Clint Davis
CEO - North35 Capital Partners
Part of the Spotlight on Indigenous Reconciliation and Social Finance

Indigenous Economy: Towards A New Capitalism?

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Takeaways

  1. Through consultation, procurement strategies and other factors enabling growth, the Indigenous economy will significantly contribute to the Canadian GDP, potentially exceeding $100 to $150 billion in the next 10 to 15 years.
  2. Opportunities exist for the private sector through investing in Indigenous infrastructure and Indigenous businesses, and there is no ceiling on the growth of this market in the medium term.
  3. Social finance and impact investing will play a major role in financing the Indigenous economy, and millennial Indigenous entrepreneurs are focused towards doing well by doing good.

Action

To drive economic reconciliation, we must put in place hard Indigenous procurement targets within all levels of government throughout the country. Not only the Federal Government, but provincial governments, major municipalities and urban centres across Canada. We must also establish a variety of different funds and investment vehicles to support Indigenous entrepreneurs and to finance Indigenous infrastructure.


What are the challenges and opportunities faced by Indigenous entrepreneurs in the Canadian economy?

The main challenges faced by Indigenous entrepreneurs are access to support networks, mentorship and access to capital. It is well documented that Indigenous people still experience a socioeconomic environment that is well below the Canadian standard, and unfortunately there are many Indigenous people on the fringe of poverty. Entrepreneurialism is a vehicle through which they can achieve their own particular life and professional goals. For entrepreneurs in general, many are blessed with the opportunity to model themselves off a family member, family friend or colleague who is a valuable resource when starting a business. This does not exist for Indigenous entrepreneurs on a regular basis, so these are some of the biggest challenges.

Another challenge Indigenous businesses face is access to both human and financial capital. Over the last 30 years, we have been playing catch-up with the rest of the Canadian business community. Do not forget, it was not long ago that our people were living on the land and living in an environment that was not recognized as having value in terms of a contribution to the Canadian economy. 

“To really leverage the growth of Indigenous businesses we need to grow our level of capacity by mentoring these young people and providing them opportunities to gain valuable experience. Growth will be slow in the initial stages, but over time this will have a huge impact on the Canadian economy.”

Right now, increasing numbers of Indigenous young people are getting an education, and they have a new way of doing business and earning an income. They want to contribute. But there is still a gap in human capital. So, to really leverage the growth of Indigenous businesses we need to grow our level of capacity by mentoring these young people and providing them opportunities to gain valuable experience. Growth will be slow in the initial stages, but over time this will have a huge impact on the Canadian economy.

Opportunities are finally coming for Indigenous entrepreneurs. There is a new way of doing business in Canada. Starting projects on the land and trying to take something out of the land will require engagement with Indigenous communities. When we speak about resource development specifically, there is new recognition for a need to have a level of procurement from Indigenous businesses. Companies led by Indigenous entrepreneurs would have a competitive advantage provided that they meet the requirements that are needed for subcontracting.

“Another important opportunity stems from the federal government’s recent commitment to increase federal procurement from Aboriginal businesses from an average of less than 1% of total annual federal procurement spending since 1996, to a minimum of 5% now.”

Another important opportunity stems from the federal government’s recent commitment to increase federal procurement from Aboriginal businesses from an average of less than 1% of total annual federal procurement spending since 1996, to a minimum of 5% now.This increase will put over a $1 billion into the Indigenous economy. This is recognition that Indigenous people need a hand up, not a handout, to achieve their sales growth and grow their business like any other Canadian. 


What is economic reconciliation important to Canada’s future economy and what steps must be taken to further economic reconciliation going forward?

Economic reconciliation means opportunities and an equal playing field for Indigenous businesses to participate and be successful in the larger Canadian economy.It is important to Canada’s future because Indigenous people are recognized as a significantly fast growing segment of Canada’s population. Right now, we represent close to 5% of the entire population. And in some communities outside of major urban centres we are the majority of the population. This is where a lot of business takes place, particularly around resource development. So, it is vital that Indigenous people see that their rights are recognized and respected, and that they are involved in development within their territories from the start. Indigenous people can add value as to how development should take place, so consultation is profoundly important for the Canadian economy. We will make a remarkable contribution to the GDP and will support the country’s growth by being active members of the economy. 

