Chapter 4 Corporate incentives to trade and engage with Indigenous businesses
4.1
There are already a number of Australian companies and professional
firms who are collaborating with Australian Indigenous communities. These
include major resource companies who may have well developed and long running
programs through to individual companies in retail, construction, finance,
rural production, tourism and other parts of the service sector.
4.2
Much of this collaboration is based around Indigenous employment which
was addressed in the 2007 report by the Standing Committee on Aboriginal and
Torres Strait Islander Affairs Indigenous Australians at Work: Successful
initiatives in Indigenous employment.
4.3
This chapter presents the current state of collaboration between Indigenous
businesses and corporate organisations in Australia. Suggested incentives are
presented as well as some other means for collaboration such as Indigenous
Chambers of Commerce.
4.4
The mining sector is at the leading edge of corporate collaboration and
there is a discussion on how best to grow Indigenous enterprises which are
trying to get to the next step.
Current context
4.5
The reasons for collaboration with Indigenous businesses and communities
are varied, complex and not always fully articulated. They range from
principled commitment to social amelioration or national reconciliation, to a
pragmatic meeting of demands for access to land or support of local
communities.[1]
4.6
Often the involvement of the corporate sector requires there to be a
balance between social capital returns and financial returns.
4.7
Mr Bill Moss AM, the founder of Gunya Australia, proposed that there is
a range of reasons why the corporate sector has not invested in Indigenous
businesses and enterprises. These include a lack of confidence, both real and
perceived high risks, low education standards and low skilled work force and no
management expertise and limited commercial acumen.[2]
4.8
Additionally, the corporate sector may only wish to be involved with
Indigenous businesses that are already successful or are regarded by the
corporate sector as being of a reasonable size.
4.9
In more remote areas Indigenous communities may have already made a shift
in thinking from an economic dependence model to an entrepreneurial model. However,
to take the next step they also may need to address the concern over external
intervention and move towards an acceptance of the potential positive benefits
of collaboration with people external to the Indigenous community with valuable
knowledge, expertise and experience.[3]
4.10
The Northern Territory Government described the cultural differences
that may arise around the use of conditional promises in collaborations. In
many cultures conditional promises are not commonly used and are often seen to
be concrete agreements. As a result when activities such as mining exploration
do not produce any feasible mining prospects, conditional promises such as
financial gain and employment opportunities, cannot be fulfilled. Expectations
by local people may continue to be of fulfilment, thus creating an environment
of dissatisfaction, disappointment and future suspicion.[4]
4.11
Organisations such as Message Stick Group consider that there are
significant advantages to Indigenous businesses through the increased
collaboration with the corporate and government sector. They contend that
Indigenous business people are seeking an opportunity to engage in the wider
Australian economy by conducting business with corporate Australia and
government procurement agencies.[5]
4.12
The Australian Indigenous Chamber of Commerce considers that incentives
should be provided to encourage successful businesses to subcontract, do
business with or mentor new Indigenous enterprises. They add that these
incentives should be promoted by the use of education and advertising campaigns
to non Indigenous business.[6]
4.13
The Wet Tropics Management Authority cautioned that initiatives
developed will need to ensure non Indigenous businesses supporting the
Indigenous enterprises are given appropriate support and training. It is necessary
to develop the capacity of Indigenous businesses rather than assuming a non Indigenous
person with a successful commercial enterprise would have the ability to work
and train cross-culturally.[7]
International perspective
4.14
Research undertaken at the Saskatchewan Indian Federated College in 1997
showed that a growing number of non Indigenous corporations were adopting
business alliances with aboriginal people as a part of their strategy for long term
corporate survival. This research proposed that four factors motivated this
corporate behaviour:
n society's changing
expectations about what constitutes socially responsible corporate behaviour;
n legal and regulatory
requirements and restrictions;
n the growing Indigenous
population, and its increasing affluence and level of education; and
n the rapidly growing
pool of natural and financial resources under the control of Indigenous people.[8]
4.15
The United Nations Commission on the Private Sector and Development
released a report in 2004 titled Unleashing Entrepreneurship: Making Business
Work for the Poor which indicated that multinational companies, in particular,
stand to benefit from nurturing and building links with local entrepreneurs and
smaller companies.[9]
4.16
Countries such as the United States (US), Canada and Germany have policies
that provide for tax incentives to encourage business development on Indigenous
land and in areas of low socioeconomic status.[10]
Box 4.1 Tribal business in the US
The perception of Indian economic prosperity in the US led by casinos and gambling is simplistic. The array of tribal businesses is extraordinary. Indian nations own and operate banks, golf courses, petrol stations, telephone companies, lumber mills, restaurants, radio stations, farms, retail stores, construction companies, hotel chains, and assembly plants.
Their operations include fish and game, forestry, tourism, waste management and environmental remediation, dot com enterprises and development corporations. Tribes manufacture plastics, printing and automotive parts. The Mississippi Choctaw are one of the largest employers in the state, employing thousands of non Indigenous workers.
SOURCE: Jumbunna Indigenous House of Learning Submission no 37, p .6.
