Remarks by Lawrence Schembri
Deputy Governor
National Aboriginal Capital Corporations
Association
May 5, 2022
Gatineau, Quebec
Economic reconciliation: Supporting a
return to Indigenous prosperity
I would like to begin by acknowledging that the land on which we gather is the
unceded, traditional territory of the Algonquin Anishinaabe. I would also like to
recognize that today is the National Day of Awareness and Action for Missing
and Murdered Indigenous Women, Girls and Gender Diverse People.
It is an immense honour and privilege for me to have the opportunity to speak
with you today.
I greatly admire the National Aboriginal Capital Corporations Association and
your dedication to supporting Indigenous prosperity and improving living
standards for First Nations, Métis and Inuit across Canada. The successful
expansion of your lending to the Indigenous economy is a source of inspiration to
many, me included. In fact, over the past three decades, you have issued 46,000
loans worth a total of $2.8 billion.1
These numbers are impressive, and these loans have made a huge contribution
to the prosperity of the Indigenous economy.
But we all know much more needs to be done.
The Bank of Canada is committed to supporting you in these efforts. Fostering
the Bank's
Indigenous inclusion falls squarely within mandate to promote the
economic and financial well-being of our country and all the peoples within it.
Taking concrete steps toward economic reconciliation is therefore our
responsibility too. As a national public institution, we must show leadership.
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is what I'd like to talk about
That this morning.
Over the next two years, the Bank will reach out and listen to a wide range of
Indigenous groups to define what economic reconciliation means for us and for
our work. We will look to our existing partners-and, hopefully, many new ones-
to guide us toward a common understanding of what our role should be.
By embracing this process-and taking the time to do it right-we hope that the
Bank can take a meaningful step toward building trust and strengthening our
relationship with Indigenous peoples.
In recent years, my colleagues and I listened to our Indigenous partners. We
have learned a great deal about the history of the Indigenous economy, its
potential and the challenges and opportunities it currently faces.
We have also begun to support the Indigenous economy through various means,
but we need to become more deliberate in our approach. If we are going to
advance economic reconciliation with Indigenous peoples, we need a plan that
will focus our efforts and guide our actions.
To help restore the prosperity of the Indigenous economy, we want to become
trusted partners. And we need to work together to overcome the long-standing
obstacles faced by Indigenous peoples and the discriminatory practices that
contributed to them.
The potential prosperity of the Indigenous economy
Before contact with colonizers, Indigenous peoples had thriving economies,
communities and governance structures.
Manny Jules is chief commissioner of the First Nations Tax Commission and a
driving force behind many of the financial innovations I'll be talking about today.
At the Symposium on Indigenous Economies that we hosted last November, he
described the state of the Indigenous economy before settlement. He said, and I
quote:
We paid taxes, had property rights, built, and sustained public and
economic infrastructure, had money, and created standards that
supported vast and successful trading networks.
We used our jurisdiction to create a public and community sector
that supported many innovations in agriculture, land and resource
management, products, transportation, science, math, and of
course Art.2
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The forces of colonization and assimilation brutally suppressed this vitality, but
the Indigenous spirit proves resilient.
We all share the responsibility to help restore this prosperity by advancing the
objectives of economic reconciliation as recommended by the Truth and
Reconciliation Commission.3 Indigenous peoples deserve equitable access to
education, employment and economic opportunity. The resulting benefits would
be substantial for Indigenous communities because their standards of living
would dramatically improve. All of Canada would also gain from an Indigenous
economy that is more empowered to realize its full potential.
Several recent trends speak to the enormous potential of the Indigenous
economy.
For example, the Indigenous population in Canada is young and growing fast.
Statistics Canada projects that the Indigenous population will grow by more than
50% by 2041, which is almost double the rate of the non-Indigenous population.4
The Indigenous population in Canada is also currently much younger-with just
less than half being under the age of 25 compared with less than one-third of the
non-Indigenous population.5
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Chart 1: Economic indicators are improving faster for Indigenous populations in Canada
Total growth from 2017 to 2021, annual data
%
35
30
25
20
15
10
5
0
Employment Earnings* Education†
Indigenous Non-Indigenous
Note: Indigenous excludes Indigenous people living on reserve and other Indigenous settlements as well as those living in the territories.
* Growth of average weekly earnings
†
Growth in the share of population aged 25-64 with university education
Sources: Statistics Canada and Bank of Canada calculations
Last observation: 2021
On the jobs front, the number of employed Indigenous people grew by almost
45% in the decade between 2006 and 2016. Recent estimates show this trend
continuing, with employment among off-reserve Indigenous people growing
7
five times faster than non-Indigenous employment.6, (Chart 1)
In terms of income, the 2016 census found that the median earnings of
Indigenous people was 78% of that of the non-Indigenous population.8 Recent
estimates9 indicate that weekly wages for Indigenous people living off reserve
grew at a higher rate than those for the non-Indigenous population (Chart 1).10
Education, capacity building and the economic opportunities generated by the
creation and growth of Indigenous firms are critical to closing this income gap.
