Chapter 2. Promoting Indigenous entrepreneurship and small business development in partnership with Indigenous communities

The objective of this chapter is to identify lessons and leading practices related to promoting Indigenous entrepreneurship and small business in partnership with Indigenous communities. The chapter begins by defining Indigenous entrepreneurship and developing a profile of Indigenous businesses across different OECD member countries. Indigenous businesses are then located in a spatial context. Four types of Indigenous rural economies are identified based on their proximity to cities and access to natural resources and amenities. The chapter then discuss policy measures to improve the enabling environment for Indigenous entrepreneurship at a regional level. Within the framework of a place-based approach three complementary policy objectives are identified: i) increasing access to finance; ii) building business capabilities; and iii) improving market access through preferential procurement policies.

    
Key findings and recommendations

Key findings

  • Entrepreneurship and small business development give Indigenous peoples the opportunity to generate own-source revenues, create jobs and invest in local communities in ways that align with their objectives for development.

  • Geography is fundamental to understanding the Indigenous business sector and the following typology is used to help understand potential development trajectories for Indigenous economies in rural areas: rural areas close to cities (with or without natural resources and amenities) and rural remote areas (with or without natural resources and amenities).

  • There is a range of opportunities for Indigenous entrepreneurs across different types of regions that can combine local assets and link them with tradeable sectors (e.g. renewable energy, mining and tourism) and for meeting local demand and addressing social needs.

  • Despite these opportunities, market failures such as asymmetric information and the inefficient allocation of credit are apparent in the Indigenous business sector, which contributes to lower rates of entrepreneurship than non-Indigenous populations and specific policy responses are required to address them and create an enabling environment for Indigenous entrepreneurship.

  • To promote entrepreneurship and small business development, governments and Indigenous communities need to work together on coherent policy packages that match the conditions and circumstances of different places and aim for the following objectives: i) increasing access to finance; ii) building business capabilities; and iii) improving market access through preferential procurement policies.

Recommendations

  • Improve the quality and reliability of Indigenous business data by introducing a consistent Indigenous business identifier into the system of national statistics.

  • Ensure better cultural and intellectual protection for Indigenous products and services by supporting initiatives to certify authentic Indigenous products and services within countries, and implement mechanisms for monitoring and enforcement.

  • Enable a place-based approach to economic development by:

    • Providing frameworks, guidance and tools to support community-led economic development plans that are based on Indigenous values and perspectives.

    • Integrating policies and investments in enabling factors (infrastructure, skills and innovation) for different places, their development objectives and levels of development.

  • Increase access to finance for Indigenous business by:

    • Incorporating Indigenous values and perspectives into the design of economic development programmes (e.g. objectives such as the strengthening of Indigenous language and culture, addressing social needs and support for subsistence activities).

    • Providing Indigenous-specific equity and loan facilities that address imperfections (such as less competition, lack of collateral and discrimination) in credit markets for Indigenous communities in rural areas (from micro-enterprises to established businesses).

    • Ensuring these equity and loan instruments have flexibilities that reflect the characteristics of Indigenous economies in rural areas such as lower levels of collateral, variability in cash flow and substituting wage income with subsistence, and seasonal business activities.

    • Increasing the effectiveness of financial intermediation by supporting the formation of locally owned Indigenous institutions that can provide financial and business development support services to local communities (thereby building capacity within communities and better matching business support to local conditions).

    • Ensuring these institutions are at the right geographic and population scale to be viable and supporting the creation of mechanisms that enable them to pool risk and resources for larger loans.

    • Providing mechanisms and infrastructure, and reducing regulatory barriers to encourage the formation of social impact markets (financing of activities that deliver social and/or environmental outcomes and a return on investment) for Indigenous entrepreneurs.

  • Build entrepreneurial skills and capacity by:

    • Providing coaching and mentoring support to develop business plans, and access technical advice for emerging entrepreneurs.

    • Promoting success stories of individual and community-owned firms.

    • Providing access to resources and tools that can build financial literacy in Indigenous communities.

    • Providing targeted business development services that are packaged with grants that contribute to start-up and operational costs for Indigenous entrepreneurs and business owners.

  • Improve public procurement policies targeted for Indigenous businesses (which are already operating in Australia, Canada and the United States) by:

    • Using a combination of targets and set-asides to facilitate the inclusion of Indigenous-owned businesses in public procurement markets and provide regular reporting on outcomes.

    • Designing procurement packages in a way that reduces barriers to entry for micro and small businesses.

    • Providing “wrap around” business development support for Indigenous businesses in the public procurement market (mentoring and joint ventures, certification training, and targeted equity and loan instruments).

    • Providing information about the scheduling of future public works between different levels of government at the regional level to provide greater certainty for Indigenous owned businesses.

Introduction

The objective of this chapter is to identify lessons and leading practices related to promoting Indigenous entrepreneurship and small businesses in partnership with Indigenous communities. Chapter 2 identifies the greater challenges facing Indigenous peoples in rural areas, and as such, this chapter focuses on rural regions. The chapter begins by defining Indigenous entrepreneurship and developing a profile of the Indigenous business sector across different counties. Indigenous enterprises can have different values and purposes to non-Indigenous businesses such as the link with community-based forms of economic development. This socio-cultural context also shapes the formation of business relationships and the use traditional knowledge to develop new products and services. The chapter then locates Indigenous entrepreneurs in a geographic context. The growth dynamics of rural economies and the assets and attributes that Indigenous peoples contribute to them are discussed. Four types of Indigenous rural economies based on their proximity to cities and access to natural resources and amenities are identified. Within these spatial contexts, there are numerous opportunities for Indigenous entrepreneurs connected with natural resource stewardship and exploitation and traditional knowledge (e.g. mining and extractive industries, renewable energy, tourism, arts and food production). The starting point for realising these growth opportunities are place-based economic development strategies that enable communities to identify areas of competitive advantage and co-ordinate actions to realise their potential. Three complementary policy objectives are identified to help activate these development opportunities: i) increasing access to finance; ii) building business capabilities; and iii) improving market access through preferential procurement policies.

Indigenous businesses: Entrepreneurship and innovation

This section of the chapter introduces specific considerations related to Indigenous entrepreneurship. It begins by discussing how Indigenous businesses are embedded in a particular cultural and institutional context that shapes their purpose, values and structure. Indigenous peoples place a higher value on kinship relations, and traditional knowledge is shared through these networks. As such, how Indigenous businesses form relationships, operate and innovate can also have different characteristics. In addition to this institutional context, the geographic distribution of Indigenous populations identified in Chapter 2 influences the structural characteristics of Indigenous businesses.

Indigenous entrepreneurship: Purpose, values and definitions

Enterprises are organisations that produce goods and services, which have some autonomy in making decisions about the allocation of resources. Entrepreneurship describes an attempt to start a new enterprise or expand an existing business by a single person or group of individuals (OECD, 2009[1]; 2017[2]). These businesses generally exist to create financial wealth. However, entrepreneurial strategies and forms of organisation can also generate other forms of value with objectives such as job creation, tackling inequalities and environmental issues that deliver benefits for the common good of a community (Peredo and Chrisman, 2006[3]; Noya and Clarence, 2013[4]; OECD, 2017[2]). Indigenous peoples are engaged in a diversity of livelihoods and entrepreneurial activity that range from traditional hunter-gatherers and subsistence farmers to expert professionals in industrialised societies (Peredo et al., 2004[5]). Entrepreneurship undertaken by Indigenous peoples has to be understood in the context of their individual and collective identities. These identities are diverse within and between countries; however, they all share the recognition of their status as Indigenous peoples. Embedded in Indigenous societies are a set of norms and values that influence the nature of entrepreneurship. A primary aspiration for Indigenous peoples is how business activities can respect and support the strengthening of Indigenous language and culture, and contribute to a community’s development (Reavley, Lvina and Abraira, 2006[6]). This can include balancing and incorporating values and obligations related to the stewardship of the environment, ceremonies and traditional hunting and food gathering, and local kinship relations and decision-making processes, to business activities (Curry, Donker and Michel, 2016[7]). The level of attachment of Indigenous peoples to traditional language and culture will vary. For example, traditional subsistence can play a much stronger role for Indigenous peoples living in remote locations.

In addition to the traditional arguments regarding public policy support for entrepreneurs and small businesses (market failures such as asymmetric information and the inefficient allocation of credit), there are a number of important arguments to support Indigenous entrepreneurship and innovation. The first is that business growth can support self-determination because it can reduce dependency relationships and increase decision-making autonomy (Cornell, 2006[8]). Processes of colonisation and policies of assimilation have resulted in a lack of entrepreneurial activity and higher rates of individual dependency (in the form of welfare) and collective forms of dependency (in the form of government programmes and subsidies) for Indigenous peoples in some countries (Cornell, 2006[8]). Indigenous businesses can help overcome dependency by providing local employment opportunities for residents and generating own-revenue for public goods including the provision of services on traditional lands (NSW Ombudsman, 2016[9]; Native Nations Institute, 2016[10]; Cornell, 2006[8]). The second is that Indigenous entrepreneurs and business leaders also provide important role models for other Indigenous people (NSW Ombudsman 2016). The third is that it can retain economic activity on traditional lands and promote regional economic development. Indigenous businesses also reduce income leakage from local communities and travel costs for residents, and if they can penetrate external markets also generate multiplier effects (Native Nations Institute, 2016[10]).

There are different interpretations in the literature about the definition of Indigenous entrepreneurship (Cornell, 2006[8]; Peredo and Anderson, 2006[11]). The first is that it is simply entrepreneurship undertaken by Indigenous peoples. The second is that entrepreneurship is embedded in a particular territorial and institutional context; social forms of organisation based around kinship embedded in particular places have an important influence in shaping Indigenous businesses and economies. From this second perspective, Indigenous entrepreneurship can be defined as a new venture in a specific territory that is linked to a collective form of self-determination (Peredo and Anderson, 2006[11]). This includes sustaining Indigenous language and culture, improving socio-economic conditions on traditional lands and forms of enterprise that are closely related to community representative and political structures (Taylor, 2008[12]). When combining these two characteristics, Indigenous entrepreneurship can be defined as the creation, management development of new business ventures by Indigenous peoples, which is often connected with natural resources and notions of community-based economic development (Peredo and Anderson, 2006[11]).

Measurement issues

Across Organisation for Economic Co-operation and Development (OECD) countries, there are generally inconsistent practices or gaps regarding identifying Indigenous businesses and producing statistics about them. This creates challenges in terms of targeting policies, monitoring and evaluating programmes, as well as tracking progress. For example, in Australia, Indigenous-owned enterprises are defined in various ways across different levels of government and the private sector due to different percentages of Aboriginal ownership being applied (100%, 51%, 50%, and 25%). This makes it difficult to make accurate statements about the size and performance of the Aboriginal business sector and the outcomes of public and private procurement initiatives. An agreed Indigenous business identifier in the national taxation or statistical system of Australia, which would enable universal data collection, is lacking. The Swedish Government collects data about Sámi Reindeer Herding; however, there is no ethnic identifier in their statistical system, which means Sámi engaged in other business activities are not captured in formal statistics. In New Zealand, there is a Māori tax code but it only relates to trusts or authorities, and it is voluntary (Statistics New Zealand, 2015[13]). The Business Register in New Zealand also collects information about “economically significant enterprises” so also excludes a proportion of the business population. It is also possible in some jurisdictions (Australia, Canada and New Zealand) to collect information on owner-managers who self-identify as Indigenous. However, this also has shortcomings such as leading to an undercount because some individuals may own multiple businesses. The United States Census Bureau Survey of Business Owners and Self-Employed Persons (SBO) includes a standard question on race which is based on self-identification of having origins to the original peoples of North America and maintaining tribal affiliation or community attachment (United States Census Bureau, 2019[14]). This approach in the United States enables a more comprehensive and granular analysis of the Indigenous business sector.

Indigenous business innovation

Innovation – the introduction of new processes and products – is increasingly important to the competitiveness of enterprises in national and international markets. This is no different for Indigenous firms, particularly those in the tradeable sector, which must innovate to remain competitive. The innovation process for business in rural areas tends to be different from that in cities, which have scale and proximity, a diversity of economic activities, and thick labour markets. In few instances are there formal science-based innovation systems in rural remote regions (e.g. activities such as forestry and bioenergy research, and agricultural research). Imported innovations are more important for rural areas. This is innovation that takes place elsewhere but is adopted either by subsidiaries of multi-national firms bringing in new products or processes that their parent company has developed or acquired or by local firms licensing or emulating ideas developed elsewhere (OECD, 2017[2]). Local innovation is significant but less obvious since it largely takes place within small businesses and may not be patented or even made known within the region since it can be specific to a single firm. These user-driven innovations take place largely because the entrepreneur cannot find a viable solution to purchase and has to develop an internal way to resolve the problem.

The scope and nature of innovation by Indigenous-owned businesses is also influenced by social forms of organisation based on kinship and shared cultural values (Dana and Anderson, 2007[15]). For example, new business ventures are shaped by their cultural context in terms of supporting the reproduction of Indigenous language and cultural practices. In rural areas, particularly in remote areas and traditional lands, innovation is likely to be shaped by the community’s relationship to land (Drahos and Frankel, 2012[16]). This relationship is generally based on the principle that people are custodians of the land and connected to it for utilitarian (subsistence and trade) and spiritual reasons, and these rights are handed down in perpetuity through stories, arts and handicrafts, symbols and cultural practices. This traditional knowledge might relate to the cultivation and gathering of food, medicine and building materials, cultural symbols and handicrafts, and the management of land and water resources (Drahos and Frankel, 2012[16]). The development and use of these technologies is bounded within close kinship networks. They have also have evolved over hundreds and thousands of years as knowledge is accumulated about the natural environment, and ways to manipulate and exploit it have been refined to support subsistence and trade amongst Indigenous societies.

Indigenous forms of knowledge and cultural expression challenge our traditional rule frameworks and programmes that are designed to protect intellectual property (IP). Patents, copyrights and trademarks enable people to benefit from technologies and products they create. In the case of Indigenous people’s technologies and products are based on tacit knowledge that has been handed down orally across generations. Because they are not the result of scientific discovery or have not been scientifically tested, they may not be valued or recognised as legitimate in areas such as health or natural resource management. Traditional Indigenous products and technologies are also not the property of the individual inventor. As a result, other actors (non-Indigenous entrepreneurs and corporations) can appropriate Indigenous products and technologies. Indigenous IP rights have been an increasing source of controversy, discussion and policy responses in recent years. This illustrates the need to develop legal instruments regarding the use and protection of traditional knowledge, traditional cultural expressions and biological material (Drahos and Frankel, 2012[16]). The World Intellectual Property Organization’s Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore is currently working on this issue. The goal is to create an international legal instrument that can protect traditional knowledge, cultural expressions and genetic resources. In lieu of this process, nation states and non-governmental organisations can also institute programmes related to the certification of Indigenous products and services to protect Indigenous entrepreneurs, traditional knowledge and cultural expressions (Box 2.1).

Box 2.1. Certification of Indigenous products and Intellectual Property: The case of the Sámi in Sweden

One of the ongoing issues to address is how to protect Indigenous methods, techniques and products. Sámi handcrafters on the Swedish side hold the duodji mark (which is owned by the Sámi cultural organisation). Individuals who wish to have their products included under the Sámi duodji mark need to submit them to the group to review in order to ensure that they are produced with authentic traditional techniques and materials in order to guarantee their quality and authenticity as a Sámi duodji product. While consumers who are knowledgeable can seek out this mark in order to ensure that they have purchased an authentic product, this does not address the mass replication and use of Sámi designs and technologies by non-Sámi firms. There are ongoing efforts by groups such as Sámi Duodji Foundation to secure intellectual copyrights and there is a growing need to address this. The Sámi Duodji Foundation seeks to build the case for this and to potentially pursue litigation against cultural appropriation. These issues are common to many Indigenous peoples. The United Nations Declaration on the Rights of Indigenous Peoples (2007) provides a broad recognition of Indigenous intellectual property rights and stipulates that, in conjunction with Indigenous peoples, states should take effective measures to recognise and protect the exercise of these rights (Rimmer, 2015[90]). At present, Sámi organisations are not sufficiently resourced to pursue these matters through judicial processes.

Source: OECD (2019[17]), Linking the Indigenous Sami People with Regional Development in Sweden, https://dx.doi.org/10.1787/9789264310544-en.

Structure and trends

Indigenous businesses located in rural areas will share some of the characteristics that are generally seen in the non-Indigenous rural business sector. Businesses in rural areas tend to be smaller than in urban areas with a higher proportion of micro enterprises (fewer than 10 employees) (OECD, 2017[18]). The vast majority of rural small businesses (firms with fewer than 50 employees) have slow employment growth and remain micro-enterprises. This is likely to be the case with small and remote Indigenous communities. Compared to urban areas, rural economies also have a higher proportion of firms in the traded sector (OECD, 2016[19]). The business structure in rural areas can also be different due to the existing large firms engaged in natural resource-based activities (mining, forestry and food processing). These firms undertake extraction and first stage processing and, in some cases, local small businesses provide services to these larger businesses. Although Indigenous communities seldom have the scale to undertake first stage processing, there are opportunities for procurement for smaller firms through local supply chains.

Indigenous peoples use different enterprise structures depending on individual and community objectives and legal frameworks that govern business and Indigenous territories. These structures can include for-profit corporations, partnerships and joint ventures, mutual and co-operatives, and unincorporated enterprises. Individuals and groups can establish corporations to deliver a range of goods and services in areas such as gaming, mining and extractive industries, and tourism. Unincorporated enterprises can be set up, for example, as sole traders in the construction or tourism sectors. Partnerships and joint ventures can also be used to access capital and expertise from outside of the community, for example in the case of ecotourism businesses or mining and resource operations. Not-for-profit corporations have also been used by Indigenous peoples to meet social needs such as overseeing housing assets and the delivery social services. These not-for-profit structures enable Indigenous peoples to take control of local assets, reduce income leakage from the community and provide a mechanism to recycle profits back into the community’s physical, socio-cultural and human capital.

