Nauru - Economy

Having once boasted the second-highest per capita GDP in the world thanks to its fabled phosphate mines, Nauru is today destitute. With the seeming depletion of readily accessible phosphate reserves in 2000, mining on a large-scale commercial basis ended. The decline of mining saw a dramatic economic contraction, compounded by past government corruption and disastrous mismanagement of trust funds that had been expected to provide post-mining revenue streams for Nauru's citizens. Since 2000, Nauru has relied largely on payments for fishing rights within its exclusive economic zone and massive injections of grants and development funding, principally from Australia, New Zealand, Japan, China, and more recently Taiwan.

Between 2001 and 2008, Nauru earned funds by hosting two Australian detention centers, which held Afghan, Burmese, and Sri Lankan refugees. Re-opening the camps is frequently discussed in Australian media, but as yet no concrete steps have been taken. The government-owned mining company, the Republic of Nauru Phosphate Company, or RONPhos, initiated the mining of subsurface secondary reserves of phosphate in late 2009, along with a new rehabilitation program for mined-out land, and has reportedly made a small profit, despite 2010 storm damage to port equipment and other infrastructure problems.

Nauru has a nominal per capita GDP of $5,462. The resumption of mining promises a limited respite as the country seeks to find a sustainable economic future. The private sector is very small and employs fewer than 300. Nauru imports well over 90% of its foodstuffs and other basic goods, but sea and air transport has become problematic. In December 2005, the national airline's remaining airplane was repossessed for non-payment, leaving Nauru dependent on chartered flights. In September 2006, with financing help from Taiwan, a replacement aircraft re-established scheduled commercial flights to Nauru and around the region under the new name of Our Airline. The provision of electricity and water, both dependent on expensive imported fuel, is limited and sporadic. With the help of the Pacific Islands Forum and numerous development partner nations, Nauru completed in 2009 a major, multi-year strategic national development program to enable it recover from a crisis of failing finances and insurmountable debts. The program has also helped Nauru develop a sustainable economic framework for the country.

Until the 1990s, Nauru had one of the highest levels of GDP per capita in the world due to its phosphate exports. This “allowed the government to develop a vast welfare state, including universal health care and compulsory education, without imposing any taxes on its citizens.” Profits from the sale of phosphate were placed in the Nauru Phosphate Royalties Trust and invested in accordance with the Nauru Phosphate Royalties (Payment and Investment) Ordinance 1968. However, the phosphate started running out, its price dropped, and investments made by the trust proved to be unwise, resulting in the government needing to borrow additional funds and also engage in different ventures. This included entering the offshore banking and company registration industries, leading to it being identified as a tax haven by the Organisation for Economic Co-operation and Development (OECD) until 2003.

Nauru has also received money from Australia under various arrangements. In 1989, Nauru instituted proceedings against Australia in the International Court of Justice (ICJ), claiming that Australia had breached its trusteeship obligations in failing to rehabilitate or pay restitution for the phosphate lands mined during its administration of Nauru. The ICJ issued a decision in 1992 regarding some preliminary objections to the proceedings by Australia. The case came to a halt, however, in September 1993 when the parties informed the ICJ that they had reached a settlement and agreed to discontinue the proceedings. In the settlement, Australia agreed to pay Nauru AU$120 million (about US$97 million) over twenty years, with the first AU$57 million (about US$46 million) to be paid within a year.

A layer of phosphate has been discovered beneath the current mining operation and is believed sufficient to sustain another thirty years of mining. Nauru exported 335,000 tons of phosphate in 2007. Production costs remain high, but increasing efficiencies and a worldwide phosphate shortage could eventually shift the industry's fortunes into the black. However, it is difficult to balance immediate demands from land owners, who claim to be owed millions in royalties and rent, with the need to bank much of any new phosphate revenues for the future day when no more layers of phosphate exist.

Nauru's government has resorted to other measures keep their people's life standard. The country has set up hotels, beer factories on neighbouring islands, invested in forests in the US, and built a fifty-two storied skyscraper in Melbourne. They call it "Home of Nauru" and plan to transport the island residents there when their homeland is no longer suitable for habitation. The country is also tapping its rich fishing resources, and tourist attractions. Now, it has visa-free contracts with some seventy countries aiming to make tourism a new rich source of income for the country and its people.