries. This union reaches the governments of the RSA, Botswana, Lesotho, Namibia and Swaziland. (3) The Southern African Development Community (SADC) was definitively adopted in 1992 and has 15 members which includes the SACU countries plus Central African countries such as Democratic Republic of Congo, Tanzania, Zambia, Zimbabwe, …. SADC is an intergovernmental organization that promote political, socio-economical and security cooperation in that region.

Regional relations are very important for many countries in the region, who depend on intra-African trade to a much great extent. As the South african trade policy and strategy framework (2010) cite: “Five African countries have exports to Africa that are larger than half of their total exports; while a further 14 countries export more than a quarter of their exports to Africa.” In fact, over three quarters of intra-African trade takes place thanks to regional trade agreements. Regional relations hence are relevant institutions, which must be advanced as important factors for strengthening intra-African trade.

The RSA and other African countries are trying to harmonize their trade. The RSA for example hoped to harmonizing its trade with the SADC-countries by entering the EPA SADC negotiations, even if the RSA already had a trade agreement with the EU. By doing that, the TDCA would be of less importance. They hoped that the EPA SADC would strengthen regional integration while at the same time the single trade regime with the EU would be maintained. This hasn’t been the case as the EPA SADC appears to “limit the region’s development policy space, hamper[s] efforts at trade diversification, and undermine[s] existing integration processes in SADC and SACU” (Department of trade and industry of South Africa, 2010, pg 31). The EPA SADC contains five sets of separate trade relations and regimes, varying considerably from one another. This creates new trade policy divisions in the region as the varying measures comprise commitments in different sector such as services, investment, competition and procurement.

● The South-South relationship Beside a regional cooperation there is a broader need of combining forces of the emerging economies, as to become full-fledged competitors in a global economy. This means emerging economies would not belong to the periphery anymore but become a real trading partner. The RSA is fully aware of the importance of creating strong relationships with other emerging economies. Whereas South-North cooperation often locks developing countries in low-value added export and production, the South-South cooperation, on the other hand, can be a real opportunity for the RSA to conclude agreements which offer a more diversified and value-added export basket. The RSA department of trade and

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industry argues the relationship with other Southern emerging countries has brought mainly low-value added export up until now. They claim the RSA needs to strengthen its industrial development and upgrade its economy by fostering complementarities in their industry, agriculture and service sector and by avoiding to open its economy to destructive competition. There is no point in opening the market if it puts pressure on domestic markets and causes more unemployment (TDI, 2010).

Up until today, the RSA has established several trade agreements with emerging Southern countries. ‘Mercosur’ is the name of a preferential trade agreement between SACU-countries and Argentina, Brazil, Paraguay and Uruguay. It offers tariff reductions on about 1000 product lines on each side of the border. South Africa has trading relations with China too. In 2014 the two countries signed a 5 to 10 year strategic programme on cooperation. It enhances several bilateral cooperations such as “political mutual trust and strategic coordination”, “mutual beneficial economic cooperation and trade”, “people-to-people exchanges and cooperation”, an action plan on agriculture, African affairs and China-Africa relations and cooperation in international affairs and BRICS-related issues. A number of new and renewed agreements were signed in 2015, only a year later. The topics of agreements are various: nuclear, renewable and offshore petroleum resources development, energy and its distribution system, investments, (maritime) transport, skills development and capacity building, research, technology innovation and technology transfer, environment conservation and management, medical and health sciences, cultural and exchange expertise, etc. The SACU countries also have ongoing negotiations for a preferential trade agreement (PTA) with India. This country is currently the 6th largest trading partner for the RSA. In august 2015 the Minister of Trade of SACU, Sir Niki Kruger, explained in the Economic Times that the negotiations were delayed because of differentiating trade regulations between India’s provinces. For example: for some products it is too difficult to move between the different provinces in India (The Economic Times, 2015).

● Summary In the nineties, the RSA has been liberalizing its mineral resources sector and as such creating an efficient and capital intensive kind of industry. Besides, the RSA has been reducing its tariff regime in order to enhance more transparency and become a respected global trading partner. The country has also been working on the intensification of economic and trade agreements with several regions in view to diversify and intensify its exports.