A relatively unique aspect of Indigenous enterprise is the use of trusts to govern and develop assets on behalf of a community. A trust is a legal structure where a trustee (who can be an individual or company) holds money and property for the benefit of someone else (called a beneficiary). Indigenous peoples establish trusts to govern the monetary benefits generated from land (e.g. capital from land settlements and revenues associated with the extraction of natural resources, leases and fees related to rights of access) and in some jurisdictions to act as a legal structure for consultation and engagement related to land use (also see Chapter 3). A primary issue is by whom and how objectives are set for the trust. Governments and corporations can place conditions on how Indigenous trusts are structured and funds disbursed from them. This can privilege certain economic development objectives (e.g. linking Indigenous peoples to the mining and resources sector) over cultural or customary economic activities. It can also privilege different types of strategies for investment. One strategy is long-term collective investments in community skills and infrastructure, and another is short-term disbursement of dividends to individuals. Different governance models can also be utilised. On the one hand, a community board or council can make decisions or, alternatively, communities can vote on resolutions. In reality, a mix of these choices about objectives, investment strategies and governance may be used and they will vary within and across jurisdictions due to different legal frameworks, institutional practices and community preferences (Table 2.1). Important considerations for evaluating these approaches is the degree to which Indigenous peoples are involved in setting these framework conditions and development objectives, the cost and complexity imposed upon communities of establishing and operating these structures and how effective they are at delivering better (self-determined) outcomes for Indigenous peoples.

Indigenous groups and tribes may also operate community-owned enterprises. These enterprises may operate as a subsidiary of a trust or as a separate legal entity of a sovereign First Nation government. They can also help manage risk as the tribe can collectively absorb early losses and develop a portfolio of businesses to diversify the local economy and encourage experimentation. In the case of a trust, this enables Indigenous groups to use their endowment to build businesses and not-for-profits that increase their asset base and generate jobs and social value for community members. Tribal-owned businesses of a sovereign Indigenous government allow them to create commercial enterprises that have separate assets and liabilities. In New Zealand and the United States, there are specific legal instruments for this purpose. In New Zealand, a Māori incorporation is a legal instrument to create a for-profit enterprise on Māori land. This entity also has tax advantages (along with other Māori authorities) by reducing their provisional tax rate from 33% to 17.5%. In the United States, tribes can petition the US Secretary of the Interior to create a federally chartered corporation. This separates the assets and liabilities of the tribal commercial enterprise from those of the tribal government. These forms of collective ownership also enable Indigenous communities to build scale and compete effectively in the primary sector (agriculture, mining or fisheries and aquaculture), gaming, and for public service delivery contracts.

Table 2.1. Overview of Indigenous Trust Arrangements: Australia, Canada, New Zealand and the United States

Country

Model

Australia

Trust structures are established through Indigenous Land Use Agreements (voluntary agreement between a native title group and another party). There are no specific trust models for Indigenous groups. They operate under state and commonwealth legislation governing trust structures and are subject to normal taxation arrangements.

Canada

The Canadian Government under the Indian Act manages trust moneys (capital and revenue) from First Nation lands. First Nations can opt out of this arrangement through self-government agreements. First Nations and Inuit can also develop bespoke arrangements through treaties and impact benefit agreements.

New Zealand

The Māori Land Court has created a number of different models for the management and use of Māori land. These can enable groups to pool small landholdings into a common ownership structure and to enable the use of land for commercial development.

United States

The Office of the Special Trustee (OST) for American Indians Revenues in the U.S. Department of the Interior manages funds related to Indian lands on behalf of Native American Tribes and individuals. Fiduciary Trust Officers in the OST work directly with these beneficiaries.

Sources: U.S. Department of the Interior (2019[20])OST Statistics and Factshttps://www.doi.gov/ost/about_us/Statistics-and-Facts (accessed on 23 January 2019); Māori Land Court (2019[21])Māori Land Trusts and Incorporationshttps://www.maorilandcourt.govt.nz/your-maori-land/trusts-and-incorporations/#maori-incorporation (accessed on 23 January 2019); National Native Title Tribunal (2019[22])Indigenous Land Use Agreements (ILUAs)http://www.nntt.gov.au/ILUAs/Pages/default.aspx (accessed on 23 January 2019); Indigenous and Northern Affairs Canada (2018[23])Indian Moneyshttps://www.aadnc-aandc.gc.ca/eng/1428673130728/1428673159469 (accessed on 23 January 2019).

Indigenous peoples will also have development objectives to address social needs, deliver community benefit and strengthen community cohesion. In this case, social entrepreneurship is a tool to harness entrepreneurial effort and market forces to achieve these goals. The primary objective of social enterprises is community betterment rather than the maximisation of profit. These enterprises deliver goods and services, take on economic risk, provide paid work and usually recycle profits back into the enterprise, community assets and activities. This can be attractive to Indigenous communities for multiple reasons. First, the community owns the enterprise collectively and this can ensure that it serves the interest of the group rather than individuals or outsiders. Second, it can provide goods and services and achieve community objectives that are not viable for a for-profit firm. For example, local retail, and education and training services. Third, they can also provide a vehicle to strengthen customary and cultural activities, and stewardship of the environment. Social enterprises can provide opportunities for Indigenous groups in rural and remote areas to take control of the provision of goods and services and invest in community assets. However, some level of public or philanthropic support is needed to address challenges such as low levels of demand, reliance on volunteers, costs of imported goods, lack of finance and low levels of leadership and human capital.

Policy documents regarding Indigenous economic development across Australia, Canada, New Zealand and the United States indicate that there is a general trend of growth in the Indigenous business sector. An important factor cited in this growth is Indigenous peoples and organisations leveraging their land, water and sea resources, and taking advantage of public procurement policies that include specific set-asides for Indigenous owned businesses. These growth dynamics are also influenced by international economic conditions. For example, in New Zealand, high growth has been experienced for Māori businesses in the food and agricultural sector, and in Australia for Aboriginal businesses in the mining and resources sector (Te Puni Kōkiri, 2013[24]; Australian Department of the Prime Minister and Cabinet, 2018[25]). These are both connected to rising demand in Asia for these commodities. Public procurement policies are also used as a lever to increase demand for goods and services from the Indigenous business sector in Australia, Canada and the United States. This can be revealed, for example, in the growth of Indigenous businesses in the construction sector linked to public works.

However, there is a lack of comparable evidence across OECD countries about the structural characteristics of the Indigenous business sector (in terms of size, ownership type and turnover) and changes over time. There is some data available on rates of self-employment, which refers to the proportion of the population that work for themselves (as a percentage of the total employed population). Self-employment can be used to measure rates of entrepreneurship as it does indicate people who are able to perceive new market opportunities and create firms. On the other hand, it may also be an indication of an employment option of last resort, particularly in rural areas where there are less formal employment opportunities (Faggio and Silva, 2012[26]). The data from self-employment in Australia, Canada and New Zealand show that there are gaps in the rate of self-employment between Indigenous and non-Indigenous populations (which is significantly larger in Australia).

Figure 2.1. Rate of self-employment, Indigenous and non-Indigenous, Australia, Canada and New Zealand
Figure 2.1. Rate of self-employment, Indigenous and non-Indigenous, Australia, Canada and New Zealand

Note: Following years are used: Canada (2016), Australia (2016), and New Zealand (2013).

Sources: Australian Bureau of Statistics, 2016 for Australia; Statistics Canada 2016 Census of Population for Canada; and Ministry of Business, Innovation and Employment 2014 New Zealand for New Zealand.

 StatLink https://doi.org/10.1787/888933959263

Indigenous entrepreneurship and small businesses in a rural context

To analyse Indigenous entrepreneurship and business development it is necessary to understand the geographic context within which this economic activity occurs. As outlined in Chapter 1, Indigenous peoples make up a disproportionate part of the population in rural areas. Furthermore, these are places where Indigenous peoples experience lower socio-economic outcomes and larger gaps in well-being relative to the non-Indigenous population. If Indigenous people are not fully participating in the local economy, this reduces the growth potential of the region. Therefore, understanding how to activate economic development for Indigenous peoples in these places is an important public policy issue. This section of the chapter discusses the growth dynamics of rural economies and the assets and attributes that Indigenous peoples contribute to them.

Place-based approach to Indigenous economic development

The economic development opportunities of any community are shaped by its population size, proximity to other places, resource endowments and the strength of local institutions. The population of a local community establishes the size of the local labour force, its skill composition and the size of the market available to local businesses. Proximity to large markets generates benefits by lowering transportation costs and enabling governments to realise economies of scale in the provision of public services. Remote places can also prosper due to proximity to natural resources, which can be minerals, hydrocarbons, water and fertile soil, fish stocks, or a high-value tourist amenity. In the absence of high-value resources and amenities or access to large markets small and remote communities have limited opportunities for economic development, but even in these cases, some local firms can exist to serve the local population. Regardless of location, the capacity for local communities to take advantage of these factors depends on the quality of local institutions. That is, how well development strategies are defined and implemented by local actors.

Within this context, there are important considerations that are specific to Indigenous economic development. The first is that Indigenous peoples are treated in a unique way as nations within a larger nation. This confers upon them special legal rights but also regulates their use of land and water resources (see Chapter 3). The second is that Indigenous communities may have distinct values and development objectives. A basic principle of the OECD approach to rural policy is that in any place local people should set their own development strategy because they typically have the best knowledge of what they want and are best positioned to know how to go about achieving it (OECD, 2018[27]). This does not mean that they cannot benefit from support in identifying and implementing the strategy, but it does mean that they should drive the process. The third is that institutional relationships are different due to the way in which Indigenous peoples make collective decisions and exercise authority, specific legislative arrangements that may apply to them and the ways in which constitutional responsibilities for them are allocated. In some countries, Indigenous peoples are the responsibility of national governments and this means relationships with subnational governments may be poor because they do not have defined jurisdictional responsibilities. These institutional factors influence economic development outcomes and are discussed further in Chapter 4.

These considerations require an adaptation of the OECD framework for rural development to the specific opportunities and challenges facing Indigenous peoples. Development objectives need to incorporate Indigenous values and perspectives, and better data is needed at the local level (as discussed in Chapter 1). Specific legal rights and regulatory arrangements related to land and resources, and kinship relations and traditional knowledge (discussed further in Chapters 3 and 4) shape Indigenous economies in rural areas. Rural development policies also require an integrated approach to investment across levels of government, and a focus on empowering rural communities to participate in decision-making (OECD, 2016[19]). Chapter 4 will include a discussion about how achieving these outcomes in an Indigenous context requires different ways of organising public administration and methods of working with communities. The OECD Rural Policy 3.0 is a starting point for shaping this more inclusive model of rural development for Indigenous peoples (Table 2.2).

Table 2.2. Rural Policy 3.0

 

Old Paradigm

New Rural Paradigm (2006)

Rural Policy 3.0 –

Implementing the New Rural Paradigm

Objectives

Equalisation

Competitiveness

Well-being considering multiple dimensions of: i) the economy; ii) society; and iii) the environment

Policy focus

Support for a single dominant resource sector

Support for multiple sectors based on their competitiveness

Low-density economies differentiated by type of rural area

Tools

Subsidies for firms

Investments in qualified firms and communities

Integrated rural development approach – spectrum of support to the public sector, firms and third sector

Key actors and stakeholders

Farm organisations and national governments

All levels of government and all relevant departments plus local stakeholders

Involvement of: i) public sector – multi-level governance, ii) private sector – for-profit firms and social enterprise, and iii) third sector – non-governmental organisations and civil society

Policy approach

Uniformly applied top-down policy

Bottom-up policy, local strategies

Integrated approach with multiple policy domains

Rural definition

Not urban

Rural as a variety of distinct types of place

Three types of rural: i) within a functional urban area; ii) close to a functional urban area; and iii) far from a functional urban area

Source: OECD (2016[19])OECD Regional Outlook 2016: Productive Regions for Inclusive Societieshttps://dx.doi.org/10.1787/9789264260245-en.

Growth dynamics of rural economies

Indigenous peoples are located in different types of regional economies and this is an important starting point for considering how to develop business opportunities for them. Rural and remote regions have a fundamentally different structure than that of large metropolitan regions that benefit from economies of agglomeration. These “low-density” economies are generally characterised by: small populations and labour forces, weak connectivity to external markets, local markets that offer a limited set of goods and services, a high dependence on primary sectors and first stage processing, a workforce dominated by lower skill workers, higher unit costs to deliver public services, dispersed settlements that lead to fractured local government systems and disconnected local labour markets, and a small local tax base (OECD, 2017[2]). By contrast, urban regions enjoy agglomeration benefits, which arise when firms and consumers concentrate in a given geographic area. According to reviews by Rosenthal and Strange (2004[28]), Duranton and Puga (2004[29]) and Puga (2010[30]), these benefits emerge due to three reasons: sharing facilities, inputs and gains from specialisation; thicker labour markets that result in better matching and lower search costs; and knowledge spillovers between firms.

There are a number of mechanisms available for low-density economies to overcome the disadvantages that result from a lack of economic concentration. For instance, there are industries in low-density economies such as in forestry or mining where vertical integration represents an advantage and essentially overcomes the need for sharing facilities. Rural economies can also attract workers from other regions and abroad through higher wages (e.g. mining industry) or by offering attractive quality of life packages through the availability of environmental amenities and lower housing prices. Investments in broadband and high-speed Internet connections in remote areas can enhance connectivity, offer opportunities for new ways to deliver services and enhance the spread of new ideas.

Productivity growth in rural areas – The importance of the tradeable sector and proximity to cities

The OECD finds that proximity to cities and the performance of the tradeable sector are drivers of productivity and growth for rural economies (OECD, 2016[19]). The tradeable sector includes goods and services that are mainly produced for sale to other than local buyers (OECD, 2016[19]). In order for the people in a rural community to remain employed, local firms must be competitive in either local or export markets. That is, they must be able to match the prices and quality of competing firms. The growth of the tradeable sector enables rural economies to grow beyond their home market, attract new investment and absorb technologies, and generate a multiplier effect as income flows into the region. Although rural areas provide traditional resources such as forestry, mining, oil and gas, electricity production, fishing and agriculture, they are increasingly providing vital new functions that use their resource base in novel ways. These include rural manufacturing, various types of rural tourism, the preservation of wildlife and cultural heritage sites, the production of renewable energy, and the recognition of the key role that the rural environment plays in ecosystem services, such as carbon capture or filtering contaminants from air and water. These are all areas where Indigenous communities can take advantage of context-specific immobile assets that can represent areas of absolute advantage. Whether this is a natural park, the presence of natural resources and/or cultural heritage, these assets if well managed can produce a unique good or service to external markets and consumers.

Proximity to markets and natural resources play a significant role in shaping opportunities for Indigenous communities in rural areas. Rural communities close to cities generally have a greater capacity to diversify in the tradeable sector, for example, leveraging linkages with cities through manufacturing activity and the demand for rural amenities from urban residents. These kinds of opportunities can be realised for Indigenous communities if they possess well-located land for industrial development, and enterprises exist that provide cultural and nature-based experiences for visitors. By contrast, the tradeable sector in remote rural areas is usually narrow, with a limited range of goods and services linked to natural resources and assets, for example, in areas such as agriculture, aquaculture and fisheries, forestry, mining, ecotourism and/or renewable energy. In most cases remote rural areas participate at the lower end of value chains – extraction, harvesting and first stage processing – in natural resource-based industries that are exported far from the region. To increase productivity, these industries increasingly invest in labour saving technology, confronting remote communities with the challenge of declining employment opportunities. For some remote areas, this has contributed to a cycle of economic and demographic decline as young people leave in search of job opportunities elsewhere.

Some small and remote Indigenous communities are not on major transport routes or do not have high-value natural resources that can provide the base for economic prosperity. In this case, opportunities for economic development are limited. Some local firms will exist serving the needs of the local community but they will be constrained to selling goods that are mostly imported from elsewhere. Some service firms may also be able to exist but will also remain small because local demand is limited. There may be opportunities for the production and sale of traditional crafts, but success in this endeavour will require developing external markets. Incomes in the community will often be mainly driven by transfer payments from the government, and many families will rely on self-supply or barter to augment their money incomes. There is often a high reliance on self-supply and most households are in a semi-subsistence status, relying on hunting, fishing and other forms of household production for a significant share of their livelihood. Trapping and guide services for people interested in hunting and fishing can provide some income, but opportunities can be limited by difficult access and poor accommodation.

Indigenous communities across different types of rural regions

As discussed earlier the economic development options available to different Indigenous communities vary greatly depending on their population size, location, resource endowments and the quality of local institutions. The size of the local labour market is a key determining factor. An Indigenous community located in a metropolitan area will be presented with a wider range of economic development opportunities than one located in a small isolated township. There are additional issues to consider for Indigenous peoples living on traditional lands (that may be defined as reserves, trust lands, native title lands, etc.). These peoples have certain rights, obligations and constraints placed on them through legislation and treaties that govern how land can and cannot be used that shapes economic development opportunities. For example, land is most likely owned collectively (and indivisible) making it more difficult to raise finance or Indigenous peoples may have use rights over land but do not have ownership rights (see Chapter 3). Together with differences in culture and values these institutional arrangements, this can result in Indigenous communities operating as social and economic islands within a wider region whether it is a large city, small town or remote area. However, it is difficult for such small groups of people to support a diversified range of economic activities and opportunities for employment. This means looking at ways in which they can leverage locational assets to create economic development opportunities for community members.

Leveraging locational assets can happen in one of two ways. For more remote Indigenous communities the presence of a high-quality resource, such as a mine, can provide more local employment opportunity and payments to the local community than would be the case if only national transfer payments were available. The resource endowment may also be related to fishing and hunting rights, landscapes and natural amenities, and water and soil resources that enable food production. Alternatively, Indigenous communities that are located closer to metropolitan areas can become wealthy by integrating their economies into the surrounding region. Indigenous communities within or close to a city can take advantage of the wider array of goods and services available in cities and community members can find employment in off-reserve occupations. In addition, these communities may have the opportunity to develop enterprises that rely on large proximate population to provide customers (e.g. casinos in the United States). Indigenous communities that are relatively close to a city but not well integrated into its economy can be relatively prosperous if they can develop an economic function that fits into the broader regional economy. Typically, this will involve co-operation with nearby non-Indigenous communities to develop their niche offer within a regional economy.

