Download Engaging With Aboriginal Communities Offers the Potential of Big

Engaging With Aboriginal
Communities Offers the Potential
of Big Financial Rewards
by derek burleton
Vice President and Deputy Chief Economist (Canada), TD Bank Financial Group
FROM A CANADIAN BUSINESS PERSPECTIVE, THE POTENTIAL RETURNS OF ENGAGING WITH
ABORIGINAL COMMUNITIES ARE LIKELY TO ACCELERATE OVER THE NEXT DECADE. WHILE THE MOST
OBVIOUS POTENTIAL IS IN THE AREA OF RESOURCE DEVELOPMENT, COMPANIES IN OTHER SECTORS TOO
ARE INCREASINGLY COMING TO GRIPS WITH THE FACT THAT PARTNERING WITH ABORIGINAL PEOPLES
IS A SMART BUSINESS STRATEGY:
» Many employers are worried about longer-term structural labour shortages and actively looking for
solutions. One avenue is making more effort to connect with under-represented populations and
groups such as Aboriginals;
» While much of the focus is on the supply side of the economy, many companies are increasingly
regarding Aboriginal people in Canada as a growing consumer market for their goods and services;
» Many of these financial benefits of engagement are direct in nature. Still, there is growing recognition
by the private sector of the potential indirect payback to their operations. For example, more and
more companies are linking addressing Aboriginal education and social issues with Canada’s future
prosperity challenges. This fact has been underscored in the research of economists, who have
calculated that closing the education gap could yield huge improvements in economic activity and
government fiscal positions. Many companies are taking the view that what’s good for the country is
good for their respective business environment.
The upside potential offered by partnerships would not be possible without the expectation of large mutual
benefits. For example, as Aboriginal communities increasingly seek out opportunities in the market economy,
they can take advantage of the deep pockets, experience and talent of the broader private sector.
RESOURCE SECTOR PROVIDES THE MOST POTENTIAL FOR BENEFITS
The brightening fortunes of the resource sector over the past decade have opened the doors to significant
partnership opportunities. Canada is among the world leaders in production of energy and minerals, with overall
resource activity accounting for as much as one-fifth of Canadian GDP. And not only are many Aboriginal
communities located close to mining operations, but a significant amount of land and resources are controlled
by Aboriginal people, underpinned by land claim and treaty entitlement negotiations. It has been estimated that
since 1973, 21 comprehensive land claims have been settled – providing a total settlement of some $2 billion to
Aboriginal communities – while about 60 are currently underway.1
A major impetus for the growing trend of engagement within the resource sector took shape with two Supreme
Court decisions in 2004. These decisions established that governments have a duty to consult Aboriginal
communities about possible resource development projects and to accommodate potential adverse impacts.
Those landmark decisions reverberated through the resource sector, since they have encouraged
provincial/territorial governments and the private sector to more fully partner with Aboriginal communities in
the planning, development and implementation of natural resource projects. Impact benefit agreements
between resource companies and Aboriginal communities have delivered tangible benefits to these
communities, often in the form of equity ownership, business development, employment and royalty payments.
There remain challenges to successful engagement – chief among them are restrictions under the federal Indian
Act, cultural differences and the large diversity among Aboriginal communities. Still, a number of businesses and
Aboriginal communities have been managing to work around these hurdles with the help of past experience.
For example, rather than beginning formal relationships with Aboriginal communities late in a project’s life cycle,
many companies are proactively entering into agreements. Case in point, a report by the Aboriginal Affairs and
Northern Development Branch identified Kinder Morgan’s Trans Mountain Pipeline development as a best
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THE joUrNal of aborIgINal maNagEmENT
practice. In this example, this project “demonstrated that real engagement and transparency can ensure that
delays are minimized, even in complex cases where multiple boundaries, jurisdictions and over-lapping territories
are in play.”2
While conditions in resource markets will always be vulnerable to cyclical ups and downs, there is widespread
consensus that both demand and prices for key commodities will remain on a relatively high plateau over the
foreseeable future, spurred in part by growing resource demand in emerging markets. As such, effective privatesector engagement with Aboriginal communities will be an important determinant in how successful Canada
will be in leveraging these resource opportunities.
