The Lessons of Nauru

The Pacific island of Nauru is among the most unknown countries in the world.  This is hardly surprising – it is the fourth-smallest territory in the world (ahead of only Tokelau, Gibraltar, Monaco, and the Vatican), and there are fewer ethnic Nauruans than there are Oxford undergraduates.  But, for a time, Nauru had the highest GDP per capita in the world, and the slow decline from the financial orgy of the 1970s and 80s to its current state as a virtual province of Australia contains some fairly frightful omens for the future of other such rentier states.

Nauru is (or rather was) a phosphate island, one of three in the Pacific, and the export of phosphate began in 1907, while the island was in German possession.  Throughout ownership by the British, Australians, New Zealanders, Americans, Japanese, and under its UN trusteeship, Nauru’s economic potential became totally focussed on phosphates.   After its independence in 1968, the British transferred control of extraction to the Nauruan government under the auspices of the Nauru Phosphate Corporation.  Faced with the sudden influx of millions of dollars – and ignoring the fact that it came from the excavation and sale of the island itself – the Nauruan government went beserk.  Ten of thousands of workers from all across the Pacific region were hired in order to work the phosphate mines while the native Nauruans did virtually nothing and received masses of money from the government for it.  Water and electricity were free, the Nauruan population circled the world in jets, and the subsistence economy completely vanished.  In the early 1970s it dawned on the nation that the phosphate reserves were not endless, and they invested much of the remaining money in a festival of trust funds designed to pad out the transition to a post-phosphate economy.  This came sooner than expected: in 1980 the reserves began to decline, and by 1990 there was very little easily extractable phosphate left.

At this point, the Nauruans discovered that their trust funds had been hideously mismanaged, and most of the money they had put into them was gone.  Over the next ten years, the government tried increasingly desperate strategies to raise money, most notably by sinking millions of dollars into a Broadway production about the life of Leonardo da Vinci which is generally recognised as one of the most disastrous musicals ever.  As the 1990s crept along, Nauru sank beneath its debts.  After briefly turning itself into a tax haven – an act which earned Nauru a place on the international economic blacklist – the country finally admitted it was living beyond its means.  Its overseas property, including Nauru House in Australia and most of the Nauruan embassies, was sold.  In 2005 the last Air Nauru aircraft was repossessed, leaving the island temporarily cut off from the rest of the world.  The Nauruan government, which had previously had good relations with mainland China, broke them off and recognised Taiwan instead on the condition that the Taiwanese government would help them repatriate the hordes of foreign workers from Kiribati and Vanuatu who had become stranded when the economy collapsed.

In despair, the Nauruans turned to Australia and the island became a “rendition centre” for the Pacific Solution: asylum seekers attempting to enter Australia were sent there and imprisoned.  After some protest, this controversial project was ended in 2007 (not 2005, as I previously stated), leaving Nauru impoverished – despite everything, the island has not relinquished its welfare system, and there are still no taxes.  Today it survives on subsidies from Australia, New Zealand, and Taiwan.  The political system is fiercely unstable: there are no political parties, so governments are brought down by votes of no confidence several times a year.  In addition, most of the island is ruined, as the extraction of phosphate left arid pinnacles of rock dotting the landscape which impede any sort of construction.  This central area also reflects sunlight and burns away cloud cover, leading to extended periods of drought.  Much of the former mining land in the centre is rumoured to be toxic, so civilisation barely clings on in a thin strip running along Nauru’s coast.  The most realistic possibility for Nauru’s future is depopulation, a plan first proposed – and rejected – as early as 1964, but which now looks appealing to many Nauruans despite the cultural defeat it would represent for them.


There is a lesson in this disastrous chain of events, particularly for other more successful rentier states like the UAE.  Simply replace Kiribati and Vanuatu, the sources of foreign labour, with Pakistan and Bangladesh; replace phosphates with oil; and replace the late 1990s with the late 2020s (or sooner?).  Dubai, in particular, in its mad rush to create the tallest building in the world, the biggest indoor ski resort in the desert, the world’s first seven-star hotel, mimics Nauru’s ill-starred attempts to sink money into new sources of wealth.  Nauru also demonstrated the risks of bringing in thousands of foreign workers and paying your own people to do nothing, another trend that the UAE has blissfully followed to such an extent that fewer than 20% of Emirati residents are actual Emiratis (see image, right), and Arabic is now only the fourth most-spoken language.

Saudi Arabia, of course, is the welfare state par excellence: while paying foreign workers a pittance to extract oil, the Saudi government uses the insanely enormous proceeds to bribe its people into acquiescence, while simultaneously distracting them with religion.  This is not to say, of course, that the money is not spent on other things – Saudi Arabia’s infrastructure, hospitals, and especially its education system are easily the finest in the region, and some of the best in the world.  But in the years to come, as the oil runs low and the larger consumers turn to alternative fuel sources (hey, I can dream!), the coffers will start to empty, and the Gulf States will find themselves strapped.  The UAE, of course, has tourism to turn to – as well as Dubai’s shopping festivals.  But Saudi Arabia, a nation whose first monarch declared in 1930 that “My Kingdom will survive only insofar as it remains a country difficult to access, where the foreigner will have no other aim, with his task fulfilled, but to get out”, has no such recourse.  When the oil runs out, the country will be faced with popular outrage on a level that few in the world can imagine.  It will take some time, I suspect, to execute all 7,000 members of the Al Saud family, but death is free, and the revolutionaries will have little else to do.  But it’s a decade or so away yet, and neither the infirm King Abdullah (87) nor his leukemic Crown Prince (77) need worry: they’ll be gone long before.


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