“It is vital that Indigenous people see that their rights are recognized and respected, and that they are involved in development within their territories from the start. Indigenous people can add value as to how development should take place, so consultation is profoundly important for the Canadian economy.”

Over the last 20 years, there have been plenty of conversations about economic reconciliation. About 30 to 40 years ago, our active participation in business was quite small. Right now we have to focus on action, so the fact that the government is willing to commit to a hard number like 5% of federal procurement from Indigenous businesses is leaps and bounds up from where we were before. In 2018, I had a discussion with the former Minister of Indigenous Services, Jane Philpott, about Indigenous procurement. She said her department was reviewing procurement strategies for Aboriginal businesses. I participated in roundtables on this issue 15 years ago – the time for talk is over. We know what we need to do. We must put in place hard Indigenous procurement targets within all levels of government throughout the country. Not only the Federal Government, but also in provincial governments, major municipalities and urban centres across Canada. That would have a significant impact in creating opportunities for current entrepreneurs and considerable innovations for Indigenous young people who want to create their own business and take advantage of this opportunity. 

Another area we need to focus on in pursing economic reconciliation is establishing a variety of different funds and investment vehicles to support Indigenous entrepreneurs and to finance Indigenous infrastructure. North35 Capital Partners is in the process of raising a fund for infrastructure and it is taking a long time. This is because investing in Indigenous infrastructure is a unique offering for investors, where they will become part of building a foundation to create local and regional economies. People recognize that we are in the age of reconciliation, but it is still taking a long time to attract investors. Canadians tend to be inherently risk averse, particularly within the investment community in urban centres. Investors are used to standard, vanilla-type investments and anything perceived as risky, complicated or politically challenging is not seen as an attractive investment. This is unfortunate because there are tremendous investment vehicles out there that will do a great job of supporting Indigenous economies and businesses going forward.


What can we do to best align lending pathways with the needs of Indigenous entrepreneurs? What role do you see social finance and impact investing playing in the future of Canada’s Indigenous economy?

The state of lending to Indigenous business has improved, and financial institutions recognize there is a growing market there with virtually no ceiling to it at this point in time.

When we talk about Indigenous businesses, there are basically two types. There are economic development corporations that are community-owned, known as crown corporations. The shareholder is the Indigenous government, and the CEO is its staff member. They do not normally hold an ownership position within the company, and they oversee operating companies and joint ventures that they participate in. The other Indigenous businesses are Indigenous entrepreneurs who own and operate their own companies.

“Indigenous entrepreneurs do not necessarily have capital behind them, or collateral, so accessing capital is their biggest challenge.”

Major lending institutions see the value in doing business with Indigenous development corporations. But with small or medium-sized Indigenous businesses, there is a challenge from the risk perspective. Indigenous entrepreneurs do not necessarily have capital behind them, or collateral, so accessing capital is their biggest challenge.Some financial institutions, such as credit unions, are becoming creative with this. Otherwise, the Aboriginal Financial Institutions (AFIs) play a critical role in supporting Indigenous entrepreneurs because they understand the risk and are not predatory when they invest. This is invaluable.

“Social finance and impact investing are movements that will have a very positive impact on the growth of the Indigenous economy.”

Social finance and impact investing are movements that will have a very positive impact on the growth of the Indigenous economy, and they are spaces that are evolving as well. There used to be a perception that impact investing only generated below-market returns, and that it represented a higher risk for investors to lose money. The real hook for them was the big opportunity to do good. Right now social finance is shining a light on this, almost like the start of an evolution towards a new form of capitalism whereby business and investment have a social purpose— where you can do well by doing good. Particularly with Indigenous entrepreneurs who are millennials, there is a different perception of business’ responsibilities to the world. If you overlay that with their Indigenous upbringing and connection to the land, their desire to generate a return, earn money, make a responsible profit, and lead a good lifestyle— this creates the conditions for a great opportunity to contribute to society. Hopefully, investors will not be as risk averse to this model but will view risk in a different way than traditional lenders. Social finance will likely have a huge impact in this particular space.


