The Southern Bifurcation of the Circular Economy: Scarcity, the Informal Sector, and Multiple Pathways of Sustainable Transition

I. One Concept, Two Realities

The circular economy has become one of the core narratives in global sustainable resource governance. Its basic premise is clear: shift the linear production and consumption system of "extract—use—dispose" toward a closed-loop system characterized by resource efficiency, reuse, and waste valorization. This narrative has been repeatedly reinforced within the United Nations system, regional policy frameworks, and mainstream ESG investment language, and is widely regarded as a key lever for achieving the Sustainable Development Goals (SDGs) and climate goals.

However, there is a clear gap between the concept's universal claims and its empirical basis. The main empirical source of existing circular economy research is the problem of material excess in high-resource-consumption economies. Related research points out that global socioeconomic material stocks grew about 23-fold in the 20th century and accounted for roughly half of annual resource use—this is precisely the core contradiction that the "Northern version" of the circular economy must respond to: using too much and discarding too quickly.

But if the same conceptual framework is transplanted to low-income and lower-middle-income economies where resources are scarce, the informal economy accounts for a high share, and gaps in basic services remain significant, the nature of the problem changes. There, scarcity rather than excess is the main constraint on achieving the Sustainable Development Goals. This judgment constitutes the core starting point of the relevant systematic review in Nature Sustainability. Based on 183 peer-reviewed articles, the study systematically reviewed the actual manifestations of the circular economy in the Global South and reached a conclusion with considerable impact on policy circles: circularity in the Global South is structurally different from the picture described by mainstream circular economy literature.

II. Threefold Differences: Bottom-Up, Livelihood-Driven, and Socially Adaptive

The first difference identified by the study is how circular solutions are generated. In mainstream circular economy narratives, the circular transition is usually described as a top-down process jointly driven by policy and industry, relying on regulations, industry standards, supply chain management, and business model innovation. In empirical materials from the Global South, however, circular solutions are markedly more "bottom-up," centered on the community and household levels, and often occur within the informal sector.

The second difference lies in motivation. In the Northern context, the circular economy is mainly driven by environmental concerns—decarbonization, waste reduction, and reducing resource intensity. In many cases in the Global South, however, the primary drivers of circular practices are socioeconomic needs and cultural conventions: repairing because resources are scarce, reselling because income is limited, and sharing because of community networks. Environmental benefits are often a byproduct rather than the starting point. Existing research summarizes this as the "necessity-driven circular economy."The third difference lies in enabling conditions. The mainstream literature tends to regard the commercialization of technological innovation as the core engine of circular transformation. But experience in the Global South shows that what actually works is often not cutting-edge technology, but socially and technically adaptive arrangements: localized repair skills, affordable substitute materials, community-level organization, flexible division of labor and transaction rules. These arrangements are not necessarily technologically sophisticated, yet they are highly attuned to local price levels, labor structures, and institutional environments.

These three differences point to the same judgment: the circular economy is not a technical solution that can be standardized and exported, but a set of institutions and practices deeply embedded in specific socioeconomic contexts.

It should be emphasized that the “Global South” itself is a highly heterogeneous category. It includes both middle-income economies that already possess considerable industrial capacity and low-income countries where gaps in basic services remain prominent. The above differences describe an overall tendency presented in the literature, rather than a uniform picture applicable to every country—this distinction is crucial for subsequent policy discussions.

III. The Informal Sector: Underestimated Circular Infrastructure and Overlooked Risk Bearer

If the Global North has a visible set of circular infrastructure—municipal sorting and recycling systems, extended producer responsibility schemes, formal remanufacturing industrial chains—then the Global South in fact operates another system, mainly borne by the informal sector. Waste pickers, itinerant recyclers, second-hand markets, repair workshops, and e-waste dismantling sites constitute the actual underlying network of material circulation in cities and rural areas.

This system has long been in the blind spot of statistics and policy. It contributes substantial resource recovery and value retention, yet is rarely incorporated into the formal indicator system of the circular economy; it bears the dirtiest, most dangerous, and lowest-paid segments of the circular chain, yet often lacks social security and occupational health protection. The cross-border flow and crude dismantling of e-waste are the most typical manifestation of this contradiction: resources are recovered, but health and environmental risks remain with local workers.

