Waste Management 33 (2013) 1321–1323

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Waste Management

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Editorial

Informal sector activities: Economic influences on waste management systems

Informally transhipped items are a contemporary issue in wastemanagement in Europe. Groups of persons conduct collection andtreatment of wastes and materials without official authorisation,assignment or trading license. As a consequence, risks remain forenvironment and human health because the state-of-the-art treat-ments are not applied. Conversely, the rapid technological devel-opment of electrical and electronic equipment brings aboutshorter life cycles, whereby the informal sector supports the ideaof reuse. Items still usable are offered for resale, which can be fa-voured with regard to the waste hierarchy of the Waste Frame-work Directive.

In general, waste electric and electronic equipment (WEEE) andsecond-hand items are either transhipped to developing countriesand emerging markets via ports of Europe or informally collectedin Western European countries and transported into Eastern Euro-pean countries. There, a resale of old electronics takes place or theitems are dismantled for the purpose of recovering/selling valuablematerials.

Economic incentives are the main drivers for informal ship-ments of waste and second-hand products across national borders.Organized shipments overseas result from cost differences be-tween origin and destination country. Referring to WEEE, treat-ment and disposal costs are normally higher in industrialisedcountries and/or overmatch transportation costs to other coun-tries. Consequently, the economic incentive is determined by a costsaving with respect to profit maximization of involved parties.Conversely, individuals from Eastern European countries anddeveloping countries/emerging markets pursue informal collectionto maintain their livelihood. It is often not ensured because amajority of informal collectors originate from socially deprivedclasses and marginal groups. Accordingly, the economic incentiveis defined as satisfaction of elementary needs.

In general, the economic importance of a sector of an econ-omy is measured by its contribution to gross domestic product(Hemmer, 1989). Informal sector activities do not follow givenregulations and standards. Consequently, classification based oncurrent economic theories and policies is difficult to achieve.Nonetheless, effects on the economy can be observed. Informallyrecovered materials feed local, regional or even internationalindustrial sectors. The German Agency for International Coopera-tion (GIZ) conducted a study in 2010 and showed significant eco-nomic effects caused by informal sector activities (Scheinberget al., 2010):

� Informal activities cause environmental impacts (e.g. burning ofwaste).� Informal activities cause indirect economic benefits for munic-

ipalities at no direct costs to tax payers (cost savings mostly cor-responds to reduced collection costs).

http://dx.doi.org/10.1016/S0956-053X(13)00183-9

� Informal activities generate social benefits for performing indi-viduals and dependent family units.

Nevertheless, listed effects were often observed in regions situ-ated in developing countries. Waste management systems still lackan efficient execution with respect to state-of-the-art techniques,which leads to a positive contribution of informal collection, sepa-ration and treatment processes. Other basic requirements predom-inate when considering waste management systems in Europe.Following the detailed EU guidelines should result in a high stan-dard for waste treatment. The economic effects of informal activi-ties in developed countries are hardly comparable to the effectsincurred in developing countries. Especially, dependencies of legalentities responsible for waste management on revenues for recov-ered materials lead to the hypothesis that informal collection ofvaluable materials cause economic losses for mentioned stake-holders in Western European countries. Additionally, legal entitiesresponsible for waste management complain about the fact, thatinformal collected items are littered, which leads to additionalcosts for their scattered collection.

Investigations of economic effects caused by informal collectorsoriginating from Eastern European countries on costs and revenuesof legal entities responsible for waste management shall draw aclearer picture. Germany is chosen as a core region. Additionally,three different scenarios are considered for comparisons.

� First scenario (formal scenario) considers the official waste man-agement system in Germany without informal activities.� Second scenario (informal scenario) considers informal actors

collecting items directly after the end of the utilization phase(e.g. in front of waste collection centres). Afterwards, a ship-ment takes place into Eastern European countries and a reuse/resale of informal collected items is conducted.� Third scenario (formalized scenario) considers an informal col-

lection of still usable items conducted on a structured and mon-itored basis. It regards the implementation of an association ofinformal collectors, whose members collect in accordance tostrict guidelines (e.g. no collection of scrap metals or WEEE).

Three different fractions are regarded considering the perspec-tive of legal entities responsible for waste management (hereinaf-ter ‘‘WMA’’, waste management association): WEEE, bulky wasteand scrap metals. Each fraction is analysed within defined systemboundaries.