Indigenous peoples in low-density economies

As discussed in Chapter 1, a relatively higher proportion of the Indigenous population in a sample of OECD member countries (Australia, Canada, Mexico, New Zealand, and the United States) lives in rural areas. The gaps in socio-economic outcomes between Indigenous and non-Indigenous populations are larger in these areas than in urban and intermediate regions. This is particularly the case for rural areas with a larger Indigenous population. Figure 2.2 shows rural areas with a proportion of Indigenous populations across Australia, Canada, New Zealand and the United States. As a reference point, the proportion of the population that is Indigenous in these countries is Australia (3.3%), Canada (4.9%), New Zealand (16.3%) and the United States (2%). Not surprisingly, these regions also tend to have low population densities. The average population density for OECD countries is 37.5 people per km². Only 4 out of 16 of the sample regions with the highest Indigenous population in OECD countries has a population density above 3 people per km² (Figure 2.3). These findings demonstrate the uneven distribution of Indigenous peoples across national territories and the importance of understanding the growth dynamics of low-density economies to improving outcomes for them.

Figure 2.2. Proportion of Indigenous in rural areas – Australia, Canada, New Zealand and the United States
Figure 2.2. Proportion of Indigenous in rural areas – Australia, Canada, New Zealand and the United States

Note: Figure shows the five rural regions from the selected countries (except only one rural region from New Zealand) with the highest share of Indigenous peoples.

Sources: Australian Bureau of Statistics (2019[31])TableBuilderhttp://www.abs.gov.au/websitedbs/D3310114.nsf/Home/2016%20TableBuilder (accessed on 24 January 2019); Statistics Canada (2018[32])Census Programhttps://www12.statcan.gc.ca/census-recensement/index-eng.cfm; Stats NZ (2019[33])NZ.Stat Table Viewerhttp://nzdotstat.stats.govt.nz/wbos/Index.aspx?_ga=2.242672770.1440318263.1548238156-1502974109.1548238156 (accessed on 24 January 2019); U.S. Census Bureau (2019[34])American FactFinder - Resultshttps://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_17_5YR_S2403&prodType=table (accessed on 24 January 2019).

 StatLink https://doi.org/10.1787/888933959282

Figure 2.3. Population density in rural regions with high percentage of Indigenous populations - Australia, Canada, New Zealand and the United States
Figure 2.3. Population density in rural regions with high percentage of Indigenous populations - Australia, Canada, New Zealand and the United States

Source: OECD (2018[35])Regional Demographyhttps://stats.oecd.org/Index.aspx?DataSetCode=REGION_DEMOGR&_ga=2.173938852.623058288.1548169324-1908064720.1536686977 (accessed on 23 January 2019).

 StatLink https://doi.org/10.1787/888933959301

These rural economies also have a different economic structure to the national average. Table 1.1 evaluates the difference in the average economic structure (employment by industry) with rural regions that have a large Indigenous population (represented in Figure 2.2 and Figure 2.3) with respective national averages. These regions are much more likely to be specialised in agriculture and mining, and much less likely to be specialised in producer services (finance, insurance, and information technologies). A key development strategy for these regions will be identifying ways to add value to primary industries (mining, forestry, fisheries and aquaculture, and energy) and to develop mechanisms for linking Indigenous communities with them through employment and training pathways, and entrepreneurship and small business development.

Table 2.3. Comparing employment by industry, rural regions with large Indigenous populations with the national average (%)

 

USA difference

Canada difference

Australia difference

Producer services

-6

-11

-10

Personal and social services

3

0

3

Distributive services

-1

-5

-6

Construction

1

2

0

Industry and agriculture

3

-2

13

Note: Data for the following years: United States (2016), Canada (2016), and Australia (2013).

Sources: OECD (2018[35])Regional Demographyhttps://stats.oecd.org/Index.aspx?DataSetCode=REGION_DEMOGR&_ga=2.173938852.623058288.1548169324-1908064720.1536686977 (accessed on 23 January 2019); Statistics Canada (2018[32])Census Programhttps://www12.statcan.gc.ca/census-recensement/index-eng.cfm; U.S. Census Bureau (2019[34])American FactFinder - Resultshttps://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_17_5YR_S2403&prodType=table (accessed on 24 January 2019).

Typology to understand development opportunities for Indigenous communities in rural areas

Both population size and locational assets condition the range of potential economic opportunities available to Indigenous communities in urban and rural places (just as they condition non-Indigenous communities in a similar manner). This suggests that the extent to which Indigenous communities are successful or unsuccessful relative to non-Indigenous communities should be judged by comparing communities in similar circumstances. As such, communities located in metropolitan regions should be compared to similar geographic communities in terms of size and location. Likewise, Indigenous communities in rural areas should also be compared to similar geographic communities. Because many are small and located in remote areas, their members’ level of income, employment and access to services will inevitably be lower than is the case for the average citizen who is located in an urban area. Part of this difference is the inevitable penalty of a rural location, but part may be a specific economic development penalty due to being Indigenous. The only way to identify the relative role of the two elements is to compare geographic communities of similar size and location. In terms of Indigenous communities in rural areas, the two key locational factors that shape economic development opportunities (proximity to cities and access to natural resources and amenities) can be represented in a matrix (Figure 2.4).

Figure 2.4. Typology for Indigenous economic development in rural areas
Figure 2.4. Typology for Indigenous economic development in rural areas

The matrix presented in Figure 2.4 outlines four basic developmental trajectories for Indigenous communities in rural communities. They are:

  1. 1. Remote Indigenous communities with abundant natural resources and amenities – these places are further than a 60-minute drive from a population centre of 50 000 people or more and have opportunities for commercial development related to minerals, hydrocarbons, renewable energy, fishing and aquaculture, food production and nature-based tourism. A key issue for these communities will be how to invest own-source revenues in ways that support economic value adding and diversification, and building/attracting the necessary skills to support business growth.

  2. 2. Remote Indigenous communities where natural resources and amenities are limited or absent – these places lack natural resources available for commercial use, and consequently economic development is largely limited to the internal market and some tourist opportunities (e.g. handicrafts). In these places, government transfers, subsistence hunting and fishing, and local bartering and sharing will play a greater role in supporting community well-being. A key issue for these communities will be ensuring access to public services that offer a sufficient quality of life to retain younger people and maintain community sustainability, culture and language.

  3. 3. Indigenous communities close to cities with abundant natural resources and amenities – these places are within a 60-minute drive of a population centre of 50 000 people or more with sufficient land and resources available to develop commercial opportunities related to renewable energy, food production and tourism. A key issue for these communities will be integrating with the wider urban/regional economy and developing governance arrangements to maximise the benefit of their resource base.

  4. 4. Indigenous communities close to cities where natural resources and amenities are limited or absent – these places are close to cities but do not have sufficient land size or the natural resources that enable commercial-scale resource-development opportunities. However, even where land parcels are small, this may still present opportunities for retail and industrial land development, and collaboration with local municipalities on planning and infrastructure is important to activating these opportunities.

This typology can help inform decision-making and dialogue about the development potential of different Indigenous communities in rural areas. Crucially the typology does not consider three important factors – variations in Indigenous rights over land and resources, the quality of the community institutions, and the development objectives of the community. It is clear that two similar size places with equivalent geographic conditions can have very different economic outcomes. In some jurisdictions, Indigenous peoples may have rights over sub-surface resources or fishing grounds (e.g. in Alaska or Nunavut) and in others, rights may be limited to the use of land (in the case of the Sámi in Sweden). This shapes the limits and possibilities for Indigenous economic development (see Chapter 3). This can also reflect differences in the quality of local institutions – the ability to identify and implement a development strategy, and or, differences in objectives (discussed further in Chapter 4). Typically, local economic development analysis assumes that all communities have similar objectives and focus on differences in the quality of institutions. However, when considering Indigenous communities, it is important to recognise that the objectives of the community may differ significantly from those assumed to hold in non-Indigenous society. In turn, this affects how standard measures (household income, employment rates and educational attainment) are utilised for comparative purposes.

Competitive advantages and opportunities

This section of the chapter evaluates the types of economic opportunities that may exist for Indigenous communities in different types of rural areas. Opportunities for Indigenous entrepreneurs emerge from the factors of production (labour, land and technologies) that exist in different regional economies. As discussed earlier, opportunities in the tradeable sector in rural areas are likely to connect with an immobile asset. From a sectoral point of view, this relates to mainly to primary industries (agriculture, mining, forestry, fishing and aquaculture). Business opportunities in energy production, services and manufacturing can also be integrated with these primary industries. For example, food product manufacturing, construction services to the mining industry, and servicing of equipment. Other business opportunities can also emerge in relation to the management and use of natural resources such as tourism and parks management. In terms of the non-traded sector, other business opportunities exist in terms of meeting local demand (e.g. retail, cleaning and house maintenance, health and well-being, and the provision of public services).

Profile of the Indigenous business, by sector

Although there are gaps and shortcomings in Indigenous business data across countries, it is possible to build a picture of it. The existing data and analysis show that specialisation in private sector self-employment and establishments is linked to land assets. This includes residential and commercial construction, mining and extractive industries, and food and agriculture. Areas of specialisation vary between countries. In terms to self-employment, there is a higher proportion of Indigenous peoples in Australia and Canada that are self-employed in the construction sector, relative to the non-Indigenous population (Canadian Council of Aboriginal Business, 2016[36]; Australian Department of the Prime Minister and Cabinet, 2018[25]). Self-employment related to the mining sector is also higher in Australia. In New Zealand, the profile of self-employment by sector of Māori is similar to the population as a whole (Ministry of Business, Innovation and Employment, n.d.[37]). In regards to business establishments in the United States, Native Americans who live on reserve have a higher proportion of business establishments than surrounding regions in mining and extractive industries (Akee, Mykerezi and Todd, 2017[38]). There is a higher proportion of establishments than the non-Indigenous population in the agricultural, forestry and fishing sector in New Zealand and Sweden (Te Puni Kōkiri, 2013[24]; Sami Parliament of Sweden, 2014[39]). Generally, lower proportions of self-employment and business establishments are evident for Indigenous peoples in the services sector across Australia, Canada and the United States. This is both related to skills set and location in the case of professional and technical services, population size (health and social care) and purchasing power (retail and wholesale).

The only systematic and regular data collection by national statistical agencies about Indigenous-owned businesses is in the United States, which shows similar trends in regards to specialisation in construction and mining (Figure 2.5). This is likely to relate to two factors. The first is construction businesses linked with public procurement, Indigenous housing and extractive industries. The second is the establishment of businesses related to the extraction of minerals, metals and hydrocarbons on Indigenous lands. Lower shares of businesses in the services sector may reflect a number of factors. This includes lower levels of human capital and the higher proportion of Indigenous populations that live in rural areas with thin markets and have low incomes.

Indigenous communities in rural areas have relatively unique areas of competitive advantage that are linked to a combination of natural resources and traditional knowledge. In any discussion about these aspects, it is important to note that Indigenous peoples use land and undertake customary activities for non-market reasons and have livelihoods particularly in remote areas that are not well integrated into market economies (Altman, 2004[40]). Indigenous peoples living in these areas tend to negotiate a balance between social and cultural obligations with business operations that will vary between individuals, kinship groups and clans (Taylor, 2008[12]). Customary activities and traditional knowledge can be understood as an area of “absolute advantage” because it is embedded within a particular location and embodied within close kinship networks that is not well-understood or shared with outside groups (e.g. as demonstrated by Indigenous arts, handicrafts and music). Likewise, Indigenous peoples have unique knowledge and practices related to land and water use, which have evolved over thousands of years and transmitted orally from generation to generation. In order for Indigenous peoples to take advantage of natural resources, there is a need for them to have some level of legal ownership and mechanisms to turn these resources into business opportunities (Chapter 3). There are different examples of how Indigenous peoples have taken advantage of this knowledge to generate business opportunities for their communities.

Figure 2.5. Businesses, by sector, Indigenous and non-Indigenous, United States, 2016
Figure 2.5. Businesses, by sector, Indigenous and non-Indigenous, United States, 2016

Source: United States Census Bureau (2016[41]), Survey of Business Owners and Self-Employed Persons (SBO), https://www.census.gov/programs-surveys/sbo.html (accessed on 23 January 2019).

 StatLink https://doi.org/10.1787/888933959320

Food and agriculture

Indigenous businesses related to natural resource use take on different forms (e.g. sole traders, community enterprises, joint ventures) depending on the scale and complexity, and legal arrangements underpinning resource use. Food production is one business activity with which Indigenous peoples have been able to develop successful and internationally competitive businesses. The allocation of fishing rights and quotas to Indigenous peoples is one way for them to develop businesses and wealth. For example, in Alaska, a proportion of fishing rights are allocated to local communities in the Bering Sea and the Aleutian Islands as Community Development Quotas. Each community participates through non-profit corporations that manage the allocation and the revenues from it and invest in local community and economic development initiatives. These corporations also collaborate with each other to build scale and re-invest revenues from fisheries into local infrastructure and value-adding opportunities. Smaller scale examples are evident in freshwater where Indigenous communities can establish, sell or go into joint ventures in fishing tourism businesses. These examples are also evident in Canada. Land settlements in New Zealand have enabled Māori to develop globally competitive agribusinesses that link food and fibre products to Māori values related to land stewardship and sustainability. In Australia, there is an increasing interest in Aboriginal foods. For example, Kungkas Can Cook is an Aboriginal owned catering, tourism and restaurant business in Alice Springs, Australia that employs local Aboriginal women to harvest bush foods. Across these examples, Indigenous peoples have also been able to leverage their values around stewardship and care for the country as a brand to develop niche market advantages.

Mining and extractive industries

Mining and extractive industries have historically been a source of conflict and dispossession for Indigenous peoples. However, in jurisdictions where land rights have been clarified, a legal basis exists for negotiated agreements between mining companies and local Indigenous communities, and the establishment of these businesses by Indigenous communities. Agreements with mining and resources companies (discussed further in Chapter 3) may include a suite of monetary and non-monetary benefits such as the hiring of local community members, contracting with Indigenous-owned businesses, scholarships, revenue sharing and the payment of royalties. These agreements can facilitate the growth of Indigenous-owned businesses in areas such as construction and logistics to provide services to mining operations and job opportunities for local people. This can be achieved through mechanisms such as companies agreeing to specific targets for Indigenous procurement, and encouraging or mandating larger companies to form joint ventures with local Indigenous owned enterprises. In some cases, Indigenous communities may also take on an equity stake in mining and resources businesses by investing own-source revenues. This gives Indigenous communities a greater voice in the conduct of these operations, provides an incentive for them to grow the business and gives them a sustainable income stream. Some communities have taken a step further to set up their own mining and resources companies. An example of this is the Frog Lake Energy Resources Corporation, which is owned by the Frog Lake First Nation in Alberta, Canada (Box 2.2).

Box 2.2. Frog Lake Energy Resources Corporation

Frog Lake First Nation has a population of 2 500 people and is located about 2.5 hours to the west of Edmonton in Alberta, Canada. The First Nation has a reserve of 55 000 acres which has oil and gas reserves within it. Members of the community established the Frog Lake Energy Resource Corporation (FLERC) in 2000 without any assets, cash flow or staff. The board of FLERC includes local business people and members of the Tribal Council of Frog Lake First Nation. In 2003, the corporation formed a joint venture with other oil and gas companies (current partners include Perpetual Energy, Canadian Natural, and Petromin) and then acquired mineral leases from the First Nation. By 2008, FLERC production exceeded 1 000 barrels per day and by 2009, operations were financed by internal cash flow. In 2012, FLERC formed a joint venture to undertake production off reserve lands and by 2013, it was debt free and production was exceeding 3 000 barrels per day.

FLERC is strongly linked with the community’s vision for development. The operations of FLERC are based on the principle of “sustainable wealth creation” and it has developed the following vision statement: “By 2020, we will be recognized for our ability to continuously create business opportunities and deliver long-term value for the benefit of the members of the Frog Lake First Nation and its partners”. This includes creating opportunities for employment amongst local youth, for local businesses to participate in the value chain, and by investing in community development and charitable activities.

FLERC is a good example of the Indigenous-led approach to mining and extractive industries. There are a number of key lessons to note. The first is the establishment and growth of a business that is integrated with the community’s strategy for development. The mission and strategic priorities of FLERC are clearly linked to delivering better community outcomes and tribal leaders are part of the governance of the enterprise. The second is how joint ventures can be utilised to access capital and expertise to grow a business opportunity. This supported the establishment and growth of FLERC and has now put it in a position to participate as an equity partner in other projects. The third is that this approach can mean Indigenous communities are genuine partners in resource developments, and indeed can drive the process.

Sources: Frog Lake Energy Resources Corp. (2018[42]), History, http://www.flerc.com/history/ (accessed on 05 February 2019); Frog Lake Energy Resources Corp. (2013[43]), Frog Lake Energy Resources Corp., https://www.afn.ca/uploads/files/usb2013/2-f.pdf (accessed on 05 February 2019).

Land management and environmental services

Land management and environmental services is also a growing opportunity in the context of policy responses to climate change and environmental degradation. Payments for Environmental Services (PES) are being increasingly applied across the world as a response to this challenge (Wunder, 2008[44]). The basic principle is that the user or beneficiary of the environment pays for the services provided by it (fresh water supply, storm and flood protection, pollination). These ecosystem services can be grouped into four categories: provisioning services (products such as food and fresh water); regulating services (benefits from the regulation of the ecosystem such as air quality sand pollination); cultural services (non-material benefits such as recreation and aesthetic experiences); and, supporting services (e.g. photosynthesis and nutrient recycling) (UNDP, 2019[45]). Indigenous communities can be paid for the provision of these services, which puts a monetary value on their expertise in land and water management practices that have accumulated over thousands of years. This approach is applied to Australia under the governments Indigenous Protected Areas (IPA) and Ranger programmes (Box 2.3). These programmes provide direct funding to Indigenous groups for land and water management, and these groups have also diversified to access private and philanthropic funding. This can include earning revenues from carbon credits. A good example in Australia is Indigenous fire management practices that have shown to reduce the intensity of bushfires and therefore reduce the amount of carbon released into the atmosphere. These land management practices have also been driven by and enabled technological innovations. For example, the Yawuru Indigenous community in Western Australia is developing capability in GIS mapping to support their land and water management practices. This also supports sustainable development objectives by identifying the best places for water extraction and use, clarifying sites of social and cultural significance, and places where commercial development is not appropriate.