Therefore, simply romanticizing informal circular practices as “pristine sustainable wisdom” is a misreading. The real policy proposition is not to praise informality, but how, while recognizing its functional value, to improve labor conditions, reduce health risks, and enhance organization and bargaining power—that is, to find a viable path between “formalization” and “livelihood protection.” This is precisely the most intractable balance in urban governance in many developing economies, and also where circular economy policies are most likely to fail.

IV. Structural Blind Spots in Development Finance and ESG

If one shifts the perspective from the practical level to the funding level, the differences become even sharper.Modern sustainable finance systems rely heavily on measurability. Carbon accounting, resource-efficiency metrics, ESG ratings, green bond certification, and dedicated circular economy funds are all built on one premise: projects have a clearly defined legal entity, auditable data, predictable cash flows, and verifiable environmental performance. Yet many real circular practices in the Global South lack precisely these conditions—they are dispersed, informal, small-scale, and oriented toward livelihoods rather than investment returns.

The result is twofold. On the one hand, these practices are almost invisible in statistical and rating systems, making it difficult for them to enter ESG funding pools; on the other hand, circular economy assessment frameworks designed on the basis of Northern experience may systematically underestimate or misjudge circular performance in Southern contexts. For example, a community self-organized repair and redistribution network may make a limited contribution in material flow accounting, but its role in employment, affordability, and community resilience can be quite significant.

This points to a more fundamental question: how should development finance and ESG systems adjust their methodologies to recognize circular arrangements that are “low-tech, high-social-return”? This is not merely a technical issue; it also involves who defines the metrics of sustainability—a classic global governance issue.

V. Governance Implications: From Model Outputs to Contextual Adaptation

The review’s final conclusion deserves serious attention from the policy community: inclusive circular pathways oriented toward sustainable development are strongly context-dependent and therefore require a more flexible, more empirically grounded concept of the circular economy. This has at least several implications for international development cooperation.

First, policy transplantation requires caution. Directly transplanting the institutional tools of the Northern circular economy—extended producer responsibility, strict recycling standards, high-threshold waste sorting requirements—into economies dominated by the informal sector may produce counterproductive effects: before a formal system is established, informal livelihoods are squeezed out first. Gradual formalization pathways and transitional support for small and micro recyclers may be more practically effective than one-off high-standard legislation.

Second, the tensions within the SDGs need to be addressed head-on rather than obscured by discourse. SDG 12 (Responsible Consumption and Production) is not automatically compatible with SDG 1 (No Poverty) and SDG 8 (Decent Work). If circular policies take resource efficiency as their sole objective, they may compress the income space of the most vulnerable groups; if they prioritize employment, they may delay the raising of environmental standards. Policy design must explicitly choose values between the two rather than pretend that trade-offs do not exist.

Third, asymmetries in South-South cooperation and knowledge production need to be corrected. The underrepresentation of the Global South in the circular economy knowledge system is itself a structural gap. When 183 publications barely sketch a picture of circularity in the Global South, what this shows is not that Southern practices are scarce, but that research agendas, publication mechanisms, and funding flows have long favored Northern experience. The absence of concepts often translates into the absence of policies.

VI. Conclusion: Plurality Is Not an Exception but a Governance CapacityThe Global South experience of the circular economy ultimately raises not a technical question but a question of development governance: who should define sustainable transformation, for whom should it be designed, and by what standards should it be measured.

Mainstream circular economy frameworks treat resource overuse as the primary enemy, which holds true in the North; but in many Southern economies, resource scarcity and gaps in basic services are the more urgent constraints. The two are not opposing goals, but they do require different policy sequences, different languages of indicators, different financing instruments, and different timelines.

Recognizing this diversity does not weaken the value of the circular economy as a lever for global sustainable development; it strengthens its credibility. A concept of the circular economy that can explain only Northern experience cannot support a truly global transformation. Long-term competitive sustainability capacity is built precisely on the accurate identification of contextual differences and institutional responses—this is both an academic proposition and a reality that international development cooperation and the ESG system must confront in the next decade.

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Source: Diversity of circular economies from Global South evidence, *Nature Sustainability* (2026). https://www.nature.com/articles/s41893-026-01901-z