KIRIBATI

Republic of Kiribati

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Republic of Kiribati comprises 33 atolls in 3 principal island groups, scattered within an area of about 5 million square kilometers (2 million square miles) in the mid-Pacific Ocean. The 3 island groups are the Gilbert Islands, the Line Islands, and the Phoenix Islands. The country extends about 3,870 kilometers (2,400 miles) from east to west and about 2,050 kilometers (1,275 miles) from north to south and has a coastline of 1,143 kilometers (710 miles). The total land area is 717 square kilometers (277 square miles). The nearest neighbors are Nauru to the west, and Tuvalu and Tokelau to the south. The capital, Tarawa, is on the island of Bairiki. Bairiki is the most populous island with around 65,000 inhabitants. The nation's largest atoll is Kiritimati (Christmas Island)—in the Line Islands group at the eastern extremity—at 388 square kilometers (150 square miles). The smallest is Banaba Island in the west at 6 square kilometers (2.3 square miles).

POPULATION.

The population of Kiribati was estimated at 91,985 in July 2000. The current annual population growth rate is 2.34 percent, which will result in a population of 113,509 by 2010. The birth rate is 32.43 births per 1,000 population, and the fertility rate is 4.4 births per woman. The death rate is 9.01 deaths per 1,000 population. There is little or no migration to or from Kiribati. Partly because of sanitation problems caused by the lack of fresh water, as well as heavy pollution in the lagoon of South Tarawa, Kiribati has a high infant morality rate of 55.36 deaths per 1,000 live births (compared to the U.S. rate of 7 deaths per 1,000 live births).

The people are known locally as I-Kiribati. The population structure is biased toward the younger age groups, with some 41 percent of the population aged less than 15, while just 3 percent are over the age of 64. Most Kiribati are ethnically Micronesian (78 percent). The population is mainly urban and more than two-thirds (65,000) live on Tarawa atoll.

OVERVIEW OF ECONOMY

The Gilbert Islands were granted self-rule by the United Kingdom in 1971 and complete independence in 1979 under a new name, Kiribati. The United States relinquished all claims to the sparsely inhabited Phoenix and Line Island groups in a 1979 treaty of friendship with Kiribati, thus giving the island nation its present geographic composition. The economy of Kiribati is small, and growth prospects are limited by the nation's remote location, poor infrastructure , poor soil, unskilled labor force , and lack of natural resources. Marine resources offer the greatest potential for the development of an independent, sustainable economy. Interest earned from the phosphate reserve fund is the nation's main source of foreign exchange. Prior to independence, it was realized that the phosphate resources of Kiribati were limited, and instead of using the royalty revenues from phosphate mining for immediate expenditures, they were placed in a trust fund, the Revenue Equalization Reserve Fund (RERF). The interest income from the investment of this trust fund has been available for expenditure by the Kiribati government since independence in 1979. Commercially viable phosphate deposits were exhausted by the time of independence. Other sources of foreign exchange include some commodity exports (copra [coconut meat], seaweed, and fish), licensing income from fishing, and remittances from Kiribati citizens working for international shipping lines. The financial sector is at an early stage of development, as are private initiatives in other sectors. Economic development is constrained by a shortage of skilled workers, weak infrastructure, and remoteness from international markets.

Kiribati has a modest income level that places it among the poorer countries in the world's lower middle-income group. The agricultural base, including subsistence production, is narrow and generated 14 percent of GDP in 1996. Copra is the only important cash crop , and commercial fishing (mainly tuna) is undertaken by the small fleet of the national fishing company. The agriculture sector (including fishing) is the occupation of the majority of the working population and accounted for 71 percent of employment in 1990, though most of this employment was self-employment on small family farms. The industrial sector contributed 7 percent of GDP in 1996 (of which manufacturing was 1 percent) and the services sector contributed 79 percent. The main service activity is the government sector, with trade and hotels accounting for 14 percent of GDP. Tourism remains underdeveloped, although it has the potential to become the second largest sector after fisheries. Kiribati's extremely limited export base and dependence on imports for almost all essential commodities result in a permanent (and widening) trade deficit , which is in most years only partially offset by revenues from fishing license fees, interest earned on the RERF, and remittances from Kiribati working overseas.

