Business creation can lift Indigenous communities - The Centre for Independent Studies

During the past year, with an economy under siege from COVID-19, lockdowns and border closures, there has been less focus on Indigenous disadvantage and the failure to close the gap in many areas.

As things recover, I hope to see that focus return. Jacinta Price’s recent pre-selection as the Country Liberal Party’s number-one Senate candidate in the Northern Territory will ensure the economic disadvantage of Indigenous Australia, particularly in remote Australia, is given the attention it needs.

Lack of economic participation underpins all Indigenous disadvantage. And one of the most important factors of Indigenous disadvantage is lack of economic participation in remote Australia.

Indigenous Australians who are struggling the most are disproportionately located in remote areas. The biggest disparity is between Indigenous people in remote Australia and the rest of Australia – including urban Indigenous populations. This is why the gap isn’t closing.

The only path to real Indigenous economic participation in remote Australia is through building commercial, profitable small-to-medium enterprises.

That’s how all small, remote areas have developed throughout human history, based on the fundamental principles of supply and demand.

Former prime minister Tony Abbott and former Indigenous affairs minister Nigel Scullion understood this reality. This drove fundamental changes in government policy after the Coalition won government in 2013, including increased focus on Indigenous business creation assisted by initiatives such as the Indigenous Procurement Policy.

This peaked between 2016 and 2018 with the Indigenous Business Sector Strategy and Indigenous Entrepreneurs Fund (now closed).

A new approach

From our considerable time observing these programs in remote Australia, we know these policies have not driven remote Indigenous business creation.

A new approach is required. We have proposed a new model based on the three critical foundations for business creation:

Capability: the capacity to provide goods or services someone else will pay for.
Entrepreneurship: the will and motivation to generate income by selling those capabilities through your own enterprise.
Business support: the functions and activities for business health, survival and compliance.

If one of these foundations is missing, a business will not survive.

Indigenous business-creation programs tend to focus on one and three, assuming people cannot run a business without being on top of business administration, and entrepreneurship is a trait people either have or do not.

This is not correct. People can develop an entrepreneurial mindset. Most humans have an innate ability to be self-sufficient if needed, to identify something they can supply to secure resources. It’s not all about tech billionaires. Every self-employed tradie is an entrepreneur.

Instead, the policy focus should be on developing foundations one and two because business support can be sourced externally — and it’s better that it is.

The focus also needs to be on improving access to business finance, a significant impediment to remote Indigenous business creation.

The Indigenous Entrepreneurs Fund did not succeed in addressing this and a key reason was because funding approval decisions were too focused on “picking winners”.

Our more realistic model proposes simplified funding-approval criteria based only on establishing supply and demand.

Business failure is a normal part of commerce, even for businesses set up by experienced people in the cities.

The challenges are vastly greater for businesses in remote communities set up by inexperienced people. A remote Indigenous business-creation program that only funds businesses it is confident will succeed will become paralysed.

Our more realistic model proposes simplified funding-approval criteria based only on establishing supply and demand.

Supply is established if the three foundations for business creation are present: the applicant has a capability to offer, is motivated to start a business through which to offer it, and has access to third-party business support (the most effective mitigant against risk of failure).

Demand is established not through business plans or forecasts, but through “deemed demand” criteria.

For example, demand is assumed if the goods or services are not currently available in the community or are supplied by businesses a great distance away.

We’ve been to Indigenous lands with populations in the thousands that are serviced by businesses based hours away in towns with even smaller populations. Demand for a local supplier can be assumed.

Business-creation programs also need to adjust to the level of business readiness in the community. Assess business readiness based on the awareness of and enthusiasm for business.

The only barriers to business creation in business-ready communities might be access to funding and business support. Low-readiness communities need more groundwork, interventions, awareness raising and sparking of imagination.

Our model could be implemented in one community or at scale, by governments or the private sector. It could be repositioned out of existing programs, paying for itself.

The key requirement (and challenge) is a mindset that understands and, more importantly, believes in business and enterprise.