4.17 The Jumbunna Indigenous House of Learning from the University of
Technology in Sydney provided evidence that native Indian tribes have
advantages not available to Australian Indigenous communities – for example taxation
advantages, a secure land base, ability to exploit resources and a measured
separatism. Nonetheless, they contend that not all US native peoples are prospering
and in fact many suffer from similar socioeconomic disadvantage found in
Australia. They suggest that there must be more to economic success than can be
attributed to tax advantages and a land base.[11]
4.18
Although many participants in the inquiry made a case for increased
collaboration between corporate partners and Indigenous businesses,[12]
this was often qualified or regarded as needing caution, especially from Indigenous
groups who have had previous involvement in such collaborations.
4.19
The Yorta Yorta Nation Aboriginal Corporation of Victoria consider that
incentives need to be in place at the Indigenous community level to encourage
successful businesses to engage with Indigenous people. However, they caution
that there needs to be a conduit between the businesses and Indigenous
enterprises to ensure that these incentives are being met. They consider that including
an additional clause in agreements that provides for incentive for engagement
and partnership opportunities with Indigenous enterprises is commendable but
there should be safeguards.[13]
4.20
The New South Wales Government takes a different view. It suggests that
incentives are not necessarily required to facilitate interaction, as there are
significant advantages to working with Indigenous businesses particularly in
areas of Indigenous commercial strength or advantage. The NSW Government state
that they do not provide financial incentives to encourage businesses to subcontract
to Indigenous businesses, and do not consider this has hindered the willingness
of the private sector to provide subcontracting opportunities to Indigenous firms.[14]
4.21
Mr Donald De Busch informed the Committee of the difficulties for
Indigenous enterprises in linking with corporate partners beyond the mining
sector. He advised that Indigenous companies like his that operate in the real
marketplace find it very difficult to gain employment. He related an example
where he considered that his company used during a tendering process only to
assist a larger company to get over the line in Defence Force contracts.[15]
4.22
Indigenous Business Australia told the Committee about a model they
investigated where a construction company would be developed in remote
communities to access some of the contracts for repairs and maintenance. IBA considered there was often already a pool of semi skilled or skilled labour but they needed help
with their management capacity to access the market.[16]
This model could be implemented along lines similar to that of the Outback
Stores model.[17]
4.23
Mr Craig Brown raised the importance of corporate organisations being
willing to work in new ways to take account of the different structures that
may exist in Indigenous communities. He reported that these structures are
collaborative and work in joint endeavours:
Everybody who comes to the table has an input to that and
that is a harder thing to do because you make up the rules as you go, and that
does not fit the normal company structure. In making up the rules as you go it
is a governance arrangement of organising according to those joint
collaborative arrangements, and so it is quite different.[18]
4.24
Mr Noel Niddrie spoke of his experience in dealing with the commercial
environment. He considered that his Indigenous culture and experience gave him
a commercial edge but he was competing against larger, more commercial savvy
organisations which, have a brand and due to their knowledge, circumstances or
networks, were more likely to be awarded tenders and requests for work.[19]
4.25
The Commonwealth Scientific and Industrial Research Organisation (CSIRO)
made the point that when encouraging business engagement with Indigenous
enterprise, it is critical that similar effort is invested in raising the
ability and awareness of Indigenous people to be able to protect their
intellectual property rights so as to avoid unintended exploitation.[20]
Corporate social responsibility
4.26
The Australian Human Rights Commission states that Corporate Social
Responsibility (CSR) is generally understood to mean that corporations have a
degree of responsibility not only for the economic consequences of their
activities, but also for the social and environmental implications. This is
sometimes referred to as a ‘triple bottom line’ approach that considers the
economic, social and environmental aspects of corporate activity.[21]
The meaning and value of CSR may differ in various contexts, depending on local
factors including culture, environmental conditions, and the legal framework.
4.27
In the US and Europe anti discrimination legislation underpins
commercial outcomes by giving companies with CSR a competitive edge in the
market place.[22] The Committee was
advised that the commercial advantage attached to CSR for corporate members has
been a catalyst to the formation of minority supplier development councils,
first in the US, then Canada, then the United Kingdom and now in other nations
including Brazil and China.[23] Minority supplier development
councils are discussed in more detail in Chapter 5.
4.28
According to former Australian Graduate School of Management Dean and Director Rob McLean, the social context of business is playing a far greater role in
business than ever before. Locally and internationally it is becoming obvious that
such broad and important issues cannot be ignored or given to human resources
or corporate affairs departments. The social context of business is now part of
what all leaders have to deal with, and what winning is all about.[24]
4.29
Mr Mark Scott from Indigenous Enterprise Partnerships points to the increasing
interest in CSR, although it is still not as prevalent as in the UK and the US.
