Agenda 1. Introductions 2. The Need to Develop Local Economies 3. - PDF document

03/10/2014 Economic Leakage Studies CANDO Conference, September 23, 2014 Agenda 1. Introductions 2. The Need to Develop Local Economies 3. Economic Leakage Study - Described 4. Strategies from Findings 5. Closing Remarks 1

03/10/2014 Objectives for Today • Define What an Economic Leakage Study is • Look at Case Studies: First Nations Who Have Carried out Leakage Studies • Talk about MNP’s approach and methodology • Talk about creating strategies using the study findings INTRODUCTIONS 2

03/10/2014 MNP Consultants • Travis Seymour • Susan Mowbray • Chris Hild MNP LLP • 6 th largest Chartered Accountancy and Business Consulting firm in Canada • More than 75 offices across Canada • More than 3,000 team members, of which 300 work directly with First Nation and Metis clients. 3

03/10/2014 Introductions (You) • Table introductions – Name & Title – First Nation or Org. – Why you are here? – What are your expectations for today? Questions for the group 1. How Much Economic Activity is generated in your community? 2. True or False, our local government buys goods and services from local businesses. 3. True or False, there is Opportunity for More Local Businesses to grow in our community. 4

03/10/2014 Typical Economic Development Goals – from Chief and Council • Jobs • Grow Existing Business • Increase New Business Start-ups • More Self Sufficiency • Profit? Regional Economy $ $ Local economy 5

03/10/2014 Regional Regional Economy Economy $ transfer Community payments economy Community economy Idea • In order to Plan for the Local Economy, you need economic ‘Data’. It’s like fishing, where data will tell you where the fish are. 6

03/10/2014 THE NEED TO DEVELOP LOCAL ECONOMIES Big Picture Issues • First Nations - Vulnerable to fiscal policy of Federal and Provincial Government • Growing, young population, need for jobs in community • Business Opportunities and Missed Opportunities 7

03/10/2014 Economic Data is Needed • How Much Economic Activity is Generated in the Community • How Much Economic Activity is Leaving the Community (Leakage) ECONOMIC LEAKAGE STUDIES 8

03/10/2014 What is an Economic Leakage Study? • Economic Leakage studies seek to quantify the level and type of spending that occurs outside the geographic boundaries of a specific community by its residents Examples • Mohawks of Kahnawake • Six Nations and New Credit • Unama’ki EBO • Mohawk Council of Akwesasne 9

03/10/2014 Kahnawake • 2006 Study, Economic Leakage • Total economic activity was estimated to be $104.9M • Estimate for leakage was 68% • Shop Kahnawake First campaign Six Nations and New Credit • 2010 Study, Economic Leakage • Reasons Why Economic Leakage happens • Refers to a prior study in 1997, how has the economy changed • Total Size of economy was estimated to be $257 M; leakage was 62% 10

03/10/2014 Unama’ki • 2011 Study • Unama’ki oversees economic projects for 5 First Nation communities in Nova Scotia • Estimated economic activity was $107M; leakage was about 75% Mohawk Council of Akwesasne 11

03/10/2014 Mohawk Council of Akwesasne • MNP Project Deliverables • Methodology • Data Collection Approaches Group Exercise • Research Findings 12

03/10/2014 Deliverables • Estimates of size of the economy within Akwesasne • Estimates of the extent of economic leakage • Reasons for the leakage • Identify opportunities for economic development • Strategies to reduce economic leakage Step 1: Estimate Income Local Government Households Business Economic Activity by Income 13

03/10/2014 Step 2: Estimate Spending Local Government Households Business Economic Activity by Expenditure Step 3: Reconcile Differences Local Government Households Business Estimated Economic Activity 14

03/10/2014 Estimate Total Leakage Total Households MCA Business Economic Leakage Data Collection • Household Surveys • Review of Administrative Data from Local Government • Business Survey • Focus Groups with Business Owners 15

03/10/2014 Group Activity • Focus Group Questions Food, alcohol and tobacco Annual Monthly Groceries $8,500 $708 Restaurants $1,500 $125 Tobacco $1,000 $83 Alcohol $800 $67 Total $11,800 $983 16

03/10/2014 Grocery expenditure • 15 percent of respondents purchased 40.0% groceries from Walmart. Over 60 35.0% percent of respondents purchased 30.0% groceries from major grocery stores such as Walmart, Superstore, Costco 25.0% and Safeway. 20.0% • 35 percent of respondents purchased groceries from independents or other 15.0% vendors, including farmers markets 10.0% 5.0% 0.0% Grocery expenditure • Over 30 percent of respondents Column1 purchased groceries in the 70% community. 60% • Almost 60 percent of respondents purchased groceries in Town C. 50% 40% 30% 20% 10% 0% 17