Scrap metals are transported to waste collection centres (WCC)by citizens. Delivered metals are stored at the WCC and afterwardstransported to recycling facilities. The WMA receives revenuesby selling the scrap metals to the recycling facility. Samesystem boundaries apply for bulky waste. Contrariwise, waste

Fig. 1. Development of gate fees/revenues for collection group 2 (data from Euwid 2007–2012).

1322 Editorial / Waste Management 33 (2013) 1321–1323

management associations pay for the treatment of bulky waste.Considered costs comply with gate fees at incineration plants.Referring to WEEE, waste management associations can take upan option on the collection and treatment of WEEE in accordancewith the German WEEE Act (§ 9(6) ElektroG). In this case, respon-sibility is borne for a minimum one year period and legal notifica-tion to the official implemented coordination body (StiftungElektro-Altgeräte Register (EAR)) is required. Consequently, deliv-eries of WEEE at recycling facilities lead to gate fees or revenuesfor the WMA, which is dependent on market prices of the materials(Fig. 1). According to the German WEEE Act, different sub catego-ries of WEEE are considered.

� Collection group 1: Large household appliances.� Collection group 2: Refrigerators and freezers.� Collection group 3: IT and telecommunications equipment, con-

sumer equipment.� Collection group 5: Small household appliances, lighting equip-

ment, electric and electronic tools, toys, sports and leisureequipment, medical products, monitoring and controlinstruments.

Except collection group 4 (gas discharge lamps), which is of lessinterest for informal transhipments, monetary data is available foreach collection group (Euwid 2007–2012). Fig. 1 illustrates mini-mum and maximum gate fees (+€) and revenues (�€) of the collec-tion group 2 in Germany.

The curve progressions presented display minimum and maxi-mum gate fees at German recycling facilities between 2006 and2012. Thereby, values illustrate gate fees, deliverer of WEEE(collection group 2) pay (‘+’, delivery costs) or receive (‘�’, deliveryrevenues). A subsequent market stabilisation results in revenuesfor delivering actors despite a price depression in 2009 due to

Table 1Total costs (�€) and revenues (+€) per ton of WMA for each scenario and fraction.

1. Formal scenario 2. Informal

Min ø Max Min

a. Scrap metals 80.5 119.4 159.2 –b. Bulky waste �79.6 �205.5 �308.6 –c. WEEE CG1 130.5 142.6 144.2 –d. WEEE CG2 �99.5 �67.4 �45.8 –e. WEEE CG3 �99.5 �64.9 �40.8 –f. WEEE CG5 20.5 77.6 124.2 –

CG = Collection group.

the economic crisis. In January 2012, one ton of collection group2 generated delivery revenues of up to €35.

Next to gate fees at recycling facilities, transportation costs,operational costs and costs for incineration of bulky waste are ap-plied. They display average information of treatment plants andwaste management associations in Germany. Moreover, costs andrevenues are subject to wide fluctuations. Consequently, each va-lue is expressed with a minimum, average and maximum value.

Resulting total costs and revenues of WMA can be seen inTable 1 for each scenario (formal, informal and formalized) andeach waste fraction.

Referring to scrap metals, total revenues of one ton range be-tween €81 and €159 (formal scenario). Subsequently, an informalcollection of scrap metals lead to a loss of revenues of the sameamount (informal scenario). The formalisation of informal sectoractivities requires a ban of collection because scrap metals cannotbe subject to reuse processes. Accordingly, revenues resultingfrom scrap metals are available for the WMA (formalisedscenario).

On the other hand, treatment costs of bulky waste amount to€80 to €308 per ton considering the formal scenario. An informalcollection would lead to cost savings of same amounts for WMAbecause informal collected bulky waste is not available for collec-tion and treatment. Only costs for littered waste are accounted forthe informal scenario. They refer to additional costs for collectionand range between €0.3 and €0.6 per ton because the share of lit-tered amounts of one ton of formally collected materials wasdetermined to 0.5–1%. For minimum values no littering is assumed,which is true for the formalized scenario as well. Later scenarioconsiders an informal collection in accordance with strict guide-lines that prohibit illegally dumped waste. Moreover, the formali-sation of informal activities causes cost savings for the WMA(formalised scenario). Reusable household items, such as furniture

scenario 3. Formalised scenario

ø Max Min ø Max

– – 80.5 119.4 159.2�0.3 �0.6 – – –�0.3 �0.6 – – – €/t�0.3 �0.6 – – –�0.3 �0.6 – – –�0.3 �0.6 – – –

Editorial / Waste Management 33 (2013) 1321–1323 1323

or carpeting, are reused in the country of destination and, hence,are not available for treatment within Germany.