He indicated that there is an increase in corporations making a contribution
beyond an economic one but cautions that a successful and robust economy is an
important factor.[25]
4.30
Corporate partners may get involved with Indigenous enterprises to achieve
commercial advantage from being seen to be ‘good corporate citizens’. Such
initiatives can involve promoting equity policies in the workplace, protecting
the environment or funding worthwhile community projects.[26]
4.31
Banks such as Westpac, ANZ and the National Australia Bank[27]
have a program of CSR. Westpac has in place a comprehensive range of major
community involvement programs to support and contribute to the development of
social capital in the communities in which Westpac operate. As a result, Westpac’s
Indigenous programs principally revolve around a range of initiatives to
address the educational, financial, and employment disadvantage of Indigenous people
and to better address their specific banking and financial needs.[28]
4.32
At this point in time, the impact of CSR on corporate activity has been
greatest in the mining sector, where the combination of demographics, social
and operational imperatives have compelled an enlightened self interest in
Indigenous industry development.[29]
4.33
Mr Bruce Harvey, Global Practice Leader Community Relations Rio Tinto,
considers that banks may be short sighted in their focus on CSR and they should
take advantage of the business opportunities presented by royalties from
mining:
There are now billions of dollars over the next 20 to 30
years flowing into Aboriginal communities in northern Australia through
benefits receiving royalty accounts. It is a magnificent business opportunity,
and the mainstream banks should treat it in that way, and not relegate it to
charitable good intent or corporate social responsibility.[30]
4.34
The Committee also heard that CSR is having a growing impact among
larger corporate entities in Australia. Indigenous Enterprise Partnerships
facilitates corporate investments and mentorship programs in Cape York. They
start with a desire to make a contribution to the community but from that comes
the opportunity to build their brand and develop programs that can attract and
retain people based on their CSR profile.[31]
4.35
One way of assessing corporate interest more broadly is through
Reconciliation Australia’s Reconciliation Action Plans (RAPs). These plans
provide a template for organisations to engage with and respect Indigenous
culture, and to transition in Indigenous employees and services. Ms Barbara
Livesey of Reconciliation Australia advised that the organisation cannot keep
up with demand for these plans, with 90 organisations signed up and registered,
including the Commonwealth Bank, ANZ, Qantas, SBS, Foxtel and BHP Billiton.[32]
She advised:
I think something like the [minority supplier diversity] council
is of potential interest to us because we are finding that Reconciliation
Action Plan organisations are saying, ‘Where and how do we connect with
Indigenous businesses and organisations?’ So, if there were a council that we
knew we could refer people to, I think there would be a high degree of interest
in something like that. We have been following its development and trying to
support it in the early stages.[33]
The mining sector
4.36
Leading companies in the mining industry in Australia have made strong
public commitments, beyond that of CSR, to contribute to the sustainable
development of the communities and regions in which they operate.
4.37
The location of mines means that there is an
imperative for the mining sector to develop relationships with remote people,
as more than 60 per cent of mineral operations are conducted in close proximity
to Indigenous communities.[34] Mining offers opportunities to traditional land owners as well as
to others who have gathered around mining communities.
4.38
The mining sector is experiencing a boom and labour and
skill shortages are endemic. Development of Indigenous enterprises makes
commercial and social sense, reducing the cost of fly in fly out labour and
establishing more stable and better serviced communities contiguous to mining
developments.[35] Mr Tim O’Neill Argyle’s Diamond Mine’s Manager, Regional Participation also
noted that government are more inclined to favour mining ventures when they
include local regional development commitments.[36]
4.39
As discussed in Chapter 2, the formation of ILUAs
under the Native Title Act 1993 provides for communities to negotiate
with government or industry for access to land where native title has been
recognized or is subject to claim. These agreements allow for Indigenous
communities to establish businesses or business partnerships with mining and
other industries to secure financial or other benefits for distribution or
investment.[37]
4.40
The Minerals Council of Australia advises that
Indigenous commercial advantage and strength associated with the mining industry
falls with in the following categories:
n The
supply chain: mining contracting, catering and supply, construction and uniform
supplies - for example Ngarda Civil and Hookey Contracting;
n Environmental
management - including: seed collection, rehabilitation, re-vegetation and fire
and weed management; and
n Cultural
- as required under State heritage legislation, the identification and
preservation of artefacts, provision of anthropological services, can also
extend to cultural tourism and interpretation.[38]
4.41
Rio Tinto is an international mining group with
one third of its global assets in Australia. It has entered nine major ILUAs
with Indigenous communities and 80 exploration agreements. Under these
agreements the company has focused on increasing Indigenous direct employment
and now has an eight per cent Indigenous workforce up from
0.05 per cent eight years ago.[39]
4.42
Policies at Rio Tinto include taking into account the ownership base of
a business, or the capacity for a contractor to employ Indigenous people when
awarding contracts. This has driven the development of new capabilities
particularly in the mining industry where businesses must demonstrate this
capacity in order to successfully win a Rio Tinto contract.
4.43
Argyle Diamond Mine, in the East
Kimberley region of Western Australia, is often held up as a
model agreement for Indigenous participation.[40] At Kununurra, the Committee spoke with Argyle’s Manager Regional
Participation, Mr Tim O’Neill, who advised:
Argyle, through an ILUA with the traditional owners, has an
accompanying management plan agreement. That management plan agreement includes
an Indigenous business development set of protocols that we operate to, which
really is about us trying to encourage the traditional owners to pick up
opportunities for developing businesses associated with the mine… the big part
of that work through our Indigenous business facilitator is to try to identify
opportunities within the mine site where we can match up small businesses with
opportunities on our mine. [41]
4.44
Mr O’Neill advised that nine Indigenous contractors are currently operating at
the site, up from one three years ago.[42]
4.45
In addition to subcontracting, mining sector
agreements have funded local Indigenous cultural tourism and other business
ventures, which are discussed in Chapter 2.