Clearly, progress toward reconciliation will accelerate these trends.
6
Statistics Canada, "Labour Force Characteristics by Region and Detailed Indigenous
Group," Statistics Canada table no. 14-10-0365-01 (January 2022).
7
These numbers exclude Indigenous populations in the territories.
8
This is up from 70% in 2006.
9
Between 2017 and 2021.
10
"Average
Statistics Canada, Hourly and Weekly Wages and Average Usual Weekly
Hours by Indigenous Group," Statistics Canada table no. 14-10-0370-01 (January 2022).
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Recent developments in education levels are also promising. The percentage of
First Nations, Métis and Inuit with a secondary school education or higher grew
12
at a faster rate than that of non-Indigenous people.11, This trend continued over
the last few years13 as the percentage of Indigenous people living off reserve with
a university degree increased at twice the rate of that of the non-Indigenous
population (Chart 1).14 A recent study found that these outcomes could be
improved by providing better employment opportunities and a culturally sensitive
learning environment and curriculum.15
In terms of business growth, the Canadian Council for Aboriginal Business
reports that the number of Indigenous entrepreneurs in Canada continues to rise.
In fact, the increase in self-employment among Indigenous peoples has more
17
than doubled that of the non-Indigenous population in recent years.16,
Furthermore, Indigenous businesses are performing well. Recent evidence
indicates that small and medium-sized enterprises (SMEs) in Indigenous
communities export their products and services at rates that are comparable to-
or even higher than-non-Indigenous SMEs.18 Export participation is typically
associated with businesses that enhance productivity through innovation.19 In
addition, many Indigenous firms are involved in environmentally sustainable
activities.
I don't
mean to gloss over the many challenges that continue to hinder
Indigenous prosperity. I simply want to stress that tremendous untapped potential
11
Between 2006 and 2016.
12
Statistics Canada, "Aboriginal Population Profile, 2016 Census," Statistics Canada
Catalogue no. 98-510-X2016001, 2019.
13
Between 2017 and 2021.
14
Statistics Canada, "Educational Attainment in the Population Aged 25 to 64,
OffReserve Aboriginal, Non-Aboriginal and Total Population," Statistics Canada table no.
37-10-0117-01 (March 2022).
15
Lamb, "Aboriginal
D. Early School Leavers On- and Off-Reserve: An Empirical
Analysis," Canadian Public Policy 40, no. 2 (2014): 156-165.
16
More than 62,000 Indigenous people reported that they were self-employed in 2016,
an increase of 44% since 2011.
17
Canadian Council for Aboriginal Business, Understanding Intellectual Property
Awareness & Use by Indigenous Businesses: 2019 Intellectual Property Survey of
Indigenous Businesses (Summer 2021).
18
Baur,
A. Bélanger "Indigenous-Owned Exporting Small and Medium Enterprises in
Canada," Global Affairs Canada & Canadian Council for Aboriginal Business (2019).
19
Canadian Council for Aboriginal Business, Promise and Prosperity: The 2016
Aboriginal Business Survey (2016).
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exists. This potential will only be realized when private firms and public agencies
commit to economic reconciliation. The possible returns should be substantial,
both for Indigenous communities and for the entire country.
Access to credit and capital-an important barrier
The challenges Indigenous peoples face when it comes to restoring their
prosperity are the direct result of colonial policies that violated their basic human
rights and undermined their political and economic sovereignty. These policies
have led to geographic and economic isolation, financial dependence and
widespread poverty and suffering.
I know you are keenly aware of the obstacles that limit Indigenous economic
inclusion, but more Canadians should understand them.
Indigenous peoples face numerous barriers to accessing financial services-
most notably, credit and capital-compared with the non-Indigenous population
in Canada. For example, by restricting property rights, section 89 of the
Indian Act established legal barriers to accessing credit. Limiting access to credit
has stunted the creation of new businesses and employment opportunities in
First Nations communities.
Bank of Canada research has found that remoteness and deficient infrastructure
have contributed to limited access to cash, banks and financial services more
broadly.20
These barriers to financial inclusion-and many others-have increased the cost
of living and led to a debilitating underinvestment in Indigenous communities.
Research at NACCA has shown that a lack of access to debt and equity finance
creates significant challenges for Indigenous entrepreneurs trying to start and
grow their businesses. Consequently, these entrepreneurs tend to rely on
personal savings to finance their business ventures. Of all the capital financing
provided in Canada in 2013, First Nations and Inuit businesses accessed only
0.2%.21
Fortunately, Indigenous institutions have been established to reduce these
barriers to financial inclusion.
