Saving for the future in Canada’s North West

  • May 27, 2014
Saving for the future in Canada’s North West

April 1 2014 marked a historic moment for Canada’s North. Home to only 43,000 citizens, Canada’s Northwest Territories makes up 14% of Canada’s landmass and 18% of its freshwater supply. Under the Devolution Agreement, federal responsibilities of managing public land, water and resources in the Northwest Territories transferred to the Government of the Northwest Territories (GNWT).

For the first time, the GNWT will start to manage the royalty revenues that flow from mining diamonds, gold, natural gas and other resources within the territory. Two years ago, the GNWT adopted legislation allowing for the formation of the NWT Heritage Fund to save a portion of resource royalties for future generations. As extractive industries perceive a new wave of opportunity and an era of exploration in Canada’s North, how can GNWT ensure sustainable development for its citizens today and tomorrow?

Saving for the future

The GNWT new Heritage Fund was created in recognition of the fact that revenues from non-renewable resources will not last forever. The goal of the NWT Heritage Fund is to save a portion of royalty revenues collected today into a locked fund for 20 years and to transfer its use to future generations in NWT. The remainder of royalty revenues will be used for current government operations with a priority on infrastructure development and debt repayment.

In February 2014, GNWT Finance Minister announced 5% of resource royalties would be allocated to the Heritage Fund. After steadfast disapproval from several members of the legislative assembly, the Minister revised the savings figure to 25%.

Natural resources belong to citizens of the territory. To achieve all three benefits of resource royalty inflows into GNWT of enabling infrastructure investment, debt repayment and savings into the Heritage Fund, the government needs to ensure good governance. It does not matter if the headline saving numbers are 5%, 25% or 50% – the Heritage Fund will not thrive without proper governance.

Following lessons learned from other savings funds of resource-endowed regions (eg Norway, Alaska, Wyoming), the GNWT has a rare opportunity to start fund governance right with strong deposit and withdrawal rules. If deposit (what goes into the fund) and withdrawal rules (what is allowed to be disbursed out of the fund) are unclear with room for interpretation, then the Heritage Fund’s savings objectives can waver.

For example, the Alberta Heritage Trust Fund was established in 1976. However, deposit payments varied from 30% of non-renewable resource revenues being deposited annually to 15% to finally all deposits being stopped in 1987. The Fund was used by government to invest in direct economic development and for social investment purposes.

The Alberta government began depositing money again in 2005 and the Savings Policy was restructured in 2013 and will see the Fund retain all of its income for future investments. The market value of the Fund in 2013 was $16.8 billion. However, research has shown that if the Alberta Fund had had stricter deposit and prevention of withdrawal rules, the Fund could be nestling on $42 billion + (following Alaska’s Permanent Fund rules) or $121 billion+ (following Norway’s Petroleum Fund governance rules) worth of endowment. Learning from Alberta’s historical lessons, GNWT has a unique opportunity in time to establish strong governance rules from the beginning.

A culture of saving

Literature and practice both indicate the success of savings funds is dependent on creating a culture of saving. One of the most important and effective methods of enforcing governance is civic engagement and participation. The mechanics of running a Heritage Fund is a technical topic. However, the ownership of the Fund is by the people. For the first time since devolution, on Tuesday May 27, 2014 a public dialogue will be hosted on the topic of governance for the new GNWT Heritage Fund in Yellowknife, Canada. The public dialogue will be the first step in raising public awareness and familiarity with the aims, objectives and governance of the Heritage Fund. Saving for future prosperity is no easy task and this will be the beginning of civic dialogue for generations to come.

*Julia Fan Li [2008] is a Gates Cambridge Alumna. She was a 2013/2014 Action Canada Fellow and co-authored the reportA Question of Future Prosperity: Developing a Heritage Fund in the Northwest Territories”. This report was tabled in the GNWT Legislative Assembly on February 10, 2014. Action Canada is a national fellowship programme for Canadians who have demonstrated leadership and a passion for Canada. Picture credit: Wiki Commons and NASA Visible Earth

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