4.46
One of the strongest areas for Indigenous business is in mining
rejuvenation, which brings together cultural and project management skills. A major success story is Ngarda Civil and Mining Pty Ltd, a joint
venture between Leighton Contractors, IBA and the Ngarda Nagarli Yarndu Foundation.
4.47
Leighton Contractors was cited in the inquiry as a strong model
for Indigenous business development. The company is a leading construction,
mining, services and telecommunications group with major developments in the
Pilbara. The company has developed a range of programs aimed at growing the
skills base of its Indigenous workforce.[43]
Box 4.2 Ngarda Civil and Mining Pty Ltd
Ngarda is a contract mining business based in Port Headland in the Pilbara region of Western Australia. Ngarda is owned by Leighton Contractors. IBA and the Ngarda Nagarli Yarndu Foundation each hold a 25 percent share.
In the first nine months of its operations, Ngarda secured approximately $9.2 million in contracts for work over the next five years. This proved to be a catalyst for growth for the company and since 2005 Ngarda has set up its own supply contracts, finances and payroll systems.
Ngarda continues to be a presence in the Pilbara. Currently, it holds contracts with BHP Billiton and Robe River. These projects alone have resulted in the employment of over 100 local Indigenous people. Ngarda Indigenous employment participation is some of the best in the industry, building the economies of local communities. In 2004 Ngarda won the Prime Minister’s Awards for Community Business Partnerships in the large business category.
Ngarda recently won a major contract to manage the BHP Billiton owned Yarria iron mine in the Pilbara. The contract is worth more than $300 million over five years and, at September 2007, was the largest Indigenous mining contract in Australia. Ngarda has recently expanded into housing construction works subcontracting to Leightons in the Northern Territory.
Source: Professor Jon Altman & Ms Kirrily Jordan, Submission No. 39, p. 4, Rio Tinto, Submission No. 43, p. 18 and Indigenous Business Australia, Submission No 58, attachment B, p. 17
Issues
in the mining sector
4.48
Mining is seen as an area of particular vocational and commercial
advantage for Indigenous Australians. At present however, strengths are in
direct employment of Indigenous peoples and not in enterprise development.
4.49
A study conducted in June 2007 of Indigenous
Employment and Business development in the Queensland Resources sector found
that, in most cases, corporate direction for increased subcontracting to
Indigenous business is not substantially increasing Indigenous engagement.[44]
4.50
Larger companies are trying to address this by
employing specific business development people on site. They manage the
contracts, assist with occupational health and safety requirements, which can
be a significant barrier to contracting to large resource companies, arrange
assistance from accountants, and assist with governance aspects.[45]
4.51
Mr Bruce Harvey of Rio Tinto advised that
adherence to safety and operational guidelines in critical path contracts is
essential to the just in time production process. This means that companies
will not risk large earth moving contracts, for example, on Indigenous
businesses unless they are in joint partnerships with experienced usually non
Indigenous operators. Preferential business consideration for Indigenous
business therefore falls into non critical, and less lucrative, catering, camp
cleaning and more minor earthmoving work.[46] Rio Tinto spends additional time working with enterprises to assist
them to be able to improve their performances.
Types of incentives
Mandated procurement
4.52
When considering whether incentives should be provided to encourage
successful businesses to work with new Indigenous enterprises, the Committee
received a range of evidence around mandated procurement, selective tendering
and preferential tendering.
4.53
Many inquiry participants consider that there is a role for governments
in leading the way to provide more business for new Indigenous enterprises,
through a process of mandated procurement, selective tendering or
subcontracting.[47]
4.54
A significant issue for most government departments who are subject to
the Financial Management and Accountability Act 1997 (FMA Act) is that
they are bound to follow the Commonwealth Procurement Guidelines (CPG). Other
authorities, such as IBA are subject to the Commonwealth Authorities and
Companies Act 1997 (CAC Act) which only requires them to follow the CPGs in
a small number of specific circumstances.
4.55
The CPG allow specification of conditions of participation on the
following grounds only:
Conditions for participation must be limited to those that
will ensure that a potential supplier has the legal, commercial, technical and
financial abilities to fulfil the requirements of the procurement.[48]
4.56
There are two exemptions in the Free Trade Agreement with the United States which relate to Indigenous business assistance. The first exemption is for
mandated procurement which relates to government contracts for the health and
welfare of Indigenous people and measures for their economic and social
advancement.[49] The second exemption
that allows for:
… the right to adopt or maintain any measure with respect to
investment that accords preferences to any Indigenous person or organisation or
provides for the favourable treatment of any Indigenous person or organisation.[50]
4.57
IBA consider that a voluntary commitment to minimum procurement rates,
rather than a legislated approach, is more likely to succeed initially. This is
particularly so as the support needed for legislative change would be difficult
to secure without strong evidence of the impact and support from business.[51]
4.58
Koorie Women Mean Business consider that during government contracting
or tendering processes, contractual arrangements should be inclusive of an
Indigenous business within their provision of services. This could ensure that
a larger business, the successful tenderer, can support the development of a
smaller Indigenous enterprise. Such a case has merit particularly if a company
is delivering services to a higher ratio of Indigenous
clients, or a proportion of service delivery is with an Indigenous
organisation or enterprise.[52]
4.59
Mr Neil Willmett proposed a detailed Indigenous Business Procurement
strategy based on the following actions:
n setting aside
contracts for Indigenous owned businesses such as those which serve a primarily
Indigenous population;
n promoting joint
ventures between Indigenous businesses and also Indigenous and non Indigenous
businesses;
n encouraging successful
non Indigenous contractors to subcontract Indigenous labour; and
n educating
stakeholders about Indigenous business.[53]
4.60
The NSW government has the Aboriginal Participation in Construction
Guidelines which were introduced to expand Indigenous people’s access to
and participation in NSW government funded construction and related activities.
