Government Operations Committee on Oct. 31st, 2024

[Shannin Metatawabin]

I used to deliver business loans more than 25 years ago. I used to work for Dawn. We would provide business loans to indigenous entrepreneurs. When the government first announced procurement as an option back in the late 1990s and early 2000s, I directed all my entrepreneurs to go to that program. Not one of them saw any benefit because the procurement process is so stringent. Frontline managers who make procurement decisions won't take a chance on an indigenous person or business. They go with who they know, so it's very much an inside kind of process. Our indigenous entrepreneurs need to be provided with a wholesale change in the procurement process: Disentangle the large contracts, create new subcontracting opportunities, and we're there to help make that happen.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you.

How does it differ in the private sector for indigenous businesses?

[Shannin Metatawabin]

In the private sector, it makes good business sense to work with the people around you. Now, if you look at Suncor, if you're looking at Anglo American, you're looking at some of the major projects all across the country. Harold knows about the TransCanada Pipeline.

It makes good business sense to make sure that you're utilizing the people around you and making sure that they're part of the business opportunities. They don't need a target; they just need to know it makes good business sense. It will ensure the success of that project because mitigating risk is the big thing that every corporation tries to think about and, by including indigenous people, they're ahead of it. They know that it makes good business sense.

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thank you.

Mr. Sousa, go ahead, please.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Thank you, Chair.

Thank you to you all for being here.

I'm going to go with two lines of questioning. I'm going to start with Mr. Daniels and then go to Mr. Metatawabin.

I would like to capture the essence of this afterwards. This is in regard to sections 91, 92 and 89 of the Indian Act, the issue of financing and the enablement to provide success for the indigenous members within the community to benefit from access to capital.

If I understand correctly, section 89 was provided to protect the ownership of the properties to ensure that lenders and others wouldn't be able to utilize collateral and then realize on that security, presumably to the detriment of the members of the community if those particular ventures were to go awry. Of course, a lender will look at the capacity of the issue as well as the collateral in order to base their decision. Hence, we have this matter at hand.

Mr. Daniels, can you explain how this came to be and what have been some of the issues with private lenders to support these contracts or these opportunities?

[Ernie Daniels, President and Chief Executive Officer, First Nations Finance Authority]

Yes, thank you for that question. It is really a important question to consider.

Yes, the Indian Act is a real barrier to some of our indigenous businesses, first nations businesses, to really attracting good financing or even getting surety bonding if they're bidding on contracts. That is a problem for sure.

Now, under the First Nations Fiscal Management Act, which is a workaround of the Indian Act that still exists, what we've been able to accomplish—and Harold can add to this as well—is that we are securitizing revenue streams, as opposed to assets, that would allow us to do long-term financing at affordable cost. This is almost the same kind of solution that we're proposing for the surety bonding issue that we face right now.

By doing economies of scale, we can work together to utilize a backstop and try to get more affordable types of bonding to our contractors.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

By securitizing the income stream, which makes a lot of sense in this respect, you're acting as the equity player, because you have to assess risk.

The risk on the deal for a lender is like no risk, or as little as possible, to provide the traditional lending instrument, but then the securitization would involve other members of the indigenous community. Who are the investors in that case?

[Ernie Daniels]

The investors are at a couple of markets. We go directly to the markets. We are leveraging these revenue streams into the capital markets. We're getting private capital that we're bringing into the economy here.

You have understand this. We've issued pretty close to $3 billion in loans. The economic impact of that to Canada is almost $6 billion.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Given that scenario, which is important, how is it that the bonding is becoming problematic when you have the backstop or the support of this other equity engagement?

[Ernie Daniels]

Well, we don't. That's the problem. We don't have the backstop. We need the backstop that would allow us to access a cheaper cost of bonding.

Under the First Nations Fiscal Management Act, the work that we've been able to do is with the credit ratings that we have, and the quality of the revenue sources like a procurement contract would be a government source of revenue, which is really high in terms of risk assessment. It allows us to get a lower cost of financing. A lower cost of financing then means more net income or more net revenue to a nation to do other things.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Yes, I understand. The dilemma, what I'm still struggling with, is the ability to get the bond, given the fact that now you've got an equity position somewhat better with the securitization and you don't have the backstop because then that really hinders the community. You don't want the community to give up its asset if something goes the other way, so the lender and the institutions that you're going to to provide for the bond are going to look for that alternative.

