Blended Finance: A Blueprint to Support a Circular Economy in Indonesia

Like many rapidly urbanizing countries across Asia, Indonesia is faced with the challenge of reducing and recycling growing volumes of waste without the recycling infrastructure it requires. Increasing that challenge is the geographic reality of collecting waste across an archipelago of 17,000 islands. 

In October 2022, the U.S. Agency for International Development’s (USAID) Clean Cities, Blue Ocean—the Agency’s flagship program to address ocean plastic pollution under the Save our Seas Initiative—partnered with Circulate Capital and Prevented Ocean Plastic Southeast Asia to expand recycling infrastructure through new aggregation and collection centers that optimize the volume and value of plastic waste in Indonesia. The partnership blends public and private financing—combining the strength of USAID’s technical expertise with private investment—and targets local, well-positioned recycling companies that reduce the plastic entering our ocean. 

Blended finance strategically directs financing to advance development goals. In this case, U.S. development assistance is used to de-risk potential investments and attract private financing that expands recycling markets and promotes a circular economy. USAID is proud to partner with Circulate Capital, a leading investment management firm advancing the circular economy for plastics in emerging markets; and Prevented Ocean Plastic Southeast Asia, a plastic recycling company headquartered in Singapore that develops sorting and collection infrastructure to promote recycling best practices in Southeast Asia. Prevented Ocean Plastic Southeast Asia established a subsidiary, PT¹ Prevented Ocean Plastic Indonesia in July 2022, to develop recycling facilities in underserved communities across Indonesia.² USAID contributed nearly $400,000 and expects to mobilize $580,000 of private investment by Prevented Ocean Plastic Southeast Asia and its partners by 2024. 

This partnership strengthens the Indonesian recycling supply chain, supports livelihoods, and provides high quality traceable recycled plastic to global markets—creating environmental, social, and economic value that benefits all actors along the waste chain, from the bottle collector to the end consumer. 

Waste Collection in Semarang, Indonesia

The partnership initially focused on the city of Semarang, Indonesia—one of the largest cities on the island of Java—to expand collection and recycling infrastructure and build local government capacity for solid waste management planning. The waste processing facilities in Semarang are not keeping pace with population growth—in addition to the unexpected rise in waste resulting from the COVID-19 pandemic. When USAID began providing technical assistance to Semarang, the city had an estimated 32 community-based recycling centers built by the government with limited or no operations, due in part to inadequate budgeting and financial planning. USAID is working with local partner BINTARI to revitalize six community-based recycling centers and five waste banks to make them functional through improved operations and equipment—and to create an integrated system for solid waste management.

Other challenges facing Semarang’s recycling market include a lack of established local markets to send waste after it’s collected and a lack of awareness in communities on practices that maintain the value of recyclable materials—household waste segregation. Community members rely on the informal waste workers, who are oftentimes overlooked and undervalued, in filling the important municipal service of collecting, sorting, and recycling waste throughout the city.    

Promoting an Integrated Solid Waste Management System

To promote an integrated solid waste management system in Semarang, USAID targeted its assistance to building the fundamentals of a circular economy model: increasing data collection; investing in infrastructure that strengthens waste collection; developing markets for locally viable products; sustaining behavior change by increasing recycling; and including all members—including women—across the waste value chain. 

Within two months of receiving support from USAID’s Clean Cities, Blue Ocean, PT Prevented Ocean Plastic Indonesia has doubled its processing volume, and within eight months it is expected to increase its volumes six fold. Prior to USAID engagement, PT Prevented Ocean Plastic Indonesia was operating an aggregation facility in Semarang that received four to five metric tons (MT) of plastic waste per day. In May 2022, the existing facility was expanded using funds from Circulate Capital to become a regional hub for aggregation in order to improve the quality by removing contamination, optimize the value of plastics, and receive sufficient quantities of materials. USAID provided support through a grant to PT Prevented Ocean Plastic Indonesia for additional equipment—for example a forklift, truck scale, conveyor belt, etc.—to enable additional materials to be processed and recycled in volumes great enough to establish a sustainable, profitable recycling market and reach international buyers. With this support, the facility was expected to process about 30 MT of plastic waste per day—the equivalent of over three million plastic water bottles. After only two months in operation, the facility is already processing over 10 MT each day and is expected to exceed the 30 MT target by May 2023.  

The aggregation facility is generating greater volumes of higher quality plastics that are already reaching global markets, connecting Semarang to the global circular economy. For example, Prevented Ocean Plastic Southeast Asia partner Bantam Materials Ltd is helping PT Prevented Ocean Plastic Indonesia to distribute the materials to international companies to meet their recycled content demands and sustainability commitments. The approach Prevented Ocean Plastic Southeast Asia is taking to train waste workers and the transparency in their process is also helping to ensure traceable, high-quality materials and mitigate supply chain risks.

A focus of the work is building inclusivity, better livelihoods, and safer working conditions throughout the waste value chain—to ensure the informal waste collectors, especially women, participate and are recognized in the local waste system. By connecting waste pickers with access to the aggregation and collection facilities, establishing price standards, and offering safe working conditions where they can sort the waste, Prevented Ocean Plastic Southeast Asia improves working conditions onsite, but also promotes better practices with the informal workers who contribute materials. The equipment provided by USAID enhances the quality of the plastic material, and with Prevented Ocean Plastic Southeast Asia purchasing waste at an equitable price, the increase in value is passed on to the informal waste workers, many of whom are women. The expansion of the aggregation facility will help provide new income for roughly 100 individuals—both employees and local waste collectors sourcing materials. To complement this work, USAID’s Clean Cities, Blue Ocean local grantees—through the Women in Waste’s Economic Empowerment activity—are also training informal collectors at local waste banks across Semarang to properly sort plastic for ease of processing, and are promoting the aggregation facility as the primary offtaker in the city.

“Prevented Ocean Plastic Southeast Asia is partnering closely with USAID’s Clean Cities Blue Ocean program to stop plastic from entering the ocean, build the infrastructure required to sustain a circular economy, and improve coastal communities’ well-being,” said Daniel Law, Polindo’s Chief Executive Officer. 

“USAID is proud to partner with Prevented Ocean Plastic Southeast Asia to build an inclusive circular economy across Indonesia,” said Clare Romanik, USAID’s Lead Ocean Plastics and Urban Advisor. “This partnership demonstrates the power of blended finance as a model to scale solutions to the plastic crisis.”

Clean Cities, Blue Ocean is part of the Save Our Seas Initiative—USAID’s flagship initiative to combat ocean plastic pollution globally. Designed to support implementation of the Save Our Seas Act 2.0 of 2020, this initiative is supporting 14 country and regional programs in key geographies that represent 40 percent of total global mismanaged plastic waste.

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 ¹PT is Indonesia’s abbreviation for Perseroan Terbatas which means limited liability company (Ltd).

²Prevented Ocean Plastic Southeast Asia and  PT Prevented Ocean Plastic Indonesia were established as a result of Circulate Capital’s partnership with PT Polindo Utama (Polindo) and Bantam Materials Ltd (Bantam). Bantam has more than 17 years of experience in plastic collection and aggregation infrastructure, and has access to international markets and expertise in governance and traceability via its Prevented Ocean Plastic program. Polindo has 20 years of experience on the ground in establishing and managing plastic collection and aggregation infrastructure and as a manufacturer of recycled PET flakes in Indonesia.