The Guidelines are incorporated in the NSW Government Procurement Policy and
apply to all government departments, statutory authorities, trusts and other government
entities with the exception of state owned corporations.
4.61
The Guidelines are designed to:
n determine which
projects are priorities for Indigenous participation;
n categorise such
projects according to the extent to which Indigenous people will benefit from
the completed project;
n include in tender
documents specifications for both contractors and subcontractors regarding Indigenous
participation;
n include Indigenous participation
as a criterion for assessing the merit of tender proposals; and
n monitor and collect
data on actual participation.
4.62
Some questions were raised about the rigour of the Aboriginal
Participation in Construction Guidelines. Indigenous owned organisations told
the Committee that they felt that their participation in tendering processes
with companies was to enable the company to meet the obligation in the Guidelines
rather than a genuine commercial opportunity.
There are companies that come and ask us to tender on
construction jobs. It could take us up to three or four weeks to do a quote on
a job. They just want us because they need to have a black company tender for
it. It is not that they actually want us to do it. We are finding that Daryll
is almost full time doing tenders and out of that we have got one job.[54]
4.63
The issue of tendering for services in Indigenous communities was also
raised. The Committee heard about several instances where a ‘fly in fly out’
crew were brought in from outside to build houses or schools, and local
Indigenous people were not given the opportunity.[55]
Tangentyere Council propose that, where governments are subcontracting to
provide services to Indigenous people or communities that Indigenous enterprises
be given preferential treatment where they are capable of fulfilling the
contract.[56]
4.64
Mr Ralph Addis, Chief Executive of the Wunan Foundation stated that the
construction and maintenance industry is one that historically has very limited
employment of local Indigenous people. Wunan has set up a construction and
maintenance business where people can get a start and, in time, move off to form
their own businesses and work for other contractors. They consider it will act
as a stepping stone.[57]
4.65
Countering these views, the Larrakia Development Corporation (LDC) does
not consider there is a need for preferential procurement. They consider it a
false premise which hinders the development of the business and creates
animosity within the mainstream.
Of the tenders that we have applied for, we have lost more
than we have won, but the ones we have won we have won on our merit. The
results speak for themselves: we are still there.[58]
4.66
The Committee sees value in ensuring that Indigenous businesses have
greater opportunity to compete for supply contracts to the Australian
Government. However, the Committee also recognises that across all Government
agencies and authorities, there will be different opportunities to utilise
Indigenous businesses depending on an agency’s location and their goods and
service needs.
4.67
Accordingly, the Committee does not support mandating procurement levels
at this time. It does support the introduction of a series of specified target
levels of Australian Government procurement of goods and services from
Indigenous businesses. Agencies and authorities would then be required to
nominate the target level of procurement according to their business type and
location. This approach would ensure that each agency is individually
challenged to maximise its Indigenous business procurement, rather than
reducing all agencies to a minimum required level.
4.68
The Committee is also of the view that, where the Australian Government
is procuring goods or services for Indigenous communities or in surrounding local
areas (such as housing or other infrastructure), there is an expectation that
every effort is made to maximise opportunities for Indigenous business
participation.
4.69
The approach of a series of target levels will provide expanded market
opportunities to Indigenous businesses. It will also provide greater
opportunities for Indigenous businesses to compete for and participate in the
supply of goods and services to their own communities. Further discussion of
Australian Government procurement as part of an Indigenous Supplier Development
Council is in Chapter 5.
4.70
In addition, the Committee recommends that Australian Government
agencies and authorities report annually on their achievement against nominated
target levels of Indigenous business procurement. Reporting this measure will
assist in raising corporate confidence in the diversity of Indigenous
businesses and their capacity to supply.
Recommendation 9 |
4.71
|
The Committee recommends that the Australian Government
establish a series of target levels of government procurement from Indigenous
businesses, and require all Australian Government agencies and authorities to
nominate a target level. The Committee also recommends that all Australian
Government agencies and authorities be required to report in their annual
report the procurement level from Indigenous businesses. Future consideration
should be given to introducing an escalating series of mandated procurement
levels over the next decade.
|
Larrakia clause
4.72
The Committee wanted to highlight a strategy used by the LDC, which is
based in Darwin. The LDC have developed a clause, referred to as the ‘Larrakia
clause’, as a means to increase business opportunities and collaborations for
Larrakia people.
4.73
The LDC approaches companies who are undertaking work in the Darwin area and invites them to include the Larrakia clause in any contracts that the
companies let. This clause requires the successful tenderer to contact the LDC
to check if any of the Larrakia or their subsidiaries have skills in those
particular areas.