Nevertheless, the economic indicators reveal the exports have intensified but not necessarily with the desired results. As the department of trade and industry explains “despite the surge in South African export since 1992, growth has not kept pace with developing countries such as India, China and Brazil. South Africa’s growth in exports has been at least 11% slower than these countries. South Africa is ranked “24th amongst developing countries and 47th overall in terms of its presence in exports of dynamic products in world trade that show the most sustained gains in world market share” (Department of trade and industry, 2010, pg 13).

Furthermore, the basket of export goods remains largely unchanged to date. It is surprising how much the RSA still seems to be trapped into the export of mineral resources whereas the export of value-added products such as ferrochrome or stainless steel hasn’t really increase. The successful manufacturing export is to a greater extend a result of prior and ongoing industrial policy, notably – as already mentioned- in the automotive sector during the apartheid era.

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This is why we should question ourselves if the openness of the RSA’s economy and trade with some regions really has been an advantage for the country. The concluded agreements between the regions didn’t always seems to favorite the diversification of the RSA’s exports. As mentioned above, the Department of trade and industry of South Africa affirm that the EPA SADC hampers the efforts at trade diversification in the SADC and SACU.

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5. Research Results

First of all, it is important to repeat the leading vision that was used through the research: a solidary society in a regionalized world guided by a global perspective. We therefore can situate ourselves in the section “global solidarity” of the following figure:

Figure 17 : Four types of views concerning sustainability issues (Milieu- en Natuur Planbureau, 2006).

As already explained we realize that circular economy could fit into this vision. Although the case of solidarity within this concept has very little been researched. Since we weren’t able to find significant empirical evidence, we chose to make the research on a particular case: Stainless steel (made out of cokes coal, chromium, nickel and iron) and the Republic of South Africa. The literature and research on the market fluctuations of mineral resources, the recycling cycles and the existing geopolitics gave us a better understanding of the global mineral resources sector, the product life cycle of stainless steel and the relationships between countries. The RSA’s international and domestic trade relations offered us a better awareness on the country’s overall economy and of its market situation of mineral resources and chromium. The conversations with professor Eggert and Humphreys also provided us with interesting insights and an overall view on which issues we should investigate more (Personal communication, June 1 & 3, 2016).

First of all, one cannot deny that the implementation of a circular economy requires firstly a switch in mentalities. Without any doubt, it will also necessitate completely new business models wherein design and assemblage, closer stakeholder’s cooperation to foster transparency on the material flow and systematic recycling of scrap occurred during the manufacturing and at the end-of-life stage are core focus points. As already mentioned, social commitment and political measures will be key factors to achieve a circular economy. Furthermore, legislations need to be put in place, e.g. to create a European waste legislation and control against illegal export of scrap. All these measures aren’t simply implemented without judicious reflection and discussion between the European governments,

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regions, the business world and through public participation. Moreover, a circular economy is certainly not something that can be implemented all of a sudden - it is a process.

The second argument which has had a great impact on the research results, is the fact that the reuse and recycling of all end-of-life scrap, historic waste and manufacturing scrap has been a little overestimated. The research and the conversations with professor Eggert and Humphreys pointed out that the current reusing and recycling process was not able to satisfy the continuing growth in stainless steel demand. There are two main reasons: 1) losses during the product life cycle will always occur. Even if Europe would reuse and recycle at a 100% capacity, there would still be losses because of the dissipation or losses during use. 2) Moreover, the demand in mineral resource use is not expecting to remain constant or to decline since the technology for renewable energies such as photovoltaic panels, wind turbines, hydropower etc. has a great demand for these resources.

We therefore must keep in mind that circular economy is a process, which will never be self-sufficient. Imports from chromium out of the RSA to the EU will continue, but probably at a lower rate than today, according to the advancement of the European strategy to implement a circular economy.

The question is then: What would happen to the RSA if Europe would over the years gradually reduce the import of chromium because the reducing, reusing and recycling of stainless steel products would be improved? We will first discuss what might occur on the economic market of chromium and which implications it might have for the RSA. The political aspect between Europe and the RSA will be analyzed too. Finally, the environmental and societal impacts will also be discussed.

