Government Barriers to Supporting Indigenous Economic Development

Views from a Former Government Insider

Economic development is one of those topics with an impressive breadth and depth of character. There are ways to approach it, methods by which to do it and values to frame it. In Canada, it is an area which has been shaped by a western interpretation of business; one where individualism and monetary profit are at the center of economic activity. Within this context, the creation of Indigenous wealth faces complex and persistent challenges.

Indigenous economic development is thriving in Canada. According to a 2020 RBC Report, the number of Indigenous business owners is growing at five times the rate of self-employed Canadians and Indigenous women are starting businesses at twice the rate of non-Indigenous women.[1] The strong network of Indigenous Financial Institutions (IFIs) are a testament to this thriving economic activity. During their 30-year existence, the IFIs have provided over 50,000 loans totalling more than $3 billion to businesses owned by First Nations, Métis and Inuit people and 95% of those loans have been fully repaid.

There is no doubt that Indigenous economic development and the broader Canadian economy are linked. The National Indigenous Economic Development Board’s 2016 report “Reconciliation: Growing Canada’s Economy” highlighted that the economic marginalization of Indigenous people costs Canada’s economy $27.7 billion each year.[2] There is value in supporting Indigenous entrepreneurship in Canada.

With all of this potential, Indigenous economic activity faces serious challenges. Some of these challenges are due to the specificities of Indigenous economic activity. For example, data shows that Indigenous businesses are generally unincorporated, smaller and more remote than non-Indigenous businesses. Many reports have documented how Indigenous businesses (of all sizes) face more challenges to access financing than their non-Indigenous counterparts and many are limited by colonial legislation which limits their opportunities.

But there is another set of barriers which are less often discussed: the challenges that exist within government structures that limit how much government supports Indigenous economic development. In my career within the federal public service, I witnessed three main types of government barriers to supporting Indigenous economic development.

1 – (Too Many) Siloed Pots of Funding

There are various pots of funding available to support Indigenous economic development initiatives across the jurisdictions of government – federal, provincial and municipal. Moreover, there are different departments or ministries within each jurisdiction that can fund economic activity. This is because one can come at Indigenous economic development funding from many different angles. Do you need to fund the training of individuals to get jobs? Or do you need funds to start or grow your business? Or to buy equipment? To adapt to climate change? To provide employment opportunities for women? Each of these funding needs would be covered by a different government organisation.

To add to the complexity, some of these funding pots overlap so that similar kinds of activities can be covered by more than one program. Government programs often contain clauses for Indigenous recipients allowing the stacking of funds to cover up to 100% of the total costs of a project. In fact, many programs encourage applicants to leverage funding from various sources and applications are evaluated favourably when they demonstrate leveraged financing. The issue, though, is that the onus is on the Indigenous entrepreneur, community or organisation to scout for and find the funding in order to piece it together like a giant financial puzzle. Depending on the size and scope of the economic project, this can be an arduous task.

Take an Indigenous renewable energy project, for example. Climate change and Reconciliation are currently two of the federal government’s priorities so there are many potential avenues for funding at the national level. The construction, set up and maintenance of an Indigenous renewable energy project could be eligible for federal funding from:

• Indigenous Services Canada or Crown and Indigenous Relations and Northern Affairs Canada (support for Indigenous economic, social and environmental development south of 60 and in the North);

• Natural Resources Canada (support for the advancement of the clean energy sector and initiatives that reduce greenhouse gas emissions);

• Environment and Climate Change Canada (support for projects that have a positive impact on the environment);

• Canada Infrastructure Bank (support for large infrastructure projects);

• Regional Development Agency (support to launch or grow small and medium sized businesses in specific regions);

• Employment and Social Development Canada (support to increase employment and facilitate training); and

• Science and Economic Development Canada (support to advance innovative technologies and practices).

Each of these departments can have more than one active program, all launched at different times and using different intake processes. Add to that the various programs which exist under provincial or territorial governments and you have a giant web of funding to navigate. Without a doubt, it is no simple task for an applicant looking for funding to support the creation of Indigenous wealth.

There is good news. Some government organisations are attempting to address this issue by collaborating to support Indigenous applicants in their projects for Indigenous wealth creation. The most straightforward example of this is Indigenous Services Canada’s Strategic Partnerships Initiative. The objective of this program is to provide a way for federal partners to coordinate their efforts, reduce administrative burden and pool resources in support of Indigenous economic development. Another example is the recent announcement by Natural Resources Canada that it will create a single-window approach to access funding to support Indigenous and remote communities to reduce their reliance on diesel via clean technology.[3] Both of these initiatives are pioneers in the federal government for this kind of approach but they remain an exception to the general rule of program-based and siloed funding which exists across most other sources of funding to support Indigenous economic development. More is needed.

2 – (Competing) Priorities to Fund

Governments, whether they be provincial, territorial or federal, fund a wide gamut of Indigenous programs in their work of Reconciliation. For example, Indigenous Services Canada has federal programs to fund housing, health, community infrastructure, governance, education and economic development. There are many valid and important objectives that require financing in all of these areas.

I am persuaded that if governments could fund every objective, they likely would. Unfortunately, the current public policy structure does not allow that. Every year, an important activity takes place in the machinery of government to develop annual Budgets. Through this exercise, each government department or ministry is allocated a budget and they must generally work within said Budget. It is a challenging task to prioritize funds and allocate them to areas of need. With finite budgets, difficult decisions must be made.