RENEWED SPIRIT OF ENTREPRENEURSHIP
Supported by resource wealth, there has been a growing trend towards Aboriginal entrepreneurship and “break
out communities.” The 2007 SME Financing Data Initiative revealed that 2.4% of small businesses in Canada were
majority-owned by Aboriginal Canadians. In absolute terms, this translates into about 25,000 businesses both
on- and off-reserve. The range of businesses that Aboriginal people are running is not isolated to one or two
industries, but essentially covers the gamut – from airlines to mining supply to business services.
Among Aboriginal businesses, economic development corporations (EDCs) – the economic and business
development arm of an Aboriginal government that pursues economic activity – have been becoming
particularly prominent over the past decade. According to the Canadian Council for Aboriginal Business, there
are more than 250 active development corporations, which, on average, employ about 185 individuals and have
been in business for almost 20 years.3
Derek Burleton received his
Bachelor of Commerce from
Queen’s University and an
M.Sc. in Economics from the
London School of Economics.
Derek has more than ten years
of experience as an economist
in the financial industry.
In June of 2010, Derek was
promoted to Vice President
and Deputy Chief Economist
for TD Bank Group. In his
current position, he heads a
team that provides leading
analysis on the Canadian
economy, financial markets
and government finances.
Derek has authored reports
on health care sustainability,
infrastructure and other
important policy areas that
have garnered considerable
national attention.
He frequently travels across
the country to meet with TD’s
clients and is often quoted in
the media on economic issues.
An important catalyst for the emergence of Aboriginal enterprises is the growing belief that Aboriginal people
can move into the mainstream economy without sacrificing their core values. Chief among them is the protection
of land and the environment. Today, many Aboriginal communities are making a mark in establishing
environmentally-focused ventures in areas such as renewables and alternative energy development.
POTENTIAL TO FILL LABOUR SHORTAGES
There continues to be considerable focus on the challenge of skills shortages facing Canada’s companies. This
attention reflects shorter-term cyclical pressures but also the longer-term trends of an aging population and the
declining labour force participation rates of older workers. In the resource sector alone, it has been estimated
that one out of every two current mining industry workers will need to be replaced in the next decade. As such,
tapping into under-utilized and valuable sources of available labour – and notably Aboriginal peoples – will
become increasingly important to bridging the skills gap.
The Aboriginal population is well positioned to take up some of the slack, given that it is very young and growing
fast. Indeed, Aboriginal population gains outstripped those of Canada overall by about four times in the 2006
census, while more than half of the Aboriginal population was under 30 years of age.
Second, Aboriginal people are becoming more educated and skilled. While 2011 census figures on Aboriginal
labour market outcomes have yet to be released, the 2006 figures did show some narrowing in the gap in
education attainment with non-Aboriginals. Significant differentials still clearly exist, especially with respect to
high school completion rates. Nonetheless, a 2009 report by TD Economics discusses a number of promising
shifts in education that could help to narrow the gap further over the longer haul.4
THE INDIRECT BENEFITS OF ENGAGEMENT ENORMOUS
To the extent that Aboriginals perform better in job markets, the indirect knock-on effects to Canada’s business
sector would accrue. In May 2009, the Centre of the Study of Living Standards (CSLS) issued a report that estimated
the following financial rewards to Canadian society of closing the gap in both education and labour market
performances with the non-Aboriginal population.5
1
Government of Canada Ministry
of Aboriginal Affairs and Northern
Development Canada.
2
Policy and Coordination Branch,
Lands and Economic
Development Sector, Aboriginal
Affairs and Northern
Development Canada. Report
prepared for the Calgary
Roundtable: June 8, 2012.
3
Canadian Council for Aboriginal
Business, “Community and
Commerce – A Survey of
Aboriginal Economic
Development Corporations”, 2010
4
Aboriginal People in Canada:
Growing Mutual Economic
Interests Offer Significant Promise
for Improving the Well-Being of
the Aboriginal Population; June
11, 2009. Available at
www.td.com/economics.
5
Andrew Sharpe, Jean-Francois
Arsenault and Simon Lapointe,
Centre for the Study of Living
Standards, The Potential
Contribution of Aboriginal
Canadians to the Labour Force,
Employment, Productivity and
Output Growth in Canada, 200117, November 2007.
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ENgagINg wITH aborIgINal CommUNITIES
AMONG THE KEY AREAS,
THE FASTEST GROWING
INCOME SEGMENT WAS
BUSINESS. LED BY THE
GROWING REVENUE
BASE OF EDCS, THE
TOTAL INCOME OF
ABORIGINAL BUSINESS
GREW FROM AN
ESTIMATED $4 BILLION
IN 2001 TO ABOUT $9
BILLION IN 2011.
