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Nauru: The Decline and Fall of the Phosphate Empire
May 5, 2008
Its people had the highest income, per capita, of any nation in the world. Families who had never before left their hometown would charter planes for shopping expeditions to Hawaii and Singapore. Citizens bought sports cars with their royalty checks. Less than thirty years later, eighty percent of their nation is a barren, strip-mined wasteland. Per-capita GDP is less than Namibia’s, Nicaragua’s or Sudan’s. Phosphates made Nauru rich, but also contained the seeds of its destruction.
Discovery… of the Island, and of Phosphates
Nauru (pronounced NAH-oo-roo) was discovered (by the Europeans at least) in 1798 by John Fearn, who named it Pleasant Island. For almost a century, its people mingled with European whalers, traders, and the occasional deserter. In 1878, as more firearms were introduced into Nauruan culture, tensions between the twelve clans of Nauru reached a boiling point. A fierce civil war erupted, and lasted for ten years, until the Germans annexed the island and helped unify the tribes.
Nauru may have endured as so many other Pacific islands have, by not being worth too much to anybody and having colonial rulers adopt a laissez-faire attitude towards them. Unfortunately, they had a different destiny. In 1900, a British prospector discovered that almost the entire island of Nauru consisted of high quality phosphate rock, created mostly from years of bird droppings. Although many people have never heard of them, phosphates are essential to a modern standard of living. They are a key ingredient in fertilizers, even today, and several wars have been fought solely over phosphate supplies, especially in the 19th century.
Within a decade, phosphate mining commenced, and continued as nations battled for control of the all-important phosphate rock (more information about the current phosphate shortage). Between discovery of the phosphate in 1900 and the independence of Nauru in 1968, five nations had control of Nauru at one time or another: Germany, Australia, the UK, New Zealand, and Japan. Nauru was invaded during both World Wars (in WWI by the Australians, in WWII by the Japanese) to ensure that the phosphate would flow. During all of this time, although their island was a cornerstone in the global economy, ordinary Nauruans did not benefit much from the phosphate mining in their country. The various companies extracting the phosphate rock tended to keep the profits for themselves.
The Golden Age
In 1968, the Australian government, then-trustee of Nauru, declared that the island was “uninhabitable” and offered to resettle the Nauruans. The people of Nauru decided instead to declare independence from Australia, and shortly afterwards, bought the rights to phosphate mining away from all foreign owners. They were going to go it alone, and they were going to do it on the back of phosphate rock. They started bringing in companies to mine the phosphate for them, and set up the Nauru Phosphate Royalties Trust to invest and manage the money from the mining (an early example of a sovereign wealth fund). The NPRT was founded to ensure that there would continue to be money to run Nauru even after phosphate reserves were depleted, and to provide royalties from the phosphate mining to the people of Nauru.
The money was shot out from the NPRT onto the citizens of Nauru like a fire hose. Within a few years, Nauru had the highest per-capita GDP in the world. Forget about oil wealth; in the 1970s, in Nauru, all the talk was of phosphate wealth. Nauru acquired a collection of foreign real estate, invested in musical productions, and showered its citizens in free money. There was no real need to work; government checks bought everything a person could desire. The streets were lined with new German, Italian, and American sports cars. People moved away from the traditional diet of their ancestors and gorged on chocolates, red meat, and other processed, high-fat and high-sugar foods.
Phosphate mining continued unabated, and people thought the party would go on forever. Below the surface, though, were several forces forcing an end to the festivities.
The Decline and Fall
As phosphate reserves started to decline in the 1990s, Nauruans began asking questions about how much money was being managed by the Nauru Phosphate Royalties Trust. Although the managers had always been secretive, it was assumed that there would still be plenty of money to maintain a decent standard of living, if not living up to the heyday of phosphate mining a few years earlier. However, it was soon found out that through mismanagement, corruption, and some old-fashioned busted investment, the NPRT had lost a great deal of money. More than a billion dollars - almost the entirety of the NPRT’s assets. Nauru was broke, and their one reliable export was almost extinguished.
Unemployment now reaches about 90%… and 95% of the jobs that do exist are government jobs. Private enterprise is almost obliterated. A facility to house refugees denied admission to Australia provided 20% of the GDP of Nauru last year, and is shutting down this year.
The life expectancy of the islanders has plummeted to 58 for males (65 for females), as bad dietary habits have taken a toll. With 90% of its population obese, renal failure and heart problems are epidemic. Anywhere from 40% to 50% of the population has type 2 diabetes.
Over eighty percent of the country is a desolate moonscape, as all of the phosphate-containing topsoil was stripped down to the bare rock. Droughts have become an epidemic - the bare rock in the interior of the island reflects the heat, driving away virtually all clouds. The only remaining human habitations are in a small strip around the edge of the island.
Finally, in 2007, the country’s phosphate reserves ran out. There have been some plans floated to start mining “secondary phosphate” - phosphate that is stored underneath the worthless limestone of the interior. Extracting it entails crushing and removing the limestone, then strip mining more phosphate from below the ground. Let us hope that the Nauruans have learned some lessons in sustainability from their first brush with mineral wealth.
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I can’t get enough of your articles about Phosphate. On a serious note, it’s funny how people think just because a country has natural resources that it could be self sufficient when history shows otherwise.