5.1 Economic impact for the RSA

The reduction of RSA’s export of chromium to Europe does not really result in a problem of (a) demand, but rather in a problem of (b) price fluctuations. EU’s demand for chromium has been quite marginal during the last decade, certainly in comparison with the Chinese or Indian demand in chromium, as indicated in figure 15. The demand reduction because of the implementation of a European circular economy will probably be stabilized automatically by emerging countries taking advantage of it.

The reduction of EU’s demand for chromium will instead have much more repercussions on the price volatility of the global chromium market. One has to keep in mind that the chromium market is extremely volatile. As Humphreys said in our conversation on recycling and the chromium market (Personal communication, June 3, 2016):

“The recycling market can be quite price sensitive, because stainless steel producers like to use scrap units [secondary materials]. Scraps are generally cheaper than new raw materials. When markets are slow, they will often tempt to use a disproportionate amount of scrap. So you will find significant variations. This is one of the reasons that the demand for nickel and chromium can be high variable. So when the markets are down, they don’t necessarily lose the sale of their units, they are just to some extent displaced, because of an increase in recycling.”

and:

“It [recycling] will slow down markets and their demand. It does lead to more extreme price variation in nickel and chromium. They generally have high price volatility. They will look to

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nickel and its price, its upturns and downturns, as the leading indicator for the nonferrous metal space. Nickel is often the one to change first. Chromium is a less visible market, but I imagine that you could probably read across, from nickel to chromium in this regard, because they are used in parallel in the stainless steel industry.”

Humphreys’ analysis corresponds with the literature of Chen (2010) about the impact of within-groups on price fluctuations. Since the RSA has been the world's main producer of chromium, one could imagine that they are looking closely at market changes of chromium but also to resources from the within-group: nickel, coal, iron, ... and that they have learned to cope with the volatilities of the market. Therefore, one could imagine that the RSA would know quite well how to react on a gradual reduction in demand from the EU. Still, we argue that the RSA will maybe have to be even more careful to these market volatilities in the future so that it would not have too much of an impact on the country’s economy. On the short term, it could probably have an impact on some communities whose main earnings come from the chromium mining and industry, but it would probably not have an impact on a national scale. Eggert shared the same opinion during our Skype-conversation (Personal communication, June 1, 2016).

Furthermore, the RSA has to be vigilant concerning the ferrochrome industry and its competitors in China. The fact that global chromium demand will be reduced, and hence the price as well, could trigger China to buy even more chromium from the RSA. This would have a negative impact on ferrochrome industries in the RSA. The country needs to anticipate that possible scenario by taking preventive measures such as export restrictions to China for example. We already explained the export basket of the country largely remained unchanged. Therefore, another measure would be to focus on other products so that overspecialization on one particular industry could be limited. The strong specialization on particular natural resources for export leaves resource-rich countries vulnerable. The focus on mining in these countries can, as long as the exploitation of reserves remains viable, lead into such a ‘specialization trap’, possibly accompanied by deteriorating terms of trade. Since a few decades a growing global demand for metals curbed the problems associated with this specialization. Stagnating or even declining demand will, on the other hand, reinforce these problems for resource-rich countries (Schaffartzik, et al., 2016, pg 102). That way we can see that resource-rich countries are de-linking their economic development path from the industrialized countries and instead are becoming very dependent on the performance of important emerging countries. Imagine what an economic downturn of China could induce to the RSA. This is why resource-rich countries such as the RSA have to focus on the manufacturing of other products for export. This could potentially help them being slightly less vulnerable when fluctuations in the ferrochrome industry occur.