03/10/2014 Convenience Store Total revenue $70,100 • Establishments primarily engaged in retail of food and beverage products Total expenses $63,400 Wages and benefits $11,000 • Revenue range: $30,000 to $123,000 Purchases, materials and sub- $27,900 contracts Repairs and maintenance $1,100 Utilities and $2,900 telephone/telecommunication Rent $7,800 Interest and bank charges $900 Professional and business fees $1,500 Advertising and promotion $600 Delivery, shipping and warehouse $100 expenses Insurance $1,000 Source: Industry Canada, Small and Medium-sized Enterprises (SME) Other expenses $8,600 Benchmarking Tool - Ontario (2011) Findings • Where does economic activity come from: – Households: 52.9% – Local government: 32.3% – Business: 14.8% 18

03/10/2014 Findings • In Akwesasne, where does economic activity ‘income’ come from: – Income from Outside Sources: 90% – Income from Internal Sources: 10% Household Leakage • Shelter • Transportation • Food • Clothing • Entertainment • Miscellaneous 19

03/10/2014 Government Leakage • Housing • Community Services • School • Economic Development Business Leakage • Wages and salaries • Inventory • Inputs • Repair and Maintentance • Rent • Insurance 20

03/10/2014 Questions for the Group? • Economic Leakage can be in the range of 60 to 75%; does this surprise you? STRATEGIES FROM FINDINGS 21

03/10/2014 Goals for MCA • Goal 1: Increase economic activity within the local economy • Goal 2: Reduce economic leakage 22

03/10/2014 Goal 1: Increase economic activity within the local economy Goal: Increase economic activity within the local economy 1. Stimulate business growth 2. Invest in infrastructure 3. Develop investment plans 4. Leverage Rights and Title 23

03/10/2014 Goal 1: Strategy 1 • Stimulate Business Growth: Medium Help small businesses grow a) Raise capability and Small competitiveness b) Develop a business incubator c) Facilitate procurement opportunities Startup Goal 1: Strategy 2 • Invest in Infrastructure – Commercial development – Legal structure 24

03/10/2014 Goal 1: Strategy 3 • Be strategic in which business to support or pursue. Create a Corporate Investment Plan. Construction ??? Property ??? Development Utilities Health Tourism Care Corporate Investment Plan 1. Review • Approach to Opportunities create a corporate 2. Assess for investment plan: Project Economics 3. Assess for Community Fit 4. Rank Projects & Consider Synergies 25

03/10/2014 Corporate Investment Plan • Approach - take expected: 1. Review Opportunities – Capital investment, capital sources, and forecasted future net income 2. Assess for Project Economics • Provide analysis for: – Total profits 3. Assess for – 10-year Internal Rate of Community Fit Return – Return on assets 4. Rank Projects & – Return on equity Consider Synergies – Leverage (debt/total capital) Project Economics Example 3 4 Strength of Future Cash Flows Evaluation Criteria 10-Year Return Return on Assets Debt/Capital Risk (Highest Profits (5 years) Return on Equity Total Score Rank (Year 5) Ratio to Lowest) Opportunity $1,720,000 0% 0% 0% 0% 2 1.245084093 2 Future Forestry Ltd. Forestry $525,000 0% 0% 0% 0% 3 -2.431177307 3 Engineering/Road Building $489,250 9% 19% 25% 25% 15 -17.3165565 11 Log Turning Energy $2,160,000 2% 14% 14% 0% 1 5.864561303 1 IPP Additional Equity $2,174,344 6% 17% 19% 11% 17 -14.20754673 10 EcoLodge and RV Park Tourism Future $109,000 7% 15% 15% 0% 12 -10.88011215 8 Renovation of lodge Opportun Aquaculture/Salmon Enhancement $120,000 0% 5% 0% 100% 13 -34.50328156 13 Fisheries $444,600 0% 44% 0% 100% 14 -30.54054054 12 ities Added Value Fish Products $200,000 80% 40% 80% 50% 11 -8.024375888 6 Logistics Services Transmission Line Construction $625,250 0% 0% 0% 0% 10 -10.45676094 7 Construction $0 0% 0% 0% 0% 4 -4.705882353 4 x Nations Construction $2,390,200 -12% 5% 5% 0% 16 -13.71249726 9 Health Centre Other Natural Resource Management $147,500 0% 0% 0% 0% 5 -5.573801356 5 1 2 26