The government has earmarked Christmas and Fanning islands in the Line group and Canton Island in the Phoenix group as prime areas for future development. There is little open unemployment in the sense of people being unable to find some gainful employment if they so wish, and unemployment is estimated at around 2 percent of the workforce. However, there is evidence of underemployment , with the workforce engaged for perhaps only 30 percent of the hours that might be considered normal in a working week.

Foreign financial aid is a critical supplement to GDP, equal to 25 to 50 percent of GDP since independence in 1979. Initially the United Kingdom was the largest aid donor, but has now been overtaken by some of Kiribati's Pacific Ocean neighbors. Grants from principal donors amounted to an estimated US$20.7 million in 1998, of which US$5.7 million was from Japan, US$4.5 million from Australia, and US$4.3 million from New Zealand. The country is particularly reliant on foreign assistance for its development budget. Remittances from workers abroad account for more than US$5 million each year.

The government is involved in all aspects of the economy—its spending accounts for 71.5 percent of GDP—and it is taking measures to expand the private sector and develop the fledgling industrial sector. The poor performance of most public enterprises burdens the budget and adversely effects economic efficiency. Unfortunately, little progress has been made in implementing the government's Medium Term Strategy, which focuses on reducing the role of the public sector by freezing civil service recruitment, reducing government spending, improving the accountability of public enterprises, and introducing privatization .

The sale of fishing licenses to foreign fleets provides an important source of income. Revenues from the sale of fishing licenses amounted to more than half of GDP in 1998. Mining of phosphate rock on the island of Banaba (which ceased in 1979) formerly provided some 80 percent of earnings. As well as providing foreign exchange, interest from the phosphate reserve fund, RERF, continues to be an important source of budgetary income. The value of the fund was put at US$380 million at the end of 1998, and generates around US$20 million a year in revenues from interest.

POLITICS, GOVERNMENT, AND TAXATION

Kiribati is an independent republic and a member of the British Commonwealth. The president is head of state and chief executive, and leads a cabinet made up of a vice-president, attorney-general, and 8 ministers. The president appoints the ministers, while the president is elected nationally from several candidates nominated by the House of Assembly (Maneaba-ni-Maungatabu). The House of Assembly consists of 41 members, elected every 4 years. Local councils have considerable autonomy in the management of local affairs.

Kiribati is governed by a constitution adopted in 1979. The first general election since independence took place in March-April 1982. The current president is Teburoro Tito, who was first elected in 1994 and reelected in November 1998.

The Kiribati government aims to improve the growth performance of the country by encouraging new businesses and attracting new foreign companies through designation of "pioneer status." Any company that wishes to establish a business in Kiribati may apply to the Internal Revenue Board for "pioneer status". This allows for a reduced company tax rate of 10 percent for 5 years with the exceptions of business operations on South Tarawa and Christmas Islands. In addition, the government hopes to encourage diversification of the economy and is introducing reforms (such as privatization) to improve the efficiency of the economy.

There is personal income tax , which is set at 25 percent of gross income for the first US$36,000 and at 35 percent for amounts in excess of this. Normal company tax is based on a flat rate of 25 percent of net profit for the first US$36,000 and 35 percent for amounts above this. Tax on dividends paid to overseas investors is 30 percent, except for dividends paid to an Australian resident, where the rate is 15 percent.

Because of the high population density on South Tarawa was giving rise to social and economic problems, it was announced in 1988 that nearly 5,000 inhabitants were to be resettled on outlying atolls, mainly in the Line Islands. A further resettlement program from South Tarawa to 5 islands in the Phoenix group was initiated in 1995. Another important issue is a 1989 UN report on the "greenhouse effect" (the heating of the earth's atmosphere, and a resultant rise in the sea-level), which listed Kiribati as one of the countries that would completely disappear beneath the sea in the 21st century unless drastic measures are taken. None of the land on the islands is more than 2 meters above sea level, making the country extremely vulnerable to the effects of climate change.

The current president, Teburoro Tito, declared that reducing Kiribati's dependence on foreign aid would be a major objective for his government. He also announced his intention to pursue civil and criminal action against members of the previous administration for alleged misuse of public funds while in office.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

The infrastructure of Kiribati is quite rudimentary. Whenever practicable, roads are built on all atolls, and connecting causeways between islets are also being built as funds and labor permit. A program to construct causeways between North and South Tarawa was completed in the mid-1990s. Kiribati has about 640 kilometers (398

miles) of roads that are suitable for motor vehicles. All-weather roads exist in Tarawa and Kiritimati. In 1998, there were some 2,000 motor vehicles registered in the islands, of which some 75 percent were motorcycles.