Box 2.3. Employment opportunities through Indigenous Land Management

The Australian Government’s Indigenous Protected Areas (IPA) programme enables land and sea country to be managed according to the wishes of the Traditional Owners. IPAs are voluntary arrangements through which Indigenous communities dedicate their lands or sea country to be set aside formally for conservation purposes. These areas are then recognised by the Australian government as part of the National Reserve System and deliver important Indigenous land management, cultural, social, and economic and employment outcomes. There are currently 75 dedicated IPAs which contribute over 65 million hectares, or more than 44%, of the National Reserve System. These outcomes are also shared, and in many cases strengthened by the government’s funding for Indigenous rangers. Through their projects, ranger groups protect, conserve and manage environmental and cultural values. Projects can include, but are not limited to, activities such as the management of threatened species, invasive weeds and feral animal control, biosecurity activities, fire management, management of coastal and marine systems, visitor and information management, community engagement and education. These projects often contribute to economic development opportunities more broadly such as a fee for service work on behalf of government agencies, research and philanthropic organisations and the private sector; tourism enterprises; and carbon initiatives. The Indigenous ranger funding supports 118 ranger groups across the country and together with IPAs, the 2 programmes employ over 2 900 Indigenous Australians to work on land and sea country.

Source: Response to OECD Survey from the Australian Government (2018).

Tourism

Tourism is a rapidly growing rural economic activity across OECD countries. Rural tourism tends to be either nature connected and/or linked to culture and experiences. Rural Indigenous communities that are in a relatively high amenity location with adequate access will have opportunities to develop tourism businesses. The key for communities is developing a package of experiences that attract people to spend more and/or stay longer. This focus can reduce overall numbers of visitors whilst also generating sufficient revenues. This tourism package can have a number of elements. The first is accommodation on traditional lands close to high amenity landscapes (mountains, forests, rivers, lakes and the ocean). Second, are activities linked to traditional Indigenous hunting and fishing. Third, arts and cultural activities (handicrafts, music and dance) provide a unique experience for visitors and can inform them about the history and traditions of the community. In combination, these assets and activities increase the attractiveness of the experience to the participant and increase income and employment opportunities for the community. The other element to consider is how Indigenous tourism ventures are developed, which is important because they directly relate to the protection and use of Indigenous lands and culture. A model which is based on outside actors coming into communities to sell experiences, build accommodation or undertake fishing activities is unlikely to deliver long-term sustainable growth benefits for communities. Instead, Indigenous communities should take the lead in developing tourism ventures on their own terms and in a way that is linked to local business, employment and skill development opportunities (Coria and Calfucura, 2012[46]).

Culture and traditional knowledge

Culture encompasses beliefs, norms and attitudes that are peculiar a group of people who share a common sense of identity and belonging. Some aspects of Indigenous culture outlined in this report include language, ceremonies and dance, songs and kinship relations. Traditional knowledge is transmitted across generations through shared cultural norms and practices. These norms and practices also have an objectified state through representation and communication in art, literature, recorded music and images. The most important point is that culture is a foundation for Indigenous societies and critical to the reproduction of identity, language and knowledge. Culture is also not fixed and changes through generations and as Indigenous peoples interact with different cultures and use different technologies. Cultural representations and artefacts also need to be protected from exploitation and ensure that Indigenous peoples are compensated for their use. Within this context, there are many examples of Indigenous peoples have negotiated compromises between traditional and modern ways of living to generate commercial returns from culture and traditional knowledge. This has occurred within the context of growing interest amongst policymakers in OECD countries about “creative industries”, which includes products and services that contain a substantial element of creative and artistic endeavour (OECD, 2014[47]). This interest has grown due to an acknowledgement about the importance of creativity to innovation and economic development, changes in consumption and the shift from subsidised art to generating commercial returns from it. A good example is the Sámi Indigenous peoples who have a vibrant creative sector that includes photo, film, handicrafts, performing arts, literature, music, books and museum activities. Traditional knowledge about biological resources has also been exploited for commercial gain (e.g. medicines, health products and cosmetics) and has been identified as an area of policy change through IP reform (discussed earlier in the chapter).

Renewable energy

Renewable energy is another source of opportunity for Indigenous communities in rural areas. Renewable energy is a growing sector and rural areas attract a large part of investment related to renewable energy deployment tends to be in sparsely populated that have abundant resources for energy production (OECD, 2012[48]). For very remote rural Indigenous communities that are off the grid, renewable energy can greatly reduce the cost of energy based on diesel generators. Renewable energy is not a “silver bullet” for Indigenous communities as it is capital intensive and potentially expensive, dependent on subsidies, does not generate much local employment and it can be unreliable. However, Indigenous communities in rural areas have land and resources (wind and water) that can be harnessed for renewable energy. There are a number of factors that need to be in place to ensure it delivers sustainable benefit. The first is engaging the local community in the process to develop renewable energy to seek consent and secure social acceptance. In the case of Indigenous communities, this means dealing with potential conflicts between renewable energy and traditional livelihoods. The location should also be optimal for renewable energy and mature technologies deployed to reduce cost and risk. Renewable energy should also be integrated with local supply chains related to forestry, agriculture, and fisheries and aquaculture. Over the past decade, Canada has seen a rapid increase in Indigenous renewable energy projects. As an example, in 2017, there were approximately 150 clean energy projects with Indigenous involvement compare to approximately 20 in 2008. Grants are provided by the Canadian government to support remote communities to develop these projects and reduce dependency on diesel as a power source. A good example is the Northern Responsible Energy Approaches for Community Heat and Electricity (REACHE) programme that provides funding for renewable energy and efficiency and prioritises projects that demonstrate Indigenous leadership and community engagement (Indigenous and Northern Affairs Canada, 2019[49]).

The Indigenous business sector in a rural context

The profile of the Indigenous business sector differs from non-Indigenous businesses in a number of ways across the sample countries. The first is that Indigenous entrepreneurs have a lower presence in producer services. These firms usually have high knowledge content and sell services to other businesses. If these businesses specialise in niche activities, they can generate high margins and wages. Indigenous entrepreneurs are relatively more specialised in primary industries (food and agriculture, forestry and mining) and construction. These industries are more vulnerable to fluctuations in commodity prices and to levels of public expenditure. Mining and resources are one area that can generate high margins and wages (depending on the point of the commodity cycle). Renewable energy is also a potential growth opportunity for Indigenous peoples. Jurisdiction over land enables Indigenous communities to develop primary activities and negotiate benefit-sharing agreements with corporations. Properly structured these agreements can also support the growth of these types of businesses and in the services sector related to them (e.g. construction, maintenance, and cleaning and catering). Geography, institutions and levels of human capital can help explain these outcomes. In terms of geography, producer services are more likely to concentrate in larger cities, which enables them to specialise, access highly skilled labour, and benefit from knowledge spillovers. A lower proportion of Indigenous peoples live in cities than the non-Indigenous population across the sample countries. Levels of human capital are also lower and these sectors usually require a post-secondary educational qualification. Institutional arrangements also play a role. However, there are still opportunities available in the services sector. This includes services related to the management and stewardship of natural resources, tourism, and culture and traditional knowledge.

Place-based approach to Indigenous business development

To foster growth and development, Indigenous communities in rural areas must take advantage of context-specific assets that are immobile which can represent areas of absolute and competitive advantage. The previous section of the chapter presented a number of opportunities for sectoral specialisation in the primary sector for rural Indigenous communities. A key challenge for Indigenous communities is to develop strategies for adding value and diversifying around these activities by reducing bottlenecks and investing in enabling factors (human capital, infrastructure and innovative capacity). Developing these place-based economic development strategies requires institutions that can facilitate a shared vision, engage communities, co-ordinate investments and mobilise resources. Most importantly, Indigenous business growth needs to link with community development outcomes. Strategic planning for Indigenous communities is effective when it combines economic development and community planning aspects (Halseth et al., 2011[50]; Native Nations Institute, 2016[10]). This includes a process that is inclusive of and empowers different groups and interests in the community, and incorporates accessible information and data to support this dialogue. Funding support may need to be provided to co-ordinate and support this community planning process including for technical expertise, capacity building, and access to data and information. This community-led economic planning provides the basis for identifying strategies to drive development and to prioritise and co-ordinate investments in key enabling factors.

This collective vision for development should build upon areas of competitive advantage and be linked with factors that enable the growth of Indigenous enterprises. As discussed earlier in this chapter, the productivity and growth performance of rural areas tends to be influenced by two key factors: i) proximity to cities; and ii) size and performance of the tradeable sector (OECD, 2016[19]). Four main options can be pursued by rural regions to influence these drivers of productivity growth:

  • Specialise in natural resource exploitation and stewardship, which includes mining, forestry, food production, renewable energy, tourism and ecosystem services (particularly for remote areas).

  • Strengthen rural-urban linkages through shared governance and policies, and better infrastructure connections.

  • Be integrated into Global Value Chains (GVCs). Forward and backward linkages (re-bundling) are critical to maximising value-added of natural resource industries and foreign direct investment (FDI) through the creation of a network of local suppliers.

  • Develop territorially differentiated products and services through mobilising local assets and leveraging consumer preferences for local or traceable products.

Each of these strategies has different policy implications for place-based Indigenous communities. Natural resource exploitation is dependent upon the existence of the resource endowment and an appropriate regulatory environment and infrastructure connections to exploit it. If Indigenous peoples have clear property rights in relation to land and water, they can have the opportunity to give consent to developments and negotiate benefit-sharing agreements (Chapter 3). These benefits may include employment and training for local community members and access to procurement opportunities for local businesses. Rural-urban linkages are influenced by infrastructure connections and shared governance arrangements that enable co-ordination between jurisdictions (e.g. fostering connections and complementarities with surrounding communities’ off-reserve). Integration with GVCs is shaped by procurement policies and support, access to finance, and skills and competencies. Product differentiation depends, to a degree, on co-ordination between different actors at a local level (e.g. through clusters and shared branding). This has the potential to be a key growth area for Indigenous businesses linked with the authenticity, quality, sustainability and traceability of products (food, handicrafts, music, arts and culture). These strategies are all conditioned by different geographies, and some good practices and lessons from specific Indigenous communities in different types of regions will now be discussed.

Remote Indigenous communities with abundant natural resources and amenities

As outlined earlier in the chapter, these places are longer than a 60-minute drive from a population centre of 50 000 people or more. In the case of Indigenous communities, they may be extremely remote without road access and facing challenging climatic conditions. Even in these remote contexts, there will be opportunities for Indigenous participation in commercial development related to minerals, hydrocarbons, renewable energy, fishing and aquaculture, food production and nature-based tourism (depending on the legal and rights framework). Kotzebue, Alaska, is a good example of a remote Indigenous community that has been able to develop an economic and community development strategy linked to a mining venture. Kotzebue is located 1.5 hours flight north of Anchorage, has a population of 3 288 people of which an estimated 68% is Native Alaskan. In 1971, the Alaskan Government established Indigenous-led Regional Corporations and Village Corporations to oversee the governance of these land rights through the Alaska Native Claims Settlement Act. Regional Corporations have sub-surface rights, which provides a basis for negotiating benefit-sharing agreements. The Red Dog mine, which is operated by Teck is close to Kotzebue and on land owned by the Nana Regional Corporation. It is one of the world’s largest zinc mines and began operations in 1989. Specific targets have been established for the hiring of local Indigenous people (now at 58%), contracting goods, services and works for the mine with Nana Corporation businesses, and creation of a Village Improvement Fund through royalties. The Nana Corporation owns businesses that provide construction, aviation and logistics services, enabling it to capture value-adding opportunities from mining and extractive industries in Alaska.

Another example is the Gumatj Corporation Ltd in northeast Arnhem Land in the Northern Territory, Australia. Gumatj is a local Aboriginal Corporation that manages Aboriginal freehold land on behalf of the Gumatj peoples who are one of 13 Yolngu clans of northeast Arnhem Land. In 2016, the Corporation established Gulkula Mining Ltd., which operates a small bauxite mine. Rio Tinto Ltd. also provided financing for the community to establish a training centre on the mining site to develop employment pathways for local Aboriginal people. The Gumatj Corporation has also developed a portfolio of businesses to diversify income streams (food production, timber harvesting, retail, construction and waste management) as mining is likely to be phased out in the region over the next decade. Both examples show how Indigenous communities with resource endowments have been able to negotiate benefit-sharing agreements and invest own-source revenues to generate value-adding and diversification opportunities.

Remote Indigenous communities where natural resources and amenities are limited or absent

Remote places without natural resource endowments and amenities have limited opportunities for economic development. In these places, government transfers, subsistence hunting and fishing, and local bartering and sharing will play a greater role in supporting community well-being. The development of the tradeable sector is still possible but will be limited in scope to small-scale tourist opportunities, and handicrafts and art. An important consideration will be local Indigenous control over firms and public services that meet local demand (e.g. waste, maintenance, community transport, retail, health and education services). Innovations such as community enterprises can enable profits to be recycled within local communities, and create opportunities for employment and human capital development. Traditional culture and customary practices also play a much stronger role for these communities, and economic development needs to be negotiated and balanced with these obligations. As a result, institutions that are locally controlled, understand the local context and can build relationships are likely to be more successful. Supporting the formation of these local institutions also requires flexibility from governments in terms of rules about the delivery of services, programmes and public procurement.

The Ngaanyatjarra Pitjantjatjara Yankunytjatjara (NPY) lands is such a type of community. It is located in the central desert region of Australia, covering 350 000 km² (equivalent to the size of Germany) and encompassing 26 remote communities and homelands across 3 jurisdictions (South Australia, Western Australia and Northern Territory). According to the 2016 Australian Bureau of Statistics Census, 6 036 people live in the Ngaanyatjarra Pitjantjatjara Yankunytjatjara (NPY) lands, of which 61% are Indigenous. Many people speak English as a third or fourth language. The community has undertaken a number of initiatives that demonstrates how economic development can occur in such a remote setting. The first is the locally owned Ernabella Arts Centre in Pukatja (a community of 600-700 people). The Arts Centre provides a space for artists to meet, discuss and pass on knowledge and stories (as Aboriginal art is connected with stories about land and culture). The centre acts as a broker between artists and potential buyers through exhibitions and events that occur in larger urban centres. It is seen as a successful model because it is locally owned, has built up credibility and trust with the community over time and provides a mix of social, artistic and commercial spaces. The second is the Regional Anangu Services Aboriginal Corporation (RASAC), which is locally owned and provides a range of services to the community. RASAC is the largest employer in the region and has built a community-based employment and training model that provides support in terms of work readiness (e.g. literacy and numeracy training), personalised pathways from casual to part-time and full-time employment, and developing workplace skills. Contractual arrangements for local services have been pooled which also enables local people to manage work in a flexible way across projects, which allows them to better balance employment with cultural obligations. RASAC is perceived as a successful model because it has local knowledge about the cultural context and has relationships with local communities. This case also emphasises the importance of flexibility in employment and training, and procurement rules when operating in remote communities. The third is the Mai Wuru Store, which is another locally owned firm and has ten shops across NPY lands. There is a 30% target for Indigenous employment and additional flexibility in shifts and a mentoring programme have been introduced to retain and build the capability of local staff. A committee oversees local stores, which also make decisions about the distribution of dividends back to community members.

Indigenous communities close to cities abundant with natural resources and amenities

Rural areas close to cities are more likely to have greater scope for economic development opportunities. They are the type of region with the highest rate of productivity growth across OECD countries (OECD, 2016[19]). If these communities have relatively large parcels of land then a range of possible opportunities may emerge related to industrial activities, transport and logistics, energy, food production and tourism. Because these communities are part of a broader urban economy, mechanisms to support linkages and co-ordination in relation to planning, infrastructure, and employment and skills formation will need to be established. There are a number of examples of Māori owned agri-businesses in New Zealand, which are also close to urban centres. For example, Whangara Farms near Gisbourne and the Tumunui Trust farming operations near Rotorua. This proximity to urban centres reduces transportation costs related to accessing markets, processing facilities and agricultural services, and problems in attracting and retaining a farm workforce. The homeland of Chocktaw Nation of Oklahoma is rural but in close proximity to the Dallas-Fort Worth metropolitan area. The total service area of the Tribe is 27 488 square miles, which is about 15% of the State of Oklahoma. The Choktaw have built up a diverse business portfolio that takes advantage of their location and exemptions of Federal income tax on tribal enterprises, and from state regulatory provisions related to gambling. In terms of the services sector, these enterprises include 20 gaming operations, 3 resorts, 6 hotels, a recreational vehicle park and various restaurants including franchises. The nation also operates a number of agri-businesses that produce cattle and pecans. A continued challenge for the Choctaw is the high rates of unemployment and poverty amongst some members of the community and a key focus for the nation is creating mechanisms to link local people with employment and business opportunities (Box 2.4).

Box 2.4. Chocktaw Nation Promise Zone

In 2014, the United States Government announced that the Choktaw Nation would be one of the first locations of a new Promise Zone initiative. Each of the five zones that were initially nominated had to put forward a plan about how they would work with local business and community leaders to address socio-economic disadvantage. In response, the Federal Government would provide the resources to help deliver the plan. The Choctaw Nation of Oklahoma’s key strategies include:

  • Improving skills for tomorrow’s jobs, through workforce training for skilled trades and professionals and more rigorous summer and after-school programmes.

  • Leveraging its role as the largest employer in south-eastern Oklahoma to create a strong base for economic revitalisation by working with partners, like Oklahoma State University, Eastern Oklahoma State College and the Kiamichi Technology Center to improve workforce training for skilled trades and professionals, with a focus on providing nationally-recognised science, technology, engineering and mathematics (STEM) certifications.

  • Investing in infrastructure that lays the foundation for economic growth, including water and sewer infrastructure; these infrastructure challenges have been identified as impediments to investment in an area with otherwise strong growth potential.

  • Improving educational outcomes by working across 85 school districts throughout the region to share data for continuous improvement, and bolster early literacy and parent support programmes.

