Gerdau: Integrating Scrap Metal Collectors into the Steel Value Chain
Continual growth in the production of goods results in high demand for raw materials. At the same time however, awareness for environmental issues and resource scarcity is also increasing.
As a result, industrial firms are employing increasing amounts of secondary raw materials for their production processes. In emerging economies and developing countries, it is mostly the informal sector that provides scrap metal, paper, plastic and other recyclable wastes and intermediates who provide to the industry. The informal sector consists of women and men, at times also adolescents and children, who work independently without any labor protection or social security and many times under precarious working conditions. Generally, this activity is the only respectable possibility they have to earn money.
The informal sector also plays an important role in steel production, which uses on average 40% of scrap metal worldwide. Given their lack of recognition and inability to provide an invoice, it is very difficult for the collectors to establish a direct commercial relationship with the formal market. Thus, they remain excluded from participation in economic and social life.
In order to address these challenges, Gerdau, the leader in the segment of long steel in the Americas and one of the main suppliers of special steel in the world, and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH joined forces.
As part of the develoPPP.de program sponsored by the German Federal Ministry for Economic Cooperation and Development (BMZ), the partners formed a Strategic Alliance to strengthen the organisation and management of informal sector actors in the steel value chain in selected Latin American countries.
Activities in the four components aim to achieve the following objectives:
1. Professionalise informal sector actors
Together with NGOs in the respective countries, trainings are conducted which improve, for example, the basic business skills of scrap metal collectors, their ability to identify different types of metal, and their awareness of safety precautions. The NGOs also support the waste pickers by organising themselves in cooperatives. Increasing their productivity and competitiveness is the first step for being incorporated into the formal sector.
2. Strengthen intermediary organisations and create a supraregional network
The aforementioned NGOs are being strengthened through capacity building and training activities. To foster know-how transfer, they have set up a supraregional network, which promotes the exchange of experiences and instruments between key actors of the value chain. By playing the role of moderators and facilitators, they provide the informal sector with expanded training opportunities and greater access to information.
3. Develop and implement a monitoring system for the entire value chain
A monitoring system is being developed and implemented, making it possible to quantitatively monitor and evaluate the impacts of the activities along the entire chain. The so called ‘CSR-ScoreCard’ keeps track of Key Performance Indicators (KPI) including the delivered scrap metal amount, price and quality, social indicators such as the compliance of labor laws, workers security and health, and environmental management indicators.
4. Anchor the focus in relevant policies of the participating countries at the local and national levels
In this component, an alliance with the municipalities is being sought. Based on the experiences of the first three components, efforts are being made to widen the application of the model and scale it up. If public policies take the informal sector into account, the impact extends to many other activities, for example, drawing up a municipal waste management plan.
3,000 waste pickers and scrap metal collectors are being trained, whereof 1,500 are being organised in cooperatives and formal companies. As suppliers they are enabled to establish long-term business relationships with Gerdau, either directly or via intermediaries, and empowered to thereby earn a sustainable income.
The integration of the informal sector into the steel value chain allows Gerdau not only to demonstrate its social responsibility; Gerdau also benefits from a more inclusive supply chain management and a more reliable supply of better quality scrap metal to be employed in its steel mills.
The project is creating a tool to measure and secure a sustainable integration of informal actors into the steel value chain; it creates structures that make the exchange of experiences and know-how between four different countries possible.
The organisational and economic strengthening of the informal sector generates sustainable impact even after project termination. In the light of a still growing demand for scrap metal, Gerdau will employ the new instruments and networks to replicate the project at other company locations. Lessons learned can also be replicated by other business or public actors to develop integrated recycling management systems in other sectors and regions of the developing world.
"The development partnership allowed us to combine our strengths and set up a project that can change the entire sector."
José Paulo Soares Martins, Executive Director of the Gerdau Institute