The next big investment opportunity: garbage

Forget Bitcoins, trash is the next big investment. At least that's according to some strategists who believe this unusual asset class is set to grow

  • By Emerging Markets Editorial Team
  • 11 Apr 2013
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Amid talk about bubbles in gold, major central banks adopting extremely loose monetary policies that lower yields on nearly every safe asset, and stock markets hitting historic highs, strategists at Bank of America Merrill Lynch draw attention to garbage as the next big investment boom.

Emerging markets, which are growing faster than developed countries, are the place to look for opportunities as they will have to deal with the challenges posed by increasing waste products, the strategists said in a report headlined "No time to waste."

The waste management market is worth $1 trillion currently, and it includes municipal solid waste (MSW), industrial waste, waste-to-energy and sustainable packaging, as well as other areas, according to the report.

But by 2020, the waste industry's value could be worth $2 trillion, with Europe facing the toughest strategic challenges and Asia and South America seeing the fastest growth, the equity strategists estimate.

"We see opportunities across waste management, industrial treatment, waste-to-energy, wastewater and sewage, E&C [engineering and consulting], recycling, and sustainable packaging among other areas," they said.

At a global level, waste production is estimated at between 4 billion and 6 billion tonnes, with the highest levels in developed countries – two or three times more the level in emerging markets.

"However, emerging markets will present the greatest waste generation and waste management challenges and opportunities going forward," the strategists said.

With some 70% of global waste ending up in landfills and only between 25% and 30% being recycled, there is "large scope" for opportunity, they added.

BRICS TO THE FOREFRONT

The strategists identified "exciting opportunities" in the BRICS countries.

In Brazil, the sanitation sector "requires substantial investment," with coverage levels of 81% in water, 46% in sewage collection and 38% in sewage treatment.

The country needs to invest $180 billion to reach 100% coverage, especially in sewage, they estimated, adding that at the current rate of investment, this would take 60 years to achieve.

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But the private sector might step in after a sanitation law was approved in 2007 requiring all sanitation companies in Brazil to have a tariff regime established and regulated by a regulatory agency by the end of 2012.

"A regulatory framework that adequately remunerates investments should provide the key missing element to attract private investment," the Bank of America Merrill Lynch analysts wrote.

China, the world's most populous nation and one of the fastest-growing economies, has seen municipal waste output growing from 31 million tonnes in 1980 to more than 210 million tonnes in 2010, the largest figure of any country in the world, the report said, quoting data from Norton Rose Group.

The country is expected to produce twice as much waste as the US by 2030, according to the World Bank.

Under its 12th five-year plan, China is providing tariffs and subsidies to support the environmental protection industry, as it is looking to move away from landfill, which now takes up around 80% of waste, towards greater recycling, specialized waste management infrastructure and waste to energy, the strategists pointed out.

The Chinese government has launched "a number of initiatives to reform the severely under-resourced waste and water sector," they added.

"Companies that stand to benefit from this deregulation process present an interesting investment opportunity, in our view."

WASTE-TO-ENERGY

In India, there are opportunities in the waste-to-energy (WtE) sector, with the Ministry of New and Renewable Energy in the country estimating that municipal solid waste and sewage offer the potential to generate 1,700 MW of power, "although the technology is nascent and generation stood at only 100 MW in January 2013," the Bank of America Merrill Lynch analysts said.

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They noted that "in the 2013 financial budget, the Indian government said explicitly that it will support municipalities implementing WtE projects through different means, such as viability gap funding, repayable grants and low-cost capital."

Waste-to-energy is also an opportunity in Russia, where municipal solid waste is overwhelmingly sent to landfills.

"The remaining capacity of landfills is estimated to be 30-35%, meaning that Russia will need to double capacity to accommodate growing volumes of waste by 2025," the strategists said.

The country has the potential to recover up to 45% of waste by 2025, especially via waste-to-energy, if it can meet investment demand of around 40 billion euros, they said quoting the IFC.

Such an investment could generate additional revenues of 2 billion euros from recoverable materials.

Municipal solid waste is a problem for South Africa as well, where only 10% of it is recycled. Like for most emerging markets, the biggest challenge for South Africa is moving away from land filling, as its relatively low costs makes alternative technologies and practices seem financially unsustainable.

But the country has a National Waste Management Bill which has set a national target to cut by 70% before 2022 the amount of plastics, cans, paper, glass and tires that are sent to landfill. 

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  • By Emerging Markets Editorial Team
  • 11 Apr 2013

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 26 Sep 2016
1 JPMorgan 289,804.60 1219 8.81%
2 Citi 261,914.62 960 7.96%
3 Barclays 242,960.70 769 7.39%
4 Bank of America Merrill Lynch 234,940.65 844 7.14%
5 HSBC 199,787.93 812 6.08%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 27 Sep 2016
1 JPMorgan 27,842.68 49 6.95%
2 BNP Paribas 27,066.67 131 6.76%
3 UniCredit 26,306.88 128 6.57%
4 HSBC 21,119.91 104 5.27%
5 ING 18,225.10 113 4.55%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 27 Sep 2016
1 JPMorgan 13,539.40 70 10.98%
2 Goldman Sachs 10,577.65 57 8.58%
3 Morgan Stanley 9,254.31 46 7.50%
4 Citi 7,573.69 40 6.14%
5 Bank of America Merrill Lynch 7,346.61 35 5.96%