Costs and revenues per ton of WEEE for WMA differ accordingto collection groups in the formal scenario. WMA can achieve rev-enues per ton of €143 and €78 on average for collection group 1and 5, respectively. However, the collection and treatment respon-sibility for collection group 2 and 3 would result in costs of €67 and€65 on average. Differences can be explained by different gate feesat recycling facilities for the different collection groups. Referringto January 2012, revenues for the delivery of collection group 1and 5 are accounted to €200 and €135 per ton on average. Thedelivery of collection group 2 costs €20 per ton on average; thedelivery of collection group 3 results in neither costs nor revenuesper ton on average. Accordingly, collection and transportationcosts of the WMA can only be covered, if collection group 1 and5 are delivered at recycling facilities (formal scenario). Subse-quently, an informal collection of collection group 1 and 5 leadto a loss of revenues of same amounts, whereas cost savings arisefor WMA regarding the informal collection of collection group 2and 3. Only additional costs per ton of €0.3 to €0.6 arise based onadditional collection costs of littered waste. Within the formalisedscenario it is determined that only usable old electric and elec-tronic items are collected by informal actors. It refers to items,which are not covered by §3, sentence (1) of the EU Waste Frame-work directive. Accordingly, the informal collection of appliancesof collection group 1 and 5 would result in losses of revenuesand informal collection of collection group 2 and 3 would lead tocost savings for the WMA. The amounts equal costs and revenuesas presented for the formal scenario. Littered amounts are notconsidered due to a controlled collection of informals based onguidelines of the association they are belonging to.

In summary, informal activities cause different economic influ-ences. It may be stated that lower costs can result if total costs arehigher than delivery revenues received at recycling facilities con-sidering the perspective of the WMA. Missing amounts collectedby the informal sector result in decreasing costs of transportationand operation. Therefore, either the profit margin of one ton ofwaste offsets the loss caused by informal sector activities, or costsavings based on less waste available for treatment constitutes abenefit for producers. Revenue potential is directly linked to themarket prices of the recycled materials. An increase in marketprices for collection groups 2 and 3 could generate revenue inthe considered system without informal collection in future.

Referring to current market prices, it can be stated that reuseconducted by informal sector activities can have a positive eco-nomic outcome for the WMA. Moreover, taking into account adependency on collections with respect to their income, a pureban of informal sector activities would be socially counterproduc-tive. A structured and controlled accomplishment of informal col-lection would open up new opportunities to enlarge the (alreadyexisting) concept of reuse on an international level and, simulta-neously, would generate cost savings for the WMA consideringfractions such as bulky waste and some WEEE types. Initial inves-tigations with regard to formalisation concepts of the EasternEuropean informal sector are presented in the project TransWaste(see www.transwaste.eu).

References

Euwid Europäischer Wirtschaftsdienst GmbH, Marktbericht für Elektroschrott. In:Recycling und Entsorgung, vol. 02 07, p. 29; vol. 04 09, p. 21; vol. 06 10, p. 17;vol. 6 11, p. 25; vol. 06 12, p. 26.

Hemmer, H., 1989. On the economic analysis of the urban informal sector. WorldDevelopment 17 (10), 1543–1552.

Scheinberg, A., Simpson, M.H., Gupta, Y., 2010. Economic Aspects of the InformalSector in Solid Waste Management. GTZ (German Technical Cooperation).Eschborn, Germany.

Ulrike LangeInstitute for Waste Management and Contaminated Sites Treatment,

Technische Universität Dresden, Germany

Ulrike Lange is a PhD student at the Institute for WasteManagement and Contaminated Sites Treatment at theTechnische Universität Dresden, Germany. She isworking on the analysis of informal sector processes inwaste management and contributed to the EU-fundedproject ‘‘TransWaste’’. Together with her researchgroup, (ABF-BOKU [Lead partner], ARGE GmbH, BayZoltán Foundation for Applied Research, RepaNet Slo-vakia, SAT and Wameco) she investigated the structures,processes and formalisation opportunities of informalcollectors originating from Eastern European countries.