The Department of Trade and Industry of South Africa defends the value of trading with emerging and South African countries (2010). The fact that the EU would reduce its trade with the RSA for chromium and ferrochrome could be an incentive for the RSA to foster trade relations with for example its neighboring countries. A slowdown in industrial countries will inevitably reduce resource-rich countries in their economic development, unless an alternative engine for growth is found. This alternative could be to broaden the panel of exported products, but also enhancing better trade with South African countries and become a harmonized group of countries. This is of course easier said than done, but the diminishing reliance on the EU could be a motivation and encouragement to stimulate the South African trade. In order to do so, there will be a need to forge a common approach between South African countries, both on the direction of future trade relations as on the content of future agreements. For example, the mistakes such as the side effects of the EPA SADC could not be tolerated anymore. Agreements also need to foster the diversification of exports. A harmonized group of Sout

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African countries could move from being traditional trading partners (e.g. Europe) to becoming new emerging economies. The same applies to trade with other emerging countries (South-south relationship).

Yet -as was stated earlier in the research- a circular economy in Europe will probably have an impact on the transparency of the stainless steel and to a further extent, the chromium market (Hagelüken, 2014). Transparency could be an incentive for the RSA chromium and ferrochrome market to work on environmental and safety measures in the mining, crushing, melting and transporting of the products. Although the Department of Mineral Resources pretend the country is working hard on these topics (2001), other sources state the opposite (f.e. several strikes because of harsh conditions in the mines). Since the awareness for and importance of environmental and safety values is growing so much in industrialized countries, taking measures on these aspects could create a positive and responsible image and attract foreign companies to invest in the concerned industry. Furthermore, a greater transparency of the market might prevent the dumping of electronic waste from Europe to developing countries. Hagelücken (2015, pg 114) explains that the waste is exported to Asian or African countries under the pretext of ‘reuse’, as such bypassing the Basel Convention regulations on trans-boundary shipments of waste. It is true that this informal economy is generating jobs for developing countries. Hence, these countries are benefiting out of the waste, while however, safety and environmental values are not at all brought into the picture.

5.2 Political impact for the two parties

Trade between two parties always induces a political relationship. Point in case here is the mineral resources trade: as discussed in the chapter on geopolitics, we could say that the political relationship is even more present because of the underlying relationship of producer versus consumer countries. (Humphreys, 2013). As such, if the EU would put circular economy into action, this would certainly have an impact on the political relationship with the RSA.

One such possible impact might be that the RSA could see the implementation of a circular economy as a strategy to deny them as important global traders. This would of course be completely wrong to believe since it would be strange for Europe to deny them. Stainless steel is a so called “mass-material-product”, which is used in important quantities for an enormous amount of applications. PGM’s for example are used in less applications but are very difficult to recycle with the existing technologies. Since the RSA is one of the leading countries in the export of PGM’s, it is likely that Europe will have to keep close trading relations in order to provide that material. If Europe was to put in place serious steps towards a circular economy, it would also be their responsibility to open the dialogue and possibly also foster other economic branches with the RSA. Economic branches which could not be regionalized. The EU might in one way or another compensate the RSA’s loss in economic development, for example by subsidizing technological development (backstop technologies or subsidiaries) for the RSA’s mineral resources industry.

Another impact which has already been pointed out, is that the RSA would probably gain in economic relations through the economic relationship with emerging and South African countries. This could constitute a new phase in the global economy, characterized by a hegemonic transition to peripheral resource-rich and emerging regions. This is something that might scare the EU and other developed countries since they always have been the center of discussion and decision making for important global economic and political policies. One could imagine that developed countries will keep a close

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eye on the developments in economic and political relations between the RSA and other developing and emerging countries. Hence, it wouldn’t be in the developed countries’ favor to put at stake the political and economic relations with the RSA (among others). Developed countries such as Europe and the U.S. will avoid furthermore to become excluded themselves in global negotiations.

5.3 Environmental and societal impact for the RSA

A circular economy definitely has a positive impact on the environment and the society. The concept has been thought through as a reaction against the linearity of product and materials. The philosophy behind circular economy is to circulate materials and mineral resources instead of throwing them away from ‘cradle to grave’ and the use of renewable sources of energy. The specificity of a circular economy is that all the different steps in the product chain are taken under the loop: from mining, to design, to manufacturing, to use and until the end-of-life. So, if circular economy would be implemented in Europe, the stainless steel production (highlighted in yellow on figure 13) would certainly go through an entire reform in order to be circular and transparent.

