I know a sovereign-debt analyst who calls Canada her “AAA-rated emerging market.” 

Don’t take offence. It’s a joke based on the countries this person covers, a portfolio made up primarily of emerging markets such as Mexico and Brazil. Those places are more chaotic, and therefore require more work, but the potential gains are worth the effort. Canada is where you hedge against the risk of chasing that growth.   

A thought experiment: What if Canada really is a AAA-rated emerging market, a unicorn in the investing world that offers both the protection of the rule of law and the comfort of political stability, while also providing opportunities to bet on outsized levels of future growth? It’s possible, especially if the guardians of that AAA rating keep it together. 

Let’s first de-stigmatize what it means to be an emerging market. It’s unclear G7 countries have anything to teach emerging markets about governing: Brazil under former president Jair Bolsonaro was a lot like the U.S. under former president Donald Trump. Central banks in rich countries balked at raising interest rates when global inflation burst, but their counterparts in emerging markets moved with authority. That prompted the International Monetary Fund to state that monetary policy in emerging markets had become a source of stability. 

Investors like emerging markets because of where they sit on the development curve. Such places are playing catch-up, so there’s lots of opportunity to capture long-term returns. Canada offers that kind of upside via First Nations, which are shaking off the constraints of the Indian Act and beginning to leverage capital markets to develop their communities on their own terms. 

I spent a little time at the Indigenomics Institute’s annual Bay Street conference in Toronto this week. The Indigenomics Institute is the creation of Carol Anne Hilton, author of Indigenomics: Taking a Seat at the Economic Table, in which she argues that if the federal government stopped actively resisting treaty settlements, it would lead to a $100-billion Indigenous-led economy—a figure that’s roughly the equivalent of the gross domestic product of Sri Lanka.  

Hilton published her book in 2021. At this week’s conference, participants were already talking about the next $100 billion. It’s a reasonable goal considering the federal government has set aside $76 billion for treaty settlements. Already there have been glimpses of what First Nations will do with the money. The $1-billion purchase of Halifax-based Clearwater Seafoods by a consortium led by Membertou First Nation is one example. The Haisla Nation’s Cedar liquefied natural gas project in Kitimat, B.C., and the Jericho Lands housing development on 36.4 hectares on Vancouver’s West Side are others. 

Jody Anderson, strategy and partnership adviser at the First Nations Finance Authority, a federal agency that provides Indigenous communities with financial backing and investment advice, told an audience at the conference that 20 years ago, economic development on reserves meant building a gas station. Gas stations are still important, she said, but a combination of money and ambition has propelled First Nations into the big leagues. 

Takeovers such as Clearwater and projects such as Cedar and Jericho are complicated, but potential deals of that kind are “plentiful,” said Jaimie Lickers, head of Indigenous trust services and Indigenous commercial banking at CIBC. The wealth appears to be spreading across communities. Bill Lomax, the former Goldman Sachs banker who now leads Saskatoon-based First Nations Bank of Canada, told me earlier this year that his loan book is on track to balloon to as much as $5 billion within a decade, from less than $1 billion currently.

“The revolution won’t be government-funded,” said Frank Busch, who leads Kelso Technologies, a West Kelowna, B.C.-based maker of rail and automotive parts, echoing a widespread desire to break free of the constraints of the Indian Act by using treaty settlements to leverage development funding from capital markets. 

The next $100 billion will come harder than the first. Indigenous communities themselves could decide to pump the brakes, as many of their members attach a greater value to nature and culture than eager dealmakers may realize. 

Patience might be wise. History has made First Nations wary of exploitation, and the ranks of Indigenous bankers, accountants and lawyers are thin. That will change over time, but in the short term many point to this skills shortage as a vulnerability. “For every good deal there could be 20 bad deals,” said Anderson. 

The notion that First Nations are risky bets is dated. Anderson said the default rate on $3 billion in debt backed by the First Nations Finance Authority is zero, and no Nation has declared bankruptcy since the 1970s. Yet Bay Street continues to treat First Nations differently than other sovereigns. “A paradigm shift needs to happen,” she said. 

Indeed, the wobbly part of this “AAA-rated emerging market” thought experiment could be the colonial governments. The federal government’s budgeting has been undermined twice in two weeks: the C.D. Howe Institute published a report that argues Finance Minister Chrystia Freeland overstated future revenue from higher capital-gains taxes by about $5 billion, and the parliamentary budget officer challenged Freeland’s assertion that she will keep the deficit below $40 billion. 

Before the Liberals’ re-election in 2019, no party had attempted to govern with less than 36 per cent of the popular vote—and the one that did, Joe Clark’s Progressive Conservatives, lasted only nine months. Justin Trudeau’s Liberals won 33.1 per cent of the popular vote in 2019 and 32.6 per cent in 2021, coming second to the Conservatives both times, while nonetheless collecting enough seats to cling to power. 

The middle ground of Canadian politics has eroded, raising questions about governability. The unseen analysts who assess Canada’s creditworthiness will have taken note. Fortunately, there’s an emerging engine of growth to offset political uncertainty in Ottawa and the provinces. Indigenomics might be the best thing Canada has going for it. 

Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief.