Wednesday, 8 October 2014

Spare a thought for Nauru

Nauru is a strange country. It's a trivia nut's delight. It is the only country in the world without an official capital. It is the second smallest state in terms of population after the Vatican. Its 10,000 odd people are the fattest in the world. It is an island nation in the middle of the Pacific Ocean, thousands of miles from anywhere. But this post is not to extoll the Robinson Crusoeish place as some sort of a paradise - it is instead about the strangeness of its economy.

Nauru is , to put it mildly, plain broke. Bankrupt with a capital B. But in the 1970s and 1980s it was the richest country in the world in terms of per capita income ! How did the richest country in the world go bust in 30 years. It is a strange story indeed.

Nauru's prosperity came from the most unlikeliest of sources - bird poo.  Over millions of years, seabirds crapped all over the island. The poo accumulated and accumulated and became guam. When Nauru became independant in 1968, it found itself sitting on a valuable mineral - phosphate - that was easily extractable and a key ingredient for making phosphatic fertilisers.

Nauru became a major phosphate exporter. India was one of its chief markets - a joint venture company was even set up in Orissa, called Paradeep Phosphates between the governments of India and Nauru. Nauru made a killing with phosphate exports. And climbed to become the richest country in the world . Its 10,000 odd people lived a life of luxury - no taxes, no need to work hard. In the process they got fat. Very fat. Literally.

But Nauru is a small island. In 20 years or so, the phosphate deposits ran out. Now the islanders were left with nothing.

What they did next to raise income is a unique story that beggars belief. In the 1990s they tried to become an offshore finance centre. They, of course, were incapabale of managing this sensibly. Criminals made a beeline for the place and it became a major money laundering centre. The US promptly banned it and the dreams of becoming a financial haven quickly turned to dust. They tried selling citizenship for a fee, but once criminals found that they couldn't operate there, very few came.

Next it tried to play the diplomatic game to raise some money. In 2002, it  kicked Taiwan diplomatically and recognised the the mainland - The People's Republic. A grateful China gave it $130 million. In 2005, it kicked The People's Republic out and re recognised Taiwan. It is unclear how much money it made from it.  But you can do this sort of a thing only once ! It however remains ready to recognise any country in need of recognition. It did so with Abkhazia, a breakaway region of Georgia and a grateful Russia promptly gave it $ 50m.

In the last few years it has turned to yet another strange source of income. It takes in illegal immigrants - boat people landing up in Australia - in return for money. So some of the poor Vietnamese, Indonesians and Sri Lankans, find themselves in camps in Nauru instead of their presumed heaven of Australia. Australia pays Nauru for this "service".

The government of Nauru has been historically incompetent and useless. In that, of course, it is not alone. But it is now bankrupt and virtually shut down. It's bank accounts in Australia have been frozen. It's few assets , again in Australia, have been repossessed. It has defaulted on its bonds. Back home, it is not clear if the government can even function anymore. Australia has to save it.

The ordinary Nauruans deserve some sympathy. They have the highest incidence of Type 2 diabetes in the world, affecting 40% of the population Most people are unemployed.  If Australia does not send aid, they will be virtually in penury. The sad problem is that they are a speck in the ocean. Who cares ?


Sriram Khé said...

You are one lazy guy and you are to imply that the people of Nauru are lazy? Come on, your last post here was on September 18th.
Meanwhile, there are reports of you being spotted in various eating establishments where Colombian and Ukrainian singers do their accented cover versions of the Beatles. And, apparently you have been visiting every Golu and scooting away with all the sundal that the Rajalakshmi maamis worked hard to make. Have you checked your weight recently?
Phew, it feels good after getting all that off my 56-inch chest! ;)

Now, about Nauru, ... wait, what about it again?

It is a classic resource curse problem, my friend. Resource curse.

The Million Miler said...

A close to home from the South Pacific story! Bravo! Poor Nauru's closest neighbour is Kiribati which is an even sadder case. The whole country (islands) is sinking a-la Maldives. Another few decades Kiribati will history

Ramesh said...

@Sriram - I thought you were the one propagating that the wise should slow down and observe the world ..... Took your advice to heart :0

Yes, the resource curse, but you must concede that their subsequent revenue raising attempts are rather unique.


@Kiwi - Yes, all in your patch. Alright poor Kiribatians too. Why don;t you use your million airmiles and holiday there every weekend ?

Anonymous said...

Who cares? You have answered your own question - Australia (refugees), Taiwan (UN vote vs China), Russia (UN Vote). The two you missed are Japan (Whaling vote, tuna fishing rights), Israel (UN Vote/Palestine - check the 9 countries that voted against Palestinian independence) and if India ever needs a UN vote on Kashmir... well it has paved the way with dollar bills for many years to facilitate it.

The governments of the world 'have historically been incompetent and useless' and that is precisely why Nauru will never be in penury. Independence, unlike phosphate, can never be depleted.

How can a country of 28sqkm & 10k people that is 4,500km from Australia (with not a lot in between) survive? Rather than the failed state you make it out to be, the story of Nauruan Independence is one of the most remarkable stories of resilience and ingenuity in recent history.

Ramesh said...

@Anon - Lost with your comment. Yes, Nauru is far away from anywhere and with its small size, the state would have always found it tough, but it was resource rich at least for 30 odd years. Surely it could have been better managed ?

Prats said...

Isn't it such an interesting irony, the resources that fed them are now the curse for them. Agree that their attempts to raise funds are interesting but the fact remains they don't have long term sustenance plan and this probably going to cause their extinction

Ramesh said...

@Prats - Every country blessed with a windfall like oil ultimately has seen only misery. Same with lottery winners. My theory has therefore been that you have to earn your money the hard way - if its given to you on a platter its actually a big curse.

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