» Under a best case scenario, where gaps in education attainment and labour market participation
rates are fully closed, real economic activity was estimated to be $401 billion higher between 2001
and 2026 (cumulatively). About $180 billion of that increase was attributed to erasing the differential
in education attainment alone.
» Under the status-quo, the estimated cost of the Aboriginal population’s above-average use of
government services as a result of “sub-par levels of social well-being” was projected to rise to
$8.4 billion in 2026 (2006 dollars). Not only would that cost be eliminated under the best case
scenario, but federal and provincial coffers would benefit from a total revenue gain of $5.8 billion.
Over the 25-year period, this would provide a cumulative benefit of $115 billion.
» These benefits would be most pronounced in western provinces, where Aboriginal populations
make up the largest share. As well, First Nations people, particularly those living on reserve, are
deemed to be the largest potential contributors to labour force participation and growth in the CSLS
analysis.
BUDDING CONSUMER MARKET FOR CANADIAN BUSINESSES
These are sizeable impacts, but what do they mean from a Canadian business perspective? For one, the benefits
to fiscal coffers point to the prospect of lower tax rates and improved government services compared to businessas-usual outcomes. As important, to the extent that Aboriginal people in Canada – both on and off reserve –
become more prosperous and flex their economic muscles, they represent a rapidly and potentially lucrative
consumer market for Canadian businesses.
In a 2011 report, TD Economics estimated the combined income of Aboriginal households, businesses and
government sectors to be about $24 billion, or roughly twice the level recorded a decade earlier. The implied
growth rate in income in the 2001-11 period was an impressive 8% per year, roughly twice that of the economy
as a whole. The growth reflected rising job creation, especially among Aboriginal people off-reserve and within
the resource and construction sectors.
Among the key areas, the fastest growing income segment was business. Led by the growing revenue base of
EDCs, the total income of Aboriginal business grew from an estimated $4 billion in 2001 to about $9 billion in
2011. Lastly, discretionary government transfers, which grew moderately over the decade, made up the remainder
of the pie.
TD Economics projects that the continued strength in resource development will set the stage for Aboriginal
incomes to eclipse $32 billion by 2016. If that level were achieved, the total income of Aboriginal peoples would
be greater than the level of nominal GDP of Newfoundland & Labrador and Prince Edward Island combined. On
a per-capita basis, the income tally remains considerably lower than the Canadian average. That being said, given
the growing financial clout of Aboriginal communities, Canada’s business community is likely to increasingly
take note and market their products and services accordingly.
SOCIAL RESPONSIBILITY ANOTHER “HIDDEN” ECONOMIC BENEFIT
The business case for engagement is being further driven by the growing requirement to act in a socially
responsible way. To this end, improved reputation and branding can result in a financial payback. Even in cases
where the requirements are embedded in legislation – for instance, under the Employment Equity Act, federallyregulated businesses are required to conduct workplace analyses in order to determine the internal
representation of Aboriginal people (along with other diversity groups) and to compare that to representation
in the external workforce – many large companies are beginning to see that progress in closing these gaps is in
their best economic interests. In order to up their game, businesses are developing successful supplier
relationships with Aboriginal firms, helping to build capacities of Aboriginal firms and communities in financial
management through mentorships. This is just an example of areas that can be tapped.
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THE joUrNal of aborIgINal maNagEmENT
Furthermore, there has been a number of cases in the last five years where poor relations with Aboriginal people
and communities have impacted the image of a company. Certainly the disputes involving mining companies
Platinex in Ontario and Taseko Mines in BC caused significant delays, regulatory hurdles and in the case of Platinex
a shelving of the project. There are various socially responsible financial indices, such as the Dow Jones
Sustainability Index and the Jantzi Social Index, which lists relationship with indigenous communities as a factor
to determine whether a company is socially responsible.
…THOSE BUSINESSES
THAT FAIL TO ENGAGE
COULD SUFFER LOST
OPPORTUNITIES AND
PROFITS IN THE FUTURE.
THE BOTTOM LINE
A number of key developments – from the legal requirement to consult about possible resource development,
to high resource prices, to labour shortages, to a budding consumer market – have raised the ante with respect
to the need for non-Aboriginal enterprises to engage with their Aboriginal counterparts. The corollary is that
those businesses that fail to engage could suffer lost opportunities and profits in the future.
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