The heightened transparency of the product lifecycle could be an incentive for the RSA to work on the circularity of his chromium and ferrochrome sector. Improved treatment of tailings, slag, or other side streams from mining, smelting and refining can contribute to the resource efficiency and thus a lower environmental impact per tonne/mineral resources (UNEP, 2013). Johnson, Schewel & Graedel (2006) found out that chrome ore removed from the lithosphere, loses around 14% as tailings, 12% as ferrochromium slag, so that only 74% of the mined chrome ore is sent to fabrication and manufacturing. Moreover, primary metal production also has a substantial impact on the waste and energy use in the country. More efficient recycling during that production could be an improvement for the environment in the RSA and it would probably also offer new jobs in the recycling sector. The RSA could also benefit from these energy-savings since the country is well known for having problems to produce enough energy for its mineral resources sector (USGS, 2016).

By importing raw materials from developing nations, the developed countries have effectively outsourced a considerable amount of the environmental and societal impact associated with this production (Johnson, Schewel and Graedel, 2006 & Humphreys, 2013). Consequently, circular economy also has an impact on the outsourcing of environmental burden and labor issues. If all scrap generated during the product lifecycle would be recycled, less chromium would be bought from elsewhere and more and more materials and production would be generated within European borders. This means the environmental burden would be kept in Europe instead of having everything done in developing countries and only afterwards exported to the EU. This means we would get a better idea of which continents are generating the most environmental damage. Note that the related concept of "ecological debt" developed countries has in relation to developing countries was not treated. This refers to the exceeding for decades of the limits of environmental space at the expense of others.

The transparency of the product lifecycle could be an incentive for the RSA to work on the environmental burden, health and safety and the labor conditions of its workers. This is important since -as mentioned in the literature- chromium compounds are acutely toxic, chronically toxic, and/or carcinogenic (Papp, 2002). So in fact circular economy in Europe could be an opportunity for the RSA to foster the importance of environmental, health and safety rights. Besides, this could also develop a more positive image for the RSA, attracting the interest of foreign investments.

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A final matter that hasn’t been discussed yet is the concept of ‘externalities’. To remind the reader: externalities occurs when environmental and society costs or benefits provided by the value chain are not reflected in the price of a product or service. Circular economy does not include the problem of externalities. While circular economy surely does improve the overall product lifecycle of stainless steel in terms of environmental and societal impacts in Europe, the impacts in developing countries aren’t really taken into account. So, the principles of circular economy do not involve internalizing this remaining environmental and societal burden the product is causing. This demonstrates that circular economy, for this matter, lacks a mechanism of solidarity with developing countries. This side effect should one way or another be solved in order to enhance EU’s solidarity with the RSA. Again, this could for example be worked out by Europe supporting more transparency within the chromium chain in the RSA.

Finally, imagine only if other regions would follow the path of circular economy. It will create a world with strong, politically and economically integrated regions, between which a 'fair trade' is created instead of the current free trade where social and environmental externalities are not calculated into the price.

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6. Conclusion

A case study on stainless steel and the Republic of South Africa was chosen since the number of scientific articles and research on the solidarity concept of circular economy was little available. The importance of stainless steel in the industry and for future generations was the leading reason for choosing the product. Stainless steel is made out of cokes coal, chromium, nickel and iron. The Republic of South Africa is the world’s most important exporter of chromium and is still a country in expanding development. Furthermore, chromium has been listed as a critical raw material for Europe. This was the reason why we selected the RSA as a case study. The research results showed us several consequences of a European circular economy for the RSA that could be divided into the three pillars (economy, society, environment) of sustainable development and political consequences.

With regards to the economic consequences of a European circular economy, we argued that the gradual reduction of European demand in RSA’s chromium and ferrochromium would be stabilized by emerging countries since the export share to Europe wasn’t that significant compared to for example China. Rather, price fluctuations in the global chromium market would create a bigger problem for the RSA. These fluctuations will probably be more prominent because of Europe’s disproportionate use of recycled stainless steel. This could slow down the market and lead to more extreme price variations for the RSA’s chromium. So, even if the RSA has been used to cope with such fluctuations throughout their mineral history, it will surely have to keep a closer eye on it.