In early 1998, work began on a major project to rehabilitate the port terminal and facilities at Betio. Financing for the project, with expected completion by mid-2000, was funded by a grant from Japan of US$22 million. There is a small network of canals, totaling 5 kilometers (3.1 miles), in Line Islands as well as ports and harbors such as Banaba, Betio, English Harbor, and Kanton. There are 21 airports, 4 of them with paved run-ways. Only Tarawa and Christmas Island are served by international flights.

Electricity production and consumption was equal to 7 million kilowatt-hours (kWh) in 1998, 100 percent of which is produced from imported fossil fuels.

Kiribati has an earth satellite station, 1 Intelsat (Pacific Ocean). Kiribati is being linked to the Pacific Ocean Cooperative Telecommunications Network, which should improve the telephone service. In 1995, it was estimated that there were 2,600 main telephone lines in use. There is 1 shortwave radio station, 1 AM station, and 1 FM station broadcasting to 17,000 radios, according to 1997 estimates. There is 1 television broadcast station and 1,000 televisions.

ECONOMIC SECTORS

The majority of the population—an estimated 79 percent—depends on subsistence fishing and agriculture for its livelihood. Fishing and agriculture together contributed only 14 percent of GDP in 1996, however. The private sector of the economy is small, and there are few manufacturing activities. Industry contributed just 7 percent of GDP in 1996. Government services are the biggest portion of the services sector, which contributed a total of 79 percent of GDP in 1996. The country is heavily reliant on overseas aid for government administration, education, health, and the development of infrastructure. One of the government's main priorities is to reduce reliance on foreign aid through developing a more efficient economy.

AGRICULTURE

Agriculture (including fishing) employed 79 percent of the working population and contributed an estimated 14 percent of GDP in 1996. Much agricultural production goes to provide food for the families producing it. The major agricultural products are copra, taro, bread-fruit, sweet potatoes, and vegetables; fishing is another major source of food for I-Kiribati. The principal cash crop is coconuts yielding copra, which accounted for an estimated 60 percent of merchandise export earnings in 1998. Bananas, screw-pine, breadfruit (a round seedless fruit from the mulberry family whose texture resembles bread when cooked), and papaya are also cultivated as food crops. Seaweed provided an estimated 8 percent of domestic export earnings in 1998. Pigs, chickens, and cattle are the most common agricultural livestock. Most of the land is farmed, and agriculture accounts for 51 percent of land-usage.

Average annual rainfall varies greatly, from 3,000 millimeters (118 inches) in the northern islands to 1,500 millimeters (59 inches) in Tarawa and 700 millimeters (28 inches) in the Line Islands, but the rains are reliable and sufficient to provide stable agricultural conditions.

The closure of the state fishing company was announced in 1991, as a result of a dramatic decline in the fish catch. Fish provided only 2 percent of export earnings in 1996 (compared with 32 percent in 1990). However, earnings from exports of fish had recovered to an estimated 12 percent of domestic export earnings by 1998. Agricultural GDP grew at an average annual rate of 4.1 percent in 1990-98, comfortably faster than the rate of increase of the population. Kiribati allows other nations such as South Korea, Japan, Taiwan, and the United States to fish in its territorial waters in exchange for license fees that amounted to US$28.3 million in 1998.

INDUSTRY

Industry (including manufacturing, construction, and power) contributed an estimated 7 percent of GDP in 1996. Industrial GDP increased by an average of 4.2 percent per year in the period 1990-98. Kiribati's industry is quite limited and mainly consists of fishing processing and handicrafts for tourists and for export.

SERVICES

Services provided 79 percent of GDP in 1996. The GDP of the services sector increased at an annual average rate of 4.2 percent between 1990 and 1998. Tourism makes a significant contribution to the economy, with the trade and hotels sector providing an estimated 15 percent of GDP in 1998. Between 3,000 and 4,000 visitors per year provide US$5 to US$10 million in revenues. Attractions include World War II battle sites, game fishing, ecotourism , and the Millennium Islands, situated just inside the International Date Line and the first place on earth to celebrate each New Year.

