Guide to the Circular Economy

Sustainability has become a critical part of future-proofing businesses. SMEs are increasingly moving towards sustainable circular economy practices.  The circular economy offers businesses an opportunity to reduce waste, manage resources more efficiently and find new ways to generate revenue. Instead of disposing of products and materials after use, businesses can repair, reuse or recycle them to extend their value. For South African SMEs, adopting circular economy practices is also a way to manage rising operating costs and reduce their dependence on raw materials. This guide explores how the circular economy works, its benefits and how small businesses can incorporate circular economy principles into their operations.

The circular economy is an economic system that focuses on reducing waste by keeping products, materials and resources in use for as long as possible. Unlike the traditional economy, where products are manufactured, used and eventually discarded, the circular economy encourages businesses to consider what happens to their products after use. For example, a furniture manufacturer can collect unwanted furniture, repair damaged pieces and resell them instead of producing new furniture using raw materials. The circular economy also encourages businesses to rethink how products are designed. Products that are easier to repair, maintain and recycle can remain useful for longer periods. According to the Ellen MacArthur Foundation, the circular economy is built around three principles:

• Eliminate waste and pollution: Businesses should design products and processes that prevent unnecessary waste rather than only managing waste after it has been produced.
• Circulate products and materials: Products should remain useful through maintenance, repair, reuse and recycling. This reduces the need to constantly extract new resources.
• Regenerate nature: Economic activities should support the restoration of natural systems. This includes improving soil health, protecting biodiversity and using renewable resources responsibly.

These principles encourage businesses to view waste differently. Materials that are no longer useful to one business may still have commercial value to another.

To understand how the circular economy works, it is important to know the difference between the circular economy and the linear economy. The linear economy follows a simple process where raw materials are extracted, products are manufactured, sold and then disposed of. Let’s compare two clothing manufacturers. A clothing manufacturer operating in the linear economy purchases fabric, produces garments and sells them to customers. Any unused fabric is discarded, while damaged clothes may eventually end up in landfills. The circular economy aims to reduce this waste at different stages of production and consumption. A clothing manufacturer operating in the circular economy can use leftover fabric to produce accessories, offer clothing repair services or collect unwanted garments for resale. The main difference is that the linear economy depends heavily on producing and consuming new products, while the circular economy seeks to preserve the value of existing resources.

South Africa faces several environmental challenges, including growing waste volumes, limited landfill space and pressure on natural resources. These challenges also create economic opportunities for businesses involved in recycling, manufacturing, agriculture and waste management. The 2025 Circularity Gap Report found that only 6,9% of materials entering the global economy were secondary materials, based on its assessment of 2021 material flows. This indicates how heavily the global economy still depends on newly extracted resources. In South Africa, transitioning towards a circular economy could help businesses reduce their dependence on imported materials, improve resource efficiency and support local industries. The country’s recycling industry already demonstrates the economic value of recovering materials. According to Petco’s 2025 annual results, its members helped divert 86 000 cubic metres of PET plastic and liquid board packaging from landfills in 2025. Beyond reducing waste, these activities support collection businesses, recycling facilities and employment opportunities across the recycling value chain.

Adopting circular economy practices can provide several financial and operational benefits for small businesses.

1. Reduced Operating Costs

Businesses can reduce expenses by using materials more efficiently and limiting unnecessary purchases. For instance, you might own a restaurant that monitors food waste. This improves portion planning and avoids purchasing ingredients that regularly go unused. Similarly, manufacturers can reduce production costs by identifying ways to reuse leftover materials. The financial benefits become more significant when businesses consider how much they spend purchasing materials and disposing of waste.

2. New Revenue Opportunities

The circular economy creates opportunities for businesses to earn money from products and materials that would otherwise be discarded. Clothing stores can introduce a resale section, while an electronics business can repair and sell refurbished devices. These circular business models can provide additional income without requiring businesses to manufacture entirely new products.

3. Improved Resource Efficiency

Businesses that rely heavily on raw materials are vulnerable to price increases and supply disruptions. Using recovered materials or extending the lifespan of equipment can help reduce this dependence. For SMEs, resource efficiency is particularly important because unexpected increases in operating costs can affect cash flow.

4. Stronger Customer Relationships

Circular economy practices can encourage customers to return to a business. Repair services, refill programmes and product return incentives create additional opportunities for customer engagement. For example, a skincare business offering refillable containers gives customers a reason to return when their products run out. However, businesses must ensure that these services are convenient and financially viable. Customers are unlikely to participate in a programme that costs significantly more or requires unnecessary travel.