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In particular, the First Nations Fiscal Management Act (FNFMA) was passed in
2005. The resulting financial framework was designed by First Nations to
enhance the local revenue-raising powers of their communities and improve
access to capital markets to help finance sorely needed infrastructure.
The FNFMA framework comprises three institutions that collaborate to enhance
the capacity of First Nations to access low-cost financing and develop a stronger
climate for investment. The First Nations Tax Commission helps First Nations
governments increase their flow of revenue. The First Nations Financial
Management Board, meanwhile, helps First Nations adopt sound financial
management practices and produce reliable financial information that can be
used to assess their capacity to borrow and service debt. Finally, the third
institution, the First Nations Finance Authority (FNFA), combines the first two
elements to help secure low-cost financing by collateralizing community revenue
streams and issuing highly rated debentures to the market.
This arrangement represents a First Nations-led framework to get around many
of the systemic barriers that continue to impede access to credit, investment and
development in First Nations communities.
Chart 2: Recent FNFA bond spreads are comparable with similar Canadian municipal bonds
Spread over sovereign benchmark
Basis points
150
130
110
90
70
50
2016 2017 2018 2019 2020 2021 2022
FNFA rolling spreads Bloomberg Canadian municipal bond aggregate spread
Note: FNFA is the First Nations Finance Authority.
Source: Bloomberg
Last observation: March 30, 2022
In fact, the FNFA's impressive track record has enabled First Nations governments
to borrow at rates that are comparable to Canadian municipalities, as we can see
in Chart 2.
Consequently, over 300 First Nations (about half) have opted to join this
innovative and effective framework.
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Nonetheless, despite issuances from the FNFA totalling $1.63 billion,22 access to
finance continues to be a significant issue in Indigenous communities. Huge
investment gaps remain. A recent report estimated that First Nations
communities face a $30 billion infrastructure deficit, including housing, roads,
water treatment, internet access, health centres and schools.23
Mi'kmaq seven Mi'kmaq communities
The newly formed Coalition-a grouping of
in the Atlantic provinces-boasts one of the most compelling success stories to
emerge from this unique financial framework. Its acquisition of 50% of Clearwater
Seafoods represents the single largest Indigenous investment in the seafood
industry.
While this framework has helped First Nations communities obtain better access
to capital, it is important to note that individual Indigenous firms-including First
Nations, Inuit and Métis-have not similarly benefitted. This is where NACCA
comes in.
The Aboriginal Financial Institutions (AFIs) that are part of the NACCA network
have made greats strides in removing many of the historical obstacles to
financing. They provide direct access to finance for many small and
mediumsized Indigenous businesses.
Since the first AFIs were founded some 40 years ago, the network that NACCA
represents has been remarkably successful.
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Chart 3: NACCA has increased it's lending while keeping loan loss rates very low
Can$ millions
%
60 6
50 5
40 4
30 3
20 2
10 1
0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
NACCA new loan volume (left scale) Write offs, as percent of total loan portfolio (right scale)
Note: NACCA is the National Aboriginal Capital Corporations Association
Last observation: 2021
Source: National Aboriginal Capital Corporations Assocation
By building trust and capacity across communities, the network has more than
doubled new annual loan volumes since 2005 while keeping loss rates very low
(Chart 3).
It seems clear that the success of NACCA and the AFI network stems directly
from how well these financial institutions know their clients. Working closely to
support their borrowers has helped them build strong relationships and a solid
understanding of their needs and financial capacity. I am highly optimistic that the
perform well under NACCA's leadership.
new Indigenous Growth Fund will also
Incomplete transmission of monetary policy
Despite these successes, more needs to be done to ensure that Indigenous
governments, households and businesses have comparable access to financial
services.
This is important because these barriers to financial markets have other negative
effects. For example, they hinder the transmission of monetary policy to the
Indigenous economy.
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Chart 4: Policy interest rate reductions are not being fully transmitted to Indigenous borrowers
Percentage point change
Percentage points
1
0
-1
-2
-3
-4
-5
2000-2002 2007-2009 2014-2016 2019-2021
Bank of Canada policy interest rate Prime rate Aboriginal financial institutions*
Note: Changes are calculated from annual averages of fiscal years ending March 31.
* Interest earned (as a percentage of business loans outstanding)
Last observation: 2021
Sources: National Aboriginal Capital Corporations Assocation and Bank of Canada calculations
To illustrate this issue, let's consider four times since 2000 when the Bank cut
interest rates to encourage borrowing and stimulate demand (Chart 4).