Another big challenge for the RSA would be to again strengthen its share in the ferrochrome global market, to specialize its economy also to other products or sectors and to try to foster as much as possible the relationship with other regions. These challenges aren’t really inherent to the implementation of the European circular economy. We believe the emerging new economies such as China are an important threat and play a bigger role in determining the position of the RSA’s chromium share in the global chromium market. The growing Chinese ferrochromium market is a perfect example. Trade with these new economies is important for the economic expansion of the RSA, but can also be a curse for several current economic sectors such as ferrochrome. The RSA’s ferrochrome industry is currently suffering from the boom in the Chinese ferrochrome industry. This is the reason why the RSA will have to determine its relationship with emerging countries and in this regards, its position in certain economic sectors. The reduction of the European economic presence in the RSA could be an opportunity to enhance even better political and trade relations with South African countries. A harmonized South African region need to be developed, creating a region with shared principles and a clear vision on the direction of future trade relations and on the content of future agreements with other regions.

In the meantime, Europe has to be careful regarding these political and economic relationships set up between the RSA, South African and emerging countries. Not to mention that the RSA could see the reduction of an economic trade from the EU as a denial of their mutual relation. Europe therefore needs to certify its relationship with the RSA by proving its alliance to foster the development of the country. The EU could for example help develop technological or recycling advances in the country, or encourage the access to education and healthcare.

A circular economy also has an impact on the outsourcing of environmental burden and labor issues. This means the environmental burden would be kept in Europe instead of having everything done in developing countries and only afterwards exported to the EU. Moreover, the transparency of a circular economy can also be a stimulus for the RSA to work on socio-environmental policies and practices. For

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the RSA it might also be also an incentive to save energy-production, seeing the occurring energy problems that prevail in the country. It could also be Europe’s duty to enhance this achievement in order to ameliorate the transparency of the product lifecycle and to keep good relationship with the RSA.

Of course the results of this research point to quite specific issue: a case study on stainless steel in relation with the RSA. Stainless steel is seen as a mass-material-product. Recycling technologies for such metals or products have been developed over centuries and are mostly capable of achieving high recovery yields today. Other case studies will probably give different results. The RSA does for example not belong to the Least Developed Countries (LDC). If a case study should be conducted on LDC’s, the results wouldn’t be the same at all. These countries would probably be much more reliant on Europe. If we had chosen to conduct the case on f.e. PGM’s of the RSA, it would probably also have given other results. It is evident that the recycling and the chain setup of these metals are fundamentally different. This will inevitably lead to significant losses of trace materials. All this to say that we are long away from having a circular economy for these metals and that significant import from the RSA to Europe will still occur in the following decades to come.

As was shown above, it is absolutely necessary for Europe to strengthens its solidarity with the RSA. The fact that Europe will reduce economic relationship for chromium with the country, but that it is f.e. still reliant on the RSA for the access to PGM’s demonstrates that it is actually a necessity for Europe to encourage dialogue in order to keep a good liaison with the RSA. It is important to understand that a regionalized circular economy always will have some products that cannot be regionalized. A good dialogue and economic relations between regions is therefore required.

To conclude, this dialogue should as a matter of fact be internationalized. Imagine only if other regions would follow the path of circular economy. Since the European circular economy and all other regionalized circular economies, will never be self-sufficient, it is important to keep an international cooperation and dialogue. This is why it is crucial to realize that circular economy cannot be seen as a strategy in itself but rather as a part of a strategy. As such, Europe still has the responsibility to work together with other regions on mutually beneficial activities. International concerns such as climate change is another example of international cooperation and alliance. Lastly, this is where we can see that the “global perspective” of our leading vision is of great importance when implementing regionalized circular economies, and that therefore circular economy only is a part of a greater global perspective.

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8. Annex

The review of the list of critical raw materials for the EU and the implementation of the Raw Materials

Initiative (European Commission, 2014):

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65