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Nunavut Development Corp. bleeds money

Subsidies outstrip sales

ARTHUR JOHNSON

The money-losing fish plant owned by Pangnirtung Fisheries Ltd. creates about 45 seasonal “jobs” a year, but at a huge cost. Over the next five years, this Pangnirtung subsidiary of the Nunavut Development Corp, is slated to receive $1.34 million in subsidies. (FILE PHOTO)

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Taluq Designs in Taloyoak is to receive $140,000 in 2004-05 from the development corporation’s subsidy program fund, even though it expects sales to reach only $70,000. The subsidy will dip slightly to $130,000 for 2005-06 while sales are forecast to stay exactly the same.

The tiny enterprise, which makes plush dolls and animals, employs four people, for a subsidy of $35,000 per job every year.

The Nunavut Development Corp. began life in the early 1990s as a Crown corporation called the Northwest Territories Development Corp. After the creation of Nunavut in 1999, its Nunavut operations became known as the Nunavut Development Corp.

Taluq’s subsidy-to-sales ratio is by far the most lopsided among the development corporation’s nine subsidiaries, which include fisheries and caribou and muskox harvesting operations.

The corporation’s guidelines, inherited from the Northwest Territories, say subsidiaries should reach the break-even point after five years.

But the size of annual cash injections provided to all of them raise serious doubts about their prospects for self-sufficiency.

For instance, Jessie Oonark Ltd., of Baker Lake, which produces a line of clothing and other items, currently gets a subsidy of $115,000 for forecast sales of $170,000, while Ivalu Ltd., a similar outfit in Rankin Inlet, gets $75,000 to subsidize sales forecast at $140,000 for 2004-05.

The development corporation, noting that Ivalu “has struggled with sales and staffing over a number of years,” says the company will be closed April 1, and that its digitized embroidery will be done at Jessie Oonark.

That, says the corporation, should boost sales to $220,000, but will require an additional subsidy of $35,000 annually.

What’s more, the development corporation says its funding structure, under which it owns a majority interest in each subsidiary, prevents these enterprises from attracting other public or private investment, and results in them being denied preferential treatment under Nunavut’s Nunavummi Nangminiqaqtunik Ikajuuti, or “NNI” policy.

“This reality,” according to the corporation, “has hindered the development of some subsidiary companies as they do not receive the bid preferences as stipulated in the policy when bidding on government contracts.”

Because of this, the corporation says, it is trying to reduce its investment in Pangnirtung Fisheries Ltd. and Uqqurmiut Arts and Crafts Ltd. “with the intent of turning effective control over to our local partners Cumberland Sound Fisheries Ltd. and the Uqqurmiut Inuit Artists Association.”

In all, the corporation’s subsidiaries will receive subsidies of $1,505,000 for 2004-2005, while its sales division, including operations in Toronto and at Lester B. Pearson International Airport, will get subsidies of $350,000.

The subsidiaries have created the equivalent of 135 jobs at a cost in subsidies of $27,650 per job.

But the cost of running the corporation’s headquarters in Rankin Inlet is a whopping $1,064,000 annually, which adds a further $7,881 to the expense of creating each of those jobs at the subsidiaries.

Of that total, the corporation pays out $490,020 for salaries and allowances and a hefty $93,000 for professional fees.

As well, costs for its board of directors, including meeting expenses, honoraria, travel and accommodation, run to $78,300 a year.

All told, the corporation spends $3.19 million a year to help generate an expected $5.41 million in sales from its subsidiaries, or about 60 cents for each dollar of sales.

So gloomy are the prospects for the subsidiaries that corporation officials say there is no point in expecting a profit on money invested.

“Given the volatility of Nunavut’s emerging economy and the logistical and capacity issues that hinder business development in the smaller Nunavut communities,” the corporation says, it now puts the emphasis on “return of” capital.

The corporation came under fire in 2001 from Sheila Fraser, the Auditor-General of Canada, for what she described as “financial deficiencies, especially control weaknesses.”

All the funding for the corporation comes from the GN.

In 2004-05, the Nunavut Development Corp.’s subsidiaries are:

• Jessie Oonark Ltd. (Baker Lake)
• Ivalu Ltd. (Rankin Inlet)
• Kiluk Ltd. (Arviat)
• Kivalliq Arctic Foods Ltd. (Rankin Inlet)
• Kitikmeot Foods Ltd. (Cambridge Bay)
• Pangnirtung Fisheries Ltd. (Pangnirtung)
• Taluq Ltd. (Taloyoak)
• Uqqurmiut Ltd. (Pangnirtung)
• Papiruq Fisheries (Whale Cove)

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