“First Nations have had a credit crisis for 100 years,” said Greg Richard with Fiscal Realities Economists, a Kamloops-based consultancy. At one time, under the Indian Act, it was even illegal to lend money to First Nations on reserve. Today, many banks are still skittish about lending to First Nations because of concerns about securing collateral.
“In the First Nations context,” Richard told the Vancouver forum on November 26, “getting financing has always been a challenge.” That, he explained, is one of the biggest barriers to reducing the socio-economic disparities between First Nations and their fellow Canadians.
Richard believes that investment in people, in technology and in capital such as buildings and infrastructure is key to revitalizing First Nations. In Canada, public sector investment equals about $40 billion, a small slice compared to $188 billion in the private sector.
“What's more important?” Richard asked. “Not getting your fair share of private investment is going to cause more serious problems.”
While there are no statistics on private sector investment on reserves, Richard thinks that anecdotal evidence—a complete lack of industry and small businesses on many reserves—suggests that there is disproportionately even less private sector than public sector investment in First Nations.
In 2000, Richard conducted a study on the barriers to private sector investment in Aboriginal communities. He looked at comparable business case studies on reserve and off reserve. What he found was that it took four to six times longer to develop investment projects like shopping centres and commercial buildings on reserve.
“That's an investment killer,” he said. Time is money as costs and risks rise when projects drag on. One on-reserve development he studied took four years to complete. In that time, markets can shift and costs can rise undermining a project's feasibility. Off-reserve projects are usually completed in a quarter of that time.
“If you are a developer and you're putting your money at risk, which scenario would you prefer?” Richard asked. As long as development is slower on reserve, Richard explained, capital will flow off reserve where risk is lower.
Richard pointed to a number of challenges to improve the investment environment on reserves. Land tenure is key. “A great deal of time and money goes into negotiating the head lease and sublease [for on-reserve lands],” he said. “In the projects I've seen, this is one of the major stumbling blocks.”
On reserves, there's also an absence of regulatory harmony and jurisdictional certainty, poor access to traditional business financing, a lack of administrative capacity and little information about reserve lands and zoning. Non-native entrepreneurs and investors often have little understanding of First Nations too. These issues need to be addressed to facilitate increased private sector investment.
“We'll never reduce socio-economic disparities if the cost of doing business is higher on reserve than off reserve,” he said.
In the long term, Richard is right. It is going to be private sector investment that will eventually pull First Nations out of economic despair.
However, public sector investment—in social housing, governance capacity, education, health care, telecommunications and infrastructure—is essential to prime the economic pump and help create a favourable investment environment for the private sector.
What property developer will build a shopping centre in a community without basic water and sewer infrastructure? What entrepreneur will set up a business where there is no Internet connection? How can a company fill positions if the local people are poorly educated?
Phil Fountaine, Grand Chief of the Assembly of First Nations, nailed this point in his remarks to the forum on the second day. Some 103 First Nation communities have boiled water advisories, there's a housing deficit of 87,000 units across the country, 40 communities have no schools and per capita investment in Aboriginal education is $2,000 less than the national average.
“The kind of infrastructure necessary to attract investment is almost non-existent in First Nations,” Fountaine said. “We need significant investment in our communities.”
As Ottawa contemplates a stimulus package to bail out our sagging economy, attention—and investment—must be directed to First Nations, who are suffering from a perpetual credit and investment crisis.
Investing in First Nations would create greater economic and social returns to the Canadian taxpayer than bailing out greedy, shortsighted bankers or automakers churning out gas-guzzling beasts that nobody wants to buy. Given the youthful demographics of our Aboriginal population, a government “stimulus package” directed to this community would truly be an investment in our future prosperity.