Access to capital among the barriers faced by Indigenous groups when it comes to major projects: Conference Board report
A new report issued by the Conference Board of Canada suggests that more supports are needed to help Indigenous groups pursue the ownership and co-ownership of major projects.
Although Indigenous ownership of major projects across the country is increasing, access to capital is one of several barriers First Nations, Métis and Inuit groups face when provided with the opportunity to participate in projects.
“There has been a significant rise in Indigenous communities’ ownership of major projects across Canada, and a growing understanding across industries that Indigenous co-owners can bring certainty to these large-scale investments,” said Stefan Fournier, Director, Indigenous and Northern Communities at The Conference Board of Canada. “However, most Indigenous communities still lack access to the capacity and affordable capital needed to acquire meaningful levels of ownership. Industry, governments, and lenders collaborating with Indigenous communities can set the conditions for successful projects and shared prosperity.”
The report points to several benefits that can be realized from increased Indigenous ownership is major projects. These include reduced regulatory risk, accelerated permit approvals, improved communications channels, and better long-term alignment of interests between industry and Indigenous communities.
“Greater Indigenous involvement at the strategic level, with community-appointed board members in a position to impact all aspects of operations, is ultimately leading to better projects and more equitable benefit- sharing—building trust within communities while creating predictability for investors,” says the report.
The benefits flow both ways. Sharing in the ownership of, and revenues from, major projects helps create financial independence and economic freedom for Indigenous groups. This in turn reduced their reliance on transfer payments from the federal government.
Co-ownership generated other benefits, including, says the report, “unlocking a larger value chain of economic opportunities that local Indigenous-owned construction, engineering, and other firms are often well placed to participate in.”
Despite these benefits, accessing the resources needed to participate in major projects is not always easy for Indigenous groups. Although challenges vary among groups and according to their locations, all groups must incur substantial upfront costs to evaluate projects and make informed decisions as a community.
One of the required upfront costs involves creating of a legal entity that is separate from the community itself. Doing so enables the community to work around Indian Act financing restrictions, limit liability to community members, and ensure due diligence is properly conducted.
Additionally, participating communities must acquire the expertise, usually in the form of project managers, operational committee members, and project board members, to negotiate and exercise governance rights.
Matters can be complicated further when multiple Indigenous communities pool their resources to co-invest in a single project, and additional legal entities are needed to represent the coalition.
One of the solutions proposed in the Conference Board report calls for the increased use of loan guarantees by government. These tools, it says, “are an appealing way for governments to support equity participation in major projects because they do not require an outlay of cash and because they benefit from the due diligence already conducted by a lender.”