  • Pursuing economic diversification by utilising natural, historic and cultural resources to support growth, including evaluation of market capacity for local farmers’ markets, as well as implementation of technology-enhanced “traditional” farming and ranching, and large-scale greenhouses and specialised training in business plan development, marketing and financing to support the development of women-owned businesses in the Promise Zone. 

Source: The White House (2014[51]), Fact Sheet: President Obama’s Promise Zones Initiative, https://obamawhitehouse.archives.gov/the-press-office/2014/01/08/fact-sheet-president-obama-s-promise-zones-initiative (accessed on 23 January 2019).

Indigenous communities close to cities where natural resources and amenities are limited or absent

Indigenous communities that are close to cities but have relatively small parcels of land can also generate local economic development outcomes. These communities can use land assets to attract urban development such as industrial or business parks, and retail. This requires having regulations in place related to land use and permit approvals (see Chapter 3 for further discussion). Another important aspect here is co-operation with local stakeholders (particularly municipalities) on planning, infrastructure and economic development issues, which can help generate “win-win” outcomes. Millbrook First Nation is one of the 13 First Nations in Nova Scotia, Canada, and is part of the Mi’kmaq Nation. The reserve is about 300 hectares close to the town of Truro, which has a total population of 22 954. As of December 2017, the population of Millbrook First Nation community was 1 864 people (with 935 of that number living off reserve). The reserve is located on the main north-south highway through Nova Scotia, which links the capital Halifax to New Brunswick. The community has pursued a long-term strategy of community and economic development. Community leaders initially focused on addressing social issues and lifting educational outcomes in the 1970s and 1980s. This provided the basis for focusing on economic development issues from the 1990s. The reserve was initially split in two by the highway and the construction of a highway overpass was a very important catalyst for development. Millbrook went through a process under Canada’s Indian Act to designate land that faced the highway for economic development, which meant working with the community to inform and convince them about the benefits of doing so. In 2000, development began on 46 acres of serviced land available for commercial development, and now has a number of retail businesses that constitute an estimated CAD 30 million worth of investment. Millbrook has used the own-source revenues generated from rents and taxes to build equity stakes in different businesses, undertake further real estate developments in Halifax and invest in community housing and social initiatives. Millbrook is an example of a strong community-led process underpinned by consistent leadership with business acumen. This leadership has also been looking at building relationships with the local municipality, chambers of commerce and training organisations to deliver on its vision for development.

Lessons and success factors

The quality of local institutions (leadership, governance arrangements, and community rules and regulations) play a key role in enabling or inhibiting community economic development. Successful communities have found ways to invest small amounts of capital in ways that generate positive investment returns. This is reinvested in subsequent development projects, and over time, the financial capital of the community grows. Building this own-source capital allows the community to better implement its development goals and be more successful in attracting external debt and equity finance because it is perceived to be a competent financial partner. The communities in this small sample have been able to develop businesses linked to areas of absolute and competitive advantage and meeting local demand. This has been dependent upon local institutions that have been able to articulate a vision for development and seek community agreement on it, co-ordinated planning and resource allocation decisions with private, not-for-profit and government actors and mobilised resources. These institutions have also provided mechanisms to link businesses with improved outcomes for individuals and investments in public goods. This includes linking business with employment and training pathways, investing own-source revenues in local infrastructure, and bringing goods and services to markets. Another aspect is partnerships with other local institutions (local municipalities, chambers of commerce and other Indigenous communities). These institutional characteristics have helped create a virtuous cycle whereby economic development is delivering on objectives to improve the well-being of the community.

Geography also plays a critical role in the size and location of a community shaping development outcomes. Indigenous communities close to cities have an advantage due to their proximity to a larger market and can leverage this advantage to develop a diverse portfolio of economic activities. The exact nature of these economic activities is going to depend upon the size of the city and access to it, the amount of land available to the community and its suitability for agriculture, natural amenities and the existence of surface and sub-surface resources (e.g. timber, minerals and hydrocarbons). In remote areas, the scope of economic development is much narrower. The key factor is sub-surface resources and to a lesser degree natural amenities (rivers, lakes, forests and mountain landscapes). The exploitation and stewardship of these resources can lead to Indigenous communities running businesses or sharing in the benefits of mining and extractive industries, renewable energy, timber harvesting, fishing and aquaculture, and tourism. Remote communities with limited resources and amenities will be restricted to innovative ways of meeting local demand and trading related to small-scale arts, cultural and food enterprises. These smaller scale activities can have large impacts in remote communities and provide resources to complement government transfers and subsistence. Realising these local development strategies requires governments and Indigenous communities to work together on addressing barriers to Indigenous entrepreneurship and small business development. The following section of the chapter defines these barriers and outlines policy levers for addressing them. This includes the identification of lessons and good practices across OECD member countries.

Policies to promote Indigenous entrepreneurship and small business development in a rural context

Rural Indigenous business structures and performance reflects a number of factors and challenges that are peculiar to rural economies (Table 2.4). There are a number of policies that can be utilised to overcome these locational disadvantages and will be discussed in the following section. Investment in transport and communications infrastructure helps reduce business costs and open up new market opportunities and ways to deliver public services. The public sector can step in to provide access to finance (such as through Aboriginal Financial Institutions) and the provision of appropriate premises for business start-ups. Business support services can be expanded and redesigned to reduce barriers to entry (e.g. matching requirements and administrative burdens) for small rural enterprises seeking to innovate, grow and access external markets.

Indigenous businesses located in rural areas will also face similar challenges. However, the degree to which they affect Indigenous owned enterprises would be different for a number of reasons. The first is that the starting point for Indigenous businesses is within a social and cultural construct that is different from non-Indigenous society. This can influence Indigenous business operations in a number of ways including the importance of kinship groups to resource allocation, balancing business operations with traditional obligations and negotiating how to commercialise traditional knowledge and culture. There may not be a strong history or culture of entrepreneurship so there may be a lack of familiarity and role models, and networks with other business people and business associations. Some Indigenous peoples may also not have concepts and language that corresponds with western capitalist ideas about business and economic development. A second reason is that Indigenous people and communities may not have a reliable credit history or collateral that can form security for loans. This can also be due to property right regimes and regulatory arrangements, which put land into communal ownership that is indivisible (see Chapter 3). A third reason is that the location of Indigenous settlements may be due to non-economic factors, for example during a colonisation period a tribe was moved to a particular location that was not viewed as economically valuable. Therefore, Indigenous land can be located in relatively remote areas with poor access and linkages to external markets.

Table 2.4. Factors influencing entrepreneurship and business performance in rural areas

Factors influencing business growth

Challenges for businesses in rural areas

Longer distance to markets

Higher transportation and communication costs for businesses because the population is widely scattered and distances to large national markets may be considerable. Provision of telecommunications infrastructure can be poor because of the relatively low and dispersed nature of the demand.

Small size of local markets

Markets are smaller and more dispersed which reduces opportunities for knowledge spillovers, sharing of inputs and competition, and specialisation.

Access to research and development

There are few instances of large formal science-based innovation systems within rural remote areas, which are typically in larger cities with universities and firms large enough to support a formal research and development function.

Lower levels of skills

Historically many rural occupations did not require formal training, which has left a legacy of low levels of human capital. In areas where business and population densities are low, access to training can be more costly.

Access to specialised services

Greater average distance from business advice and support services provided through the market, such as from banks, accountants and consultants, compared with urban-based enterprises. Limited time and resources can also constrain demand for these services.

Access to finance

Rural businesses can lack sufficient access to finance because the types of enterprise that investors tend to seek out (e.g. those with high growth potential, larger firms) are limited in rural areas.

Availability of business premises

A limited supply of business premises may reflect poor economic returns for private sector developers in localities where low levels of entrepreneurial activity depress the level of demand for business property.

Social and cultural factors

Socio-cultural values and preferences can affect small business development, through its influence on gender roles, co-operation, communications and network composition. Attitudes about expansion and the value of external assistance can also be an issue.

Sources: Adapted from OECD (2016[19])OECD Regional Outlook 2016: Productive Regions for Inclusive Societieshttps://dx.doi.org/10.1787/9789264260245-en; OECD (2009[1])Strengthening Entrepreneurship and Economic Development in East Germany: Lessons from Local Approacheshttp://www.oecd.org/site/cfecpr/42367462.pdf (accessed on 23 January 2019); OECD (2017[2])OECD Territorial Reviews: Northern Sparsely Populated Areashttps://dx.doi.org/10.1787/9789264268234-en.

OECD member and select non-member countries provided an assessment of the relevance of bottlenecks to the growth of Indigenous businesses in rural remote areas (Figure 2.6). These results identify factors that are relatively common to all businesses located in rural remote areas. Longer distances to markets were identified as the most important factor. Difficulties in accessing finance also emerged as a critical factor across jurisdictions, which aligns strongly with previous research and literature on this topic (NSW Ombudsman, 2016[9]). Because these firms operate in low-density economies, they face typical issues such as poor-quality communications infrastructure and accessing key inputs required to start and grow a business such as skills, research and development, and specialised business services.

Figure 2.6. Relevance of bottlenecks to the growth of Indigenous businesses in rural remote areas
Figure 2.6. Relevance of bottlenecks to the growth of Indigenous businesses in rural remote areas

Note: Survey responses came from Argentina, Australia, Canada, Chile, Colombia, Denmark (Greenland), New Zealand, Peru, Sweden and the United States (n=10). Order of these factors is organised around responses to the “strongly agree and agree categories” minus “disagree and strongly disagree”.

Source: OECD (survey response as part of the Linking Indigenous Communities to Regional Development Project)

 StatLink https://doi.org/10.1787/888933959339

As discussed earlier in the chapter, the development of an Indigenous community is influenced by its location, resource endowments and amenities, its development objectives and the quality of its institutions. These initial conditions shape the development limitations and possibilities for any rural community. Governments can support development by working with communities to help them set objectives and investing in enabling factors (e.g. skills and infrastructure). Alongside these basic framework conditions, policies specifically targeted to entrepreneurship and small business development play an important role. An assessment of these bottlenecks and further engagement with OECD members and non-member countries identified three areas of relevant policy action to promote Indigenous entrepreneurship and small business growth. These three areas are: i) increasing access to finance (debt and equity); ii) building business capabilities (particularly financial literacy); and iii) addressing barriers to accessing markets through preferential procurement policies. The schematic below represents these policy areas (Figure 2.7). They will be discussed further in this section of the chapter.

Figure 2.7. Policy levers to support Indigenous entrepreneurship and small businesses in a rural context
Figure 2.7. Policy levers to support Indigenous entrepreneurship and small businesses in a rural context

Increasing access to finance

Defining the problem

Access to finance is critical to starting a business and enabling existing businesses to achieve their full potential. Start-ups and small businesses can be at a disadvantage in terms of accessing finance because of factors such as limited collateral and credit history, and lack of expertise with regards to business planning and producing financial statements (OECD/EU, 2017[52]). Businesses in remote areas can face additional challenges because there may be a lack of similar proposals or investments for institutions to benchmark against, returns tend to be smaller than in urban places, and there may be a lack of local financial institutions that have the local knowledge to effectively assess a proposal. These challenges can be amplified in the case of Indigenous entrepreneurs and communities for a number of reasons. Collateral can be difficult because in some jurisdictions Indigenous peoples living in traditional settlement areas do not own land or typically their home, which is a common way for small business owners to secure financing. Historical dependency on government transfers for housing and income has also resulted in a weak credit history, which makes it difficult for institutions to make an assessment of risks related to investment or finance. As a result, an entrepreneur may have difficulties in securing funding from a non-Indigenous entity and may have to bear a higher rate of interest on loans to offset the higher risk. Discrimination and cultural bias may also be a challenge resulting in lenders or investors being unwilling to even consider funding Indigenous communities or individuals.

Problems with access to finance were one of the key issues raised in fact-finding missions in discussions with representative Indigenous organisations, governments, industry and local Indigenous communities. Land is a key issue because its ownership is indivisible and can be held in trust (see Chapter 3). This complicates access to credit and essentially results in a closed market that requires finance to be guaranteed by governments. In a Canadian context, it was pointed out that access to capital was a general challenge for Indigenous entrepreneurs and was more apparent in rural and remote areas (OECD – interviews). A recent report by the Canadian Council of Aboriginal Businesses found that Indigenous entrepreneurs rely on personal savings as their main source of financing (65%) whilst only 20% rely on business loans or lines of credit (Canadian Council for Aboriginal Business, 2016[53]). Access to business loans is challenging in terms of meeting requirements for collateral and other requirements (for example only three out of ten Indigenous enterprises have a formal business plan) (Canadian Council for Aboriginal Business, 2016[53]). A lack of collateral and financial planning and management capabilities can also impact business that may wish to take advantage of procurement opportunities. In these cases, governments can step in to provide loan facilities, grants or indirectly through Indigenous-led institutions. However, gaps can still exist, particularly where community and government support ends and mainstream lending begins. This can be revealed when businesses seek to expand and penetrate new markets.

Options for accessing financial capital

Access to financial capital is a pre-condition for any form of economic development. Essentially, there are three distinct sources of funds for either a firm or a community and each has distinct characteristics: retained earnings, equity and debt. Retained earnings are generated from the firm or enterprise from previous profits and are only available once the business is operating. The benefit of retained earnings is that the enterprise, whether owned by an individual or a community, is successful enough to generate surplus funds that can be used for expansion or improvements. Equity funds are “at risk” investments by the owner of the enterprise. Profits from the firm accrue to the equity investors and if the anticipated profit stream is lower than that provided by alternative investments it will be difficult to attract equity from external investors. This increases the amount of funds that the entrepreneur or community have to generate themselves. For entrepreneurs and social enterprises, raising an adequate amount of equity finance can be the hardest task in bringing a new enterprise to life. A sufficient amount of equity is required before there is any possibility of raising borrowed funds or debt.

Debt funding comes from an outside source, typically a financial intermediary but potentially a private lender or a government. Debt finance must be repaid in a timely manner and carries an interest payment that is proportional to the risk that repayment will not occur. The relative risk of default determines the amount of equity that the business owner must provide in order to satisfy a potential lender. An enterprise with a high risk of failure and with few assets that can be sold to recover funds has little chance of finding a lender unless the firm’s owners are able to provide a large share of her total required funds through equity investments. In some circumstances, firms with limited equity and significant risk can obtain debt finance if a third party, usually a government agency, which provides a loan guarantee. This guarantee shifts the default risk form the lender to the guarantor, allowing the lender to offer a loan at a lower interest rate.

While financial markets are relatively efficient and tend to allocate funds based on relative risk and return, they can have imperfections that are important to recognise. In low-density economies, there are few financial intermediaries, which reduces competition, and those in rural communities typically focus on routine lending opportunities and lack the capability to assess unusual funding requests. Typically, risks are higher and rates of return are lower for rural enterprises because local markets are smaller and it is hard to penetrate markets that are more distant (OECD, 2017[2]). Indigenous enterprises, whether owned by individuals or by communities, can also face particular challenges in raising financial capital. Lenders may have less knowledge of Indigenous opportunities and conditions, which can reduce their willingness to lend money without adequate collateral.

Finally, to the extent that Indigenous people, whether individuals or communities, have broader objectives for an enterprise than profit maximisation, this can be seen by lenders as reducing repayment capacity. More complex goals for the business tends to lead to higher costs or less revenue, which from a lender’s perspective increases the risk of non-repayment. Broader objectives can be desirable but they will increase the need for more creative financing strategies that might include, pooling resources across communities to set up Indigenous financial intermediaries, seeking loan guarantees from national governments or philanthropic organisations, or relying more on external equity investors who share the community’s values to reduce the amount of borrowed funds.

Government provision of tailored financial instruments for Indigenous businesses

Governments address these market imperfections by providing targeted financial instruments for Indigenous businesses at different sizes and at different points in the business growth lifecycle. This lifecycle has different phases depending upon the size of the business, sector and the regulatory framework. It is generally understood as a start-up phase, a period of growth and financing, succession and disposal. Governments in Australia, Canada and the United States all provide different financial instruments, mainly loan facilities, to address needs at different points of this cycle. Micro-finance has been used as one strategy because it is able to successfully target micro-enterprises and to support the financial inclusion of disadvantaged groups and in remote areas. This involves the provision of very small loans, support and business advice. Different thresholds are applied in countries regarding what constitutes micro-finance; for example in Australia, it may be loans up to AUD 5 000 (Burkett and Sheehan, 2009[54]). Larger loans in the start-up phase are also provided in Australia and Canada, which can be useful particularly for purchasing equipment, which is sometimes necessary for participating in public procurement and providing services to the mining industry. This support can also include a mix of grants and loans, which enable entrepreneurs to build their equity share, and if the business is successful, enables them to access further finance. Larger scale loans (direct loans and guarantees) are provided for this growth stage. Some of the design features introduced into these loan facilities include flexible repayment schedules (e.g. accounting for seasonal conditions), no interest loan periods, lower requirements for capital contributions and the direct provision of public capital.

Government support for Indigenous micro-finance initiatives

Micro-finance addresses a financing and business support gap for very small enterprises and encompasses different tools (savings, insurance and loans). Evaluations about the efficacy of these programmes across different countries are mixed with some evidence of positive effects on household income (Kovsted, Andersen and Kuchler, 2009[55]). Nevertheless, there is evidence that they are able to address a gap in the provision of credit for groups that lack personal savings, a credit history and different forms of discrimination. Indigenous entrepreneurs can face similar issues and when they wish to start a business and small amounts of finance may be required to activate a business idea. Some governments have responded to this gap through the provision of targeted micro-finance loan programmes. Whānau Ora is a collective impact model that was established in 2011 in New Zealand to improve the delivery of social services at a local level. Different commissioning agencies co-ordinate service delivery and engage Māori in decision-making as part of this initiative. The 2016 New Zealand Budget provided NZD 4 million to deliver microfinance to support enterprise development through these commission agencies. There is also a range of different microfinance providers across New Zealand, some of whom, are specifically targeted for the Māori population (Good Sheppard, 2018[56]). In Australia, the main provider of microfinance to Indigenous populations is “Many Rivers”, which was established in 2007 as a subsidiary of Opportunity International (Many Rivers, 2019[57]). It now provides loans, financial advice and support through a network of locations across Australia. Little Rivers has formed a strategic relationship with Westpac Banking Group to provide a pathway toward access to mainstream banking and some of its funding support for its activities comes from the government. This government support focuses on the provision of microfinance to remote communities.