4.74
This clause does not mean that the LDC is a preferential tenderer but
rather acts as a means for the LDC to be informed of possible business
opportunities. The LDC or their subsidiary is still required to undergo the
standard commercial tender process to compete to provide the goods or service.
4.75
The LDC will also contact the original company to provide feedback on
whether they have gained any business opportunities as a result of the clause.
4.76
Currently the LDC has negotiated the inclusion of the clause in ConocoPhillips
contracts as well as other major business partners working on the Darwin
waterfront, at the residential community development of Lyons in Darwin and Defence
Housing Australia.[59]
Microfinance
4.77
The Committee received mixed evidence that microfinance and micro-enterprise
development should be a component of any program to develop Indigenous
enterprises.
4.78
Groups such as Rio Tinto supported the idea that there should be
improved access to appropriate finance including microfinance as well as
traditional avenues for business loans.[60]
4.79
IBA reported that they offered a microfinance type of product for a
period of time but found that there was a very high level of non compliance
with the terms and conditions, and high non repayment rates despite the fact
that it should have been an achievable loan to those businesses.[61]
4.80
IBA undertook an analysis of micro-enterprise development in 2006 in
order to consider how it might support a microfinance program. It found there
had been various programs across the years which supported Indigenous micro-enterprises,[62]
and that many of these programs were unsuccessful.[63]
IBA concluded that the most cost effective solution was for microfinance to be
delivered through other microfinance providers.[64]
4.81
Mr Glenn Brennan undertook a Churchill Fellowship in 2008 on the
implementation of an Indigenous micro-enterprise development and loans program.
His research found that a micro-enterprise development and loans program cannot
compete with government grants that do not require repayment,[65]
which was supported by the Darebin Enterprise Centre[66].
He also stated that an Indigenous micro-enterprise development and loans program
must:
n use the skills and
expertise of community organisations to assist in finding Indigenous
entrepreneurs;
n access existing government
services to provide business training and ongoing mentor support; and
n engage the finance
sector to provide business acumen associated with lending and loan management.[67]
4.82
The Committee heard evidence from the Tjunga Australian Research Council
project on a small micro financing arrangement on a low or no interest loan basis,
with a longer repayment schedule which enabled the enterprise to be able to
meet demand for product and invest in marketing.[68]
Tjunga stated that:
Such arrangements need be considered for all new Indigenous
enterprise and would be, we argue, far more effective on any risk/benefit
analysis and a better use of tax-payers dollars than providing little option
for Indigenous peoples in remote communities than reliance on residual welfare.[69]
4.83
The Committee heard anecdotal evidence about two small enterprises seeking
a small amount of funding; a loan for a hairdressing enterprise in a remote community[70]
and a loan for a ‘slush puppy’ machine on Galiwinku, an island north of Darwin.[71]
Both of these enterprises seem to fit into the category of micro funding or
micro-enterprises and the Committee was interested to hear that one was able to
get funding while the other one was not.
4.84
The Committee was told about the NAB $18 million Micro-enterprise Loans
Program. Its features include:
n Loans from $500 to
$20,000;
n Interest rate - 9.95%
(fixed);
n No fees;
n Up to three years
repayment period; and
n 90 day access period
is interest free.[72]
4.85
The Committee recognises the gap in start up funding for micro-enterprises.
In particular this gap impacts on remote area entrepreneurs and in sectors such
as the arts where they have low capital or infrastructure costs, and the
smallness of the loan required may exclude enterprises from other program
funding.
Recommendation 10 |
4.86
|
The Committee recommends that the Australian Government
provide a program of funding, including micro-funding, with an emphasis on
remote area enterprises, to enable entrepreneurs to establish cooperative
enterprises, especially in the arts sector. The Committee recommends that Indigenous
Business Australia in association with a corporate partner in the financial
sector deliver this program.
|
Joint ventures
4.87
In many cases business development on Indigenous land is constrained by
lack of capital and/or expertise. These problems can sometimes be overcome by
forming a joint venture between the Indigenous landowners and other parties
that provide the required capital and expertise. A common motive for
non-Indigenous involvement is to assist them to access Indigenous land,
such as with mining which is discussed in more depth in this chapter.
4.88
The Equity and Investments program of Indigenous Business Australia
brings Indigenous people and corporate partners together in a sustainable, commercial
joint venture that provide for profit distribution, employment opportunities
and asset accumulation to build the economic self sufficiency of Indigenous
people.[73]
4.89
IBA aims to enter into an investment and divest its interest to an
Indigenous partner over time once they have the capacity to manage the
investment in its own right. In this regard, having the correct structures in
place is critical to the process of capability transfer to ensure IBA achieves this aim.
4.90
Joint ventures could provide an opportunity for tax savings. While in
many cases the Indigenous shareholding organisation is income tax exempt, the
non Indigenous shareholders are generally not. A reduction in income tax
for non Indigenous investors and for the joint venture could encourage
more development.
Venture capital
4.91
The venture capital industry provides risk capital for commercialising
research, innovation and new business ideas typically developed by entrepreneurs.
