Kiribati - Economy

A least developed country, Kiribati's per capita GDP is about $1,600. Although 63.6% of Kiribati’s population above the age of 15 is economically active, only 23% participate in the formal wage economy and over 60% of all formal jobs are in South Tarawa. The monetary economy of Kiribati is dominated by the services sector, representing a GDP share of 63.4%, and the public sector which provides 80% of monetary remuneration.

During the Second World War, little changed in the daily life of the islanders. Efforts of white colonists to create large coco palm plantations met with no success. Mineral reserves—large phosphorite deposits—were present only on Ocean Island. It soon attracted the greedy glances of the colonizers. Intensive mining operations were begun already at the beginning of the 20th century. By 1909, 2 million tons of phosphorites had been exported. However, this naturally was not reflected in the well-being of the local population. The lease payment to native residents comprised a laughable sum—50 pounds sterling a year.

In the course of the first two post-war decades, the economic life of the colony was, as before, in a state of stagnation. It is true that the Anglo-Australian-New Zealand Comoany British Phosphate Commission beean to deduct a larger part of its profits into the colony's budeet. This made it possible to somewhat improve the system of education and public health. The overwhelming majority of the population was engaged in the natural sector. The primary source of monetary income for the residents was copra (dried coconut pulp), which was produced in insignificant quantities.

The government, headed by beretitenti (president) Ieremia Tabai, was faced with the serious problem of raising the national economy, which had been left in total dependence. By the time the people of Kiribati achieved sovereignty, the phosphorites of Banaba were fully exhausted. The young republic lost its chief wealth, which placed it in an extremely difficult position.

The end of phosphate revenue from Banaba in 1979 had a devastating impact on the economy. Receipts from phosphates had accounted for roughly 80% of export earnings and 50% of government revenue. Per capita GDP declined by more than half between 1979 and 1981, from $750 to $350, while the amount of export fell to one eighth its previous amount—from 24 to 3 million dollars. The Revenue Equalization Reserve Fund (RERF), a trust fund financed by phosphate earnings over the years, is still an important part of the government's assets and contained more than U.S. $500 million in 2009. However, with the declining returns on offshore investments in the RERF, lower drawdowns from the fund to meet fiscal deficits is vital for the long-term welfare of the country.

The natural conditions on Kiribati cannot be called favorable. The soil on the islands is not fertile, and many of them have an acute shortage of water (sometimes there is no rain for several years). Overpopulation on some of the islands, including Tarawa, has surpassed all allowable limits. On the latter is about the same as in Hong Kong. The isolation and dispersity of the islands makes it difficult to establish communications between them. The basis for the young state's economy is agriculture, which bears primarily a natural character. The main commodity crop is the coco palm. Copra, this classic product of the south seas, yields 75 percent of the export income, its annual production fluctuates from 6,000 to 12,000 tons. The government has developed a program for expanding the state coco palm plantations on the island of Kiritimati, which will make it possible to increase copra export in the future.

Fish has always been the primary source of protein in the diet of the islanders. At present, steps are being taken in the republic to develop commercial fishing with the prospect of further expansion in the export of marine products. The first attempts at developing aquaculture have proven to be successful. Marine farms have been created for raising fish and growing algae. The government receives several million dollars (which is quite significant for such a small state) in payment from foreign vessels conducting fishing operations within the 200-mile economic zone of Kiribati, which reaches 3.6 million square kilometers. Great hopes are being placed on the development of tourism on Kiritimati — the world's largest coral island, which is an important ornithological preserve.

In the somewhat remote future, the country might receive part of the income of foreign companies conducting mining of resources off the ocean bottom in the economic zone of Kiribati. Rich dispersions of magnanese concretions are concentrated in the area of the Line Islands.

An important segment in the economic policy of the government are the 3-year plans for development, which provide for the stimulation of priority sectors of the national economy. The state has bought up the coco palm plantations which previously belonged to the "sovereign of the south seas"—the Australian company Burns, Phillip and Company. Kiribati's participation in the joint economic endeavors of the countries of Oceania is of great importance—in the sphere of shipping, air transport, communications, fishing, etc. In striving to rid itself of the ruinous consequences of colonialism, the government of the young republic is taking measures for limiting the consumption of alcoholic beverages. On seven of the islands they are prohibited altogether.

The republic has achieved notable success in the social sphere. Elementary education, which as of 1983 has been totally free, is currently provided for practically all children aged from 6 to 11 years. A multi-branched network of professional education has also been developed. Electricians, motor mechanics, buildirs, trade workers, etc. are being trained. Teacher training has been established. Around 200 students are studying in the institutions of higher learning abroad -- on Fiji, in New Zealand, Australia, and Great Britain.

In one form or another, Kiribati gets a large portion of its income from abroad. Examples include fishing licenses, development assistance, tourism, and worker remittances. External sources of financing are crucial to Kiribati, given the limited domestic production ability and the need to import nearly all essential foodstuffs and manufactured items. Historically, the I-Kiribati were notable seafarers, and today about 1,400 I-Kiribati are trained, certified, and active as seafarers. Remittances from seafarers are a major source of income for families in the country, and there is a steady annual uptake of young I-Kiribati men to the Kiribati Maritime Training Institute. Remittances from Kiribati workers living abroad provide more than $11 million annually.

Fishing fleets from South Korea, Japan, China, Taiwan, and the United States pay licensing fees to operate in Kiribati's territorial waters. These licenses produce revenue worth about U.S. $20 million to $35 million annually. Kiribati's exclusive economic zone comprises more than 3.55 million square kilometers (1.37 million square miles) and is very difficult to police given Kiribati's small land mass and limited means. Kiribati has only one police patrol boat. Kiribati probably loses millions of dollars per year from illegal, unlicensed, and unreported fishing in its exclusive economic zone.

The largest donors of development assistance to Kiribati are Japan, the European Union, Australia, New Zealand, and Taiwan. U.S. assistance is provided primarily through multilateral institutions.

Tourism is a relatively small, but important domestic sector. Attractions include World War II Tarawa battle sites, game fishing, and ecotourism. The majority of American tourists only visit Christmas Island in the Line Islands on fishing and diving vacations.

Most islanders engage in subsistence activities such as fishing and growing of food crops like bananas, breadfruit, and papaya. The leading export is the coconut product copra, which accounts for about two-thirds of export revenue. Other exports include pet fish, shark fins, and seaweed. Kiribati's principal trading partners are Australia and Japan.

Transportation and communications are a challenge for Kiribati. Air Pacific is currently the only airline providing international air links to Kiribati. Air Pacific operates a twice-weekly flight from Fiji to the capital of Tarawa and has a stop on Kiritimati Island during a flight between Fiji and Honolulu. As of early February 2012, domestic airlines had ceased regular scheduled flights, and most of the populated atolls in the Gilberts were only accessible by boat or charter aircraft flying from Tarawa. Small ships serve outlying islands, including in the Line Islands, with irregular schedules. Telecommunications are expensive, and service is mediocre.