What is the solution then?

[Jody Anderson]

Thank you—

[Ernie Daniels]

The solution is a few things.

Sorry, somebody was talking there.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Either you or Jody can answer.

[Ernie Daniels]

Okay.

Sorry, go ahead, Jody.

[Jody Anderson]

Thank you, Mr. Daniels.

To differentiate this, in this particular case the First Nations Finance Authority lends directly to first nation governments, as an entire nation. In this particular case of surety and bonding, it impacts individuals like you and I. What is required is a stand-up fund that is directly related, so that assets earmarked....

I gave the example earlier to Mr. Johns, that if I have $2 million worth of assets, those assets cannot be securitized or used as security by the underwriters and the bonding facilities that require those to execute an indemnity agreement. It is very similar to how you or I would buy a home or another asset; we have to show that we have the ability to pay that back. This is what this fund would do by acting as a backstop, in which case the contractor could then access bonding. Once that project is executed and completed, that earmarked $2 million from the fund would then be released and recycled back into the fund where other indigenous contractors could, in fact, utilize that.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

What's holding you up?

[The Chair, Conservative, Kelly McCauley]

We're way past our time.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

I'm sorry.

[The Chair, Conservative, Kelly McCauley]

We're a couple of minutes past our time.

Mr. Calla, your hand is up. Now it's down again. Never mind—

[Harold Calla]

No, if I can. What the problem here is—

[The Chair, Conservative, Kelly McCauley]

Actually, Mr. Calla, I'm sorry, but we don't have time. I'm sorry, perhaps we can get back to the next round for that. We're past our time for Mr. Sousa.

Mr. Genuis, please.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Chair. I'm sorry that I ran out of time at the end of my last round. I want to come back to the issue I was raising at that point, which is that we've got a government that's saying, on the one hand, here's a target, and that's our job done. The problem is that, on the one hand, we see that there are people who are accessing that target who shouldn't be. We've heard testimony from the AFN about a majority of those companies accessing those set-asides being shell companies, and we've heard testimony today about systematic indigenous identity fraud. On the other hand, we have indigenous businesses that are not able to access these opportunities because of other barriers. We've talked about some of those barriers already.

I want to highlight in particular the issue of insider preference, structural insider preference in our procurement system, which has been highlighted many times by different witnesses. In particular, the procurement ombud has done great work on this. These are things like requirements for having a history of doing business with the federal government that don't make a lot of sense if you're a business that has the capacity to do the work and has done the work for other levels of government. Perhaps even you might be prevented from accessing certain procurement opportunities because you have to already be in the club to get these opportunities. There are various other structures that we've identified. Sometimes it looks like these structures are actually purpose-built to allow a facially independent bidding process to actually be directed towards certain companies. We saw with the arrive scam issue, cases where.... There was a case pointed out by the Auditor General where GC Strategies sat down with government officials to figure out what the terms of that contract would be.

What is the impact of insider preference and how can this issue in particular be tackled? Let's open it up to whoever wants to respond. I've got about three minutes left of my time and I'll let you take the rest of it.

[Shannin Metatawabin]

Can I share an example? There's a company in Ontario, First Nations Procurement Incorporated. Matthew Owl created a manufacturing facility during COVID. There was all this talk about indigenous procurement. We were suffering from a major event, and he invested in creating a manufacturing facility on a first nation, trained and employed 50 people from that community. There's no bigger social impact than actually putting a business right on a first nation to impact their incomes. There was not one procurement contract; he had to have a million masks sitting just to be eligible. Due to the insider process and not being a known entity, different politicians promised him that you do it and it will come, but he has lost out. He is harmed by this whole process, and we have to stop that harm.

There are indigenous entrepreneurs looking to change their lives and to bring prosperity to our communities. We need to change this process so they can get in. Thank you.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

I'd love to hear from others on the insider preference issue as well. We have some time.