Is Canada entering a new era of slow-growth? If so, what does this mean for how we think about economic development? It might mean implementing new ways to support small to medium-sized local businesses. Not just start-ups with the potential for exponential growth, but the “mom and pop” businesses which provide local employment and keep small town main streets vibrant. In recent years, it has become fashionable to “eat local”. Perhaps it’s time for more Canadians to “invest local” as well.
Like eating local, investing local has important limits, particularly in a northern country with a commodity-based economy. It makes sense for Canadians to invest a substantial portion of their savings in other economies because it diversifies their investment risk. But, as calculated by Momentum, a Calgary-based organization focused on community economic development, if Albertans invested 2% of their RRSP contributions locally that would be $114 million dollars to spread around to local businesses for expansion or upgrades. These investments can generate a modest financial return on investment, but, perhaps more importantly, are likely to generate a significant social return in the form of creating and maintaining local employment, and local access to goods and services.
Investing locally requires an appropriate investment vehicle. Crowdfunding is one way that small local businesses can try to access investment dollars. Although it seems likely that Alberta will adopt new crowdfunding rules recently implemented by other provincial securities regulators, I’m not sure crowdfunding will make sense for many small business owners.
A “community economic development investment fund” or CEDIF is a pool of capital, raised through the sale of shares in the fund, with a mandate to invest in a number of local active businesses. CEDIFs could be used in Alberta to facilitate local investment. CEDIFs have been used in Nova Scotia for over a decade, raising tens of millions of dollars for a variety of local businesses, from coffee roasters to wind farms. In Nova Scotia, investing in CEDIFs is facilitated through exemptions for CEDIFs from disclosure and other requirements that otherwise would apply to distributing shares in an investment fund under provincial securities regulations. This past summer, Courtney Hare, Public Policy Manager of Momentum, and I, with research help from UofA 2L Arooj Shah, made the case for a similar exemption in Alberta. You can access the full policy brief, “Enabling Local Investing in Alberta: The Role of Community Economic Development Investment Funds (CEDIFs)”, here.
If we are in a new era of slow growth, the road ahead for Alberta and the rest of Canada is unclear. It seems likely, however, that it will require more academic attention on community economic development initiatives like CEDIFs and making sure that the capital markets work for national, provincial and local economies.