When it comes to Indigenous issues, the reality is that the vast volume of areas to fund creates a landscape of competing priorities. When faced with urgent health or social issues within communities, decision-makers tend to prioritize those immediate objectives rather than fund economic development projects which are often seen as less urgent. In this way, economic development comes out the poorer (less funded) of all priorities.

In plain terms, when a government organisation has to decide whether to fund housing for a community with overcrowded homes or an economic development project to launch a new business, the more immediate housing needs tend to get funded. Taken alone, this decision makes sense. No one would argue that housing and health are key elements in a community’s well being. But when this kind of prioritization happens year after year, it becomes a systemic challenge for Indigenous economic development. In essence, economic development becomes an afterthought which is relied upon for the good news stories which it can generate.

Luckily, Indigenous leadership knows and understands this. They are being vocal with the need for governments to recognize the importance of economic development support. Indigenous leaders are also reminding Canada of all of the contributions that have been made to the country’s economy to date and the incredible potential that remains to be made in the future through the realization of Indigenomics[4] and the creation of Indigenous wealth. Governments need to hear that message.

3 – Program Funding (with Strings)

Generally, government funding for economic development arrives in the form of contribution agreements. Less frequently, it is allocated through grants. The main difference is that the administrative reporting requirements are more onerous for contribution agreements than they are for grants. Funding is allocated under a program which targets specific objectives. The money must be spent to reach those objectives. Once spent, the recipient must report on how the funds were spent in templates provided for by the government program.

The challenge with this funding is the strings that are attached to it. By requiring that funds be spent on a specific set of economic activities, this restricts how a community, organisation or entrepreneur can spend the them. It also prevents them from adapting to exigent circumstances should a new priority arise within the community.

For example, imagine a government program that funds Indigenous employees to get trained to increase their capacity. The contribution agreement would outline the eligible costs such as costs of training and the supplies needed for the training. The funds could not be spent on anything that is not explicitly listed in the contribution agreement as an eligible cost. In this example, if a person attending the training needed support for the transportation to get to the training, the funds could not be used for this purpose. Moreover, if the community was faced with a health crisis, they could not reallocate the funds to that priority since it is outside the scope of the contribution agreement, despite the fact that the health of community members and their participation in training are intricately linked.

Another string is that government programs which fund economic development adopt a western vision of performance measurement. As such, government will focus on specific targets to evaluate the success of projects being funded. For example, Indigenous Services Canada funding will focus on job creation and Environment and Climate Change Canada funding will focus on reduction of greenhouse gas emissions. The funds that are provided need to be used in a way that addresses those specific outputs. This way of seeing economic development works against a more holistic approach to relational economics that may be valued by Indigenous communities or organisations.

A priori, making sure that government funding has appropriate strings makes sense from a public policy perspective since the expenditure of taxpayer money is held to a high level of accountability. However, one wonders whether those strings should be adapted to Indigenous economic development. Specifically, accountability for public funds is valid but it should be adapted to the Indigenous context so that Indigenous leaders are accountable to their communities for the appropriate use of those funds, and not to the government of Canada. Evaluation of results are currently based on western constructs and Indigenous recipients have no control over the performance measurement of their funding.

Governments are making headway to address this set of challenges. Indigenous Services Canada, for example, has been working with First Nations leadership since 2016 to develop the New Fiscal Relationship. The objective of this initiative is to provide 10-year grants to communities who could use this stream of predicable and flexible funding to address their priorities in a way that they deem fit for their community. More of this kind of initiative needs to take place across jurisdictions and across departments and ministries.

In essence, there are challenges within government structures that hamper the support of Indigenous economic development.

Siloed funding, skewed prioritization and stringent accountability measures make it difficult for Indigenous entrepreneurs, communities and organisations to fully benefit from government funding in the creation of Indigenous wealth.

The recently released National Indigenous Economic Strategy for Canada specifically called upon governments to review their programs and policies in order to remove the barriers that prevent Indigenous entrepreneurs from realizing their full potential. In response, there is an opportunity for government to review its suite of supports to adapt it to the specific needs and opportunities that are presented by Indigenous entrepreneurship.

In the short term, the solution to these challenges resides in increased horizontality across government and increased flexibility in funding. In the medium term, however, the real solution resides in devolution of government programs so that Indigenous leadership can take economic development funding into their own hands and out of government structures entirely. This way, Indigenomics could serve as the foundational prism for Indigenous economic development funding. I dare to hope.

[1] RBC (June 2020) “Indigenous Entrepreneurship in Canada: The Impact and the Opportunity”. Available at: https://discover.rbcroyalbankcom/indigenous-entrepreneurship-in-canada-the-impact-and-the-opportunity/

[2] NIEDB (2016) “Reconciliation: Growing Canada’s Economy by $27.7 Billion”, page 15. Report available at: www.naedb-cndea.com/reports/ naedb_report_reconciliation _27_7_billion.pdf

[3] Disclaimer: I was Director of the Strategic Partnerships Initiative from 2016-2018 and Senior Director at Natural Resources Canada from 2021-2022 responsible for the off-diesel programming. There may be other examples that exist and which have not been mentioned here.

[4] As stated by the founder of Indigenomics, Carol Anne Hilton, “Indigenomics is a new word. It is intended to serve as a tool to insert into national and global consciousness the importance of building understanding of the Indigenous economic and legal relationship and its role within the modern economy today.” Indigenomics: Taking a Seat at the Economic Table (Gabriola Island, BC: New Society Publishers, 2021), page 7.