What must be done to close the Indigenous infrastructure gap, and why is this important? 

Closing the infrastructure gap is the biggest challenge for Indigenous entrepreneurs. Around 60% of Indigenous entrepreneurs live and work in urban centres or near urban centres, which makes sense because they are closer to the market. When we talk about Indigenous infrastructure development, much of what would happen would be either in Indigenous communities or in regions close to those communities. So the benefit will primarily be for local Indigenous businesses and communities, enabling them to have the infrastructure that will be a foundation to create an economy. It will be very hard to attract investment or create an environment for young entrepreneurs to succeed if you do not have clean water, or a school that is up to the standards of schools in Ontario or Alberta, or an internet connection. These conditions are extremely prevalent in rural areas where Indigenous communities are predominantly found, especially in northern parts of the country. 

“The only way the Indigenous infrastructure deficit can be eliminated is if the private sector is actively involved in investing and supporting the narrowing of the gap.”

The responsibility for closing the Indigenous infrastructure gap lies in part with the federal government. Will they narrow the gap in the next five years? Absolutely not. The gap in infrastructure, according to the Canadian Council for Public-Private Partnerships (CCPPP),is estimated at $25 billion to $30 billion within First Nations communities only. If you take into account the 51 Inuit communities across Canada, it is closer to $50 or $60 billion. This cannot be eliminated in the near term.

“There are more opportunities for the private sector to support Indigenous entrepreneurs, Indigenous youth, Indigenous real estate and Indigenous infrastructure projects.”

The only way the Indigenous infrastructure deficit can be eliminated is if the private sector is actively involved in investing and supporting the narrowing of the gap. That is where our fund is trying to make a difference. Right now we are still in the fundraising mode, so we have not been actively working on projects. But between the National Aboriginal Trust Officers Association (NATOA), the National Association of Aboriginal Capital Corporations Association (NACCA) and North35 our trusts in the country are in excess of $10 billion right now, and they are being invested appropriately and building wealth. However, there are more opportunities for the private sector to support Indigenous entrepreneurs, Indigenous youth, Indigenous real estate and Indigenous infrastructure projects. We collectively have significant financial capital and investors are earning a good return off Indigenous business opportunities. So, we can fill that void and exercise our economic and financial independence while creating value for our communities.


Do you see an increased level of confidence among Indigenous entrepreneurs? Based on that, where do you see the Indigenous economy in 10 to 15 years?

Absolutely! Indigenous entrepreneurs’ confidence has been well documented. When I was the CEO of the Canadian Council for Aboriginal Business (CCAB), we conducted a study on Indigenous entrepreneurs specifically. This was around 2008, after the global marketplace lost 30% of its value. Many companies were going bankrupt and it was a challenging time in the business environment. But Indigenous entrepreneurs were actually quite confident. In fact, in some instances their sales were increasing. Without a doubt, increasing numbers of Indigenous entrepreneurs are confident in their capability and in their goals to grow their businesses. 

Another thing I have observed is the level of pride and recognition Indigenous young people have of their own ethnicity, background and family connections. Thirty years ago, many Indigenous people would hide the fact they were Indigenous because it was not a positive thing, or they would subject themselves to overt and blatant racism. Right now, young Indigenous people are more comfortable with their own identity, and have a strong sense of who they are. This is a very positive thing— they see themselves as Indigenous and are proud of it, knowing full well that they can do and be whatever they want in this country.

“Looking to the future, I think the Indigenous economy is going to exceed $100 to $150 billion in the next 10 to 15 years. There is really no ceiling to growth right now.”

Looking to the future, I think the Indigenous economy is going to exceed $100 to $150 billion in the next 10 to 15 years. There is really no ceiling to growth right now— the only thing that would stop us is the activity of the larger Canadian and global economies. Do we want to be fully integrated? Yes, and I think we will be. Obviously, the contribution of Indigenous communities, people and businesses for instance in Saskatchewan would be very different than in Newfoundland and Labrador because there is a higher concentration of Indigenous people in that province. But the Indigenous economy is part of the national economy. And it will evolve and get bigger within it as time goes on.