Venture capital is now a well proven model around the world and is a critical component
of an innovative and entrepreneurial society.[74]
4.92
Indigenous Capital Limited (ICL) was set up several years ago to look at
providing high risk venture capital to Indigenous enterprises. ICL concluded that although it would be difficult, it would be feasible to set up trading
businesses that could become sustainable.[75]
4.93
The model of venture capitalism proposed by ICL includes not only the
provision of money but also the hands on support, discipline, mentoring and
everything required for active participatory investment. They see their role as
being the intersection between the corporate providers of capital and the Indigenous
entrepreneurs.[76]
4.94
ICL have currently funded a feasibility study and business plan with the
Yalanji people, in the Daintree, for a tourism business with Indigenous tourism
and culture. For this project to proceed, ICL will need to raise the venture
capital funds which is proving to be a challenge.
4.95
The Minerals Council of Australia noted that while tax exemption to
encourage venture capital is granted for specific emerging businesses, including
a tax exemption for non residents, no clear venture capital opportunity exists
to encourage Indigenous enterprise development.[77]
4.96
Additionally, the Minerals Council considers that existing Australian
Government venture capital programs, such as the Small Business Incubator
Program, have application guidelines which are onerous and prescriptive. In
addition, their eligibility criteria are too narrow to support the diversity of
Indigenous enterprise development necessary to facilitate the development of
real economic opportunities for a significant number of Indigenous people and
communities.[78]
4.97
The Australian Indigenous Chamber of Commerce proposed that there should
be a tax exemption for Indigenous venture capital funds to encourage investment
in Indigenous entrepreneurship by the entire Australian finance and investment
community.[79]
4.98
The Tjunga ARC project described an alternative form of venture capital
existing within their research. They were approached by private philanthropic
people who wish to provide a social investment for specific Anangu
Pitjantjatjara Yankunytjatjara (APY) enterprises.
They are prepared to wait some time for return on their
capital outlay, providing there is adequate support provided to the latent
enterprise and evidence that there is social benefit which they believe will
lead to and build economic benefit. This type of social investment is we
believe an untapped resource in Australian society.[80]
Tax incentives
4.99
Within the current Australian tax system, there already exist a range of
incentives to encourage the development of mainstream businesses. They include
incentives for farming and mining, building and infrastructure development,
research and development, and the film industry.[81]
4.100
Using tax reform as a basis for increasing economic activity is a
suggestion often made by the business community. This suggestion can undermine
the tax base required by governments to be able to provide the services at a
level that the community may expect.
4.101
Participants in the 2020 Summit in April 2008 proposed the idea that to
assist with Indigenous economic development, tax incentives and concessions
could be provided to encourage higher levels of Indigenous engagement in
private enterprise and entrepreneurship. Some groups and individuals cautioned
that tax incentives and concessions need careful consideration because they do
not always achieve the desired results.[82]
4.102
On 13 May 2008 the Australian Government announced the review of Australia’s
tax system. The review is considering the current tax system and will make
recommendations to position Australia to deal with the demographic, social,
economic and environmental challenges of the 21st century. One of the areas
that the review will consider includes enhancing the taxation of savings,
assets and investments, including the role and structure of company taxation.[83]
4.103
In the course of the inquiry, the Committee has received a range of
evidence and opinions on possible changes to the current tax system which may
assist in the development of Indigenous enterprises.
4.104
AIATSIS consider that the question of tax based development models
arises on three levels: tax and welfare for individuals in Indigenous
communities; legal entities for Indigenous business activity and appropriate
corporate structures for Indigenous economic development; and tax incentives to
encourage investment and increase access to capital.[84]
4.105
The Australian Indigenous Chamber of Commerce proposed a range of
extensive tax reforms to assist with the development of Indigenous enterprises:
n There is little or no
culture of saving and capital accumulation in poor communities and tax
incentives must be combined with an educational campaign to encourage Indigenous
people to save through tax deductible deposit accounts or invest in income
producing assets;
n A new form of Indigenous
Business Corporation could receive tax breaks and have access to an Indigenous business
fund which could be funded from the tax deductible deposits used to encourage Indigenous
savings;
n Micro banking could
be reviewed to investigate its potential for Indigenous communities and
businesses;
n Amendments to tax
laws are needed to clear up the status of payments under native title
agreements;
n The tax system should
be used to provide a financial incentive for the use of Indigenous
subcontractors with double tax deductions for non Indigenous contractors who
employ or contract with Indigenous contractors;
n Tax exemption for Indigenous
venture capital funds to encourage investment in Indigenous entrepreneurship by
the entire Australian finance and investment community; and
n Full tax
deductibility and tax incentives for all Indigenous education and job hunting
expenses to encourage education and employment.[85]
4.106
IBA is of the opinion that tax incentives do not tend to achieve the
desired effect as they are often overly complex, open to exploitation and can
send the wrong signals about the competency of Indigenous enterprises. Further,
such incentives do not necessarily assist Indigenous Australians to own assets
or generate wealth, so longer-term Indigenous economic assistance would not
necessarily be achieved through such a mechanism.[86]
4.107
Several groups suggested the use of a tax credit or rebate.[87]
Mr Neil Willmett suggested introducing taxation reforms which lower the 30 per
cent company tax rate for Indigenous owned businesses to 10 per cent for the
first three years of their start-up.[88]
4.108
Mr Bill Moss AM from Gunya Australia, proposed an Indigenous Economic Development
Scheme which would provide:
n A tax credit on
initial start up investment with the initial (start up) investment capital
considered expenses in that financial year;
n Initial capital cost
i.e. all start up expenses will be subject to a 150 per cent tax credit, paid
the year in which they are incurred; and
n Operating losses for
the first 5 years will be subject to a 150 per cent tax credit, paid the year
in which they are incurred.[89]
4.109
The Committee has seen that there is a range of opinions about the merit
of tax reform to assist developing Indigenous enterprises. They consider that
Indigenous businesses do need some support, during the development phase and a
reduction in company tax over a specified time could provide this. The
Committee considers that any taxation relief support would need to be simple.
