The story of the tiny island nation of Nauru in the Pacific Ocean is another tragic example of the resource curse. It's a crazy story about a boom and a bust, and many missed opportunities.
Nauru is small, very small! It has only 21 square kilometers of land area, which is similar in size to Los Angeles's airport! This makes Nauru the 3rd smallest country in the world.
Today Nauru has a population of about 11.000 people, but long before humans discovered the island, it was home to many different bird species that used it as their own personal toilet. For millions of years they dropped their poop called guano on this tiny piece of land, which fossilized and formed rich phosphate deposits over time.
Phosphates are the key ingredient in agricultural fertilizers, and deposits of phosphate are mined all around the world. This means that Nauru was basically sitting on a gold mine made of poop!
The Germans were the first to exploit this resource in 1906, but after world war I, the island was handed over to the Australians who continued mining there along with the British and the New Zealanders. By 1964 the environmental damage done to the island was already so extensive, that the Australian government proposed moving the entire population to an island of the coast of Queensland, but the people refused this offer.
In 1968 Nauru became an independent country and took over mining operations on the island by establishing the Nauru Phosphate Corporation. The new government increased mining on the island by a lot, and this caused massive damage to the fragile environment at the same time.
But they were too busy making money to realize what they were actually doing to their own island. In just a few years Nauru went from being one of the poorest countries to one of the richest in the world! In 1975 the country had an income of $2.5 billion for a population of 7000 at the time! More than enough money for generations to come.
So how did the Nauruans spend their money? Did they make long term investments that would allow them to sustain their future lives on this isolated island after their resources are gone?
Not exactly, they bought fancy cars, big houses, they built a large golf course, and even founded their own airline which had a fleet of seven planes, so that they could import western food and go on luxury trips. The airline was big enough to fly 10% of the entire population every day, and because of this they usually flew with barely any passengers, on most flights 80% of the seats were empty! Both the government and the citizens spent their money like it was nothing!
Government officials would use the airline for shopping trips to Singapore and Australia, go golfing in the Bahamas, and established diplomatic missions in many different countries so that they could travel there for vacations. They would even sometimes use their airplanes to go look for missing fishermen!
In 1988 Air Nauru was having a dispute with its Australian pilots and eventually fired them and replaced them with cheaper pilots from India. In response many countries suspended Air Nauru's commercial license. To get around this the government allowed people to fly for free on the airline! So for about 6 months Air Nauru was technically a private jet operator and not a commercial airline anymore!
The people in Nauru didn't pay any income tax, and healthcare and education were 100% free, with most people needing to travel to other countries like Australia for this.
The government also created the Nauru Trust to invest some of the country's wealth abroad, but because of corruption and mistakes, a lot of the money was lost over time. The trust initially made investments in luxury real estate across the world, with an impressive portfolio of properties in the UK, the US, many Pacific islands, and Australia!
But they also poured millions into failed projects like a musical in London that was attended by 100 Nauruan dignitaries! (the local people tried to prevent the plane from leaving, because they were so angry at them!)
Somehow one of Nauru's financial advisors had convinced the government to invest almost $5 million into the production. But the four hour long musical ended up being a disaster. Reviews of the musical were extremely negative, and the government lost almost everything they had invested.
The phosphate eventually started running out, and the country's income dropped sharply. Nauru began borrowing money from other countries to make up for their budget shortfalls.
It's easy to call the people of Nauru foolish, but they had no idea how to manage such large levels of wealth. The situation they were in is similar to someone suddenly winning billions from the lottery! And for a small impoverished and isolated population that had not much experience governing themselves, it's not hard to see how things could go wrong.
When Nauru began defaulting on their loans, international creditors began seizing its foreign property, and the aircraft of Air Nauru were seized right off the runway! The trust eventually went bankrupt.
Nauru was now an isolated island, left with barren and damaged land where nothing could be grown, and polluted shores where no fish would swim. It's reputation was heavily damaged across the world, and no one would loan them any money.
The government was now extremely desperate for any source of income to allow its people to survive, and this is where things take a darker turn.
Nauru began posting ads on the internet, offering anyone that had at least $20.000 the opportunity to open a bank on the island! One of their customers was Russian organized crime, who used the island to launder an estimated $70 billion! It also became a tax haven and sold passports to anyone that wanted one, including diplomatic passports!
Nauru also used its position as a member of the United Nations to recognize the independence of newly declared countries like Abkhazia and South Ossetia, in return for $50 million in aid from Russia, who controls these break away regions.
And in 2001 Nauru began hosting immigration detention centers for the Australian government. The facilities have been very controversial, with the conditions inside the centers reportedly being like that of a prison camp. One asylum seeker even set himself on fire, after learning that he'd be stuck there for the foreseeable future! Nauru didn't have much of a choice though as today this is still their largest source of income.
Mining activities have left 70% of the island uninhabitable, making farming impossible. The people are now dependent on importing cheap low quality food, which has caused an explosion in obesity. They are one of the most overweight countries in the world and more than 40% of the people has type two diabetes!
There is however some small hope for the island, in the form of deep sea mining that might bring some much needed cash to the island. Phosphate mining also continues, but at a much smaller scale than in the glory days. Much of Nauru's future will depend on outside help, luckily the country's international relations have improved since its darker days, but much trust still needs to be earned. For now though the future looks a bit uncertain for Nauru.
Thanks for reading and I hope you enjoyed this article!