A different kind of community investment

> PUBLISHED April 22, 2016

Community Economic Development Investment Funds are a possible new tool for growth

If you are lucky to have a few extra dollars kicking around and are investing them, you are probably mostly concerned about your own rate of return rather than the particulars of where your money physically goes.


But it is worth considering that investments in stock market holdings, RRSPs, GICs, etc. – vis-à-vis the big banks and large investment companies – will earn you a return most likely through the financing of business outside of Newfoundland and Labrador.

We often hear how buying local can be important for a domestic economy. But even buying your vegetables at a big box store at least still contributes to local employment. In the typical investment scenario, however, dollars are being moved directly out of the domestic economy.

What if there was an opportunity to keep your investments local by financing local businesses instead?

Investing within the community

One such financial instrument to accomplish this has been in use in neighbouring Nova Scotia for more than 15 years. A Community Economic and Development Investment Fund (CEDIF) is a pool of money which is raised to invest within a community. A ‘community’ can be defined in a number of ways – by geography, industry, culture, or otherwise.

The introduction of new businesses and the growth of others in the community translates in to more local employment, more money circulating locally, a greater tax base from which additional investments can be made, and ultimately a more sustainable future

CEDIFs channel funds into local investments, providing an important source of capital for local projects or businesses which may not otherwise be available. They also give the opportunity for investors to earn a return while contributing directly to the growth and development of their community. Once a CEDIF is created, money is raised through the sale of shares to persons within the community. These funds are used for profit generating purposes and controlled by a local group of officers and directors who may be chosen by the founders of the CEDIF or by its investors. Small initial offering followed by annual, or semi-annual offerings can quickly grow to be a substantial capital pool for local investments.

Why would a CEDIF be started? Members of a community may decide there is a need to support the creation and operation of a business, the expansion of several businesses, or even the growth of a specific industry.

Allowing for the formation of CEDIFs in Newfoundland and Labrador would require regulatory amendments – but the instrument is tried and tested. Nova Scotia boasts that 48 CEDIFs in have successfully closed at least one offering in the province, raising and investing a total of $50 million in local enterprises. CEDIFs are becoming synonymous with the Maritimes; Prince Edward Island introduced a program in 2011, and New Brunswick is in the process laying the groundwork.

Who benefits?

Since a local investment would probably carry more risk than more traditional means of personal investment, the notion of a CEDIF wouldn’t work without there being tangible benefits for investors. In Nova Scotia CEDIF investments are RRSP eligible. This means that investors would not be taxed on any income derived from a CEDIF investment, e.g. dividends received or interest accrued on the shares. The province also offers a personal tax credit of 35 percent for CEDIF investment where the investor holds his or her shares for at least 5 years. These are significant incentives.

Local businesses are often the beneficiaries of CEDIFs; they provide simple, regulated, and cost efficient access to capital for growth. It is sometimes very difficult for local businesses to secure funding – particularly in struggling communities. But through CEDIFs, communities can help start businesses, support the development of their products and services, as well as continue to fund their growth and expansion through future share offerings. The enterprises themselves benefit from the support of a community which has a vested interest in their success.

The big winner is the community, which collectively has decided to make a difference by simply diverting the dollars of interested investors. As a result, the community will benefit from the products, services, and presence of businesses that it has created or supported. The introduction of new businesses and the growth of others in the community translates in to more local employment, more money circulating locally, a greater tax base from which additional investments can be made, and ultimately a more sustainable future.

Helpful examples

Though CEDIFs in Nova Scotia have funded the creation and growth of businesses directly (from craft breweries to fair trade coffee roasters), it is interesting to see that various social enterprise have also leveraged the program.

One CEDIF was established to invest in local food production to increase access to sustainable local food in the province. A series of CEDIFs were created to fund the development of regional renewable energy projects, with a particular focus on wind turbines. A CEDIF was also used to fund the construction of Halifax’s Seaport Market – providing farmers and entrepreneurs with access to larger markets, and residents with a state of the art and environmentally sustainable facility from which to shop in.

CEDIFs are also being used to support economic development organizations. New Dawn Enterprises acts as a local intermediary for investors from Cape Breton looking to invest in their community. The outfit reports that it has raised $7 million to employ 175 local community members in businesses that serve of 600 people per day, while committing to pay its investors dividends of between 2.5% and 4.23% semi-annually.

A possible import to our province?

It is hard to say what the impact of CEDIFs would be in Newfoundland and Labrador, a province of just over 500,000 compared to Nova Scotia’s 1,000,000.

At the provincial level, some regulatory changes would be required and the proper provisions would have to be implemented to support the program. Yet the costs involved to make the program available could potentially pale in comparison to giving communities – whether they be geographic, business, or social in nature – a powerful new tool to survive, grow, and thrive.

In the future, a CEDIF could be used by a town to develop a resource which has been bypassed by large corporations; by the arts community in downtown St. John’s to retrofit an existing structure in to a new mid-sized arts centre; to construct a world class wind-farm on the Burin peninsula; to build a light-rail system to transport tourists from Bonavista to Trinity; or to finance a new grocery store in St. Anthony.

The possibilities are endless and only limited by the desire of communities and the willingness of investors. Do you think CEDIFs are worth considering in Newfoundland and Labrador?