Financial instruments for established and growing Indigenous businesses

Once Indigenous–owned businesses are established and growing, governments provide different loan facilities for them. A key characteristic of these loan facilities is flexibility in terms of scale, repayment schedules and access to business advisory support services. Examples of these programmes from Australia, Canada and the United States are outlined below.

The United States Congress passed the Indian Financing Act (1974) with the aim of addressing the disparity in access to capital between Indigenous and non-Indigenous peoples. Eligible borrowers (tribal organisations, tribal members, and businesses with at least 51% Indigenous ownership) can apply for a loan through a lending institution. Lending institutions can then apply for a guarantee for loans that provide Native American businesses with operating capital, equipment purchases, business acquisition and refinance, building construction and lines of credit. Individual loans are capped at USD 500 000 and can be increased for tribal enterprises. Since its inception, this programme has guaranteed over USD 1 billion worth of loans (Bureau of Indian Affairs, 2019[58]).

In Canada, Business Development Canada provides the Indigenous Entrepreneur Loan with access to funding of up to CAD 250 000 for existing businesses and up to CAD 150 000 for start-ups (Business Development Canada, 2019[59]). Loans can be used to acquire fixed assets, finance franchise fees, cover start-up costs, start exporting and replenish working capital. This loan facility is provided through the Business Development Bank of Canada, which is a government-backed institution that provides capital, advisory services and finance to small and medium-sized enterprises (SMEs).

In the Australian context, Indigenous Business Australia (IBA) provides business development and loan programmes for the Australian Government (Indigenous Business Australia, n.d.[60]). IBA provides a number of different loan facilities to Indigenous entrepreneurs. Business loans of AUD 10 000 to AUD 5 000 000 are provided for working capital requirements, purchase of existing businesses, plant and equipment, and other commercial assets. Flexible provisions are provided in these loans, for example, to cover contract cost, extended interest only repayments, and seasonal fluctuations. A procurement loan (up to 2 years) is another facility that is provided to cover initial capital costs related to the awarding of a contract through the Indigenous Procurement Policy (IPP) or another government programme. Support for start-ups includes a 30% contribution through a grant and includes a funding package of up to AUD 100 000 for up to 7 years. IBA also provides short-term loans to cover cash flow issues associated with invoices (of 60-90 days).

Local Indigenous financial institutions

The Federal Government of the United States has been proactive at supporting the establishment of Indigenous Community Development Finance Institutions (CDFI) (U.S. Department of Treasury, n.d.[61]). CDFIs can be banks, credit unions, loan funds, microloan funds, or venture capital providers. The initial capital for the institution may be raised from the local community, other financial institutions and government. CDFIs are normally accountable to their local community and operate on a not-for-profit basis with legislative and funding support from governments. CDFI emerged in the United States in the 1970s and enabled by the Community Reinvestment Act (1977) that provides encouragement for financial institutions to address the needs of minority and economically disadvantaged communities. CDFIs were initially established as intermediaries to provide capital, finance and advice to these communities.

The establishment of the CDFI Fund in 1994 bolstered the CDFI movement in the United States. The fund provides a number of mechanisms to support the role of CDFI across the United States, which includes direct investment and programmes to build capacity and expertise, tax credits to attract private sector investment, and a bond guarantee programme to facilitate investment in local infrastructure. The Native American CDFI Program (or NACA Program) is supported by the U.S. Department of Treasury and has three components: i) Competitive Financial Assistance (loans, grants, equity investments, deposits and credit union shares); ii) Technical assistance (equipment; hire consulting or contracting services, pay salaries and benefits, or train staff or board member); and iii) Capacity building (training and webinars on topics such as small business) (U.S. Department of Treasury, 2019[62]). In the United States, there are currently over 70 Native American CDFI across 19 states.

Similarly, over the last three decades, Canada has also built a network of local financial institutions owned and run by Indigenous peoples. Aboriginal Financial Institutions (AFIs) emerged in the mid-1980s in Canada with the Federal Government providing the initial capital injection of CAD 240 million. Since this time, AFIs have provided over 42 000 loans to Indigenous business owners with a total loan value of over CAD 2.3 billion. Over the past 5 years, the annual value of loans disbursed has stabilised at a little over CAD 100 million, the average annual number of start-ups supported was close to 500, the average annual number of existing businesses supported was over 750, and AFIs have created or maintained 4 000 full-time employment jobs. There are three types of AFIs operating in Canada. The first is Aboriginal Capital Corporations that are capitalised by the Federal Government, typically have a revolving loan fund and also provide technical and advisory services. The second is Aboriginal Community Futures Institutions that are capitalised through Federal Regional Development Agencies (RDAs) that also provide loans and technical advice, along with strategic planning and community initiatives. The third is Aboriginal Developmental Lenders that are capitalised by provincial governments and/or the private sector and provide debt and equity capital, and business support services. These institutions are now supported by two main mechanisms at a federal level. The first is the Aboriginal Entrepreneurship Program that includes equity funding for a range of different business activities. The second is the Community Futures through RDAs that provides funding support for community planning and projects, business services and capital for SMEs. AFIs now have revolving funds that do not require ongoing supplementary financing from governments; however, financial support is still provided for operational funding. One key challenge that has been identified in Canada is that they have stretched their initial capital base, which is now reducing their capacity to take on new and riskier developmental loans (NACCA, 2018[63]).

In Canada and the United States, the growth of these grassroots Indigenous financial institutions has also led to the creation of national representative organisations that can lobby on behalf of their interests, build scale, provide technical expertise and deliver funding support. The Canadian Council of Aboriginal Business (CCAB) and the National Aboriginal Capital Corporations Associations (NACCA) are examples of these institutions (Box 2.5). These institutions are important for a number of reasons. First is they enable local Indigenous financial institutions to advocate for their own interests with governments. Therefore, they are important in terms of giving Indigenous peoples an independent voice in debates and policy processes related to economic development. Second, is that they provide a forum to share best practices and build capacity through events and networking. Third, they provide a mechanism to deliver government support and programmes to local Indigenous businesses. Fourth, they can provide a platform that enables local institutions to build scale and attract private capital. By building scale, it may enable local institutions to attract institutional investors, which is critically important in terms of growing the overall capital base for the Indigenous economy by accessing private sector finance, an area that has not been fully exploited.

Box 2.5. Indigenous business institutions and representative organisations

Indigenous business interests can lack a clear voice and influence over decision-making about policies, investments and regulatory frameworks. To overcome these challenges there are various examples of where Indigenous businesses have set up institutions that enable them to build linkages with other businesses, pool resources and expertise, and influence political and policy processes. These types of institutions exist in countries such as Australia, Canada, New Zealand, Peru and the United States. They also play a role in terms of delivering public goods, for example by delivering programmes on behalf of governments, and generating research and data about the Indigenous business sector. Two examples from Canada are outlined below.

Canadian Council of Aboriginal Businesses (CCAB)

The CCAB grew out of an initiative in the 1980s to better link corporate Canada with Indigenous peoples. It now serves as a platform to foster relationships between Indigenous businesses, partnerships between Indigenous entrepreneurs and Canada’s institutional enterprises, and awareness about the interests of its Indigenous business membership. The functions of the CCAB include: awards that recognise Indigenous business success, events that provide Indigenous businesses with expert advice, link and network with other businesses, and provide opportunities to share lessons, programmes to certify businesses are Indigenous-owned, certifies corporate performance on Indigenous relations, provision of business tools and resources, and research about the Indigenous business sector.

The National Aboriginal Capital Corporations Associations (NACCA)

NACCA is an umbrella body for 50 AFIs across Canada. It provides programme-funding support for AFIs, promotes best practices for lending to Aboriginal people, advocates to government and potential funders, and promotes the AFI network. NACCA has recently launched an Indigenous Growth Fund initiative, which is designed to leverage government funding and attract higher levels of private and institutional funding to AFIs. In the United States, the Native CDFI Network fulfils a similar function.

Leveraging private sector finance

Given personal levels of wealth tend to be lower amongst Indigenous peoples and public capital may be scarce, a key strategy for growing the Indigenous business sector is through improved access to private capital. This can be achieved organically through the maturing of the Indigenous business sector. As businesses grow and achieve a record of accomplishment, it will become easier for them to access mainstream banking services. Profitable businesses are attractive to lenders and equity investors because they have demonstrated an ability to survive and because they have retained earnings on their balance sheets. Mainstream banks can also be more proactive at reducing barriers to Indigenous peoples and businesses accessing financial services. Banks in Australia have used the framework of Reconciliation Actions Plans to identify ways to enhance the inclusion of Indigenous peoples in mainstream banking and finance. This includes priorities to increase Indigenous employment in banking and finance, strengthening cultural competency, developing bespoke products and tools, financial literacy and encouraging savings (Box 2.6).

Box 2.6. Mainstream banking and finance and Indigenous peoples, examples from Australia

Reconciliation Action Plans

Reconciliation Australia (RA) was established in 2001 as a not-for-profit with a focus on reconciliation between Indigenous and non-Indigenous Australians. RA’s vision is based on five dimensions: race relations, equity and equality, unity, institutional integrity and historical acceptance. RA provides a framework and quality assurance role for organisations to prepare Reconciliation Action Plans (RAP). Each RAP is informed by the five dimensions and provides a methodology to identify practical actions for private, public and civil society organisations to promote reconciliation.

Westpac Group

The Westpac Group is Australia’s second largest commercial and retail bank and provides services across Australia. Westpac’s Reconciliation Plan (2018-20) is organised around four priorities with associated priorities and targets:

  • Meaningful careers – the proportion of Indigenous peoples employed in the company and retention, greater diversity in employment pathways, career progression and leadership parity, and Indigenous cultural competency training and celebrations.

  • Better banking experiences – improve access to home ownership products and services, develop specific savings plans for funerals, designing protocols and guidelines for engaging with Indigenous peoples and communities, and developing bespoke communication tools to improve financial literacy.

  • Backing Indigenous business – increasing procurement from Indigenous-owned businesses, capacity building for suppliers, and support for micro-enterprises.

  • Prospering communities – staff volunteering and secondments to support Indigenous organisations and financial literacy training

The Westpac Group has also established an Indigenous Leaders Engagement Team to drive this strategy and an Indigenous Advisory Committee that advises monitors and evaluates the bank on its reconciliation efforts.

Australia and New Zealand Banking Group (ANZ)

ANZ is Australia’s third largest commercial and retail bank and provides services across Australia and New Zealand. ANZ’s Reconciliation Action Plan (2016-19) outlines the following priorities and achievements:

  • Moneybusiness initiative, developed in partnership with the Australian Government in 2005, builds the money management skills and confidence of Indigenous Australians and develops a stronger savings culture in remote communities. The programme is delivered in communities through a series of workshops and support materials. In 2016, 55 100 Aboriginal and Torres Strait Islanders had participated in this initiative.

  • The Saver Plus initiative is a matched savings and financial education programme supported by ANZ. Matched savings provided by the bank can be used to purchase educational items (e.g. computers and computer equipment, textbooks, school uniforms and school camps). People who have a healthcare or Pensioner Concession card, have some regular income and are participating or have a child participating in education and training are eligible. In 2016, 95 Indigenous families had participated in the programme.

  • ANZ offers dedicated Indigenous traineeships to increase employment of young Indigenous peoples in the company, provides cultural awareness training to staff, and ensures that Indigenous welcome to country ceremonies are standard practice at key events.

Sources: ANZ Banking Group (2016[64]), ANZ Banking Group - Reconciliation Action Plan 2016-2019, http://www.indigenousculturalawareness.anz.com (accessed on 23 January 2019); Westpac Group (2018[65]), Partnering for Prosperity - Westpac Group Reconciliation Action Plan 2018-2020, http://www.gaawaamiyay.com (accessed on 23 January 2019).

Another potential area for growth, which is under-utilised in the case of Indigenous community and economic development, is social impact investing. Social impact investing provides finance for organisations and projects that address social and/or environmental and generate a financial return. The social impact investment market is still young and evolving. An important catalyst for this market has been high net worth individuals, family offices, foundations and institutional investors who have become interested in finding investments that deliver both a social and a financial return (OECD, 2015[66]). Constructing this market depends upon a level of demand (existence of institutions that can address social needs using an entrepreneurial approach), supply (e.g. foundations or institutional investors interested in social impact) and intermediaries (CDFIs, social banks, funds). Different elements of this market are in place in OECD countries that have Indigenous populations. For example, in the United States, there are deep capital markets coupled with CDFIs and a vibrant Indigenous business sector. However, attracting private capital into Indigenous economic and community development does not appear to be particularly strong across member countries and there may be several reasons for this. One is the lack of high-quality investment opportunities into which large amounts of capital can be deployed (OECD, 2015[66]). This demand-side problem can be addressed by working with Indigenous communities to develop businesses, and at a community level in terms of planning and project readiness, and finding ways to broker partnerships to build scale. Another reason may be challenges associated with the regulatory framework. For example, regulations governing the structure of trusts, tax treatment of investment, and security of investments on Indigenous lands. Another barrier may be related to the availability of data. If there are data gaps about Indigenous communities and their territories, or data is not shared or available, then this makes it difficult to make sound judgements about potential investment opportunities.

Another bottleneck is lack of scale and appropriate intermediaries. CDFIs and AFIs are unlikely to attract institutional interest because they are generally small scale and serve a local market. This also restricts the size and number of loans. Increasing economies of scale can help increase the amount of finance available, reduce risk and attract the interest of institutional investors. Local CDFI can do this by creating common loan pools around larger scale projects within a region (or at a cross-regional and/or national scale). Making this happen may require some brokering and incentives from the government (and at minimum reducing barriers to co-ordination). In the Canadian context, there are also larger scale Indigenous financial institutions. For example, the First Nations Bank in Saskatchewan, Canada was established in 1996 as a partnership between the Federation of Saskatchewan Indian Nations and TD Bank. It is now a chartered bank with over CAD 440 million in assets and is over 80% owned and controlled by Aboriginal shareholders from Alberta, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan and Yukon. The capacity for 74 First Nations to pool resources and develop a partnership with a mainstream bank was instrumental in creating this larger scale institution. Intermediary institutions provide a matchmaking function by linking different actors in the market and creating liquidity. However, across countries, this appears to be lacking in relation to the Indigenous business sector. The development of effective intermediaries together with other reforms (data, support for Indigenous enterprises, regulatory reform) could potentially have a transformative effect on Indigenous economic development.

Key lessons and good practices

Indigenous peoples face challenges in relation to accessing finance to start and grow businesses due to limited collateral and credit history, and discrimination and cultural bias. These challenges are amplified in rural areas due to lack of financial intermediation and poor returns. Some of these challenges are shared with non-Indigenous entrepreneurs and small businesses in rural areas and other minority and/or disadvantaged population groups. Other challenges are relatively unique due to jurisdictional issues related to land, embeddedness in traditional culture and customary practices, and inter-generational poverty. Government provision of loan facilities tailored for Indigenous businesses provides a way of overcoming these challenges. It lowers risk until equity and credit records can be built and provide a pathway to mainstream banking. Loan facilities tailored for Indigenous businesses should be flexible, and structured to facilitate financial intermediation for start-ups and micro-enterprises, and for established businesses of different sizes. These loan facilities may include low-interest loans, flexible repayment schedules, and combinations with grants to leverage financial contributions. Assistance should be time-limited and calibrated so Indigenous businesses can build a pathway to mainstream banking. Mainstream banks can also help build pathways by creating bespoke products and services for Indigenous peoples, building cross-cultural competencies, and through proactive approaches to Indigenous employment and procurement.

Self-determination can be realised if Indigenous communities have opportunities to grow own-source revenue and capital. Indigenous-led CDFI and financial institutions provide a key mechanism to achieve this. The CDFI/AFI model also builds human capital in economic development and financial literacy within Indigenous communities. They are also more likely to have stability in leadership and personal, which enables the development of relationships with local communities. This facilitates more informed decisions about the provision of credit and the capacity to combine finance with continuity of business advice and technical support. This does not take over a role from the government but can complement it by providing strong local institutions for Indigenous economic development. Indeed, local CDFI/AFI can play an important role in the delivery of public programmes. As shown in this chapter, the direct provision of loans by government institutions can play an important enabling role, as can proactive efforts by mainstream banking institutions. However, there are limitations inherent in the government-led model of providing finance to Indigenous businesses including greater risks of mismatches in the provision of support, lack of presence and relationships with communities, changes in leadership and staff, and fewer opportunities to build Indigenous community capacities in economic development. On the other hand, local CDFI/AFI have limited scale and this can generate bottlenecks in terms of growing the Indigenous economy.

A key future challenge is how to create mechanisms that enable Indigenous communities and businesses to build scale and access private capital. Three options were identified and their appropriateness across jurisdictions depends on the level of development, scale of the Indigenous business sector, and the existence and strength of local Indigenous-led financial institutions:

  • Local Indigenous-led financial institutions pooling their resources to create a common pool of funds to better manage risk and create opportunities to provide larger loans.

  • Supporting the creation of larger financial institutions by supporting Indigenous communities to come together and form joint institutions, including in partnership with mainstream banks.

  • Developing intermediary institutions that match different actors in the market and create liquidity for Indigenous businesses (particularly within a framework of social impact investing).