4.110
The Committee has not examined in detail the appropriate rate of a
proposed tax reduction. Consequently it does not specify that any rate of
reduction to be provided, only the Government consider through the review of
the taxation system whether the taxation system has a role in encouraging
Indigenous start up business.
Recommendation 11 |
4.111
|
The Committee recommends that the Australian Government as
part of the current review of Australia’s taxation system include
consideration of how to encourage Indigenous start up business through the
taxation system.
|
The role of Indigenous Chambers of Commerce
4.112
The role of Chambers of Commerce is to represent the interests of
business at a local, state and national level and they have played a significant
part in the shaping of Australia, not only in economic but in social terms. Few
mainstream Chambers of Commerce have however, promoted the importance of
Indigenous people being in business, or have advocated for their specific
business development needs.[90]
4.113
The Committee heard from a range of Indigenous Chambers of Commerce. The
South East Queensland Indigenous Chamber of Commerce, the Australian Indigenous
Chamber of Commerce,[91] the Mandurah Hunter
Indigenous Business Chamber Inc[92] were all strong
supporters of Indigenous business and the role that Indigenous Chambers of
Commerce could play in helping them succeed.
4.114
A roundtable of Indigenous business owners and support organisations in
Brisbane highlighted to the Committee the role that the South East Queensland
Indigenous Chamber of Commerce plays in supporting them as Indigenous business
owners.[93] This view was contrasted
by a micro-enterprise operator who considered that the value of Indigenous-only
organisations such as Indigenous Chambers of Commerce is extremely limited.
Guurrbi Tours suggested they provide moral support, but do not help people move
forward.[94]
4.115
The Northern Territory (NT) is also considering an Indigenous Chamber of
Commerce. The Committee was told it would be appropriate to have an Indigenous chamber
of Commerce as the NT has a 30 per cent Indigenous population.[95]
4.116
The Australian Indigenous Chamber of Commerce is a newly formed
organisation, stemming from the 2020 Summit. They envisaged a group that could:
n liaise with
government;
n play a role in
promoting trade and commerce between Indigenous and non Indigenous Australians
and businesses;
n advance Indigenous
entrepreneurship;
n commission research
into Indigenous economic policy and social outcomes;
n promote excellence in
Indigenous economic policymaking and research;
n promote business to business
mentoring, dialogue and networking opportunities between Indigenous and non Indigenous
Australians; and
n represent and advance
the interests of Indigenous business.[96]
4.117
Ms Sarina Jan proposed a model of mandated procurement through an
Indigenous Chamber of Commerce. She proposed that government agencies could
allow an Indigenous Chamber of Commerce and Industry to project manage tenders
under $50 000 in Indigenous affairs and make it competitive for their members. If
the Chamber cannot find the competition there, they put it out to tender
further. This would provide a start for an Indigenous business and would also
ensure that the Indigenous Chamber of Commerce would instil quality standards
and controls.[97]
4.118
Similarly Mr Charles Jia claimed that while there are many government
services and programs to establish Indigenous businesses, there is not much
done to assist them to continue to develop their business after set up.[98]
4.119
An Indigenous business owner reported that most assistance time offered
by government agencies was spent in negotiating IBA loan requirements.[99]
Inquiry participants identified a need for follow up mentoring and training,
building management, planning and financial knowledge, as well as networking,
marketing and negotiation skills necessary to win contracts and new clients.
Indigenous business awards
4.120
Many participants in the inquiry focussed on the Indigenous businesses
that are already out there and how these businesses are quietly going from
strength to strength. They considered that there should be more done to raise the
profile of successful Indigenous businesses.
4.121
Indigenous business awards used to take place in Western Australian[100]
and still take place in NSW.[101]
4.122
The Committee considers that awards such as these would be a valuable networking
and celebration opportunity to showcase Indigenous business owners. The
Committee considers this an important step in the development process of
Indigenous enterprises as well as recognising the critical role that small
business plays in employment.
4.123
Indigenous business awards would bring attention to the spectrum of Indigenous
businesses that are currently operating. The Committee was impressed with the
Indigenous Governance Awards, run by Reconciliation Australia in partnership
with BHP Billiton, especially the focus on Indigenous enterprises.[102]
4.124
Mr Neil Willmett suggested tabling a report in Parliament detailing
Indigenous successes.[103] While this approach has
merit the Committee considers an awards ceremony would bring an element of
celebration and recognition which is an important factor in the development of
greater numbers of Indigenous enterprises.
Recommendation 12 |
4.125
|
The Committee recommends that the Australian Government fund
biennial Indigenous business awards, similar to those held in New South Wales
and previously in Western Australia.
|