Economic Lessons from Nauru

Overview of Nauru

• Geography: Third smallest nation with 8 sq miles, under 11,000 inhabitants.
• Economic History: Once the richest country in the world per capita due to phosphate mining.

Natural Resource Curse

• Definition: Economic theory where countries rich in natural resources can suffer from poor economic growth and development.
• Example of Nauru: Transitioned from wealth to poverty due to mismanagement of resources.

Discovery and Exploitation of Phosphate

• Initial Discovery: 1789 by British; valuable phosphate ore discovered in the late 19th century.
• Economic Boom: Exported 80 million metric tons; mining rights sold to Germany.
• Colonial Impact: Australia took control during WWI; exploitation continued post-war.

Environmental and Social Consequences

• Destruction of Landscape: Mining devastated much of Nauru's natural beauty.
• Population Impact: After WWII, population reduced to 600 due to Japanese occupation.
• Health Crisis: By 1980, Nauru faced an obesity epidemic due to wealth and poor food choices.

Economic Dependency on Phosphate

• Post-Independence: Economy heavily reliant on phosphate; no diversification.
• Wealth Disparity: Despite riches, local population received minimal benefits.

The Wealth Bubble

• Peak Wealth: Nauru had GDP per capita of $27,000 in 1981 (equivalent to $88,000 today).
• Lifestyle Changes: High unemployment rates; citizens became reliant on government support.

Economic Decline

• Phosphate Depletion: By 2005, resources nearly exhausted; economy collapsed.
• Failed Investments: Poor management of sovereign wealth; investments lost to fraud.
• Bankruptcies: Central bank and national airline faced bankruptcy.

Current Situation

• Detention Centers Agreement: Australia pays Nauru for migration detention services; provides foreign aid.
• Economic Struggles: GDP of $133 million, with a per capita GDP of $12,000.

Economic Performance Scoring

• Size: 1 out of 10 (small GDP).
• Stability: 3 out of 10 (poor management history).
• Growth: 9 out of 10 (7% annual growth due to foreign aid).
• Industry: 2 out of 10 (reliance on a single industry).
• Overall Score: Average of 4 out of 10.

Concluding Thoughts

• Reflection by Residents: Longing for the past beauty and sustenance of the island before phosphate mining.
• Key Lessons: Importance of sustainable resource management and economic diversification.