Building business capabilities

Defining the problem

Entrepreneurial skills cover both cognitive and non-cognitive skills required to start and operate a business, which can include creativity, strategic planning, financial literacy, mobilising resources, managing uncertainty and teamwork (OECD, 2019[67]). The skills can be developed within school systems and through business development programmes. For children and young people within the school system, an important aspect is teachers shifting from instructors to facilitators and coaches, and supporting students to engage in multi-disciplinary projects that engage with real-world problems (OECD, 2019[67]). This process is specific to different school settings and requires experimentation and engagement between schools and their local community (parents, civic leaders and local entrepreneurs). This will be particularly relevant for Indigenous communities that have unique social and cultural settings. Another aspect is access to formal and informal training for adults to start and grow a business (OECD/EU, 2017[52]). This can include the provision of business incubation services, technical assistance, access to mentors and financial advice. Financial literacy is of critical importance and encompasses understanding about financial products, concepts and risks, and the capacity to make informed decisions and effective actions about them (OECD, 2012[68]). Levels of financial literacy have been found to be relatively low across G20 countries with fewer than half of all adults able to achieve a minimum score of standard questions about financial knowledge (G20/OECD, 2017[69]). Existing research suggests that levels of financial knowledge are lower for Indigenous populations (Wagland and Taylor, 2015[70]). Financial literacy is recognised as an increasingly important skill in OECD countries in the context of the shift of risk and responsibility from states and corporations to individuals, and increasing complexity and choice in financial markets (OECD, 2012[68]). Financial literacy encompasses a number of competencies that are critical to starting and operating a business. This includes applying basic numeracy skills, understanding credit, interest rates, and scheduling repayments, and the relationship between risk and return. Without these basic skills in the population, it is difficult to create an environment that is conducive to business creation.

Building these business capabilities need to be integrated with initiatives that address market failures affecting Indigenous entrepreneurs and small businesses. Building business capabilities on their own will not facilitate Indigenous entrepreneurship. These capabilities need to be combined with resources and networks that enable Indigenous entrepreneurs to activate business ideas. The first is in regards to access to capital. Governments usually combine these capacity-building initiatives with grants that support entrepreneurship and small business growth. This can include direct contributions to the capital and operating costs of a business, for example, plant and equipment, business planning, participation in cluster initiatives, and marketing and promotional activities. These interventions are important for Indigenous economic development due to the lack of secure assets identified in the previous section. These direct contributions provide seed capital that can be used to leverage additional capital. The second market failure is in regards to information asymmetries. Support for participation in cluster initiatives as well as marketing and promotional activities can help Indigenous entrepreneurs to build networks and access information to support business growth and innovation. This also generates opportunities for peer-support and mentoring between Indigenous entrepreneurs and with non-Indigenous entrepreneurs.

Challenges in terms of access to formal and informal mechanisms to develop business capabilities were a common theme emerging from our engagement with Indigenous organisations, governments, industry and local Indigenous communities. This included a lack of awareness about the information, tools and resources that are available for Indigenous people looking to start and grow a business, and gaps in the provision of support (particularly around financial literacy). These problems can be generated by the fragmentation of business support services between different ministries and levels of government at a local level, and gaps in the provision of services to remote locations. There was also a consistent theme about the lack of capacity for local Indigenous communities to navigate and access programmes. Often what was missing was a local intermediary (such as an AFI) that could build relationships with local communities and provide coherent information and support on a consistent basis. Another common challenge was a mismatch between the needs and aspirations of Indigenous entrepreneurs and what was offered in terms of business support. Indigenous businesses may have different business models (e.g. based on traditional culture, mobile or seasonal) and these characteristics are not adequately reflected in programme design. Cultural mismatches and mistrust also seem to play a role. For example, people administering business development programmes often lack sufficient cultural knowledge or relationships to engage meaningfully with local Indigenous peoples. These challenges were amplified when new opportunities emerged such as through preferential treatment in public procurement, and resource extraction projects. In this context, bottlenecks such as lack of appropriate skills and technical certifications can quickly emerge and result in Indigenous communities missing out on local business and employment opportunities.

Strategic options to address these problems

There are a number of different programmatic interventions that entrepreneurship in rural areas (OECD, 2009[1]; 2017[2]). The first is providing support networks to help entrepreneurs capture the resources they need, which often includes some form of incubator programme (Henderson, 2002[71]). These can provide a platform to deliver a range of services to micro-businesses such as legal and accounting services, and the provision of physical space to meet and work. They can also help address information asymmetries, for example by delivering programmes and activities that increase understanding about opportunities in external markets, particularly at the early stage of the business (Wyer and Smallbone, 1999[72]) The second relates to policies that promote an entrepreneurial culture in a local community (Henderson, 2002[71]; North and Smallbone, 2006[73]). This includes specialised training in entrepreneurship, promoting entrepreneurship as a career option to young people, mentoring, enterprise awards and promotion in local media (OECD, 2009[1]). OECD countries also usually have programmes targeted at SMEs to facilitate modernisation and upgrading through some combination of financial assistance, advice and consultancy, training and infrastructural improvements (OECD, 2009[1]). These business development programmes are more effective if they are delivered in a way that matches the rural business environment, for example, outreach services to small remote communities, and lowering barriers to programme participation.

Tailoring initiatives for Indigenous entrepreneurs

Strategies to promote entrepreneurship and innovation for Indigenous peoples are likely to share many characteristics with non-Indigenous rural areas. These strategies will vary across different national territories given the starting point is self-determination and community-led economic development, and these places have different levels of development, institutional arrangements, histories and resource endowments. Given these local economies are small there will be a need to prioritise areas of competitive advantage and develop the tradeable sector by strengthening links with external markets (including surrounding areas off-reserve). Consideration should also be given to how communities can take control over activities in the non-traded sector (e.g. retail, health and education services, and construction) through Indigenous-led for-profit and social enterprises. This can result in better services, reduced income leakage, and local jobs and training opportunities. Governance arrangements and programmes to support entrepreneurship and innovation (with low barriers to entry) will also be needed to help address information asymmetries, strengthen linkages with non-Indigenous actors within regions and improve access to capital and technical expertise.

However, there will also be some important differences between non-Indigenous strategies to promote entrepreneurship and innovation. The level of development and existing engagement with markets is an important consideration. At a low level of engagement, economic development might be more of a process to build capabilities to participate in local and regional economies (Altman, 2004[40]). This might include a focus on skills development, intermediate labour market programmes and social enterprises linked to address social needs. Another consideration is how governance arrangements and programmes are adapted to social forms of organisation based around kinship relations. For example, how policy and legal instruments recognise the importance of commercial ventures that support Indigenous languages and cultural practices, improve socio-economic conditions on traditional lands, and appropriately structure relationships with community representative and political structures (NSW Ombudsman, 2016[74]). Traditional knowledge is also a unique feature of Indigenous economies. It is important this knowledge is respected and there is informed consent regarding its use for commercial purposes (e.g. cultivation and gathering of food, medicine and building materials, cultural symbols and handicrafts, and the management of land and water resources).

Building financial literacy

Low levels of financial literacy are a key barrier to building a positive environment for business start-ups in Indigenous communities, particularly in rural remote areas. Financial literacy is a basic pre-requisite for capital accumulation and it was also an area that was generally identified by interviewees as a gap in terms of support from the government. Different practices across countries suggest that a community-based model works best when helping Indigenous peoples build skills related to savings and investment, and combining it with micro-finance initiatives. There are a number of examples where not-for-profit institutions and governments have stepped in to fill this gap. In the State of Victoria, Australia, “My Moola” was established in 2006 by the First Nations Foundations as a financial literacy programme for Indigenous peoples. The programme covers cultural obligations and money, how to set goals and achieve them and teaches about financial products and services (First Nations Foundation, 2019[75]). This includes budgeting, insurance, superannuation, loans and mortgages. The Assets for Independence Program (AIP) is a general access initiative delivered by the USA Administration for Children and Families (U.S. Department of Health and Human Services, 2018[76]). AIP is a community-based programme that combines matched savings accounts with financial education to help poor families build savings and the capacity to manage them in the future. The Financial Consumer Agency of Canada (FCAC) has identified financial literacy as a key issue for Indigenous communities in the context of developing a new National Strategy for Financial Literacy. The agency recognises that these barriers need to be addressed by engaging Indigenous communities in the design and delivery of financial literacy interventions. As part of the National Strategy, the FCAC has established a working relationship with Indigenous organisations, which is co-chaired with the Aboriginal Financial Officers Association (AFOA) (Aboriginal Financial Officers Association, 2019[77]). AFOA is an Indigenous-led not-for-profit organisation that focuses on capacity building for Indigenous professionals working finance, management, band administration and programme management. It provides training and certification for Indigenous financial managers, administrators and leaders.

Targeted business development programmes

Public programmes and initiatives to build business capabilities are also usually packaged with grants (or direct contributions) for activities such as feasibility studies, business planning, marketing and product development, and financial contributions to capital costs and technologies. Grants can play an important role in building initial capital, bridging finance gaps and reducing risks associated with starting or growing an enterprise. They usually require some level of matching funding from other sources, and across the sample countries in this study, this is usually in the range of 25%-50%. These matching funds may come from personal assets and own-source revenues, private sources (e.g. in the case of joint ventures) and support from subnational governments. Across countries, this support predominantly relates to capacity building and technical expertise to evaluate and progress project proposals. Some countries also provide direct funding for plant and equipment and economic infrastructure.

Canada, New Zealand, Norway and Sweden provide targeted support for individual Indigenous start-ups and small business owners. Australia and Canada provide similar types of support that cover both capacity building and equipment. In Canada, the Aboriginal Business Financing Program provides grants of up to CAD 99 000 to individuals and up to CAD 250 000 for community projects to support business growth and development, and this is delivered through Canada’s network of Aboriginal Financial Institutions (AFIs) (Nishnawbe Aski Development Fund, 2019[78]). This includes support for business advice, capital and operating costs. Te Puni Kōkiri provides targeted capacity building support for Māori entrepreneurs in three ways: i) information provision and networking; ii) business growth assessment and planning; and iii) business support services. This requires Māori owned businesses to register with the Department and includes support and referral to other government agencies dealing in business related matters (e.g. export assistance, innovation and tourism). Māori entrepreneurs and community organisations also have access to the Provincial Growth Fund (a general fund for initiatives that lift the productivity of regions) that provides loans, and underwriting and equity (Ministry for Primary Industries, 2019[79]). The key interface for support is through Business Growth Advisors in the 18 regional offices of Te Puni Kōkiri across New Zealand. The Sámi Parliaments of Norway and Sweden also have similar support programmes and take a lead role in setting overall priorities (Box 2.7).

The Canadian Government provides the greatest scope in support for community-owned enterprises, compared to other countries, through its Community Opportunity Readiness Program (Indigenous and Northern Affairs Canada, 2018[80]). This includes contributions for capacity building and technical expertise, along with funding for equity and community economic infrastructure. Equity funding provides for some of the costs associated with establishing, acquiring or expanding a community-owned business whilst economic infrastructure includes contributions to improving local roads, energy, and water and waste systems. This programme also provides support through direct contributions for feasibility studies, impact assessments, promotional strategies and commercial advisory services. In Australia, the scope of support for community-owned enterprises is more limited. The Indigenous Land and Sea Corporation (ILSC) in Australia has provided a vehicle for Indigenous groups to acquire land to support larger-scale enterprise development (Indigenous Land Corporation, 2019[81]). ILSC is a government entity that runs enterprises through subsidiaries, undertakes joint ventures and also divests or purchases land on behalf of Indigenous groups. This can relate to community-based enterprises in the case of pastoral properties.

Box 2.7. Indigenous economic development: Sámi peoples in Norway and Sweden

Norway

The Sámi Parliament of Norway is a representative institution of the Sámi people living in Norway. The Norwegian Government allocates funding to the Sámi Parliament for various activities including for the Sámi Development Fund. The parliament is responsible for setting priorities and making decisions about Sámi economic development. The economic development priorities of the Sámi Parliament of Norway focus on the following key sectors: reindeer husbandry, marine industries, agriculture, handicrafts and creative industries. Programmes and initiatives overseen by the parliament provide capital grants directly to business, invest in economic infrastructure that supports Sámi businesses and deliver public benefit, build capacity and skills in entrepreneurship, and marketing and promotion. These grants are available in a targeted area in northern Norway.

Sweden

Like Norway, Sweden also has a parliament for the Sámi Indigenous peoples, which is also a state agency. Sweden is also a member of the European Union (EU) and as such, EU programmes and rules shape economic development initiatives. Specific funds for Sámi economic development are allocated through Sweden’s Rural Development Programme (RDP) for 2014-20. To guide this allocation the Sámi Parliament conducted a strengths, weaknesses, opportunities and threats (SWOT) analysis that identified reindeer husbandry, food, cultural trades and handicrafts, and tourism as strengths and areas of potential. Grants are provided for skills training and capability building, marketing and promotion, and to works to improve ecosystems in agriculture and forestry.

Source: OECD (2019[17]); Sámi Parliament of Norway: https://www.sametinget.no/.

Targeted support for community-owned enterprise in New Zealand and the United States focuses on capacity building and technical support for project evaluation. In the United States, the Bureau of Indian Affairs (BIA) Native American Business Development Institute (NABDI) grants provide support for tribes to undertake feasibility studies on economic development projects (Bureau of Indian Affairs, 2018[82]). Funding is also available for evaluation and assessment of energy and mineral resources and opportunities through the Energy and Mineral Development Program and the Tribal Energy Development Capacity Grant. The BIA also provides technical assistance services for Native American tribes to broker connections and develop markets through events. The Māori Innovation Fund in New Zealand aims to help Māori collectives (trust or incorporated entity) increase their capabilities, understanding and knowledge about economic assets and opportunities (Ministry of Business, Innovation and Employment, 2019[83]). Support is provided across 2 areas: i) commercial advisory services, which enables an advisor to be hired for 12 months to analyse commercial opportunities and build commercial links; and ii) a governance and management development scheme that facilitates training in management, strategic planning and other business skills.

Key lessons and good practices

Indigenous peoples and communities can lack access to opportunities for developing capabilities and networks that support entrepreneurship and small business growth. These capabilities include how entrepreneurs can utilise and combine skills such as creativity, strategic planning, financial literacy, resource mobilisation and teamwork to create viable businesses. Social networks may also be lacking that can create opportunities for entrepreneurs to access information and resources, and shape positive attitudes related to entrepreneurship (e.g. for risk-taking and tolerance of failure). These human and social capital dimensions of entrepreneurship need to be considered in the context of challenges related to accessing financial capital (discussed in the previous section of this chapter). The government needs to play a role here in the direct provision of funding for plant and equipment and activities that support Indigenous entrepreneurs in accessing the expertise and networks they need to start and grow a business (e.g. cluster initiatives, marketing and promotion, business planning and feasibility studies).

The most important consideration for governments is how to design business development programmes that are specific to the needs and circumstances of Indigenous communities. A number of elements are apparent:

  • Due to limited collateral, some form of direct public investment should be provided and packaged with capacity building support (e.g. training for entrepreneurial competencies and access to technical expertise and mentors). This investment should be time-limited and conditional on the provision of other financial and in-kind resources. Building capacity is likely to lead toward more sustainable outcomes and reduced reliance on government funding in future.

  • Recognising that traditional livelihoods in remote areas may not be that well integrated into formal market economies. However, they do generate resources to meet subsistence needs, re-produce language and culture, and with appropriate support can be combined with formal market activities. This value should be recognised in public support for Indigenous economic development.

  • Indigenous businesses are embedded in a particular cultural and community context characterised by kinship relations. Working effectively in this environment means developing high levels of trust and strengthening relationships at this local scale. Local Indigenous-owned financial institutions are much better equipped to deliver this type of credible and close support than government departments and agencies. This can also help overcome the problem of fragmentation and gaps in the provision of support for Indigenous entrepreneurs.

  • In some cases, a social enterprise may be a more appropriate tool to achieve development objectives. This can be the case for communities impacted by social problems and with basic unmet needs (e.g. problems with chronic disease, poverty and water and sanitation issues). Social enterprises can develop local employment and skills pathways, and recycle profits back into community development initiatives. Examples of these social enterprises might include local stores, house maintenance, catering, and health and fitness. Indigenous business and economic development programmes should also be inclusive social entrepreneurship and alternative business models.

Preferential procurement policies

Defining the problem

Many Indigenous peoples and communities face systemic disadvantages in terms of socio-economic status and accessing markets. The absence of resources, assets and capabilities means that in spite of best endeavours communities can be stuck in a cycle of weak investment, growth and employment. Barriers to market access for Indigenous peoples can occur because of supply-side factors such as insecure property rights (see Chapter 3), lack of skills and inadequate infrastructure. Weak demand for Indigenous products, services and skills also play a role. On the demand side, there may also be a lack of familiarity, trust and awareness on behalf of public entities and corporations, and a reluctance to invest and increase risks associated with project cost and delivery schedules. Corporations and governments may structure procurement in such a way (through the size of projects, rules and technical requirements) that make it difficult for Indigenous-owned enterprises to access these opportunities. Therefore, opportunities to develop skills, employment and businesses are lost.

Preferential public procurement (adjusting policies regarding the purchase of goods, services and works by governments and state-owned enterprises to meet social objectives) has been used as a lever in some countries to expand access to markets for Indigenous-owned businesses. These schemes have been criticised on the basis that they distort markets and increase costs, which outweighs the benefit of achieving their secondary objectives. However, preferential treatment and targets can help overcome barriers to market access by providing strong and predictable increases in demand for goods and services for disadvantaged population groups. This can contribute to promoting entrepreneurship and small business development within these groups. As will be discussed further in this section, complementary initiatives are required to ensure minority-owned enterprises can benefit from preferential procurement regimes.

Public procurement is potentially an important lever for achieving social and economic outcomes. The size of the public procurement market across OECD countries is significant. Governments in OECD member countries spend on average 12% of their gross domestic product (GDP) on public procurement (excluding procurement by state-owned utilities) and this is significant for some countries with Indigenous populations (Figure 2.8) (OECD, 2011[84]).

Figure 2.8. Public procurement as a percentage of GDP, select countries (2015)
Figure 2.8. Public procurement as a percentage of GDP, select countries (2015)

Source: OECD (2017[85]), Government at a Glance - 2017 Edition: Public Procurement, https://stats.oecd.org/Index.aspx?QueryId=78413 (accessed on 24 January 2019).

