Unleashing capital for First Nations partners

Access to capital will be critical to the First Nations economy over the coming decade, which is growing at four times the broader Australian economy and could generate $A50 billion, according to a new report from ANZ and Deloitte.

Historically a sticking point for First Nations businesses, a new approach to financing these emerging businesses, in conjunction with institutional partners in the mining industry, is building new optimism.

video

First Nations economy could hit $A50bn by 2035: ANZ-Deloitte

According to the ANZ-Deloitte report, the First Nations economy grew by 7.3 per cent over the five years to 2021, four times the national average. Revenue for the sector was estimated at $A16 billion in 2021, but could grow to $A50 billion by 2035 with more market access, as well as knowledge and social capital.

“Smart investment, services and partnering money should follow the opportunity,” the report said.

“For banks, that includes an opportunity for investment and activation of sluggish capital markets. The action needed to unlock the opportunity is the same as for any emerging segment: connect with clients, understand their needs, tailor operating models, forge networks to share knowledge and build capability.”

The report outlines three scenarios under which the First Nations economy could grow based on current and potential policy settings. Under scenario one, mining is one of the highest growth sectors.

Collective efforts from the 00s beginning to pay off

In the early 2000s, Australia’s mining industry started putting more structures in place to bring more opportunities for First Nations people.

Paul Richards, Global Head of Resources, Energy & Infrastructure, told ANZ Insights First Nations communities are critical stakeholders for the mining sector on issues relating to Native Title, cultural heritage, ESG, local knowledge and employment.

“In the conversations I’ve had with our institutional customers, there is a sincere, longstanding commitment to increase First Nations procurement as part of their business strategies,” Richards said.

First Nations procurement targets, supplier developer capability programs and preferred supplier agreements for First Nations businesses became standard in the industry.

This was further supported by the establishment of the Australian Indigenous Minority Supplier Council (now Supply Nation) in 2009. Its membership base includes Australia’s largest companies and miners.

According to Matt Teasdale, ANZ Asset Finance State Manager, these structures are good at getting First Nations businesses ‘into the fold’ with some of Australia’s largest companies, but it left them struggling to build sustainable equity and wealth.

“In the mining industry for example, there is a very strong desire to work with First Nations businesses,” Teasdale told Insights. “But you’ve got to remember, these business owners are often operating in remote parts of the country, and they’re often first-generation business owners with limited credit histories, or with limited financial wealth to secure their lending.”

This experience was felt at Fortescue. According to Martin Drage, Group Manager - Aboriginal Business Development, First Nations businesses have continually experienced barriers getting into market, even with awarded contracts, with access to capital at the top of the list.

“Capital is precious and a really important part of any business,” Drage said.

Under a standard business loan structure, Teasdale added, ANZ’s risk appetite was low, pushing up the interest rate at the expense of equity and growth.

“We could see this was often resulting in First Nations businesses winning lucrative contracts, only to spend much of their money on renting equipment,” he said.

Supply Nation data has revealed that for every $A1 invested in a First Nations business, there is a return of $A4.41 in First Nations communities.

“The evidence is clear,” Teasdale said. “The benefits for First Nations communities become exponential, when their capital works harder for the businesses they own.”

Unlocking value with Fortescue’s support

To provide finance at a lower interest rate, Fortescue’s balance sheet was leveraged to guarantee the loan in its initial phases. The business loan would still go through all the regular approvals process for a standard business loan, but the risk profile became much lower.

“The beauty of the solution is we have such great insight into the strength of the First Nations business through our relationship with Fortescue,” Teasdale said. “It’s about unlocking value that we all know is there.”

In the last financial year Fortescue guaranteed, and ANZ provided, $A56 million in loans for First Nations partners. In that time, seventeen First Nations contractors with Fortescue have purchased more than 200 mobile assets.

First Nations businesses are growing thanks to the asset finance guarantee

ANZ Asset Finance Manager Robert Berden, based in Perth, works firsthand with Fortescue’s First Nations suppliers.

He stressed the goal was to get the First Nations business to the point where they don’t need the guarantee anymore.

“It’s really pleasing to see that happening,” Berden said. “My message to corporates from other industries would be to develop their First Nations business programs. These programs create significant economic empowerment, and directly connect the corporates to the communities they operate in.”

Christina Tonkin is ANZ Institutional Managing Director of Corporate Finance