The financial sector is heavily reliant on 1 commercial bank, the Bank of Kiribati. Modern expertise is provided by the majority shareholder, the Westpac Banking Corporation of Australia, which owns 51 percent, while the government of Kiribati owns 49 percent. The bank has 3 branches and provides checking and savings accounts, makes loans to individuals and businesses, provides financial facilities for international trade (such as letters of credit), and undertakes foreign exchange dealings. However, the bank provides no credit card facilities. The only other bank is the Kiribati Development Bank, which lends to small-scale businesses.

The retail sector consists mainly of small outlets, with a few supermarkets and department stores, mostly owned by Australian companies, in the capital, Tarawa.

INTERNATIONAL TRADE

As a result of its small size and its negligible manufacturing sector, Kiribati relies heavily upon products produced in other countries. The main imports include foodstuffs, machinery and equipment, miscellaneous manufactured goods, and fuel. The main exports of Kiribati are copra (62 percent of the total), seaweed, and fish. Kiribati's main export destinations are the United States, Australia, and New Zealand, while the main origins of imports are Australia (46 percent), Fiji, Japan, New Zealand, and the United States. In 1998, the country had exports of US$6 million and imports of US$37 million.

MONEY

The Australian dollar (A$) is the legal currency of Kiribati. The value of the A$ fluctuates against the value of other world currencies. The Bank of Kiribati is responsible for the majority of the available financial services. In December 1997, its total assets amounted to US$26.1 million, of which deposits were US$23.3 million and reserves amounted to US$0.9 million. The Development Bank of Kiribati identifies, promotes, and finances small-scale projects, and its capital amounts to

US$1.33 million. There is also a network of small-scale lending agencies known as "village banks" operating throughout the islands.

POVERTY AND WEALTH

Only 2 percent of the working population is registered as unemployed, and poverty (as defined by the US$1 a day poverty line) is virtually unknown. Using the purchasing power parity conversion (which takes into account the low prices of many basic commodities in Kiribati, and which is the best indication of living standards) annual income per capita was US$860 in 1999 (in the United States, by way of comparison, it was US$33,900).

Education is free and compulsory for children between the ages of 6 and 15. Every atoll is provided with at least 1 primary school. The adult literacy rate was estimated at 90 percent in 1993-95. There are about 200 seamen trained each year by the Marine Training Center for employment by overseas shipping companies. In 1998, education was allocated US$7.8 million (22.5 percent of total budgetary expenditures).

The government maintains a free medical service. Each atoll has a dispensary, with a medical assistant in charge. In 1982, Kiribati had 34 government-controlled hospital establishments, with a total of 308 hospital beds. Life expectancy is 60 years (in the United States, by way

of comparison, it is 76). In 1999, a major public health project, involving the improvement of water supply and sanitation, was undertaken with a loan of some US$10 million from the Asian Development Bank.

WORKING CONDITIONS

The society of Kiribati is egalitarian, democratic, and respectful of human rights. There have been no reports of human rights abuses. However, in the traditional culture, women occupy a subordinate role and have limited job opportunities.

The Kiribati Trades Union Congress (KTUC) was formed in 1998 and includes 2,500 members affiliated with other unions, of which the most important are the Fishermen's Union, the Seamen's Union, and the Teachers' Union. Workers are free to organize unions and choose their own representatives. The government does not control or restrict unions. More than 80 percent of the workforce is occupied in fishing or subsistence farming , but the small wage sector has a relatively strong and effective trade union movement.

The Constitution prohibits forced or compulsory labor, and it is not practiced. The prohibition does not specifically mention children, but the practice of forced and bonded labor by children does not occur. The law prohibits the employment of children under the age of 14. Children through the age of 15 are prohibited from industrial employment and employment aboard ships. Women may not work at night except under specified circumstances. Labor officers from the Ministry of Commerce, Industry, and Employment normally enforce these laws effectively, given the rudimentary conditions of the economy and its industrial relations system.

The government has taken no concrete action to implement longstanding legislation authorizing the establishment of minimum wages. There is no legislatively prescribed length to the working week. The government is the major employer in the cash economy. Employment laws provide rudimentary health and safety standards for the workplace. Employers must, for example, provide an adequate supply of clean water for workers and ensure the existence of sanitary toilet facilities. Employers are liable for the expenses of workers injured on the job. The government's ability to enforce employment laws is hampered by a lack of qualified personnel.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

0-100 A.D. Kiribati begins to be settled by Austrone-sian-speaking peoples.

