A profit-related investment scheme for the indigenous estate

Abstract

This paper assesses the state of commercial development and resource management on Indigenous land, particularly in remote Australia. Indigenous landowners control significant assets—over one million square kilometres of land—often with substantial resource rights and income earning potential. The levels of inactivity and missed opportunities on Indigenous land are of such magnitude as to represent a major risk for Indigenous landowning communities in terms of their future economic and social well-being, and also for the national interest in terms of ecological vulnerability and the social and political costs of Indigenous disadvantage. In this paper we explore the role of government as risk manager in such circumstances and outline the principles that must underpin any intervention program targeted to the commercial development of Indigenous land. Using the framework for profit-related loans recently developed by Chapman and Simes (2004) and elements of an existing venture capital support program, the Innovation Investment Fund Program, we outline a new investment scheme to assist development and natural resource management on the growing Indigenous estate. The proposed scheme can be conceptualised as a profit-related loan scheme or as a form of capped public investment. Our proposal addresses key elements of the market failure in the financing of development on Indigenous land and provides incentives for greater private sector investment. It ensures that commercial and social risks are shared equitably between government, private sector investors and Indigenous-owned corporations in order to avoid problems of adverse selection or moral hazard.