Nauru - Economy

Economy

The Nauruan economy peaked in the early 1980s, as it was dependent almost entirely on the phosphate deposits that originate from the droppings of sea birds. There are few other resources, and most necessities are imported. Small-scale mining is still conducted by RONPhos, formerly known as the Nauru Phosphate Corporation. The government places a percentage of RONPhos's earnings into the Nauru Phosphate Royalties Trust. The Trust manages long-term investments, which were intended to support the citizens once the phosphate reserves were exhausted. However, because of mismanagement the Trust's fixed and current assets were reduced considerably, and many never fully recovered. The failed investments included financing Leonardo the Musical in 1993, which was a financial failure. The Mercure Hotel in Sydney and Nauru House in Melbourne were sold in 2004 to finance debts and Air Nauru's only Boeing 737 was repossessed in December 2005. Normal air service resumed after the aircraft was replaced with a Boeing 737-300 airliner in June 2006. In 2005, the corporation sold its property asset in Melbourne, the vacant Savoy Tavern site, for $7.5 million.

The value of the Trust is estimated to have shrunk from A$1.3 billion in 1991 to $138 million in 2002. Nauru currently lacks money to perform many of the basic functions of government; for example, the National Bank of Nauru is insolvent. The CIA World Factbook estimated a GDP per capita of $5,000 in 2005. The Asian Development Bank 2007 economic report on Nauru estimated GDP per capita at $2,400 to $2,715.

There are no personal taxes in Nauru. The unemployment rate is estimated to be 90 per cent, and of those who have jobs, the government employs 95 per cent. The Asian Development Bank notes that although the administration has a strong public mandate to implement economic reforms, in the absence of an alternative to phosphate mining, the medium-term outlook is for continued dependence on external assistance. Tourism is not a major contributor to the economy.

In the 1990s, Nauru became a tax haven and offered passports to foreign nationals for a fee. The inter-governmental Financial Action Task Force on Money Laundering (FATF) identified Nauru as one of 15 "non-cooperative" countries in its fight against money laundering. During the 1990s, it was possible to establish a licensed bank in Nauru for only $25,000 with no other requirements. Under pressure from FATF, Nauru introduced anti-avoidance legislation in 2003, after which foreign hot money left the country. In October 2005, after satisfactory results from the legislation and its enforcement, FATF lifted the non-cooperative designation.

From 2001 to 2007, the Nauru detention centre provided a significant source of income for the country. The Nauruan authorities reacted with concern to its closure by Australia. In February 2008, the Foreign Affairs minister, Dr. Kieren Keke, stated that the closure would result in 100 Nauruans losing their jobs, and would affect 10 per cent of the island's population directly or indirectly: "We have got a huge number of families that are suddenly going to be without any income. We are looking at ways we can try and provide some welfare assistance but our capacity to do that is very limited. Literally we have got a major unemployment crisis in front of us."