There are several ways businesses can incorporate circular economy principles into their operations.

1. Product Repair and Refurbishment

This model involves repairing damaged products and restoring used products for resale. Electronics, furniture, appliances and clothing businesses can benefit from offering these services.

2. Product Rental and Sharing

Instead of selling products permanently, businesses can rent equipment to customers who only need it temporarily. Examples include construction equipment, event furniture, photography equipment and specialised machinery. This model allows one product to serve multiple customers throughout its lifespan.

3. Refill and Reusable Packaging

Businesses can reduce packaging waste by allowing customers to refill existing containers. This approach can work for cleaning products, certain cosmetics and household products.

4. Recycling and Material Recovery

Businesses can collect, sort and sell recyclable materials to manufacturers or recycling facilities. Materials such as paper, metal, glass and certain plastics can have commercial value when collected in suitable quantities and conditions.

5. Turning Waste Into New Products

Some businesses can transform unused materials into products with commercial value. For example, textile offcuts can be used to produce handbags, while suitable agricultural residues may be processed into compost or other useful products. This approach is sometimes referred to as upcycling, although the commercial value of the final product depends on production costs and customer demand.

Transitioning to a circular economy does not necessarily require expensive equipment or major operational changes. Small businesses can start by reviewing how they use resources and identifying areas where waste can be reduced.

1. Conduct a Waste Assessment

The first step is identifying the types and quantities of waste generated by the business. A restaurant may produce food scraps, packaging and used cooking oil, while a manufacturer may generate fabric, metal or plastic offcuts. Businesses should record how much waste they produce, how frequently it is collected and how much they spend on disposal. This information can reveal opportunities to reduce costs or recover materials.

2. Review Product Design and Packaging

Circular economy practices should begin before a product reaches the customer. Businesses can assess whether their products are durable, repairable and easy to recycle. When considering sustainable packaging for small businesses, it is important to evaluate whether local facilities can actually process the chosen materials. Packaging described as biodegradable or compostable does not automatically break down safely in ordinary landfill conditions.

3. Identify Opportunities to Reuse Materials

Businesses should investigate whether leftover materials can be used internally or supplied to other companies. This practice is known as industrial symbiosis. The National Cleaner Production Centre South Africa operates an Industrial Symbiosis Programme that helps businesses identify opportunities to exchange unused resources. Its free facilitation service connects companies that have surplus materials with businesses that can use them. For SMEs, this demonstrates that waste reduction can extend beyond internal operations through partnerships with other businesses.

4. Build Relationships With Recycling Businesses

Businesses do not need to establish their own recycling facilities to participate in the circular economy. They can work with established recycling companies, collection centres and waste reclaimers.

5. Introduce Repair or Return Programmes

A product return programme allows customers to bring unwanted or damaged products back to a business. The business can then assess whether the items should be repaired, refurbished, reused or recycled. For example, if you own a furniture business, you can offer discounts to customers who return old furniture when purchasing replacement items. Before launching such a programme, businesses should calculate the cost of collecting, transporting and restoring returned products. A return programme may reduce waste but become financially unsustainable if these costs exceed the value recovered.

6. Measure the Results

Businesses should monitor whether their circular economy initiatives are achieving their intended outcomes. Useful measurements include:

• The amount of waste generated each month.
• Money saved through reduced material purchases.
• The quantity of materials reused or recycled.
• Revenue generated from repaired or refurbished products.
• Customer participation in refill or return programmes.

Businesses adopting circular economy practices should understand the regulations that govern waste management. South Africa’s National Environmental Management: Waste Act provides the legal framework for waste management and related responsibilities. The country also introduced Extended Producer Responsibility (EPR) regulations, which came into effect in 2021. These regulations require qualifying producers of certain identified products to take responsibility for managing their products after consumers have finished using them. The framework initially covered sectors including paper and packaging, electrical and electronic equipment, and lighting. Further product categories have since been included through regulatory notices. For businesses, EPR obligations can involve registration, participation in an approved producer responsibility scheme and financial contributions towards collection and recycling. However, the requirements depend on the business’s role, the products involved and the applicable regulations. SMEs that manufacture, import or place relevant products on the South African market should confirm whether they qualify as producers under the applicable rules. Businesses can access regulatory information through the Department of Forestry, Fisheries and the Environment.