New economic prospects needed for 'chameleon' Nauru

Just after nightfall, hundreds of cars roll up for another Nauruan pastime, bingo.

Under a portable gazebo, the caller works at lightning pace, racing through the numbers.

Garbage bags over the loudspeakers, just in case the rain arrives, muffle her calls but locals can hear well enough from wherever they're sitting - in cars, on ute trays, picnic rugs or fold-out chairs.

It's low stakes, but plenty come hoping their luck is in.

Nauru, the world's smallest republic, is also in need of a break.

A lap of the country - Nauru being the only Pacific nation to be a sole island - takes just over half an hour and makes plain its economic challenges.

Signs of industry are few.

There are the mighty cantilevers, not far from the Linkbelt Oval, which helped ferry millions of tonnes of phosphate over its coral coastline and onto ships.

Phosphate mining made Nauru one of the world's richest nations per capita in the 1970s and 80s but the reserves are all but gone, and the profits too.

There's also a new port, funded by donors including Australia and China, coming online that should lower the crippling cost of freight.

On a recent visit, New Zealand Deputy Prime Minister Winston Peters, made a frank assessment of the Micronesian country's outlook.

"They're struggling," he told AAP.

"They're trying to rebuild an economy that's in a very, very difficult state."

For the last century, Nauru's economic fortunes have been tied to three contentious industries - phosphate mining, financial services, and most recently, as a processing centre for Australia-bound asylum seekers.

After the phosphate boom, which destroyed much of the island's environment, Nauru became a notorious tax haven.

That racket shut down around the same time Australia's offshore detention centre was built.

Australia has spent billions building and operating the facility since 2001, as well as ferrying would-be immigrants thousands of kilometres from the Australian mainland.

However, last year the centre sat idle without any asylum seekers, and as of this month, roughly 100 are being processed on Nauru, well down from a peak of around 1200.

Nauru, with a population of roughly 12,000, is utterly dependent on the centre (RPC) for revenue and employment.

"Up to 65 per cent of government revenue is generated from the RPC," Katherine Passmore, the Asian Development Bank's Nauru country economist, tells AAP.

"A very stable economy would usually have very diverse sources. And Nauru doesn't."

With Australia budgeting for a reduced spend on offshore detention in future years, Nauru needs new economic avenues.

"The RPC is not the economic answer for Nauru's future," Meg Keen, Senior Fellow in the Pacific Islands Program at The Lowy Institute, told AAP.

"The RPC could get closed within the next five or 10 years so Nauru needs a different economic future than housing other nations refugees."

What options are there?

Tourism appears unlikely to grow beyond its one per cent share of GDP, given Nauru's inaccessibility and lack of accommodation or attractions.

The new port could boost fishing - including rents earned from selling access to its waters - but the industry is volatile and will be affected by climate change.

Many labour mobility pathways remain closed, and seasonal worker uptake is unlikely given Nauru's regionally high wages and high global ranking for obesity.

The David Adeang-led government is eyeing another contentious route to wealth, hoping to mine the seabed for nodules rich in precious metals.

However, the practice is yet to be internationally regulated and has as many detractors in the Pacific as supporters. 

Nauru's economic insecurity also gives rise to another possibility: a comprehensive treaty between Nauru and a second country that could offer an economic lifeline.

Last year, Australia and Tuvalu announced a surprise pact - the Falepili Union - at the Pacific Islands Forum leaders meeting in Cook Islands.

The first-of-its-kind treaty offers Tuvaluans visas to live and work in Australia as well as funding for climate adaptation projects, while ceding first-option defence rights to Tuvalu's waters to Australia.

Might a similar deal with Nauru be possible?

"That's probably an area that is being looking at closely," Dr Keen said.

"(Nauru) is a similar population to Tuvalu and discussions about options are occurring, that could involve increasing labor mobility, improving banking facilities, extending connectivity, and of course, investment in climate resilience.

"It would be ripe for a Nauru tailored union-like deal."

The Australian and Nauru governments were contacted for comment on that possibility. Both failed to respond.

"It wouldn't look the same as Tuvalu but a good outcome would be greater economic certainty going into a future, more investment in human capacity, and more action on climate resilience.

"That is what Nauru might want; Australia may want greater commitment of security arrangements."

With or without that possibility, Nauru will remain dependent on aid from donors such as Australia, New Zealand and China.

In January, Mr Adeang ended Nauru's diplomatic recognition of Taiwan in favour of Beijing, saying he hoped aid inflows would "transform" his country.

An Asian Development Bank-backed solar energy plan could also assist, as will the connectivity of Starlink and a subsea fibre-optic cable linking Micronesia, Nauru and Kiribati coming online.

Ms Passmore believes Nauru has shown its resourcefulness before, and could do again.

"If you look at the big picture, Nauru has been a chameleon in terms of its economic drivers and revenue growth," she said.

"After phosphate did anyone think the next big thing would be international banking?

"Did anyone think that the next big thing would be hosting a regional processing center?

"While I don't think there's a clear answer going forward, Nauru has demonstrated adaptfulness, resilience and innovation.

"The internet, the port, the solar, all of these things will lead to something. I don't know what.

"It's a country of surprises."

Australian Associated Press