The chart shows that for, most of these periods, interest rates paid by Indigenous
businesses on their loans from AFIs did not fall as much as either the Bank of
Canada's policy interest rate
or the prime rate charged by banks to their
preferred customers. This suggests that monetary policy has been less effective
at stimulating the Indigenous economy than other parts of the Canadian
economy.
It is worth noting that during the most recent period of monetary policy easing in
2020-21, the relatively large decline in interest earned by AFIs reflected the
impact of government policies. These policies enabled AFIs to reduce interest
payments during the pandemic.
The main reason for this incomplete transmission of monetary policy to the
Indigenous economy is the lack of access to financial services, primarily limited
access to market-determined borrowing rates.
Other barriers to Indigenous economic opportunity
Of course, beyond these issues of access to finance, other barriers to Indigenous
economic opportunity exist.
For example, limited opportunities for education and skill development adversely
affect employment and income outcomes, access to credit, firm creation and
economic development. Of particular concern is the fact that fewer Indigenous
students are in the fields of science, technology, engineering and mathematics,
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at only 40% of the average Canadian rate.24 The Bank of Canada is trying to
address these barriers by sponsoring Indigenous scholarships and internships.
We also recognize that we must do better at hiring Indigenous staff and we are
committed to doing so.
Meanwhile, attempts to measure the size and performance of the Indigenous
economy in Canada are constrained by the availability and quality of data. This
represents another important barrier to economic inclusion because inadequate
information impairs financial management and decision making.
For example, economic data are often unavailable at the community level and
are not comparable across communities or with non-Indigenous communities.
But efforts are being made to fill these information gaps. For example, the Bank
has partnered with the Canadian Council for Aboriginal Business, Global Affairs
Canada and Big River Analytics to conduct a large-scale survey of Indigenous
businesses in 2021. This survey should help us better understand the
composition of the Indigenous business sector and market conditions faced by
Indigenous firms, both on and off reserve.
A collaborative partnership has also been established between the three FNFMA
institutions, Statistics Canada, the Bank of Canada and the Tulo Centre. This
collaboration seeks to empower Indigenous communities with improved financial
statistics to enable effective decision making. The intention is to expand the
scope of this work to include Inuit and Métis communities.25
Our journey toward an action plan for economic reconciliation
While progress is being made on several fronts, many obstacles continue to limit
the potential of the Indigenous economy.
I'm pleased to be among friends to
announce the beginning of our journey-one
that will take aim at these obstacles and help define what economic reconciliation
means to the Bank, to Indigenous peoples and to the broader Canadian
economy.
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We'll start by talking to the people who know us we've
best-the organizations
already been working with. These include NACCA, the Tulo Centre and the
Bank's Indigenous Advisory Circle.
We will use these conversations with our friends not only to seek guidance about
the main question of economic reconciliation, but also to invite them to suggest
other Indigenous organizations and communities who may be interested in
sharing their views. We hope to expand our circle of Indigenous partners.
As these conversations evolve over time, the Bank will reflect on what we are
hearing. We will then work with our partners to prioritize actions and develop a
formal reconciliation action plan that will help us build on what we are currently
doing. It is important that we take the time necessary to craft the right plan, with
an aim to publishing it sometime in 2023.
We recognize that this plan is simply the start of a longer journey toward
reconciliation with Indigenous peoples. It will need to be updated over time.
Last November, many of us in this room participated in the Symposium on
Indigenous Economies that I mentioned earlier. Personally, I was quite moved by
the experience. A heightened spirit of cooperation permeated those sessions.
This atmosphere of collegiality, derived directly from the Indigenous perspective
of commitment to the common good, was critical to the success of the
Symposium and it offered an important lesson for our work going forward.
Being open to learning from Indigenous experiences and incorporating
Indigenous perspectives in many aspects of our work is vital. I hope that this
same spirit of openness, trust and collaboration will inspire and drive our
engagement over the next two years.
Our commitment
As many of you may know, I will be retiring from the Bank of Canada in June, but
I will not be retiring from my own personal efforts to support Indigenous economic
inclusion and opportunity.
I have been inspired and impressed by your wisdom and commitment. I have
found my engagement with you on these important issues deeply enriching.
I will forever be grateful for the guidance and support that you have kindly
provided during my time at the Bank.
As we take this next crucial step in our journey toward reconciliation, we
welcome your views on the actions we can take to contribute to the economic
and financial well-being of Indigenous communities. I also invite you to hold us
accountable for the commitments we are making.
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By working together, I am convinced that we can, over time, make a significant
and positive contribution to reconciliation and improve the welfare of Indigenous
communities in this country.
Thank you for your attention today and for your warm and generous friendship.
Meegwetch, merci, thank you.