 StatLink https://doi.org/10.1787/888933959358

Preferential procurement policies for Indigenous businesses

Recently national and some subnational governments in OECD countries have adopted the policy of using government procurement contracts as a way to stimulate Indigenous business growth. McCrudden (2004[86]) provides a useful overview of the history of public procurement as a means to achieve social objectives. Procurement set-asides go beyond prohibitions on discrimination and employ various forms of “affirmative action” to accomplish social objectives and encourage entrepreneurship amongst minority groups (e.g. African Americans, Indigenous peoples, women and people with disabilities). Mandatory set-asides for federal contracts for Indigenous peoples (as direct contractors and as sub-contractors) is a practice that has been used by the Canadian Government since 1996. Evaluations of the effectiveness of various set-asides provide mixed results. A number of problems that reduce the effectiveness of these programmes have been identified in the literature (McMurtry, 2014[87]; Myers and Chan, 1996[88]; Noon, 2008[89]; Oakes, 2010[90]). This can include lack of experience in bidding for government contracts, difficulties in finding potential partners for subcontracts, lack of minority-owned firms in sectors such as construction and manufacturing, and the use of silent minority partners in the business ownership structure. These challenges can be summarised in terms of problems in the design of public procurement processes and barriers to the creation of minority firms that can take advantage of these opportunities (Box 2.8).

Each of these factors is likely to apply to Indigenous peoples living in rural areas. The first point is that procurement strategies are likely to be less effective in low-density economies due to the smaller number of contracts available, lack of scale and specialisation in the local economy, and the longer distances that are required to travel. For these schemes to work in rural regions, it is important that different levels of government have a shared commitment to preferential procurement and co-ordinate their actions. In particular, local municipalities are critical because of their role in terms of investment and maintenance of local infrastructure.

Box 2.8. Common barriers to minority participation in government contracting

Enchautegui et al. (1997[91]) carried out a nation-wide study of minority-owned firms in the United States and identified the following factors as instrumental in the limited success of procurement policies.

Barriers to minority participation in the government contracting process:

  • Failure of government to break large contracts down into smaller projects so that minority firms, which tend to be smaller, can compete.

  • Extensive granting of waivers from minority subcontracting requirements to majority contractors.

  • Ineffective screening for false minority fronts.

  • Limited notice of contract competitions.

  • Bid shopping on the part of majority prime contractors, who disclose minority forms subcontracting bids to their majority competitors so they can be underbid.

Barriers to the formation and growth of minority firms:

  • Lack of financial capital: minorities have lower incomes, fewer assets and diminished access to business loans.

  • Lack of social capital: minorities’ access to business networks is limited and their own family networks may be smaller or less valuable than those of their majority counterparts.

  • Lower human capital endowments: minorities have less education and professional training, and their access to union and other apprenticeship programmes is more limited.

  • Minorities’ access to lucrative, nonminority consumer markets is comparatively limited, due in part to historical patterns of residential segregation.

Source: Enchautegui, M. et al. (1997[91]), Do Minority-Owned Businesses Get a Fair Share of Government Contracts?, https://www.urban.org/research/publication/do-minority-owned-businesses-get-fair-share-government-contracts (accessed on 24 January 2019).

Preferential procurement programmes

The United States has the longest-running programme to support public procurement from Indigenous businesses through the Small Business 8(a) Program, which was established in 1978 (U.S. Small Business Administration, 2018[92]). Under this provision, Indigenous people are identified amongst other minority groups – for example, Black Americans and Hispanic Americans – and a target of 5% of all public procurement is set for these groups. Only small businesses are allowed to participate and this definition varies by number of employees and turnover across different industry sectors. Businesses are certified with the Small Business Administration, and a number of wraparound supports are provided, including the capacity for small firms to enter into a “mentor-protégé” arrangement that enables a more experienced partner to form a joint venture with a minority-owned business.

The Federal Government of Canada began a specific focus on Indigenous businesses in its public procurement through its Procurement Strategy for Aboriginal Businesses (PSAB) in 1996 (Indigenous and Northern Affairs Canada, 2018[93]). This programme has mandatory set-asides for the procurement of goods, services and works that target an Indigenous population. There is also support for voluntary set-asides and for “Indigenous Participation Components” whereby a proportion of a value of the contract is set-aside for Indigenous participation, which can be direct (sub-contracting, hiring) or indirect (training, scholarships, bursaries, grants). Qualifying businesses are also certified with a Federal Agency and procurement co-ordinators work with Indigenous enterprises to assist them to participate.

The Australian Government established its Indigenous Procurement Policy (IPP) in 2015 (Department of the Prime Minister and Cabinet, 2018[94]). Australia uses a mix of targets and mandated set-asides to incentivise Indigenous participation. Support is provided in terms of concessional loans and performance bonds as inadequate capital and assets were identified as a binding constraint to participation in public works. Supply Nation is a non-profit entity that undertakes registration and matching for Indigenous businesses, and receives support from the government (Supply Nation, 2019[95]). A specific mechanism to facilitate joint ventures between Indigenous and non-Indigenous enterprises is lacking, as is the case in Canada and the United States (Table 2.5).

Table 2.5. Indigenous participation in federal public procurement, Australia, Canada and the United States

Set-asides and targets

Qualification

Other assistance and support

Australia (2015)

● Target of 3% by 2019-20

● Mandatory set-asides for Indigenous business to compete (e.g. remote)

● Minimum Indigenous content on contracts over AUD 7.5 million

● 50% Indigenous-owned

● Concessional debt products and performance bond facility

● Commonwealth-state co-ordination on reporting and supply-side programmes

● Support to Supply Nation (non-profit entity for registration, matching and capacity building)

Canada (2010)

● Contracts that serve a primarily Aboriginal population are set aside for competition among qualified Aboriginal businesses

● Voluntary set-asides are possible by federal departments and agencies

● Federal departments and agencies set targets on an annual basis

● 51% Indigenous-owned and controlled and at least one-third Indigenous staff (if larger than 6 staff)

● Joint ventures at least 33% Indigenous content

● Certification on Industry Canada Aboriginal Business Registry

● Procurement Co-ordinators (outreach and partnership building)

● Strategic Partnerships Initiative

United States (1978)

● Minimum 5% of all federal contracting to small businesses owned by minorities (not Indigenous specific)

● 51% minority-owned

● Certification under Small Business Administration

● Mentor-Protégé programme

● Management and technical assistance programme

● Assistance and tools provided by the Bureau of Indian Affairs

Targets and set-asides for Indigenous participation in public procurement are perceived as a positive initiative that is delivering results for Indigenous businesses and communities. For example, Australia launched its Indigenous Procurement Policy in 2015 and in 3 years, it has increased the value of contracts going to Indigenous owned businesses from AUD 6 million to over AUD 1 billion. The setting of targets and mandatory set-asides, along with regular reporting on outcomes to government, have been seen as very important in generating behavioural change in public procurement. Conversely, the absence of these specific targets and lack of monitoring and reporting on outcomes was seen as reducing the effectiveness of these initiatives. Another basic issue is how businesses are registered. In the case of Canada and the United States, this registration is undertaken by government agencies (Industry Canada and the Small Business Administration respectively). In the case of Australia, it is undertaken through a non-profit entity, Supply Nation. Eligibility and definitional issues were raised as a problem, along with the administrative requirements placed on Indigenous businesses to register (OECD – interviews during fact finding mission to Australia, July 2018). These basic definitional and registration issues are something that needs to be addressed in a way, which is consistent and does not place an undue burden upon Indigenous enterprises.

Outcomes from preferential public procurement in Canada and the United States are listed in Table 2.1. The total value of procurement for the United States through the Small Business Administration 8(a) Program (2013-18) to Indigenous-owned small businesses was USD 57 013 111. There were 69 contracts in this period with an average size of USD 832 981 and a median value of USD 97 498. The total value of public procurement for Indigenous businesses and organisations in the same period in Canada was USD 145 247 771. There were 857 contracts with an average size of USD 221 261 and a median value of USD 83 511. This data demonstrates the importance of designing procurement packages to allow for smaller contracts, which helps facilitate the participation of Indigenous-owned enterprises in the public procurement market.

Table 2.6. Preferential public procurement: Indigenous enterprises in Canada and the United States (2013 – 2018)

Total value of procurement (USD)

Number of contracts

Average value of procurement contract (USD)

Median value of procurement (USD)

Canada

145 247 771

857

221 261

83 511

United States

57 013 111

69

832 981

97 498

Note: Figures are in USD (nominal). For comparative purposes, the 2018 exchange rate with USD has been applied to calculate values for Canada. Data for the United States covers the value of all contracts awarded by the Small Business Administration 8(a) Program to Alaska Native, American Indian, Native American, Native Hawaiian and tribally owned businesses. The data from Canada covers the value of Aboriginal Business set-asides under the Procurement Strategy for Aboriginal Businesses.

Sources: United States Government (2018[96]), USAspending.gov, https://www.usaspending.gov/#/ (accessed on 24 January 2019); Canadian Government (2018[97]), Home Page, https://open.canada.ca/en (accessed 24 January 2019).

Private sector procurement

Multi-national firms are also increasingly adopting preferences for minority groups in their tendering processes, even where they are not required, as a corporate social responsibility measure. There is also an economic rationale for Indigenous procurement, for example by minimising transportation costs and building stable relationships with suppliers (Canadian Council of Aboriginal Business, 2016[36]). Large-scale mining and extractive and energy projects generate economic impacts for local economies in terms of backward linkages (use of machinery and logistics to extract resources), forward linkages (processing and services) and final demand (expenditure of income from resource extraction). Evidence suggests these impacts are limited in the case of Indigenous businesses in a mining context with most benefits flowing in terms of direct employment (Horowitz et al., 2018[98]). This is consistent with other research showing that local linkages are difficult to develop, particularly in rural remote regions (Ivanova, 2014[99]). Often local Indigenous communities can miss the benefits due to unequal relationships in the negotiation process and lack of capacity to capture supply chain opportunities (Campbell and Hunt, 2012[100]). Barriers to Indigenous businesses realising these opportunities can include limited experience and skill development, complexity and size of contracts, inadequate access to information and limited capital (Sosa and Keenan, 2001[101]).

In recent years, there has been significant growth in benefit-sharing agreements in Australia and Canada as corporations have adjusted their procurement policies and benefit agreements have sought to address these barriers. This can include setting specific target in the proportion of the mining operation’s goods and services being provided by Indigenous businesses, setting up local Indigenous business registries, and a greater focus by corporates on relationship building with local Indigenous communities (Canadian Council of Aboriginal Business, 2016[36]; Sosa and Keenan, 2001[101]). These “wrap around” supports are a key success factor and can extend to the provision of low-interest loans, onsite training and health services, structuring procurement to incentivise joint ventures between local Indigenous firms and large contractors.

Box 2.9. The mining industry and Indigenous peoples, experiences from Australia

In the past two decades, mining and resources companies in Australia have developed stronger relationships with Indigenous communities. An indicator of this is the approximately 2 000 Indigenous Land Use Agreements (ILUAs) between Indigenous groups and the industry. This is in a general context where the benefits from projects to host communities are seen as important to “social license to operate”. Mining and resources companies take different approaches to these issues.

Rio Tinto has established Indigenous participation targets for Indigenous peoples that vary across different geographies and product areas within its business. Specific strategies are then developed for different projects. A good example is the Amrun Project Local and Indigenous Participation Strategy, which applies to a bauxite operation in Cape York, Queensland. The strategy includes the following elements:

  • Different categories for procurement – local (within the mining lease), regional (far north Queensland), state (rest of Queensland), national (Australia) and international – to improve transparency in reporting of outcomes.

  • Development of a Directory of Indigenous Businesses (based on 50% ownership), which focusses on opportunities for sub-contracting to Tier 1 firms (defined as larger integrated engineering and construction firms).

  • Inclusion of Indigenous-related criteria in the procurement of goods and services to the operation (e.g. weighting toward local Indigenous participation).

  • Proactive outreach to local Indigenous businesses through events and capability building.

Fortescue Metals Group’s Billion Opportunities programme was launched in 2011 as an initiative to generate business opportunities for Aboriginal people. Since its inception, the programme has awarded 270 contracts and subcontracts valued at AUD 2 billion to 110 Aboriginal-owned businesses and joint ventures. The company has utilised a number of measures to increase Indigenous procurement:

  • Setting a clear target for the value of goods, services and works procured from Indigenous businesses.

  • Structuring procurement so joint ventures are established between local Indigenous companies and Tier 1 suppliers (that may be from Australia or internationally based).

  • Setting up trust models that result in traditional owners building an equity stake in these operations.

  • Establishment of a low-interest loan facility with the ANZ Bank so local businesses could purchase equipment related to contracts.

  • Appointment of local Aboriginal Business Development Managers to provide mentoring and support, brokering and facilitating into programmes.

  • Provisions of facilities and support services (transport, housing, training and health) to support Indigenous employment participation.

In 2015, BHP released an Indigenous Peoples Policy Statement, which provides three key commitments:

  • Undertake participatory and inclusive social and environmental impact assessments.

  • Seek agreement on and document engagement and consultation plans with potentially impacted Indigenous peoples.

  • Work to obtain the consent of Indigenous peoples (within a framework that respects traditional decision-making processes, recognises human rights and is done in good faith).

BHP develops and implements project-specific Indigenous Economic Empowerment plans that include: provision for pre-employment training, employment, career development and retention of Indigenous employees; business procurement from Indigenous enterprises; and Indigenous peoples’ vocational training and livelihood support through voluntary Social Investment Plans.

Sources: Rio Tinto (2015[102]), Amrun Project - Local and Indigenous Participation Strategy, https://www.riotinto.com/documents/Amrun_Project_Amrun_Local_and_Indigenous_Participation_Strategy.pdf (accessed on 24 January 2019); Fortescue Metals Group (2019[103]), Creating Opportunities, http://www.fmgl.com.au/workingresponsibly/creating-positive-social-change/creating-opportunities (accessed on 24 January 2019); BHP (2019[104]), BHP Indigenous Peoples Policy Statement, https://www.bhp.com/our-approach/operating-with-integrity/indigenous-peoples/bhp-indigenous-peoples-policy-statement (accessed on 24 January 2019).

Challenges and complementary support strategies for Indigenous businesses

In the context of increased demand for the supply of goods, services and works from Indigenous businesses, a number of common supply-side constraints have emerged. The first is difficulties in accessing finance and raising capital for bonding insurance to work on building and construction projects. A good example of addressing this issue is the Performance and Warranty Bond Facility introduced by the Australian Government that is accessible to Indigenous-owned businesses as a tendering business is often required to put up 10% of the total value of the contract (Indigenous Business Australia, 2019[105]). The second is business skills and competencies such as managing cash flow when businesses take on larger contracts. A good example of addressing the business skills and competencies of Indigenous-owned firms competing in the public procurement market is the 7(j) Program run by the Small Business Administration in the United States (U.S. Small Business Administration, 2018[106]). This programme makes provision for support to minority-owned firms participating in the 8(a) Program for Assistance such as training, executive education and one-on-one consulting in a wide range of business activities, including marketing, accounting, opportunity development and capture, contract management, compliance and financial analysis. The third is building relationships, with the government and other businesses. Indigenous entrepreneurs and business owners tend to lack business-to-business linkages that can help them access new jobs, resources and expertise. Supply Nation, in Australia, is an example of a non-governmental entity and its role includes facilitating relationship building between Indigenous businesses and with public and private procurement markets. This includes being part of a national Indigenous business registry, advice and information services, and matching with procurement officers at events.

Governments can also play a role in better planning the future pipeline of public works and co-ordinating how public sector agencies engage with Indigenous businesses. This is important for two reasons. The timing and amount of public works can be variable, particularly in a rural context; this can result in uncertainty and fluctuations in the flow of projects and can make it difficult in terms of business planning. Large-scale infrastructure and natural resource projects are complex and involve public and private organisations. In Canada, the Strategic Partnership Initiative enables the co-ordination of public and private resources in large-scale projects and matching of procurement and employment and training opportunities to the specific needs of local Indigenous communities (this initiative is discussed further in Chapter 4). The Australian Government has also incorporated Indigenous procurement and training into its “City Deal” initiative. City Deals encompass agreed investments between different levels of government to common urban development objectives. As part of the Western Sydney City Deal, a working group has been set up to reach out to companies that win contracts to link them with local Indigenous businesses and potential employees (NSW Government, 2019[107]). There is potential to extend this methodology to provide a forward pipeline of infrastructure projects at a regional level that can support a strategic approach to Indigenous procurement by linking businesses to opportunities and working with them on the skills and certification requirements to undertake works. Initiatives such as these require a regional governance arrangement to link different levels of government and the private sector to pool information about future infrastructure plans and identify opportunities to better integrate and sequence infrastructure delivery.

Key lessons and good practices

Indigenous entrepreneurs and community enterprises can face difficulties in accessing market opportunities due to a mix of supply and demand-side factors. On the supply-side Indigenous entrepreneurs may lack assets, networks, skills and infrastructure needed to access procurement markets. As discussed in earlier, a coherent and consistent approach to governments co-investing in these enabling factors is needed to activate and sustain Indigenous economic development. However, insufficient demand for the goods and products of Indigenous-owned enterprises is also a challenge. This may be due to lack of familiarity and trust, and a record of accomplishment. The benefit of preferential procurement programmes is that they begin to address this problem by creating a predictable increase in demand for goods and services from Indigenous-owned enterprises. The public procurement market in OECD countries with an Indigenous population is large and even small targets and set-asides can make a significant difference. Policymakers need to acknowledge that public procurement is likely to be more effective in an urban setting because of the scale and intensity of procurement opportunities. In remote areas, co-ordination between levels of government (particularly local municipalities) will be critical to developing a sustainable pipeline of public works. In some rural remote regions, procurement related to mining and extractive industries will be an opportunity. Similar lessons in terms of complementary initiatives also apply, with the addition that proactive strategies also need to be in place for local firms to manage fluctuations in demand and to access markets during transitional periods. The following complementary initiatives are needed to ensure preferential targets and set-asides for Indigenous-owned enterprises deliver sustained improvements in outcomes:

  • Transparent procedure to certify and register Indigenous-owned enterprises based on a single nationally agreed definition, which may be done through a public agency or a not-for-profit entity being given a mandate and resources to carry out this function.

  • Initiatives that build networks that enable Indigenous-owned firms to access resources, know-how and technical expertise (e.g. mentor-protégé relationships, technical assistance, and brokering and facilitation).

  • Initiatives that compensate Indigenous-owned firms for lack of assets and a record of accomplishment (concessional loans and insurance).

  • Integrated infrastructure planning and delivery that gives different actors (Indigenous-owned firms, education and training organisations, and government agencies) information about future projects, their technical and staffing requirements and identifies opportunities for improved co-ordination and sequencing.

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