1300. Fijians and Tongans arrive during the 14th century and subsequently merge with the already established groups to form the traditional I-Kiribati Micronesian society and culture.

1837. First British settlers arrive.

1892. British protectorate is established.

1915-16. Gilbert and Ellice Islands become a Crown Colony of Great Britain.

1919. Kiritimati (Christmas) Atoll becomes a part of the Crown Colony.

1937. Phoenix Islands becomes a part of the Crown Colony.

1941-45. Tarawa and other islands of the Gilbert group occupied by Japan during World War II. Tarawa is the site of one of the bloodiest battles in U.S. Marine Corps history when Marines land in November 1943 to dislodge Japanese defenders.

1975. The Gilbert Islands and Ellice Islands separate and the Ellice Islands are granted internal self-government (as Tuvalu) by Britain.

1979. Kiribati becomes independent on 12 July.

1995. Kiribati unilaterally moves the international date line to the east, so that all of Kiribati's islands are in the same date zone.

1999. Kiribati gains United Nations membership.

FUTURE TRENDS

Kiribati's economic prospects are limited by its small size in terms of both geographical area and population, its remote location, and the absence of any valuable mineral resources now that the phosphate deposits are exhausted. The population size not only means that there is not a domestic market of sufficient size to support any serious manufacturing, but that there is limited provision of services. There is only 1 bank, and as a monopoly , its services will tend to be expensive and the range of services limited.

On the positive side, Kiribati has a tropical location with good facilities for an expansion of tourism. Moreover, the marine fishing resources are excellent and can provide for expanded local production and employment and even be the basis of some manufacturing, such as fish processing and canning. Finally, the national revenue from the phosphate fund remains a vital, and secure, source of foreign exchange.

However, to make the most of its tourism and fishing grounds, it is important that Kiribati attract foreign investment into these sectors. The fishing is large-scale and requires expensive fishing fleets together with equipment and installations for storage. Tourism needs high-quality hotels and international marketing. The current development plan recognizes these needs, but it remains to be seen how successful Kiribati will be in implementing the plan. A recent initiative is the agreement to lease land on Christmas Island to the Japanese National Space Agency, who will build a space shuttle launch facility there. Under the arrangement Kiribati will be paid just under $1 million a year in leasing fees. A research project is under way to use coconut oil to power internal combustion engines for electricity generation, and this may well contribute to energy self-sufficiency, as will the expansion of solar power on the outlying islands.

Overall, Kiribati can be expected to maintain its lower middle-income status in the immediate future, but its long-term growth prospects depend on its ability to expand tourism and undertake more of the exploitation of its fishing grounds rather than licensing foreign fleets.

DEPENDENCIES

Kiribati has no territories or colonies.

BIBLIOGRAPHY

Asian Development Bank. Kiribati: 1997 Economic Report. Manila: Asian Development Bank, 1998.

Economist Intelligence Unit. Country Profile: Kiribati. London: Economist Intelligence Unit, 2001.

"Kiribati and the IMF." International Monetary Fund. <http://www.imf.org/external/country/KIR/index.htm>. Accessed September 2001.

Pacific Island Business Network. Kiribati: Country Profile. <http:// pidp.ewc.hawaii.edu/pibn/countries/Kiribati.htm>. Accessed September 2001.

U.S. Central Intelligence Agency. World Factbook 2000. <http:// www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. Country Reports on Human Rights Practices: Kiribati. <http://www.state.gov/www/global/human_rights/1998_hrp_report/kiribati.html>. Accessed September 2001.

—Oygal Musakhanova

CAPITAL:

Tarawa.

MONETARY UNIT:

Australian dollar (A$). One Australian dollar equals 100 cents. There are notes of A$5, 10, 20, 50, and 100. There are coins of A$1 and 2, and 1, 2, 5, 10, 20, and 50 cents.

CHIEF EXPORTS:

Copra, seaweed, fish.

CHIEF IMPORTS:

Food, machinery and equipment, miscellaneous manufactured goods, fuels.

GROSS DOMESTIC PRODUCT:

US$74 million (1999 est.).

BALANCE OF TRADE:

Exports: US$6 million (1998 est.). Imports: US$37 million (1998 est.).